<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM F-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CANADA 8731 22-3209631
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
2350 COHEN STREET PHS CORPORATE SERVICES, INC.
SAINT-LAURENT (MONTREAL) SUITE 1600, 1201 MARKET STREET
QUEBEC, CANADA H4R 2N6 P.O. BOX 1709
(514) 333-0033 WILMINGTON, DELAWARE 19899-1709
(Address, including zip code, and telephone number, (302) (Address, including zip code, and telephone number,
777-6500 including area code, of Registrant's principal including area code, of Registrant's principal executive
executive offices) offices)
</TABLE>
------------------------------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
MICHAEL P. GALLAGHER, ESQUIRE THOMAS C. DANIELS, ESQUIRE
DANIEL L. DAMSTRA, ESQUIRE LAURIE F. HUMPHREY, ESQUIRE
PEPPER HAMILTON LLP JONES, DAY, REAVIS & POGUE
1235 WESTLAKES DRIVE 901 LAKESIDE AVENUE
SUITE 400 NORTH POINT
BERWYN, PENNSYLVANIA 19312 CLEVELAND, OHIO 44114
(610) 640-7800 (216) 586-3939
</TABLE>
------------------------------
Approximate Date of Commencement of Proposed Sale to Public: As soon as
practicable after this Registration Statement is declared effective and all
other conditions to the merger described herein have been satisfied or waived.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same officer. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
SECURITIES TO BE REGISTERED BE REGISTERED SHARE PRICE (3)
<S> <C> <C> <C> <C>
Common Shares, no par value 1,140,473 (1) Not Applicable $7,757,410 (2) $2,157
Options to purchase Common Shares 145,672 (4) Not Applicable $990,851 (5) $275
</TABLE>
(1) Based on the product of (a) 13,374,844 the maximum number of shares of
common stock, of Chrysalis International Corporation that would be
outstanding immediately prior to the merger of Chrysalis and a subsidiary of
Phoenix, assuming the exercise of all underlying Chrysalis options (whether
or not currently exercisable), and (b) a conversion ratio of 0.08527 for
each share of Chrysalis common stock.
(2) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended, and
computed pursuant to Rules 457(f)(l) and 457(e) thereunder based on $0.58,
the average of the high and low sale prices of shares of Chrysalis common
stock on April 1, 1999 as reported on the Nasdaq National Market, and
13,374,844, the maximum number of shares of Chrysalis common stock to be
exchanged in the Merger.
(3) The registration fee for all securities registered hereby, $2,432, has been
calculated pursuant to Rule 457(f) of the Securities Act by multiplying the
proposed maximum aggregate offering price by .000278. A fee of $1,111 was
paid on December 24, 1998 pursuant to Section 14(g)(1)(A) of the Securities
Exchange Act of 1934, as amended, and Rule 0-11 promulgated under the
Securities Act and Rule 0-11 and Section 14(g)(1)(B) of the Exchange Act the
amount of such previously paid fee has been credited against the
registration fee in connection herewith. Accordingly, an additional fee of
$1,321 is required to be paid with this Registration Statement.
(4) Based on the product of (i) 1,708,364 shares of Chrysalis common stock
underlying outstanding Chrysalis options as of March 31, 1999 and (ii) a
coversion ratio of 0.08527 for each share of Chrysalis common stock.
(5) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended, and
computed pursuant to Rules 457(f)(1) and 457(e) thereunder based on $0.58,
the average of the high and low sale prices of shares of Chrysalis common
stock on April 1, 1999 as reported on the Nasdaq National Market, and
1,708,364 shares of Chrysalis common stock underlying outstanding Chrysalis
options as of March 31, 1999.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE>
PROXY STATEMENT/PROSPECTUS
<TABLE>
<S> <C>
[LOGO] [LOGO]
</TABLE>
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Board of Directors of Chrysalis International Corporation has approved a
merger agreement that would result in Chrysalis becoming owned by Phoenix
International Life Sciences Inc. If Chrysalis and Phoenix complete the merger,
Chrysalis stockholders will receive approximately 0.08527 of a Phoenix common
share for each share of Chrysalis common stock that they own and cash for
fractional Phoenix common shares. The formula for the exact portion of a Phoenix
common share is described in the accompanying proxy statement/prospectus.
Phoenix estimates that it will issue approximately 1,001,208 of its common
shares to Chrysalis stockholders in the merger. Those shares will represent
approximately 4% of the Phoenix common shares outstanding after the merger. The
Nasdaq National Market has approved the listing of Phoenix common shares under
the symbol "PHXI." The listing is subject to Phoenix's meeting the listing
requirements at the time of the merger.
Chrysalis and Phoenix cannot complete the merger unless Chrysalis stockholders
adopt the merger agreement. Chrysalis has scheduled a special meeting of its
stockholders to vote on this important matter.
YOUR VOTE IS VERY IMPORTANT. Please take the time to vote by completing the
enclosed proxy card and returning it in the return envelope provided, even if
you plan to attend the special meeting. You should note that if you sign, date
and mail your proxy card without indicating how you wish to vote, your proxy
will be counted as a vote in favor of adoption of the merger agreement. If you
hold your shares in the name of a bank or broker, you should follow the
instructions on the form you receive from your bank or broker. If you hold any
shares under the Chrysalis employee savings plan, to vote those shares you
should follow the instructions on the form you receive from the trustee under
the plan.
The special stockholders' meeting will be held at the Somerset Hills Hotel, 200
Liberty Corner Road, Warren, New Jersey, on April 30, 1999, at 9:00 a.m., local
time.
This document provides you with detailed information about the meeting and the
proposed merger. I urge you to read this entire document carefully. IN
PARTICULAR, YOU SHOULD READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE 14 FOR
A DESCRIPTION OF SOME OF THE RISKS THAT YOU SHOULD CONSIDER IN EVALUATING THE
MERGER.
[SIGNATURE OF PAUL J. SCHMITT]
Paul J. Schmitt
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE OR CANADIAN
PROVINCIAL SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES
TO BE ISSUED UNDER THIS PROXY STATEMENT/ PROSPECTUS OR DETERMINED IF THIS PROXY
STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated April 9, 1999. It was first mailed to
Chrysalis stockholders on or about April 9, 1999.
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION
575 Route 28
Raritan, New Jersey 08869
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 30, 1999
A special meeting of stockholders of Chrysalis International Corporation, a
Delaware corporation, will be held at the Somerset Hills Hotel, 200 Liberty
Corner Road, Warren, New Jersey, on April 30, 1999, at 9:00 a.m., local time, or
at any adjournments or postponements thereof, for the following purposes:
(1) to consider and vote upon a proposal to adopt the Agreement and Plan
of Merger, dated as of November 18, 1998, and amended by Amendment
No. 1 dated as of March 24, 1999, among Chrysalis, Phoenix
International Life Sciences Inc., a company constituted under the
laws of Canada, and Phoenix Merger Sub Corp., a newly formed,
wholly-owned subsidiary of Phoenix, a Delaware corporation. The
merger agreement will result in Phoenix Merger Sub merging with and
into Chrysalis and each outstanding share of common stock, par value
$.01 per share, of Chrysalis being converted into the right to
receive a fraction of a common share, without par value, of Phoenix.
A copy of the merger agreement is attached to the proxy
statement/prospectus as Appendix A.
(2) to act on other matters relating to the conduct of the special
meeting and any adjournments or postponements thereof.
Only stockholders of record at the close of business on March 1, 1999, are
entitled to notice of and to vote at the special meeting or any adjournments or
postponements of the special meeting. A complete list of stockholders entitled
to vote will be available for inspection at the Somerset Hills Hotel, 200
Liberty Corner Road, Warren, New Jersey, during ordinary business hours, for a
period of ten days prior to the special meeting.
The accompanying proxy statement/prospectus describes the merger agreement, the
proposed merger and other actions to be taken in connection with the merger. To
ensure that your vote will be counted, please complete, date and sign the
enclosed proxy card and return it promptly in the enclosed postage-paid
envelope, whether or not you plan to attend the special meeting. You may revoke
your proxy in the manner described in the accompanying proxy
statement/prospectus at any time before the vote at the special meeting.
Executed proxies with no instructions indicated on the proxy card will be voted
"for" adoption of the merger agreement.
By Order of the Board of Directors,
[LOGO]
John G. Cooper
SECRETARY
Raritan, New Jersey
Dated: April 9, 1999
THE CHRYSALIS BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR THE PROPOSAL TO ADOPT
THE MERGER AGREEMENT.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................................................... 1
SUMMARY.................................................................................................... 3
SUMMARY SELECTED FINANCIAL DATA............................................................................ 7
Summary Selected Historical Financial Data of Chrysalis.................................................... 7
Summary Consolidated Financial Information of Phoenix...................................................... 8
COMPARATIVE PER SHARE MARKET INFORMATION AND DIVIDEND DATA................................................. 11
COMPARATIVE PER SHARE DATA................................................................................. 12
RISK FACTORS............................................................................................... 14
If Chrysalis is Not Able to Consummate the Merger Prior to March 31, 1999, Chrysalis Will Not Have
Sufficient Cash to Continue to Fund Operations......................................................... 14
If the Merger is Not Completed, Chrysalis Common Stock May Be Delisted From the Nasdaq National
Market................................................................................................. 14
If Chrysalis Stockholders Do Not Adopt the Merger Agreement, Chrysalis Will Likely Owe Phoenix $1.5
Million................................................................................................ 14
The Value of the Phoenix Common Shares to be Received by Chrysalis Stockholders Will Fluctuate With the
Phoenix Common Share Price............................................................................. 15
Chrysalis' Shut Downs and Downsizing Will Materially Adversely Affect Its Operations and Competitive
Position if the Merger Is Not Completed................................................................ 15
Chrysalis Stockholders Will Be Unable to Control Phoenix After the Merger................................ 15
Restrictive Covenants in Merger Agreement May Adversely Affect Chrysalis' Operations..................... 15
Loss of a Significant Number of Employees May Adversely Affect Chrysalis' Operations..................... 16
Rights of Chrysalis Stockholders Will Change as a Result of the Merger................................... 16
Phoenix's Share Price Has Been and May Continue to Be Volatile........................................... 16
One of Phoenix's Major Bioanalytical Services Clients Recently Insourced Most of Its Work................ 16
Phoenix is Dependent Upon the Continued Outsourcing of Research and Development Expenditures by the
Pharmaceutical and Biotechnology Industries............................................................ 16
The Loss of Another Major Project or Client Could Materially Adversely Affect Phoenix.................... 16
Phoenix May Not Be Able to Manage Its Growth Resulting from Recent Acquisitions.......................... 17
If Phoenix Fails to Recruit and Retain Key Management and Professional, Scientific and Technical
Personnel its Ability to Support Growth and be Competitive Could be Adversely Affected................. 17
Phoenix's Customer Contracts May Be Terminated by Customers on Short Notice for Reasons Beyond Phoenix's
Control................................................................................................ 17
Fluctuations in Phoenix's Revenues Combined with Significant Fixed Expenses Could Result in Variation in
Phoenix's Quarterly Operating Results.................................................................. 18
Phoenix is Exposed to Potential Liability While Conducting Its Clinical Trials........................... 18
Recent Changes in Government Regulation of Pharmaceutical Industry Could Decrease Business
Opportunities.......................................................................................... 19
Intense Competition and Increasing Consolidation in the Pharmaceutical Industry May Cause Price or Margin
Erosion................................................................................................ 19
Failure to Comply with Applicable Government Regulation Could Result in Adverse Consequences to
Phoenix................................................................................................ 19
1997 FDA Audit Could Result in Substantial Fines or Penalties or Otherwise Materially Adversely Affect
Phoenix................................................................................................ 19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Phoenix's Growing International Operations Subject It to Additional Risks................................ 20
Phoenix is Not Sure What the Effect of the Recent Establishment of the Euro Will Be on Phoenix's
Financial Condition or Results of Operations........................................................... 20
Phoenix Has Recurring Amortization Expense Resulting from Substantial Intangible Assets.................. 20
Phoenix May Experience Unanticipated Delays, Complications and Expenses in Integrating Management
Information Systems from Recent Acquisitions........................................................... 21
Phoenix's Operations May Be Disrupted if Systems Failure or Data Corruption Result from the Year 2000
Issue.................................................................................................. 21
Loss of Investment Tax Credits Could Negatively Impact Phoenix's Net Income.............................. 21
Chrysalis Stockholders May Find It Difficult to Enforce Civil Liabilities in Canada...................... 21
Chrysalis and Phoenix Have Made Statements Concerning Future Financial Results that Are Subject to Risks
and Uncertainties Which May Cause Actual Results to Differ Materially from Those Expressed in these
Statements............................................................................................. 22
THE MERGER................................................................................................. 23
Background of the Merger................................................................................. 23
Reasons for the Merger................................................................................... 29
Recommendation of the Chrysalis Board.................................................................... 30
Opinion of the Financial Advisor to the Chrysalis Board.................................................. 30
Additional Benefits to Chrysalis Directors and Executive Officers Resulting from the Merger.............. 37
Phoenix Director Will Receive Additional Benefits from the Merger........................................ 38
Plans for Chrysalis After the Merger..................................................................... 38
Accounting Treatment..................................................................................... 38
REGULATORY MATTERS......................................................................................... 38
Antitrust Matters........................................................................................ 38
Resale of Phoenix Common Shares Issued in the Merger; Affiliates......................................... 39
Canadian Stock Exchanges................................................................................. 39
Delisting and Deregulation of Chrysalis Common Stock; Cessation of Chrysalis Periodic Reporting.......... 39
Exchange Controls and Other Limitations Affecting Security Holders....................................... 39
ENFORCEMENT OF CIVIL LIABILITIES IN CANADA................................................................. 39
MATERIAL TAX CONSEQUENCES.................................................................................. 40
Material Income Tax Consequences......................................................................... 40
Dividends and Tax Credits................................................................................ 42
Sale of the Phoenix Common Shares........................................................................ 42
Consequences if Phoenix is a Passive Foreign Investment Company.......................................... 43
Dividends and Withholding Taxes.......................................................................... 43
Disposition of Phoenix Common Shares..................................................................... 44
THE MERGER AGREEMENT....................................................................................... 45
The Merger............................................................................................... 45
Certificate of Incorporation and By-Laws of Surviving Corporation........................................ 45
Officers and Directors of the Surviving Corporation...................................................... 45
Effect on Chrysalis Common Stock and Outstanding Options................................................. 45
Exchange of Certificates in the Merger................................................................... 46
Fractional Shares........................................................................................ 47
Representations and Warranties........................................................................... 47
Businesses of Chrysalis and Phoenix Pending the Merger................................................... 49
Other Covenants.......................................................................................... 50
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
No Solicitation.......................................................................................... 51
Conditions............................................................................................... 51
Additional Conditions to the Obligations of Phoenix...................................................... 51
Additional Conditions to the Obligations of Chrysalis.................................................... 52
Amendment; Termination................................................................................... 52
Effect of Termination.................................................................................... 53
Termination Fees; Expenses............................................................................... 53
OTHER AGREEMENTS........................................................................................... 53
Support/Voting Agreements................................................................................ 53
Forbearance Agreement.................................................................................... 54
Guaranty; Pledge and Assignment Agreement; Option Letter................................................. 54
Amendment to Forbearance Agreement....................................................................... 54
THE SPECIAL MEETING........................................................................................ 55
Date, Time and Place..................................................................................... 55
Matters to be Considered at the Special Meeting.......................................................... 55
Record Date; Stock Entitled to Vote; Quorum.............................................................. 55
Share Ownership of Chrysalis Management.................................................................. 55
Voting of Proxies........................................................................................ 55
FINANCIAL STATEMENT PRESENTATION AND EXCHANGE RATES........................................................ 57
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION..................................................... 58
Notes to Unaudited Pro Forma Consolidated Financial Information.......................................... 63
DESCRIPTION OF PHOENIX..................................................................................... 69
Overview................................................................................................. 69
Industry Overview........................................................................................ 70
Strategy................................................................................................. 76
Services................................................................................................. 77
Information Technology................................................................................... 84
Proprietary Rights....................................................................................... 85
Recent Acquisitions...................................................................................... 86
Properties............................................................................................... 87
Marketing and Sales...................................................................................... 89
Clients.................................................................................................. 89
Competition.............................................................................................. 90
Research and Development................................................................................. 91
Human Resources and Training............................................................................. 92
Government Regulation.................................................................................... 92
Potential Liability and Insurance........................................................................ 96
Legal Proceedings........................................................................................ 97
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF PHOENIX..................................................... 98
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PHOENIX........... 100
Overview................................................................................................. 100
Recent Developments...................................................................................... 101
Results of Operations.................................................................................... 101
Liquidity and Capital Resources.......................................................................... 104
Quarterly Results........................................................................................ 106
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Recent Acquisitions...................................................................................... 106
Geographical Segment Information......................................................................... 107
Canadian Federal and Quebec Tax Credits.................................................................. 107
Year 2000 Compliance..................................................................................... 108
Euro Conversion.......................................................................................... 109
DIRECTORS AND OFFICERS OF PHOENIX AFTER THE MERGER......................................................... 110
Directors................................................................................................ 110
Executive Officers....................................................................................... 112
PRINCIPAL SHAREHOLDERS AND HOLDINGS OF OFFICERS AND DIRECTORS OF PHOENIX................................... 113
COMPENSATION OF EXECUTIVE OFFICERS OF PHOENIX.............................................................. 116
Executive Compensation................................................................................... 116
Certain Transactions..................................................................................... 122
DESCRIPTION OF CHRYSALIS................................................................................... 123
General.................................................................................................. 123
Services................................................................................................. 125
Marketing................................................................................................ 129
Loss of a Large Clinical Trial........................................................................... 129
Customers................................................................................................ 130
Backlog.................................................................................................. 130
Competition.............................................................................................. 130
Microinjection Patent Licensing.......................................................................... 131
Government Regulation.................................................................................... 131
Intellectual Property.................................................................................... 133
Potential Liability and Insurance........................................................................ 133
Nextran.................................................................................................. 134
Employees................................................................................................ 134
Segment and Geographic Information....................................................................... 134
Properties............................................................................................... 134
Legal Proceedings........................................................................................ 135
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CHRYSALIS......... 136
General Summary.......................................................................................... 136
Results of Operations (1998, 1997 and 1996).............................................................. 138
Quarterly Results........................................................................................ 141
Liquidity and Capital Requirements....................................................................... 143
Exchange Rate Fluctuations............................................................................... 145
Accumulated Deficit...................................................................................... 146
Inflation................................................................................................ 146
Year 2000................................................................................................ 146
Euro Conversion.......................................................................................... 147
New Accounting Pronouncements............................................................................ 147
Qualitative and Quantitative Disclosures about Market Risk............................................... 148
SELECTED FINANCIAL DATA OF CHRYSALIS....................................................................... 149
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CHRYSALIS................................ 150
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
COMPARISON OF STOCKHOLDERS' RIGHTS AND DESCRIPTION OF PHOENIX COMMON SHARES AND CHRYSALIS COMMON STOCK..... 152
Classes and Series of Capital Stock...................................................................... 152
Phoenix Common Shares.................................................................................... 153
Phoenix Preferred Shares................................................................................. 153
Annual Meeting of Stockholders........................................................................... 154
Special Meetings of Stockholders......................................................................... 154
Quorum of Stockholders................................................................................... 155
Stockholder Action Without a Meeting..................................................................... 155
Notice of Stockholder Proposals.......................................................................... 155
Access to Corporate Records and Financial Statements..................................................... 156
Charter Amendments....................................................................................... 156
By-Law Amendments........................................................................................ 157
Sale or Lease of Assets.................................................................................. 157
Preemptive Rights........................................................................................ 158
Dividends and Distributions.............................................................................. 158
Appraisal and Dissent Rights............................................................................. 158
Stock Repurchases........................................................................................ 159
Number and Qualification of Directors.................................................................... 160
Filling Vacancies on the Board of Directors.............................................................. 160
Removal of Directors..................................................................................... 161
Transactions with Directors.............................................................................. 161
Director and Officer Liability and Indemnification....................................................... 162
Oppression Remedy........................................................................................ 164
Derivative Action........................................................................................ 164
Anti-Takeover Provisions................................................................................. 165
Voluntary Dissolution.................................................................................... 167
Vote on Extraordinary Corporate Transactions............................................................. 167
LEGAL OPINIONS............................................................................................. 168
EXPERTS.................................................................................................... 168
ANNUAL STOCKHOLDERS MEETING................................................................................ 168
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 169
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
APPENDIX A -- Agreement and Plan of Merger................................................................. A-1
APPENDIX B -- Opinion of Vector Securities International, Inc.............................................. B-1
</TABLE>
v
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q1: WHAT DO I NEED TO DO NOW?
A1: You should vote your shares by mailing your signed proxy card in the
enclosed return envelope as soon as possible so that your shares will be
represented at the special meeting. If you do not vote your shares, it will
be the same as a vote against adoption of the merger agreement.
Q2: WHAT IF MY SHARES OF CHRYSALIS COMMON STOCK ARE HELD IN CHRYSALIS' EMPLOYEE
SAVINGS PLAN?
A2: If all or any of your shares of Chrysalis common stock are held in the
Chrysalis employee savings plan, you have also received a letter of
transmittal from the trustee under the employee savings plan explaining the
procedures to follow to instruct the trustee how to vote shares allocated
to your account. If the trustee does not receive voting instructions from
you before April 23, 1999, your shares in the plan will not be voted. This
will be the same as a vote against adoption of the merger agreement.
If only some of your shares of Chrysalis common stock are held in the
employee savings plan, to ensure that all of your shares are voted, you
should:
- sign, date and return your proxy card; and
- follow the procedures to instruct the trustee to vote your shares held in
the plan.
If all of your shares of Chrysalis common stock are held in Chrysalis'
employee savings plan, you can disregard the proxy card and only follow the
trustee's voting instruction procedures.
Q3: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A3: Your broker will vote your shares only if you instruct your broker how to
vote. Your broker should mail information to you that will explain how to
give voting instructions to your broker. Please provide instructions to
your broker on how to vote your shares. If you do not instruct your broker
how to vote, your shares will not be voted. This will be the same as a vote
against adoption of the merger agreement.
Q4: WHAT IF I WANT TO CHANGE MY VOTE?
A4: You can change your vote at any time before your proxy is voted at the
special meeting. If you hold your shares directly, you can do this in one
of three ways:
- You can send a written notice to the Secretary of Chrysalis stating that
you would like to revoke your proxy.
- You can complete and submit a new proxy card.
- You can attend the special meeting and request to vote in person. Your
attendance at the special meeting alone will not, however, revoke your
proxy.
If your shares are held in the employee savings plan, you must follow the
instructions in the trustee's letter of transmittal to change your vote. If
you have instructed a broker to vote your shares, you must follow directions
received from your broker to change those instructions.
Q5: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A5: We hope to complete the merger by April 30, 1999.
Q6: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A6: No. After the merger is completed, you will receive written instructions on
how to exchange your stock certificates.
1
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have additional questions about the merger you should contact:
CHRYSALIS INTERNATIONAL CORPORATION
575 Route 28
Raritan, NJ 08869
Attention: Paul J. Schmitt or John G. Cooper
Telephone: 1-908-722-7900 Ext. 11 for Mr. Schmitt and Ext. 16 for Mr. Cooper
If you would like additional copies of this joint proxy statement/prospectus,
or if you have questions about the merger, you should contact:
Kissel Blake, a division of
Shareholder Communications Corporation
110 Wall Street
New York, New York 10005
212-344-6733 or 800-554-7733
2
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS. IT MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ CAREFULLY THIS
ENTIRE DOCUMENT. EXCEPT AS OTHERWISE NOTED, ALL REFERENCES TO CHRYSALIS INCLUDE
ALL SUBSIDIARIES OF CHRYSALIS, AND ALL REFERENCES TO PHOENIX INCLUDE ALL
SUBSIDIARIES AND AFFILIATES OF PHOENIX. UNLESS OTHERWISE INDICATED, FINANCIAL
INFORMATION RELATING TO PHOENIX IS PRESENTED IN CANADIAN DOLLARS PREPARED UNDER
CANADIAN GAAP AND FINANCIAL INFORMATION RELATING TO CHRYSALIS IS PRESENTED IN
U.S. DOLLARS UNDER U.S. GAAP. UNLESS OTHERWISE INDICATED, ALL TRANSLATIONS OF
CANADIAN DOLLAR AMOUNTS TO U.S. DOLLARS AND ALL TRANSLATIONS OF U.S. DOLLARS TO
CANADIAN DOLLARS USE THE NOON BUYING RATE IN NEW YORK CITY FOR CABLE TRANSFERS
IN CANADIAN DOLLARS AS CERTIFIED FOR CUSTOMS PURPOSES BY THE FEDERAL RESERVE
BANK AS OF THE APPLICABLE DATE OR PERIOD.
THE COMPANIES INVOLVED IN THE MERGER
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
2350 Cohen Street
Saint-Laurent (Montreal)
Quebec, Canada H4R 2N6
(514) 333-0033
Phoenix is one of the largest contract research organizations in the world.
Phoenix provides a comprehensive range of research and development services to
the pharmaceutical and biotechnology industries. Phoenix is one of the world's
leading contract research organization providers of bioanalytical services to
drug companies, based on laboratory throughput capacity. Phoenix believes it is
one of the world's leading providers of Phase I clinical research services, with
over 500 beds located in the United States, Canada and Germany. Phoenix also
believes it is a leading provider of Phase II-IV clinical research services with
operations in the United States, Canada and Europe. In addition to these core
services, Phoenix offers a variety of related services and products, and is a
pioneer in the development of emerging services, such as drug discovery support.
For a description of the phases of clinical research services and a detailed
discussion of each of the types of services provided by Phoenix, see
"Description of Phoenix--Types of Contract Research Organization Services."
PHOENIX MERGER SUB
Phoenix Merger Sub is a Delaware corporation formed by Phoenix in November 1998
solely for the purpose of being merged with and into Chrysalis. Phoenix Merger
Sub does not conduct any business. Phoenix Merger Sub is wholly owned by
Phoenix. The mailing address of Phoenix Merger Sub's principal executive offices
is c/o 2350 Cohen Street, Saint-Laurent (Montreal) Quebec, Canada H4R 2N6, (514)
333-0033.
CHRYSALIS INTERNATIONAL CORPORATION
575 Route 28
Raritan, New Jersey 08869
(908) 722-7900
Chrysalis is an international contract research organization providing drug
development services primarily to the pharmaceutical and biotechnology
industries. Chrysalis' services include:
- transgenic discovery research;
- preclinical development; and
- clinical capabilities.
In addition, Chrysalis uses its proprietary transgenic and licensed gene
targeting technology to provide services for its clients that require transgenic
animal models. Chrysalis' customers use transgenic animal models to:
- determine the function of human genes and identify therapeutic targets
implicated in disease; and
- to evaluate therapeutic lead compounds for further development.
THE MERGER
WHAT YOU WILL RECEIVE IN THE MERGER
In the merger, each share of Chrysalis common stock that you own will be
converted into approximately 0.08527 of a Phoenix common share. You will receive
a cash payment for any fractional Phoenix common share that you would otherwise
receive. The formula that will be used
3
<PAGE>
to calculate the exact portion of a Phoenix common share you will receive is:
US$8,290,000 DIVIDED BY (shares of Chrysalis common stock outstanding at
the merger date plus the number of shares of Chrysalis common stock
subject to options having an exercise price less than $.71) DIVIDED BY
US$8.28, which represents the value of the Phoenix common shares
determined under the merger agreement.
We have included examples of the conversion of specific numbers of Chrysalis
common stock into Phoenix common shares under "The Merger Agreement--Effect on
Chrysalis Common Stock and Options."
DIFFERENCES BETWEEN CHRYSALIS COMMON STOCK AND PHOENIX COMMON SHARES
A number of differences exist between the rights of stockholders in Delaware
corporations, like Chrysalis, and shareholders of Canadian corporations, like
Phoenix. These differences are described under "Comparison of Stockholders'
Rights and Description of Phoenix Common Shares and Chrysalis Common Stock."
REASONS FOR THE MERGER; RECOMMENDATION OF THE CHRYSALIS BOARD
At and after September 30, 1998, Chrysalis was in default under its senior
secured term loan and as a result has negotiated a forbearance agreement with
its senior secured lender to permit the merger to be consummated by April 30,
1999. The Chrysalis Board and the board of directors of Phoenix each considered
a number of factors in determining whether to approve the merger. The Chrysalis
Board also considered a number of factors in determining whether to recommend
that Chrysalis stockholders adopt the merger agreement. These considerations are
described below under "The Merger--Reasons for the Merger," and
"--Recommendation of the Chrysalis Board."
The Chrysalis Board has determined that the merger agreement and the merger are
advisable and are fair to and in the best interests of Chrysalis and its
stockholders. Accordingly, the Chrysalis Board has approved the merger and the
merger agreement. In addition, the Chrysalis Board recommends that the Chrysalis
stockholders vote FOR adoption of the merger agreement.
OPINION OF CHRYSALIS' FINANCIAL ADVISOR
In deciding to approve the merger agreement, the Chrysalis Board considered,
among other things, the written opinion of its financial advisor, Vector
Securities, that the merger consideration was fair from a financial point of
view to Chrysalis stockholders. A copy of this written opinion is attached as
Appendix B to this proxy statement/prospectus. You should read carefully the
Vector Securities opinion. The factors considered by Vector Securities in
reaching its opinion are described below under "The Merger-- Opinion of
Financial Advisor to the Chrysalis Board."
ACCOUNTING TREATMENT
Phoenix will account for the merger under the "purchase" method of accounting in
accordance with U.S. GAAP and Canadian GAAP.
TAX CONSEQUENCES
Tax counsel has advised Phoenix that, based on factual representations and
covenants made by Phoenix and Chrysalis, the merger will be a nontaxable
reorganization under the U.S. Internal Revenue Code.
Chrysalis stockholders will not recognize any taxable gain or loss on the
exchange of the Chrysalis common stock for the Phoenix common shares, except
with respect to cash payments received for fractional shares. A Chrysalis
stockholder who owns 5% or more of the outstanding stock of Phoenix after the
merger will be required to file a special agreement with the Internal Revenue
Service to claim tax free treatment.
LISTING OF PHOENIX COMMON SHARES
Phoenix common shares are currently listed on the Montreal Exchange and the
Toronto Stock Exchange. Phoenix has received approval to list the Phoenix common
shares on The Nasdaq National Market. It is a condition to consummation of the
merger that the Nasdaq listing occur.
4
<PAGE>
THE MERGER AGREEMENT
CONDITIONS TO THE MERGER
The completion of the merger depends upon meeting a number of conditions,
including the following:
- adoption of the merger agreement by Chrysalis stockholders;
- receipt of regulatory approvals and consents required under applicable
U.S. and foreign law; and
- the listing of the Phoenix common shares on the Nasdaq National Market.
All of the conditions to the completion of the merger are waivable by the party
that is entitled to the benefits of the condition.
TERMINATION OF THE MERGER AGREEMENT
Phoenix and Chrysalis may terminate the merger agreement, and abandon the
merger, only in a very limited number of circumstances:
(1) Phoenix and Chrysalis can mutually agree to terminate the merger
agreement;
(2) Phoenix or Chrysalis can terminate the merger agreement if the other
party breaches or fails to comply with any of its representations,
warranties or agreements under the merger agreement , and the breach or
failure would result in the failure of a condition to the merger that is
not cured prior to April 30, 1999;
(3) Phoenix or Chrysalis can terminate the merger agreement if any law
or final court order prohibits the merger;
(4) Chrysalis can terminate the merger agreement if a third party has
made a superior proposal and as a result of the superior proposal the
Chrysalis Board decides not to hold the special meeting or withdraws or
modifies its recommendation that Chrysalis stockholders adopt the merger
agreement;
(5) Phoenix can terminate the merger agreement if the Chrysalis Board
determines not to hold the special meeting or withdraws or modifies its
recommendation that Chrysalis stockholders adopt the merger agreement;
(6) Phoenix or Chrysalis can terminate the merger agreement if the
Chrysalis stockholders do not adopt the merger agreement;
(7) The merger agreement will terminate automatically if, without
Phoenix's consent, the Chrysalis Board or the board of directors of any
Chrysalis subsidiary adopts a resolution authorizing a liquidation or
the filing of a bankruptcy petition; and
(8) If a bankruptcy petition with respect to Chrysalis is filed by a
Chrysalis creditor, other than Phoenix, Phoenix can terminate the merger
agreement upon the earlier to occur of April 30, 1999 or 60 days after
the bankruptcy petition.
TERMINATION PAYMENTS
The merger agreement requires Chrysalis to pay Phoenix a termination fee of $1.5
million if the merger agreement terminates under the circumstances described in
clauses (4), (5), (6), (7) or (8) under "Termination of the Merger Agreement"
above.
The merger agreement requires Phoenix to pay Chrysalis a termination fee of $1.5
million if Chrysalis terminates the merger agreement under the circumstances
described in clause (2) under "Termination of the Merger Agreement" above.
FORBEARANCE AGREEMENT; GUARANTY; PLEDGE; OPTION LETTER
Based on third quarter and later period financial results, Chrysalis was in
default under its loan agreement with its senior lender. Chrysalis, the lender
and Phoenix entered into a forbearance agreement concurrently with the merger
agreement. Under the forbearance agreement, as amended, the lender has agreed
not to exercise its rights and remedies with respect to current defaults under
the loan agreement until April 30, 1999. In connection with the forbearance
agreement, Phoenix has given to the lender a guaranty
5
<PAGE>
of Chrysalis' debt to the lender and a cash collateral pledge of approximately
US$4.7 million to secure the guaranty. In connection with the guaranty and
pledge, the lender granted Phoenix an option to purchase Chrysalis' indebtedness
under the loan agreement.
THE SPECIAL MEETING
TIME; PLACE; PURPOSE
Chrysalis will hold the special meeting on April 30, 1999, at 9:00 a.m., local
time, at the Somerset Hills Hotel, 200 Liberty Corner Road, Warren, New Jersey.
At the special meeting, Chrysalis will ask you to adopt the merger agreement.
RECORD DATE; VOTING POWER
You may vote at the special meeting if you owned shares of Chrysalis common
stock at the close of business on March 1, 1999. On March 1, 1999, 11,666,480
shares of Chrysalis common stock were outstanding. For each share of common
stock that they owned on that date, Chrysalis stockholders will have one vote at
the special meeting on the proposal to adopt the merger agreement.
VOTE REQUIRED
Adoption of the merger agreement requires the favorable vote of at least a
majority of the outstanding shares of Chrysalis common stock.
DISSENTERS' RIGHTS
Chrysalis stockholders do not have dissenters' rights in connection with the
merger.
ADDITIONAL BENEFITS TO CHRYSALIS DIRECTORS AND EXECUTIVE OFFICERS FROM THE
MERGER
In evaluating the merger, you should recognize that each of Chrysalis' directors
and executive officers have interests in the merger that are different from, or
in addition to, yours as a Chrysalis stockholder. The interests arise from:
- employment and severance agreements that provide for payments to two
executive officers if their employment is terminated or, in one case,
altered upon or after the merger;
- the terms of a "stay" bonus granted to one executive officer of Chrysalis;
- the terms of all of Chrysalis' outstanding stock options held by directors
and executive officers that became 100% vested upon execution of the
merger agreement; and
- the terms of the merger agreement that require Phoenix to assume
Chrysalis' employment and severance agreements and to continue to provide
indemnification and insurance coverage to current and former directors and
officers of Chrysalis after the merger.
The Chrysalis Board was aware of these interests and considered them, among
other factors, in approving the merger agreement and the merger.
In addition, Phoenix and one executive officer of Chrysalis have entered into a
consulting agreement under which he will provide services to Phoenix for a short
period of time after the merger.
6
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
Chrysalis and Phoenix are providing the following summary financial information
to aid you in your analysis of the financial aspects of the merger. This
information is only a summary. You should read it in conjunction with the
historical financial statements of Chrysalis and Phoenix and the related notes
contained elsewhere in this proxy statement/prospectus.
SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF CHRYSALIS
The following table shows summary consolidated financial data of Chrysalis. The
summary consolidated financial data are derived from Chrysalis' audited
consolidated financial statements. You should be aware of the following factors
that affect comparisons from year to year:
- In 1994, Chrysalis entered into the Nextran joint venture, in which it
held a minority interest. In 1995, Chrysalis sold its minority interest
for $18 million and recorded a nonrecurring gain, net of expenses, income
taxes and related accruals of approximately $17.3 million. See
"Description of Chrysalis--Nextran."
- In 1996, Chrysalis recorded business combination costs of approximately
$3.6 million related to the acquisition of the Bioclin Group. See
"Description of Chrysalis--General--Other Matters."
- In the fourth quarter of 1998, Chrysalis recorded a restructuring charge
of $3,872,000 in connection with the restructuring of its clinical
operations. Chrysalis expects to record an additional restructuring charge
of $825,000 in the second quarter of 1999 in connection with this
restructuring. See "Description of Chrysalis--General--Restructuring of
Clinical Operations" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General Summary."
- As a result of Chrysalis' default under its senior term loan, the
principal amount of the loan is classified as short-term debt at December
31, 1998. See "Other Agreements."
You should read the following data in conjunction with the consolidated
financial statements of Chrysalis and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Chrysalis" included elsewhere
in this proxy statement/prospectus.
7
<PAGE>
SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF CHRYSALIS
(IN ACCORDANCE WITH U.S. GAAP)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................................................... $ 39,384 $ 42,298 41,487 39,609 36,188
Operating costs and expenses:
Direct costs.................................................... 31,041 29,217 27,313 27,691 25,499
Research and development........................................ -- 166 528 1,063 3,940
General, administrative and marketing........................... 12,828 12,416 10,942 9,631 9,975
Depreciation and amortization................................... 2,092 2,699 2,780 2,907 3,594
Business combination costs...................................... -- -- 3,649 -- --
Restructuring costs............................................. 3,872 -- -- -- --
--------- --------- --------- --------- ---------
49,833 44,498 45,212 41,292 43,008
Loss from operations............................................ (10,449) (2,200) (3,725) (1,683) (6,820)
--------- --------- --------- --------- ---------
Other income (expense), net..................................... (992) 390 742 (635) (525)
Net loss before equity in net loss of Nextran, gain on sale of
Nextran and taxes............................................. (11,441) (1,810) (2,983) (2,318) (7,345)
Equity in net loss of Nextran................................... -- -- -- (2,700) (1,329)
Gain on sale of Nextran, net of income taxes.................... -- -- -- 17,266 --
Income tax expense (benefit).................................... 716 240 477 (177) 390
--------- --------- --------- --------- ---------
Net income (loss)........................................... $ (12,157) $ (2,050) (3,460) 12,425 (9,064)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic earnings (loss) per share................................. $ (1.06) $ (0.18) (0.31) 1.12 (0.82)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted earnings (loss) per share............................... $ (1.06) $ (0.18) (0.31) 1.06 (0.82)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA (AT YEAR END):
Cash, cash equivalents and investments............................ $ 6,705 $ 6,925 13,470 23,102 6,234
Restricted cash................................................... -- 460 5,010 777 1,724
Accounts receivable, net.......................................... 8,766 9,669 10,788 10,907 9,340
Property, equipment and leasehold improvements, net............... 15,686 15,127 15,963 17,806 18,548
Intangible assets, net............................................ 809 805 953 1,035 991
Investment in Nextran............................................. -- -- -- -- 3,844
Other assets...................................................... 2,615 2,254 1,759 1,797 1,454
--------- --------- --------- --------- ---------
Total assets................................................ $ 34,581 $ 35,240 47,943 55,424 42,135
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Current liabilities, excluding debt............................... 17,681 12,295 17,501 15,292 16,047
Short-term debt................................................... 3,250 2,668 11,238 11,559 9,876
Current portion of long-term debt................................. 4,821 768 180 744 784
Long-term debt, excluding current portion......................... 6,010 6,561 2,376 7,830 8,502
Deferred income taxes............................................. 1,832 1,646 2,053 2,059 2,075
Other liabilities................................................. 725 633 1,054 948 1,180
Total stockholders' equity........................................ 262 10,669 13,541 16,992 3,671
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity.................. $ 34,581 $ 35,240 47,943 55,424 42,135
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION OF PHOENIX
The following table presents summary consolidated financial information of
Phoenix in Canadian dollars. The summary consolidated financial information for
the five years ended August 31, 1998 derived from the consolidated financial
statements of Phoenix which have been prepared in accordance with Canadian GAAP
and audited by Ernst & Young LLP, independent chartered accountants. The summary
consolidated financial information for the three months ended November 30, 1998
and 1997 have been derived from the unaudited consolidated financial statements
of Phoenix. The summary consolidated financial information as at August 31, 1997
and 1998 and for the three year period ended August 31, 1998 in accordance with
U.S. GAAP are derived from note 15 to the consolidated financial statements of
Phoenix. The following information should be read in conjunction with the
consolidated
8
<PAGE>
financial statements of Phoenix. "Unaudited Pro Forma Consolidated Financial
Information," and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Phoenix," included elsewhere in this proxy
statement/prospectus. See also "Financial Statement Presentation and Exchange
Rates."
The consolidated financial statements of Phoenix have been prepared in
accordance with Canadian GAAP. In certain respects, Canadian GAAP differs from
U.S. GAAP. See note 15 to the consolidated financial statements of Phoenix
included elsewhere in the proxy statement/prospectus for a description of
material differences between U.S. GAAP and Canadian GAAP as they relate to the
consolidated financial statements of Phoenix and a reconciliation to U.S. GAAP
of Phoenix's financial position, net income and shareholders' equity.
You should be aware of the following factors that affect comparisons from year
to year:
- In the quarter ended November 30, 1998, Phoenix completed the acquisition
of Clinserve AG. This acquisition was accounted for under the pooling of
interests method under U.S. GAAP. The pooling of interests method requires
the restatement of financial statements of periods prior to the pooling
transaction in a manner that assumes that the two companies had always
been combined. As a result, the U.S. GAAP data presented below has been
restated to reflect to this transaction.
- During August 1997 and February 1998, Phoenix acquired two significant
Phase II-IV operations:
- Institut Technique Pour l'Etude du Medicament, which is referred to as
ITEM; and
- IBRD-Rostrum Global, Inc.
These acquisitions accounted for incremental net revenues of approximately
$67 million for the year ended August 31, 1998. The acquisition of ITEM
through the issuance of 4,690,142 Phoenix common shares resulted in an
increase in consolidated assets of approximately $54 million and $48.5
million in shareholders' equity under Canadian GAAP, and approximately $4
million and $0 under U.S. GAAP. In February 1998, Phoenix acquired 100% of
IBRD-Rostrum for approximately $44 million. This resulted in an increase
in consolidated assets of approximately $63 million under both Canadian
and U.S. GAAP.
- In the year ended August 31, 1994, Phoenix benefited from research and
development financing available under relevant Quebec tax legislation,
which gave rise to financing income of $1,152,000. Because of changes in
related income tax legislation, these transactions have not recurred.
- In accordance with accepted Canadian practice, the basic and fully-diluted
earnings and pre-tax earnings per share amounts for the year ended August
31, 1994 are based on the weighted average number of Phoenix common shares
outstanding as at August 31, 1995, due to the changes in Phoenix's capital
structure which occurred when Phoenix became a public company on October
24, 1994.
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION OF PHOENIX
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30
(UNAUDITED) YEAR ENDED AUGUST 31
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME (LOSS) DATA
AMOUNTS IN ACCORDANCE WITH CANADIAN GAAP
Gross revenues............................. 74,163 35,536 $ 218,360 $ 86,736 $ 64,182 $ 47,452 $ 33,872
Net revenues............................... 58,661 31,679 171,238 82,477 63,082 46,651 33,197
Income (loss) before income taxes.......... 5,169 2,732 15,691 5,188 (5,181) 7,001 9,922
Net income (loss).......................... 2,854 1,830 9,067 2,349 (5,361) 4,941 7,030
AMOUNTS IN ACCORDANCE WITH U.S. GAAP
Gross revenues............................. 76,216 38,618 228,226 125,533 106,127
Net revenues............................... 60,714 34,761 181,104 115,966 97,569
Income (loss) before income taxes.......... 5,025 3,230 18,271 5,885 (2,643)
Net income (loss).......................... 2,691 2,314 11,603 2,014 (3,751)
PER COMMON SHARE
AMOUNTS IN ACCORDANCE WITH CANADIAN GAAP
Basic and fully-diluted earnings (loss).... 0.11 0.08 0.37 0.12 (0.29) 0.30 0.43
Pre-tax earnings (loss).................... 0.21 0.11 0.64 0.26 (0.28) 0.42 0.60
Dividends.................................. -- -- -- -- -- 0.07 --
PER COMMON SHARE
AMOUNTS IN ACCORDANCE WITH U.S. GAAP
Basic and diluted earnings (loss).......... 0.10 0.09 0.46 0.08 (0.16)
Pre-tax earnings (loss).................... 0.19 0.13 0.73 0.23 (0.11)
Dividends.................................. -- -- -- -- --
BALANCE SHEET DATA (AT PERIOD-END)
AMOUNTS IN ACCORDANCE WITH CANADIAN GAAP
Working capital............................ 6,513 9,942 16,498 17,425 8,367 6,500
Total assets............................... 303,915 271,470 160,858 89,570 66,282 34,648
Total debt................................. 53,790 50,351 11,672 11,210 13,695 15,842
Long-term debt............................. 41,843 42,440 4,058 9,226 10,158 9,899
Shareholders' equity....................... 147,305 129,953 112,265 61,248 39,352 12,027
BALANCE SHEET DATA (AT PERIOD-END)
AMOUNTS IN ACCORDANCE WITH U.S. GAAP
Working capital............................ 6,513 9,942 17,986
Total assets............................... 236,291 217,924 114,285
Shareholders' equity....................... 79,681 76,407 63,840
UNAUDITED PRO FORMA DATA IN
ACCORDANCE WITH CANADIAN GAAP:
Pro forma gross revenues................... 91,508 325,846
Pro forma net revenues..................... 74,921 255,826
Pro forma income (loss) before income
taxes.................................... (2,470) 1,813
Pro forma net loss......................... (5,567) (5,509)
Pro forma total assets..................... 375,155
Pro forma total debt....................... 76,799
Pro forma shareholders' equity............. 160,611
Pro forma basic and fully diluted loss per
share.................................... (0.21) (0.22)
UNAUDITED PRO FORMA DATA IN ACCORDANCE WITH
U.S. GAAP:
Pro forma gross revenues................... 93,561 335,712
Pro forma net revenues..................... 76,974 270,250
Pro forma net loss......................... (5,730) (3,075)
Pro forma total assets..................... 307,531
Pro forma shareholders' equity............. 92,987
Pro forma basic and diluted loss per
share.................................... (0.21) (0.12)
</TABLE>
10
<PAGE>
COMPARATIVE PER SHARE MARKET INFORMATION AND DIVIDEND DATA
The Chrysalis common stock is traded on the Nasdaq National Market under the
symbol "CRLS." The Phoenix common shares have been listed for trading on the
Montreal Exchange and the Toronto Stock Exchange since 1994 under the symbol
"PHX." In connection with the merger, Phoenix has received approval to list the
Phoenix common shares on the Nasdaq National Market under the symbol "PHXI."
The table below shows, for the fiscal quarters indicated, the reported high and
low sale prices of the Chrysalis common stock as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
CHRYSALIS
(U.S. DOLLARS)
--------------------
<S> <C> <C>
NASDAQ
--------------------
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1997
First Quarter.................................................................................. 5.94 4.44
Second Quarter................................................................................. 5.00 4.06
Third Quarter.................................................................................. 4.50 3.44
Fourth Quarter................................................................................. 4.38 2.06
1998
First Quarter.................................................................................. 3.38 2.19
Second Quarter................................................................................. 3.00 1.38
Third Quarter.................................................................................. 1.59 0.75
Fourth Quarter................................................................................. 1.63 0.34
1999
First Quarter.................................................................................. 0.69 0.38
</TABLE>
The table below shows, for the fiscal quarters indicated, the reported high and
low sale prices of the Phoenix common shares as reported in the Montreal
Exchange and the Toronto Stock Exchange.
<TABLE>
<CAPTION>
PHOENIX (CANADIAN DOLLARS)
------------------------------------------
MONTREAL EXCHANGE TORONTO STOCK
EXCHANGE
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1997
First Quarter............................................................... 13.75 9.55 13.75 9.50
Second Quarter.............................................................. 13.30 9.10 13.30 9.05
Third Quarter............................................................... 10.75 8.00 9.40 8.00
Fourth Quarter.............................................................. 12.40 8.65 12.50 8.55
1998
First Quarter............................................................... 11.55 7.00 11.55 8.00
Second Quarter.............................................................. 11.25 7.75 11.25 7.75
Third Quarter............................................................... 14.50 10.05 14.50 10.05
Fourth Quarter.............................................................. 14.00 9.05 13.95 9.05
1999
First Quarter............................................................... 14.20 8.10 14.15 8.10
Second Quarter.............................................................. 18.25 11.00 18.25 11.00
Third Quarter (through March 31, 1999)...................................... 14.00 11.50 14.20 11.50
</TABLE>
11
<PAGE>
The merger was announced on November 18, 1998. The table below shows the closing
price of the Chrysalis common stock and the closing price of Phoenix common
shares on the Toronto Stock Exchange on November 17, 1998 and April 1, 1999.
<TABLE>
<CAPTION>
NOVEMBER 17, 1998 APRIL 1, 1999
----------------- -------------------
<S> <C> <C>
Chrysalis (US$)............................................................ $ 1.06 $ 0.59
Phoenix (CDN$)............................................................. $ 12.84 $ 13.25
</TABLE>
You should obtain more recent stock price quotes from other sources of financial
information.
Neither Chrysalis nor Phoenix has declared or paid dividends during the past
three fiscal years and neither has any current intention of doing so in the
future.
COMPARATIVE PER SHARE DATA
The following table presents unaudited historical and pro forma per share data
that reflect the completion of the merger based upon the historical financial
statements of Chrysalis and Phoenix. The pro forma data does not indicate the
results of future operations or the actual results that would have occurred had
the merger been consummated at the beginning of the periods presented. You
should read the data presented below in conjunction with the historical
consolidated financial statements, including applicable notes, of Phoenix and
Chrysalis included in this proxy statement/prospectus, and "Unaudited Pro Forma
Consolidated Financial Information," appearing elsewhere in this proxy
statement/prospectus.
The first and second columns on the left in the tables below present historical
per share amounts for Phoenix and Chrysalis, respectively. The third column
presents pro forma per share amounts for Phoenix. The fourth column sets forth
pro forma equivalent amounts based on the number of Phoenix common shares that
will be issued in the merger for each share of Chrysalis common stock.
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
<S> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
CHRYSALIS
EQUIVALENT
(PHOENIX PRO
FORMA DATA
PHOENIX MULTIPLIED BY
PHOENIX CHRYSALIS PRO FORMA 0.08527)
THREE MONTH THREE MONTH THREE MONTH THREE MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
NOVEMBER 30, DECEMBER 31, NOVEMBER 30, NOVEMBER 30,
1998 1998 1998 1998
--------------- ------------- ------------- ---------------
(CDN$) (US$) (CDN$) (US$)
<S> <C> <C> <C> <C>
CANADIAN GAAP
Basic and fully diluted income (loss) per common
share................................................. 0.11 (0.21)
Book value per common share........................... $ 5.66 $ 5.93
U.S. GAAP
Basic and diluted income (loss) per common share...... 0.10 (0.47) (0.21) (0.01)
Book value per common share........................... $ 3.06 $ 0.02 $ 3.44 $ 0.20
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
(UNAUDITED)
CHRYSALIS
EQUIVALENT
(PHOENIX PRO
FORMA DATA
CHRYSALIS PHOENIX MULTIPLIED BY
12 MONTH PRO FORMA 0.08527)
PHOENIX PERIOD ENDED YEAR ENDED YEAR ENDED
YEAR ENDED SEPTEMBER 30, AUGUST 31, AUGUST 31,
AUGUST 31, 1998 1998 1998 1998
--------------- ------------- ------------- ---------------
(CDN $) (US $) (CDN $) (US $)
<S> <C> <C> <C> <C>
CANADIAN GAAP
Basic and fully diluted income (loss) per common
share................................................. 0.46 (0.22)
U.S. GAAP
Basic and diluted income (loss) per common share...... 0.37 (0.64) (0.12) (0.01)
</TABLE>
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RISK FACTORS
You should consider carefully all of the information contained in this document,
including the following factors that relate to the effect of your vote and those
matters related to your receipt of Phoenix common shares in the merger.
IF CHRYSALIS IS NOT ABLE TO CONSUMMATE THE MERGER PRIOR TO APRIL 30, 1999,
CHRYSALIS WILL NOT HAVE SUFFICIENT CASH TO CONTINUE TO FUND OPERATIONS.
Chrysalis' ability to meet ongoing debt service requirements, to meet cash
funding requirements and to otherwise satisfy its obligations to vendors and
lenders from cash solely provided by operations has been adversely affected by
significant losses from clinical operations. Chrysalis is currently in default
under its senior secured term debt. Under the terms of the forbearance agreement
among Chrysalis, Phoenix and Chrysalis' senior secured lender and other related
agreements, Chrysalis has obtained the agreement of the lender to delay
acceleration of the term loan, but only if the merger is consummated on or
before April 30, 1999, Chrysalis' senior secured lender is referred to as the
"Bank". In addition, if the Bank were to accelerate the term loan, other of
Chrysalis' debt would also be in default. The merger cannot be completed if
Chrysalis stockholders do not adopt the merger agreement. If the merger is not
consummated prior to April 30, 1999, Chrysalis will not have sufficient cash to
satisfy its obligations to its creditors and fund operating activities.
In this event, Chrysalis would attempt to pursue other alternatives, but
alternative strategies may not be successful. It is possible that Chrysalis
could be forced into bankruptcy by its creditors. Although Chrysalis currently
intends, if necessary, to seek reorganization under chapter 11 of the Bankruptcy
Code, Chrysalis currently believes that a successful reorganization would likely
require a strategic transaction involving a sale of one or more of Chrysalis'
facilities or operations to generate a source of liquidity during any bankruptcy
proceeding.
As a result of the default and other factors affecting Chrysalis, the auditors
opinion for Chrysalis contained in this proxy statement/prospectus contains an
explanatory paragraph stating as follows:
"The consolidated financial statements have been prepared assuming that
[Chrysalis] and its subsidiaries will continue as going concerns. [Chrysalis]
has suffered recurring losses from operations, has a net working capital
deficiency and is in default of [some of its] debt covenants which raise
substantial doubt about their ability to continue as going concerns. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty."
IF THE MERGER IS NOT COMPLETED, CHRYSALIS COMMON STOCK MAY BE DELISTED FROM THE
NASDAQ NATIONAL MARKET.
In January 1999, Nasdaq informed Chrysalis that its common stock will be
delisted from the Nasdaq National Market beginning April 8, 1999. The Chrysalis
common stock will be delisted unless the closing price is $1 or more for any
consecutive ten-day period prior to April 6, 1999. Based on recent trading
prices and the estimated exchange ratio, Chrysalis does not expect the closing
price requirement to be met. In April 1999, Chrysalis requested a written
hearing with Nasdaq in connection with the delisting. However, there can be no
assurance that the hearing will be granted or that delisting will be stayed
during the hearing process.
IF CHRYSALIS STOCKHOLDERS DO NOT ADOPT THE MERGER AGREEMENT, CHRYSALIS WILL
LIKELY OWE PHOENIX $1.5 MILLION.
Under the terms of the merger agreement, Chrysalis is required to pay Phoenix
$1.5 million if either Phoenix or Chrysalis terminates the merger because the
merger agreement is not adopted by Chrysalis
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stockholders. Chrysalis expects that one party would terminate the merger
agreement under these circumstances.
THE VALUE OF THE PHOENIX COMMON SHARES TO BE RECEIVED BY CHRYSALIS STOCKHOLDERS
WILL FLUCTUATE WITH THE PHOENIX COMMON SHARE PRICE.
The value of the Phoenix common shares used to calculate the exchange ratio has
been fixed and will not change even if the market price of Phoenix common shares
or Chrysalis common stock changes before the merger is completed. For purposes
of calculating the exchange ratio under the merger agreement, the value of the
Phoenix common shares is CDN$12.74, or US$8.28. If the Phoenix common shares
were to trade below that price at the time of or after the merger, the value of
Phoenix common shares to be received in the merger would be less than the
expected value. Stockholders are urged to obtain current market quotations for
the Phoenix common shares. Chrysalis does not intend to obtain an updated
fairness opinion from Vector Securities prior to the completion of the merger.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations of Phoenix-- Recent Developments."
CHRYSALIS' SHUT DOWNS AND DOWNSIZING WILL MATERIALLY ADVERSELY AFFECT ITS
OPERATIONS AND COMPETITIVE POSITION IF THE MERGER IS NOT COMPLETED.
Chrysalis has begun to shut down its U.S. clinical operations and downsize its
European clinical operations. The shut down and downsizing have materially
adversely affected:
- its ability to provide clinical data management and biostatistical
services;
- its ability to coordinate its marketing efforts and cross-sell its
services; and
- its ability to compete with international full service contract research
organizations for clinical contracts.
If the merger is not completed, these factors are expected to continue to
materially adversely affect Chrysalis' operations, results of operations and
financial condition for the long term.
CHRYSALIS STOCKHOLDERS WILL BE UNABLE TO CONTROL PHOENIX AFTER THE MERGER.
Chrysalis stockholders will receive collectively in the merger approximately 4%
of the outstanding Phoenix common shares based on Phoenix common shares
outstanding on January 31, 1999. If Phoenix issues more of its common shares,
the ownership percentage will decrease further. Therefore, Chrysalis
stockholders will likely exert little or no influence over Phoenix's affairs.
RESTRICTIVE COVENANTS IN MERGER AGREEMENT MAY ADVERSELY AFFECT CHRYSALIS'
OPERATIONS.
The merger agreement contains a number of covenants restricting Chrysalis'
ability to conduct its operations. These covenants include restrictions on
Chrysalis' ability, without Phoenix's consent, to:
- increase compensation to employees;
- make capital and other expenditures; and
- enter into or amend real property leases.
Although the merger agreement does not permit Phoenix to unreasonably withhold
or delay its consent, the restrictive covenants, or the refusal or delay of
Phoenix to give any required consent, may adversely affect Chrysalis' ability to
conduct its operations prior to the merger. In addition, it is possible that the
restrictive covenants will hamper Chrysalis' operations to such an extent that
Chrysalis will be unable to satisfy one or more of the conditions to the merger.
If this occurred, Phoenix may be able to choose not to consummate the merger.
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LOSS OF A SIGNIFICANT NUMBER OF EMPLOYEES MAY ADVERSELY AFFECT CHRYSALIS'
OPERATIONS.
The recent uncertainty regarding Chrysalis' future and the announcement of the
proposed merger have contributed to the departure of a number of employees of
Chrysalis. In addition, the restructuring of Chrysalis' clinical operations has
and will continue to result in the termination or departure of a number of other
employees. Chrysalis may not be able to retain a sufficient number of skilled
personnel to continue adequately providing services to its customers, whether or
not the merger occurs.
RIGHTS OF CHRYSALIS STOCKHOLDERS WILL CHANGE AS A RESULT OF THE MERGER.
In the merger, you will receive Phoenix common shares. There are numerous
differences between the rights of a stockholder in Chrysalis, a Delaware
corporation, and the rights of a shareholder in Phoenix, a Canadian corporation.
These differences are described below under "Comparison of Stockholders' Rights
and Description of Phoenix Common Shares and Chrysalis Common Stock."
PHOENIX'S SHARE PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
The trading price of Phoenix' common shares has in the past and could in the
future fluctuate significantly. The fluctuations have been or could be in
response to numerous factors including:
- quarterly variations in results of operations;
- changes in securities analysts' recommendations;
- earnings estimates for Phoenix and Phoenix's ability or inability to meet
those estimates and
- general fluctuations in the stock market.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations of Phoenix--Recent Developments."
ONE OF PHOENIX'S MAJOR BIOANALYTICAL SERVICES CLIENTS RECENTLY INSOURCED MOST OF
ITS WORK.
One of Phoenix's major bioanalytical services clients recently insourced most of
its liquid chromatography/mass spectrometry work. Phoenix expects this loss of
business to materially adversely affect its results of operations for its second
quarter of fiscal 1999 ending February 28, 1999, and have a lesser adverse
impact on its third quarter results. These adverse effects are expected to
reduce Phoenix's fiscal 1999 net income by approximately $4.0 million.
PHOENIX IS DEPENDENT UPON THE CONTINUED OUTSOURCING OF RESEARCH AND DEVELOPMENT
EXPENDITURES BY THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRIES.
Phoenix's revenues are highly dependent upon research and development
expenditures by the pharmaceutical and biotechnology industries. Phoenix's
operations could be materially and adversely affected by a general economic
decline in these industries or by any reduction in the outsourcing of research
and development expenditures by companies operating in these industries. One of
Phoenix's major bioanalytical services clients recently insourced most of its
work. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Phoenix--Recent Developments."
THE LOSS OF ANOTHER MAJOR PROJECT OR CLIENT COULD MATERIALLY ADVERSELY AFFECT
PHOENIX.
Phoenix has in the past derived, and may in the future derive, a significant
portion of its net revenue from a relatively limited number of major projects or
clients. In fiscal 1996, 1997 and 1998 and the three month period ended November
30, 1998, Phoenix's top five customers accounted for approximately 25%, 26%, 29%
and 31%, respectively, of Phoenix's consolidated net revenue. As pharmaceutical
companies continue to outsource large projects and studies to fewer full-service
providers and as
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consolidation within the pharmaceutical industry continues, Phoenix's
concentration of business could increase. The loss of a major project or client
could materially and adversely affect Phoenix.
PHOENIX MAY NOT BE ABLE TO MANAGE ITS GROWTH RESULTING FROM RECENT ACQUISITIONS.
Phoenix has completed six acquisitions since August 1997. Phoenix's rapid growth
over the past two years has placed a substantial strain on its operational,
human and financial resources. In order to manage its growth, Phoenix must
continue to:
- improve its operating, administrative and information systems;
- attract and retain qualified management, professional, scientific and
technical personnel; and
- assimilate differences in foreign business practices and overcome language
barriers.
Failure by Phoenix to manage its growth effectively could have a material
adverse effect on Phoenix.
Acquisitions involve a number of other risks including:
- difficulties and expenses incurred in connection with the acquisition;
- integration of the operations and services of the acquired companies;
- diversion of Phoenix management's attention from other business concerns;
- acquisition of significant intangible assets;
- the potential loss of key employees of the acquired companies; and
- potential losses resulting from undiscovered liabilities of acquired
companies that are not covered by indemnification.
IF PHOENIX FAILS TO RECRUIT AND RETAIN KEY MANAGEMENT AND PROFESSIONAL,
SCIENTIFIC AND TECHNICAL PERSONNEL ITS ABILITY TO SUPPORT GROWTH AND BE
COMPETITIVE COULD BE ADVERSELY AFFECTED.
Phoenix depends heavily on its senior management team. Further, Phoenix faces
intense competition in attracting and retaining qualified professional,
scientific and technical operating personnel. In addition, beginning September
30, 1999, the employment agreement of Dr. John Hooper, Chairman of the Board and
Chief Executive Officer of Phoenix, can be terminated by Dr. Hooper on three
months' notice. Phoenix's strategy for growth in the contract research
organization industry depends on its ability to attract and retain qualified
professional, scientific and technical operating personnel. The failure to
recruit and retain senior management and professional, scientific and technical
operating personnel could have a material adverse effect on Phoenix's business.
PHOENIX'S CUSTOMER CONTRACTS MAY BE TERMINATED BY CUSTOMERS ON SHORT NOTICE FOR
REASONS BEYOND PHOENIX'S CONTROL.
Most of Phoenix's clients can terminate their contracts with Phoenix upon 30
days' notice. Clients may terminate contracts for a variety of reasons over
which Phoenix has no control, including:
- the failure of a product to satisfy safety requirements;
- unexpected or undesired results of the product;
- the client's decision to forego a particular study;
- insufficient patient enrollment or investigator recruitment; or
- production shortages.
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<PAGE>
Phoenix believes that several factors, including increased cost containment
pressures, have caused pharmaceutical companies to apply more stringent criteria
to the decision to proceed with clinical trials for new products. This
application of more stringent criteria may result in a greater willingness of
these companies to cancel contracts.
The termination of a large contract or of multiple contracts could adversely
affect Phoenix's business, financial condition and results of operations.
FLUCTUATIONS IN PHOENIX'S REVENUES COMBINED WITH SIGNIFICANT FIXED EXPENSES
COULD RESULT IN VARIATION IN PHOENIX'S QUARTERLY OPERATING RESULTS.
Phoenix's results of operations have been and can be expected to continue to be
subject to quarterly fluctuations. Because a significant portion of Phoenix's
expenses are relatively fixed, the amount and timing of increases in these
expenses are based in large part on Phoenix's expectations concerning future
revenue. If revenue is below expectations in any given quarter, the adverse
effect may be magnified by Phoenix's inability to reduce spending quickly enough
to compensate for the revenue shortfall. Accordingly, a variation from expected
revenue could have a material adverse effect on Phoenix's operating results and
financial condition for a given quarter. Quarterly results can fluctuate as a
result of a number of factors, including:
- the commencement, completion or cancellation of significant contracts;
- seasonal variations in demand for Phoenix's services ;
- changes in the mix of services offered;
- the timing of start-up expenses for new facilities;
- acquisitions, including any related one-time expenses or write-offs;
- currency exchange fluctuations; and
- general economic conditions.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations of Phoenix--Recent Developments."
PHOENIX IS EXPOSED TO POTENTIAL LIABILITY WHILE CONDUCTING ITS CLINICAL TRIALS.
Phoenix contracts with physicians to serve as investigators in conducting
clinical trials to test new drugs on human volunteers. This creates a risk of
liability for personal injury to or death of volunteers resulting from adverse
reactions to the drugs administered. Phoenix could be held liable for the claims
and expenses arising from professional malpractice of investigators or in the
event of personal injury to or death of persons participating in clinical
trials. Phoenix also could be held liable for errors or omissions in connection
with the services it performs. Phoenix may not be able to maintain sufficient
professional liability insurance coverage on terms acceptable to Phoenix.
Phoenix could be materially and adversely affected if it were required to pay
damages or bear the costs of defending any claim which was not covered by
insurance.
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<PAGE>
RECENT CHANGES IN GOVERNMENT REGULATION OF PHARMACEUTICAL INDUSTRY COULD
DECREASE BUSINESS OPPORTUNITIES.
In November 1997, the United States Congress passed the United States Food and
Drug Modernization Act. This legislation is designed, among other things, to
streamline the drug approval process in the United States. Phoenix cannot
predict the effect, if any, of this legislation on its business. Phoenix's
business opportunities could be decreased by regulatory changes which either:
- relax the scope of regulatory requirements; or
- simplify drug approval procedures.
INTENSE COMPETITION AND INCREASING CONSOLIDATION IN THE PHARMACEUTICAL INDUSTRY
MAY CAUSE PRICE OR MARGIN EROSION.
The market for contract research services is intensely competitive. Expansion by
Phoenix's competitors into other areas in which Phoenix operates could adversely
affect Phoenix's competitive position. Increased competition may lead to price
and other forms of competition that may adversely affect Phoenix's margins.
Consolidation within the pharmaceutical industry, as well as a trend by
pharmaceutical companies to limit outsourcing to fewer organizations, has
heightened the competition for contract research services. As a result,
consolidation also has occurred among the providers of contract research
services, and several large multi-service providers have emerged. If these
consolidation trends continue, they may result in price erosion and greater
competition among the larger contract research providers for clients and
acquisition candidates. There can be no assurance that increased competition in,
or consolidation of, the contract research organization industry will not have a
material adverse effect on Phoenix.
FAILURE TO COMPLY WITH APPLICABLE GOVERNMENT REGULATION COULD RESULT IN ADVERSE
CONSEQUENCES TO PHOENIX.
The FDA and other regulatory authorities audit and inspect Phoenix from time to
time to ensure compliance with applicable regulations and guidelines, including
with respect to environmental and health and safety matters. Phoenix's failure
to comply with all applicable requirements could result in:
- the termination of research;
- the disqualification of data;
- the denial of the right to conduct business;
- fines;
- criminal penalties; and
- other enforcement actions.
Any of these could have a material adverse effect on Phoenix.
1997 FDA AUDIT COULD RESULT IN SUBSTANTIAL FINES OR PENALTIES OR OTHERWISE
MATERIALLY ADVERSELY AFFECT PHOENIX.
In an FDA inspection of Phoenix's Cincinnati facility in the summer of 1997, the
inspectors cited various deficiencies, primarily with regard to some anomalous
data connected with repeated height and weight measurements of some healthy
volunteers screened for specific clinical studies. These studies were conducted
in 1995 and early 1996, shortly after the Cincinnati facility opened. In March
1998, Phoenix received a grand jury subpoena, requesting documents from Phoenix.
The subpoena requested documents relating to studies conducted during the early
phase of the Cincinnati facility's development,
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including the period covered by the 1997 inspection. Phoenix cannot at this time
predict the ultimate resolution of the 1997 inspection or the final outcome of
any proceedings relating to the grand jury subpoena. An adverse resolution of
the 1997 inspection or an adverse outcome of any proceedings relating to the
grand jury subpoena could result in substantial fines or penalties, the effect
of which could be material and adverse to Phoenix's business, financial
condition, or results of operations. In addition, the pendency of the
proceedings may have a material adverse effect on Phoenix's ability to obtain
new business.
PHOENIX'S GROWING INTERNATIONAL OPERATIONS SUBJECT IT TO ADDITIONAL RISKS.
Phoenix derived approximately 82%, 78%, 88% and 92% of its total revenues from
customers located outside of Canada in fiscal 1996, 1997, 1998 and the first
quarter of fiscal 1999, respectively. Phoenix's growing international operations
make Phoenix increasingly subject to:
- difficulty in staffing and managing geographically disparate operations;
- longer accounts receivable payment cycles;
- exchange rate fluctuations;
- compliance with a variety of foreign laws and regulations;
- unexpected changes in regulatory requirements;
- overlap of different tax structures;
- greater difficulty in safeguarding intellectual property;
- import and export licensing requirements;
- trade restrictions;
- changes in tariff rates; and
- economic and political instability in international markets.
Phoenix's business, results of operations or financial condition may be
adversely affected by these factors.
PHOENIX IS NOT SURE WHAT THE EFFECT OF THE RECENT ESTABLISHMENT OF THE EURO WILL
BE ON PHOENIX'S FINANCIAL CONDITION OR RESULTS OF OPERATIONS.
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their sovereign currencies and the
euro. As of that date, the participating countries have agreed to adopt the euro
as their common legal currency. Phoenix cannot reasonably determine at this time
the effect of the recent establishment of the euro on Phoenix's financial
condition or results of operations. Due to numerous uncertainties, Phoenix is
not sure what the effect of the recent establishment of the euro on Phoenix's
financial condition or results of operations. Due to numerous uncertainties,
Phoenix is not sure what effects one common currency will have on pricing or
what the resulting impact, if any, will be on Phoenix's financial condition or
results of operations.
PHOENIX HAS RECURRING AMORTIZATION EXPENSE RESULTING FROM SUBSTANTIAL INTANGIBLE
ASSETS.
As of November 30, 1998, approximately $118 million of Phoenix's assets
consisted of goodwill obtained through acquisitions. Goodwill represents the
excess of consideration paid for acquisitions over the value of net tangible
assets acquired. On a pro forma basis after giving effect to the merger, Phoenix
would have carried approximately $136 million in goodwill at November 30, 1998.
The substantial amount of goodwill results in significant recurring amortization
expense, which for the fiscal year
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ended August 31, 1998 and three months ended November 30, 1998 amounted to $2.2
million and $732,000. Future acquisitions could result in an increase in
goodwill and associated amortization expense. Furthermore, any determination
that a significant impairment of Phoenix's goodwill has occurred could require
the write-off of the impaired portion. A write-off could adversely affect
Phoenix's results of operations.
PHOENIX MAY EXPERIENCE UNANTICIPATED DELAYS, COMPLICATIONS AND EXPENSES IN
INTEGRATING MANAGEMENT INFORMATION SYSTEMS FROM RECENT ACQUISITIONS.
Phoenix's business is dependent on its management information systems to provide
services and manage its operations. Phoenix is currently in the process of
integrating the disparate systems of the businesses recently acquired by it. If
the merger is approved, Phoenix will have to integrate Chrysalis' systems as
well. Phoenix may experience unanticipated delays, complications and expenses in
integrating these systems. Further, these systems, once integrated, may not
perform as expected and further modifications might be required. The failure by
Phoenix to timely complete the integration of these systems, or the failure of
these systems, once integrated, to perform as expected, could have a material
adverse effect on Phoenix's business, financial condition and results of
operations.
PHOENIX'S OPERATIONS MAY BE DISRUPTED IF SYSTEMS FAILURE OR DATA CORRUPTION
RESULT FROM THE YEAR 2000 ISSUE.
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of Phoenix's computer
programs that have date sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a systems failure
or data corruption causing disruptions of operations. In that event, Phoenix may
not be able to process transactions or engage in similar business activities. A
failure by Phoenix, its suppliers or its customers to adequately address the
Year 2000 issue of its existing systems and Chrysalis' systems in a timely
manner could have a material adverse effect on the operations of Phoenix. For
more information see "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Phoenix--Year 2000 Compliance" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Chrysalis--Year 2000 Compliance."
LOSS OF INVESTMENT TAX CREDITS COULD NEGATIVELY IMPACT PHOENIX'S NET INCOME.
Canadian and Quebec tax credits for research and development are a material part
of Phoenix's net earnings. Any changes to the applicable Canadian and Quebec
income tax laws and regulations governing these investment tax credits could
have a material adverse impact on the net income of Phoenix.
CHRYSALIS STOCKHOLDERS MAY FIND IT DIFFICULT TO ENFORCE CIVIL LIABILITIES IN
CANADA.
Phoenix is a Canadian corporation with its principal place of business in
Canada. A majority of Phoenix's directors and officers, and some experts named
in this proxy statement/prospectus are residents of Canada and/or are organized
under the laws of Canada or a province thereof. All or a substantial portion of
the assets of these persons and of Phoenix are located outside the United
States. Consequently, it may be difficult for United States investors to effect
service within the United States upon Phoenix, its directors or officers and
experts. In addition, U.S. investors may find it difficult to realize in the
United States upon judgments of courts of the United States predicated upon
civil liabilities under the Securities Act. In addition, special rules may apply
and it may be difficult for investors to:
- enforce in Canadian courts judgments of U.S. courts obtained in actions
against Phoenix or these persons based upon the civil liability provisions
of the U.S. federal securities laws or the securities or blue sky laws of
any state within the United States; or
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- enforce, in original actions in Canadian courts, liabilities against
Phoenix or these persons predicated upon the U.S. federal securities laws
or any state securities or blue sky laws.
CHRYSALIS AND PHOENIX HAVE MADE STATEMENTS CONCERNING FUTURE FINANCIAL RESULTS
THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES WHICH MAY CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED IN THESE STATEMENTS.
This proxy statement/prospectus contains forward-looking statements, including
statements concerning possible or assumed future results of operations of
Chrysalis and Phoenix. Some of these statements appear under:
- "The Merger;"
- "Management's Discussion and Analysis of Financial Condition and Results
of Operations of Phoenix;"
- "Description of Chrysalis;"
- "Management's Discussion and Analysis of Financial Condition and Results
of Operations of Chrysalis;" and
- "Unaudited Pro Forma Consolidated Financial Information."
Forward-looking statements include those preceded by, followed by or that
include the words "intends," "believes," "expects," "anticipates" or similar
words. These statements constitute forward-looking statements for purposes of
the safe harbor contained in the Private Securities Litigation Reform Act of
1995. You should understand that the following important factors, in addition to
those discussed above and elsewhere in this document, could affect the future
results of Chrysalis and Phoenix, and could cause those results to differ
materially from those expressed in the forward-looking statements:
- The success in obtaining the necessary regulatory and stockholder
approvals for the consummation of the merger;
- The satisfaction of the closing conditions to the merger agreement, some
of which are beyond the companies' control;
- The consummation of the merger;
- The failure to realize fully expected cost savings from the merger;
- Greater than expected costs or difficulties related to the downsizing of
Chrysalis and to the integration of the businesses of the companies;
- The degree of the companies' success in obtaining new contracts;
- The scope and duration of new clinical trials and preclinical studies, and
the loss, downsizing or delay in existing drug development trials;
- The lengthening of the lead time to convert proposals into contracts and
revenues;
- The ability to enter, the timing of entry and the profitability of
entering new markets;
- Any claims for patent infringement;
- Unanticipated costs in connection with Year 2000 conversion;
- Adverse changes in economic conditions in the markets served by the
companies; and
- The ability to obtain future financing.
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THE MERGER
BACKGROUND OF THE MERGER
In the spring of 1998, Chrysalis' management had several discussions with
Chrysalis' Board regarding strategic alternatives available to address
operational issues. The impetus for much of this discussion was the delay and
subsequent loss of a large contract to manage a clinical trial for a major
pharmaceutical client. During the spring of 1998, Chrysalis management advised
the Chrysalis Board that, as a result of the loss of this major contract,
Chrysalis should begin to consider alternatives if Chrysalis was unable to
obtain additional business to replace the loss of the large clinical study by
year-end 1998. See "Description of Chrysalis--Loss of Large Clinical Trial," and
"Description of Chrysalis--Backlog."
On May 11, 1998, the Chrysalis Board authorized Chrysalis management to retain
Vector Securities to pursue potential financings and other strategic
alternatives, including identifying financing partners, potential acquirors, or
strategic partners. Chrysalis management and Vector Securities prepared a list
of companies which they believed might be interested in pursuing strategic
alternatives with Chrysalis. Between June and September of 1998, Vector
Securities contacted approximately 40 potential strategic and financial partners
to assess their interest in a transaction involving Chrysalis.
Between the middle of June and the middle of November 1998, Chrysalis management
had a number of discussions with the Bank regarding potential defaults and,
after September 30, 1998, existing defaults under the Bank's loan agreement.
These discussions also addressed the possibility of obtaining from the Bank a
waiver of the defaults, an amendment to the loan agreement or forbearance.
On June 16 and 17, 1998, a meeting of the Chrysalis Board was held. At the
meeting, representatives of Vector Securities presented information regarding
potential financings and strategic alternatives. The Chrysalis Board authorized
management to pursue further potential financings and strategic alternatives
with the assistance of Vector Securities.
On July 1, 1998, a meeting of the Chrysalis Board was held. At the meeting, the
Chrysalis Board created a Special Committee to consider and evaluate potential
financings and other strategic alternatives and to make recommendations to the
Chrysalis Board. Desmond H. O'Connell, Jack Barbut and Photios Paulson were
appointed members of the Special Committee. In addition, Chrysalis management
updated the Chrysalis Board regarding their discussions with Vector Securities
about potential financings and other strategic alternatives.
Between July and October 1998, Chrysalis management and representatives of
Vector Securities updated periodically the members of the Special Committee of
the Chrysalis Board on an informal basis regarding potential financings and
other strategic alternatives being pursued by Chrysalis management and Vector
Securities.
On July 21, 1998, a representative of Pennsylvania Merchant Group, Phoenix's
financial advisor, contacted Mr. Schmitt and Vector Securities to express
Phoenix's interest in evaluating a possible transaction with Chrysalis. Phoenix
and Chrysalis executed a confidentiality agreement on July 22, 1998 which
provided for, among other things, Phoenix's receipt and treatment of
confidential information regarding Chrysalis.
On July 28, 1998, senior management of Chrysalis and Phoenix, and
representatives from their financial advisors, met to discuss Chrysalis'
business and its reasons for exploring strategic alternatives. Mr. Schmitt
attended the meeting on behalf of Chrysalis. John Hooper, Phoenix's Chairman and
Chief Executive Officer, attended the meeting on behalf of Phoenix. At that
meeting, Phoenix and Chrysalis discussed generally the proposed structure of a
potential transaction and Chrysalis' various business lines.
In August and September of 1998, Chrysalis provided to Phoenix and its advisors
various information regarding Chrysalis' operations, financial condition and
results of operations. In addition, during that
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same period, members of Phoenix management, its advisors and accountants visited
Chrysalis' U.S. and European facilities and conducted a number of discussions
with Chrysalis management regarding its various operations and financial
results. On August 18, 19 and 20, 1998, members of Phoenix management and its
advisors visited Chrysalis' Austin, Princeton and Scranton facilities. Each of
these visits included meetings with the operational management of Chrysalis
responsible for the businesses conducted at that location. On August 24, 1998,
Phoenix's financial advisor submitted to Chrysalis a request for additional
information. During late August and throughout September of 1998, Chrysalis
provided to Phoenix and its advisors the additional information requested.
On September 9, 1998, representatives of Chrysalis met with representatives of
the Bank to discuss Chrysalis' cash projections and the status of potential
strategic alternatives. Mr. O'Connell, Mr. Schmitt and John G. Cooper,
Chrysalis' Senior Vice President and Chief Financial Officer, attended the
meeting on behalf of Chrysalis.
On September 10, 1998, Chrysalis received a letter of intent from a bidder other
than Phoenix which had conducted limited due diligence meetings with Chrysalis
management in August 1998. The other bidder is a company founded by individuals
who had previously served as management of contract research organizations. The
group was interested in acquiring and operating contract research organizations.
Chrysalis does not believe the other bidder had any operations as of September
1998. The letter of intent contemplated an acquisition of Chrysalis' preclinical
business. The letter of intent contemplated a cash purchase price, with a
portion of the consideration being contingent on 1998 and 1999 revenues. In
addition, the terms of the letter of intent indicated that the other bidder
would not assume any of Chrysalis' debt. The letter contained a number of
conditions, including completion of due diligence and satisfactory arrangements
to repay Chrysalis' debt related to its preclinical business.
On September 14, 1998, Chrysalis received a letter from Pennsylvania Merchant
Group, indicating Phoenix's potential interest in acquiring either Chrysalis or
Chrysalis' transgenics and preclinical operations. Phoenix indicated that it
would be willing to pay cash or Phoenix common shares as consideration for an
acquisition of the transgenics and preclinical operations. Phoenix also
indicated that it would be willing to pay Phoenix common shares as consideration
for an acquisition of Chrysalis in its entirety. The letter was a non-binding
indication of interest in a potential acquisition of Chrysalis.
Between September 10, 1998 and September 16, 1998, Vector Securities had
discussions with Phoenix and the other bidder regarding the scope and potential
terms of a potential acquisition.
On the morning of September 15, 1998, a meeting of the Special Committee of the
Chrysalis Board was held. Two of the three members of the Special Committee were
present by conference call. In addition, Mr. Schmitt, Mr. Cooper and a
representative of Jones, Day, Reavis & Pogue were present by conference call. At
the meeting, Mr. Schmitt summarized the indications of interest that Chrysalis
had received. After the presentation, the members of the Special Committee and
Mr. Schmitt engaged in extensive discussions regarding the status of potential
financings and other strategic alternatives.
On the evening of September 15, 1998, another meeting of the Special Committee
of the Chrysalis Board was held. Two of the three members of the Special
Committee were present by conference call. In addition, Mr. Schmitt, Mr. Cooper,
a representative of Jones, Day, Reavis & Pogue and representatives of Vector
Securities were present by conference call. At the meeting, the Vector
Securities representatives updated the Special Committee regarding the status of
discussions concerning potential financings and a possible sale of Chrysalis.
The members of the Special Committee engaged in extensive discussions with
management and Vector Securities regarding these matters and recommended that
management and Vector Securities pursue further discussions with Phoenix, the
other bidder and any other potentially interested persons.
On September 16, 1998, a meeting of the Special Committee of the Chrysalis Board
was held. All three members of the Special Committee were present by conference
call. In addition, Mr. Schmitt,
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<PAGE>
Mr. Cooper, a representative of Jones, Day, Reavis & Pogue and representatives
of Vector Securities were present by conference call. After a preliminary
discussion of the duties and responsibilities of the Chrysalis directors under
applicable law, the Vector Securities representatives updated the Special
Committee regarding the status of discussions concerning the possible sale of
all or a portion of Chrysalis and reported on discussions held since the prior
day's meetings. The members of the Special Committee engaged in extensive
discussions with Chrysalis management and the Vector Securities representatives
regarding these matters and recommended that management and Vector Securities
pursue further discussions with Phoenix, the other bidder and any other
potentially interested persons.
On September 17, 1998, Chrysalis received a letter from the other bidder
revising its prior letter of intent and a letter from Phoenix revising its prior
letter. Each of these letters contemplated an acquisition of all of Chrysalis'
operations. The letter of intent from the other bidder contemplated a cash
transaction in which the other bidder would assume Chrysalis' debt. The letter
of intent included further conditions, including modifications of existing debt
and cooperation and accommodations by Chrysalis' lenders. The Phoenix letter
continued to be a non-binding indication of interest. Phoenix's letter
contemplated the issuance of Phoenix common shares as consideration for the
acquisition.
On September 18, 1998, representatives of Chrysalis and representatives of
Vector Securities met with representatives of the Bank to discuss Chrysalis's
cash projections and the prospects and timing for a potential sale of Chrysalis.
Mr. Schmitt, Mr. O'Connell and Mr. Cooper attended the meeting on behalf of
Chrysalis. Representatives of the Bank indicated that they were unwilling to
amend the senior secured loan agreement or to waive potential defaults.
On September 18, 1998, a meeting of the Special Committee of the Chrysalis Board
was held. All three members of the Special Committee were present by conference
call. In addition, Mr. Schmitt, Mr. Cooper, a representative of Jones, Day,
Reavis & Pogue and representatives of Vector Securities were present by
conference call. A representative of Vector Securities provided an update of the
status of discussions concerning the possible sale of all or a portion of
Chrysalis and outlined the terms and conditions of the proposals received from
Phoenix and the other bidder. The members of the Special Committee engaged in
extensive discussions with Chrysalis management and the Vector Securities
representatives regarding these issues and recommended that Chrysalis management
and Vector Securities pursue further discussions regarding the proposals.
On September 20, 1998, Vector Securities contacted the other bidder to confirm
its capitalization and to determine the status of equity and debt financing that
would be required for the other bidder to complete an acquisition of Chrysalis'
operations.
On September 20, 1998, a meeting of the Chrysalis Board was held. All of the
Chrysalis directors were present by conference call. Also present were a
representative of Jones, Day, Reavis & Pogue and representatives of Vector
Securities. Mr. Schmitt briefly updated the Chrysalis Board regarding the status
of discussions regarding a potential sale of Chrysalis. The representative of
Jones, Day, Reavis & Pogue explained to the Chrysalis Board their duties and
responsibilities under applicable law in considering the proposals. A
representative of Vector Securities then presented information regarding the
terms and conditions, including contingencies, of the proposals received from
Phoenix and the other bidder and the results of discussions with other
potentially interested parties. The members of the Chrysalis Board discussed
extensively the proposals received from Phoenix and the other bidder. In
addition, Mr. Schmitt addressed questions and concerns raised by the members. At
that point, Mr. Cooper joined the meeting by conference call. Mr. Cooper
addressed financial questions and concerns raised by the members. In addition,
Mr. Cooper updated the Chrysalis Board on his recent discussions with the Bank.
The members of Chrysalis' Board of Directors also discussed ongoing discussions
by management and Vector Securities with other potentially interested parties.
25
<PAGE>
On September 22, 1998, members of senior management of both Phoenix and
Chrysalis, as well as their financial advisors, met at Chrysalis' headquarters
to discuss various aspects of the structure and valuation of the proposed
transaction. Mr. Schmitt, Mr. Cooper and Leif Modeweg, Chrysalis' Senior Vice
President and Director of International Operations, attended the meeting on
behalf of Chrysalis. Dr. Hooper and Jean-Yves Caloz, then Phoenix's Senior Vice
President and Chief Financial Officer, attended the meeting on behalf of
Phoenix. These discussions covered purchase price, proposed structure and
related matters, including potential shut downs and related costs.
On September 23, 1998, a meeting of Chrysalis's Board of Directors was held. All
of the members of the Chrysalis Board were present in person or by conference
call. Also present in person were Mr. Cooper, Mr. Modeweg, a representative of
Jones, Day, Reavis & Pogue and representatives of Vector Securities. The
representative of Jones, Day, Reavis & Pogue explained to the Chrysalis Board
their duties and responsibilities under applicable law in considering any
proposals presented for their consideration. The Vector Securities
representatives then presented information regarding strategic alternatives,
including a summary of contacts made by Vector Securities to ascertain the
interest of potential purchasers in a transaction involving Chrysalis. The
Vector Securities representatives then described the two written proposals
received from Phoenix and the other bidder, copies of which had been previously
provided to the members of the Chrysalis Board. Vector Securities then responded
to several questions posed by members of the Chrysalis Board regarding strategic
alternatives. The members of the Chrysalis Board, Chrysalis management and the
Vector Securities representatives engaged in extensive discussions regarding the
process conducted by Vector Securities, the contacts made by Vector Securities
and the terms and conditions of the proposals. Each member of the Special
Committee of the Chrysalis Board also discussed the proposals and consideration
given to the alternatives presented and made their recommendation with respect
to the proposals. The Chrysalis Board then authorized the officers of Chrysalis
to discuss and negotiate with Phoenix a merger or other business combination
involving Chrysalis and Phoenix. Finally, Mr. Cooper updated the Chrysalis Board
regarding Chrysalis' financial condition and the status of discussions with the
Bank.
On September 29, 1998, a meeting of the Phoenix Board was held. All of the
members of the Phoenix Board were present. Also present were members of Phoenix
management, including Mr. Caloz. Dr. Hooper made a presentation regarding the
potential acquisition of Chrysalis, the potential strategic opportunities the
acquisition presented and a general outline of the potential terms and structure
of the transaction. On behalf of Pennsylvania Merchant Group, Mr. McCarthy gave
a presentation of the financial aspects of the transaction. The Phoenix Board
authorized Phoenix management to commence legal and financial due diligence of
Chrysalis and to proceed with negotiations regarding terms and structure. Mr.
McCarthy abstained from the Board action due to a potential conflict of
interest.
In late September and October 1998, representatives of Phoenix conducted
additional due diligence and discussed with Chrysalis management estimates of
costs associated with shutting down some of Chrysalis' clinical operations in
the United States and Europe. During the same time period, representatives of
Pepper Hamilton LLP, Phoenix's legal advisors with respect to the merger,
conducted legal due diligence with respect to Chrysalis.
Between early October and the middle of November 1998, Chrysalis and Phoenix
negotiated the terms of the merger agreement. These negotiations addressed
purchase price, treatment of options, scope of representations and warranties,
scope of covenants and other matters.
On October 2, 1998, members of senior management of Phoenix and Chrysalis and
their financial advisors met at Chrysalis' headquarters. Mr. Schmitt, Mr. Cooper
and Mr. Modeweg, together with three members of Chrysalis middle management,
attended the meeting on behalf of Chrysalis. Dr. Hooper, Susan Thornton,
President and Chief Operating Officer of Phoenix's U.S. Phase II-IV
26
<PAGE>
operations, and Lucien Steru, President and Chief Operating Officer of Phoenix's
European Operations, attended the meeting on behalf of Phoenix. These
discussions covered due diligence matters, potential shut downs and related
costs.
In a series of discussions in the second half of October 1998 and the first half
of November 1998, management of Chrysalis and Phoenix and their respective
advisors reviewed and evaluated the estimated costs of shutting down some of
Chrysalis' clinical operations and negotiated purchase price and other terms of
the proposed transaction.
On October 23, 1998, members of senior management of both Phoenix and Chrysalis,
as well as their financial advisors, met at Chrysalis' headquarters to discuss
various aspects of the structure and valuation of the proposed transaction. Mr.
Schmitt, Mr. Cooper and Stephane Bulle, Vice President of Finance for Chrysalis'
European operations, attended the meeting on behalf of Chrysalis. Dr. Hooper and
Mr. Caloz attended the meeting on behalf of Phoenix. These discussions covered
purchase price, proposed structure and related matters, including potential shut
downs and related costs.
On October 27, 1998, representatives of Chrysalis and Vector Securities met
again with representatives of the Bank to discuss Chrysalis' defaults as of the
end of its third quarter under the loan agreement. Mr. O'Connell, Mr. Schmitt
and Mr. Cooper attended the meeting on behalf of Chrysalis. At this meeting, the
Bank proposed a forbearance agreement, including a pledge of cash by Chrysalis
to the Bank, to address the existing defaults.
On October 28, 1998, a meeting of the Phoenix Board was held. All of the members
of the Phoenix Board were present. Mr. Caloz was also present. Dr. Hooper and
Mr. Caloz reported on the status of the business, legal and financial due
diligence, as well as the status of the negotiations of the merger agreement.
The Phoenix Board instructed management to complete due diligence and proceed
with negotiating the merger agreement.
On November 4, 1998, a meeting of the Phoenix Board was held. All of the members
of the Phoenix Board other than Mr. Spilker were present in person or by
telephone. Mr. Caloz was also present. Dr. Hooper and Mr. Caloz updated the
Phoenix Board on the further business, legal and financial due diligence
conducted with respect to Chrysalis. The update included a discussion of the
estimated costs associated with shutting down Chrysalis' clinical operations in
the United States and Europe. Mr. Caloz also reported on the structure, terms
and conditions of the merger agreement. The Board approved the merger agreement
in principle with those changes recommended and approved by Dr. Hooper and Mr.
Caloz. Mr. McCarthy abstained from the Board action due to a potential conflict
of interest. In addition, the Phoenix Board authorized and instructed Dr. Hooper
and Mr. Caloz to complete negotiation of the merger agreement.
On November 12, 1998, representatives of Chrysalis, Phoenix and their respective
advisors met with representatives of the Bank to discuss the proposed
forbearance agreement. Mr. Cooper attended the meeting on behalf of Chrysalis.
Mr. Caloz attended the meeting on behalf of Phoenix. The parties discussed
alternative arrangements to address Chrysalis' defaults. These alternatives
included the possibility of the Bank granting to Phoenix an option to acquire
the debt owed by Chrysalis to the Bank. During subsequent conversations later in
the day, the Bank, Chrysalis and Phoenix agreed to an arrangement. Under the
arrangement, the Bank agreed not to exercise its rights and remedies with
respect to defaults under the loan agreement until January 31, 1999 and
Chrysalis agreed to pledge $3.0 million of cash collateral to the Bank. The
Bank, Chrysalis and Phoenix also agreed that the forbearance period would be
extended until March 31, 1999 and Chrysalis' cash collateral pledge would be
released if Phoenix delivered to the Bank a guaranty of Chrysalis' obligations
to the Bank and granted cash collateral to secure the guaranty. Finally, Phoenix
and the Bank agreed that, if Phoenix gave the guaranty and cash collateral, the
Bank would give Phoenix an option to purchase Chrysalis' debt.
27
<PAGE>
On November 12, 1998 and November 13, 1998, representatives of Chrysalis and
Phoenix and their legal counsel continued to negotiate the merger agreement. On
November 13, 1998, representatives of Chrysalis, Phoenix and the Bank and their
legal counsel negotiated the forbearance agreement.
On November 12, 1998, a meeting of the Phoenix Board was held with all members
other than Mr. Goldman and Mr. Spilker present in person or by conference call.
Mr. Caloz was also present by conference call. Dr. Hooper and Mr. Caloz reported
on the status of the merger agreement negotiations and described the changes
which had been negotiated since the prior Phoenix Board meeting. Mr. Caloz also
reported on the meeting with the Bank, including the status of Chrysalis'
defaults, the Bank's unwillingness to waive the defaults, and the Bank's
willingness to grant to Phoenix an option to acquire Chrysalis' debt to the
Bank. Mr. Caloz then described the proposed forbearance agreement, guaranty,
pledge and assignment and option letter. Mr. Caloz also reported on his
discussions with Phoenix's lender regarding refinancing the Chrysalis debt,
including the debt to the Bank, and the availability of funds to grant the cash
collateral under the pledge and assignment. The Phoenix Board reaffirmed its
approval of the merger agreement with any additional changes recommended and
approved by Dr. Hooper and Mr. Caloz. The Phoenix Board also approved the
forbearance agreement, guaranty, pledge and assignment and option letter, in a
form acceptable to Dr. Hooper and Mr. Caloz. Mr. McCarthy abstained from the
Board action due to a potential conflict of interest.
On November 13, 1998, a meeting of the Chrysalis Board was held. All of the
directors of Chrysalis were present at the meeting by conference call. Mr.
Cooper and representatives of Jones, Day, Reavis & Pogue and Vector Securities
were also present by conference call. After a discussion regarding the
responsibilities of the Chrysalis directors under applicable laws, a
representative of Jones, Day, Reavis & Pogue explained to the Chrysalis Board
the various provisions of the merger agreement and related documents, drafts of
which had been previously circulated to the Board of Directors. In addition,
subsequent revisions made to the circulated draft merger agreement were also
discussed. After the discussions regarding the terms of the merger agreement,
representatives of Vector Securities presented information regarding the
financial terms of the merger agreement, including the aggregate purchase price
and per share merger consideration contemplated by the draft merger agreement.
At this meeting, Vector Securities delivered to the Chrysalis Board the opinion
of Vector Securities that, subject to the matters set forth in the Vector
Securities' opinion, the per share merger consideration was fair from a
financial point of view to Chrysalis stockholders. A copy of Vector Securities'
fairness opinion is attached to this proxy statement/prospectus as Appendix B.
After extensive discussion regarding the terms of the proposed merger agreement
and Chrysalis' financial condition, the Chrysalis Board unanimously approved the
merger agreement and the other documents and related transactions, including the
merger, and recommended that the Chrysalis stockholders adopt the merger
agreement.
Between November 13, 1998 and November 17, 1998, representatives of Phoenix and
Chrysalis and their legal counsel finalized the merger agreement. During the
same period, representatives of the Bank, Phoenix and Chrysalis and their legal
counsel continued to negotiate the forbearance agreement and related documents.
On November 17, 1998, a meeting of the Chrysalis Board was held to discuss
proposed revisions to the merger agreement draft approved at the November 13,
1998 Chrysalis Board meeting. All of the Chrysalis directors other than Mr.
Paulson were present at the meeting, either in person or by conference call.
Representatives of Jones, Day, Reavis & Pogue and representatives of Vector
Securities were also present by conference call. Representatives of Jones, Day,
Reavis & Pogue advised the Chrysalis Board regarding their duties and
responsibilities under applicable law in connection with the approval of the
merger agreement and the merger. Representatives of Jones, Day, Reavis & Pogue
also explained to the Chrysalis Board the proposed revisions to the merger
agreement. In addition, Vector Securities indicated that the proposed revisions
would not result in a withdrawal of its fairness opinion. After extensive
discussion, including Phoenix's expressed reasons for the proposed revisions and
the financial and legal implications of the revisions, the Board of Directors,
by a unanimous vote of all
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<PAGE>
directors present at the meeting, approved the revised draft merger agreement
and related transactions, including the merger, and recommended that the
Chrysalis stockholders adopt the merger agreement.
Chrysalis and Phoenix executed the merger agreement on November 18, 1998. The
Bank, Chrysalis and Phoenix executed the forbearance agreement on November 18,
1998. Phoenix and Chrysalis each made a public announcement of the proposed
merger on November 18, 1998. On November 19, 1998, Phoenix delivered to the Bank
the guaranty of Chrysalis' obligations to the Bank, and granted the cash
collateral to secure the guaranty. On the same date, Phoenix obtained from the
Bank an option to purchase Chrysalis' debt owed to the Bank.
On March 24, 1999, Chrysalis and Phoenix executed an amendment to the merger
agreement to change from March 31, 1999 to April 30, 1999 the dates in some of
the termination provisions.
REASONS FOR THE MERGER
CHRYSALIS
The Chrysalis Board has approved and adopted the merger agreement. The Chrysalis
Board believes that the merger is fair and in the best interests of Chrysalis
and its stockholders and recommends the adoption of the merger agreement by the
stockholders of Chrysalis at the special meeting. In reaching its decision to
approve the merger agreement and the transactions contemplated by the merger
agreement, the members of the Chrysalis Board considered a number of factors.
These factors include:
- Chrysalis' inability to generate sufficient new clinical contracts to
compensate fully for the lost revenues associated with the loss of the
large clinical trial that materially and adversely affected Chrysalis'
results of operations for the fourth quarter of 1997 and for 1998;
- Chrysalis' defaults under its senior secured loan agreement and the Bank's
expressed unwillingness to execute waivers or grant forbearance of its
rights unless Chrysalis entered into a transaction similar to the merger;
- Discussions by Chrysalis management and Vector Securities with other
parties regarding a potential financing with Chrysalis or acquisition of
Chrysalis;
- The Chrysalis Board's analysis of the offers it received from Phoenix and
the other bidder, the level of due diligence previously performed by
Phoenix and the other bidder and the Chrysalis Board's belief regarding
the ability of Phoenix and the other bidder to complete a proposed
transaction;
- The Chrysalis Board's perception that the merger will result in a combined
entity with substantially greater resources and a more diversified product
base, service capacity and international presence;
- The Chrysalis Board's view that Phoenix would be able to provide resources
to ease Chrysalis' liquidity constraints, to work with the Bank to obtain
forbearance on terms acceptable to Chrysalis and to satisfy Chrysalis'
obligations to its lenders, and Phoenix's willingness to do so;
- The terms and conditions of the merger agreement, including the merger
consideration, covenants and termination fees potentially payable
thereunder;
- The written opinion of Vector Securities to the effect that, as of the
date of the opinion and based upon and subject to the matters stated
therein, the merger consideration was fair, from a financial point of
view, to Chrysalis' stockholders;
- Information regarding historical market prices of the Chrysalis common
stock and the Phoenix common shares;
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<PAGE>
- General trends affecting the contract research organization industry,
particularly recent consolidations; and
- The benefits to be derived by directors and executive officers of
Chrysalis in the merger other than the consulting agreement between
Phoenix and Mr. Schmitt that was entered into after the Chrysalis Board
approved the merger agreement.
This summary of the factors considered by the Chrysalis Board is not complete.
In view of the wide variety of factors considered, the Chrysalis Board did not
find it practicable, and did not, quantify or otherwise attempt to assign
relative weights to the factors. In addition, individual members of the
Chrysalis Board may have given different weights to different factors.
PHOENIX
Phoenix believes that as a result of the merger and through the addition of the
preclinical animal toxicology business of Chrysalis, unlike most other contract
research organizations it will be able to provide all major functions required
for drug development, from just after drug discovery through registration of the
final product and post-marketing studies. Phoenix believes the acquisition of
Chrysalis will also add further balance to its service profile, with the
business distributed among four main areas:
- discovery support/preclinical;
- Phase I clinical studies;
- Phase II-IV clinical studies; and
- laboratory services.
Phoenix believes that balancing its business mix in this way will lessen the
financial impact of a possible downturn in any one market area or a possible
cancellation of one or more major contracts in Phase II-IV clinical research.
Phoenix's acquisition of Chrysalis' transgenics business will add specialized
talents in the growing areas of the use of genomics to develop new drugs.
Phoenix will obtain Chrysalis' exclusive license to the patents used in
Chrysalis' transgenics business. This will provide new opportunities for
Phoenix. With the addition of Chrysalis' clinical operations in Eastern Europe,
Germany and Scandinavia, Phoenix will strengthen its presence in Europe and
enhance its critical mass in its global Phase II-IV clinical operations. Phoenix
also believes that shutting down Chrysalis' executive offices, its clinical
operations in Austin, Texas, Cham, Switzerland and Dusseldorf, Germany, and
consolidating Chrysalis' operations in Mannheim, Germany and Israel, will result
in substantially improved operating results.
RECOMMENDATION OF THE CHRYSALIS BOARD
The Chrysalis Board has approved the merger agreement, and has determined that
the merger agreement and the related transactions, including the merger, are
advisable and are fair and in the best interests of Chrysalis and its
stockholders. Accordingly, the Chrysalis Board recommends that the Chrysalis
stockholders vote FOR the proposal to adopt the merger agreement.
OPINION OF THE FINANCIAL ADVISOR TO THE CHRYSALIS BOARD
The full text of the opinion of Vector Securities, dated November 13, 1998 which
sets forth the assumptions made, procedures followed, matters considered and
limitations on the review undertaken, is attached as Appendix B to this proxy
statement/prospectus and is incorporated herein by reference. You should read
the opinion carefully in its entirety. The summary of the opinion of Vector
Securities set forth in this proxy statement/prospectus is qualified in its
entirety by reference to the full text of the opinion.
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<PAGE>
Chrysalis retained Vector Securities as its financial advisor to assist
Chrysalis in evaluating its strategic alternatives, including potential
financings. In connection with the engagement, Chrysalis requested Vector
Securities to render an opinion as to whether or not the consideration offered
to the Chrysalis stockholders by Phoenix in the merger is fair, from a financial
point of view, to the Chrysalis stockholders.
In connection with the Chrysalis Board's consideration of the merger, Vector
Securities delivered its oral opinion, which was subsequently confirmed in
writing, that, as of November 13, 1998, and based on its review and assumptions
and subject to the limitations on the review undertaken as set forth in the
opinion, the consideration to be received by the Chrysalis stockholders in the
merger is fair to the stockholders from a financial point of view. The opinion
of Vector Securities was prepared at the request of and for the use of the
Chrysalis Board for the purposes of its evaluation of the proposed merger. The
opinion of Vector Securities did not constitute a recommendation to the
Chrysalis Board with respect to the approval of the proposed merger. It also
does not constitute a recommendation to any Chrysalis stockholder as to how any
stockholder should vote with respect to the merger.
In arriving at its opinion, Vector Securities, among other things:
- reviewed Chrysalis' Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1997, Forms 10-Q
and related unaudited financial information for the three and six months
ended March 31, 1998 and June 30, 1998 and draft of Form 10-Q and related
unaudited financial information for the nine months ended September 30,
1998;
- reviewed Phoenix's Annual Reports and related financial information for
the three fiscal years ended August 31, 1998;
- reviewed information, including financial forecasts, relating to the
respective businesses, earnings, cash flows, assets and prospects of
Chrysalis and Phoenix furnished to Vector Securities by Chrysalis and
Phoenix;
- conducted discussions with members of senior management of Chrysalis and
Phoenix concerning their businesses and prospects;
- reviewed the historical market prices and trading activity for the
Chrysalis common stock and Phoenix common shares and compared the prices
and trading histories with those of other relevant publicly traded
companies;
- compared the financial position and operating results of Chrysalis and
Phoenix with those of other relevant publicly traded companies;
- compared the proposed financial terms of the merger with the financial
terms of other relevant transactions;
- reviewed the financial terms of the merger in the draft Agreement and Plan
of Merger, dated November 12, 1998; and
- reviewed other appropriate financial studies and analyses and performed
other investigations and took into account other appropriate matters.
In preparing its opinion, Vector Securities relied on the accuracy and
completeness of all information that was publicly available, supplied or
otherwise made available to Vector Securities by or on behalf of Chrysalis and
Phoenix. Vector Securities did not attempt to independently verify or assume any
responsibility for independent verification of any such information. Vector
Securities assumed that the financial forecasts examined by it were reasonably
prepared on bases reflecting the best available estimates and judgments of the
respective managements of Chrysalis and Phoenix as to the future financial
performance of Chrysalis and Phoenix.
Vector Securities noted that, as of the date of its opinion, Chrysalis did not
have sufficient funds to continue its operations beyond March 1999 and had no
immediate sources of equity or other financing. Vector Securities did not make
or obtain any independent evaluation or appraisal of the assets of
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Chrysalis or Phoenix. The opinion of Vector Securities is based upon economic,
market and other conditions existing on the date of the opinion. Furthermore,
Vector Securities expressed no opinion as to the value of the Phoenix common
shares to be issued in the merger when issued or the price or trading range at
which the Phoenix common shares will trade at any time following the date of the
Vector opinion.
In rendering its opinion, Vector Securities assumed that:
- the average closing sales price per Phoenix common share for the thirty
days following the public announcement of the merger would be
substantially equivalent to the average closing sales price per Phoenix
common share for the thirty days prior to the public announcement of the
merger;
- the transactions contemplated by the proposed merger will be consummated
on the terms described in the draft agreement, including that the merger
would qualify as a reorganization under the provisions of Section 368 of
the Code, without any material waiver or modification; and
- obtaining any necessary regulatory approvals for the merger will not have
an adverse effect on Chrysalis or Phoenix.
The opinion of Vector Securities does not address the relative merits of the
merger and any other transactions or business strategies discussed by the
Chrysalis Board as alternatives to the merger, or the decision of the Chrysalis
Board to proceed with the merger. Chrysalis did not place any limitations upon
Vector Securities with respect to the procedures followed or factors considered
in rendering its opinion.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant quantitative methods of financial analyses and the
application of those methods to the particular circumstances. Therefore, the
opinion is not readily susceptible to partial analysis or summary description.
Vector Securities did not attribute any particular weight to analyses or factors
considered by it. Rather, Vector Securities made qualitative judgements as to
the significance and relevance of each analysis or factor. Accordingly, Vector
Securities believes that its analysis must be considered as a whole. Vector
Securities believes that considering any portion of the analysis or the factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying its opinion.
In its analyses, Vector Securities made numerous assumptions with respect to
Chrysalis, Phoenix and industry performance, general business and economic
conditions and other matters. Many of these matters are beyond the control of
Chrysalis and Phoenix. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth in
the opinion. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Because the analyses are inherently subject to uncertainty,
neither Vector Securities nor any other person assumes responsibility for their
accuracy.
The following paragraphs summarize the significant analyses performed by Vector
Securities in arriving at its opinion.
STOCK TRADING HISTORY. Vector Securities reviewed the history of the trading
prices and volume for the Chrysalis common stock and the Phoenix common shares,
separately and in relation to each other, a
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market index and a comparable company index. The comparable company index
included the following contract research organizations:
<TABLE>
<S> <C>
- ClinTrials Research Inc. - PAREXEL International Corporation
- Covance Inc. - Pharmaceutical Product Development,
Inc.
- ICON Public Limited Company - Premier Research Worldwide, Ltd.
- Kendle International Inc. - Quintiles Transnational Corporation
</TABLE>
The companies listed above are referred to as the "comparable companies."
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<PAGE>
SELECTED COMPARABLE PUBLIC COMPANY ANALYSIS. Using publicly available
information, Vector Securities compared selected historical and projected
financial, operating and stock market performance data of Chrysalis to the
corresponding data of the comparable companies. Vector Securities compared
multiples of total enterprise value, which was determined by taking market value
plus debt minus cash and cash equivalents, to latest twelve month revenue,
earnings before interest, taxes, depreciation and amortization ("EBITDA") and
earnings before interest and taxes ("EBIT"). Vector Securities also compared the
multiple of stock price to latest twelve month earnings per share and the
multiple of market capitalization to tangible book value. The latest twelve
month EBITDA, EBIT and earnings per share for Chrysalis were not meaningful.
The multiples for Chrysalis and the comparable companies were as follows:
<TABLE>
<CAPTION>
COMPARABLE COMPARABLE COMPARABLE
COMPANIES COMPANIES COMPANIES
MULTIPLES CHRYSALIS LOW HIGH MEDIAN
- -------------------------------------------------------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Latest twelve month revenue................................... 0.6x 0.6x 5.2x 2.6x
Latest twelve month EBITDA.................................... N/M 14.5x 31.5x 17.6x
Latest twelve month EBIT...................................... N/M 21.3x 37.7x 25.7x
Latest twelve month earnings per share........................ N/M 30.4x 55.1x 38.1x
Tangible book value........................................... 2.4x 1.0x 12.4x 4.1x
</TABLE>
The multiples derived from this analysis were applied to Chrysalis' financial
results to determine a range of implied values for Chrysalis. In reviewing which
multiples of the comparable companies were most relevant, Vector Securities took
into account that Chrysalis was downsizing a significant portion of its clinical
business. In addition, Vector Securities considered that, as of the date of its
opinion, Chrysalis did not have sufficient funds to continue its operations
beyond March 1999 and had no immediate sources of equity or other financing.
Based on this analysis, Vector Securities derived an equity value range for
Chrysalis of $2.3 million to $9.3 million, or $0.20 to $0.80 per fully diluted
share.
With respect to Phoenix and the comparable companies, using publicly available
information, Vector Securities compared selected historical and projected
financial, operating and stock market performance data of Phoenix to the
corresponding data of the comparable companies. Vector Securities compared
multiples of total enterprise value to latest twelve month revenue and EBIT.
Vector Securities also compared multiples of stock price to latest twelve month
earnings per share, 1998 calendar year estimated earnings per share and 1999
calendar year estimated earnings per share. The 1998 and 1999 calendar year
earnings per share estimates for Phoenix and the comparable companies were
derived from Zack's Investment Research, Inc., dated November 8, 1998, and
I/B/E/S International, Inc., dated November 11, 1998.
The multiples for Phoenix and the comparable companies were as follows:
<TABLE>
<CAPTION>
COMPARABLE COMPARABLE COMPARABLE
COMPANIES COMPANIES COMPANIES
MULTIPLES PHOENIX LOW HIGH MEDIAN
- ---------------------------------------------------------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Latest twelve months revenue.................................... 1.8x 0.6x 5.2x 2.6x
Latest twelve months EBIT....................................... 20.4x 21.3x 37.7x 25.7x
Latest twelve months earnings per share......................... 25.2x 30.4x 55.1x 38.1x
1998 calendar year estimated earnings per share................. 24.0x 28.8x 44.9x 35.2x
1999 calendar year estimated earnings per share................. 18.1x 21.9x 32.3x 28.6x
</TABLE>
The multiples derived from this analysis were applied to Phoenix's financial
results to determine a
range of implied values for Phoenix. Based on this analysis, Vector Securities
derived an equity value range for Phoenix of $276.0 million to $323.0 million,
or $11.08 to $12.94 per fully diluted share. The multiples of the comparable
company analysis were also applied to financial forecasts for Phoenix,
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<PAGE>
provided by Phoenix management, for the fiscal year ending August 31, 1999 to
determine a range of projected implied values for Phoenix. These projected
values were discounted back to November 15, 1998 to determine the present value
of the implied values for Phoenix. Based on this analysis, Vector Securities
derived an equity value range for Phoenix of $306.0 million to $483.0 million,
or $12.27 to $19.24 per fully diluted share.
SELECTED COMPARABLE MERGERS AND ACQUISITIONS ANALYSIS. Vector Securities
reviewed publicly available financial information for selected mergers and
acquisitions involving contract research organizations. Vector Securities
analyzed the following nine completed transactions.
<TABLE>
<CAPTION>
TARGET ACQUIROR
- ------------------------------------------------------- -----------------------------------------------
<S> <C>
IBAH, Inc. Omnicare, Inc.
IBRD-Rostrum Global Inc. Phoenix
GMI gesellschaft fur Angewandte Mathematik Kendle International Inc.
und Informatik mbH
U-Gene Research B.V. Kendle International Inc.
BioClin Group Chrysalis
BRI International, Inc. Quintiles Transnational Corp.
HGB, Inc. IBAH, Inc.
Applied Bioscience International Inc. Pharmaceutical Product Development, Inc.
Bio-Research Laboratories Ltd. ClinTrials Research Inc.
</TABLE>
The transactions listed above are referred to as "comparable transactions."
Vector Securities calculated, among other things, total transaction value plus
net debt, which is debt minus cash and cash equivalents, as a multiple of latest
twelve month revenue, EBITDA and EBIT and total transaction value as a multiple
of latest twelve month net income and tangible book value for the comparable
transactions. The multiples for the comparable transactions were as follows:
<TABLE>
<CAPTION>
COMPARABLE TRANSACTIONS MULTIPLES LOW HIGH MEDIAN
- ------------------------------------------------------------------------------------------- --- --------- -----------
<S> <C> <C> <C>
Latest twelve month revenue................................................................ 0.7x 2.8x 1.8x
Latest twelve month EBITDA................................................................. 4.2x 26.5x 17.8x
Latest twelve month EBIT................................................................... 4.4x 52.3x 30.8x
Latest twelve month net income............................................................. 9.9x 37.9x 23.9x
Tangible book value........................................................................ 2.4x 11.4x 9.9x
</TABLE>
The multiples derived from this analysis were applied to Chrysalis' financial
results to determine a range of implied values for Chrysalis. In reviewing which
multiples of the comparable transactions were most relevant, Vector Securities
took into account that Chrysalis was downsizing a significant portion of its
clinical business. In addition Vector Securities considered that, as of the date
of its opinion, Chrysalis did not have sufficient funds to continue its
operations beyond March 1999 and had no immediate sources of equity or other
financing. Based on this analysis, Vector Securities derived an equity value
range for Chrysalis of $5.5 million to $15.0 million, or $0.48 to $1.28 per
fully diluted share.
No comparable transaction used in the comparable mergers and acquisitions
analysis is identical to the merger. No comparable company used in the
comparable public company analysis is identical to Chrysalis or Phoenix.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical. Rather, the analysis involves complex considerations and
judgements concerning differences in financial and operating characteristics and
other factors that could affect the public trading or acquisition value of the
companies to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS. Vector Securities analyzed the value of
Chrysalis based on a discounted cash flow analysis of the projected financial
performance of Chrysalis. This discounted cash
35
<PAGE>
flow analysis was based upon five-year forecasts for Chrysalis provided by
Chrysalis management, adjusted with management's input to reflect the downsizing
of a significant portion of Chrysalis' clinical business and the need for
additional financing in order to continue operations beyond March 1999, as of
the date of the Vector Securities opinion. The discounted cash flow analysis
determined the present value of the cash flows generated over the five-year
period and a terminal value based upon a range of EBITDA multiples from 14.0x to
18.0x. The cash flows and terminal value were discounted using a range of
discount rates from 30.0% to 40.0%. Based on this analysis, Vector Securities
derived an equity value range for Chrysalis of $1.2 million to $7.8 million, or
$0.11 to $0.67 per fully diluted share.
RELATIVE CONTRIBUTION ANALYSIS. Vector Securities performed an analysis of the
relative contributions of Chrysalis and Phoenix to the operating performance of
the pro forma combined company, based on the Chrysalis projections and the
Phoenix projections. Vector Securities then compared Chrysalis' relative
contribution to revenue, operating income and net income to the relative
ownership percentage in the pro forma combined company represented by the
Phoenix common shares received by Chrysalis stockholders as aggregate
consideration in the merger. Vector Securities noted that the pro forma
ownership percentage represented by Phoenix common shares received in the merger
is approximately 4.0%. The percent assumed an exchange ratio of 0.0874 Phoenix
common shares for each share of Chrysalis common stock. The assumption was based
on the closing sales price of a Phoenix common share on the Toronto Stock
Exchange on November 12, 1998 of US$8.07. Chrysalis' relative contribution to
the operating performance of the pro forma combined company is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Revenue........................................................................... 35.9% 25.2% 18.8%
Operating income (loss)........................................................... (64.8%) (88.4%) (20.8%)
Net income (loss)................................................................. N/M N/M (60.6%)
</TABLE>
Based on net income (loss), Chrysalis' relative contribution to the operating
performance of the pro forma combined company is not meaningful for the fiscal
years ended August 31, 1997 or 1998.
Chrysalis selected Vector Securities to be its financial advisor in connection
with the merger because Vector Securities is a prominent investment banking and
financial advisory firm with experience in the valuation of health care and life
science companies and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and valuations for corporate purposes. In addition, Vector
Securities was familiar with Chrysalis and its operations as a result of
services rendered by Vector Securities to Chrysalis in connection with its
acquisition of the BioClin Group.
Pursuant to an engagement letter between Chrysalis and Vector Securities dated
May 22, 1998, Vector Securities will receive a $700,000 fee upon completion of
the merger. Chrysalis has also agreed to reimburse Vector Securities for all
reasonable out-of-pocket expenses, including fees and disbursements of its
counsel. Chrysalis has also agreed to indemnify Vector Securities, its
affiliates and its employees against specified liabilities, including
liabilities under federal securities laws. Chrysalis management and Vector
Securities negotiated the fee to be paid to Vector Securities in connection with
its services. The negotiated fee was approved by the Chrysalis Board.
Vector Securities performed investment banking services for Chrysalis in
connection with its acquisition of the BioClin Group in December 1996. Chrysalis
paid Vector Securities $600,000 and reimbursed its expenses for those services.
Vector Securities may provide financial advisory services to, and may act as
underwriter or placement agent for, the combined company in the future. Vector
Securities may actively trade the securities of Chrysalis and/or Phoenix for its
own account and for the accounts of its customers. Accordingly Vector Securities
may at any time hold long or short positions in those securities.
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<PAGE>
ADDITIONAL BENEFITS TO CHRYSALIS DIRECTORS AND EXECUTIVE OFFICERS RESULTING FROM
THE MERGER
In considering the Chrysalis Board's recommendation that you vote in favor of
adopting the merger agreement, you should be aware that Chrysalis' directors and
officers have interests in the merger that are different from, or in addition
to, yours as a Chrysalis stockholder.
- The merger will constitute a change in control of Chrysalis under
compensation agreements between Chrysalis and two of its executive
officers. Under the terms of these agreements, these executive officers
will receive payments and other benefits upon or after the merger.
- Under Mr. Schmitt's employment agreement, dated June 2, 1995, as
amended January 20, 1999, if Mr. Schmitt's employment is terminated
within 12 months after the merger, he will receive one year's salary to
be paid in a lump sum as a result of the January 1999 amendment. At
January 31, 1999, Mr. Schmitt's salary was $230,000. Mr. Schmitt will
also receive medical and dental insurance coverage for 12 months. In
addition, the exercise period of all of his stock options will be
extended for 18 months, or, if earlier, until the tenth anniversary of
the date of grant of the option. At March 31, 1999, Mr. Schmitt held
options to purchase 297,500 shares of Chrysalis common stock. Phoenix
intends to terminate Mr. Schmitt's employment immediately after the
merger.
- Under Mr. Cooper's employment agreement, dated May 29, 1996, as amended
on January 20, 1999, if Mr. Cooper's employment is terminated without
cause within 12 months after the merger or if his duties and
responsibilities after the merger are not consistent with being chief
financial officer of a parent company that is a public company, he will
receive one year's salary, to be paid in a lump sum as a result of the
January 1999 amendment. At January 31, 1999, Mr. Cooper's salary was
$155,000. Mr. Cooper will also receive medical and dental insurance
coverage for 12 months or, if earlier, until the date he is eligible
for similar coverage at a new employer. In addition, the exercise
period of all of his stock options will be extended for 18 months, or,
if earlier, until the tenth anniversary of the date of grant of the
option. At March 31, 1999, Mr. Cooper held options to purchase 292,500
shares of Chrysalis common stock. Phoenix intends to terminate Mr.
Cooper's employment immediately after the merger.
- Chrysalis has granted Dr. Modeweg a $50,000 "stay" bonus which he will
receive if he remains employed by Chrysalis until the merger. In addition,
under Dr. Modeweg's employment agreement, if Dr. Modeweg's employment is
terminated other than for reckless or gross misconduct, whether or not the
merger occurs, Chrysalis is required to enter into a 12-month or 24-month
consulting agreement with Dr. Modeweg. Under the consulting agreement, Dr.
Modeweg will provide services to Chrysalis in exchange for annual payments
equal to his current annual salary and health and medical benefits. Dr.
Modeweg's salary was 925,000 french francs, approximately US$160,000, at
March 31, 1999. If the term of the consulting agreement is 24 months, Dr.
Modeweg will be bound by a one-year noncompetition provision.
- The execution of the merger agreement resulted in 100% vesting of 472,748
of the 576,798 unvested outstanding stock options granted by Chrysalis as
of November 18, 1998. The accelerated vesting of stock options included an
aggregate of 315,052 shares of Chrysalis common stock covered by options
held by directors and executive officers of Chrysalis as of November 18,
1998.
- Phoenix will assume all stock options granted by Chrysalis. Outstanding
options include options for an aggregate of 1,029,000 shares of Chrysalis
common stock held by directors and executive officers of Chrysalis as of
March 31, 1999. As a result of the assumption by Phoenix, the stock
options held by directors and executive officers will be converted into
options covering approximately 87,742 Phoenix common shares. See "The
Merger Agreement--Effect on Chrysalis Common Stock and Outstanding
Options."
37
<PAGE>
- The merger agreement requires Phoenix to continue to provide
indemnification to current and former directors and officers of Chrysalis
and its subsidiaries for actions based on matters and events occurring
prior to the merger. Phoenix must provide indemnification for 6 years
after the merger. The indemnification must be the same as currently
provided in the charter documents of Chrysalis and existing
indemnification agreements.
- The merger agreement requires Phoenix to provide to the current and former
officers and directors of Chrysalis director and officer liability
insurance substantially similar to the insurance currently provided by
Chrysalis. The insurance coverage must be provided for 6 years after the
merger.
- In addition, Phoenix and Mr. Schmitt have entered into a consulting
agreement under which Mr. Schmitt will provide consulting services on
matters relating to Chrysalis for 30 days after the merger. He will be
paid $30,000 for those services.
PHOENIX DIRECTOR WILL RECEIVE ADDITIONAL BENEFITS FROM THE MERGER
Cornelius P. McCarthy, III, a director of Phoenix, is also Managing Director,
Corporate Finance, of Pennsylvania Merchant Group. Pennsylvania Merchant Group
acted as financial advisor to Phoenix in connection with the merger. Phoenix
will pay to Pennsylvania Merchant Group a fee of approximately $400,000 for
Pennsylvania Merchant Group's services in connection with the merger. In
addition, Phoenix will reimburse out-of-pocket expenses incurred by Pennsylvania
Merchant Group.
PLANS FOR CHRYSALIS AFTER THE MERGER
After the merger, Chrysalis will be a wholly-owned subsidiary of Phoenix. The
merger agreement requires Chrysalis to begin to downsize and consolidate some of
its clinical operations. Chrysalis has started the downsizing and consolidation.
Phoenix anticipates that it will be completed shortly after the merger. While no
final plans have been adopted, after the merger Phoenix intends to:
- integrate Chrysalis' European clinical and pre-clinical operations with
Phoenix's European operations;
- make further investments in Chrysalis' preclinical and transgenics/genomic
facilities;
- integrate Chrysalis' North American preclinical operations with Phoenix's
Montreal operations;
- require Chrysalis' transgenics/genomic operations to report to Phoenix's
corporate headquarters, with close ties to the Montreal-based drug
discovery support group; and
- eventually close Chrysalis' corporate headquarters.
Except as indicated in this proxy statement/prospectus or as contemplated by the
downsizing and consolidation, Phoenix does not have any present plans or
proposals which relate to or would result in any other extraordinary corporate
transaction.
ACCOUNTING TREATMENT
Phoenix will account for the merger under the "purchase" method of accounting in
accordance with U.S. GAAP and Canadian GAAP.
REGULATORY MATTERS
ANTITRUST MATTERS
Chrysalis and Phoenix are required by the U.S. antitrust laws to provide notice
of the merger to the Department of Justice and the FTC. They may not complete
the merger until the waiting period has
38
<PAGE>
expired or been terminated earlier. Phoenix and Chrysalis have received
regulatory clearance from the FTC and the Department of Justice to complete the
merger.
RESALE OF PHOENIX COMMON SHARES ISSUED IN THE MERGER; AFFILIATES
The Phoenix common shares to be issued to Chrysalis stockholders in connection
with the merger generally will be freely transferable under the Securities Act.
However, any person deemed to be an affiliate of Chrysalis at the time of the
special meeting may not sell Phoenix common shares acquired in connection with
the merger except as permitted by the Securities Act. The Securities Act
requires these shares to be sold:
- through an effective registration statement under the Securities Act
covering the shares to be sold;
- in compliance with Rule 145 under the Securities Act; or
- under another applicable exemption from the registration requirements of
the Securities Act.
Chrysalis has identified for Phoenix those persons who Chrysalis believes may
have been affiliates of Chrysalis at the time of the execution of the merger
agreement. Each of those persons has entered into a letter agreement with
Phoenix providing that the affiliate will not sell, pledge, transfer or
otherwise dispose of, or hedge or otherwise reduce its risk with respect to, any
Phoenix common shares except in accordance with Rule 145.
CANADIAN STOCK EXCHANGES
Phoenix has filed with the Montreal Exchange and the Toronto Stock Exchange
notices related to the Phoenix common shares to be issued in the merger. Phoenix
has also filed with the Montreal Exchange and the Toronto Stock Exchange
applications for the listing of Phoenix common shares to be issued in the merger
upon exercise of the stock options to be assumed by Phoenix. Phoenix expects to
receive shortly conditional approval from the Montreal Exchange and the Toronto
Stock Exchange.
DELISTING AND DEREGULATION OF CHRYSALIS COMMON STOCK; CESSATION OF CHRYSALIS
PERIODIC REPORTING
If the merger is completed, Chrysalis common stock will no longer be listed on
the Nasdaq National Market. Phoenix intends to cause Chrysalis to apply to the
Securities and Exchange Commission for the deregistration of Chrysalis common
stock after the merger. Upon the deregistration, Chrysalis will no longer be
required to make separate periodic filings with the Securities and Exchange
Commission under the Exchange Act.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
Except as described under "Material Tax Consequences--Dividends and Withholding
Taxes," Canada does not restrict the export or import of capital, including
foreign exchange controls, or limit the remittance of dividends, interest or
other payments to nonresident holders of Phoenix's securities. Canadian law and
Phoenix's articles and by-laws do not limit the right of nonresident or foreign
owners to hold or vote Phoenix common shares.
ENFORCEMENT OF CIVIL LIABILITIES IN CANADA
Phoenix is organized under the laws of Canada pursuant to the Canada Business
Corporations Act and its principal place of business is in Canada. A majority of
Phoenix's directors and officers and experts named herein are residents of
Canada and/or are organized under the laws of Canada or a province
39
<PAGE>
thereof. All or a substantial portion of the assets of these persons and of
Phoenix are located outside the United States. Special rules apply for:
(1) the enforcement in Canada of judgments obtained in non-Canadian courts;
and
(2) the institution of original actions in Canadian courts to enforce
liabilities based upon non-Canadian laws.
See "Risk Factors--Chrysalis Stockholders May Not Be Able to Enforce Civil
Liabilities in Canada."
Phoenix has appointed PHS Corporate Services, Inc. of Wilmington, Delaware, as
agent for service of process, in any action in any U.S. federal or state court
brought against it under the securities laws of the United States arising out of
the registration of Phoenix common shares pursuant to the registration statement
of which this proxy statement/prospectus forms a part.
MATERIAL TAX CONSEQUENCES
MATERIAL INCOME TAX CONSEQUENCES
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material U.S. federal income tax consequences of
the merger and of holding Phoenix common shares is based on the U.S. Internal
Revenue Code, the final, proposed and temporary Treasury Regulations,
administrative rulings and interpretations and judicial decisions, in each case
as in effect as of the date hereof. All of the foregoing are subject to change
at any time, possibly with retroactive effect, and to differing interpretations.
Except as specifically provided below, the following discussion is limited to
the U.S. federal income tax consequences relevant to a beneficial owner of
Chrysalis common stock that is:
(1) an individual who is a citizen or resident of the United States;
(2) a corporation (or other entity treated as a corporation for U.S. federal
income tax purposes) created or organized under the laws of the United
States, or any political subdivision thereof;
(3) an estate otherwise subject to U.S. federal income taxation on its
worldwide income;
(4) a trust, if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust, including trusts in existence on August 20, 1996 and properly
treated as United States persons prior to that date that timely elected
to continue to be treated as United States persons; or
(5) a partnership or other entity, other than a corporation, created or
organized under the laws of the United States or of any State thereof
that is properly treated as a United States person.
Each of the individuals, corporations, estates, trusts, partnerships or other
entities described in numbers (1)-(5) above is referred to as a U.S. Holder. A
Non-U.S. Holder is any stockholder other than a U.S. Holder.
The discussion below does not address all aspects of U.S. federal income
taxation that may be relevant to a particular holder of shares of Chrysalis
common stock in light of the holder's particular circumstances or to holders
subject to special treatment under the U.S. federal income tax laws, such as
Non-U.S. Holders, banks, other financial institutions, insurance companies,
dealers in securities, tax-exempt entities, persons who hold Chrysalis common
stock or Phoenix common shares as part of a "straddle,""hedge" or "conversion
transaction" or holders who acquired their Chrysalis common stock pursuant to
the exercise of employee stock options or otherwise as compensation, persons who
hold, directly, constructively or by attribution, 5% or more of either the total
voting power or total value of the capital stock of Phoenix immediately after
the merger, or 10% or more of the total voting power of
40
<PAGE>
the capital stock of Phoenix at any time, taxpayers whose functional currency is
not the U.S. dollar, nor any consequences arising under the laws of any state,
locality or foreign jurisdiction. This discussion assumes that the holders of
Chrysalis common stock hold their shares of stock as capital assets within the
meaning of Section 1221 of the U.S. Internal Revenue Code.
TAX IMPLICATIONS OF THE MERGER TO U.S. HOLDERS OF CHRYSALIS COMMON STOCK.
In general, for an exchange of Chrysalis common stock for Phoenix common shares
by a U.S. person in the merger to qualify for tax-free reorganization treatment,
in addition to meeting the requirements of Section 354 and Section 368 of the
U.S. Internal Revenue Code, the reporting requirements of Treasury Regulation
Section 1.367(a)-3(c)(6) must be satisfied and each of the following conditions
must be met:
(1) fifty percent or less of both the total voting power and the total value
of the stock of Phoenix, in the aggregate, is received in the transaction
by the stockholders of Chrysalis that are U.S. persons;
(2) fifty percent or less of the total voting power and the total value of
the stock of Phoenix is owned, in the aggregate, immediately after the
transaction by U.S. persons that are either officers or directors of
Chrysalis or stockholders of Chrysalis who owned 5% or more of the
outstanding stock of Chrysalis, by vote or value, immediately before the
merger, computed taking into account direct, indirect and constructive
ownership;
(3) either (A) the U.S. person does not own 5% or more of the outstanding
Phoenix stock after the merger or (B) the U.S. person owns 5% or more of
the outstanding Phoenix stock after the merger and enters into a gain
recognition agreement, as defined in Treasury Regulation Section
1.367(a)-8, with the IRS; and
(4) a specified active trade or business test is satisfied.
Pepper Hamilton LLP, counsel to Phoenix, has delivered its opinion that, based
on representations and covenants of Phoenix and Chrysalis, no gain or loss will
be recognized for U.S. federal income tax purposes by holders of Chrysalis
common stock as a result of the receipt of Phoenix common shares in exchange for
Chrysalis common stock (except as may otherwise be indicated in (3)(B) above).
Cash received in lieu of fractional share interests will be treated as received
in exchange for a fractional Phoenix common share. Gain or loss recognized on a
fractional share exchange will be measured by the difference between the amount
of cash received and the portion of the tax basis in the shares of the Chrysalis
common stock surrendered that is allocable to the fractional share. Gain or loss
on the fractional share exchange will be capital gain or loss. Capital gains of
individuals derived with respect to capital assets held for more than one year
are subject to a maximum federal income tax rate of 20%. The deductibility of
capital losses is subject to limitations. Further, the aggregate tax basis of
Phoenix common shares received as a result of the merger will be the same as the
U.S. Holder's aggregate tax basis in the Chrysalis common stock surrendered in
the merger, decreased by the basis allocable to fractional shares for which cash
is received in the merger. The holding period of the Phoenix common shares held
by a former holder of Chrysalis common stock as a result of the merger will
include the period during which the holder held the Chrysalis common stock
surrendered.
The IRS has not been requested to issue a ruling on the taxation of the merger.
The opinion of Pepper Hamilton LLP is not binding on the IRS.
41
<PAGE>
U.S. TAX IMPLICATIONS TO U.S. HOLDERS OF HOLDING PHOENIX COMMON SHARES.
DIVIDENDS AND TAX CREDITS
A U.S. Holder of Phoenix common shares will be required to include in gross
income as dividend income the amount of any distributions (including
constructive distributions) paid on the Phoenix common shares (including any
foreign taxes withheld from the amount received) on the date this distribution
is received, to the extent Phoenix has current or accumulated earnings and
profits, as defined under the U.S. Internal Revenue Code. Dividends paid on the
Phoenix common shares generally will not qualify for the dividends-received
deduction available to corporations. Dividends paid in foreign currency will be
includible in the income of the U.S. Holder in a U.S. dollar amount calculated
by reference to the exchange rate on the day the dividends are received. If the
Canadian dollars received as a dividend are not converted into U.S. dollars on
the date of receipt, in general, a U.S. Holder will have a basis in Canadian
dollars equal to its U.S. dollar value on the date of receipt. Any gain or loss
realized on a subsequent conversion or other disposition will generally be
treated as ordinary income or loss.
As described below, dividends paid or credited (or deemed paid or credited) on
the Phoenix common shares will generally be subject to a Canadian tax that will
be withheld from the distribution. Generally, a U.S. Holder will have the option
of claiming the Canadian tax withheld as either a deduction from adjusted gross
income or, subject to the limitations described below, as a dollar-for-dollar
credit against the U.S. Holder's U.S. federal income tax liability. If the U.S.
Holder elects to claim a credit for Canadian taxes, the election will be binding
for all other foreign taxes paid or accrued by the U.S. Holder for the taxable
year. Individuals who claim the standard deduction rather than itemized
deductions may not claim a deduction for foreign taxes withheld, but may claim
this amount as a credit against the individual's U.S. federal income tax
liability. If a U.S. Holder is subject to the alternative minimum tax, the
foreign tax credit in any taxable year may not offset more than 90% of a U.S.
Holder's liability for the alternative minimum tax.
The ability to credit the Canadian taxes against the U.S. Holder's federal
income tax liability is restricted by the rules found in Section 904 of the U.S.
Internal Revenue Code. In general, the credit for the Canadian tax withheld from
the distributions will be limited to the U.S. tax liability on foreign source
passive income that is earned by the U.S. Holder. Dividends paid by Phoenix
generally will be foreign source passive income for U.S. foreign tax credit
purposes. If the Canadian tax withheld is more than the U.S. Holder's overall
federal income tax liability for the year, no refund will be issued by the IRS.
U.S. Holders who are individuals may use a simplified method of calculating the
credit for the Canadian taxes. If a U.S. individual holder's entire gross income
from foreign sources consists of passive income, up to $300 ($600 for joint
filers) of foreign taxes may be credited against the holder's U.S. federal
income tax liability without regard to the limitations described above.
Additional limitations on the credit apply if the U.S. Holder (1) has held
Phoenix common shares for less than a specified minimum period during which it
is not protected from risk of loss or (2) is obligated to make payments related
to dividends (whether pursuant to a short sale or otherwise) with respect to a
substantially similar or related property. Under recent IRS guidance, a U.S.
Holder will not be allowed a foreign tax credit for Canadian taxes withheld from
dividends paid on the Phoenix common shares if the U.S. Holder holds its Phoenix
common shares pursuant to arrangements in which its expected economic profit is
insubstantial compared to the foreign tax credit claimed
SALE OF THE PHOENIX COMMON SHARES
For federal income tax purposes, a U.S. Holder will recognize taxable gain or
loss on any sale, exchange or other disposition of Phoenix common shares in an
amount equal to the difference between the U.S. dollar value of the amount
realized on this sale, exchange or other disposition and the U.S. Holder's basis
in these shares. Any gain or loss will be capital gain or loss, assuming the
stock is held
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as a capital asset. Capital gains of individuals derived with respect to capital
assets held for more than one year are subject to a maximum federal income tax
rate of 20%. The deductibility of capital losses is subject to limitations.
CONSEQUENCES IF PHOENIX IS A PASSIVE FOREIGN INVESTMENT COMPANY
If Phoenix is determined to be or becomes a passive foreign investment company,
the U.S. Holders of the Phoenix common shares would be subject to a different
set of U.S. tax rules. Generally, unless the U.S. Holder makes a special
election at the time Phoenix becomes a passive foreign investment company, upon
the disposition of the Phoenix common shares or upon the receipt of an excess
distribution (as defined in Section 1291 of the U.S. Internal Revenue Code) from
Phoenix, the U.S. Holder would incur an interest charge for the deferral of
income and the gain on the sale of the stock would be ordinary income, not
capital gain. Phoenix would be a PFIC if 75% or more of its gross income for a
year is passive income, or if 50% or more of its average assets during the
taxable year produce or are held to produce passive income. Phoenix does not
believe it is a passive foreign investment company at this time.
U.S. HOLDERS OF CHRYSALIS COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS AS
TO THE PARTICULAR TAX CONSEQUENCES TO THEM FROM THE MERGER AND FROM HOLDING
PHOENIX COMMON SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS.
CANADIAN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
The following discussion of the material Canadian federal income tax
considerations is generally applicable to a U.S. Holder who acquires Phoenix
common shares in the merger and who, for the purposes of the Income Tax Act
(Canada) and the Canada-United States Income Tax Convention (the "Convention"),
as applicable and at all relevant times:
(1) is resident in the United States and not resident or deemed resident in
Canada;
(2) holds Phoenix common shares as capital property;
(3) does not have a "permanent establishment" or "fixed base" in Canada (as
defined in the Convention); and
(4) deals at arm's length with Phoenix. Special rules, which are not
discussed below, may apply to "financial institutions" (as defined in the
Income Tax Act) and to non-resident insurers carrying on an insurance
business in Canada and elsewhere. A limited liability company may not be,
and a partnership will not be, a U.S. Holder to which this discussion
applies.
This discussion (1) is based on the current provisions of the Income Tax Act and
the regulations thereunder and the Convention, all specific proposals to amend
the Income Tax Act or the regulations thereunder announced by or on behalf of
the Canadian Minister of Finance prior to the date hereof and the current
published administrative practices of Revenue Canada and (2) does not otherwise
take into account or anticipate any changes in law or administrative practice
nor any income tax laws or considerations of any province or territory of Canada
or any jurisdiction other than Canada, which may differ from the Canadian
federal income tax consequences described herein.
DIVIDENDS AND WITHHOLDING TAXES
Under the Income Tax Act and the Convention, dividends paid or credited, or
deemed to be paid or credited, on the Phoenix common shares to a U.S. Holder who
owns less than 10% of Phoenix's voting shares will be subject to Canadian
withholding tax at the rate of 15% of the gross amount of these dividends or
deemed dividends. If a U.S. Holder is a corporation and owns 10% or more of
Phoenix's voting shares, the rate is reduced from 15% to 5%. Under the
Convention, dividends paid to religious,
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scientific, educational or charitable tax exempt organizations and pension
organizations that are resident and exempt from tax in the United States and
that have complied with administrative procedures are exempt from this Canadian
withholding tax.
DISPOSITION OF PHOENIX COMMON SHARES
A capital gain realized by a U.S. Holder on a disposition or deemed disposition
of Phoenix common shares will not be subject to tax in Canada under the Income
Tax Act unless the Phoenix common shares constitute "taxable Canadian property"
within the meaning of the Income Tax Act at the time of the disposition or
deemed disposition. In general, the Phoenix common shares will not be "taxable
Canadian property" to a U.S. Holder unless they are not listed on a prescribed
stock exchange (which includes Nasdaq, the Montreal Exchange and the Toronto
Stock Exchange). Even if the shares are so listed, the gain will be taxable
under the Income Tax Act, if at any time within the five-year period immediately
preceding the disposition the U.S. Holder, persons with whom the U.S. Holder did
not deal at arm's length, or the U.S. Holder together with those persons, owned
or had an interest in or a right to acquire more than 25% or more of any class
or series of Phoenix's shares. A deemed disposition of Phoenix common shares
will arise on the death of a U.S. Holder.
Even if the disposition would be taxable in Canada under the Income Tax Act, any
capital gain realized on a disposition or deemed disposition of Phoenix common
shares will generally be exempt from tax by virtue of the Convention if the
value of the Phoenix common shares at the time of the disposition or deemed
disposition is not derived principally from real property (as defined by the
Convention) situated in Canada. Phoenix is of the view that the Phoenix common
shares do not now derive their value principally from real property situated in
Canada; however, the determination as to whether Canadian tax would be
applicable on a disposition or deemed disposition of Phoenix common shares must
be made at the time of the disposition or deemed disposition.
Provided that the Phoenix common shares remain listed on a prescribed stock
exchange, a U.S. Holder who disposes of Phoenix common shares will not be
required to comply with the Canadian notification procedures generally
applicable to dispositions of taxable Canadian property.
U.S. HOLDERS OF CHRYSALIS COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS AS
TO THE PARTICULAR CANADIAN TAX CONSEQUENCES TO THEM OF ACQUIRING AND HOLDING
PHOENIX COMMON SHARES.
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THE MERGER AGREEMENT
The description of the merger agreement set forth below is not complete but
summarizes the material provisions of the merger agreement. The complete
composite text of the merger agreement, as amended, is attached as Appendix A to
this proxy statement/prospectus.
THE MERGER
The merger agreement provides for a merger in which Phoenix Merger Sub will
merge with and into Chrysalis, with Chrysalis surviving the merger as a wholly
owned subsidiary of Phoenix. The merger will become effective when the
certificate of merger for the merger is filed with the Secretary of State of the
State of Delaware, or at any later time specified in the certificate of merger.
The merger is expected to occur as soon as practicable after the last of the
conditions set forth in the merger agreement has been satisfied or waived. See
"--Conditions" and "--Additional Conditions."
CERTIFICATE OF INCORPORATION AND BY-LAWS OF SURVIVING CORPORATION
The certificate of incorporation of Phoenix Merger Sub immediately prior to the
merger will become the certificate of incorporation of the surviving
corporation. However, the certificate of amendment will be amended to increase
the authorized number of shares of Chrysalis common stock to 1,001,208 shares,
and to change the name of the surviving corporation to a name designated by
Phoenix. The bylaws of Phoenix Merger Sub immediately prior to the merger will
become the bylaws of the surviving corporation.
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
The officers and directors of Chrysalis will not be involved in the management
of Chrysalis' business after the merger. The officers and directors of Phoenix
Merger Sub prior to the merger will become the officers and directors of the
surviving corporation. Phoenix may choose to change the directors and officers
after the merger.
EFFECT ON CHRYSALIS COMMON STOCK AND OUTSTANDING OPTIONS
In the merger, each share of Chrysalis common stock issued and outstanding
immediately prior to the merger will be converted into the right to receive
approximately 0.08527 of a Phoenix common share, rounded down to the nearest
whole number, plus any cash payable for fractional Phoenix common shares as
described below under "--Fractional Shares." The exchange ratio is a fraction
equal to:
US$8,290,000 DIVIDED BY (shares of Chrysalis common stock outstanding at
the merger date plus shares of Chrysalis common stock subject to options
having an exercise price less than US$.71) DIVIDED BY US$8.28, which
represents the value of one Phoenix common share determined under the
merger agreement
Because the exchange ratio is in part based on the number of outstanding shares,
and some options to purchase shares, of Chrysalis common stock, it cannot yet be
determined. Chrysalis has granted a number of outstanding options and warrants
to purchase shares of Chrysalis common stock. If any of these options or
warrants were to be exercised, the exchange ratio may change. However, the
exchange ratio will not change if a stock option with an exercise price less
than $0.71 per share were exercised. In addition, if any options with an
exercise price less than $0.71 were to terminate or expire prior to being
exercised, the exchange ratio may change. Chrysalis does not intend to issue any
more shares of its common stock except in connection with the exercise of
options and warrants.
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Based on shares and options for Chrysalis common stock outstanding at March 31,
1999, the exchange ratio would be 0.08527. To illustrate, assuming an exchange
ratio of 0.08527, if you own the following number of shares of Chrysalis common
stock, you will receive in the merger approximately the following number of
Phoenix common shares plus cash for the fractional shares indicated:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF PHOENIX
CHRYSALIS COMMON STOCK COMMON SHARES FRACTIONAL SHARES
- ----------------------- --------------------- -----------------
<S> <C> <C>
100 8 .527
250 21 .3175
500 42 .635
1,000 85 .27
1,750 149 .2225
2,500 213 .175
10,000 852 .7
</TABLE>
In the merger, each option to purchase Chrysalis common stock issued under
Chrysalis' stock option plans and outstanding immediately prior to the merger,
will be assumed by Phoenix. In the merger, the options will be converted into
options to acquire the number of Phoenix common shares determined by the
following formula:
(Number of shares of Chrysalis common stock subject to the option) X (exchange
ratio)
The number of shares will be rounded down to the nearest whole share. The per
share exercise price of each stock option will be determined by the following
formula:
Aggregate exercise price of Chrysalis stock option
----------------------------------------------------------------
Number of Phoenix common shares issuable under converted stock option
The exercise price will be rounded up to the nearest cent. For example, assuming
an exchange ratio of 0.08527, a stock option covering the following number of
shares of Chrysalis common stock at the following exercise price would be
converted into an option for the following number of Phoenix common shares at
the following exercise price:
<TABLE>
<CAPTION>
PHOENIX STOCK OPTION
CHRYSALIS STOCK OPTION --------------------------
- -------------------------------------- NUMBER OF
NUMBER OF SHARES OF EXERCISE PHOENIX EXERCISE
CHRYSALIS COMMON STOCK PRICE COMMON SHARES PRICE
- ------------------------- ----------- ------------- -----------
<S> <C> <C> <C>
1,000 $ 4.00 85 $ 47.06
2,500 $ 1.00 213 $ 11.74
3,000 $ 0.50 255 $ 5.88
</TABLE>
The merger agreement requires Phoenix to prepare and file with the Securities
and Exchange Commission a registration statement on Form S-8 under the
Securities Act covering Phoenix common shares subject to options assumed by
Phoenix. Phoenix must file the registration statement within two business days
after the merger. Phoenix must use commercially reasonable efforts to maintain
the effectiveness of the registration statement as long as any options assumed
by Phoenix remain outstanding.
EXCHANGE OF CERTIFICATES IN THE MERGER
Before the merger, Phoenix will appoint an exchange agent reasonably acceptable
to Chrysalis to assist with the exchange of certificates of Chrysalis common
stock for certificates of Phoenix common shares. As soon as reasonably
practicable after the merger, the exchange agent will mail to each holder of a
certificate of Chrysalis common stock issued and outstanding immediately before
the merger a letter of transmittal and instructions for surrendering Chrysalis
stock certificates and obtaining a certificate
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representing the Phoenix common shares and cash for fractional shares. Upon
surrender of Chrysalis stock certificates to the exchange agent together with
the letter of transmittal, the certificate holder will be entitled to receive a
certificate representing the appropriate number of Phoenix common shares and
cash for fractional shares. In addition, the holder will be entitled to receive
any unpaid dividends and other distributions to which the holder is entitled.
The surrendered Chrysalis stock certificates will be canceled.
We request that you not surrender your certificates for exchange until you
receive the letter of transmittal and instructions.
Neither Chrysalis nor Phoenix will pay to you any interest on the merger
consideration. Holders of Chrysalis common stock will not be entitled to receive
any dividends or other distributions payable by Phoenix, or cash for fractional
shares, until their Chrysalis stock certificates are surrendered. Upon
surrender, however, subject to applicable laws, the holders will receive any
accumulated dividends and distributions, without interest, together with cash
for fractional shares to which they may be entitled.
After the merger, no further registration of transfer of shares of Chrysalis
common stock will occur. Any portion of the merger consideration given to the
exchange agent by Phoenix and not claimed by the holders of shares of Chrysalis
common stock within twelve months after the merger will be returned to Phoenix.
Thereafter, any holder who has not exchanged his or her shares of Chrysalis
common stock will have to look only to Phoenix for his or her claim for merger
consideration and any dividends or distributions. Any amounts not claimed by
holders of shares of Chrysalis common stock within two years after the merger
will become the property of Phoenix unless restricted by applicable law.
FRACTIONAL SHARES
Each holder of shares of Chrysalis common stock exchanged in the merger who
would otherwise have been entitled to receive a fraction of a Phoenix common
share will instead receive cash, without interest, for the fractional share. The
cash will be an amount equal to the holder's proportionate interest in the net
proceeds from the sale by the exchange agent on behalf of all holders of all
fractional Phoenix common shares which would otherwise have been issued. The
sale of the fractional shares by the exchange agent will occur on the Nasdaq
National Market. As soon as practicable after the determination of the amount of
cash to be paid to holders of fractional shares:
- the exchange agent will notify Phoenix;
- Phoenix will deposit the amount with the exchange agent; and
- the exchange agent will forward cash payments to holders of fractional
shares.
REPRESENTATIONS AND WARRANTIES
The merger agreement includes representations and warranties by Chrysalis as to:
- corporate organization, standing and power;
- capital structure;
- authority to enter into the merger agreement and the absence of conflicts
between the merger and Chrysalis' organizational documents, other material
contracts and applicable laws, orders and regulatory requirements;
- third party and governmental consents or approvals required in connection
with the consummation of the merger;
- possession and validity of permits;
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- reports filed with the Securities and Exchange Commission and financial
statements;
- information supplied in connection with the Registration Statement of
Phoenix on Form F-4 of which this proxy statement/prospectus forms a part;
- the absence of material changes or events with respect to its business,
condition, assets, liabilities or results of operations since December 31,
1997;
- Chrysalis Board approvals;
- subsidiaries;
- finders fees;
- fairness opinions;
- the absence of undisclosed material liabilities;
- taxes;
- title to and condition of real and personal property;
- material contracts;
- litigation;
- environmental matters;
- employee benefit plans and labor matters;
- compliance with laws;
- intellectual property rights;
- accounts receivable;
- insurance;
- inapplicability of anti-takeover laws or devices, including the rights
agreement of Chrysalis;
- product warranties and liabilities;
- relationships with customers and suppliers;
- transactions with affiliates; and
- regulatory matters.
The merger agreement includes representations and warranties of Phoenix as to:
- corporate organization, standing and power;
- capital structure;
- authority to enter into the merger agreement;
- the absence of conflicts between the merger agreement and its
organizational documents, other material contracts and applicable laws,
orders and regulatory requirements;
- reports filed with the Canadian Securities Commission and financial
statements;
- the Form F-4;
- information supplied in connection with this proxy statement/prospectus;
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- the absence of certain changes or events with respect to its business,
condition, assets, liabilities or results of operation since August 31,
1998.
- the absence of undisclosed material liabilities;
- ownership of Chrysalis common stock;
- finders fees; and
- sufficiency of cash to repay borrowings of Chrysalis after the merger.
The merger agreement also includes representations and warranties by Phoenix
Merger Sub as to:
- corporate organization, standing and power;
- capital structure;
- authority to enter into the merger agreement;
- the absence of conflicts between the merger agreement and its
organizational documents, other material contracts and applicable laws,
orders and regulatory requirements; and
- the absence of any business activities except for the purpose of
completing the merger.
BUSINESSES OF CHRYSALIS AND PHOENIX PENDING THE MERGER
Chrysalis and Phoenix generally have agreed that before the merger, each of
Chrysalis and Phoenix will conduct its business in the ordinary course
consistent with past practice. Chrysalis and Phoenix have also agreed to use
commercially reasonable efforts to preserve intact their business organizations
and relationships with third parties and to keep available the services of their
present officers and employees.
The merger agreement restricts Chrysalis' ability to:
- change its organizational documents;
- merge, consolidate or acquire material assets;
- sell, lease, license or dispose of material assets;
- declare or pay dividends or distributions;
- create liens on material assets;
- issue capital stock;
- change its capital stock;
- borrow money;
- loan, advance or contribute capital to another person or entity;
- change severance arrangements, termination agreements, employment
agreements, employee benefit plans or compensation arrangements;
- adopt a plan of liquidation or dissolution;
- change its method of accounting;
- make tax elections or take other tax-related actions;
- settle litigation in excess of $25,000;
- waive, modify, terminate or assign its material contract rights;
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- make capital expenditures in excess of $10,000 individually or $50,000 in
the aggregate;
- materially change any pricing or investment policy;
- take any action that would result in its representations and warranties
being false or incorrect in any material respect;
- enter into customer contracts or other leases or contracts for amounts in
excess of $100,000 individually;
- enter into or modify any real property lease;
- terminate any employee, consultant or agent; and
- pay any expense or disbursement over $25,000 except ordinary course of
business and other expenses.
The merger agreement restricts Phoenix's ability to (1) change its
organizational documents and (2) declare any dividends or distributions.
OTHER COVENANTS
The merger agreement contains other covenants, including covenants relating to:
- the preparation and distribution by both parties of this proxy
statement/prospectus and the preparation by both parties of the Form F-4;
- the recommendations by the Chrysalis Board to its stockholders for
adoption of the merger agreement;
- access to information by each party;
- the parties' obligations to use commercially reasonable efforts and
cooperation to satisfy the conditions to the merger;
- the obligations of Phoenix to provide for 6 years after the merger
indemnification and insurance coverage for Chrysalis' current and former
directors and officers at least equivalent to the coverage in effect on
the date of the merger agreement;
- public announcements by the parties;
- the approval of quotation on the Nasdaq National Market of the Phoenix
common shares to be issued in the merger;
- cooperation with respect to any litigation regarding the proposed merger;
- the commencement by Chrysalis of shutting down its facilities located in
Austin, Texas, Cham, Switzerland and Dusseldorf, Germany and the reduction
of expenses related to its operations in Mannheim, Germany and Israel;
- Chrysalis' maintenance of intellectual property rights;
- Chrysalis providing notice of intent to repay bank indebtedness;
- using commercially reasonable efforts to obtain written confirmation from
Iffa Credo SA regarding continuation of services provided by Iffa Credo SA
to Chrysalis and its subsidiaries;
- repayment by Phoenix of bank and subordinated indebtedness of Chrysalis
immediately after the merger; and
- assumption by Phoenix of obligations of Chrysalis under employment and
severance agreements.
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NO SOLICITATION
Chrysalis has agreed that it will not directly or indirectly:
- take any action to solicit, initiate or encourage any offer or proposal
for, or any indication of interest in, a merger or other business
combination in any manner of an equity interest in an amount equal to or
greater than 20% of the outstanding shares of any equity security or a
substantial portion of the assets of Chrysalis or any subsidiary (an
"Acquisition Proposal"); or
- disclose any non-public information, or afford access to the properties,
books or records of Chrysalis to any person that has informed Chrysalis
that it is considering making, or has made, an Acquisition Proposal.
Chrysalis may, in response to an unsolicited bona fide written proposal
regarding an Acquisition Proposal by any person, disclose non-public information
to or engage in negotiations with the person, if the Chrysalis Board determines
in good faith, based on the written advice of an investment banking firm, that
the Acquisition Proposal is reasonably likely to be more favorable and provide
greater value to Chrysalis' stockholders than the merger (a "Superior
Proposal").
CONDITIONS
Neither Chrysalis nor Phoenix will have to complete the merger if any of the
following occurs:
- Chrysalis stockholders do not adopt the merger agreement;
- any law or regulation, order, judgment, injunction or decree of a court of
competent jurisdiction prohibits completion of the merger;
- the waiting period applicable to the merger under the HSR Act and any
other applicable pre-merger notification, has not terminated or expired;
- any action has been instituted by any governmental authority seeking to
prevent completion of the merger or seeking material damages in connection
with the merger;
- any action by or filings with any governmental authority required to
permit the completion of the merger has not been obtained;
- the Phoenix common shares to be issued in the merger and under options
assumed by Phoenix have not been approved for quotation on the Nasdaq
National Market or Phoenix has not received the approval of all other
regulatory authorities required for the quotation; and
- the Form F-4 is not effective or the Securities and Exchange Commission
has entered an order, or started or threatened to start a proceeding to
enter an order, suspending the effectiveness of the Form F-4.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PHOENIX
Phoenix will not have to complete the merger if any of the following occurs:
- The representations and warranties of Chrysalis in the merger agreement
are not materially true and correct as of the merger date or Phoenix does
not receive a certificate of an executive officer of Chrysalis regarding
the material truth and accuracies of Chrysalis' representations and
warranties;
- Chrysalis has not materially performed or complied with its obligations
under the merger agreement or Phoenix does not receive a certificate of an
executive officer of Chrysalis regarding Chrysalis' material performance
and compliance;
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- a breach of a support/voting agreement by any of Chrysalis' stockholders
signing these agreements occurs, unless the breach does not result in
Chrysalis' stockholders not adopting the merger agreement;
- Chrysalis or its subsidiaries has not obtained third-party consents
required for the merger, including the consent of the Pennsylvania
Industrial Development Authority, a lender to a subsidiary of Chrysalis;
- specific liens on shares of subsidiaries of Chrysalis have not been
released;
- the letter agreement entered into between Chrysalis and Dr. Jack Barbut is
not in full force and effect; or
- any loan, other than specified loans, by or from Chrysalis or any
subsidiary on the one hand, and any affiliate, on the other hand has not
been repaid or any stockholder of any subsidiary of Chrysalis has not
assigned his ownership interests in any subsidiary of Chrysalis to Phoenix
or its designee; or
- Chrysalis has not satisfied its obligations to BML Japan.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF CHRYSALIS
Chrysalis will not have to complete the merger if any of the following occurs:
- The representations and warranties of Phoenix or Phoenix Merger Sub in the
merger agreement are not materially true and correct in all material
respects as of the merger date or Chrysalis does not receive a certificate
of an executive officer of Phoenix regarding the material truth and
accuracies of Phoenix's and Phoenix Merger Sub's representations and
warranties; or
- Phoenix has not materially performed or complied with its obligations
under the merger agreement or Chrysalis does not receive a certificate of
an executive officer of Phoenix regarding Phoenix's material performance
and compliance.
AMENDMENT; TERMINATION
Phoenix, Chrysalis and Phoenix Merger Sub must all agree in writing to any
amendment to the merger agreement. After the merger agreement is adopted by the
stockholders of Chrysalis, the parties cannot amend the merger agreement without
the further approval of the Chrysalis stockholders if the amendment would (1)
alter or change the consideration to be received by Chrysalis stockholders in
the merger or (2) adversely effect the stockholders of Chrysalis.
Phoenix and Chrysalis can mutually agree to terminate the merger agreement at
any time prior to the merger. Otherwise, the merger agreement may be terminated
only in a very limited number of circumstances:
(1) Phoenix or Chrysalis can terminate the merger agreement if the other
party breaches or fails to comply with any of its representations,
warranties or agreements under the merger agreement, and the breach or
failure would result in the failure of a condition to the merger that is
not cured prior to April 30, 1999;
(2) Phoenix or Chrysalis can terminate the merger agreement if any law or
final court order prohibits the merger;
(3) Chrysalis can terminate the merger agreement if a third party has made a
Superior Proposal and as a result of the Superior Proposal the Chrysalis
Board decides not to hold the special meeting or withdraws or modifies
its recommendation that Chrysalis stockholders adopt the merger
agreement;
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(4) Phoenix can terminate the merger agreement if the Chrysalis Board
determines not to hold the special meeting or withdraws or modifies its
recommendation that Chrysalis stockholders adopt the merger agreement;
(5) Phoenix or Chrysalis can terminate the merger agreement if the Chrysalis
stockholders do not adopt the merger agreement;
(6) The merger agreement will terminate automatically if, without Phoenix's
consent, the Chrysalis Board or the board of directors of any Chrysalis
subsidiary adopts a resolution authorizing a liquidation or the filing of
a bankruptcy petition; and
(7) Phoenix can terminate the merger agreement upon the earlier to occur of
April 30, 1999 or 60 days after a bankruptcy petition regarding Chrysalis
is filed by a Chrysalis creditor, other than Phoenix, and the petition
results in an order for relief or Chrysalis is unable to have the
petition dismissed within 60 days.
EFFECT OF TERMINATION
If the merger agreement is terminated, it shall become void and of no effect
with no liability on the part of any party except as described below in
"--Termination Fees; Expenses." Nothing in the merger agreement, however,
relieves any party to the merger agreement of liability for a willful breach of
any provision of the merger agreement.
TERMINATION FEES; EXPENSES
The merger agreement requires Chrysalis to pay to Phoenix $1.5 million if the
merger agreement terminates under the circumstances described in clauses (3),
(4), (5), (6) or (7) under "--Amendment; Termination" above.
The merger agreement requires Phoenix to pay to Chrysalis $1.5 million if
Chrysalis terminates the merger agreement under the circumstances described in
clause (1) under "Amendment; Termination" above.
Except as provided above, each of Phoenix and Chrysalis will bear its own
expenses incurred in connection with the merger, whether or not the merger is
completed. However, each of Phoenix and Chrysalis will pay one-half of the costs
and expenses, including Securities and Exchange Commission filing fees but
excluding legal and accounting fees, incurred in connection with the filing,
printing and mailing of the Form F-4 and the Chrysalis proxy statement.
OTHER AGREEMENTS
SUPPORT/VOTING AGREEMENTS
As an inducement to Phoenix to enter into the merger agreement, and in reliance
on representations and warranties of Phoenix contained in the merger agreement,
ten Chrysalis stockholders entered into support/voting agreements with Phoenix.
As of March 1, 1999, the Chrysalis stockholders who signed support/voting
agreements collectively owned 2,695,958 outstanding shares of Chrysalis common
stock. Those shares represent 23.1% of the outstanding shares of Chrysalis
common stock on that date. Each Chrysalis stockholder who signed a
support/voting agreement agreed to support and vote for the adoption of the
merger agreement.
If the merger agreement is terminated in accordance with its terms, the
Chrysalis support/voting agreements will terminate.
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FORBEARANCE AGREEMENT
At September 30, 1998, Chrysalis was in default under its loan agreement with
the Bank. The defaults arose from the failure by Chrysalis to meet required
financial ratios contained in the loan agreement. The Bank refused to waive the
defaults. Instead, Chrysalis, the Bank and Phoenix entered into the forbearance
agreement concurrently with the merger agreement. Under the forbearance
agreement, the Bank agreed not to exercise its rights and remedies with respect
to existing defaults under the loan agreement until January 31, 1999. The
forbearance agreement required Chrysalis to place $3.0 million in U.S. Treasury
Securities in a pledge account as cash collateral for the benefit of the Bank. A
portion of the pledged amount would have been used to pay the $312,500 principal
installment due on December 31, 1998. The forbearance agreement also provides
that if Phoenix guaranteed repayment of the outstanding loan amount and secured
the guaranty with a cash collateral pledge, then the Bank would:
- extend the forbearance period until March 31, 1999;
- release the $3.0 million pledge of Chrysalis; and
- waive the December 1998 principal payment.
GUARANTY; PLEDGE AND ASSIGNMENT AGREEMENT; OPTION LETTER
In connection with the merger agreement and the forbearance agreement, Phoenix
entered into an unconditional guaranty in favor of the Bank. Under the guaranty,
Phoenix guaranteed payment of Chrysalis' outstanding indebtedness to the Bank
under the loan agreement. As of January 31, 1999, the outstanding principal
balance under the loan agreement was US$4,687,500.
To secure its obligations under the guaranty, Phoenix delivered US$4,724,975 to
a pledged collateral account for the benefit of the Bank. That amount was equal
to the outstanding principal amount and accrued interest owed to the Bank by
Chrysalis. In the event of a default under the guaranty, the Bank can foreclose
on the pledged collateral.
In consideration of the delivery by Phoenix to the Bank of the guaranty and the
pledged cash collateral, the Bank granted Phoenix the option to acquire from the
Bank all of its right, title and interest under the loan agreement and related
documents, and all liens, mortgages and security interests that secure any
obligations under the loan agreement and related documents. If Phoenix exercises
its option, Phoenix will pay to the Bank the payment of the outstanding
principal indebtedness under the loan agreement plus all accrued interest.
As a result of the delivery of the guaranty and the pledged cash collateral:
- the forbearance period was extended until March 31, 1999;
- the Bank released Chrysalis' $3.0 million pledge; and
- the December 31, 1998 principal payment owed by Chrysalis to the Bank was
waived.
AMENDMENT TO FORBEARANCE AGREEMENT
On March 31, 1999, Chrysalis, the Bank and Phoenix executed an amendment to the
forbearance agreement under which:
- the forbearance period was extended until April 30, 1999; and
- the scope of the forbearance agreement was broadened to cover any defaults
as of March 31, 1999.
54
<PAGE>
THE SPECIAL MEETING
DATE, TIME AND PLACE
The special meeting will be held at the Somerset Hills Hotel, 200 Liberty Corner
Road, Warren, New Jersey, at 9:00 a.m., local time, on April 30, 1999.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, holders of Chrysalis common stock are being asked to
adopt the merger agreement. See "The Merger" and "The Merger Agreement."
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of Chrysalis common stock at the close of business on
March 1, 1999, the record date for the special meeting, are entitled to notice
of and to vote at the special meeting. On the record date, 11,666,480 shares of
Chrysalis common stock were issued and outstanding and held by approximately 208
holders of record, including banks, brokerage firms and other nominees. A
majority of the shares of Chrysalis common stock issued and outstanding and
entitled to vote on the record date must be represented in person or by proxy at
the special meeting in order for a quorum to be present for purposes of
transacting business at the special meeting. In the event that a quorum is not
present at the special meeting, it is expected that the meeting will be
adjourned or postponed to solicit additional proxies. Holders of record of
Chrysalis common stock on the record date are each entitled to one vote per
share on each matter to be considered at the special meeting.
The adoption of the merger agreement requires the affirmative vote of the
holders of record of at least a majority of the shares of Chrysalis common stock
outstanding on the record date. AN ABSTENTION OR A BROKER NON-VOTE WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST THE PROPOSAL TO ADOPT THE MERGER AGREEMENT.
SHARE OWNERSHIP OF CHRYSALIS MANAGEMENT
At the close of business on the record date, directors and executive officers of
Chrysalis beneficially owned and were entitled to vote 1,761,983 shares of
Chrysalis common stock. These shares represented approximately 15.1% of the
shares of Chrysalis common stock outstanding on that date. Each of those
directors and executive officers has executed a support/voting agreement with
Phoenix that requires them to vote the Chrysalis common stock owned by them FOR
adoption of the merger agreement at the special meeting. See "Other Agreements."
VOTING OF PROXIES
SUBMITTING PROXIES
Chrysalis stockholders may vote by attending the special meeting and voting
their shares in person at the meeting, or by completing the enclosed proxy card,
signing and dating it and mailing it in the enclosed postage pre-paid envelope.
If a proxy card is signed by a stockholder and returned without instructions,
the shares represented by the proxy will be voted for adoption of the merger
agreement.
Chrysalis stockholders whose shares are held in "street name," in other words in
the name of a broker, bank or other record holder, must either direct the record
holder of their shares regarding how to vote their shares or obtain a proxy from
the record holder to vote at the special meeting.
Chrysalis stockholders whose shares are held in the Chrysalis' employee savings
plan must direct the trustee under the plan regarding how to vote their shares.
55
<PAGE>
REVOKING PROXIES
Chrysalis stockholders of record may revoke their proxies at any time prior to
the time their proxies are voted at the special meeting. A stockholder may
revoke a proxy by:
- sending a written notice, including by telegram or telecopy, to the
corporate Secretary of Chrysalis;
- mailing a later-dated signed proxy; or
- attending the special meeting and voting in person. Attendance at the
special meeting will not in and of itself constitute a revocation of a
proxy.
Any written notice of a revocation of a proxy must be sent so as to be delivered
before the taking of the vote at the special meeting as follows:
Chrysalis International Corporation
575 Route 28
Raritan, NJ 08869
908/722-7900
908/722-6677 (FAX)
Stockholders who require assistance in changing or revoking a proxy should
contact Kissel Blake at the address or phone number provided in this proxy
statement/prospectus under the caption "Who Can Help Answer Your Questions."
GENERAL INFORMATION
Brokers who hold shares in street name for customers who are the beneficial
owners of those shares are prohibited from giving a proxy to vote those
customers' shares with respect to adoption of the merger agreement in the
absence of specific instructions from the customer.
Stockholders can choose to abstain by marking the proxy card accordingly. Shares
of Chrysalis common stock represented by returned proxies that are marked
"Abstain" will be treated as present at the special meeting for purposes of
determining the presence or absence of a quorum for the transaction of all
business. An abstention or a broker non-vote will have the same effect as a vote
against the proposal to adopt the merger agreement.
Chrysalis will pay the costs of solicitation of proxies. However, Phoenix will
pay one-half of the costs of filing, printing and mailing this proxy
statement/prospectus. In addition to solicitation by mail, the directors,
officers and employees of Chrysalis may also solicit proxies from stockholders
by telephone, telecopy, telegram or in person. Arrangements will also be made
with brokerage houses and other custodians, nominees and fiduciaries to send the
proxy materials to beneficial owners. Chrysalis will, upon request, reimburse
those brokerage houses and custodians for their reasonable expenses in so doing.
Phoenix will reimburse Chrysalis for one-half of these costs.
Chrysalis has retained Kissel Blake, a division of Shareholder Communications
Corporation to aid in the solicitation of proxies and to verify certain records
related to the solicitations. Kissel Blake will receive a fee of $7,500 as
compensation for its services and reimbursement for its related out-of-pocket
expenses. Chrysalis has agreed to indemnify Kissel Blake against specified
liabilities arising out of or in connection with its engagement.
56
<PAGE>
FINANCIAL STATEMENT PRESENTATION AND EXCHANGE RATES
Phoenix expects that after the merger it will be a "foreign private issuer"
under the Securities Exchange Act of 1934. As a foreign private issuer, Phoenix
will be able to file reports under the Securities Exchange Act pursuant to the
multi-jurisdictional disclosure system. The system permits eligible companies in
the U.S. and Canada to offer securities in each other's country using the
disclosure documents of their home country. Under Canadian corporate and
securities law, Phoenix is required to prepare and file financial information
under Canadian GAAP. The differences between Canadian GAAP and U.S. GAAP may
result in material differences for Phoenix. For a reconciliation to U.S. GAAP of
Phoenix's financial statements for each of the three years ended August 31,
1998, see Note 15 to the consolidated financial statements of Phoenix beginning
on page F-2. Phoenix will continue to report its results under Canadian GAAP
after the merger, and will continue providing a reconciliation to U.S. GAAP.
The following table presents, for each period indicated:
- the high and low exchange rates for one U.S. dollar expressed in Canadian
dollars;
- the average of those exchange rates on the last day of each month during
each period; and
- the exchange rate at the end of each period.
The exchange rates are based upon the noon buying rate determined by the Federal
Reserve Bank of New York.
<TABLE>
<CAPTION>
(IN CANADIAN DOLLARS)
-------------------------------------------------------------------
THREE MONTHS
ENDED YEAR ENDED AUGUST 31,
NOVEMBER 30, -----------------------------------------------------
1998 1998 1997 1996 1995 1994
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
High........................................ $ 1.5570 $ 1.5770 $ 1.3995 $ 1.3822 $ 1.4238 $ 1.3954
Low......................................... $ 1.5012 $ 1.3713 $ 1.3310 $ 1.3285 $ 1.3373 $ 1.2935
Average..................................... $ 1.5310 $ 1.4490 $ 1.3707 $ 1.3634 $ 1.3742 $ 1.3573
Period End.................................. $ 1.5230 $ 1.5745 $ 1.3890 $ 1.3685 $ 1.3432 $ 1.3712
</TABLE>
The following table presents, for each period indicated:
- the high and low exchange rates for one Canadian dollar expressed in U.S.
dollars:
- the average of those exchange rates on the last day of each month during
each period; and
- the exchange rate at the end of each period.
The exchange rates are based upon the noon buying rate determined by the Federal
Reserve Bank of New York.
<TABLE>
<CAPTION>
(IN U.S. DOLLARS)
-------------------------------------------------------------------
THREE MONTHS
ENDED YEAR ENDED AUGUST 31,
NOVEMBER 30, -----------------------------------------------------
1998 1998 1997 1996 1995 1994
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
High........................................ $ 0.6423 $ 0.6341 $ 0.7145 $ 0.7235 $ 0.7023 $ 0.7166
Low......................................... $ 0.6661 $ 0.7292 $ 0.7513 $ 0.7527 $ 0.7478 $ 0.7731
Average..................................... $ 0.6532 $ 0.6901 $ 0.7296 $ 0.7335 $ 0.7277 $ 0.7368
Period End.................................. $ 0.6564 $ 0.6351 $ 0.7199 $ 0.7307 $ 0.7445 $ 0.7293
</TABLE>
57
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated financial information is derived from the
financial information listed below, adjusted to give effect to the transactions
described below:
- audited historical consolidated information of Phoenix as at and for the
year ended August 31, 1998
- unaudited interim historical consolidated information of Phoenix as at and
for the three months ended November 30, 1998
- unaudited historical consolidated financial information of Chrysalis for
the 12 months ended September 30, 1998
- unaudited historical consolidated financial information of Chrysalis for
the 3 months ended December 31, 1998
- audited historical consolidated balance sheet financial information in
U.S. GAAP and in U.S. dollars of Chrysalis as at December 31, 1998
The historical unaudited consolidated income statement of Chrysalis for the 12
months ended September 30, 1998 was calculated from Chrysalis' unaudited
financial statements for the quarter ended December 31, 1997 and the Chrysalis
unaudited interim financial statements for the nine months ended September 30,
1998. The unaudited pro forma consolidated statements of income (loss) for the
year ended August 31, 1998 and the three month period ended November 30, 1998
give effect to the following transactions as if they had occurred on September
1, 1997:
- Phoenix's acquisition of IBRD-Rostrum during the year ended August 31,
1998; and
- the merger and certain related transactions.
The unaudited pro forma consolidated balance sheet gives effect to the merger
and related transactions as if they had occurred on November 30, 1998.
The IBRD-Rostrum transactions include the Phoenix acquisition of IBRD-Rostrum
and the assumption of indebtedness and the necessary purchase accounting and
elimination entries. The IBRD-Rostrum acquisition was completed on February 6,
1998. The Chrysalis transactions include:
- the merger, including the repayment of indebtedness, and the preliminary
purchase accounting and elimination entries;
- the conversion of each share of Chrysalis common stock, including stock
options, into approximately 1,001,208 Phoenix common shares and
approximately 154,000 Phoenix stock options; and
- the incurrence of indebtedness relating to the repayment of the Chrysalis
indebtedness referred to in the first bullet point above.
The IBRD-Rostrum transactions and the Chrysalis transactions have been accounted
for using the purchase method of accounting under both Canadian GAAP and U.S.
GAAP in the unaudited pro forma consolidated financial information.
The unaudited pro forma consolidated financial information does not necessarily
represent what Phoenix's results of operations or financial condition would have
been had the IBRD-Rostrum transactions and Chrysalis transactions actually
occurred on the dates indicated and is not a prediction of Phoenix's results of
operations or financial condition in the future. You should read the unaudited
pro forma consolidated financial information in conjunction with the historical
consolidated financial statements of Phoenix, IBRD-Rostrum and Chrysalis and the
notes thereto, "Management's Discussion and Analysis
58
<PAGE>
of Financial Condition and Results of Operations of Phoenix" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Chrysalis."
The unaudited pro forma consolidated financial information has been prepared in
accordance with Canadian GAAP, which differs in certain material respects from
U.S. GAAP. Note 15 to the consolidated financial statements of Phoenix describes
the principal differences between Canadian GAAP and U.S. GAAP as they relate to
Phoenix. Note 10 to the unaudited pro forma consolidated financial information
includes a reconciliation of the unaudited pro forma consolidated balance sheet
and unaudited pro forma consolidated statements of income (loss) from Canadian
GAAP to U.S. GAAP.
The unaudited pro forma consolidated financial information is presented in
Canadian dollars. The audited historical financial statements of Phoenix are
presented in Canadian dollars and are in accordance with Canadian GAAP. The
unaudited historical consolidated financial statements of Chrysalis are
presented in U.S. dollars and are in accordance with U.S. GAAP. For the purpose
of presenting the unaudited pro forma consolidated financial information, the
Chrysalis statement of income for the three months ended December 31, 1998 was
translated into Canadian dollars at a rate of 1.5310 Canadian dollars per 1.00
U.S. dollar. The Chrysalis statement of income for the 12 months ended September
30, 1998 was translated into Canadian dollars at a rate of 1.4490 Canadian
dollars per 1.00 U.S. dollar. Phoenix has translated the audited historical
consolidated balance sheet of Chrysalis at December 31, 1998 into Canadian
dollars at a rate of 1.5230 Canadian dollars for 1.00 U.S. dollar. You should
not view Phoenix's use of these exchange rates in the unaudited pro forma
consolidated financial information as a representation that the U.S. dollar
amounts actually represent these Canadian dollar amounts or could be converted
into Canadian dollars at the rate indicated or at any other rate, at any time.
In preparing the pro forma adjustments reflected in the accompanying notes,
Phoenix made estimates and assumptions that it believes to be reasonable. The
unaudited pro forma consolidated statements of income (loss) do not include
adjustments for any synergies, including cost savings, or restructuring costs,
which may occur or are expected to occur as a result of the IBRD-Rostrum or
Chrysalis transactions. See also Note 6 to the unaudited pro forma consolidated
financial information.
The pro forma adjustments do not reflect the acquisitions by Phoenix of either
Clinserve or McKnight because they are not significant to the consolidated
financial statements of Phoenix.
The Phoenix common shares currently trade on the Montreal Exchange and Toronto
Stock Exchange and are traded in Canadian dollars. Phoenix calculated the
approximate number of 1,001,208 Phoenix common shares and 154,000 Phoenix stock
options to be issued in the merger using the formula described in "The Merger
Agreement--Effect on Chrysalis Common Stock and Outstanding Options."
59
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS)
FOR THE THREE MONTH PERIOD ENDED NOVEMBER 30, 1998
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
UNAUDITED
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL
PHOENIX CHRYSALIS CHRYSALIS
THREE MONTH THREE MONTH THREE MONTH ADJUSTMENTS FOR
PERIOD ENDED PERIOD ENDED PERIOD ENDED 1998 CHRYSALIS PRO FORMA
NOVEMBER 30, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998 TRANSACTION PHOENIX
<S> <C> <C> <C> <C> <C>
CDN $ US $ CDN $ CDN $ CDN $
----------------- ----------------- ----------------- ---------------- ------------
<CAPTION>
(NOTE 5)
<S> <C> <C> <C> <C> <C>
Gross revenues................. 74,163 11,329 17,345 91,508
Reimbursed costs............... 15,502 709 1,085 16,587
----------------- ----------------- ----------------- ---------------- ------------
Net revenues................... 58,661 10,620 16,260 74,921
Direct costs--net of refundable
tax credits.................. 34,695 7,395 11,322 46,017
----------------- ----------------- ----------------- ---------------- ------------
Gross profit................... 23,966 3,225 4,938 28,904
----------------- ----------------- ----------------- ---------------- ------------
Expenses--net of refundable tax
credits
Selling, general and
administrative............... 17,520 4,134 6,329 23,849
Internal research and
development.................. 866 -- -- 866
Interest expense............... 1,425 434 663 (498)(8) 1,876
286(8)
Amortization of goodwill and --
other intangible assets...... 732 -- -- 256(9) 988
Restructuring costs............ -- 3,872 5,928 5,928
Non-refundable tax credits..... (1,500) -- (1,500)
----------------- ----------------- ----------------- ---------------- ------------
4,923 (5,215) (7,982) (44) (3,103)
----------------- ----------------- ----------------- ---------------- ------------
Interest and other income...... 246 254 387 633
----------------- ----------------- ----------------- ---------------- ------------
Income (loss) before income
taxes........................ 5,169 (4,961) (7,595) (44) (2,470)
Income taxes................... 2,315 512 782 3,097
----------------- ----------------- ----------------- ---------------- ------------
Net income (loss).............. 2,854 (5,473) (8,377) (44) (5,567)
----------------- ----------------- ----------------- ---------------- ------------
----------------- ----------------- ----------------- ---------------- ------------
Weighted Average Shares
Outstanding.................. 25,155,226 11,523,105 1,001,208(6) 26,156,434
(11,523,105)(6)
----------------- ----------------- ---------------- ------------
----------------- ----------------- ---------------- ------------
Basic Earnings (Loss) Per
Share........................ 0.11 (0.73) (0.21)
----------------- ----------------- ------------
----------------- ----------------- ------------
</TABLE>
60
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS) FOR THE YEAR ENDED
AUGUST 31, 1998
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
UNAUDITED
<TABLE>
<CAPTION>
12 MONTH PERIOD ENDED
YEAR ENDED AUGUST 31, 1998 SEPTEMBER 30, 1998
--------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ADJUSTMENTS ADJUSTMENTS
FOR 1998 PRO FORMA FOR 1998
HISTORICAL IBRD- ROSTRUM HISTORICAL HISTORICAL HISTORICAL CHRYSALIS PRO FORMA
PHOENIX TRANSACTION PHOENIX CDN CHRYSALIS US CHRYSALIS TRANSACTION PHOENIX CDN
CDN $ CDN $ $ $ CDN $ CDN $ $
----------- ------------- ----------- ------------- ------------ ------------ -----------
<CAPTION>
(NOTE 1) (NOTE 5)
<S> <C> <C> <C> <C> <C> <C> <C>
Gross revenues........... 218,360 41,367 259,727 45,631 66,119 325,846
Reimbursed costs......... 47,122 15,301 62,423 5,243 7,597 70,020
----------- ------ ----------- ------ ------------ ------------ -----------
Net revenues............. 171,238 26,066 197,304 40,388 58,522 255,826
Direct costs--net of
refundable tax
credits................ 99,971 22,993 122,964 31,448 45,568 168,532
----------- ------ ----------- ------ ------------ ------------ -----------
Gross profit............. 71,267 3,073 74,340 8,940 12,954 87,294
----------- ------ ----------- ------ ------------ ------------ -----------
EXPENSES--NET OF
REFUNDABLE TAX CREDITS
Selling, general and
administrative......... 51,855 4,341 56,196 14,963 21,683 77,879
Internal research and
development............ 3,698 -- 3,698 -- -- 3,698
Interest expense......... 3,323 1,175(3) 4,498 1,280 1,855 (1,261)(8) 6,235
1,143(8)
Amortization of goodwill
and other intangible
assets................. 2,164 472(2) 2,636 -- -- 1,021(9) 3,657
Write-off of deferred
start up costs......... 932 -- 932 -- -- 932
Non-refundable tax
credits................ (5,000) -- (5,000) -- -- (5,000)
----------- ------ ----------- ------ ------------ ------------ -----------
14,295 (2,915) 11,380 (7,303) (10,584) (903) (107)
----------- ------ ----------- ------ ------------ ------------ -----------
Interest and other
income................. 1,282 40 1,322 334 484 1,806
Share in earnings of
equity accounted
investees.............. 114 -- 114 -- -- 114
----------- ------ ----------- ------ ------------ ------------ -----------
Income (loss) before
income taxes........... 15,691 (2,875) 12,816 (6,969) (10,100) (903) 1,813
Income taxes............. 6,624 172(4) 6,796 363 526 7,322
----------- ------ ----------- ------ ------------ ------------ -----------
Net income (loss)........ 9,067 (3,047) 6,020 (7,332) (10,626) (903) (5,509)
----------- ------ ----------- ------ ------------ ------------ -----------
Weighted Average Shares
Outstanding............ 24,478,111 11,432,141 1,001,208(6) 25,479,319
----------- ------------ -----------
Basic Earnings (Loss) Per
Share.................. 0.37 (0.93) (11,432,141)(6) (0.22)
----------- -----------
</TABLE>
61
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS AT NOVEMBER 30, 1998
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
UNAUDITED
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
PHOENIX CHRYSALIS
CDN $ US $
AS AT AS AT HISTORICAL CHRYSALIS PRO FORMA
NOVEMBER 30, DECEMBER 31, CHRYSALIS TRANSACTION PHOENIX
1998 1998 CDN $ CDN $ CDN $
------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(NOTE 5)
ASSETS
Current
Cash...................................... 18,329 6,705 10,212 28,541
Marketable securities..................... 2,000 -- -- 2,000
Accounts receivable....................... 56,459 8,766 13,351 69,810
Investment tax credits recoverable........ 3,886 -- -- 3,886
Costs and estimated profit in excess of
progress billings on contracts in
progress................................ 28,147 -- -- 28,147
Other..................................... 8,741 1,928 2,936 11,677
------------- ------------- ------------- ------------- -----------
117,562 17,399 26,499 144,061
------------- ------------- ------------- ------------- -----------
Capital assets............................ 59,624 15,686 23,890 1,874(6) 85,388
Goodwill and other long term assets....... 126,729 1,496 2,278 16,699(6) 145,706
------------- ------------- ------------- ------------- -----------
303,915 34,581 52,667 18,573 375,155
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness......................... 3,565 2,931 4,464 8,029
Accounts payable and accrued
liabilities............................. 56,768 12,384 18,861 4,103(6) 79,732
Current portion of long-term debt, related
party note and capital lease
obligations............................. 8,382 5,140 7,828 (7,626)(6) 16,210
7,626(8)
Progress billings in excess of costs and
estimated profit on contracts in
progress................................ 42,334 5,297 8,067 -- 50,401
------------- ------------- ------------- ------------- -----------
111,049 25,752 39,220 4,103 154,372
------------- ------------- ------------- ------------- -----------
Long-term debt and capital lease
obligations............................. 41,843 6,010 9,153 (6,051)(6) 52,560
6,051(8)
1,564(6)
Other long term liabilities............... 3,718 2,557 3,894 7,612
------------- ------------- ------------- ------------- -----------
156,610 34,319 52,267 5,667 214,544
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------
Shareholders' equity
Capital stock............................. 125,027 115 175 (175)(7) 138,293
13,266(6)
Additional paid in capital................ -- 59,003 89,862 (89,862)(7) --
Stock options............................. -- -- -- 40(6) 40
Cumulative translation adjustment......... 1,165 (108) (164) 164(7) 1,165
Retained earnings (deficit)............... 21,113 (58,748) (89,473) 89,473(7) 21,113
------------- ------------- ------------- ------------- -----------
147,305 262 400 12,906 160,611
------------- ------------- ------------- ------------- -----------
303,915 34,581 52,667 18,573 375,155
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------
</TABLE>
62
<PAGE>
NOTES TO UNAUDITED PRO-FORMA CONSOLIDATED FINANCIAL INFORMATION
[AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AMOUNTS]
NOTE 1
Reflects the operations of IBRD-Rostrum from September 1, 1997 to February 6,
1998. Phoenix has translated amounts into Canadian dollars at the rate of 1.42
Canadian dollars for each U.S. dollar. That rate is the average exchange rate
for the period September 1, 1997 to February 6, 1998 used by Phoenix in the
preparation of the Phoenix consolidated financial statements.
NOTE 2
Reflects the net pro forma amount of goodwill amortization of $472 following the
revaluation of the assets and liabilities of IBRD-Rostrum:
<TABLE>
<S> <C>
Goodwill amortization of purchased businesses of IBRD-Rostrum as
reflected in Note 1 $ 1,715
Reversal of goodwill amortization (1,715)
Amortization of goodwill of Phoenix incurred in connection with the
IBRD-Rostrum transactions 472
---------
PRO FORMA AMORTIZATION OF GOODWILL $ 472
---------
---------
</TABLE>
NOTE 3
Reflects the amount of pro forma interest expense of $1,175 related to the
borrowings for the IBRD-Rostrum transactions:
<TABLE>
<S> <C>
Interest expense of purchased businesses as reflected in Note 1 $ 102
Reversal of interest for debt repaid in connection with IBRD-Rostrum
transaction (102)
Interest expense that would have been incurred on borrowings of
approximately U.S. $26.3 million to effect the IBRD-Rostrum
transaction, bearing interest at approximately 7.5% 1,175
---------
NET INCREASE IN INTEREST EXPENSE $ 1,175
---------
---------
</TABLE>
NOTE 4
Reflects the assumed tax effect of results of the operations of IBRD-Rostrum as
defined in notes 1, 2, and 3.
NOTE 5
Phoenix has reclassified the Chrysalis historical unaudited consolidated
financial information to conform to Phoenix's presentation.
NOTE 6
To record (1) $4,103 of additional Phoenix accounts payable necessary to fund
certain obligations of the merger, (2) the issuance of 1,001,208 Phoenix common
shares in the merger having an aggregate value of $13,266 based on the closing
value of the Phoenix common shares of $13.25 per share on the
63
<PAGE>
Toronto Stock Exchange on April 1, 1999, (3) the issuance of approximately
154,000 options to purchase Phoenix common shares with a fair value of
approximately $40 and (4) goodwill, which is the excess of purchase price over
the assumed fair value of the identifiable net assets acquired.
Phoenix assumed that the historical carrying value of the tangible and
intangible assets of Chrysalis approximated fair value, except for those assets
identified in the following table:
Phoenix calculated goodwill as follows:
<TABLE>
<S> <C>
PRO FORMA CARRYING VALUE:
Carrying value of Chrysalis before pro forma adjustments 400
PRO FORMA ADJUSTMENTS:
Fair value adjustments
Patent license-excess of fair value over carrying value 1,568(d)
Land-excess of fair value over carrying value 1,874(e)
MDS note-increase in value of liability (1,564)
Intangible asset -- AAALAC accreditation 185(g)
Intangible asset -- Senior scientific staff 270(h)
Repayment of indebtedness:
Payment of current portion of long-term debt and related party note 7,626(a)
Payment of long-term debt 6,051(a)
Payment of fair value increment on MDS note 1,564(a)
---------
Pro forma carrying value 17,974
---------
---------
CONSIDERATION EXCHANGED:
Assumed fair value of Phoenix common shares issued 13,266
Assumed fair value of Phoenix stock options issued 40(f)
Debt incurred on acquisition for the following:
Current portion of long-term debt 7,626
Long-term debt 6,051
MDS note 1,564
---------
Total consideration exchanged 28,547
---------
---------
Liabilities assumed on acquisition for estimated costs of the
merger 4,103(b)
---------
Pro forma goodwill 14,676(c)
---------
---------
</TABLE>
a. The merger agreement requires Phoenix to repay substantially all of the
short-term debt and long-term debt of Chrysalis, except for mortgages on
Chrysalis' Scranton, Pennsylvania properties.
b. This amount includes legal, financial, accounting, and other costs incurred
by Phoenix and Chrysalis to complete the merger. These fees are
non-recurring. Therefore, no adjustment has been made to the unaudited
pro-forma statements of income (loss).
c. Phoenix has not made any adjustments for any synergies, including cost
savings, or restructuring costs, which may or are expected to occur as a
result of the merger. Chrysalis expects to incur approximately $5,924, or
US$3,872, in severance and restructuring costs relating to restructuring
plans and has accrued this amount in its historical audited financial
statements for the year ended December 31, 1998, which were used in
compiling the unaudited pro-forma consolidated financial information.
Phoenix anticipates that there will be additional restructuring costs to be
incurred by Phoenix as a result of the merger. These costs may form part of
the purchase price allocation which would increase goodwill by a
corresponding amount.
64
<PAGE>
d. Phoenix has computed the fair value for the DNA microinjection patent
license by calculating the net present value of the expected net cash flows
generated by the patent license over the remainder of its seven year life,
using a discount rate of 10%.
e. An independent appraiser engaged by Phoenix has determined that the fair
value of certain of Chrysalis' land exceeds the book value by $1,874.
f. In accordance with the merger agreement, Phoenix will issue approximately
154,000 Phoenix stock options in exchange for approximately 1,800,000 stock
options of Chrysalis. The fair value of these options, $40, has been
included as part of the consideration paid by Phoenix. The fair value of
each option was estimated as the amount by which the Phoenix share price of
$13.25 on April 1, 1999, exceeded the exercise price of the Phoenix stock
option to be granted.
g. Phoenix estimated the fair value associated with the American Association Of
Accreditation of Laboratory Animal Colonies (AAALAC) accreditation to be
$185, based on an estimate of the costs associated with obtaining this
accreditation.
h. Phoenix estimated the fair value of hiring and training the qualified expert
scientific staff required to perform transgenic/genomic services to be $270,
based on the costs that would be incurred to hire and train this staff.
NOTE 7
To eliminate equity accounts on the consolidation of Chrysalis.
NOTE 8
Additional debt incurred to repay the following indebtedness:
<TABLE>
<S> <C>
Current portion of long-term debt, including related party note $ 7,626
Long-term debt 6,051
Increment on MDS note 1,564
---------
$ 15,241
---------
---------
</TABLE>
An assumption was made that interest on the additional debt would be at 7.5%.
The assumption results in additional interest expense of $1,143 for the 12
months ended August 31, 1998, and $286 for the 3 months ended November 30, 1998.
NOTE 9
To record the amortization of goodwill and the fair value increment related to
identifiable intangible assets in accordance with the following table:
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD ANNUAL QUARTERLY
DESCRIPTION OF INTANGIBLE COST (YEARS) AMORTIZATION AMORTIZATION
- ---------------------------------------- --------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Goodwill................................ $ 14,676 20 $ 734 $ 184
Microinjection Patent................... 1,568 7 224 56
AAALAC accreditation.................... 185 20 9 2
Expert scientific staff................. 270 5 54 14
--------- --- ------------ -----
16,699 1,021 256
</TABLE>
The actual amortization of goodwill recorded upon consummation of the merger
will differ from this amount because of differences between the estimated and
final allocation of the purchase price to the net assets acquired. The
differences may be material.
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NOTE 10
The unaudited pro forma consolidated financial information has been prepared in
accordance with Canadian GAAP. Note 15 to the consolidated financial statements
of Phoenix sets out the material adjustments to Phoenix's reported net income
and balance sheet in order to conform to U.S. GAAP and the practices and
principles required by the Securities and Exchange Commission. None of the pro
forma adjustments made under Canadian GAAP would be different under U.S. GAAP
except as described in the paragraph below.
Under Canadian GAAP, the aggregate value for accounting purposes of the Phoenix
common shares and stock options to be issued in the merger will only be known
with certainty once the Chrysalis transactions are consummated. Phoenix will
calculate the value for accounting purposes by referring to the prevailing value
of the Phoenix common shares for a short period of time before and after the
date the merger is completed. Therefore, the estimated values for the Phoenix
common shares and stock options contained in the unaudited pro forma
consolidated financial information will differ from actual values. These
differences may be material. This differs from U.S. GAAP which requires the
value of the Phoenix common shares and stock options for accounting purposes to
be determined by reference to the market value of the Phoenix common shares for
a short period of time both before and after the date the merger was announced.
The following tables summarize selected U.S. GAAP pro forma balance sheet and
statement of income (loss) data, but do not reflect adjustments for this
difference because it is not currently possible to quantify this difference. For
U.S. GAAP purposes, the estimated value of the Phoenix common shares and stock
options would be approximately $13,200 based on the average Phoenix common share
value for the 5 days before and after November 18, 1998.
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UNAUDITED PRO FORMA STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
3 MONTHS ENDED YEAR ENDED
NOVEMBER 30, 1998 AUGUST 31, 1998
---------------------------- ----------------------------
<S> <C> <C>
THOUSANDS OF CANADIAN THOUSANDS OF CANADIAN
DOLLARS DOLLARS
EXCEPT PER SHARE AMOUNTS EXCEPT PER SHARE AMOUNTS
Net income of Phoenix in accordance with U.S. GAAP $ 2,691 $ 11,501
PRO FORMA ADJUSTMENTS UNDER U.S. AND CANADIAN GAAP:
Adjustments for historical Chrysalis Statement of
Income (8,377) (10,626)
Adjustments for the 1998 IBRD-Rostrum transaction -- (3,047)
Adjustments for the Chrysalis transactions (44) (903)
----------- -----------
Pro forma net loss in accordance with U.S. GAAP (5,730) (3,075)
Foreign currency translation adjustment of Phoenix.... 30 1,135
Foreign currency translation adjustment of
Chrysalis........................................... 365 (186)
----------- -----------
Pro forma comprehensive loss in accordance with U.S.
GAAP................................................ (5,335) (2,126)
----------- -----------
Pro forma weighted average shares outstanding 27,048,397(a) 25,829,753(a)
----------- -----------
Pro forma basic and diluted loss per share $ (0.21) $ (0.12)
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(a) Pro forma weighted average shares outstanding under U.S. GAAP exceeds the
number under Canadian GAAP because business combinations occurred in both
periods. The purchase method was applied to all of these business
combinations for Canadian GAAP. Under the purchase method, Phoenix common
shares issued in the business combinations are considered outstanding from
the date of the business combination. The pooling of interests method was
applied to some of these business combinations for U.S. GAAP. Under the
pooling of interests method, Phoenix common shares issued in the business
combinations are considered outstanding as of September 1, 1997.
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<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
NOVEMBER 30, 1998
------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRO FORMA ADJUSTMENTS
----------------------------------
<CAPTION>
[IN THOUSANDS OF CANADIAN DOLLARS,
EXCEPT PER SHARE AMOUNTS]
ADJUSTMENTS FOR
HISTORICAL HISTORICAL ADJUSTMENTS FOR
PHOENIX CHRYSALIS 1998 CHRYSALIS
U.S.GAAP U.S.GAAP ACQUISITION PRO FORMA
NOVEMBER 30, 1998 DECEMBER 31, 1998 TRANSACTIONS U.S. GAAP
----------------- ----------------- --------------- -----------
<S> <C> <C> <C> <C>
Current assets............................... $ 117,562 $ 26,499 -- $ 144,061
Non-current assets 118,729 26,168 $ 18,573 163,470
-------- -------- --------------- -----------
TOTAL ASSETS................................. 236,291 52,667 18,573 307,531
-------- -------- --------------- -----------
-------- -------- --------------- -----------
Current liabilities.......................... 111,049 39,220 4,103 154,372
Non-current liabilities 45,561 13,047 1,564 60,172
-------- -------- --------------- -----------
TOTAL LIABILITIES............................ 156,610 52,267 5,667 214,544
-------- -------- --------------- -----------
Capital stock................................ 57,100 175 13,091 70,366
Cumulative translation adjustment............ 714 (164) 164 714
Additional paid-in capital................... 1,686 89,862 (89,862) 1,686
Stock options................................ -- -- 40 40
Retained earnings............................ 20,181 (89,473) 89,473 20,181
-------- -------- --------------- -----------
TOTAL SHAREHOLDERS' EQUITY................... 79,681 400 12,906 92,987
-------- -------- --------------- -----------
$ 236,291 $ 52,667 $ 18,573 $ 307,531
-------- -------- --------------- -----------
-------- -------- --------------- -----------
</TABLE>
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<PAGE>
DESCRIPTION OF PHOENIX
OVERVIEW
Phoenix is one of the largest contract research organizations in the world,
providing a comprehensive range of research and development services to the
pharmaceutical and biotechnology industries. Phoenix's largest single business
measured by revenues is Phase II-IV clinical research services, for which it
believes it is a leading provider with operations in the United States, Canada
and Europe. Phoenix is also one of the world's leading contract research
organization providers of bioanalytical services to drug companies, based on
laboratory throughput capacity. Phoenix believes it is also a leading provider
of Phase I clinical research services, with over 500 beds located in the United
States, Canada and Germany. In addition to these core services, Phoenix offers a
variety of related services and products, and is a pioneer in the development of
emerging services, such as drug discovery support.
With the proposed acquisition of Chrysalis, Phoenix believes that, unlike most
other contract research organizations, it will be able to provide all major
functions required for drug development, from just after drug discovery through
to registration of the final product and post-marketing studies. Phoenix
believes that the breadth and depth of its service offerings distinguish it from
its competitors, while providing a diversified revenue base and portfolio of
business. Moreover, Phoenix believes that the acquisition of Chrysalis will add
further balance to its service profile, with the business distributed between
four main lines of business:
- discovery support/preclinical;
- Phase I clinical studies;
- Phase II-IV clinical studies; and
- laboratory services.
Phoenix believes that balancing its business mix in this way will lessen the
financial impact of a possible downturn in any one service area, and will
decrease the financial impact of possible cancellation of major contracts in
Phase II-IV clinical research.
Phoenix emphasizes scientific expertise and innovation throughout its
operations. Phoenix pioneered, and is a leader in, the use of liquid
chromatography/mass spectrometry instruments, which analyze drugs in biological
fluids. These bioanalytical methods combine accuracy and sensitivity with high
throughput capabilities that at times can significantly reduce test times from a
month to a week. In the emerging field of drug discovery support, Phoenix has
developed new methods for accelerating drug candidate optimization.
Phoenix believes that it has built a scientific organization with quality and
depth that is widely recognized in the drug development industry. Phoenix also
believes this scientific organization possesses the expertise to conduct
scientifically challenging laboratory and clinical studies. Of the 2,036 people
employed by Phoenix on November 30, 1998, 179 held medical degrees or Ph.D.'s
and 230 held masters degrees. Phoenix's employees include:
- chemists;
- biochemists;
- clinical researchers;
- pharmacokineticists;
- physicians;
- pharmacologists;
- statisticians; and
- computer software specialists with expertise in various aspects of the
drug development process.
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Phoenix is headquartered in Montreal. Phoenix began operations in 1989 and
became a public company listed on the Toronto Stock Exchange and the Montreal
Exchange in 1994. Phoenix has expanded its core bioanalytical and Phase I
businesses primarily through internal growth. Phoenix has grown rapidly in the
Phase II-IV market, primarily through acquisitions. In August 1997, Phoenix
acquired ITEM, a leading European Phase II-IV contract research organization. In
February 1998, Phoenix acquired IBRD-Rostrum, an international contract research
organization with Phase II-IV operations in the United States, the United
Kingdom and continental Europe, and a presence in South Africa. Phase II-IV is
now Phoenix's largest single business.
Over the last two years, Phoenix has provided bioanalytical or Phase I services
to 18 of the largest 20 pharmaceutical companies in the world, as ranked by
revenues, and believes it provided these services to all of the major generic
drug companies in North America. During the same time period, Phoenix, ITEM and
IBRD-Rostrum together have provided Phase II-IV services to 17 of the largest 20
pharmaceutical companies in the world. Over the last two years Phoenix, ITEM and
IBRD-Rostrum have performed one or more of its services for 19 of the 20 largest
pharmaceutical companies in the world, as rated by 1997 revenues.
INDUSTRY OVERVIEW
GENERAL
The contract research organization industry provides independent drug research
and drug development services for the pharmaceutical and biotechnology
industries. Companies in these industries outsource these services to contract
research organizations in order to manage the drug development process more
efficiently and cost effectively. The contract research organization industry
has evolved since the 1970s. It began with a small number of companies that
provided limited pre-clinical and clinical services. The industry has grown into
a larger number of contract research organizations that offer a range of
services encompassing most of the research and development process, including:
- drug discovery support;
- pre-clinical development;
- bioanalysis;
- clinical studies;
- clinical data management;
- study design;
- biostatistical analysis;
- pharmaceutical product analysis; and
- regulatory affairs services.
Contract research organizations derive a significant portion and in many cases
substantially all of their revenue from the research and development
expenditures of pharmaceutical and biotechnology companies. Phoenix estimates
that 1997 worldwide expenditures by pharmaceutical and biotechnology companies
on drug research and development were at least US$35 billion, of which
approximately US$23 billion were for services of the type offered by contract
research organizations. Phoenix further estimates that in 1997, pharmaceutical
and biotechnology companies outsourced approximately US$3.9 billion of these
expenditures to contract research organizations.
The contract research organization industry is highly fragmented with hundreds
of small, limited-service providers, a limited number of contract research
organizations with multinational operations, and fewer still that offer a
comprehensive range of services. Phoenix believes that there are significant
barriers to
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<PAGE>
becoming a full-service contract research organization with multinational
capabilities. These barriers include:
- the experience and infrastructure necessary to meet the demands of
clients;
- the ability to manage simultaneously complex clinical trials in numerous
countries;
- the ability to provide expertise across a broad range of therapeutic
areas;
- the ability to provide a wide range of services;
- the capability to make large-scale investments in information technology;
- the high cost of compliance with government regulations;
- capital constraints; and
- the time it takes to build a scientific organization and accumulate
scientific and technical know-how.
In recent years, the contract research organization industry has experienced
consolidation, leading to the emergence of a small group of contract research
organizations that have the capital, technical resources, multinational
capabilities and expertise to conduct multiple phases of clinical and other
studies. Phoenix believes that in order to reduce administrative burdens and
enhance quality, large pharmaceutical companies are increasingly selecting from
a limited number of multi-service contract research organizations with which to
work. Phoenix believes that industry consolidation will lead to further
opportunities for larger contract research organizations with a track record of:
- quality;
- speed;
- flexibility;
- responsiveness;
- multinational capabilities; and
- scientific expertise.
TYPES OF CONTRACT RESEARCH ORGANIZATION SERVICES
Although demand has grown for a variety of contract research organization
services over the years, individual contract research organizations have
historically provided a limited range of services that encompass only specific
phases of the drug development process. This is because the skills and expertise
required to address different phases of the drug development process vary
markedly. The principal types of services of the contract research organization
market are:
PHASE I CLINICAL STUDIES SERVICES. Phase I clinical studies play a critical
role in:
(1) screening new drug candidates for human safety; and
(2) establishing initial doses in patients prior to entering more expensive,
later phase clinical trials involving much larger groups of people.
Phase I clinical studies are typically conducted on small groups of 20 to 80
healthy human volunteers and generally take six months to one year to complete.
According to industry sources, Phase I clinical studies accounted for
approximately 8% of contract research organization industry revenue in 1997.
Phase I clinical studies fall into three broad categories:
(1) early Phase I studies to determine the safety and pharmacokinetics of a
drug candidate being tested on humans for the first time;
(2) later Phase I studies to further evaluate the pharmacokinetics and
pharmacodynamics of the drug candidate; and
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<PAGE>
(3) bioequivalence studies to compare two different formulations of the same
drug.
Since early Phase I studies involve the introduction of new drug candidates into
humans for the first time, they are typically conducted in a highly controlled
environment similar to that which exists in the intensive care unit of a
hospital. On site medical doctors, registered nurses and clinical investigators
constantly monitor the subjects. Later Phase I studies are conducted in a
somewhat less rigorous but still highly controlled environment. Bioequivalence
studies involve comparing two formulations of the same drug, with the test drugs
being new formulations of either:
- experimental or brand name drugs; or
- generic formulations of approved drugs for which patents are expiring.
Bioequivalence studies are usually conducted in less medically intensive, but
still rigorous settings.
The European market for Phase I contract research organization services benefits
from a regulatory environment that is less strict than in the United States. The
European regulatory environment allows pharmaceutical companies to launch early
Phase I clinical studies. For example, in Germany, a Phase I study can be
launched as soon as the regulatory authority has been notified. In the U.K., a
Phase I study can be launched as soon as the institutional review board has
approved the trial with no need of informing the regulatory agency whatsoever.
The standards are in contrast to the 30-day statutory review period required in
the United States or the 60-day regulatory review period required in Canada.
Global pharmaceutical companies often initiate early Phase I studies in Europe
to speed the early phases of drug development and then conduct subsequent phases
in North America. According to a report of the Drugs Directorate Clinical Trial
Working Group (Health Canada, January 22, 1997), Canadian regulatory authorities
have received a recommendation to shorten the review period for Phase I clinical
studies, virtually eliminating the waiting period and matching the 24-hour
European standard. Phoenix believes that if regulatory changes implementing this
proposal are adopted, the number of Phase I clinical studies conducted in Canada
could significantly increase. There can be no assurance, however, that the
proposed changes will be adopted.
Currently, the market for Phase I clinical studies is made up of many small
providers, with only a few large providers operating in North America and
Europe. Barriers to entry include:
- the capital investment required to build and equip a Phase I clinical
facility;
- the need for experienced and knowledgeable staff to design, manage and
interpret the studies; and
- the sophisticated computerized databases required to identify and recruit
healthy volunteers and patient populations.
PHASE II-IV CLINICAL STUDIES SERVICES. Phase II-IV clinical studies involve
administering a new drug candidate to individuals who suffer from a target
disease or condition to:
- develop the drug's safety profile;
- assess side effects; and
- determine its effectiveness and optimum dosage.
These studies involve testing groups typically ranging from 100 to many
thousands of patients and generally require an average of six years to complete.
Phase II-III clinical studies are conducted prior to regulatory approval of the
drug in order to demonstrate safety and efficacy. Phase IV clinical studies are
conducted after regulatory approval of the drug in order to expand the drug's
approved uses or to demonstrate its effectiveness relative to a competing
product. According to industry sources, Phase II-IV clinical studies accounted
for approximately 62% of contract research organization industry revenue in
1997.
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The market for Phase II-IV clinical studies is consolidating. Increasingly,
pharmaceutical and biotechnology clients are contracting with the larger
contract research organizations capable of conducting clinical studies in
several countries simultaneously. Barriers to entry include:
- the experience and infrastructure necessary to meet the demands of
clients;
- international networks and expertise extending to many countries;
- the ability to provide expertise across many therapeutic areas; and
- the need for large-scale investments in information technology.
BIOANALYTICAL SERVICES. Bioanalysis involves the utilization of precision
instruments to quantify trace levels of drugs and metabolites in body fluids
such as blood or urine. This information is typically used to determine the rate
and extent of drug absorption and metabolism in the body. While all phases of
pre-clinical and clinical studies use bioanalysis, Phase I clinical studies of
new drugs and bioequivalence studies of generic drugs currently account for the
majority of bioanalytical tests. Phoenix believes that the bioanalytical
services sector is growing faster than the contract research organization
industry overall due in part to the increasing number of drug compounds being
tested.
Bioanalytical services are capital and science intensive. The instruments used
in bioanalysis generally range in cost from $50,000 to as much as $650,000 per
instrument. In addition, the test for each drug is different. In order to
quantify the levels of a drug in body fluids, scientists must develop and
validate an assay specific to that drug. Scientists have several analytical
techniques available to determine how best to perform an assay. The important
considerations involved in choosing a technique include:
- specificity;
- accuracy;
- precision;
- sensitivity;
- cost of the assay; and
- the time it takes to complete the assay.
Currently, the market for bioanalytical services is geographically fragmented,
with no single company providing the full range of bioanalytical services
globally. Clients typically prefer suppliers located on the same continent.
Several companies, including Phoenix, have significant market shares in North
America. Barriers to entry include:
- capital constraints; and
- the time and know-how required to
- recruit and train scientists,
- design appropriate laboratory procedures,
- develop or acquire the software necessary to process data efficiently,
and
- become generally accepted in the pharmaceutical industry as a
reputable laboratory.
DRUG DISCOVERY SUPPORT SERVICES. Drug discovery services are a small but
growing component of the contract research organization industry. These services
are designed to screen large numbers of new compounds for pharmacological
activity, safety and therapeutic suitability at a very early stage in the drug
development process. Drug discovery services therefore evaluate a new compound's
potential for later clinical success. Drug discovery support services have taken
on increased importance in recent years as the rate of new drug discovery has
accelerated due to advances in:
- human genomics;
- combinatorial chemistry; and
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- high-throughput screening.
These advances have led to rapid increases in the number of compounds that need
to be screened and analyzed.
Drug discovery support services include:
- chemical services for optimizing lead drug candidates;
- high throughput tests to
- identify active compounds,
- screen out inactive compounds, and
- screen out compounds with inappropriate metabolic, absorption or
toxicity characteristics; and
- animal studies for further pharmacologic, metabolic and pharmacokinetic
profiling, including pharmacologic tests in animals with modified genetic
makeup.
Some tests can be used to screen several drug candidates simultaneously. This
enables pharmaceutical and biotechnology companies to:
- avoid costly clinical studies by eliminating unsuitable drug candidates or
guiding chemical modification of these compounds;
- target their resources on drug candidates with the greatest potential for
success; and
- reduce the time required to submit new drug applications to the FDA in the
United States and other similar regulatory authorities.
PRE-CLINICAL AND ANIMAL SAFETY STUDIES SERVICES. Pre-clinical and animal safety
studies involve the thorough screening of drug candidates that are selected for
further development during the earlier drug discovery and screening phase. These
studies identify, quantify and evaluate the risks to humans. The FDA requires
these studies before a drug can be moved to the clinical phase of development.
Animal toxicity testing, which is used to predict and characterize potential
adverse effects in humans is a key part of the pre-clinical phase. To be
successful in applying for permission to move a drug into the clinical phase of
development, companies must provide data on:
- acute toxicity;
- subacute and chronic toxicity;
- reproductive and developmental toxicology;
- neurotoxicology;
- genetic toxicology;
- capacity of the drug to act as a mutagen; and
- carcinogenicity testing.
According to industry sources, pre-clinical and animal safety services account
for approximately 15% of contract research organization industry revenue.
TRENDS AFFECTING THE CONTRACT RESEARCH ORGANIZATION INDUSTRY
Phoenix believes that the following trends are influencing the overall growth of
the contract research organization industry:
INCREASING DRUG DEVELOPMENT ACTIVITY. Recent improvements in the understanding
of disease, in biotechnology and in drug discovery and screening technologies
have reduced the time required to discover new drug candidates. These
improvements, combined with impending patent expirations on existing brand-name
drugs, have led drug developers to increase the rate at which they are creating
new drug
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candidates. As the number of studies that need to be performed increases,
Phoenix believes that drug developers will rely more on contract research
organizations to conduct and/or manage these studies. Drug developers will
therefor continue to focus on drug discovery and downstream product marketing.
PRESSURE TO CONTAIN COSTS AND ACCELERATE TIME TO MARKET; GLOBALIZATION OF THE
MARKET. Over the last several years, pharmaceutical companies have faced
significant margin pressures. Those pressures include market acceptance of
generic drugs and pressure to reduce drug prices from consumers, governments and
the managed care industry. The pharmaceutical industry is consolidating as
companies seek to reduce costs and increase revenue through business
combinations. In addition, there is a pressing need to increase the speed of new
product development in order to maximize the period of marketing exclusivity for
patent-protected products. As a result, many pharmaceutical companies have
focused on more efficient ways of conducting business and on research innovation
to ensure development of their product pipelines. They use contract research
organizations as a means both to reduce fixed costs and to accelerate the drug
development process. Pursuing regulatory approvals in multiple markets
simultaneously provides better economic returns. Phoenix believes that contract
research organizations with the ability to provide a broad range of services in
many countries will benefit from this trend.
PATENT EXPIRATIONS AND INCREASED GENERIC PRODUCT DEVELOPMENT. Upcoming patent
expirations are prompting pharmaceutical companies to develop new products or
modify existing products to maintain market share against generic product
competition. At the same time, generic companies are increasing demand for
specialized bioequivalence testing of their products, which must meet stringent
regulatory standards. Phoenix believes that because many generic drug companies
do not have bioanalytical and clinical testing infrastructures, they will
continue to use contract research organizations for this purpose.
REGULATORY FACTORS. Phoenix believes that regulatory agencies are generally
becoming more demanding with regard to the quality of data required to support
new drug approvals. This has increased the number and complexity of clinical
studies and the size of regulatory submissions.
INCREASING SIZE OF CONTRACTS. Phoenix believes that the contract research
organization industry has matured and large contract research organizations have
emerged with multinational capabilities and significant infrastructures. As a
result, many pharmaceutical companies have become more willing to outsource
larger projects to contract research organizations. In addition, an increasing
number of large clinical studies are being conducted as pharmaceutical companies
seek simultaneous approvals in multiple countries.
NEED FOR SCIENTIFIC AND TECHNICAL EXPERTISE. Phoenix believes that
pharmaceutical companies are increasingly turning to contract research
organizations to benefit from their recognized experience, expertise and/or
proprietary science in specific areas. Generic drug companies take particular
advantage of the bioanalytical and specialized clinical study expertise of
contract research organizations.
EMPHASIS ON QUALITY IN CONTRACT RESEARCH ORGANIZATION SELECTION. Phoenix
believes that many drug companies are placing increased emphasis on quality in
selecting their preferred contract research organization suppliers. This
emphasis reflects the importance of a contract research organization's
scientific and technical expertise. In addition, a primary factor affecting the
overall costs and economic returns of drug companies is the time it takes to
bring a new drug to market. Consequently, the price of a specific contract
research organization service may be less important to customers than the
contribution which the contract research organization can make to acceleration
of the drug development process and reducing time to market. Contract research
organizations can make contributions by:
- providing expert assistance in increasing the success rates of drug
candidates in testing;
- ensuring fast turnaround times for conducting studies; and
- rapidly producing reliable study results that are readily accepted by
regulatory agencies.
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STRATEGY
Phoenix's strategy is to provide, on a global basis, a comprehensive range of
contract services that spans the drug development process. Phoenix believes that
providing a comprehensive range of services:
- enables it to better address its clients' needs;
- provides cross-selling opportunities; and
- results in a balanced business model which is less vulnerable to downturns
in any one service area.
Phoenix strives to make its key differentiating factor the added value that a
high technology contract research organization with an extensive knowledge and
experience base brings to the drug development process. Phoenix believes that it
is recognized in the pharmaceutical industry for its scientific and technical
expertise as well as for its scientific innovation.
EXTEND LEADERSHIP IN PHASE I CLINICAL STUDIES. Phoenix intends to continue to
expand its leading Phase I clinical studies capacity in order to take advantage
of both its expertise in this field and market growth. Phoenix is one of the
world's leading providers of Phase I clinical research services with over 500
beds located in the United States, Canada and Germany. Phoenix intends to focus
its expansion efforts on the fragmented European market and on its Canadian
operations.
LEVERAGE REPUTATION AND GLOBAL PRESENCE TO EXPAND PHASE II-IV BUSINESS. Phoenix
intends to continue to expand its Phase II-IV operations by using its reputation
for scientific excellence and its multinational presence. Phoenix significantly
expanded its Phase II-IV service capabilities through the acquisitions of ITEM
in August 1997 and of IBRD-Rostrum in February 1998. These companies have
together conducted over 1,400 Phase II-IV studies in virtually all therapeutic
areas since 1975. Phoenix intends to continue to focus on its existing national
and regional markets in the United States, Canada, the United Kingdom, France,
Spain and other European countries. Phoenix has positioned itself to manage
global clinical studies by harmonizing quality standards, clinical research
procedures and business systems across all of its Phase II-IV operations.
EXTEND LEADERSHIP IN BIOANALYTICAL SERVICES. Phoenix intends to maintain its
leadership position in the bioanalytical services marketplace by building on its
record of client-focused innovation and fast, accurate laboratory work. In April
1998, Phoenix established bioanalysis capacity in Europe through its acquisition
of Anawa Holding AG of Zug, Switzerland, which has particular expertise in
immunochemistry and capabilities in the high performance liquid and gas
chromatography fields. Phoenix intends to capitalize on this capacity, in
combination with its North American bioanalysis expertise, to continue expanding
its European bioanalysis operations. In addition, Phoenix intends to continue
using growth in its Phase I business to support growth of bioanalytical business
volumes.
CREATE NEW GROWTH OPPORTUNITIES THROUGH INNOVATION. Phoenix seeks to create new
growth opportunities through scientific innovation. In the emerging field of
drug discovery support, for instance, Phoenix is developing new approaches to
accelerating drug candidate optimization. These drug discovery support services
employ new and innovative applications of Phoenix's liquid chromatography/mass
spectrometry instruments. In addition, Phoenix recently developed an innovative
method of analyzing individual responses to generic drugs that are being tested
in bioequivalence studies.
CONTINUE TO DEVELOP INFORMATION TECHNOLOGY BASE. Phoenix believes that
advanced, integrated information systems are critical to success in the contract
research organization industry. Both regulators and pharmaceutical companies
view the increased use of information technology as a means of:
- streamlining the drug approval process;
- reducing costly paperwork; and
- improving data management and the evaluation of study results.
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Phoenix has developed a proprietary suite of software packages for automation of
pharmaceutical laboratory processes, having incurred approximately $22 million
of expenditures as of November 30, 1998 in this development. Phoenix's separate
Scientific Software Division works with large pharmaceutical clients to test and
apply the software modules as they are developed. Phoenix intends to continue
investing in this area and is considering the transfer of this activity into a
separately capitalized entity. Phoenix would maintain an ownership interest in
this entity. Phoenix's Scientific Software Division is working actively on the
development of a new scalable electronic data capture and data handling system
for clinical studies. Another key initiative is the harmonization of the
information technologies and databases used to support Phase II-IV clinical
studies currently in progress. This ongoing initiative is designed to create a
single company-wide infrastructure for global clinical studies.
SERVICES
Phoenix provides a comprehensive range of services, including:
- Phase I-IV clinical study design;
- clinical study management;
- clinical data management and biostatistical analysis;
- regulatory affairs; and
- bioanalytical services.
Phoenix also provides a variety of services to assist clients in both the
pre-clinical and very early stages of drug development, including drug discovery
support services, and offers proprietary scientific software packages for the
automation of pharmaceutical laboratory processes. Phoenix provides all of the
major services required by pharmaceutical and biotechnology companies except for
pre-clinical toxicology studies, which would be provided by Chrysalis'
operations if the merger is completed. Phoenix provides its services
individually or as an integrated package. Phoenix's broad service offering and
multinational capabilities are designed to complement the research and
development organizations of Phoenix's pharmaceutical and biotechnology clients.
PHASE I CLINICAL STUDIES SERVICES
Phoenix is one of the world's leading providers of Phase I clinical studies
services. Phoenix's Phase I clinical studies services include:
- study design;
- patient recruitment;
- study management; and
- data collection and analysis.
In conjunction with its Phase I services, Phoenix also conducts bioanalysis of
patient samples. Phoenix has over 500 beds in seven specialized Phase I clinics
in the United States, Canada and Germany.
Phoenix conducts studies in each of the three main Phase I categories of study:
- early studies to determine drug safety and pharmacokinetics of new drug
candidates;
- later studies to further evaluate drug pharmacokinetics and
pharmacodynamics; and
- bioequivalence studies to compare two different formulations of the same
drug.
Pharmacokinetic studies evaluate the effects of the body on the drug, focusing
on the extent to which it is absorbed, distributed, metabolized and excreted in
humans. Bioequivalence studies are specialized pharmacokinetic studies that
compare the rate and extent of absorption of different formulations of the same
drug. These studies are typically performed in comparison studies of drugs on
the market with
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generic equivalent formulations, in preparation for commercial launch of the
generic drug. Phoenix has conducted more than 900 pharmacokinetic and
bioequivalence studies since its inception. In the case of specialized drug
bioequivalence studies, such as, inhaled drugs for asthma and hormone
replacements for post-menopausal women, Phoenix has developed expertise that it
believes is recognized in the industry. Pharmacodynamic studies evaluate the
effects of the drug on the human body, focusing on the changes in physiological
functions and/or body chemicals in human subjects upon administration of a drug.
Phoenix has extensive experience in pharmacodynamic studies of asthma
medications, gastrointestinal evaluations and skin blanching by topical
steroids, ophthalmic drugs, analgesics, drugs for dementia and anticonvulsants.
As part of its Phase I operations, Phoenix provides study design services
intended to ensure that all relevant scientific, ethical and regulatory
standards are met. Phoenix recruits healthy human study subjects from its
database of over 118,000 people, which includes various specific groups such as
asthmatics and post-menopausal women. After tests and medical examinations,
Phoenix houses these study participants in one of its Phase I trial facilities.
Phoenix has over 500 beds at specialized clinics in Cincinnati, Ohio, Neptune,
New Jersey, Montreal, Canada, Hamburg, Germany and Munich, Germany.
- The Montreal Clinical Research Centers are comprised of three facilities
with a total of 164 beds that perform pharmacokinetic and bioequivalence
studies primarily for the generic drug industry, with particular expertise
in specialty clinical studies, such as asthma therapeutics.
- The 232-bed Cincinnati Clinical Research Center principally serves the
Phase I needs of U.S.-based clients engaged in the development of
non-generic drugs.
- A 36-bed Phase I facility in Neptune, which was acquired in February 1998
as part of the IBRD-Rostrum acquisition.
- A 12-bed facility in Munich, which was acquired in April 1998 as part of
the IPR acquisition and conducts highly specialized Phase I studies of the
pharmacological effects of new drugs on the central nervous system.
- 30- and 40-bed facilities in Germany acquired as part of the McKnight
acquisition, which are equipped for and have extensive experience in first
in man studies for new drugs, and specialized cardiovascular,
neurophysiological and endocrine studies.
Because the drugs being tested in Phoenix's Phase I facilities may have no
established clinical safety profile in humans, these facilities are equipped
much like hospital intensive care units to respond to unexpected and potentially
life-threatening side effects.
Phoenix has recently expanded its Canadian Phase I facilities in anticipation
that regulatory changes will be adopted to effectively eliminate, for most Phase
I clinical studies, the current 60-day regulatory review period currently
required to gain approval to initiate Phase I clinical studies in Canada.
Phoenix believes this change, if adopted, could significantly increase the
number of most Phase I clinical studies conducted in Canada and create a new
market for its Phase I services.
In fiscal 1996, 1997, 1998 and the three months ended November 30, 1998,
revenues from Phase I clinical trial services represented approximately 30%,
34%, 24% and 22% of Phoenix's net revenues. On a U.S. GAAP basis, as restated to
reflect the ITEM and Anawa pooling of interests acquisitions, Phase I clinical
trial services net revenues represented approximately 20%, 25%, 23% and 25% of
total net revenues in fiscal 1996, 1997, 1998 and the three months ended
November 30, 1998.
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PHASE II-IV CLINICAL STUDIES SERVICES
Phoenix provides services for the design, initiation and management of Phase
II-IV clinical trial programs. Phoenix has the expertise to manage every aspect
of clinical studies in Phase II-IV of the drug development process, including:
- study design;
- case report form design;
- site and investigator recruitment;
- clinical study management and monitoring;
- clinical data management; and
- biostatistical analysis.
Phoenix also offers a full range of regulatory affairs services in North America
and Europe, as well as quality assurance services.
Phoenix's Phase II-IV services capabilities were significantly expanded as a
result of the acquisitions of ITEM in August 1997 and of IBRD-Rostrum in
February 1998. Prior to these acquisitions, Phoenix provided Phase II-IV
services on a limited scale in North America to meet selected client needs. As a
result of these acquisitions, Phoenix has multinational Phase II-IV
capabilities, with operations in:
- the United States;
- Canada;
- the United Kingdom;
- Germany;
- France;
- Belgium;
- Spain; and
- Italy.
Phoenix also has a presence in Poland, Israel and South Africa, as well as
strategic relationships with contract research organizations in Scandinavia,
Bulgaria, Hungary and Australia.
In the United States, Phoenix has a major presence on both the east and west
coasts as well as a network of clinical research associates providing national
coverage. Together, Phoenix, ITEM and IBRD-Rostrum have conducted over 1,400
Phase II-IV studies covering virtually all drug categories and disease areas.
Phoenix provides its customers with one or more of the following core Phase
II-IV clinical studies services:
STUDY DESIGN. Phoenix has broad experience in the preparation of study
protocols. The study protocol defines:
- the medical issues to be examined in evaluating the safety and efficacy of
the drug under study;
- the number of patients required to produce statistically valid results;
- the clinical tests to be performed in the study;
- the time period over which the study will be conducted;
- the frequency and dosage of drug administration;
- the inclusion and exclusion criteria to be met for the patients enrolled
in the study; and
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- the planned data summarization, statistical analysis and interpretation of
the results of the study.
CASE REPORT FORM DESIGN. Once the study protocol is finalized, Phoenix develops
case report forms for investigators to record the desired information obtained
from the clinical studies. Phoenix organizes all disciplines involved in the
clinical research process to assure a design that is efficient for subsequent
data entry, management and reporting. Proper case report form design is critical
for investigators and field monitors to conduct their respective jobs quickly,
accurately and effectively.
SITE AND INVESTIGATOR RECRUITMENT. Phoenix solicits the participation of
physician investigators to supervise the administration of the drug under
development at investigational sites. Phoenix uses computerized databases of
approximately 7,000 investigators in the United States and Canada and 5,700 in
Europe that include information regarding their qualifications, research
interests and ability to conduct clinical studies.
CLINICAL STUDY MANAGEMENT AND MONITORING. Phoenix provides an experienced
project team to oversee the conduct of clinical programs. Contract research
assistants ensure that data is collected and recorded according to:
- good clinical practices;
- the study protocol;
- the requirements of the customer; and
- applicable regulations.
CLINICAL DATA MANAGEMENT AND BIOSTATISTICAL ANALYSIS. Phoenix provides
assistance to customers in all areas of clinical data management and
biostatistical analysis, including:
- sample size determinations;
- database design and construction;
- data entry;
- database quality assurance audits;
- data assessment for accuracy and consistency; and
- statistical analysis of all study types.
These services are provided by professionals employed by Phoenix in North
America and Europe who have extensive pharmaceutical industry experience in
processing data from both local and multinational trials. These professionals
have experience in many therapeutic areas and can work with customers in all
phases of drug development. Phoenix conducts data management and biostatistical
projects as stand-alone contracts or as part of complete drug development
programs.
REGULATORY AFFAIRS. Phoenix provides strategic and practical regulatory affairs
expertise. Regulatory specialists offer a full range of services, including:
- pre-clinical planning;
- clinical trial approvals;
- marketing authorization applications; and
- interaction with key regulatory agencies.
In fiscal 1996, 1997, 1998 and the three months ended November 30, 1998,
revenues from Phase II-IV clinical studies services represented approximately
7%, 7%, 42% and 45%, of Phoenix's net revenues. On a U.S. GAAP basis, as
restated to reflect the ITEM and Anawa pooling of interests acquisitions,
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Phase II-IV clinical studies services net revenues represented approximately
27%, 23%, 41% and 43% of total net revenues in fiscal 1996, 1997, 1998 and the
three months ended November 30, 1998.
BIOANALYTICAL SERVICES
Bioanalytical services primarily measure drug concentrations in blood and urine
samples produced by pre-clinical and clinical studies. These measurements are
used to calculate the rate and extent of drug absorption, metabolism and
excretion in the body, which in turn govern the subsequent amount and frequency
of the administration of a drug. In all phases of drug development, the drugs
under study are measured in the parts-per-million to parts-per-trillion range,
requiring expensive, high technology equipment and highly trained scientists.
Phoenix's bioanalytical operations are staffed by scientific and technical
personnel with expertise in particularly sensitive methods of bioanalysis.
Phoenix is one of the world's leading providers of bioanalytical services to the
drug development industry, based on laboratory throughput. Phoenix believes it
has the world's largest single-site bioanalytical laboratory in Montreal, and
worldwide it has 129 bioanalytical instruments operated by a scientific staff of
more than 184 people, including a research and development staff of 61
scientists. Phoenix has been a consistent innovator in the development of highly
sensitive, high-throughput methods for measuring fluid samples with extremely
low drug concentrations. Phoenix's bioanalytical services support all phases of
clinical and pre-clinical studies and complement Phoenix's Phase I and Phase
II-IV clinical trial services as well as its drug discovery and other
pre-clinical support services. In fiscal 1998, Phoenix analyzed approximately
830,000 samples.
The most labor intensive process is extracting the drug from the fluid and
isolating it from the potentially thousands of other fluid components. Phoenix
has developed a proprietary process using a multi-component cartridge and
automated device to produce extracts with unusually low contamination levels at
the rate of 120 samples per hour. This compares to a typical manual rate of 100
samples per day. Phoenix routinely uses this technique in its bioanalytical
laboratories and continually seeks to develop more accurate and efficient
extraction techniques.
Phoenix has four main lines of bioanalytical service:
LIQUID CHROMATOGRAPHY/MASS SPECTROMETRY. Phoenix scientists pioneered the use
of this instrument for high-volume, high-sensitivity quantification of trace
levels of drugs in biological fluids. Phoenix currently has 39 liquid
chromatography/mass spectrometry instruments and is promoting this service as a
growth area for a wide diversity of drugs.
HIGH PERFORMANCE LIQUID CHROMATOGRAPHY. High performance liquid chromatography
provides reliable, high quality bioanalytical results for a wide variety of
drugs and diseases. Phoenix has particular expertise in using high performance
liquid chromatography for the analysis of chiral drugs, which are drugs that can
occur in one of two mirror-image molecular configurations.
IMMUNOCHEMISTRY. Immunochemistry techniques are used primarily for testing
drugs under development by the biotechnology industry. Phoenix's expertise in
this area allows it to support the emerging bioanalytical service needs
resulting from rapid innovation in the biotechnology sector.
GAS CHROMATOGRAPHY/MASS SPECTROMETRY. Gas chromatography/mass spectrometry is
used to measure trace levels of specialty drug products, such as steroids and
hormones for post-menopausal therapies.
In April 1998, Phoenix established bioanalysis capacity in Europe by acquiring
Anawa which has particular expertise in immunochemistry and capabilities in the
liquid and gas chromatography fields. Phoenix intends to capitalize on this
additional capacity, in combination with its North American bioanalysis
expertise, to expand its European bioanalysis operations.
In fiscal 1996, 1997, 1998 and the three months ended November 30, 1998,
revenues from bioanalytical services represented approximately 57%, 56%, 32% and
31% of Phoenix's net revenues. On a U.S.
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GAAP basis, as restated to reflect the ITEM and Anawa pooling of interests
acquisitions, bioanalytical services net revenues represented approximately 48%,
48%, 34% and 30% of total net revenues in fiscal 1996, 1997, 1998 and the three
months ended November 30, 1998.
DRUG DISCOVERY SUPPORT SERVICES
Phoenix provides drug discovery support services to pharmaceutical and
biotechnology clients, primarily in North America. These services are designed
to assess a prospective drug's potential for clinical success at a very early
stage in the development process, prior to pre-clinical studies. Phoenix uses
innovative methods that combine the speed and sensitivity of its liquid
chromatography/mass spectrometry instruments with laboratory animal studies and
cellular and cell fraction studies to evaluate how the body processes drug
candidates. This enables pharmaceutical and biotechnology companies to:
- avoid costly preclinical and clinical studies by eliminating unsuitable
drug candidates or guiding chemical modification of these compounds;
- target their resources on drug candidates with the greatest potential for
success;
- reduce the time required to submit new drug applications to the FDA in the
United States and other similar regulatory authorities; and
- expedite the evaluation of increasingly large numbers of new potential
drug compounds being produced by technological advances in the drug
discovery field.
One of the most important of Phoenix's drug discovery support services is
high-throughput pharmacokinetic screening, which entails the use of laboratory
animal studies. These studies, known as IN VIVO studies, include the
administration of one or several drugs simultaneously to animals to provide
rapid information on:
- drug absorption;
- distribution;
- metabolism; and
- excretion.
Animal studies are complemented with cell and cell fraction studies which
determine drug breakdown profiles in human liver microsomes. This provides an
assessment of a compound's suitability as a human drug. Both tests are made
possible by the liquid chromatography/mass spectrometry instruments' capability
of measuring quickly and with great sensitivity the drug candidate and its
breakdown compounds in complex mixtures.
Phoenix also tests how readily and effectively a drug is made pharmacologically
available in the body based on the other components present in the drug product.
Determining the most effective drug formulation is a crucial, early decision in
drug development. A recent service provided by Phoenix predicts the efficiency
of drug absorption in the human alimentary tract through the use of special
human cells in laboratory cultures followed by liquid chromatography/mass
spectrometry.
Phoenix also offers drug discovery support services in Europe, where its
specialized French subsidiary, Phoenix Pharmacology S.A., provides IN VIVO
pharmacology services using a number of different animal models to study drug
mechanisms of pharmacological action and possible adverse reactions in different
organs. The techniques utilized in the highly computerized laboratory provide
essential data on:
- dose-response relationships;
- variability of drug response; and
- effective dose and drug therapeutic index.
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This laboratory specializes in central nervous system, cardiovascular,
gastrointestinal and respiratory disease conditions.
In fiscal 1996, 1997, 1998 and the three months ended November 30, 1998,
revenues from drug discovery services represented approximately 0%, 0%, 1% and
1% of Phoenix's net revenues. On a U.S. GAAP basis, as restated to reflect the
ITEM and Anawa pooling of interests acquisitions, drug discovery net revenues
represented approximately 1%, 1%, 1% and 1% of total net revenues in fiscal
1996, 1997, 1998 and the three months ended November 30, 1998.
OTHER SERVICES
In addition to the services described above, Phoenix offers a variety of related
services and products, including pharmaceutical product analysis and training
services.
PHARMACEUTICAL PRODUCT ANALYSIS. Phoenix provides pharmaceutical manufacturers
with analyses of drug raw material and finished drug products needed to complete
the data requirements in filing for drug registration. Phoenix performs a number
of tests for clients, such as:
- quality control release testing;
- batch uniformity testing;
- stability testing; and
- the isolation and identification of impurities in drugs.
TRAINING SERVICES. Rostrum Personal Development, a division of Phoenix UK,
offers a wide range of courses designed for the pharmaceutical industry,
including:
- good clinical practices;
- good laboratory practices;
- introduction to contract research assistant monitoring; and
- communication/presentation skills.
In fiscal 1996, 1997, 1998 and the three months ended November 30, 1998, these
other services represented approximately 6%, 3%, 1% and 1% of Phoenix's net
revenues. On a U.S. GAAP basis, as restated to reflect the ITEM and Anawa
pooling of interests acquisitions, these other services net revenues represented
approximately 3%, 3%, 1% and 1% of the total net revenues in fiscal 1996, 1997,
1998 and the three months ended November 30, 1998.
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INFORMATION TECHNOLOGY
GENERAL
Phoenix is committed to investing in information technology designed to help it
provide high quality services in a cost-effective manner and to manage its
internal resources. Phoenix focuses its investment program on building a global
information technology network that effectively links its operating units. It
also focuses on developing a number of proprietary information systems that
address critical aspects of its business. Phoenix's main proprietary systems are
a suite of bioanalytical and metabolism software packages, a specialized Phase I
system and a number of software applications that support many aspects of Phase
II-IV studies.
Phoenix's information technology strategy is to build its information systems
around open standards and to combine its proprietary laboratory and clinical
applications with leading off-the-shelf commercial software. Phoenix develops
proprietary software using an adaptive system development process which
emphasizes joint user-developer participation. Phoenix designed this process to
enable applications to be built rapidly and maintained using a minimum of
software development personnel. Recognizing that each client has its own
requirements and systems, Phoenix seeks to ensure a flexible approach to client
needs, linking directly to client systems if necessary.
Phoenix's information systems group, including the scientific software division,
currently has approximately 150 employees. This group is responsible for
technology procurement, applications development and management of Phoenix's
multinational computer network. Phoenix's wide area network links ten local area
networks, interconnecting approximately 1,800 computers worldwide. Phoenix's
information systems are designed to work in support of and reinforce Phoenix's
standard operating procedures. Phoenix also designed its information systems to
be open, flexible and adaptable to the multiple needs of different regulatory
systems and clients.
Through the IBRD-Rostrum and ITEM acquisitions, Phoenix has acquired a variety
of proprietary software packages, information systems and databases for the
effective management of Phase II-IV clinical studies. Priority is being given to
the integration and harmonization of all information technologies and databases
used to support Phase II-IV studies in Europe, the United States and Canada,
with the aim of creating a single company-wide infrastructure for global
clinical studies. For a discussion of Year 2000 Compliance, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Phoenix."
SCIENTIFIC SOFTWARE
Phoenix has developed a suite of proprietary scientific software packages called
LIMS, which stands for laboratory information management system, for the
automation of pharmaceutical laboratory processes. Phoenix has incurred
approximately $22 million of expenses in its software development effort through
November 30, 1998. As of that date, there were 35 Phoenix software packages
installed in 12 client companies in eight countries. Phoenix is engaged in an
interactive development process with certain of these clients, prototyping,
testing, applying and improving package modules. Phoenix has copyrights pending
on its scientific software packages.
The laboratory information management system consists of a modular, integrated
software package which includes each of the following functions:
- bioanalytical reporting;
- acquiring and evaluating chromatographic data;
- pharmacokinetic evaluation of the data;
- processing drug metabolism studies; and
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- detailed sample tracking and laboratory management.
The laboratory information management system automatically tabulates study
results in report-ready format in conformity with either FDA or Canadian Bureau
of Pharmaceutical Assessment requirements. Because the laboratory information
management system reports are produced by scientifically validated computer
programs:
- errors are minimized;
- manual changes are readily checked through an automatic computerized
quality assurance log; and
- regulatory compliance is built into the process.
Phoenix is considering the transfer of its scientific software division into a
separately capitalized entity, in which it intends to retain an ownership
interest. Phoenix believes this entity would permit focused development of the
scientific software business by a dedicated management and development team
while permitting Phoenix continued early access to new software. There can be no
assurance, however, that any transaction will be completed or, if completed, on
what terms it would be completed.
CLINICAL STUDIES SOFTWARE
Phoenix is currently extending the scope of its information technology
investment program to include the development of a proprietary package to
support Phase I clinical studies. The package, called PhORCE, is designed to be
a scalable data handling system supporting all of Phoenix's Phase I units in
North America and Europe. Its business objectives are to:
- decrease unit costs;
- increase throughput in the clinics;
- reduce study turnaround times; and
- increase business volumes.
Phoenix designed the PhORCE package to support many Phase I operations
including:
- data capture;
- assessment of protocol compliance;
- scheduling;
- resource allocation and the optimization of clinic facilities; and
- quality assurance.
Phoenix also designed the PhORCE package to streamline the recruiting and
screening processes, enabling Phase I clinics to launch projects more quickly
and accelerate responses to customer inquiries during studies. The system is
scheduled to be implemented in stages during the fiscal year ending August 31,
1999. If it proves its business value internally, the package could be sold
commercially along with Phoenix's suite of scientific software packages.
PROPRIETARY RIGHTS
Phoenix holds four United States patents relating to the method of extracting
components from fluids, which are used in aspects of Phoenix's bioanalytical
services. These patents are scheduled to expire in 2116 and 2117.
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Phoenix relies on a combination of registered and common law copyrights and
trademarks, as well as trade secret and trade dress laws, confidentiality
procedures and contractual provisions to protect its proprietary rights in its
other products and technology. Phoenix generally enters into confidentiality
agreements with its employees, consultants, clients and potential clients and
limits access to, and distribution of, its proprietary information.
Phoenix believes, however, that the foregoing measures afford only limited
protection and there can be no assurance that these measures will be adequate.
Phoenix also may be subject to additional risks as it continues to expand into
foreign countries where intellectual property laws are not well developed or are
poorly enforced. Legal protections of Phoenix's rights may be ineffective in
these countries. Despite Phoenix's efforts to safeguard and maintain its
proprietary rights, there can be no assurance that Phoenix will be successful in
doing so or that the steps taken by Phoenix in this regard will be adequate to
deter misappropriation or independent third party development of Phoenix's
technology or to prevent an unauthorized third party from copying or otherwise
obtaining and using Phoenix's technology. In addition, policing unauthorized use
of Phoenix's technology is difficult. Litigation to defend and enforce Phoenix's
intellectual property rights could result in substantial costs and diversion of
resources. Litigation also could have a material adverse effect on Phoenix's
business, financial condition or results
of operations, regardless of the final outcome of this litigation.
RECENT ACQUISITIONS
Since August 1997, Phoenix has completed a series of acquisitions designed to
leverage its core expertise and capitalize on global consolidation opportunities
in the contract research organization industry in order to become a balanced,
multinational contract research organization. The acquisitions completed during
this period are described below. These acquired companies are now managed as
wholly-owned, integrated subsidiaries operating under the Phoenix name.
- ITEM. In August 1997, Phoenix acquired ITEM, a leading European contract
research organization based in Paris. ITEM, now operating as Phoenix
International France SA, specializes in all aspects of Phase II-IV
clinical trial management, including site monitoring, database management
and biostatistics. It has extensive operations in France and Spain and a
presence in Italy, Poland, Belgium and Romania. The acquisition included
the ITEM Labo facility, now operating as Phoenix International
Pharmacology SA, which is an animal pharmacology unit. ITEM began
operations in 1982. As of November 30, 1998, this subsidiary employed 218
people.
- IBRD-ROSTRUM. In February 1998, Phoenix acquired IBRD-Rostrum, a leading
international contract research organization with operations in the United
States, the United Kingdom, Germany and a presence in Israel and South
Africa, as well as strategic relationships in other European countries.
IBRD-Rostrum specializes in all aspects of Phase II-IV clinical study
management for pharmaceutical and biotechnology clients. The acquisition
included IBRD Center for Clinical Research, in Neptune, New Jersey, a
Phase I clinical studies facility with 36 beds. IBRD-Rostrum began
operations in 1975. As of November 30, 1998, this subsidiary employed 512
people.
- ANAWA. In April 1998, Phoenix acquired Anawa. Anawa provides bioanalytical
services with particular expertise in immunochemistry analysis for drugs
and biopharmaceuticals. Anawa began operations in 1985. As of November 30,
1998, this subsidiary employed 39 people.
- INSTITUTE FOR PHARMACODYNAMIC RESEARCH (INSTUT FUR PHARMAKODYNAMISCHE
FORSCHRUNG--DR. KLAUS SCHAFFLER) (KNOWN AS IPR). In April 1998, Phoenix
acquired the operations of IPR, a contract research organization based in
Munich. IPR conducts highly specialized Phase I clinical studies of the
pharmacological effects of new drugs on the central nervous system at a
12-bed facility in Munich. IPR began operations in 1976 and, as of
November 30, 1998, employed ten people.
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- MCKNIGHT. In November 1998, Phoenix acquired McKnight and its wholly owned
subsidiary, IPHAR. McKnight and IPHAR provide Phase I clinical studies
services, primarily to continental European pharmaceutical companies, with
the McKnight operation in Hamburg conducting primarily bioequivalence
studies. The IPHAR operation in Munich performs more sophisticated studies
on new drugs, including first-in-man studies. As of November 30, 1998,
McKnight employed 57 people.
- CLINSERVE. In November 1998, Phoenix acquired Clinserve, based in
Switzerland and providing central clinical laboratory services for Phase
I-IV clinical studies from a laboratory in Hamburg, Germany. Phoenix
intends to refer its Phase II-IV clients to Clinserve, thereby increasing
Clinserve's business volume and Clinserve's computer software and systems
in Phoenix's North America operations. As of November 30, 1998, Clinserve
employed 28 people.
Phoenix believes that these acquired businesses, combined with its existing
operations, provide it with the breadth of services, depth of personnel and
scientific expertise necessary to compete effectively on a multinational basis.
Phoenix intends to consider additional acquisitions on an opportunistic basis.
Phoenix routinely enters into discussions with potential acquisition candidates
and from time to time enters into confidentiality agreements in connection
therewith. However, Phoenix is not a party to any definitive agreements or
letters of intent for any material acquisitions as of the date hereof other than
the merger agreement.
Phoenix's acquisitions have changed significantly the geographic profile of its
revenues. During the first quarter of fiscal 1999, Phoenix earned approximately
30% of its consolidated net revenues in the United States, 42% in Canada and 28%
in Europe, as compared with approximately 16%, 61% and 23% in the comparable
period of fiscal 1998. As of August 31, 1998, Phoenix earned approximately 27%
of its net revenues in the United States, 50% in Canada and 23% in Europe, as
compared with approximately 16%, 82% and 2%, in fiscal 1997. In fiscal 1996,
Phoenix earned approximately 12% of its net revenues in the United States, 88%
in Canada and 0% in Europe.
The acquisitions have also changed the service profile of Phoenix's net
revenues. In the first quarter of fiscal 1999, Phoenix earned approximately 23%
of its consolidated net revenues from Phase I studies, 44% from Phase II-IV
clinical studies, 31% from bioanalytical studies and 2% from other sources, as
compared with 30%, 25%, 40% and 5% in the first quarter of fiscal 1998 on a
Canadian GAAP basis. In fiscal 1998, Phoenix earned approximately 24% of its net
revenues from Phase I clinical studies, 42% from Phase II-IV clinical studies,
32% from bioanalytical studies and 2% from other sources, as compared with 34%,
7%, 56% and 3% in fiscal 1997. In fiscal 1996, Phoenix's revenue profile by
service category was 30%, 7%, 57% and 6%, respectively. On a U.S. GAAP basis, as
restated to reflect the ITEM and Anawa pooling of interests acquisitions, the
service profile of Phoenix's net revenues are as follows: in the first quarter
of fiscal 1999, Phoenix earned approximately 25% of its consolidated net
revenues from Phase I studies, 42% from Phase II-IV clinical studies, 31% from
bioanalytical studies and 2% from other sources, as compared with 32%, 23%, 41%
and 4% in the first quarter of fiscal 1998. In fiscal 1998, on a U.S. GAAP
basis, Phoenix earned approximately 23% of its net revenues from Phase I
clinical studies, 41% from Phase II-IV clinical studies, 34% from bioanalytical
studies and 2% from other sources as compared with 25%, 23%, 48% and 4%,
respectively, in fiscal 1997. In fiscal 1996, on a U.S. GAAP basis, Phoenix's
net revenue profile by service category was 21%, 27%, 48% and 4%, respectively.
PROPERTIES
Phoenix leases all of its facilities in Canada. Phoenix's principal executive
offices are located in Greater Montreal where it leases an office facility of
approximately 40,000 square feet under a lease expiring in April 2009. Phoenix's
laboratory in Greater Montreal is approximately 77,000 square feet. Phoenix also
maintains leased North American offices in:
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- Blue Bell, Pennsylvania, which is approximately 22,000 square feet, under
a lease expiring in August 2000;
- Irvine, California, which is approximately 30,000 square feet, under a
lease expiring in January 2004;
- Bedminster, New Jersey, which is approximately 3,000 square feet, under a
lease expiring in April 1999 with an option allowing an extension until
2004; and
- Neptune, New Jersey, which is approximately 11,000 square feet, under a
lease expiring in 2002.
Phoenix is currently building a new state of the art 145,000 square feet
analytical laboratory in Montreal, which is expected to be completed by
September 1999.
Phoenix's analytical laboratories in Greater Montreal are equipped with
state-of-the art analytical instrumentation. As of November 30, 1998, Phoenix
had 129 chromatographs, including 37 liquid chromatography/mass spectrometry and
eight Hewlett Packard MS engines, which are combination gas chromatography/mass
spectrometry, at these facilities. The facilities also include:
- an organic chemistry laboratory for synthesis of drug metabolites and
analytical chemistry reagents;
- a self-contained infected samples laboratory for analysis of drugs in
samples contaminated with pathogens such as the HIV and hepatitis B
viruses;
- an immunochemistry laboratory equipped with radioactivity counters for the
analysis of biological molecules;
- animal rooms; and
- a laboratory for animal pharmacokinetic and metabolism studies, also
equipped with radioactivity counters.
The Montreal facilities also house a Phase I clinical trial research center with
a combined capacity of 158 beds.
Phoenix owns a Clinical Research Center in Cincinnati, Ohio. It is one of the
world's largest clinical pharmacology units with an aggregate of 232 beds in
seven clinical wards and a volunteer/patient database of over 40,000 people. The
75,000 square foot center has specialized equipment and facilities that allow it
to handle large, contained Phase I clinical studies in healthy volunteers as
well as Phase II clinical studies involving patients. Its central feature is a
large 130-bed unit for a variety of Phase I studies, including:
- early safety and rising dose tolerance;
- pharmacokinetic;
- pharmacodynamic; and
- bioequivalence/bioavailability.
Its specialized facilities include a barrier unit for tests of vaccines and
drugs against viruses and toxins, and a unit with intensive monitoring
equipment. The center focuses on three major disease areas:
- cardiovascular and heart;
- central nervous system; and
- diabetes.
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In addition, the center contains a laboratory with a broad radiolabeled study
licence that permits on-site counting and analysis of radiolabeled compounds in
mass balance and excretion studies.
Phoenix's European headquarters is located in Brussels in a 2,400 square foot
office facility. This lease expires February 2007. The principal operating
facility in Europe is located in Paris. In January 1999, Phoenix moved its Paris
operations to a 37,620 square foot facility, which lease expires in December
2004. Phoenix also owns a 21,100 square foot Phase II-IV center in Madrid.
MARKETING AND SALES
Phoenix's marketing strategy is to focus on its reputation for scientific
excellence and innovation together with the quality of service provided. Phoenix
also seeks to capitalize on the breadth and depth of the services it provides by
cross-selling appropriate services to existing clients. For instance, Phoenix
believes that its drug discovery support services provide significant business
development opportunities for bioanalytical studies in Phoenix's laboratories.
Phoenix conducts its sales activities by teams located in Canada, the United
States and Europe. In North America, sales offices are located in New Jersey,
Pennsylvania and Ohio, with business development personnel working either from
these offices, or out of home offices near key geographic markets with high
concentrations of potential and existing clients. A team of 12 business
development scientists, managed by a senior vice-president based in Bedminster,
New Jersey, draw from their specialized scientific backgrounds when promoting
Phoenix's services to pharmaceutical and biotechnology companies. They
concentrate their efforts on a select group of clients, most of whom work in the
same scientific fields in which the business development scientists are trained.
Another U.S. business development group with nine staff members, headed by a
Vice-President, Business Development, and based in Blue Bell, Pennsylvania,
focuses primarily on promoting Phase II-IV services to the top 20 pharmaceutical
companies and selected mid-sized drug and biotechnology firms. Two other
business development professionals are based in Phoenix's Phase I Clinical
Research Center in Cincinnati, Ohio, concentrating on obtaining contracts for
this facility, as well as for Phoenix's Phase I facility in Neptune, New Jersey.
Phoenix's European sales efforts are handled by a team of 15 professionals based
in Paris, Brussels, Madrid, Milan and Romford, Essex. The group focuses on
promoting Phase II-IV services and covers the needs of the pharmaceutical
industry for both local and global clinical study projects.
Phoenix's specialized bioanalytical and Phase I subsidiaries, Anawa in Zug,
Switzerland and IPR in Munich, Germany, currently manage their own targeted
marketing and sales programs.
Phoenix's worldwide sales efforts are monitored by an integrated computerized
system, and core promotional campaigns are supplemented by contributions to
scientific journals and industry conferences, such as Phoenix's annual
scientific symposium. Sponsored by Phoenix, and held every year in Montreal,
this event promotes personal contact and scientific interaction between
Phoenix's sales and scientific staff, and both existing and prospective clients.
It also provides an opportunity for attendees to visit Phoenix's facilities in
Greater Montreal. The speakers, chosen from among the pharmaceutical industry's
scientific leaders, focus on trends in the drug development industry, notably on
those where Phoenix is developing services to meet emerging needs. In June 1998,
the symposium was attended by more than 210 persons. In 1997 and 1998, similar
scientific symposia were hosted by Phoenix's Cincinnati Clinical Research
Center. Phoenix has also hosted scientific software symposia.
CLIENTS
Over the last two years, Phoenix has provided bioanalytical or Phase I services
to 18 of the largest 20 pharmaceutical companies in the world, as ranked by
revenues, and Phoenix believes that it has provided these services to all of the
major generic drug companies in North America. During the same
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time period, Phoenix, ITEM and IBRD-Rostrum together have provided Phase II-IV
Services to 17 of the largest 20 pharmaceutical companies in the world. Over the
last two years, Phoenix, ITEM and IBRD-Rostrum have performed one or more of its
services for 19 of the largest 20 pharmaceutical companies in the world, as
ranked by 1997 revenues. Phoenix's client base also includes a small but growing
number of major and medium-sized biotechnology firms. As of August 31, 1998,
Phoenix provided services to 287 clients, of which approximately 71% were
multinational pharmaceutical and biotechnology companies and 29% were generic
drug manufacturers, including the generic subsidiaries of multinational
companies.
Phoenix believes that it has a more diversified client base than many other
contract research organizations, which often derive a significant portion of
their net revenues from a relatively limited number of major projects or
clients. In fiscal 1996, 1997, and 1998 and the three-month period ended
November 30, 1998, no single customer accounted for more than 10% of
consolidated net revenue. In fiscal 1996, 1997 and 1998 and the three-month
period ended November 30, 1998, Phoenix's top five customers accounted for 25%,
26%, 29% and 31% of Phoenix's consolidated net revenue. Phoenix's portfolio of
business could change over time. Concentrations of business in the contract
research organization industry are not uncommon, and Phoenix may experience
concentrations of business in the future. Although Phoenix seeks to maintain
balance in its service offerings and a diversified client base to reduce this
dependence, the loss of a major project or any significant client could
materially and adversely affect Phoenix.
Phoenix's contracts are generally fixed price, with some variable components,
and generally range in duration from six weeks to several years. A portion of
the contract fee is typically required to be paid at the signing of the
agreement, and the balance is received in installments over the contract's
duration. Installment payments are typically tied to the achievement of
identified milestones or activity levels. Most of Phoenix's contracts are
terminable by the client on 30 days notice. Customers may terminate or delay
contracts for a variety of reasons, many of which are not under the control of
Phoenix including:
- the failure of a product to satisfy safety requirements;
- unexpected or undesired clinical results;
- the client's decision to forego a particular study;
- insufficient patient enrollment or investigator recruitment; or
- production shortages.
Any of these events could result in a reduction or elimination of revenue under
the related contract. See "Management Discussion and Analysis of Financial
Condition and Results of Operations of Phoenix--Recent Developments."
COMPETITION
The market for contract research services is highly competitive. Phoenix
competes against traditional contract research organizations and the in-house
research and development departments of pharmaceutical companies, as well as
universities and teaching hospitals. Some of these competitors have greater
capital, technical and other resources than Phoenix. Contract research
organizations generally compete on:
- the basis of the quality and breadth of services provided;
- medical, scientific and technical expertise in specific therapeutic areas;
- the quality of contract research;
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- the ability to organize and manage large scale and global trials;
- database management capabilities;
- the ability to provide statistical and regulatory services;
- the ability to recruit investigators;
- the ability to integrate information technology with systems to improve
the effectiveness of contract research; and
- price.
Phoenix's failure to compete effectively in any one or more of these areas could
have a material adverse effect on Phoenix.
Expansion by Phoenix's competitors into other areas in which Phoenix operates
could affect Phoenix's competitive position. Increased competition may lead to
price and other forms of competition that may affect Phoenix's margins.
Consolidation within the pharmaceutical industry, as well as a trend by
pharmaceutical companies to outsource to fewer organizations, has heightened the
competition for contract research services. As a result, consolidation also has
occurred among the providers of contract research services, and several large
multi-service providers have emerged. If these consolidation trends continue,
they may result in price erosion and greater competition among the larger
contract research providers for clients and acquisition candidates. There can be
no assurance that competition in the contract research organization industry
will not have a material adverse effect on Phoenix.
Because Phoenix is a multi-service company, it competes across most of the
sectors of the contract research organization industry. Phoenix estimates that
there are hundreds of contract research organizations worldwide, of which
approximately 20 companies provide significant competition in Phoenix's
principal markets. Many contract research organizations consist of only a few
scientists. Others provide services in only one or two market segments,
particularly pre-clinical toxicology or Phase II-IV clinical research. There are
numerous companies that compete with Phoenix in one or more market segments.
Among these are several large multi-service companies providing a comprehensive
range of services in most segments, often with facilities in several countries.
Phoenix's principal competitors include:
- Covance Inc.;
- IBAH (Omnicare);
- MDS, Inc.;
- PAREXEL International Corp.;
- Pharmaceutical Product Development, Inc.; and
- Quintiles Transnational Corp.
RESEARCH AND DEVELOPMENT
Phoenix actively pursues new procedures and products. Phoenix believes that its
focus on internal research and development provides it with superior technology
and improved competitiveness. In fiscal 1996, 1997, 1998, and the first quarter
of fiscal 1999, Phoenix's internal research and development expenses totaled
$3.7 million, $3.3 million, $3.7 million and $866,000 net of refundable tax
credits.
Ongoing research and development projects in 1998 included:
- Phase I clinical research including the identification of genotypes and
phenotypes;
- innovative techniques in synthetic organic chemistry;
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- new biostatistical approaches to bioequivalence studies and bioanalysis
acceptance criteria;
- novel drug metabolic profiling techniques;
- drug bioanalysis such as separation techniques for drugs in biological
fluids and electrochemiluminescence; and
- scientific software development.
Phoenix views these internal research and development expenditures as critical
to Phoenix's ongoing competitive success and expects to continue to make
significant expenditures in this area in the future.
HUMAN RESOURCES AND TRAINING
Phoenix employed 2,036 persons at November 30, 1998. Of these, 1,006 employees
were located in Canada, 465 were located in the United States and 565 were
located in Europe. Phoenix believes that the scientific and technological
expertise of its personnel provides it with a competitive advantage. At November
30, 1998, Phoenix's staff included 179 holders of Ph.D.'s or medical degrees and
230 holders of masters degrees. None of Phoenix's employees are covered by
collective bargaining agreements, and Phoenix considers its relationship with
its employees to be good.
Phoenix's management believes that success largely depends on the prudent
application of the accumulated knowledge, experience, imagination and skills of
its scientists, managers and technical personnel. Phoenix provides extensive
training and development programs for employees engaged in laboratory and
clinical research. Full-time training officers generally perform this training.
The training program encompasses initial general training and then specialized
training in relevant laboratory and clinical techniques. Phoenix frequently
offers external training for projects involving highly technical
instrumentation.
Phoenix's performance depends greatly on its ability to attract, develop,
motivate, and retain qualified professional, scientific and technical staff.
Phoenix faces significant competition for employees from other contract research
organizations as well as from in-house research departments of pharmaceutical
and biotechnology companies. Consequently, Phoenix has an active, ongoing
recruitment program to attract and retain qualified professionals.
GOVERNMENT REGULATION
DRUG REGULATORY MATTERS
Before a new drug may be marketed in North America or Europe, the drug must
undergo extensive testing and regulatory review in order to determine that the
drug is safe and effective. The stages of this drug development process are as
follows:
PRE-CLINICAL RESEARCH (1 TO 3.5 YEARS).
IN VITRO ("test tube") and animal studies to establish the relative toxicity of
the drug over a wide range of doses and to detect any potential to cause birth
defects or cancer. If results warrant continuing development of the drug, the
manufacturer will file for an investigational new drug application or comparable
application with the relevant regulatory authority, upon which permission to
begin human trials may be granted.
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CLINICAL TRIALS (3.5 TO 6 YEARS).
PHASE I (6 MONTHS TO 1 YEAR). Basic safety and pharmacology testing in small
groups of human subjects, usually healthy volunteers, including studies to
determine:
- how the drug works;
- how it is affected by other drugs;
- where it goes in the body;
- how long it remains active; and
- how it is broken down and eliminated from the body.
PHASE II (1 TO 2 YEARS). Basic efficacy and dose-range testing in 100 to 200
afflicted volunteers to help determine:
- the best effective dose;
- confirm that the drug works as expected; and
- provide additional safety data.
PHASE III (2 TO 3 YEARS). Efficacy and safety studies in hundreds or thousands
of patients at many investigational sites. These trials can be
placebo-controlled trials, in which the new drug is compared with a "sugar
pill," or studies comparing the new drug with one or more drugs with established
safety and efficacy profiles in the same therapeutic category.
NEW DRUG APPLICATION PREPARATION AND SUBMISSION. Upon completion of Phase III
trials, the manufacturer assembles the statistically analyzed data from all
phases of development into a large document, the new drug application or
comparable application, which today comprises, on average, roughly 100,000
pages.
REVIEW AND APPROVAL (6 MONTHS TO 3 YEARS OR MORE). Careful scrutiny of data
from all phases of development to confirm that the manufacturer has complied
with regulations and that the drug is safe and effective for the specific use or
"indication" under study.
POST-MARKETING SURVEILLANCE AND PHASE IV STUDIES. Existing regulation requires
the manufacturer to collect and periodically report to the applicable regulatory
authority additional safety and efficacy data on the drug for as long as the
manufacturer markets the drug. Additional Phase IV studies may be undertaken
after initial approval to:
- find new uses for the drug;
- test new dosage formulations; or
- confirm selected non-clinical benefits, such as increased
cost-effectiveness or improved quality of life.
The research, testing, manufacture and marketing of drug products are subject to
extensive regulation in the United States, Canada and other countries. The
statutes and regulations governing the pharmaceutical products intended for
therapeutic or diagnostic use are administered principally by the FDA in the
United States, by the Therapeutic Products Program in Canada and by the European
Medicines Evaluation Agency in the European Union.
GOOD LABORATORY PRACTICES. Pre-clinical and laboratory testing of new drug
products is conducted under good laboratory practices regulations in the United
States and similar requirements in Canada and the European Union. Good
laboratory practices regulations stipulate requirements for:
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- facilities;
- equipment;
- supplies; and
- personnel.
The regulations require that written, standardized procedures be followed during
the conduct of studies and for the recording, reporting and retention of study
data and records.
GOOD CLINICAL PRACTICES. The conduct of Phases I-IV studies is subject to good
clinical practices in the United States and similar requirements in Canada and
the European Union. These requirements are designed to assure the quality and
integrity of data obtained from clinical testing and to protect the rights and
safety of human subjects who participate in clinical trials. These provisions
include:
- complying with specific regulations governing the selection of qualified
investigators;
- obtaining specific written commitments from the investigators;
- verifying that patients' informed consent is obtained;
- instructing investigators to maintain records and reports;
- verifying drug or device accountability;
- reporting clinical subjects' adverse reactions to drugs; and
- permitting appropriate governmental authorities access to data for their
review.
Records for clinical studies must be maintained for specified periods for
inspection by study sponsors and regulatory authorities.
In the United States, good clinical practices are implemented in part through
regulations and in part through guidelines promulgated by the FDA. These
regulations and guidelines serve as a basis for Phoenix's North American
standard operating procedures. Within Europe, all work is carried out in
accordance with the European Community Note for Guidance "Good Clinical Practice
for Trials on Medicinal Products in the European Community." Studies beginning
after January 17, 1997 to be submitted to the European Medicines Evaluation
Agency are being performed according to the requirements of the International
Conference on Harmonization--good clinical practices guideline. Phoenix is
introducing common standard operating procedures across regions, based on this
guideline, to assure consistency whenever it is feasible to do so. Phoenix's
standard operating procedures will take into account the regulations and
guidelines appropriate to the region where they will be used. Phoenix has
established quality assurance programs to monitor ongoing compliance with good
laboratory practices and good clinical practices requirements by auditing study
data and conducting regular inspections of testing procedures.
The Therapeutic Products Program in Canada is considering a proposal to shorten
the review period required to gain approval to initiate most Phase I clinical
studies. The proposed changes, if adopted, would effectively eliminate the
current regulatory review period of 60 days. Phoenix believes that if regulatory
changes implementing this proposal are adopted, the number of most Phase I
clinical studies conducted in Canada could significantly increase. There can be
no assurance, however, that the proposed changes will be adopted.
Phoenix may be audited or inspected by the FDA and other regulatory authorities
to ensure compliance with good laboratory practices and good clinical practices
and other applicable regulations and guidelines. Although Phoenix believes that
it is currently in compliance in all material respects with these requirements,
failure to comply could result in:
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- the termination of ongoing research;
- the disqualification of data for submission to regulatory authorities;
- the denial of the right to conduct business;
- fines;
- criminal penalties; and
- other enforcement actions.
Any of the foregoing consequences could have a material adverse effect on
Phoenix. For a description of regulatory and law enforcement proceedings
concerning Phoenix's Cincinnati facility, see "--Legal Proceedings."
ENVIRONMENTAL, HEALTH AND SAFETY REGULATION
UNITED STATES
Phoenix's laboratories in the United States are subject to federal, and in some
cases, state, and local laws and regulations governing the use, handling,
transportation and disposal of hazardous chemicals and radioactive materials,
and regulating the emission of air pollutants into the atmosphere and the
discharge of wastewater to public sewer systems.
Phoenix operates all of its U.S. laboratories in material compliance with all of
these applicable laws and regulations. Phoenix's use of radioactive materials is
pursuant to a materials license issued by the United States Nuclear Regulatory
Commission. Phoenix's storage and disposal or medical specimens and hazardous
waste is regulated by the U.S. Environmental Protection Agency and state
environmental agencies in the jurisdictions in which Phoenix operates its
laboratories. Emissions from laboratory hoods and other sources of air pollution
are required to be licensed under federal and state air pollution laws.
Transportation by Phoenix of laboratory specimens, radioactive materials, and
other hazardous materials are regulated by one or more of the U.S. Environmental
Protection Agency, the U.S. Department of Transportation, the U.S. Public Health
Service, and the U.S. Nuclear Regulatory Commission.
Phoenix is also subject to laws, rules and regulations governing worker health
and safety. Use of hazardous chemicals and pathogens in the Phoenix's
laboratories is regulated by the federal Occupational Health and Safety
Administration. Phoenix is subject to regulations which specify communications
regarding chemical hazards to employees and regarding the degree of allowable
exposure to chemical or biological hazards in the workplace, and impose specific
employee training requirements. Similar regulations are imposed by the U.S.
Nuclear Regulatory Commission for radioactive materials. Phoenix believes it is
in material compliance with all of these laws, rules and regulations.
Environmental laws in the United States impose liability on the generators of
hazardous substances for disposal or accidental releases to the environment of
hazardous substances at locations that require environmental remediation, even
if there has been no violation of law or other culpable conduct on the part of
the generator of the waste. Phoenix has not received any notice that it is
considered to be potentially liable at any location. However, since Phoenix
generates hazardous wastes, which are disposed of by licensed contractors, there
exists the possibility that Phoenix could incur environmental liability in the
future.
CANADA
Phoenix's Canadian operations are subject to various environmental laws and
regulations, including:
- air pollution;
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- wastewater discharge, storage tanks and storage; and
- management and disposal of biomedical, hazardous and radioactive materials
and waste.
Phoenix's Greater Montreal facility holds permits for emissions from its
laboratory extraction hoods, a certificate of authorization for the operation of
a biomedical research center and the storage and management of hazardous waste
and licences for the storage and management of radioactive materials on its
premises in Saint Laurent, Quebec. Phoenix has applied for, but has not yet
received, a permit authorizing the discharge of wastewater from its expanded
Saint Laurent operation into the city sewer system and a permit for new
extraction hoods and bio-safety cabinets at the Saint Laurent facility. Phoenix
is in the process of determining whether it needs additional permits, licenses
or other authorizations under applicable environmental laws and regulations for
its Saint Laurent operations. If additional permits are needed, Phoenix will
apply for these required permits, licenses or other authorizations and it has no
reason to believe it could not obtain the same. Notwithstanding the foregoing,
Phoenix believes it currently has all permits material to its Canadian
operations. Phoenix employs the services of certified biomedical, hazardous, and
radioactive waste transporters. Phoenix believes it is in material compliance
with all federal, provincial, and municipal environmental, health and safety
laws and regulations that are applicable to its Canadian operations.
EUROPE
Phoenix's Swiss operations are subject to various environmental laws and
regulations, including with respect to wastewater discharge, and laws and
regulations that regulate the storage and management of biomedical, hazardous
and radioactive materials and waste. Anawa's various permits include licenses to
handle toxic substances, radioactive compounds and pharmaceutical substances.
Phoenix employs the services of certified biomedical, hazardous and toxic
transporters both in Anawa's and ITEM Labo's laboratories. Phoenix believes that
these facilities and its other European operations are in material compliance
with all applicable environmental and health and safety laws and regulations.
POTENTIAL LIABILITY AND INSURANCE
Clinical studies involve the testing of approved and experimental drugs on human
subjects, including patients who are seriously ill. These studies create a risk
of liability for personal injury or even death to participants due to an adverse
reaction to the test drug or as a result of negligence or misconduct. In
addition, although Phoenix does not believe it is legally accountable for the
medical care rendered by third party investigators, it is possible that Phoenix
could be subject to claims and expenses arising from any professional
malpractice of the investigators. Phoenix also could be held liable for errors
or omissions in connection with the services it performs.
Phoenix believes that the risk of liability to patients in clinical trials is
mitigated by various regulatory requirements, including the role of
institutional review boards and the need to obtain each patient's informed
consent. The FDA requires each human clinical trial to be reviewed and approved
by the institutional review board. An institutional review board is an
independent committee that includes both medical and non-medical personnel and
is obligated to protect the interests of patients enrolled in the trial. After
the trial begins, the institutional review board monitors the study progress
with measures designed to protect patients.
To reduce its potential liability, Phoenix seeks to obtain indemnity provisions
in its contracts with clients and with investigators hired by Phoenix on behalf
of its clients. These indemnities generally do not, however, protect Phoenix
against negligence or wilfull misconduct. Moreover, these indemnities are
contractual arrangements that are subject to negotiation with individual
clients, and the terms and scope of these indemnities vary from client to client
and from study to study. Finally, the financial performance of these indemnities
is not secured, so that Phoenix bears the risk that an indemnifying party may
not have the financial ability to fulfill its indemnification obligations.
Phoenix could be
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materially and adversely affected if it were required to pay damages or incur
defense costs in connection with a claim that is outside the scope of an
indemnity or where the indemnity, although applicable, is not performed in
accordance with its terms.
Phoenix currently maintains an errors and omissions professional liability
insurance policy. There can be no assurance that this insurance coverage will be
adequate, or that insurance coverage will continue to be available on terms
acceptable to Phoenix.
Any successful claim asserted against Phoenix not covered by or in excess of its
insurance coverage could have a material adverse effect on Phoenix.
LEGAL PROCEEDINGS
As is routine for North American contract research organizations, Phoenix's
Cincinnati facility has been inspected by the FDA several times between 1995 and
1998. In the 1997 inspection, the inspectors cited deficiencies regarding some
anomalous data connected with repeated height and weight measurements of some
healthy volunteers screened for clinical studies. These studies were conducted
in 1995 and early 1996, shortly after the Cincinnati facility opened. In
response to these FDA observations, Phoenix retained outside consultants to
evaluate the FDA observations and make recommendations to Phoenix for
improvements in Phoenix's procedures, if appropriate. Following the report of
the outside consultants, these procedures were changed to ensure greater rigor
in the screening process. A formal response describing these changes and
responding to the FDA observations was submitted to the FDA in February 1998. In
early March 1998, Phoenix received a grand jury subpoena, requesting documents
from Phoenix, including documents relating to studies conducted during the early
phase of the Cincinnati facility's development, including the period covered by
the 1997 inspection. Phoenix has complied with the subpoena and no further
communications have been received by Phoenix from the FDA relating to this
matter. To the knowledge of Phoenix, to date a target of this investigation has
not been identified by authorities. While Phoenix believes it has taken all
necessary measures to ensure a favorable outcome to the 1997 inspection, Phoenix
cannot at this time predict the ultimate resolution of the 1997 inspection or
the final outcome of any proceedings relating to the grand jury subpoena. An
adverse resolution of the 1997 inspection or an adverse outcome of any
proceedings relating to the grand jury subpoena could result in substantial
fines or penalties, the effect of which could be material to Phoenix's business,
financial condition, or results of operations. In addition, there can be no
assurance that the pendency of the proceedings will not have a material adverse
effect on Phoenix.
Phoenix is not a party to any other legal proceedings that it believes are
reasonably likely, individually or in the aggregate, to have a material adverse
effect on its financial position or results of operations, nor, except as
described above, is it a party to, or aware of, any proceeding or investigation
involving any material claims arising out of any clinical trial that it managed
or monitored.
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SELECTED CONSOLIDATED FINANCIAL INFORMATION OF PHOENIX
The following table sets forth selected consolidated financial information of
Phoenix in Canadian dollars. The selected consolidated financial information for
the five years ended August 31, 1998 is derived from the consolidated financial
statements of Phoenix which have been prepared in accordance with Canadian GAAP
and audited by Ernst & Young LLP, independent chartered accountants. The
selected consolidated financial information for the three months ended November
30, 1998 and 1997, have been derived from the unaudited consolidated financial
statements of Phoenix. The selected consolidated financial information as at
August 31, 1997 and 1998 and for the three year period ended August 31, 1998 in
accordance with U.S. GAAP are derived from note 15 to the consolidated financial
statements of Phoenix. The following information should be read in conjunction
with the consolidated financial statements, "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Phoenix," and
"Unaudited Pro Forma Consolidated Financial Information" included elsewhere in
this proxy statement/prospectus. See also "Financial Statement Presentation and
Exchange Rates."
The consolidated financial statements of Phoenix have been prepared in
accordance with Canadian GAAP. Canadian GAAP differs from U.S. GAAP. See note 15
to the consolidated financial statements of Phoenix included elsewhere in the
proxy statement/prospectus for a description of material differences between
U.S. GAAP and Canadian GAAP as they relate to the consolidated financial
statements of Phoenix and a reconciliation to U.S. GAAP of Phoenix's financial
position, net income and shareholders' equity.
You should be aware of the following factors that affect comparisons from year
to year:
(a) In the quarter ended November 30, 1998, Phoenix completed the acquisition of
Clinserve AG. This acquisition was accounted for under the pooling of
interests method under U.S. GAAP. The pooling of interests method requires
the restatement of financial statements of periods prior to the pooling
transaction in a manner that assumes the two companies had always been
combined. As a result, the U.S. GAAP data presented below has been restated
to reflect this transaction.
(b) During August 1997 and February 1998, Phoenix acquired two significant Phase
II-IV operations, ITEM and IBRD-Rostrum respectively. These acquisitions
accounted for incremental net revenues of approximately $67 million for the
year ended August 31, 1998. The acquisition of ITEM through the issuance of
4,690,142 Phoenix common shares resulted in an increase in consolidated
assets of approximately $54 million and an increase of $48.5 million in
shareholders' equity under Canadian GAAP (approximately $4 million and nil
respectively under U.S. GAAP). In February 1998, Phoenix acquired 100% of
IBRD-Rostrum for approximately $44 million. This resulted in an increase in
consolidated assets of approximately $63 million under both Canadian and
U.S. GAAP.
(c) In the year ended August 31, 1994, Phoenix benefited from research and
development financing available under relevant Quebec tax legislation, which
gave rise to financing income of $1,152,000. Because of changes in related
income tax legislation, these transactions have not recurred.
(d) In accordance with accepted Canadian practice, the basic and fully-diluted
earnings and pre-tax earnings per share amounts for the year ended August
31, 1994 are based on the weighted average number of Phoenix common shares
outstanding as at August 31, 1995, due to the changes in Phoenix's capital
structure which occurred when Phoenix became a public company on October 24,
1994.
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30
(UNAUDITED) YEAR ENDED AUGUST 31
--------------------
-----------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE
AMOUNTS)
STATEMENTS OF INCOME (LOSS) DATA
AMOUNTS IN ACCORDANCE WITH CANADIAN GAAP
Gross revenues.......................... 74,163 35,536 $ 218,360 $ 86,736 $ 64,182 $ 47,452 $ 33,872
Net revenues............................ 58,661 31,679 171,238 82,477 63,082 46,651 33,197
Income (loss) before income taxes....... 5,169 2,732 15,691 5,188 (5,181) 7,001 9,922
Net income (loss)....................... 2,854 1,830 9,067 2,349 (5,361) 4,941 7,030
STATEMENTS OF INCOME (LOSS) DATA
AMOUNTS IN ACCORDANCE WITH U.S. GAAP
Gross revenues.......................... 76,216 38,618 228,226 125,533 106,127
Net revenues............................ 60,714 34,761 181,104 115,966 97,569
Income (loss) before income taxes....... 5,025 3,230 18,271 5,885 (2,643)
Net income (loss)....................... 2,691 2,314 11,603 2,014 (3,751)
PER COMMON SHARE
AMOUNTS IN ACCORDANCE WITH CANADIAN GAAP
Basic and fully-diluted earnings
(loss)................................ 0.11 0.08 0.37 0.12 (0.29) 0.30 0.43
Pre-tax earnings (loss)................. 0.21 0.11 0.64 0.26 (0.28) 0.42 0.60
Dividends............................... -- -- -- -- -- 0.07 --
PER COMMON SHARE
AMOUNTS IN ACCORDANCE WITH U.S. GAAP
Basic and diluted earnings (loss)....... 0.10 0.09 0.46 0.08 (0.16)
Pre-tax earnings (loss)................. 0.19 0.13 0.73 0.23 (0.11)
Dividends............................... -- -- -- -- --
BALANCE SHEET DATA (AT PERIOD-END)
AMOUNTS IN ACCORDANCE WITH CANADIAN GAAP
Working capital......................... 6,513 9,942 16,498 17,425 8,367 6,500
Total assets............................ 303,915 271,470 160,858 89,570 66,282 34,648
Total debt.............................. 53,790 50,351 11,672 11,210 13,695 15,842
Long-term debt.......................... 41,843 42,440 4,058 9,226 10,158 9,899
Shareholders' equity.................... 147,305 129,953 112,265 61,248 39,352 12,027
BALANCE SHEET DATA (AT PERIOD-END)
AMOUNTS IN ACCORDANCE WITH U.S. GAAP
Working capital......................... 6,513 9,942 17,986
Total assets............................ 236,291 217,924 114,285
Shareholders' equity.................... 79,681 76,407 63,840
</TABLE>
99
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PHOENIX
OVERVIEW
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES OF PHOENIX INCLUDED ELSEWHERE
HEREIN, AND IS BASED ON THE CONSOLIDATED FINANCIAL STATEMENTS IN ACCORDANCE WITH
CANADIAN GAAP UNLESS OTHERWISE NOTED. ALL DOLLAR AMOUNTS ARE IN CANADIAN DOLLARS
UNLESS OTHERWISE NOTED.
Phoenix believes it is one of the largest contract research organizations in the
world, providing a comprehensive range of research and development services to
pharmaceutical and biotechnology industries. Phoenix serves principally an
American client base, reflected by the fact that 65% of its revenues were
derived from U.S. client-based contracts for the year ended August 31, 1998
compared to 76% in fiscal 1997.
As at August 31, 1996 and 1997 the U.S. dollar denominated accounts receivable
of the Canadian operations of Phoenix aggregated US$11,605,000 and US$9,886,000.
These amounts were not hedged. As at August 31, 1998 and November 30, 1998 the
U.S. dollar denominated accounts receivable of the Canadian operations of
Phoenix aggregated US$12,003,000 and US$10,398,000. These accounts receivable
were hedged entirely by foreign exchange forward contracts. Based on Phoenix's
overall currency exposure at November 30, 1998, including derivative positions,
currency movements are projected to affect after-tax cash flow by less than $2
million on an annual basis.
Phoenix is headquartered in Montreal, Canada. Phoenix began operations in June
1989 and became a public company listed on the Toronto Stock Exchange and the
Montreal Exchange in 1994. Phoenix's revenues have grown at a compounded rate of
52% over the last five fiscal years, reflecting its recent acquisitions and both
an expansion of Phoenix's client base and an increase in the number and size of
projects under management. Over that time, assets have grown more than thirteen
times from $20.4 million at August 31, 1993 to $271.5 million at August 31,
1998.
Phoenix recognizes revenues for contracts on the percentage of completion basis
determined by reference to work performed. Customer advances and billings in
excess of costs and estimated profit on contracts in progress are shown as
liabilities. Losses, if any, are provided for in full as soon as they are
anticipated. Phoenix's research contracts generally call for an amount to be
paid at or near signature of the contract and the balance in installments
thereafter as milestones are achieved. Consistent with industry counterparts,
Phoenix routinely subcontracts with third party investigators in connection with
clinical trials. These and other reimbursable costs are paid by Phoenix and
reimbursed by clients. In accordance with industry practice, reimbursed costs
are included in gross revenue. Accordingly, Phoenix views net revenue, which
consists of gross revenue less reimbursed costs, as its primary measure of
revenue growth.
Direct labor, including fringe benefits, is the largest single component of
direct costs, reflecting approximately 50% of the total amount for the first
quarter of fiscal 1999 compared to 52% in the comparable period of fiscal 1998,
50% in fiscal 1998 and 48% in fiscal 1997. Other significant direct costs
include laboratory and chemical supplies, amortization of capital and other
assets, equipment maintenance, study subject fees, physician fees and laboratory
testing.
In fiscal 1998, Phoenix acquired IBRD-Rostrum for US$28.5 million cash, and
Anawa for Phoenix common shares valued at $7.2 million.
Phoenix has historically prepared and filed its consolidated financial
statements in accordance with Canadian GAAP. Commencing in fiscal 1998, Phoenix
has also reconciled its results to U.S. GAAP, although still keeping the
Canadian dollar as its reporting currency, in order to present the financial
results consistently with Phoenix's industry counterparts and competitors. The
significant differences between U.S. GAAP and Canadian GAAP are described in
note 15 of the consolidated financial statements of Phoenix.
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RECENT DEVELOPMENTS
SALE OF KANSAS CITY ANALYTICAL SERVICES. On September 15, 1998, Phoenix sold
its 44% interest in the common stock of Kansas City Analytical Services, a
contract research organization located in Kansas City. Phoenix acquired Kansas
City Analytical Services as part of the IBRD-Rostrum acquisition for US$2.4
million. Phoenix used the proceeds to repay a portion of the related outstanding
indebtedness.
CLINSERVE AND MCKNIGHT ACQUISITIONS. In November 1998, Phoenix acquired 100% of
the outstanding common stock of Clinserve (Switzerland and Germany) for 316,805
Phoenix common shares and McKnight (Germany) for 873,325 Phoenix common shares.
Clinserve provides central clinical laboratory services for European Phase I-IV
clinical studies. McKnight provides Phase I clinical studies to European
pharmaceutical companies.
Several events in the second quarter of fiscal 1999, primarily a substantial
reduction of bioanalytical service business from a major liquid
chromatography/mass spectrometry client which has insourced most of its liquid
chromatography/mass spectrometry work, together with a temporary downturn in
liquid chromatography/mass spectrometry business in February 1999 and delays in
the start-up of several European Phase II-IV projects, are expected to
materially adversely affect Phoenix's earnings for its second fiscal quarter and
is expected to have a lesser adverse impact on third quarter earnings. These
adverse effects are expected to reduce Phoenix's fiscal 1999 net income by
approximately $4.0 million.
RESULTS OF OPERATIONS
FIRST QUARTER FISCAL 1999 COMPARED TO THE FIRST QUARTER FISCAL 1998
REVENUES
Net revenues for the first quarter of fiscal 1999 were $58.7 million,
representing an increase of 85% over the net revenues of $31.7 million in the
comparable quarter of fiscal 1998. Net revenues for the first quarter were $60.7
million under U.S. GAAP, representing an increase of 75% over net revenues of
$34.8 million for the comparable period of fiscal 1998, restated to reflect the
Anawa and Clinserve poolings of interests. This significant increase resulted
primarily from Phoenix's acquisition of IBRD-Rostrum in the second quarter of
fiscal 1998 as well as an overall organic revenue growth of 23%. Net gains from
foreign currency fluctuations were $29,000 for the first quarter of fiscal 1999
compared to $705,000 in the comparable quarter of fiscal 1998.
In the first quarter of fiscal 1999, Phoenix earned approximately 25% of its
consolidated net revenues from Phase I studies, 43% from Phase II-IV clinical
studies, 30% from bioanalytical studies and 2% from other sources, as compared
with 30%, 25%, 40% and 5%, respectively, in the first quarter of fiscal 1998.
During the first quarter of fiscal 1999, Phoenix earned approximately 30% of its
consolidated net revenues in the United States, 42% in Canada and 28% in Europe,
as compared with approximately 16%, 61% and 23% respectively in the comparable
period of fiscal 1998 on a Canadian GAAP basis.
On a U.S. GAAP basis, during the first quarter of fiscal 1999, Phoenix earned
approximately 30% of its consolidated net revenues in the United States, 40% in
Canada and 30% in Europe, as compared with approximately 13%, 59% and 28%,
respectively, in the comparable period of fiscal 1998 as restated to reflect the
Anawa and Clinserve poolings of interests.
DIRECT COSTS
Direct costs increased 87% to $34.7 million from $18.5 million in the comparable
quarter of fiscal 1998, and increased as a percentage of net revenues to 59%
from 58% in the first quarter of fiscal 1999
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<PAGE>
primarily as a result of the IBRD-Rostrum acquisition. Consequently, the gross
profit margin decreased from 42% in fiscal 1998 to 41% in fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 80% to $17.5 million from
$9.7 million in the first quarter of fiscal 1998. The selling, general and
administrative expenses as a percentage of net revenue, decreased from 31% in
the first quarter of fiscal 1998 to 29% in fiscal 1999. The overall increase is
primarily attributable to the IBRD-Rostrum acquisition and the organic increase
in personnel costs and other general and administrative costs given Phoenix's
increased growth and geographic expansion.
INTERNAL RESEARCH AND DEVELOPMENT
Internal research and development costs decreased 4% to $866,000 from $902,000
in the first quarter of fiscal 1998. Phoenix views these internal research and
development expenditures as critical to Phoenix's ongoing competitive success
and expects to continue to make significant expenditures in this area in the
future.
INTEREST ON LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS AND AMORTIZATION
Interest on long-term debt and capital lease obligations increased significantly
to $1.4 million from $199,000 in the comparable period of fiscal 1998, primarily
as a result of the assumption of US $28 million term debt in February 1998, in
connection with the IBRD-Rostrum acquisition. The increase is also partially
attributable to the assumption of US$4.7 million term debt in connection with
the merger.
Phoenix believes that an instantaneous increase or decrease of one percentage
point in interest rates applicable to the aggregate of its floating rate
financial instruments would not have a material impact on its financial position
or results of operations.
In the aggregate, amortization of capital assets increased 43% to $3.0 million
from $2.1 million in the first quarter of fiscal 1998. This increase was the
result of the additional purchases of capital assets, totaling $3.9 million as
compared to $1.7 million in the first quarter of 1998. Additionally, the
amortization of goodwill on acquisitions increased to $732,000 in the first
quarter of fiscal 1999 compared to $322,000 in the comparable period of fiscal
1998 as a result of the IBRD-Rostrum, Anawa, Clinserve and McKnight
acquisitions.
On a U.S. GAAP basis, the amortization of goodwill on acquisitions amounted to
$321,000 of amortization in the first quarter of fiscal 1999, a significant
increase over the $48,000 in the comparable period of fiscal 1998, due to the
IBRD-Rostrum acquisition. As previously disclosed, the ITEM, Anawa, Clinserve
and McKnight business combinations are accounted for under the pooling of
interests method under U.S. GAAP.
FISCAL 1998 COMPARED TO FISCAL 1997
REVENUES
Net revenues for fiscal 1998 were $171.2 million, representing an increase of
108% over net revenues of $82.5 million for fiscal 1997. This significant
increase resulted primarily from Phoenix's recent acquisitions of ITEM at the
end of fiscal 1997 and IBRD-Rostrum in the second quarter of fiscal 1998, as
well as revenue growth in several organic business areas. Net gains from foreign
currency fluctuations were $1.1 million for fiscal 1998 compared to $221,000 for
fiscal 1997.
In fiscal 1998, Phoenix earned approximately 24% of its consolidated net
revenues from Phase I clinical studies, 42% from Phase II-IV clinical studies,
32% from bioanalytical studies and 2% from other sources, as compared with 34%,
7%, 56% and 3% in fiscal 1997.
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During fiscal 1998, Phoenix earned approximately 27% of its consolidated net
revenues in the United States, 50% in Canada and 23% in Europe, as compared with
approximately 16%, 82% and 2% in fiscal 1997.
DIRECT COSTS
Direct costs increased 89% to $100 million from $53 million in fiscal 1997, and
decreased as a percentage of net revenues to 58% from 64% in fiscal 1997. The
increase in the gross profit margin is partially attributable to the ITEM and
IBRD-Rostrum acquisitions, as well as the continued net revenue growth in the
organic Phase I and bioanalytical sectors during the year. The decrease in
direct costs relative to net revenue was principally due to Phoenix's recent
acquisitions and its ability to perform contracts more efficiently realizing
economies of scale through the allocation of fixed costs over a larger net
revenue base.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 127% to $51.9 million
from $22.9 million in fiscal 1997. The selling, general and administrative
expenses as a percentage of net revenue increased from 28% in fiscal 1997 to 30%
in fiscal 1998, primarily attributable to the ITEM and IBRD-Rostrum
acquisitions. The overall increase is primarily attributable to the increase in
personnel costs and other general and administrative costs given Phoenix's
increased growth and geographic expansion.
INTERNAL RESEARCH AND DEVELOPMENT
Internal research and development costs increased 12% to $3.7 million from $3.3
million in fiscal 1997 as a result of Phoenix's growth, expansion and commitment
to process and product research and development.
INTEREST ON LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS AND AMORTIZATION
Interest on long-term debt and capital lease obligations increased significantly
by 404% to $3.3 million from $659,000 in the comparable period of fiscal 1997,
primarily as a result of the assumption of US$28 million term debt, in
connection with the IBRD-Rostrum acquisition referred to in more detail above.
In the aggregate, amortization of capital assets increased 35% to $9.4 million
from $6.9 million in fiscal 1997. This increase was the result of additional
purchases of capital assets, totaling $13.2 million, as compared to $6.2 million
in fiscal 1997. Additionally, the amortization of goodwill on acquisitions
increased to $2.2 million in fiscal 1998, compared to $204,000 in fiscal 1997 as
a result of the ITEM, IBRD-Rostrum and Anawa acquisitions.
On a U.S. GAAP basis, the amortization of goodwill amounted to $812,000 in
fiscal 1998, as the ITEM and Anawa business combinations are accounted for under
the pooling of interests method under U.S. GAAP.
FISCAL 1997 COMPARED TO FISCAL 1996
REVENUES
Net revenues for the year ended August 31, 1997 were $82.5 million, representing
an increase of 31% over net revenues of $63.1 million for fiscal 1996. This
increase resulted from improvements in several business areas, particularly the
clinical area, where the increase in operating volume of the Cincinnati facility
contributed 28% of the fiscal 1997 net revenue increase. Revenues in the
bioanalytical area accounted for 56% of net revenue in 1997, 57% in fiscal 1996,
with its principal division liquid chromatography/mass spectrometry experiencing
a 56% increase in net revenues as compared to fiscal 1996. Net gains from
foreign currency fluctuations were $221,000 for fiscal 1997 and $126,000 for
fiscal 1996.
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DIRECT COSTS
Direct costs increased 21% to $53.0 million from $43.9 million for the
comparable period in 1996, and decreased as a percentage of net revenues to 64%
from 70% in fiscal 1996. The increase in the gross profit margin is partially
attributable to the improvements in the results of the Cincinnati operations, as
well as the significant net revenue growth in the liquid chromatography/mass
spectrometry sector during the year. The decrease in direct costs relative to
net revenue was principally due to Phoenix's ability to perform its contracts
more efficiently and the economies of scale realized through the allocation of
fixed costs over a larger net revenue base.
Direct labor costs totaled $ 25.2 million in 1997 compared to $22.0 million in
fiscal 1996. Other direct costs include laboratory and chemical supplies,
amortization of certain capital and other assets, equipment maintenance, study
subject fees, physician fees and laboratory testing.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 16% to $23 million from
$19.9 million in fiscal 1996. Labor costs, the primary component, increased 10%
to $9.5 million from $8.6 million in the prior period. The selling, general and
administrative expenses as a percentage of net revenue, decreased from 31.5% in
fiscal 1996 to 28% in fiscal 1997 primarily due to the increase in net revenue.
The overall increase is primarily attributable to the increase in labor costs
and other general and administrative costs given Phoenix's increased growth.
INTERNAL RESEARCH AND DEVELOPMENT
Internal research and development costs decreased 11% to $3.3 million from $3.7
million in fiscal 1996, as a result of Phoenix's ability to increase revenues
captured in this sector, resulting in a decrease in the net costs, while still
expanding the commitment to process and product research and development.
INTEREST ON LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS AND AMORTIZATION
Interest on long-term debt and capital lease obligations decreased by 33% to
$659,000 from $981,000 for fiscal 1996 as a result of the share issuance
proceeds in May 1996 and the related debt repayment of $18 million at that time.
In the aggregate, amortization of capital assets increased 24% to $6.9 million
from $5.6 in fiscal 1996. This increase was the result of additional purchases
of capital assets, totaling $6.2 million in fiscal 1997 compared to $18.6
million in fiscal 1996. Additionally, the amortization of intellectual property
and goodwill on acquisitions described below, amounted to an additional $204,000
of amortization in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Phoenix continues to generate strong cash flow from operations. Phoenix
generated operating cash flows of $6.1 million in the first quarter of fiscal
1999, up significantly from $1.9 million in the comparable period of fiscal
1998. Phoenix generated operating cash flows of $14.9 million in fiscal 1998, as
compared to $7.7 million in fiscal 1997 and a usage of $3.6 million in fiscal
1996.
Phoenix's consolidated backlog consists of anticipated revenues from clients in
connection with net revenues which have been contracted for or orally committed
to but that have not been completed, or in some cases, started. Phoenix's
consolidated net revenue backlog as at January 31, 1999 was approximately $173.6
million compared to $88.7 million as at January 31, 1998. Approximately 58% of
the consolidated net revenue backlog as at January 31, 1999 represents
anticipated contract revenues to be realized by the end of fiscal 1999. Although
backlog represents only business which is considered to be firm, there is no
assurance that cancellations or decreases in the size of the involved contracts
will not occur.
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INVESTING ACTIVITIES
In fiscal 1997 and 1998, Phoenix increased its net revenues with a
lower-than-historical level of capital expenditures by exploiting its capacity
and achieving economies of scale. Capital asset additions for fiscal 1998
amounted to $13.2 million, as compared to $6.2 million in fiscal 1997, primarily
relating to information technology products and research equipment. Capital
asset additions for the first quarter of fiscal 1999 amounted to $3.9 million as
compared to $1.7 million in the first quarter of fiscal 1998, primarily relating
to information technology products and research equipment. Phoenix's 1999
capital expenditure plan calls for over $20 million in capital asset additions.
Phoenix is currently building a new state-of-the-art 145,000 square foot
laboratory in Montreal (Saint-Laurent, Quebec) which is expected to be completed
by September 1999. Phoenix plans to finance the cost of the facility through a
sale/leaseback financing arrangement and with funds from operations.
FINANCING ACTIVITIES
At November 30, 1998 the Company's principal indebtedness consisted of bank
revolving credit indebtedness in the amount of $3.6 million, bank term loans of
$44.8 million, 50% maturing in February 2001 and 50% maturing in February 2002,
capital lease obligations of $350,000, a low interest loan from the state of
Ohio in the amount of $1.7 million, a note payable of $1 million maturing in
July 2000, low interest bearing government loans of $861,000 and other debts in
the amount of approximately $1.5 million.
Phoenix also has revolving lines of credit to meet its liquidity needs totaling
approximately $17 million. As at November 30, 1998 Phoenix had drawn $3.6
million of these facilities. In addition, Phoenix has available capital
expenditure and other lines of credit totaling $21.6 million. As of November 30,
1998, $7.2 million (US$4.7 million) had been drawn on these lines to finance the
cash collateral pledge to the Bank.
On September 15, 1998, Phoenix sold its 44% interest in the common stock of
Kansas City Analytical Services, a contract research organization located in
Kansas City. Phoenix acquired Kansas City Analytical Services as part of the
IBRD-Rostrum acquisition, for US$2.4 million, the proceeds of which were used to
repay a portion of outstanding indebtedness.
Phoenix financed its pledge of approximately US$4.7 million cash collateral to
the Bank to secure the guaranty under the forbearance agreement by borrowing
under its existing revolving line of credit. Upon consummation of the merger,
Phoenix will repay an additional approximately US$10.0 million in indebtedness
of Chrysalis. The cash collateral pledge was financed through existing Phoenix
bank revolving credit facilities and Phoenix has negotiated the re-financing of
the assumed Chrysalis debt with its current lenders.
Based on its current operating plan, Phoenix's management believes that its
available cash and cash equivalents, together with cash flow operations, and
credit available under its operating lines of credit will be sufficient to meet
its operating cash flow and capital expenditure needs for at least the next 12
months. However, in order to support future growth, either internally or through
acquisitions, Phoenix may need to obtain additional debt or equity financing.
105
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QUARTERLY RESULTS
Phoenix's quarterly operating results have been and will continue to be subject
to variation, depending on factors such as:
- the initiation and progress of significant projects;
- exchange rate fluctuations;
- the costs associated with integrating acquisitions; and
- the start-up costs incurred in connection with the introduction of new
services.
The following table presents unaudited quarterly operating results for Phoenix,
for each of the nine most recent fiscal quarters in accordance with Canadian
GAAP. The operating results for any quarter are not necessarily indicative of
the results of any future period.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30, 1998 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (AUDITED)
- --------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross revenues.................................... 74,163 n/a n/a n/a n/a
Net revenues...................................... 58,661 n/a n/a n/a n/a
Pre-tax earnings.................................. 5,169 n/a n/a n/a n/a
Net earnings...................................... 2,854 n/a n/a n/a n/a
Pre-tax earnings per common share................. 0.21 n/a n/a n/a n/a
Basic earnings per common share................... 0.11 n/a n/a n/a n/a
FISCAL YEAR ENDED AUGUST 31, 1998
Gross revenues.................................... 35,536 39,744 66,816 76,264 218,360
Net revenues...................................... 31,679 32,495 48,605 58,459 171,238
Pre-tax earnings.................................. 2,732 803 6,556 5,600 15,691
Net earnings...................................... 1,830 195 3,126 3,916 9,067
Pre-tax earnings per common share................. 0.12 0.04 0.27 0.21 0.64
Basic earnings per common share................... 0.08 0.01 0.13 0.15 0.37
FISCAL YEAR ENDED AUGUST 31, 1997
Gross revenues.................................... 17,588 19,527 22,711 26,910 86,736
Net revenues...................................... 17,127 19,095 21,731 24,524 82,477
Pre-tax earnings (loss)........................... (1,284) 189 2,416 3,867 5,188
Net earnings (loss)............................... (1,374) 99 1,748 1,876 2,349
Pre-tax earnings (loss) per common share.......... (0.07) 0.01 0.12 0.19 0.26
Basic earnings (loss) per common share............ (0.07) 0.01 0.09 0.09 0.12
</TABLE>
RECENT ACQUISITIONS
On November 6, 1998, Phoenix acquired 100% of the outstanding common stock of
McKnight (Germany) in exchange for 873,325 Phoenix common shares issued from
treasury, valued at approximately $10.7 million. Under Canadian GAAP, the
transaction is accounted for under the purchase method. Under U.S. GAAP, this
transaction has been accounted for on a pooling of interests basis.
On November 5, 1998, Phoenix acquired 100% of the outstanding common stock of
Clinserve (Switzerland and Germany) in exchange for 316,805 Phoenix common
shares issued from treasury, valued at approximately $3.8 million. Under
Canadian GAAP, the transaction is accounted for under the purchase method. Under
U.S. GAAP, this transaction has been accounted for on a pooling of interests
basis.
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On April 30, 1998, Phoenix acquired 100% of the outstanding common stock of
Anawa in exchange for 525,651 Phoenix common shares issued from treasury, valued
at approximately $7.2 million and acquisition costs of approximately $368,000.
Under Canadian GAAP, the transaction is accounted for under the purchase method.
Under U.S. GAAP, this transaction is accounted for on a pooling of interests
basis.
On February 7, 1998, Phoenix acquired 100% of the outstanding common stock of
IBRD-Rostrum in exchange for cash of US$28.5 million, primarily financed through
the assumption of term debt, and acquisition costs of approximately $2 million.
The purchase agreement also provides for a contingent payment of nine times the
"EBITDA," which is consolidated earnings before interest, taxes, depreciation
and amortization, of the acquired operations for the 12 month period ending
December 31, 1998 in excess of US$3 million. Under both Canadian and U.S. GAAP,
the acquisition is accounted for under the purchase method.
On August 7, 1997, Phoenix acquired 100% of the outstanding common stock and
convertible debentures of ITEM Holding SA in exchange for 4,690,142 Phoenix
common shares issued from treasury, valued at approximately $48.5 million and
acquisition costs of approximately $2.3 million. Under Canadian GAAP, the
transaction is accounted for under the purchase method. Under U.S. GAAP, this
transaction is accounted for on a pooling of interests basis.
GEOGRAPHICAL SEGMENT INFORMATION
The following table sets forth net revenues, income (loss) before income taxes
and total assets by geographic region:
<TABLE>
<CAPTION>
QUARTER ENDED
NOVEMBER 30 YEAR ENDED AUGUST 31
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1998 1997 1996
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C> <C> <C>
NET REVENUES FROM
Canadian operations............................................... $ 24,917 $ 20,132 $ 86,556 $ 68,042 $ 55,756
European operations............................................... 16,271 6,947 38,730 1,536 --
United States operations.......................................... 17,473 4,600 45,952 12,899 7,326
--------- --------- --------- --------- ---------
$ 58,661 31,679 171,238 82,477 63,082
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES FROM
Canadian operations............................................... $ 4,972 $ 2,347 $ 14,141 $ 9,522 $ (352)
European operations............................................... (908) 168 2,018 0 --
United States operations.......................................... 1,105 217 (468) (4,334) (4,829)
--------- --------- --------- --------- ---------
5,169 2,732 15,691 5,188 (5,181)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
ASSETS FROM
Canadian operations............................................... $ 93,768 $ 73,065 $ 82,788 $ 72,529 $ 69,704
European operations............................................... 129,819 73,628 107,799 73,424 --
United States operations.......................................... 81,328 17,161 80,883 14,905 19,866
--------- --------- --------- --------- ---------
303,915 163,854 271,470 160,858 89,570
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
CANADIAN FEDERAL AND QUEBEC TAX CREDITS
Phoenix continues to benefit from government tax incentives to encourage
research and development consisting of Canadian federal investment tax credits
and Quebec labor tax credits.
The federal credits are currently 20% of eligible expenses. For federal
purposes, eligible expenses consist of Phoenix's capital and current
expenditures on research and development that are made on behalf of non-resident
sponsoring clients and internal research and development, less Quebec credits
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and government and non-government assistance. These credits are not refundable
but are available to reduce current and future income taxes payable.
Quebec credits are applicable only to eligible labor expenses, to the extent of
20% of labor costs that are made on behalf of non-resident sponsoring clients
and internal research and development, less government and non-government
assistance. Quebec credits are fully refundable if not used to offset income and
capital taxes otherwise payable. During fiscal 1998, Phoenix earned and recorded
in income $3.7 million of Quebec credits as compared to $3.5 million in fiscal
1997 and $3.4 million in fiscal 1996.
In fiscal 1998 Phoenix recognized $5.0 million of non-refundable tax credits on
the basis that it was more likely than not that these credits will be utilized
through the reversal of existing deferred income tax liabilities. During fiscal
1997, Phoenix recognized $2.4 million of the non-refundable federal credits on
the same basis. As at August 31, 1998, Phoenix has unrecognized non-refundable
federal credits of $25.2 million which may be carried forward and used to reduce
federal income taxes payable in future years. These federal non-refundable
credits expire in the years ending 2003 to 2008.
As at August 31, 1998 Phoenix also has a pool of research and development
expenses available, without expiry, to reduce future provincial taxable income
of $16.9 million.
Phoenix also has unrecognized net operating loss carryforwards of approximately
$31.7 million for U.S. federal tax purposes expiring in the years 2007 to 2012,
and approximately $6.2 million for UK tax purposes expiring in the years 2005 to
2008.
When recording expenses and capital asset additions, in order to reflect the
impact of refundable and non-refundable tax credits on its results, Phoenix has
adopted the cost reduction approach, consistent with the recommendations of The
Canadian Institute of Chartered Accountants. As a result, these tax credits are
subtracted from the applicable expenses and capital asset additions.
YEAR 2000 COMPLIANCE
Computer systems that use only the final two digits to represent years are
unable to distinguish between years beginning with 19 and those that begin with
20. If not corrected, many computer applications could fail or create erroneous
results when dealing with dates later than December 31, 1999. The Year 2000
problem is believed to affect virtually all companies and organizations.
Phoenix has created a Corporate Year 2000 Project Office which is coordinating
Phoenix's efforts to evaluate, identify, correct or reprogram, and test its
existing systems for Year 2000 compliance. Phoenix is taking the required steps
to make its existing systems Year 2000 ready at a total estimated cost of $1.5
million, $550,000 of which has been incurred through November 30, 1998 and
$950,000 of which is expected to be incurred in the remainder of fiscal 1999.
Phoenix believes it is on schedule to complete its remediation efforts by June
30, 1999. If these efforts are not completed timely, the Year 2000 issue could
have some impact on the operations of Phoenix.
Phoenix's efforts are focused on Year 2000 compliance in the following six
principal areas:
- Application software, including operating systems and applications for
personal computers;
- Network and communication software, including business offices, home
offices and field locations;
- Computer equipment, including server, router and personal computers;
- Telecommunications equipment, including telephone, fax copier and
emergency alert devices;
- Facilities, including building security, building control and
environmental systems; and
- Procedures, including forms, reports and customer service operations.
These activities are intended to encompass all major categories of systems in
use by Phoenix, including sales, distribution, finance and human resources.
These activities are being conducted simultaneously with the modifications to,
and consolidation of, Phoenix's information technology systems as part of
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<PAGE>
Phoenix's ongoing integration of recent acquisitions. See "Description of
Phoenix--Information Technology."
In addition to addressing the Year 2000 issue, Phoenix's Year 2000 Project
Office has and will continue to survey its key suppliers and customers to
determine the extent to which the systems of these suppliers and customers are
Year 2000 compliant and the extent to which Phoenix could be affected by the
failure of these third parties to be Year 2000 compliant. Phoenix cannot
presently estimate the impact of the failure of these third parties to be Year
2000 compliant.
The general phases of the Year 2000 Project are:
(1) Year 2000 methodology training for key information technology personnel,
and inventorying known Year 2000 items, internally and externally;
(2) assigning priorities to identified items;
(3) assessing the Year 2000 compliance of known items determined to be
material to Phoenix;
(4) attempting to remediate or replace material items that are determined
not to be Year 2000 compliant;
(5) testing material items; and
(6) designing and implementing contingency plans to the extent deemed
necessary.
Phoenix has completed phases (1), (2) and (3) and is presently conducting phases
(4) and (5). Assessment and testing is ongoing as hardware or system software is
remediated, upgraded or replaced. Phoenix believes that it will be Year 2000
compliant by June 1999. Phoenix's Year 2000 Project Office believes that the
high-risk area in Phoenix's core operation regarding Year 2000 is the data
acquisition function. Phoenix has a contingency plan to implement a back-up Year
2000 ready solution that ensures that the core data acquisition process will
function properly in case of project delay. Phoenix will monitor its Year 2000
compliance progress and adjust the implementation of the phases and the
necessity of contingency planning as it deems appropriate.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, normal business activities or operations such
as incorrect scientific data interpretation. These failures could materially and
adversely affect Phoenix's results of operations, liquidity and financial
condition. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third-party
suppliers and customers, Phoenix is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on Phoenix's
results of operations, liquidity or financial condition. Phoenix believes that,
with the completion of the Year 2000 Project as scheduled and the ongoing
modifications to, and consolidation of, Phoenix's IT systems, the possibility of
significant interruptions of normal operations due to Year 2000 problems should
be reduced.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their sovereign currencies and the
euro. As of that date, the participating countries have agreed to adopt the euro
as their common legal currency. However, the legacy currencies will also remain
legal tender in the participating countries for a transition period between
January 1, 1999 and January 1, 2002. During this transition period, public and
private parties may elect to pay or charge for goods and services using either
the euro or the participating country's legacy currency. Phoenix cannot
reasonably determine the effect of the recent establishment of the euro on
Phoenix's financial condition or results of operations. Due to numerous
uncertainties, Phoenix is not sure what the effects one common currency will
have on pricing or what the resulting impact, if any, will be on Phoenix's
financial condition or results of operations.
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DIRECTORS AND OFFICERS OF PHOENIX AFTER THE MERGER
After the merger, none of Chrysalis' directors will be directors of Phoenix or
any of its subsidiaries. In addition, Mr. Schmitt and Mr. Cooper will not remain
employees of Chrysalis, Phoenix or any other of its subsidiaries after the
merger. Although Dr. Modeweg is expected to remain an officer of Chrysalis after
the merger, he is not expected to perform policy-making functions on behalf of
Phoenix and therefore will not be an executive officer of Phoenix.
It is currently anticipated that the current directors and executive officers of
Phoenix will continue to be the only directors and executive officers of Phoenix
after the merger.
DIRECTORS
The following table contains, for each director of Phoenix, as at November 30,
1998, his name, municipality of residence, the year in which he became a
director, his principal occupation and the number of Phoenix common shares
beneficially owned by this person. Directors are elected until the next annual
meeting of shareholders or, in the case of a vacancy or resignation, until a
successor is elected or appointed:
<TABLE>
<CAPTION>
COMMON SHARES BENEFICIALLY
OWNED OR OVER WHICH CONTROL
NAME AND DIRECTOR OR
MUNICIPALITY OF RESIDENCE SINCE PRINCIPAL OCCUPATION DIRECTION IS EXERCISED
- ------------------------------------ ----------- ------------------------------------ ----------------------------
<S> <C> <C> <C>
John Hooper, Ph.D. 1988 Chairman and Chief Executive Officer 1,001,812
Hudson, Quebec of Phoenix
Claude E. Forget 1989 Chairman, Look TV 13,900
Montreal, Quebec (Radiocommunication distributor)
Lucien Steru, M.D. 1997 President and Chief Operating 3,336,325
Brussels, Belgium Officer- Phoenix International
(Europe) and Director
Bertram A. Spilker, Ph.D., M.D. 1997 Senior Vice President Scientific and --
Bethesda, Maryland Regulatory Affairs, Pharmaceutical
Research Manufacturers Association
(Pharmaceutical research)
Robert Raich, B.C.L. 1997 Senior Partner Spiegel Sohmer, --
Westmount, Quebec Attorneys (Law firm)
David Goldman 1997 Executive Vice President and Chief --
Toronto, Ontario Operating Officer, Noranda Inc.
(Mining and metal producer)
Cornelius P. McCarthy III 1998 Managing Director, Corporate Finance 1,000
Devon, Pennsylvania Pennsylvania Merchant Group Ltd
(Investment bankers)
</TABLE>
Messers. Forget, Raich and Goldman are members of the Audit Committee. Messers.
Hooper, Raich and Goldman are members of the Human Resources Committee.
All of the directors have been engaged in their present occupation or in other
executive capacities with the companies or firms with which they currently hold
positions for more than five years except for:
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<PAGE>
- Mr. Forget who was Vice President, Corporate Affairs, The Laurentian Group
Corporation, from 1989 to 1994. From 1994 to 1997, Mr. Forget served as
President of C.E.F. Ganesh Corporation. He has acted as the Chairman of
Look Communications Inc. since August 1997 and has been a consultant to
Teleglobe Canada Inc. since 1994. He also continues to act as Chairman of
Canadian Medical Research Associates Inc. Mr. Forget serves on the board
of Royal Victoria Hospital and Look Communications Inc.;
- Dr. Steru who was the President and Chief Executive Officer of ITEM from
inception in 1982 until August 1997 when ITEM was acquired by Phoenix;
- Dr. Spilker was Executive Director Orphan Medical, a division of
CHRONIMED, Inc. from 1993 to 1997, and served as Interim President of
Phoenix International Life Sciences (IBRD) Inc. from February 1998 until
March 1998;
- Mr. Goldman was Executive Vice President, Metallurgical Operations of
Noranda Minerals Inc. from 1991 to 1994. In 1994 he was appointed
President and Chief Executive Officer of Noranda Metallurgy Inc. Since
November of 1997, he has acted as Executive Vice President and Chief
Operating Officer of Noranda Inc. Mr. Goldman serves on the board of
Tritech Precision Inc. and Falconbridge Ltd.; and
- Mr. McCarthy has served, since December 1996, as an investment banker for
Pennsylvania Merchant Group, where he is a Senior Vice President,
Corporate Finance. From December 1993 through December 1996, he served as
a Managing Director of Corporate Finance for Laidlaw & Company, an
investment banking firm. From December 1992 to December 1993, Mr. McCarthy
was the President of McCarthy & Company, a financial consulting firm
serving the pharmaceutical industry. Mr. McCarthy has served as a member
of the Board of Directors of Bonded Motors, Inc. since 1996 and of Laser
Pacific Media Corporation since October 1996. He was previously a Director
of Phoenix from 1994 to 1997.
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<PAGE>
EXECUTIVE OFFICERS
The following table contains, for each person who is an executive officer of
Phoenix, as at November 30, 1998, his or her name, municipality of residence,
the first year of employment with Phoenix and position with Phoenix and the
number of common shares beneficially owned, directly or indirectly, or over
which control or direction was exercised by this person. The Phoenix common
shares beneficially owned or over which control or direction is exercised
includes options exercisable within 60 days.
<TABLE>
<CAPTION>
COMMON SHARES
WITH BENEFICIALLY OWNED OR
NAME AND PHOENIX OVER WHICH CONTROL OR
MUNICIPALITY OF RESIDENCE SINCE POSITION DIRECTION IS EXERCISED
- --------------------------------------- ----------- --------------------------------------- -----------------------
<S> <C> <C> <C>
John Hooper 1988 Chairman and Chief Executive Officer 1,001,812
Hudson, Quebec
Jean-Yves Caloz 1993 Senior Vice President, International 144,297
Los Angeles, California Finance and Acquisitions, and Secretary
George Engelberg 1997 Vice President, Information Technology --
Cote St-Luc, Quebec
Lucien Steru 1997 President and Chief Operating 3,336,325
Brussels, Belgium Officer--Phoenix International (Europe)
Stephane Huguet 1998 President and Chief Operating Officer --
Town of Mount-Royal, Quebec Phoenix International, Canada
Susan Thornton 1998 President and Chief Operating Officer --
Blue Bell, Pennsylvania Phoenix International (US), Phase II-IV
James J. Conklin 1998 Senior Vice President, General Manager --
Yardley, Pennsylvania Scientific Software Division
David Moszkowski 1998 Senior Vice President and Chief --
Dollar des Orneaux, Quebec Financial Officer
</TABLE>
Dr. Hooper founded Phoenix in 1988. He has 28 years of experience in
pharmaceutical research and development and regulatory affairs. From 1970 to
1973, Dr. Hooper was a laboratory scientist with Bristol Laboratories of Canada,
a pharmaceutical manufacturer. From 1973 to 1979, Dr. Hooper was Assistant
Director, Clinical Research and subsequently Director Scientific Affairs in
charge of the Medical, Clinical Research and Drug Regulatory Departments at
Squibb Canada, a pharmaceutical manufacturer. From 1979 to 1987, Dr. Hooper was
first Director, Scientific Affairs, and then Vice President and subsequently
Senior Vice President at Bio Research Laboratories Ltd., a contract research
laboratory. Dr. Hooper holds a Doctorate in chemistry from the School of
Pharmacy, University of London, England.
Mr. Caloz has been associated with Phoenix since its inception, first as a
financial advisor and since June 1993, as an executive. From April 1993 to
November 1998 Mr. Caloz was Vice President, Finance, then Senior Vice President
and Chief Financial Officer. In November 1998, Mr. Caloz became Senior Vice
President, International Finance and Acquisitions. Prior to joining Phoenix, Mr.
Caloz was a partner in the accounting firm of Rooney, Greig & Assoc., having
joined in 1984. During 1984,
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<PAGE>
Mr. Caloz worked as an associate at the accounting firm of Richter, Usher &
Vineberg. From 1976 to 1984 Mr. Caloz worked for Roger Caloz and Company,
chartered accountants. He earned a Bachelor of Arts from York University,
Canada, and is a Chartered Accountant. On March 25, 1999, Mr. Caloz gave Phoenix
30 days' notice of termination as required under his employment agreement.
Dr. George Engelberg joined Phoenix in 1997. He has over 20 years of experience
in implementing large-scale information technology systems in industry. From
1976 to 1979, he was associated with Domtar Ltd., a major forestry and paper
company. Dr. Engelberg then worked at Canadian National Railways as Senior
Project Manager from 1979 to 1987, implementing automated freight year and main
line signaling systems, and large-scale plant capacity simulation systems. From
1987 to 1988 he worked at Future Electronics as Vice President, MIS. He then
served as Vice President, Information Services at Astral Communications, a
diverse media and communications company, from 1988 to February 1997, where he
implemented manufacturing, distribution, retail and advanced broadcasting
systems. Dr. Engelberg holds a Doctoral degree in electrical engineering from
the University of California, Santa Barbara.
Dr. Lucien Steru is President and Chief Operating Officer of Phoenix
International (Europe). Dr. Steru founded ITEM Europe SA in 1982, one of the
first contract research organizations in Europe. Before 1982, Dr. Steru was an
assistant professor in pharmacology and resident in psychiatry (Pitie-
Salpetriere).
Dr. Stephane Huguet has close to ten years of product development and
pharmaceutical marketing experience in the U.S.A., Europe and Japan. Prior to
joining Phoenix, Dr. Huguet was President of Fournier Pharma Inc., and was based
in Montreal from 1996 to 1998. From 1993 to 1995, Dr. Huguet acted as Director
of Global Marketing for Laboratoire Fournier in Dijon, France. Dr. Huguet holds
a medical degree as well as a Master of Business Administration degree from
INSEAD.
Dr. Susan C. Thornton has been an officer of Phoenix International GB Limited,
formerly IBRD-Rostrum since 1992, responsible for its U.S. operations. From 1984
until 1992 Dr. Thornton held various senior management positions with SmithKline
Beecham Corporation, and from 1975 until 1978 she was a research and development
scientist with Merck Sharp and Dohme. Dr. Thornton obtained a Doctoral degree in
molecular biology from the University of Pennsylvania in 1984.
Dr. Conklin joined Phoenix in 1998. From 1990 to 1998 he was Chairman, Founder
and Chief Scientific Officer of Bio-Imaging Technologies, Inc. In 1998, Dr.
Conklin joined Convergent Consulting Corporation. Prior to Bioimaging Dr.
Conklin was Vice-President of Product Development at Cytogen Corp., held a
senior position at Centocor, and was Director of the Armed Forces Radiobiology
Research Institute. Dr. Conklin is a Johns Hopkins trained internist and nuclear
medicine physician with undergraduate and graduate training in electrical
engineering.
Mr. Moszkowski joined Phoenix in 1998. From 1997 until November 1998, he was
Chief Financial Officer for VELAN Inc. From 1994 to 1996, Mr. Moszkowski was
Chief Financial Officer for Volcano International, Inc. From 1992 to 1994, he
was Vice President Finance for the Manson Group. From 1988 to 1992, Mr.
Moszkowski was Vice President Finance for the MIL Group. He earned a Bachelor of
Commerce from Concordia University, Canada, and is a Chartered Accountant.
PRINCIPAL SHAREHOLDERS AND HOLDINGS OF OFFICERS AND DIRECTORS OF PHOENIX
The following table contains the number and percentage of shares of Phoenix
common shares which, according to information supplied to Phoenix, are
beneficially owned by:
- each person who is the beneficial owner of more than 5% of Phoenix common
shares;
- each of Phoenix's directors and executive officers; and
- all directors and executive officers as a group.
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<PAGE>
Under rules of the Securities and Exchange Commission, a person is deemed to be
the beneficial owner of Phoenix common shares with respect to which the person
has or shares voting power or investment power. A person is also deemed to be
the beneficial owner of shares of Phoenix common shares as of a given date with
respect to which this person has the right to obtain voting or investment power
within 60 days of this given date, such as upon the exercise of options or
warrants. Unless otherwise indicated, the information in the following table is
as of December 15, 1998. As of January 31, 1999, Phoenix had 26,066,989 common
shares outstanding.
Outstanding shares of Phoenix common shares owned beneficially are listed in one
column. Shares of Phoenix common shares owned beneficially through stock options
that can be exercised by May 1, 1999 are shown in a separate column. The
percentage column reflects all shares owned benefially. An asterisk in the
percent column means the person owns less than one percent of the Phoenix common
shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-----------------------------------------
<S> <C> <C> <C>
OUTSTANDING
NAMES AND ADDRESSES SHARES OPTIONS PERCENT
- ------------------------------------------------------------------------- ----------- ------------- -------------
Van Berkom & Associates Inc.............................................. 3,737,395 0 14.3%
1130 Sherbrooke Street West
Suite 1005
Montreal, Quebec
H3A 2M8 Canada
Lucien Steru, M.D........................................................ 3,336,325 2,500 12.8%
Avenue Louise
1050 Brussels, Belgium
TAL Investments Inc...................................................... 3,032,167 0 11.6%
1000 de la Gauchetiere West
Suite 3100
Montreal, Quebec
H3B 4W5 Canada
Canadian Medical Research Associates..................................... 1,650,000 0 6.3%
300-1118 Saint Catherine Street West
Montreal, Quebec
H3B 1H5 Canada
John W. Hooper, Ph.D..................................................... 1,001,812 25,600 3.9%
2350 Cohen Street
Saint-Laurent (Montreal)
Quebec H4R 2N6 Canada
Jean-Yves Caloz.......................................................... 144,297 16,000 *
22248 Cairnloch Street
Calabasas, CA 91302
Claude Forget............................................................ 13,700 7,200 *
1000 de la Gauchetiere West
Suite 3100
Montreal, Quebec
H3B 4W5 Canada
</TABLE>
114
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-----------------------------------------
OUTSTANDING
NAMES AND ADDRESSES SHARES OPTIONS PERCENT
- ------------------------------------------------------------------------- ----------- ------------- -------------
<S> <C> <C> <C>
Cornelius P. McCarthy, III............................................... 1,000 6,600 *
Four Falls Corporate Center
West Conshohocken, PA 19004
Robert Raich............................................................. 0 1,200 *
1203-5 Place Ville Marie
Montreal, Quebec
N3B 2G2 Canada
David Goldman............................................................ 0 1,000 *
191 Bay Street, Suite 4100
BCC Place
Toronto, Ontario
M5J 2T3 Canada
Bertram A. Spilker....................................................... 0 1,000 *
1100, 15th Street NW
Washington, DC 20005
James J. Conklin......................................................... 0 0 *
4800 Dobrin
Saint-Laurent (Montreal),
Quebec H4R 2P8 Canada
David Moszkowski......................................................... 0 0 *
2350 Cohen Street
Saint-Laurent (Montreal)
Quebec H4R 2N6 Canada
George Engelberg......................................................... 0 5,600 *
2350 Cohen Street
Saint-Laurent (Montreal)
Quebec H4R 2N6 Canada
Stephane Huguet, MD...................................................... 0 0 *
2350 Cohen Street
Saint-Laurent (Montreal)
Quebec H4R 2N6 Canada
Susan Thornton, Ph.D..................................................... 0 0 *
1777 Sentry Parkway Place West
Blue Bell, PA 19422
All executive officers and directors
as a group (13 persons)................................................ 4,497,034 66,800 17.5%
</TABLE>
115
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS OF PHOENIX
EXECUTIVE COMPENSATION
The following table contains compensation paid in respect of the named executive
officers (being the Chief Executive Officer and the seven other most highly
compensated executive officers of Phoenix whose total salary and bonus exceeded
$100,000) for the last three completed fiscal years.
When reviewing the table you should be aware of the following:
- "Other Annual Compensation" represents interest benefits on interest free
loans and car allowances.
- "All Other Compensation" represents premiums paid in respect of disability
insurance.
- Dr. Susan Thornton joined Phoenix on February 6, 1998, and her salary is
US$250,000.
- Dr. Huguet joined Phoenix on January 2, 1998. His annual salary is
approximately $240,000.
- Dr. Huguet's 1998 bonus includes a signing bonus of $100,000.
- Dr. Huguet's employment agreement provides for a maximum housing allowance
of $4,000 per month.
- Mr. Moszkowski joined Phoenix in November 1998, and his annual salary is
$200,000.
- Dr. Conklin joined Phoenix in September 1998 and his annual salary is
US$220,000.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION/AWARDS
-----------------------------------------
COMMON
SHARES
ANNUAL COMPENSATION UNDERLYING
------------------------------- OTHER ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION GRANTED COMPENSATION
- ------------------------------------------- --------- --------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
(CDN$) (CDN$) (CDN$) (#) (CDN$)
John Hooper, Ph.D. 1998 364,510 186,189 13,425 -- 12,910
Chairman and Chief Executive Officer 1997 242,124 46,123 11,650 -- 3,736
1996 239,615 -- 11,500 -- 3,958
Lucien Steru, M.D. 1998 421,860 131,907 -- 62,500 --
President and Chief Operating Officer, 1997 25,644 -- -- -- --
Phoenix International (Europe) 1996 -- -- -- -- --
Jean-Yves Caloz 1998 229,074 77,677 10,648 -- 1,845
Senior Vice President and Secretary 1997 175,835 37,891 9,895 -- 1,129
1996 172,523 -- 9,724 -- 1,129
Susan Thornton, Ph.D., 1998 208,250 79,957 5,814 125,000 --
President and Chief Operating Officer, 1997 -- -- -- -- --
Phoenix International (US), Phase II-IV 1996 -- -- -- -- --
Stephane Huguet, MD. 1998 192,708 210,671 3,333 250,000 36,773
President and Chief Operating Officer 1997 -- -- -- -- --
1996 -- -- -- -- --
George Engelberg 1998 158,662 18,988 -- 1,845
Senior Vice President, Information 1997 -- -- 5,000 -- -- --
Technology 1996 -- -- -- -- --
David Moszkowski 1998 -- -- -- -- --
Senior Vice President and Chief Financial 1997 -- -- -- -- --
Officer 1996 -- -- -- -- --
James J. Conklin, M.D. 1998 -- -- -- -- --
Senior Vice President and General Manager 1997 -- -- -- -- --
of Scientific Software Division 1996 -- -- -- -- --
</TABLE>
ANNUAL BONUS PLAN
Phoenix has performance based annual bonus plans for executives and employees.
LONG TERM INCENTIVE PLAN
There is no long term incentive plan for the benefit of employees of Phoenix.
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<PAGE>
SHARE OPTION PLAN
On October 24, 1994, Phoenix established a Key Employee Share Option Plan in
order to attract and retain highly qualified directors and employees who are
motivated toward the success of Phoenix and to encourage share ownership in
Phoenix by these persons. The individuals who are eligible to receive options to
purchase Phoenix common shares under the share option plan are directors, senior
executives and key employees of Phoenix, as determined from time to time by the
Human Resources Committee of the Board of Directors which administers the share
option plan.
All options granted under the share option plan are eligible to be exercised
within ten years of the date of grant. Under the terms of the share option plan,
the vesting periods for the options are as follows:
- up to 4% of the options are exercisable after one year from the date of
their grant;
- up to 16%, after two years from the date of their grant;
- up to 36%, after three years from the date of their grant;
- up to 64%, after four years from the date of their grant; and
- up to 100% after five years from the date of their grant.
The price at which Phoenix common shares may be purchased is determined by the
Human Resources Committee but may not be less than the average of the market
price of Phoenix common shares on the Montreal Exchange and the Toronto Stock
Exchange at the time of their grant. Financial assistance for the purchase of
Phoenix common shares under the share option plan is not currently provided.
The maximum number of Phoenix common shares that may be issued under the share
option plan may not exceed 2,428,920 Phoenix common shares. The maximum number
of Phoenix common shares that may be optioned to any single individual may not
exceed five percent of the total of all of the outstanding number of Phoenix
common shares.
As of February 26, 1999, 87 key employees of Phoenix held options to purchase
2,182,483 Phoenix common shares, at prices ranging from $5.00 to $16.69 per
Phoenix common share.
Options granted in 1996, 1997 and 1998 to the named executive officers are
mentioned in the tables entitled "Summary Compensation Table" and "Option Grants
During the 1998 Financial Year."
OPTION GRANTS DURING THE 1998 FISCAL YEAR
Some options were granted during the 1998 fiscal year to the following named
executive officers:
- Dr. Stephane Huguet was granted 250,000 options upon becoming President
and Chief Operating Officer of Phoenix;
- Dr. Lucien Steru was granted 62,500 options on September 1, 1997; and
- Dr. Susan Thornton was granted 125,000 upon beginning her employment with
Phoenix.
The following table contains the option grants during the 1998 fiscal year in
respect of these executives.
When reviewing the table you should be aware of the following:
- The average closing market price of Phoenix common shares on August 31,
1998 on the Montreal Exchange and the Toronto Stock Exchange was $9.375
and $9.933 per share;
- Dr. John Hooper, Mr. Jean-Yves Caloz, Mr. David Moszkowski, Dr. James
Conklin and Mr. George Engelberg did not receive option grants during
fiscal 1998; and
- Dr. John Hooper, Dr. Lucien Steru, Dr. Susan Thornton, Dr. Stephane
Huguet, Mr. Jean-Yves Caloz and Mr. George Engelberg were granted 28,213
options, 21,768 options, 10,746 options,
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<PAGE>
9,944 options, 7,801 options and 4,093 options at an exercise price of
$8.54 and Mr. David Moszkowski was granted 50,000 options at an exercise
price of $12.67 pursuant to the share option plan in the first quarter of
fiscal 1999.
OPTION GRANTS DURING THE 1998 FISCAL YEAR
<TABLE>
<CAPTION>
COMMON
SHARES % OF TOTAL OPTION EXERCISE OR
UNDER GRANTED TO BASE PRICE
NAMED OPTIONS EMPLOYEES IN (CDN/COMMON
EXECUTIVE OFFICERS GRANTED FISCAL YEAR SHARES) EXPIRATION DATE
- ---------------------------------------------- --------- ----------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Dr. Stephane Huguet........................... 250,000 35.31% $ 10.17 January 2, 2008
Dr. Susan Thornton............................ 125,000 17.66% $ 11.35 July 14, 2008
Dr. Lucien Steru.............................. 62,500 -- $ 11.55 September 1, 2007
</TABLE>
EMPLOYMENT CONTRACTS
Dr. John Hooper's employment contract dated September 23, 1988 states that he
was hired as President, Scientific Director and Chief Executive Officer of
Phoenix at a starting base salary of $110,000. Dr. Hooper was also provided with
an interest-free loan of $100,000. In addition, on June 2, 1998, Dr. Hooper
entered into a new employment agreement with Phoenix. Dr. Hooper undertook to
continue to provide his services for an indeterminate period at a base salary of
$400,000 per year, this period to continue until either party provides to the
other three months' notice of his or its intent to terminate his employment,
which notice may not be given prior to September 30, 1999. During fiscal 1998,
Dr. Hooper was provided with an additional interest-free loan in the amount of
$250,000.
A severance sum will be provided to Dr. Hooper in the event he ceases to be an
employee of Phoenix. The monetary compensation will be determined as follows:
- $750,000 if a new employment agreement is not entered into between Dr.
Hooper and Phoenix before the termination of the term of his present
employment agreement;
- $700,000 if a new employment agreement is terminated prior to the day that
is one year from the beginning of this agreement;
- $600,000 if a new agreement is terminated on or after the day that is one
year from the beginning of such agreement but prior to the day that is two
years; or
- $500,000 if a new agreement is terminated on or after the day that is two
years from the beginning of this agreement.
Mr. Caloz's employment contract dated April 13, 1993 states that he was hired as
Vice President, Finance and Corporate Development of Phoenix at a starting base
salary of $115,000, subject to upward adjustments to be determined annually by
the Board of Directors of Phoenix. Mr. Caloz was provided an interest-free loan
in the amount of $75,000. On November 18, 1998, Mr. Caloz entered into a new
employment agreement with Phoenix, pursuant to which Mr. Caloz obtained his
title of Senior Vice President, International Finance and Acquisitions and
continues to receive the same compensation as under his previous employment
agreement with Phoenix, except that he is no longer eligible for annual stock
option awards. Mr. Caloz's employment with Phoenix will not terminate prior to
March 1, 1999. Thereafter, the employment agreement shall terminate on the
earlier of August 31, 1999 or the provision of 30-days notice of termination by
Mr. Caloz to Phoenix. All of Mr. Caloz's outstanding options not otherwise
vested shall vest upon the date of termination of the new employment agreement
and all these options shall expire as of December 1, 1999, regardless of the
date of
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this termination. On March 25, 1999, Mr. Caloz gave Phoenix 30 days' notice of
termination as required under his employment agreement.
Dr. Steru's employment contract dated August 7, 1997 states that he was hired as
President and Chief Operating Officer of ITEM Europe S.A., a subsidiary of
Phoenix at a starting base salary of FFr 1,580,000.
Dr. Huguet's employment contract dated November 7, 1997 states that he was hired
as President and Chief Operating Officer of Phoenix Canada, a division of
Phoenix at a starting base salary of $240,000. In the event Dr. Huguet ceases to
be an employee of Phoenix following:
- a successful take-over bid;
- any change in salary, responsibility, status, benefits or residence made
without Dr. Huguet's prior written consent;
- any act on the part of Phoenix amounting to constructive dismissal
according to a Court of competent jurisdiction; or
- a change of control of Phoenix,
he will receive monetary compensation. This monetary compensation includes an
amount equal to a maximum 18 months of Dr. Huguet's gross base salary.
Dr. Thornton's employment contract dated June 1, 1998 states that she was hired
as President and Chief operating Officer of Phoenix International US, Phase
II-IV, a subsidiary of Phoenix at a starting base salary of US$250,000. In the
event Dr. Thornton ceases to be an employee of Phoenix following:
- a successful take-over bid;
- any change in salary, responsibility, status, benefits or residence made
without Dr. Thornton's prior written consent;
- any act on the part of Phoenix amounting to constructive dismissal
according to a Court of competent jurisdiction; or
- a change of control of Phoenix,
she will receive monetary compensation. This monetary compensation includes a
minimum amount equal to Dr. Thornton gross annual salary divided by 12 and
multiplied by the number of years of employment at Phoenix International.
Mr. Moszkowski's employment contract dated October 5, 1998 states that he was
hired, effective November 16, 1998, as Vice President and Chief Financial
Officer of Phoenix at a starting base salary of $200,000. In addition, Phoenix
granted Mr. Moszkowski options to purchase 50,000 Phoenix common shares at an
exercise price of $12.67 per share. In the event Mr. Moszkowski ceases to be an
employee of Phoenix following:
- a successful take-over bid;
- any change in salary, responsibility, status, benefits or residence made
without Mr. Moszkowski's prior written consent;
- any act on the part of Phoenix amounting to constructive dismissal
according to a Court of competent jurisdiction;
- termination of his employment by Phoenix without cause; or
- a change of control of Phoenix,
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he will receive monetary compensation. This monetary compensation includes an
amount equal to a maximum 12 months of Mr. Moszkowski's gross base salary.
Mr. Engelberg's employment agreement dated January 7, 1997 states that he was
hired by Phoenix as Vice President, Information Technology at a starting base
salary of $160,000, subject to upward adjustment consistent with Phoenix's
salary administration policies. In addition, Mr. Engelberg was granted options
to purchase 35,000 Phoenix common shares at an exercise price of $10.30 per
share. In the event Mr. Engelberg ceases to be an employee of Phoenix following:
- a successful take-over bid;
- any change in salary, responsibility, status, benefits or residence made
without Mr. Engelberg's prior written consent;
- any act on the part of Phoenix amounting to constructive dismissal
according to a court of competent jurisdiction;
- termination of his employment by Phoenix without cause; or
- a change of control of Phoenix,
he will receive monetary compensation. This monetary compensation includes an
amount equal to a maximum 12 months of Mr. Engelberg's gross base salary.
Dr. Conklin's employment agreement dated September 1, 1998 states that he was
hired by Phoenix International Life Sciences (IBRD) Inc., a subsidiary of
Phoenix U.S., as Senior Vice President and General Manager, Scientific Software
Division at a starting base salary of US$220,000, subject to upward adjustment
at the discretion of the Phoenix Board. In the event Dr. Conklin ceases to be an
employee of Phoenix International Life Sciences (IBRD) Inc. following:
- any material and adverse diminution on an accumulative basis of his
duties, position, compensation, benefits, or title, which is not applied
to all other executives of Phoenix;
- any act on the part of Phoenix International Life Sciences (IBRD) Inc.
amounting to a breach of the terms of the employment agreement; or
- termination of his employment by Phoenix International Life Sciences
(IBRD) Inc. without cause,
he will receive monetary compensation in an amount equal to 12 months of Dr.
Conklin's gross base salary (plus a prorated portion of any bonus otherwise
payable to Dr. Conklin during the year of his termination). Dr. Conklin may
terminate the employment agreement for any reason upon 120 prior notice.
Concurrently with the execution of their employment contracts, each of the named
executive officer has signed a confidentiality, proprietary rights, regulatory
compliance and non-competition agreement with Phoenix, the violation thereof
giving rise to damages ranging from $50,000 to $100,000.
COMPENSATION OF DIRECTORS
An annual remuneration of $10,000 was paid to each director who was not a full
time employee of Phoenix. In addition, fees of $750 were paid to any director
who attended a meeting of the Board of Directors or of a committee of the Board
of Directors. All directors are also entitled to the reimbursement of their
traveling expenses when attending Board or committee meetings.
In addition, each director who was not a full-time employee of Phoenix had been
granted options for the purchase of 10,000 common shares at $5.00 on October 24,
1994. In January 1997, the Board increased these options by awarding Messrs.
McCarthy and Forget additional 5,000 options each. On
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November 11, 1997, the Board awarded a further 15,000 options to Mr. Forget,
30,000 options to Mr. Raich, 25,000 options to Dr. Spilker and 25,000 options to
Mr. Goldman.
For the financial year ended August 31, 1998, the total cash compensation paid
to directors was $70,230, including reimbursement of their expenses.
Phoenix carries directors' and officers' liability insurance in an amount
limited to $25.0 million. For Fiscal 1998, the total annual premium in respect
to directors' and officers' liability insurance was approximately $48,907, all
of which was paid by Phoenix and charged to income. In fiscal year 1999, the
total annual premium in respect of directors' and officers' liability insurance
is $61,000.
CERTAIN TRANSACTIONS
During fiscal 1998, Phoenix paid $794,000 to Pennsylvania Merchant Group for
financial advisory services. Cornelius P. McCarthy, III, a member of the Phoenix
Board of Directors, is a Managing Director of Pennsylvania Merchant Group. In
the event the merger is consummated, Phoenix will pay Pennsylvania Merchant
Group an additional fee of $400,000.
Dr. Hooper owes Phoenix $325,000 and Mr. Caloz owes Phoenix $60,000, as of
November 30, 1998. The loans are non-interest bearing. Principal is paid in ten
equal annual installments with the final installment due November 2004.
During fiscal 1998, Phoenix paid $101,000 for legal services provided by
Spiegel, Sohmer GP, a law firm. Robert Raich, a director of Phoenix, is a senior
partner of this firm.
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DESCRIPTION OF CHRYSALIS
GENERAL
Chrysalis, incorporated in 1988, is an international contract research
organization. Chrysalis provides drug development services primarily to the
pharmaceutical and biotechnology industries. Chrysalis' services include:
- transgenic discovery research;
- preclinical development; and
- clinical capabilities.
In addition, Chrysalis uses its proprietary transgenic and licensed gene
targeting technology to provide services for its clients that require transgenic
animal models. Chrysalis' clients use these models to:
- determine the function of human genes and identify therapeutic targets
implicated in disease; and
- to evaluate therapeutic lead compounds for further development.
On November 18, 1998, Chrysalis and Phoenix executed the merger agreement under
which Phoenix will acquire Chrysalis. The merger is subject to a number of
conditions. See "The Merger" and "The Merger Agreement."
RESTRUCTURING OF CLINICAL OPERATIONS
The merger agreement requires Chrysalis to shut down and discontinue providing
clinical services in the United States and at several of its clinical operations
in Europe. Chrysalis has begun to shut down its clinical operations in Austin,
Texas, Dusseldorf, Germany and Cham, Switzerland. As a result of these shut
downs, Chrysalis will no longer provide services for Phase I clinical studies.
It will focus on providing services for Phase II or Phase III clinical studies
in Germany, Eastern Europe and Israel. These shut downs in Dusseldorf, Germany
and Austin, Texas and a significant downsizing of Chrysalis' European clinical
operations will occur even if the merger is not completed. If the merger is not
completed, Chrysalis expects to continue to provide Phase II and Phase III
clinical services in Eastern Europe and Israel, as well as in Western Europe on
a significantly downsized basis. Chrysalis will perform fully or transfer
existing clinical studies at shut down and downsized locations to other
Chrysalis locations. After the merger, existing clinical studies may be
transferred to Phoenix locations.
OTHER MATTERS
On March 16, 1998, Chrysalis issued a $5.0 million subordinated note to a
wholly-owned subsidiary of MDS Inc., a Canadian corporation. As part of this
transaction, Chrysalis also issued to MDS's subsidiary a warrant to purchase
2,000,000 shares of Common Stock for $2.50 per share. In addition, Chrysalis and
MDS entered into a standstill agreement which governs the ownership and
acquisition of securities of Chrysalis by MDS and its affiliates.
On December 18, 1996, Chrysalis issued 2,632,600 shares of Common Stock in
connection with the acquisition by Chrysalis of all of the outstanding equity
interests in BioClin, Inc., a Delaware corporation, BioClin Europe AG, a Swiss
corporation, BioClin GmbH, a German corporation, Kilmer N.V., a Netherlands
Antilles corporation, and BioClin Institute of Clinical Pharmacology GmbH, a
German corporation (the "BioClin Group"). Chrysalis recorded the BioClin Group
acquisition using the "pooling-of-interests" method of accounting.
Chrysalis is also the exclusive commercial licensee of a U.S. patent covering
DNA microinjection. DNA microinjection is the process widely used in the
pharmaceutical and biotechnology industries to develop transgenic animal models.
Chrysalis uses this process for its transgenic research and drug discovery
services. Chrysalis also grants several types of sublicenses for the use of this
technology by commercial firms and academia. Chrysalis receives revenues from
these sublicenses consisting of fees and, in some cases, royalties.
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NEW DRUG DEVELOPMENT PROCESS OVERVIEW
Drug development is an expensive and lengthy process. Before a new drug can be
marketed, it must undergo extensive testing and regulatory review to determine
its safety and efficacy. Two of the most critical stages of this process are
preclinical and clinical testing. In preclinical testing, the sponsor of the new
drug conducts laboratory analyses and animal tests to determine the basic
biological activity and safety of the drug. After successfully completing the
preclinical phase, the drug undergoes a series of clinical tests in humans.
These tests typically progress from dosing studies in healthy volunteers to
testing in patients with the targeted disease. The information generated during
these trials is critical for gaining marketing approval from the FDA or other
regulatory agencies. In the United States, preclinical and clinical testing must
comply with the requirements of good laboratory practices and good clinical
practices and other standards established by the FDA and other federal and state
governmental authorities.
The FDA pioneered the use of clinical trials for new drug development. The
agency's approval process has shaped much of drug regulation worldwide. In
recent years, the FDA and corresponding regulatory agencies of the major
industrial countries, including Canada, Japan and the European Union, commenced
discussions to develop common standards for the conduct of preclinical and
clinical studies. In addition, these regulatory agencies had discussions on the
format and content of applications for new drug approvals. Data from
multi-national studies adhering to good clinical practices are now generally
acceptable to the FDA and the governments within the European Union.
In the United States, a drug sponsor must file an investigational new drug
application with the FDA before the commencement of human testing of a drug. The
investigational new drug application includes preclinical testing results. It
also describes the sponsor's plans for conducting human clinical trials. The
design of these plans, known as the study protocol, is critical to the success
of the drug development effort because the protocol must correctly anticipate
the data and results that the FDA will require before approving the drug.
Extensive preclinical testing, involving pharmacology and toxicology studies, is
required before a drug developer may conduct safety and efficacy testing in
humans. In efficacy studies, drug candidates are evaluated in animal models that
simulate human disease conditions. These screens are used primarily by
pharmaceutical and biotechnology companies. In toxicology studies, drug
candidates are tested in normal, healthy animals to determine their potential
harmful effects to humans. In addition, new industrial and agricultural
chemicals often require extensive toxicology testing before they may be sold.
Therefore, toxicology tests are used not only by developers of new drugs, but
also by developers of other chemical products.
Human trials usually start on a small scale to assess safety and then expand to
test efficacy. Trials are usually grouped into four phases, with multiple trials
generally conducted within each phase. Clinical trials often represent the most
expensive and time-consuming part of the overall drug development process.
PHASE I. Phase I trials are conducted on healthy volunteers, typically 20 to 80
persons, to develop basic safety data relating to toxicity, metabolism,
absorption, elimination and other pharmacological actions.
PHASE II. Phase II trials are conducted on a small number of subjects,
typically 100 to 200 patients, who suffer from the drug's targeted disease or
condition. Phase II trials offer the first evidence of clinical efficacy, as
well as additional safety data.
PHASE III. Phase III trials are conducted on a significantly larger population
of several hundred to several thousand patients who suffer from the targeted
disease or condition. Phase III trials are designed to measure long-term side
effects and efficacy on a larger scale.
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PHASE IV. As a condition of granting marketing approval, the FDA may require a
sponsor to continue to conduct additional clinical trials, known as Phase IV
trials. Phase IV trials are designed to (1) monitor long-term risks and
benefits, (2) study different dosage levels, or (3) evaluate different safety
and efficacy parameters in target patient populations. The increasing importance
of Phase IV trials results in increased numbers of patients tested and increased
numbers of sites at which testing is performed.
After the successful completion of Phase III trials, the sponsor of a new drug
may submit a new drug application to the FDA. The new drug application is a
comprehensive filing that includes the results of all preclinical and clinical
studies and information about the drug's composition. The application also
contains the sponsor's plans for producing, packaging and labeling the drug.
Most of the clinical data contained in a new drug application is generated
during the Phase II and III trials. Drugs that successfully complete FDA review
may be marketed in the United States, subject to any conditions imposed by the
FDA.
INDUSTRY OVERVIEW
The contract research organization industry provides independent product
development services primarily for the pharmaceutical and biotechnology
industries. Companies in these industries outsource product development services
to contract research organizations that manage the drug development process.
Contract research organizations derive substantially all of their revenue from
the research and development expenditures of pharmaceutical and biotechnology
companies. See "--Competition."
SERVICES
The major categories of drug development services offered by Chrysalis are:
TRANSGENIC SERVICES
Chrysalis has observed an acceptance by the pharmaceutical and biotechnology
industries in the use of transgenic laboratory animal model technology as a tool
to improve drug discovery programs. As a result of this acceptance, Chrysalis is
able to use its proprietary DNA microinjection technology to offer its specialty
transgenic-based contract research services. These services are used by
companies electing to outsource all or a portion of their transgenic animal
model needs. These transgenic-based specialty contract research services include
gene function assessment, custom model development programs, molecular biology
services and other related services.
In the area of genomics research, Chrysalis' transgenic animal technology is
being used to determine the functions of human genes and to identify human gene
targets implicated in disease. Transgenic animal technology provides for the
genetic manipulation of animals, allowing for the production of animals that
more accurately reflect human biochemistry, physiology and pathology. Worldwide
efforts to map and sequence the human genome have resulted in the identification
of new genes. These newly-identified genes and transgenic animal technology
allow for the generation of new laboratory animals with specifically engineered
genetic traits. These new animals will facilitate the understanding of the
molecular basis of disease progression.
PRECLINICAL SERVICES
Chrysalis believes it offers clients, on an international basis, a broad range
of preclinical drug development services. Chrysalis also believes it can provide
a majority of the preclinical testing requirements necessary to secure approval
to initiate human clinical trials from the FDA and regulators in the European
community and Japan. Chrysalis provides the following preclinical drug
development services:
TOXICOLOGY. Toxicology studies are designed to identify and evaluate any
harmful effects that pharmaceuticals or chemicals might cause to humans. These
studies are required in connection with the FDA approval process. Chrysalis
provides the toxicology testing services in the areas of mutagenesis/
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genetic toxicology, teratology, reproduction/fertility, immunotoxicology,
continuous infusion, carcinogenesis, and acute, subacute and chronic
evaluations. Chrysalis believes it has a recognized specialty expertise in
continuous infusion administration techniques and immunotoxicology.
PHARMACOLOGY. Pharmacology studies are designed to quantify the properties and
reactions of drugs primarily in relation to their therapeutic value. Chrysalis
provides testing in therapeutic areas involving the central nervous system,
cardiovascular, pulmonary, anti-inflammatory, gastrointestinal, cardiopulmonary
and analgesia. In addition, Chrysalis provides safety pharmacology studies.
These studies include the evaluation of possible effects on the central nervous
system, cardiovascular, gastrointestinal, pulmonary and renal function and
adverse interaction with drugs likely to be co-administered with the development
candidate.
PHARMACOKINETICS. Pharmacokinetic studies are designed to characterize the time
course of drug absorption, distribution, metabolism and excretion and relate
these processes to the intensity and time course of pharmacological and
toxicological effects of drugs.
IMMUNOLOGY. Immunology studies are designed to evaluate and test the
substance's ability to affect the immune system of humans.
CLINICAL SERVICES
Chrysalis' clinical services include clinical trial management services and
product registration and regulatory services. These services can be provided
separately or as an integrated package. Services from each of these categories
can be used for the development and execution of a new drug application.
However, Chrysalis has begun to shut-down and discontinue providing clinical
services in the United States and several of its clinical operations in Europe.
Even if the merger is not consummated, the clinical services offered by
Chrysalis will be reduced significantly. Therefore, Chrysalis no longer provides
Phase I clinical services. In addition, its ability to provide some of the other
services described below has been severely restricted and will be severely
restricted if the merger is not consummated. See "--General--Restructuring of
Clinical Operations."
CLINICAL TRIAL MANAGEMENT SERVICES. Chrysalis offers complete services for the
design, placement, performance and management of clinical trial programs. These
programs are critical elements in obtaining regulatory approval for drugs.
Chrysalis has performed services in connection with trials in many therapeutic
areas. Chrysalis' multi-disciplinary clinical trials group has the ability to
examine a product's existing preclinical and clinical data for the purposes of
designing protocols for clinical trials to ascertain evidence of the product's
safety and efficacy.
Chrysalis' services include management of Phase II through IV trials and, until
recently, included management of Phase I trials. Management services include:
- design of operations manuals;
- identification and recruitment of trial investigators;
- initiation of sites;
- ]monitoring for strict adherence to good clinical practices;
- site visits to ensure compliance with protocol procedures and proper
collection of data;
- interpretation of trial results; and
- report preparation.
If the merger is not consummated, Chrysalis expects to continue to provide Phase
II and Phase III clinical services in Eastern Europe and Israel, and in Western
Europe on a significantly downsized basis. See "--General--Restructuring of
Clinical Operations" above.
PHASE I SERVICES. Before the shut-downs that Chrysalis is currently conducting,
Chrysalis provided a number of Phase I services. They included:
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- computerized volunteer databases;
- a clinical pharmacology unit;
- access to special populations;
- vital signs;
- telemetry; and
- statistical evaluation.
PHASE II--PHASE IV SERVICES. Chrysalis provides Phase II through Phase IV
services. These services include:
- efficacy testing;
- additional safety data; and
- long-term risks and side effects.
Chrysalis maintains a network of physicians who serve as investigators at
hospitals and university centers for in- and outpatient studies. Chrysalis also
maintains a network of established research sites performing special
investigations and a selection of centralized laboratories. Until the
shut-downs, these sites were located in each country across Europe, Israel and
North America. However, Chrysalis has begun the process of shutting down its
clinical operations in North America and significantly downsizing its European
clinical operations. See "--General--Restructuring of Clinical Operations"
above. In connection with Phase II through Phase IV services, Chrysalis provides
project management, monitoring and data management. Monitoring is handled under
traditional methods or by fax or remote/direct data entry.
MONITORING FOR STRICT ADHERENCE TO GOOD CLINICAL PRACTICES. Efficient data
collection, form design, detailed operations manuals and site visits by
Chrysalis' contract research assistants are used to determine whether clinical
investigators and their staff follow established protocols and accurately record
the findings of the trials. In addition, Chrysalis has quality assurance
auditors that provide additional internal and external auditing.
In connection with its services, Chrysalis assists clients with one or more of
the following:
(1) STUDY PROTOCOL. The protocol defines the medical issues the study seeks
to examine and the statistical tests to be conducted. Examples include:
- the frequency and type of laboratory and clinical measures that are to
be tracked and analyzed;
- the number of patients required to produce a statistically valid
result;
- the period of time over which they must be tracked; and
- the frequency and dosage of drug administration.
(2) CASE REPORT FORMS. Once the study protocol has been finalized, special
forms for recording the required information must be developed. These
forms are called case report forms.
(3) SITE AND INVESTIGATOR RECRUITMENT. The drug is administered to patients
under the supervision of physicians who serve as investigators, at
hospitals, clinics or other locations, referred to as sites. Potential
investigators may be identified by the drug sponsor or Chrysalis.
Generally, the investigators contract directly with Chrysalis. The
trial's success depends on the successful identification and recruitment
of investigators with proper expertise and an adequate base of patients
who satisfy the requirements of the study protocol.
(4) PATIENT RECRUITMENT AND ENROLLMENT. Prior to the shut downs, Chrysalis
recruited Phase I volunteers and maintained a database of those
volunteers. The investigators, however, find and enroll patients suitable
for the Phase II through IV trials according to the study protocol.
Prospective patients are required to review information about the drug
and its possible side effects. Prospective patients are also required to
sign an informed consent to record their
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knowledge and acceptance of potential side effects. Patients also undergo
a medical examination to determine whether they meet the requirements of
the study protocol. Patients then receive the drug and are examined by
the investigator as specified by the study protocol.
(5) STUDY MONITORING AND DATA COLLECTION. As patients are examined and tests
are conducted in accordance with the study protocol, data are recorded on
case report forms and laboratory reports. The data are collected from
study sites by contract research assistants. Contract research assistants
visit sites regularly to ensure that the case report forms are completed
correctly and that all data specified in the protocol are collected. Case
report forms are reviewed for consistency and accuracy before their data
are entered into an electronic database.
(6) MEDICAL AFFAIRS. Throughout the course of a clinical trial, Chrysalis
may provide various medical research and services. These services
include:
- medical monitoring of clinical trials;
- interpretation of clinical trial results; and
- preparation of clinical study reports.
(7) REPORT WRITING. The results of statistical analysis of data collected
during the trial, together with other clinical data, are included in a
final report to be included in a regulatory document.
(8) INFORMATION TECHNOLOGY. Prior to the shut downs, Chrysalis maintained a
fully networked information system to facilitate complete computerized
data management of Phase II through Phase IV trials. Laboratory data was
on-line for review by physicians and project managers. Chrysalis' ability
to provide information technology services has been materially adversely
impacted by the restructuring of its clinical operations. If the merger
is not completed, Chrysalis will have only a small operation in Eastern
Europe to perform these services. Chrysalis would have to expand its
facilities significantly to continue to provide these services.
CLINICAL DATA MANAGEMENT AND BIOSTATISTICAL SERVICES. Prior to the shut downs,
Chrysalis had experience in creating scientific databases for all phases of the
drug development process. These databases provided clients with data
abstraction, data review and coding, data verification and editing and problem
data resolution capabilities. Chrysalis used an imaging technology process which
eliminates time and minimizes potential data entry errors. This was accomplished
by electronically routing, tracking and querying optically scanned case report
forms. Chrysalis' data management professionals also assisted in the design and
development of study protocols and case report forms, training manuals and
training sessions for investigators and coordinators.
Prior to the shutdowns, Chrysalis' biostatistics professionals provided
biostatistical consulting, database design, data analysis and statistical
reporting. Chrysalis' biostatisticians provided clients with assistance in all
phases of drug development. These professionals developed and reviewed
protocols. They also designed appropriate analysis plans and report formats to
address the objectives of the study protocol and the client's individual
objectives. Chrysalis' ability to provide clinical data management and
biostatistical services has been materially adversely impacted by the
restructuring of its clinical operations. If the merger is not completed,
Chrysalis will have only a small operation in Eastern Europe to perform these
services. Chrysalis would have to expand its facilities significantly to
continue to provide these services.
PRODUCT REGISTRATION SERVICES/REGULATORY AFFAIRS. The pharmaceutical companies
have their own regulatory expertise and generally register their products
without the assistance of third parties. In connection with its Phase II through
Phase IV services to these pharmaceutical companies, Chrysalis provides
regulatory strategy formulation and consultation. If requested, Chrysalis also
acts as a liaison with the FDA and other international regulatory agencies.
Until the shutdowns, Chrysalis provided similar services in connection with its
Phase I services.
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MARKETING
The majority of new studies conducted by Chrysalis are derived from existing
clients. To obtain new clients, Chrysalis contacts potential clients directly
through its marketing and sales representatives and its senior business
management. Chrysalis also participates in various scientific association and/or
business symposia. In addition, Chrysalis contacts potential clients indirectly
through other media, including scientific and trade journal advertising,
brochures and direct mailings. Further, Chrysalis' sales and marketing
representatives target promotion efforts to potentially new clients who are not
familiar with Chrysalis' services. These representatives also target the
expansion of services for existing clients. In addition, Chrysalis' scientific
personnel participate in a variety of business/scientifically oriented
endeavors. These endeavors include publishing scientific papers and making
presentations at scientific meetings. Chrysalis also participates in commercial
conferences and advertises at these conferences. Further, Chrysalis also attends
and provides exhibits at selected industry trade shows in the United States and
Europe.
Chrysalis' marketing personnel:
- seek new clients;
- seek contracts with new therapeutic areas or divisions with existing
clients;
- cross-sell other services to existing clients; and
- develop strategic alliances with major pharmaceutical and biotechnology
companies.
However, Chrysalis' ability to coordinate its marketing efforts and cross-sell
other services has been materially adversely affected by its liquidity
constraints and shutdowns. See "--General--Restructuring of Clinical Operations"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations of Chrysalis."
LOSS OF A LARGE CLINICAL TRIAL
One of Chrysalis' largest clients, a leading pharmaceutical company, notified
Chrysalis that it decided to delay a large clinical trial originally expected to
begin during the fourth quarter of 1997. In April 1998, the client informed
Chrysalis that the drug being developed in this trial would be out-licensed or
co-developed with a partner. In December 1998, the client advised Chrysalis that
the drug had been out-licensed to another company that did not intend to use
Chrysalis' services.
During 1997, Chrysalis incurred significant expenses to expand its
infrastructure to support the clinical trial. These expenses primarily consisted
of additional operational, managerial and administrative personnel and facility
expansion costs. Chrysalis leased additional real estate and acquired or leased
additional office and computer equipment in anticipation of this trial.
Chrysalis estimates that its clinical cost structure would have increased
annually by approximately $5 million through expansion activities undertaken to
accommodate the trial. After being notified in December 1997 of the delay in the
trial, Chrysalis decided to maintain this additional infrastructure to improve
its ability to compete for other large global studies. However, shortly after
receiving the April 1998 notice, Chrysalis began to reduce this infrastructure.
As a result of the expenses associated with the expanded infrastructure,
Chrysalis' results for the fourth quarter of 1997 and for fiscal year 1998 were
negatively impacted.
Although Chrysalis obtained additional clients and contracts during 1998, these
new clients and contracts did not and will not result in significant revenue in
the near term. Revenues from these additional contracts will not be sufficient
to offset the significant expenses associated with the expanded infrastructure.
See "--Backlog," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Chrysalis."
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CUSTOMERS
Chrysalis has in the past derived, and may in the future derive, a significant
portion of its net service revenue from a relatively limited number of major
projects or clients. Contract research organizations often have customer
concentrations. Concentrations are increasing as large pharmaceutical and
biotechnology companies are outsourcing larger clinical trials and large
multiple site trials to fewer contract research organizations. For the year
ended December 31, 1998, Chrysalis' top five customers accounted for
approximately 37% of Chrysalis' combined net service revenue. One customer of
Chrysalis, a large international pharmaceutical company with revenues in excess
of $10 billion, accounted for approximately 13% of net service revenues for the
year ended December 31, 1998. This customer delayed the large clinical trial
which was originally expected to begin during the fourth quarter of 1997. See
"--Loss of a Large Clinical Trial" above. Chrysalis believes that the loss of
any of these customers would have a material adverse effect on Chrysalis unless
it was able to replace the customer or expand services provided to other
customers. Chrysalis may not be able to replace the loss of any of those
customers or expand services to existing customers on terms acceptable to
Chrysalis.
BACKLOG
Chrysalis reports backlog based on anticipated net revenues from uncompleted
projects which have been authorized by the client. The authorization may be
through a written contract or by other means . Once work under a letter of
intent or contract commences, net service revenue is recognized over the life of
the contract using the percentage-of-completion method of accounting. In certain
cases, Chrysalis will commence work on a project prior to finalizing a letter of
intent or contract. Contracts included in backlog are subject to termination or
delay at any time by the client or regulatory authorities. Termination or delays
can result from a number of factors, many of which are beyond Chrysalis'
control. Delayed contracts remain in Chrysalis' backlog until a determination is
made to continue, modify or cancel the contract.
Chrysalis believes that its backlog as of any date is not necessarily a
meaningful indicator of future results. Chrysalis may not be able to realize net
service revenue included in backlog. As of December 31, 1998, Chrysalis' backlog
was approximately $14.5 million compared to approximately $41 million at
December 31, 1997 and approximately $25 million at December 31, 1996. The
increase in backlog from December 31, 1996 to December 31, 1997 reflects
primarily the addition of the large clinical trial that was originally expected
to begin during the fourth quarter of 1997 but was delayed. In April 1998, the
customer informed Chrysalis that the drug being developed in this trial would be
out-licensed or co-developed with a partner. As a result of this information,
Chrysalis removed from its backlog the anticipated revenue associated with this
large clinical trial. This removal accounts for a majority of the decrease in
backlog from December 31, 1997 to December 31, 1998. See "--Loss of a Large
Clinical Trial" above.
COMPETITION
Chrysalis competes primarily against pharmaceutical companies' own in-house
research departments, other contract research organizations and universities and
teaching hospitals. The contract research organization industry includes several
hundred small, limited-service providers, several medium-sized clinical research
organizations, and a few full service global drug development companies. The
clinical research organization industry is consolidating as a result of
competitive pressures and economies of scale. Mergers and acquisitions have
resulted in the emergence of full service contract research organizations with
the international human, technical and financial resources to conduct the full
range of preclinical and clinical drug development trials on behalf of
pharmaceutical and biotechnology companies. These large, full service
competitors may have substantially greater capital, technical and other
resources, may be better known, and may have more experienced personnel than
Chrysalis. Chrysalis' major competitors include: Covance, Inc.; Parexel
International Corporation; Quintiles Transnational
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Corporation; ClinTrials Research Inc.; Pharmaceutical Products Development
Corporation; Huntington Life Sciences Ltd.; Kendle International, Inc. and
Phoenix.
Contract research organizations generally compete on the basis of:
- previous experience;
- medical and scientific expertise in specific therapeutic areas;
- specialty preclinical capabilities;
- the quality of contract research;
- the ability to manage large and complex medical databases;
- the ability to provide statistical and regulatory services;
- the ability to recruit investigators;
- the ability to integrate information technology with systems to improve
the efficiency of contract research;
- an international presence with strategically located facilities; and
- financial viability.
In some markets, price also is a significant factor. Chrysalis has begun to shut
down certain of its facilities and to downsize significantly its international
clinical operations. Chrysalis expects these activities to materially adversely
affect its ability to compete if the merger is not completed.
MICROINJECTION PATENT LICENSING
Chrysalis possesses an exclusive license to a U.S. patent awarded to Ohio
University. The patent covers DNA microinjection. Chrysalis uses DNA
microinjection to provide its specialty transgenic-based services.
Chrysalis grants sublicenses of its proprietary DNA microinjection technology,
the process widely used in the pharmaceutical and biotechnology industries to
develop transgenic animals. These sublicenses entitle Chrysalis to receive
revenues consisting of fees and, in some cases, royalties.
While Chrysalis has retained the exclusive rights to use DNA microinjection for
its drug development services, it has granted several non-exclusive sublicenses
for the use of DNA microinjection in a variety of applications. These
applications include the development, use and sale of other commercial
transgenic animal-based products and transgenic animal models. In those
instances where Chrysalis grants a sublicense for commercial applications,
Chrysalis receives an annual license fee and revenue-based royalties upon
commercialization of the products and services. In the case of sublicenses for
noncommercial applications, Chrysalis generally receives an annual license fee.
Chrysalis will continue to license this technology for the development of
transgenic animals and transgenic animal derived products which do not conflict
with the specialty transgenic animal services offered by Chrysalis.
GOVERNMENT REGULATION
Chrysalis' operations are subject to numerous regulatory requirements designed
to assure the quality and integrity of its drug development services. In recent
years, these regulations have become more numerous and stringent, reflecting an
increased public concern about the dangers of potentially toxic drugs, chemicals
and other substances. The following information describes current statutory or
regulatory provisions. Any change in applicable law or regulation may have a
material effect on the business and prospects of Chrysalis.
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The industry standard for conducting biological testing is embodied in
regulations called "good laboratory practices." Good laboratory practices has
been adopted by the Environmental Protection Agency and the FDA in the United
States and the Minister des Affaires Sociales et de la Solidarite Nationale in
France. Good laboratory practices stipulates requirements for facilities,
equipment and professional staff. The regulations mandate standardized
procedures for controlling studies, for recording and reporting data and for
retaining appropriate records. Any governmental agency with the authority to
control marketing approval for new products can reject test results if they do
not comply with good laboratory practices. Chrysalis monitors ongoing compliance
with good laboratory practices standards.
In addition, Chrysalis is subject to scrutiny by many regulators regarding its
laboratories and materials. On the federal level in the United States, Chrysalis
is regulated by the Department of Transportation, Occupational Safety and Health
Administration, Nuclear Regulatory Commission and the Drug Enforcement
Administration. At the state level, Chrysalis is monitored by the Commonwealth
of Pennsylvania Department of Labor and Industry and the Pennsylvania Department
of Environmental Resources. In addition, some of Chrysalis' European operations
are subject to regulations in France similar to the federal and state
regulations in the United States.
In addition to the regulatory framework and good laboratory practices standards
for preclinical drug development services, Chrysalis is subject to other
regulations under federal, state and foreign law. These regulations include
requirements regarding:
- occupational safety;
- laboratory practices;
- the care and use of animals in experimentation and testing;
- the use, handling and disposition of radioactive materials;
- environmental protection; and
- hazardous substance control.
Chrysalis may be subject to other current and future local, state, federal and
foreign regulation, including future regulation of the preclinical drug
development industry, the biotechnology field and the biological testing
industry.
The clinical services provided by Chrysalis are ultimately subject to FDA
regulation in the United States and comparable agencies in other countries. The
level of regulation in other countries is generally less comprehensive than
regulation in the United States. The industry standard for conducting clinical
research and development studies is embodied in regulations and guidelines
called "good clinical practices." Although the FDA has not formally adopted a
single good clinical practices guideline, some provisions of good clinical
practices have been included in FDA regulations. In Europe, all work is carried
out in accordance with the European Union Note For Guidance, "Good Clinical
Practice for Trials on Medicinal Products in the European Community." As a
matter of practice, the FDA and many other regulatory authorities require that
test results submitted to such authorities be based on studies conducted in
accordance with good clinical practice. These regulations include:
- complying with FDA regulations governing the selection of qualified
investigators;
- obtaining specific written commitments from the investigators;
- verifying that the patient's informed consent is obtained;
- monitoring the validity and accuracy of data;
- verifying drug or device accountability; and
- instructing investigators to maintain records and reports.
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Chrysalis must also maintain reports for each study for specified periods for
inspection by the study sponsor and the applicable regulatory authorities.
Non-compliance with good clinical practices can result in the disqualification
of data collected during the clinical trial.
Chrysalis' standard operating procedures are written in accordance with
regulations and guidelines appropriate to the region where they will be used.
Chrysalis' North American standard operating procedures are based on FDA
regulations and guidelines. Chrysalis has developed operating procedures in
accordance with local requirements and in harmony with the North American and
European operations. Chrysalis has implemented common standard operating
procedures across geographic regions to assure consistency whenever feasible and
appropriate.
INTELLECTUAL PROPERTY
Chrysalis has an exclusive commercial license to a U.S. patent awarded to Ohio
University in October 1989. As Chrysalis becomes aware of activities potentially
infringing on its commercial rights it takes appropriate action to curtail
infringing activities. However, Chrysalis' actions may not result in proof of
infringement or curtailment of the potentially infringing party's activities.
The potentially infringing party may not become properly licensed and
financially obligated to Chrysalis. In addition, technology circumventing the
DNA microinjection process may be developed in the future. If new technology is
developed, Chrysalis may not be able to continue to practice the processes
contained in the DNA microinjection patent. In addition, Chrysalis may not be
able to obtain licenses for the new technology on reasonable terms or at all.
Outside of the U.S., the DNA microinjection process is non-proprietary. However,
the commercialization of any products in the United States using the DNA
microinjection process are protected by the patent. The license has a term equal
to the life of the last to expire of all patents covered by the license. The
license can be terminated earlier by either party for cause.
POTENTIAL LIABILITY AND INSURANCE
Chrysalis attempts to manage its potential liability by obtaining indemnity
provisions in its contracts with clients and investigators hired by Chrysalis on
behalf of its clients. These indemnities generally do not, however, protect
Chrysalis against some of its own actions, including those involving negligence.
Moreover, these indemnities are contractual arrangements that are subject to
negotiation with individual clients. The terms and scope of these indemnities
can vary from client to client and from study to study. Finally, the financial
performance of these indemnities is not secured. As a result, Chrysalis bears
the risk that an indemnifying party may not have the financial ability to
fulfill its indemnification obligations. In addition to indemnification
provisions, Chrysalis maintains limited coverage for professional service
liability insurance. Chrysalis could be materially and adversely affected if it
were required to pay damages or incur defense costs in connection with a claim
that is outside the scope of an indemnity or in excess of its insurance
coverage. In addition, Chrysalis could be materially adversely affected if a
client or investigator failed to honor its indemnification obligations.
Chrysalis believes that the risk of liability to patients in clinical trials is
mitigated by various regulatory requirements. These requirements include the
role of institutional review boards and the need to obtain each patient's
informed consent. The FDA requires each human clinical trial to be reviewed and
approved by the institutional review board at each study site. An institutional
review board is an independent committee that includes both medical and
nonmedical personnel. It is obligated to protect the interests of patients
enrolled in the trial. After the trial begins, the institutional review board
monitors the protocol and the measures designed to protect patients, including
the requirement to obtain informed consent.
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NEXTRAN
On August 29, 1994, Chrysalis entered into a Joint Venture Agreement with Baxter
Transplant Holdings, Inc., a wholly-owned subsidiary of Baxter Healthcare
Corporation, which is a subsidiary of Baxter International, Inc. Under the joint
venture agreement, Chrysalis and Baxter Transplant formed Nextran, a Delaware
general partnership. Chrysalis had a 30% partnership interest and Baxter
Transplant had a 70% partnership interest. Chrysalis contributed to Nextran $2.5
million in cash and specified rights under patent licenses, research agreements,
and other intangible assets related to its xenograft, meaning animal to human
organ transplantation, and blood substitute programs. The contributed assets
included limited rights to practice under the DNA microinjection patent
specifically within the xenograft and hemoglobin blood substitute fields of use.
Chrysalis also contributed laboratory and office space in Princeton, New Jersey,
swine research facilities near Athens, Ohio and certain related equipment and
other related assets with a net book value of $2.4 million to Nextran. Baxter
Healthcare contributed to Nextran $20 million in cash and specified rights under
research and product marketing programs between Baxter Healthcare and various
third parties related to certain of its transplantation programs.
In September 1995, Chrysalis sold its 30% partnership interest in Nextran to
Transplant Acquisition Inc., a wholly-owned subsidiary of Baxter Healthcare, for
a cash purchase price of $18 million. In connection with this sale, Chrysalis
eliminated its investment in Nextran and recorded an estimated nonrecurring
gain, net of expenses, income taxes and related accruals, of approximately $17.3
million. If Nextran develops and commercializes hemoglobin blood substitutes
using technologies licensed to Nextran by Chrysalis, Chrysalis will receive
royalty income equal to 3% of end product sales.
EMPLOYEES
As of January 31, 1999, Chrysalis employed approximately 365 individuals on a
full-time basis. None of Chrysalis' U.S. employees are represented by trade
unions. All of the employees of its European preclinical operations, except
senior management, are represented by a legal trade union. These employees are
governed by an agreement that is subject to annual renegotiation. Although no
employees of the European clinical operations are covered by a trade union, many
of them have written contracts with Chrysalis in accordance with local law. The
recent uncertainty regarding Chrysalis' future and the announcement of the
proposed merger have contributed to the departure of a number of employees of
Chrysalis. In addition, the restructuring of Chrysalis' clinical operations has
and will continue to result in the termination or departure of a number of other
employees. Chrysalis may not be able to retain a sufficient number of skilled
personnel to continue adequately providing services to its customers, whether or
not the merger occurs.
SEGMENT AND GEOGRAPHIC INFORMATION
Note 20 to the audited consolidated financial statements of Chrysalis includes
information about revenue, operating profit and identifiable assets attributable
to Chrysalis' segments. Note 20 also includes information regarding geographic
breakdowns.
PROPERTIES
Chrysalis' corporate headquarters are located in Raritan, New Jersey. Chrysalis,
under an option provision of the lease agreement, extended its lease on this
facility through February 2000. If the merger is completed, Phoenix expects to
eventually shut down Chrysalis' corporate headquarters.
Chrysalis' U.S. preclinical operations are located in two adjacent facilities
near Scranton, Pennsylvania. Chrysalis leases one facility with approximately
21,000 square feet. This lease expires after August 1999. Chrysalis has not yet
decided whether it will renew this lease or pursue other alternatives. Chrysalis
owns the other facility with 20,000 square feet, subject to a mortgage.
Chrysalis owns and operates
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approximately 100,000 square feet of facilities on approximately nine acres near
Lyon, France for its preclinical operations in Europe. Chrysalis has an option
to purchase land adjacent to these facilities.
Chrysalis' specialty transgenic services business operates in Princeton, New
Jersey. Chrysalis leases a facility for administrative offices and research
laboratories. This lease expires in May 2000. In addition, until August 1999
Chrysalis shares an adjacent facility pursuant to an agreement with Nextran.
Chrysalis has entered into a lease for one facility under construction near
Princeton, New Jersey to replace these two facilities. Chrysalis expects the new
lease to begin during the second half of 1999. The new lease will have a
ten-year term.
Chrysalis' U.S. clinical operations are conducted in a leased facility in
Austin, Texas. This lease expires in February 2001. Chrysalis expects to
terminate or sublet this lease. Chrysalis leases its European clinical
headquarters in Cham, Switzerland. This lease expires in March 2000. Chrysalis
expects to terminate or sublet this lease. Chrysalis also maintains offices in
Mannheim, Germany; Sweden; Denmark; Norway; Finland; Israel; Vilnius, Lithuania;
Poland; Russia; and the Ukraine for its clinical operations. In connection with
the restructuring of its clinical operations, Chrysalis has begun to shut down
its offices at the following locations: Canada; France; Belgium; The
Netherlands; the United Kingdom; Spain; and Italy. See "--General--Restructuring
of Clinical Operations."
Chrysalis also leases a facility in Dusseldorf, Germany which it uses for Phase
II trials. The facility is Chrysalis' information systems, data management and
biostatistical center. This lease expires in August 2001. Chrysalis expects to
terminate or sublet this lease. See "--General--Restructuring of Clinical
Operations."
Chrysalis has included expected lease termination costs for the facilities in
Germany, Switzerland and Austin, Texas in the restructuring charge that it took
in the fourth quarter of 1998. Chrysalis has included expected lease termination
costs for its corporate headquarters in the estimated restructuring charge it
expects to take in the second quarter of 1999. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Chrysalis."
LEGAL PROCEEDINGS
Chrysalis is not currently a party to any material legal proceedings.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CHRYSALIS
GENERAL SUMMARY
Chrysalis is an international contract research organization. Chrysalis provides
drug development services primarily to the pharmaceutical and biotechnology
industries. Chrysalis' services include transgenic discovery research,
preclinical development and clinical capabilities. Chrysalis' financial
condition and results of operation since January 1, 1996 have been affected by a
number of factors described under "Other Agreements" and "Description of
Chrysalis." These factors include:
- Chrysalis' downsizing and restructuring of its clinical operations;
- Chrysalis' default under its senior secured loan;
- Execution of the merger agreement, forbearance agreement and the guaranty
and cash collateral pledge related to the forbearance agreement;
- Chrysalis' issuance of a $5.0 million subordinated note and warrant to an
MDS subsidiary;
- Chrysalis' acquisition of the Bioclin Group;
- Chrysalis' client concentration;
- The formation of Nextran and Chrysalis' subsequent sale of its interest in
Nextran; and
- The delay and loss of a large clinical trial.
Chrysalis took a charge of $3,872,000 in the fourth quarter of 1998 related to
the downsizing and restructuring. This restructuring charge related primarily to
employee termination costs, provisions for real estate termination expenses and
asset write downs. Chrysalis expects to take an additional charge of $825,000 in
the second quarter of 1999 related to the downsizing and restructuring. The
second quarter charge relates primarily to additional employee termination costs
and the anticipated closing of its executive offices as a result of the merger.
Chrysalis' financial statements are denominated in U.S. dollars. Changes in the
exchange rate between non-U.S. currencies and the U.S. dollar affect the
translation of non-U.S. revenues and operating results into U.S. dollars for
purposes of reporting Chrysalis' financial results. Fluctuations in the exchange
rate between the French Franc and the U.S. dollar may have a material effect on
Chrysalis' operating results. See "--Liquidity and Capital
Requirements--Exchange Rate Fluctuations."
Most of Chrysalis' contracts are fixed price contracts that require a portion of
the contract amount to be paid at or near the time the trial is initiated.
Chrysalis generally bills its clients upon the completion of negotiated
performance requirements and, to a lesser extent, on a date certain basis. Some
of Chrysalis' contracts are subject to cost limitations, which cannot be
exceeded without client approval. Because, in many cases, Chrysalis bears the
risk of cost overruns, unbudgeted costs in connection with performing these
contracts may have a detrimental effect on the financial results of Chrysalis.
If Chrysalis determines that a loss will result from the performance of a
contract, it charges the entire amount of the estimated loss against income in
the period in which it makes the determination.
Chrysalis' contracts generally may be terminated with or without cause. In the
event of termination, Chrysalis is typically entitled to receive all sums owed
for work performed through the notice of termination and all costs associated
with termination of the study. Once a trial has been commenced, change orders
may be requested by clients based on the results of the trial to date. Change
orders include changes in the scope of the trial and in the services to be
provided by Chrysalis. Therefore, compensation under a contract may increase or
decrease during the duration of a contract. In addition, termination or delay in
the performance of a contract may occur for various reasons. These reasons
include:
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- unexpected or undesired results from studies conducted by Chrysalis or
others;
- inadequate patient enrollment or investigator recruitment;
- production problems resulting in shortages of the drug being tested;
- adverse patient reactions to the drug being tested; and
- the client's decision to de-emphasize a particular trial.
Chrysalis' service contracts contain provisions designed to address the negative
impact on Chrysalis' revenues and profitability as a result of non-controllable
delays. These provisions, however, may not be included in all of Chrysalis'
service contracts. Chrysalis attempts to negotiate reimbursement of fees whether
or not these provisions are included in the service contract. However, Chrysalis
is not always successful in negotiating reimbursement. The loss of or delay of a
large contract or multiple contracts could adversely affect Chrysalis' future
revenues and results of operations.
Revenue for contracts is recognized on a percentage of completion basis as work
is performed. Revenue is affected by the mix of trials conducted and the degree
to which effort is expended. Chrysalis incurs travel costs and may subcontract
with third-party investigators in connection with multi-site clinical trials.
These costs are passed through to clients and are included in service revenue.
Costs may vary significantly from contract to contract. Therefore, changes in
service revenue may not be indicative of trends in revenue growth. Chrysalis
considers net service revenue, which equals service revenue less these costs, as
its primary measure of revenue growth.
Between July 1997 and June 1998, Chrysalis incurred expenses to expand and
retain its infrastructure, primarily in the clinical operations. Chrysalis
expanded and retained infrastructure to support global drug development
capabilities. Management primarily communicated these expanded capabilities to
its existing client base and the pharmaceutical and biotechnology industries.
However, Chrysalis has begun to shut down and discontinue providing services at
several of its clinical operations in Europe and the United States. Even if the
merger is not consummated, Chrysalis will discontinue operations in Dusseldorf,
Germany and Austin, Texas and downsize significantly its European clinical
operations. See "Description of Chrysalis--General--Restructuring of Clinical
Operations" and "--Loss of a Large Clinical Trial."
Chrysalis' future operating results will be contingent upon successfully
controlling its expenses and using its transgenics, preclinical and remaining
clinical infrastructure. This will require Chrysalis to convert proposals into
contracts and revenues. Chrysalis may not be able to successfully use its
remaining clinical infrastructure in a cost efficient manner or convert
proposals into revenues in a timely manner. Chrysalis' ability to convert its
remaining clinical infrastructure into future operating results may also be
affected by other factors. These factors include:
- delays in initiating or completing significant preclinical and clinical
trials;
- the lengthening of lead times to convert proposals into contracts and
revenues; and
- the termination of preclinical and clinical trials.
All of these factors may be beyond the control of Chrysalis. See "--Quarterly
Results."
As a result of the Nextran transactions, Chrysalis no longer funds the
development of organ transplantation or blood substitute programs. Historically,
these programs accounted for a substantial portion of Chrysalis' research and
development expenses, capital expenditures, working capital and accumulated
deficit.
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RESULTS OF OPERATIONS (1998, 1997 AND 1996)
REVENUES BY BUSINESS AND GEOGRAPHIC REGION
<TABLE>
<CAPTION>
REVENUES ($000'S)
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Transgenics/Preclinical.......................................................... $ 30,157 $ 27,258 $ 29,090
Clinical......................................................................... 8,361 14,244 11,883
Licensing/Other.................................................................. 866 796 514
--------- --------- ---------
Total........................................................................ $ 39,384 $ 42,298 $ 41,487
--------- --------- ---------
--------- --------- ---------
International.................................................................... $ 23,998 $ 26,778 $ 28,322
United States.................................................................... 14,520 14,724 12,651
Licensing/Other.................................................................. 866 796 514
--------- --------- ---------
Total........................................................................ $ 39,384 $ 42,298 $ 41,487
--------- --------- ---------
--------- --------- ---------
</TABLE>
FISCAL YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO THE FISCAL YEARS ENDED
DECEMBER 31, 1997 AND 1996.
REVENUES. Revenues were $39,384,000 for 1998 compared to $42,298,000 for 1997
and $41,487,000 for 1996. Excluding the impact of foreign currency translations,
revenues for 1997 would have been approximately $46,204,000. The decrease in
revenues for 1998 as compared to 1997 was primarily the result of a decrease in
the worldwide clinical business that resulted from:
- the completion in the second quarter of 1998 of a large global clinical
study with one of Chrysalis' largest customers that generated $3.0 million
more revenue in 1997 compared to 1998; and
- the cancellation in April 1998 of a large clinical trial, that generated
$4.0 million of revenue in 1997, with the same customer.
Chrysalis was unable to replace completely this revenue from new contracts. This
decrease was slightly offset by an increase in Chrysalis' transgenic services,
particularly those supporting functional genomics research programs. However, as
a result of the discovery of short-term disease in some of the animal models
used by Chrysalis' transgenic services, revenues for transgenic services will be
negatively impacted during the second and third quarters of 1999.
The increase in revenues from 1996 to 1997 was primarily the result of the
following:
- an increase in the clinical business, including services provided under
contracts with Chrysalis' largest customer;
- an increase in Chrysalis' specialty transgenic and molecular biology
services; and
- an increase in preclinical business in Europe.
This increase was offset by the unfavorable impact of foreign currency
translations and a decrease in the preclinical business in North America and the
Phase I clinical business in Europe.
Chrysalis believes that revenue growth for the clinical business for 1997 and
1998 was adversely affected by:
- the long lead times in Chrysalis' conversion of proposals into contracts
and revenues; and
- the continuing impact, as a result of these long lead times, of clinical
senior management's focus on negotiating and consummating the BioClin
Group acquisition during 1996.
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This focus prevented them from devoting efforts to business development and
marketing the clinical business.
See "--Liquidity and Capital Resources--Exchange Rate Fluctuations," and
"Description of Chrysalis--Loss of Large Clinical Trial."
OPERATING EXPENSES. Direct costs were $31,041,000 or 79% of net revenues for
1998 compared to $29,383,000 or 69% of net revenues for 1997. For 1996, direct
costs were $27,841,000 or 67% of net revenues. Direct costs for 1997 and 1996
include research and development expenses. The increase in direct costs in 1998
as compared to 1997 was primarily due to:
- incremental investments of approximately $5.0 million on an annualized
basis made between July 1997 and June 1998 to expand and maintain
Chrysalis' clinical personnel and infrastructure to support its business
strategy at that time to accommodate global clinical trials, including the
large clinical trial that was discontinued in April 1998; and
- investments in personnel and infrastructure to support the growth in
Chrysalis' transgenics services, particularly those supporting functional
genomics research programs.
The increase in these costs, as a percent of revenues, is due to a base cost
structure, primarily in the clinical business, of personnel, facilities and
related expenses capable of supporting a higher level of revenues. In June 1998,
Chrysalis began to reduce its clinical infrastructure by approximately $1.5
million on an annualized basis. After execution of the merger agreement,
Chrysalis began to shut down and discontinue providing clinical services in
North America and at some of its European locations.
Excluding the impact of foreign currency translations, the increase in direct
costs of $1,904,000 for the year ended December 31, 1997, as compared to the
same period in 1996, would have been approximately $4,491,000. This increase in
direct costs was primarily due to:
- investment in personnel and infrastructure to support Chrysalis' long-term
business expansion strategy and to accommodate the large clinical trial
which was delayed in the last quarter of 1997; and
- increased variable costs as a result of increased business activity in
Chrysalis' European preclinical services and specialty transgenic and
molecular biology services in 1997.
The increase in these costs in 1997 as a percent of revenues is due to a base
cost structure of personnel, facilities and related expenses capable of
supporting a higher level of revenues. The majority of the expanded
infrastructure related to the large clinical trial was in place by the fourth
quarter of 1997. This expanded infrastructure increased costs by approximately
$1.2 million in 1997. See "Description of Chrysalis--Loss of a Large Clinical
Trial."
General, administrative and marketing expenses were $12,828,000 in 1998 compared
to $12,416,000 in 1997 and $10,942,000 in 1996. Chrysalis incurred approximately
$320,000 in 1998 for professional fees in connection with the merger agreement.
Chrysalis anticipates that it will incur approximately $1,050,000 for
professional fees in 1999 prior to the merger. Excluding these professional
fees, general, administrative and marketing expenses in 1998 would have
increased only slightly compared to 1997. These costs did not decrease along
with revenues because Chrysalis maintained its personnel and related costs for
marketing and business development, information systems, accounting and general
management.
Excluding the impact of foreign currency translation, the increase of
$1,474,000, for 1997 compared to 1996 would have been approximately $2,590,000.
This increase in expenses for 1997 was primarily due to:
- the increase in personnel and related costs for marketing and business
development, information systems, general management and financial
management activities;
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- the increase in personnel and related costs associated with the management
of the European clinical business; and
- the increase in personnel and facility costs associated with the increase
in Chrysalis' specialty transgenic and molecular biology services.
Depreciation and amortization expense decreased to $2,092,000 for 1998 compared
to $2,699,000 for 1997 and $2,780,000 for 1996. This decrease resulted from the
full depreciation prior to 1998 of assets, primarily associated with Chrysalis'
European preclinical operations.
BUSINESS COMBINATION COSTS. Chrysalis incurred costs in 1996 associated with
the BioClin Group acquisition. These costs totaled $3,649,000. These costs
included expenses associated with the acquisition of the clinical business, the
name change from DNX Corporation to Chrysalis and other related items.
RESTRUCTURING COSTS. In connection with the merger agreement, Chrysalis agreed
to shut down and discontinue providing clinical services in North America and at
several of its European locations. Chrysalis incurred $3,872,000 of expenses
related to this restructuring in the fourth quarter of 1998. See "--General
Summary" and "Description of Chrysalis--General--Restructuring of Clinical
Operations."
OTHER INCOME (EXPENSE). Other income (expense) was expense of $992,000 in 1998
compared to income of $390,000 in 1997 and income of $742,000 for 1996. The
increase in expense for 1998 compared to 1997 primarily resulted from:
- a settlement agreement with Virginia Commonwealth University signed in the
third quarter of 1997 which resulted in a $700,000 gain in 1997;
- an increase in interest expense resulting from higher outstanding debt
balances and the amortization of the MDS warrant; and
- a decrease in interest income earned as a result of a decrease in average
available cash and other investment balances.
The decrease from 1996 to 1997 was partially due to a decrease in interest
expense resulting from lower outstanding debt balances. The decrease in interest
expense was offset by a decrease in interest income earned in 1997 resulting
from a decrease in cash and other investment balances. Other income in 1997 also
included the $700,000 nonrecurring gain resulting from the settlement agreement.
Other income in 1996 primarily consisted of interest from higher cash balances
primarily resulting from (1) the proceeds from the Nextran sale in the third
quarter of 1995 and (2) a foreign currency gain of $517,000. The foreign
currency gain resulted primarily from exchange rate fluctuations between the
German Mark and Swiss Franc associated with short-term borrowings of Chrysalis'
German operations denominated in Swiss Francs. Chrysalis repaid this debt
denominated in Swiss Francs in 1997. The interest income for 1996 was offset
primarily by interest expense of $1,445,000 on outstanding debt.
TAXES. Chrysalis' foreign subsidiaries are subject to foreign income taxes
under foreign tax laws on the profits generated in those countries. In general,
these tax laws do not permit profits generated in those countries to be offset
by losses from operations in other countries. As a result, primarily for its
French operations, Chrysalis recorded an income tax expense of $716,000 in 1998
compared to $240,000 in 1997 and $477,000 in 1996. These expenses are primarily
due to profits generated by Chrysalis' French operations. These profits are
partially offset by tax benefits recorded as a result of losses in other
European operations. Included in 1998 is a charge of $214,000 for the write-down
of deferred tax assets impaired by the shut down of some European clinical
operations.
The impact from United States federal income taxes is currently not significant
because Chrysalis has available net operating loss carryforwards. At December
31, 1998, Chrysalis' available net operating loss carryforwards were
approximately $34,873,000 for United States federal income tax purposes. These
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loss carryforwards expire through 2012. Chrysalis also has research and
development tax credit carryforwards of approximately $2,932,000 for U.S.
federal income tax reporting purposes. These tax credit carry forwards are
available to reduce U.S. federal income taxes, if any, through 2012. Chrysalis
has alternative minimum tax credit carryforwards of approximately $164,000 for
U.S. federal income tax purposes which are available to reduce U.S. federal
income taxes, if any. These tax credits have an unlimited carryforward period.
Chrysalis' acquisition of the Bioclin Group resulted in an ownership change
under the Internal Revenue Code. Accordingly, Chrysalis' ability to use its net
operating loss carryforwards to offset operating profits may be limited in the
future by the Internal Revenue Code. Chrysalis may not use these net operating
loss carryforwards to offset profit in other countries.
QUARTERLY RESULTS
Chrysalis' operating results vary from quarter to quarter. Variations are caused
by factors that include:
- delays in initiating or completing significant preclinical and clinical
trials;
- termination of preclinical and clinical trials;
- acquisitions; and
- exchange rate fluctuations.
Clients or regulatory authorities often cause delays in or terminate studies or
trials. Chrysalis typically cannot control these actions. Because a large
portion of Chrysalis' operating costs are relatively fixed while its revenues
are subject to fluctuation, minor variations in the commencement, progress or
completion of trials may cause significant variations in quarterly operating
results. Chrysalis took a restructuring charge in the fourth quarter of 1998 and
expects to take an additional restructuring charge in the second quarter of
1999. See "--General Summary."
The following table presents Chrysalis' unaudited quarterly operating results
for each of the fiscal quarters of 1997 and 1998. In the opinion of Chrysalis,
this information has been prepared on the same basis as the audited consolidated
financial statements and reflects all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of results of
operations for those periods. You should read this quarterly financial data in
conjunction with Chrysalis' consolidated financial statements and notes thereto.
The operating results for any quarter are not necessarily indicative of the
results to be expected in any future period.
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QUARTER ENDED ($000'S)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues................... $ 9,905 $ 10,145 $ 10,623 $ 11,624 $ 9,673 $ 10,292 $ 8,799 $ 10,620
Operating Expenses:
Direct costs................. 6,970 7,054 7,392 7,802 7,702 8,112 7,832 7,395
Research and development..... 52 47 31 36 -- -- -- --
General, administrative and
marketing.................. 2,874 2,976 3,123 3,442 3,223 3,110 2,924 3,571
Depreciation and
amortization............... 638 654 708 699 493 514 522 563
Restructuring costs.......... -- -- -- -- -- -- -- 3,872
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
10,534 10,731 11,254 11,979 11,418 11,736 11,278 15,401
Loss from operations........... (629) (586) (631) (355) (1,745) (1,444) (2,479) (4,781)
Other income (expenses):
Interest Income.............. 181 123 93 72 127 56 87 46
Interest expenses............ (191) (165) (206) (213) (248) (420) (399) (434)
Foreign currency gain........ -- -- -- 11 -- -- -- --
Other........................ 4 (6) 692 (4) (7) (5) (3) 208
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
(6) (48) 579 (134) (128) (369) (315) (180)
Loss before income taxes....... (635) (634) (52) (489) (1,873) (1,813) (2,794) (4,961)
Income tax expense (benefit)... 9 31 41 159 129 (11) 86 512
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Net loss....................... $ (644) $ (665) $ (93) $ (648) $ (2,002) $ (1,802) $ (2,880) $ (5,473)
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
</TABLE>
REVENUES BY BUSINESS AND GEOGRAPHIC REGION BY QUARTER
QUARTER ENDED ($000'S)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transgenics/Preclinical........ $ 6,720 $ 6,708 $ 6,476 $ 7,355 $ 6,043 $ 7,466 $ 7,394 $ 9,254
Clinical....................... 2,909 3,277 3,972 4,085 3,406 2,624 1,180 1,151
Licensing/Other................ 276 160 175 184 224 202 225 215
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Total.......................... 9,905 10,145 10,623 11,624 9,673 10,292 8,799 10,620
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
International.................. 6,779 6,661 6,168 7,170 5,952 6,554 5,194 6,298
United States.................. 2,850 3,324 4,280 4,270 3,497 3,536 3,380 4,107
Licensing/Other................ 276 160 175 184 224 202 225 215
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Total.......................... $ 9,905 $ 10,145 $ 10,623 $ 11,624 $ 9,673 $ 10,292 $ 8,799 $ 10,620
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
</TABLE>
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LIQUIDITY AND CAPITAL REQUIREMENTS
DEFAULT
At December 31, 1998, Chrysalis failed to satisfy certain financial covenants
contained in the loan agreement related to its senior secured term loan and,
therefore, was in default under the loan agreement. This loan is classified as a
current liability on the balance sheet at December 31, 1998. See "Other
Agreements."
As a result of this default and the other factors affecting Chrysalis, the
auditors' opinion for Chrysalis contained in this proxy statement/prospectus
contains an explanatory paragraph stating as follows:
"The consolidated financial statements have been prepared assuming that
[Chrysalis] and its subsidiaries will continue as going concerns.
[Chrysalis] has suffered recurring losses from operations, has a net working
capital deficiency and is in default of [some of its] debt covenants which
raise substantial doubt about their ability to continue as going concerns.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty."
CASH RESERVES
Chrysalis finances its operations and activities by relying on cash flows from
operating activities, cash reserves and available lines of credit. As of
December 31, 1998, Chrysalis had cash reserves of $6,705,000. Cash reserves
consists of cash and cash equivalents and short-term investments. Chrysalis
invests its excess cash in a diversified portfolio of high-grade money market
funds, United States Government-backed securities and commercial paper and
corporate obligations. Chrysalis' cash reserves decreased by $680,000 during
1998 from 1997 primarily due to:
- $2,950,000 of net cash used in operating activities;
- $2,391,000 of net cash used for capital expenditures; and
- $464,000 of principal repayments on long-term debt.
This decrease was offset partially by the receipt of $5,000,000 for the
subordinated note issued to MDS's subsidiary on March 16, 1998.
CAPITAL EXPENDITURES
In 1998, Chrysalis invested approximately $2,391,000 in property and equipment
compared to approximately $3,281,000 for 1997. The 1998 increase was primarily
associated with:
- solidifying and expanding Chrysalis' position in preclinical continuous
infusion capabilities;
- updating and expanding information systems; and
- supporting the growth of the transgenic/gene targeting services business.
DEBT
Chrysalis has a working line of credit with a Swiss bank. As of December 31,
1998, the outstanding balance under this line of credit was approximately
$2,931,000. This line is secured by the European clinical operation's trade
accounts receivable. Chrysalis maintains a cash balance at this Swiss Bank in
the amount of $2,661,000 as of December 31, 1998. Chrysalis and the Swiss Bank
expect the cash balance to satisfy the majority of the outstanding amount under
the line of credit. Chrysalis also has lines of credit and overdraft privileges
with French banks in the aggregate amount of 10.5 million French Francs. At the
exchange rate in effect on December 31, 1998, the amount was US $1.9 million. At
December 31, 1998, there were no short-term borrowings outstanding under these
French facilities.
On March 16, 1998, Chrysalis issued, in exchange for $5,000,000 cash, a
subordinated note and a warrant to purchase 2,000,000 shares of Common Stock at
an exercise price of $2.50 per share, to a wholly-owned subsidiary of MDS. The
terms of the subordinated note provide for semi-annual interest
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payments with the aggregate principal amount payable on March 16, 2001. This
note is subordinate to some outstanding indebtedness of Chrysalis, including its
existing bank debt and mortgages. In addition, a portion or the entire principal
amount of the note may, at the option of the holder, be satisfied by issuance of
the shares of Chrysalis common stock, in accordance with the terms of the
warrant. Chrysalis failed to make a semi-annual interest payment on the
subordinated note in March 1999. The MDS subsidiary has agreed to waive its
rights arising from the failure under the conditions that (1) the unpaid
interest bears interest at the rate of 6% per annum, and (2) the unpaid interest
is paid by April 30, 1999 or, if earlier, the date of the merger.
In the third quarter of 1997, Chrysalis entered into a five-year $5.0 million
senior secured term loan with the Bank with the principal payable in quarterly
installments beginning September 1998. The balance outstanding at December 31,
1998 is $4,687,500. Interest is paid monthly over the life of the loan. This
loan is secured by substantially all of Chrysalis' domestic assets, including
the capital stock of its subsidiaries. At December 31, 1998, Chrysalis was in
default under this loan. See "Other Agreements."
In connection with its U.S. preclinical facility, Chrysalis secured a $1.5
million mortgage with a bank and a $1.2 million mortgage from a Pennsylvania
agency, which required cash collateral of $450,000. These two loans are due in
monthly installments through 2009. As of December 31, 1998, the aggregate
outstanding balance under these mortgages was approximately $2,170,000. The cash
collateral of $450,000 on the mortgage loan with the Pennsylvania agency was
classified on the balance sheet as restricted cash as of December 31, 1997. In
July 1998, Chrysalis satisfied the financial covenants related to the cash
collateral and the $450,000 was released. The favorable interest rate on the
mortgage with the Pennsylvania agency is subject to change upon review by the
agency of future conditions.
CAPITAL REQUIREMENTS
The ability of Chrysalis to meet ongoing debt service requirements, to meet cash
funding requirements and to otherwise satisfy its obligations to vendors and
lenders from cash solely provided by operations has been adversely affected by
significant losses from clinical operations. In response to these liquidity
constraints, Chrysalis has begun to discontinue some of its clinical operations.
See "Description of Chrysalis--General--Restructuring of Clinical Operations."
Chrysalis anticipates that its capital requirements through April 30, 1999 will
include:
- satisfying working capital needs;
- costs to shut down certain of its European and United States clinical
operations;
- capital expenditures for the preclinical and transgenic businesses; and
- meeting its principal and interest requirements under debt arrangements.
Chrysalis will use cash and cash equivalents, which was $6,705,000 as of
December 31, 1998, and cash provided by operations to fund some of these cash
requirements.
If the forbearance agreement does not terminate, Chrysalis believes that it will
have sufficient cash to continue to fund operating activities through April
1999. However, if the forbearance agreement terminates, Chrysalis will not have
sufficient cash to satisfy its obligations to its creditors and fund operating
activities. The forbearance agreement will terminate prior to April 30, 1999 if:
- Chrysalis breaches the documents related to the term loan;
- either Chrysalis or Phoenix materially breaches the merger agreement; or
- the merger agreement terminates.
As a result of these issues, Chrysalis must consummate the merger in a timely
manner. Although Chrysalis has been exploring various strategic alternatives for
some period of time, it now believes that an outright sale of Chrysalis through
a vehicle other than the merger is unlikely. After evaluating a
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<PAGE>
number of strategic alternatives with the assistance of Vector Securities,
Chrysalis currently believes that the merger agreement offers the most viable
solution to Chrysalis' financial condition. However, the merger may not be
consummated in a timely manner. If Chrysalis cannot consummate the merger or
otherwise resolve its liquidity constraints by April 30, 1999, Chrysalis will
likely not have sufficient liquidity both to operate its business and to satisfy
its obligations to various creditors. In addition, if the forbearance agreement
were to terminate, other of Chrysalis' debt would also be in default. Chrysalis
intends to pursue alternatives outside of bankruptcy. However, alternative
strategies may not be successful. It is possible that Chrysalis could be forced
into bankruptcy by its creditors. Although Chrysalis currently intends, if
necessary, to seek reorganization under chapter 11 of the Bankruptcy Code, it
also believes that a successful reorganization would likely require a
transaction involving a sale of one or more of Chrysalis' facilities or
operations to generate a source of liquidity during any bankruptcy proceeding.
EXCHANGE RATE FLUCTUATIONS
Chrysalis derived approximately 61% of its net revenues for 1998, 63% of its net
revenues for 1997 and 68% of its net revenues for 1996 from operations outside
the United States. Chrysalis' consolidated financial statements are denominated
in U.S. dollars. Changes in exchange rates between the applicable foreign
currency and the U.S. dollar affect the translation of some subsidiary's
financial results into U.S. dollars for purposes of Chrysalis' consolidated
financial results. Translation adjustments are reported as a separate section of
stockholders' equity.
Chrysalis may be subject to foreign currency transaction risks when Chrysalis'
multi-country contracts are denominated in a currency other than the currency in
which Chrysalis incurs the expenses related to these contracts. For these
multi-country contracts, Chrysalis seeks to impose on its client the effect of
fluctuations in the relative values of the contract currency and the currency in
which the expenses are incurred. To the extent Chrysalis is unable to impose on
its clients the effects of currency fluctuations, these fluctuations could have
a material effect on the results of operations of Chrysalis. Chrysalis generally
does not hedge its currency translation and transaction exposure.
The percentage of Chrysalis' total revenues recorded in French francs is
significant because Chrysalis' preclinical operations in France account for a
significant portion of total revenues. Chrysalis' French operations accounted
for approximately 46% of revenues in 1998, 44% of revenues in 1997 and 48% of
revenues in 1996. Fluctuations in the exchange rate between the French franc and
the U.S. dollar affect the translation of the French preclinical operation's
revenues and operating results into U.S. dollars for purposes of Chrysalis'
consolidated financial results. Fluctuations also affect the U.S. dollar amounts
actually received by Chrysalis from the French preclinical operations. If the
French preclinical operations continue to represent a significant portion of
Chrysalis' business, the appreciation of the U.S. dollar against the French
franc would have an unfavorable impact on Chrysalis' revenues and a favorable
impact on Chrysalis' operating expenses. However, the depreciation of the U.S.
dollar against the French franc would have a favorable impact on Chrysalis'
revenues and an unfavorable impact on Chrysalis' operating expenses. The net
effect of these impacts cannot be predicted with certainty.
For purposes of Chrysalis' consolidated financial results, the results of
operations of the French preclinical business denominated in French francs have
been translated from French francs into U.S. dollars using the following
exchange rates:
<TABLE>
<CAPTION>
FRENCH FRANC U.S. DOLLAR PER
PERIOD PER U.S. DOLLAR FRENCH FRANC
- --------------------------------- ------------------- -------------------
<S> <C> <C>
YEARS
1998............................. 5.5980 .1786
1997............................. 5.8364 .1713
1996............................. 5.1187 .1954
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FRENCH FRANC U.S. DOLLAR PER
PERIOD PER U.S. DOLLAR FRENCH FRANC
- --------------------------------- ------------------- -------------------
<S> <C> <C>
QUARTERS
1st quarter 1997 5.6038 .1785
2nd quarter 1997 5.7831 .1729
3rd quarter 1997 6.0838 .1644
4th quarter 1997 5.8817 .1700
1st quarter 1998 6.0948 .1641
2nd quarter 1998 6.0157 .1662
3rd quarter 1998 5.8835 .1700
4th quarter 1998 5.5854 .1790
</TABLE>
The rates in the above tables represent an average exchange rate calculated
using rates quoted in The Wall Street Journal. As of March 26, 1999, the French
franc per U.S. dollar rate was 6.0917.
ACCUMULATED DEFICIT
From its inception in 1988 until the formation in 1994 and subsequent sale of
its ownership interest in Nextran in 1995, Chrysalis expended substantial funds
for research and development and capital expenditures. A significant portion of
these expenditures were made to support Chrysalis' organ transplantation and
blood substitute research and development programs. Chrysalis transferred these
programs to Nextran. Historically, these expenditures accounted for a
substantial portion of Chrysalis' accumulated deficit. Costs associated with the
prior strategy to develop a worldwide clinical business also contributed to the
accumulated deficit. See "Description of Chrysalis--Loss of a Large Clinical
Trial" and "--Nextran."
INFLATION
Chrysalis believes that inflation has not had a material impact on its results
of operations.
YEAR 2000
Information technology systems are an integral part of the services Chrysalis
provides. Non-information technology systems play a nominal role in Chrysalis'
operations. Chrysalis has been assessing Year 2000 compliance issues from an
internal, supplier and customer perspective and has been actively involved in
resolving related issues since 1997. Chrysalis is in the process of undertaking
actions to ensure that its information technology systems are Year 2000
compliant. It expects to finish this process by the end of the second quarter of
1999. Chrysalis has not yet determined whether a testing phase of its
information technology systems will be necessary or, if necessary, when testing
would be undertaken or completed. Any failure of Chrysalis to adequately correct
its information technology systems or any failure of any supplier or customer on
whom Chrysalis is dependent to be Year 2000 compliant could materially adversely
affect Chrysalis' ability to conduct operations and, therefore, could materially
adversely affect its financial condition, results of operations and cash flows.
Chrysalis currently estimates that costs and expenses of assessment and
corrective activities will be approximately $1,000,000, of which approximately
$475,000 has been spent through December 31, 1998. However, Chrysalis' current
financial condition may prevent it from expending sufficient sums to adequately
resolve in a timely manner all Year 2000 issues. Further, Chrysalis is dependent
on the efforts of a limited number of key employees to address Year 2000
compliance issues. The loss of one or more of these employees could materially
adversely impact Chrysalis' ability to assess and resolve Year 2000 issues in a
timely manner. Chrysalis may not have the resources or ability to resolve in a
timely manner the Year 2000 compliance of its information technology systems and
third parties on which it depends. In addition, Chrysalis may not be able to
retain the services of the key employees addressing Year 2000 compliance issues.
Further, the costs related to assessing and resolving Year 2000 issues may be
material. Finally, Chrysalis' operations, financial condition and results of
operations may be materially adversely impacted by a failure to achieve any of
the foregoing. See "--Liquidity and Capital Requirements--Capital Requirements."
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EURO CONVERSION
On January 1, 1999, eleven of the fifteen countries that are members of the
European Union introduced a new currency unit called the "euro ." The euro will
ultimately replace the national currencies of these eleven countries. The
conversion rates between the euro and the participating countries' currencies
were fixed irrevocably as of January 1, 1999. The participating countries'
national currencies will be removed from circulation between January 1, 1999 and
June 30, 2002 and replaced by euro notes and coinage. During the "transition
period" from January 1, 1999 through December 31, 2001, public and private
entities and individuals may pay for goods and services using either checks,
drafts or wire transfers denominated in euro or the participating country's
national currency.
Under the regulations governing the transition to the euro, there is a "no
compulsion, no prohibition" rule which states that no one is obligated to use
the euro until the notes and coinage have been introduced on January 1, 2002. In
keeping with this rule, Chrysalis is able to:
- receive euro denominated payments;
- invoice in euro as requested by customers and suppliers; and
- perform appropriate conversion and rounding calculations.
Chrysalis expects to complete full conversion of all affected country operations
to the euro by the time national currencies are removed from circulation.
Chrysalis does not expect software and business process conversion costs
required to achieve these abilities to be material.
Chrysalis does not anticipate that the introduction and use of the euro will
materially affect Chrysalis' foreign exchange and hedging activities or
Chrysalis' use of derivative instruments. Chrysalis does not anticipate that the
euro will have a material adverse effect on its operating results, financial
condition or cash flows. However, Chrysalis cannot yet determine the ultimate
effect that the euro will have on competition due to price transparency, foreign
currency risks and relationships and transactions with third parties. Chrysalis
continues to monitor and assess the potential risks imposed by the euro.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. SOP 98-1 provides guidance for the accounting treatment of various costs
typically incurred during the development or purchase of computer software for
internal use. SOP 98-1 is effective for fiscal periods beginning after December
15, 1998. Chrysalis does not expect the application of SOP 98-1 to have a
material impact on its consolidated results of operations, financial position or
cash flows.
In April 1998, the AcSEC issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities. SOP 98-5 provides guidance on the financial
reporting of start-up and organization costs and requires these costs be
expensed as incurred. SOP 98-5 is effective for fiscal periods beginning after
December 15, 1998. Chrysalis does not expect the application of SOP 98-5 to have
a material impact on its consolidated results of operations, financial position
or cash flows.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities and requires all derivatives to be recorded on the balance
sheet at fair value. This statement is effective for years beginning after June
15, 1999. Chrysalis does not expect the adoption of this statement to have a
material impact on its consolidated results of operations, financial position or
cash flows.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Chrysalis is exposed to market risk from changes in interest rates on some
portions of its long-term debt. Currently, Chrysalis does not use derivative
financial instruments to manage its interest rate risk. The $5.0 million term
loan and the mortgage with a commercial bank both had a variable interest rate
of 9.25% at December 31, 1998. The carrying interest rate on the term loan and
mortgage with a commercial bank bears interest at market rates and therefore,
the carrying value approximates fair value.
Chrysalis conducts business in foreign countries and international operations
were material to Chrysalis' consolidated financial position, results of
operations and cash flows as of December 31, 1998. Accordingly, Chrysalis is
subject to material foreign currency exchange risk. Approximately 61%, 63% and
68% of Chrysalis' net revenues for 1998, 1997 and 1996, respectively, were
derived from Chrysalis' operations outside the United States. Chrysalis'
consolidated financial statements are denominated in U.S. dollars and,
accordingly, changes in exchange rates between the applicable foreign currency
and the U.S. dollar will affect the translation of such subsidiary's financial
results into U.S. dollars for purposes of reporting Chrysalis' consolidated
financial results. Translation adjustments are reported as a separate section of
stockholders' equity.
Chrysalis may be subject to foreign currency transaction risks when Chrysalis'
multi-country contracts are denominated in a currency other than the currency in
which Chrysalis incurs the expenses related to such contracts. For such
multi-country contracts, Chrysalis seeks to require its client to incur the
effect of fluctuations in the relative values of the contract currency and the
currency in which the expenses are incurred. To the extent Chrysalis is unable
to require its clients to incur the effects of currency fluctuations, these
fluctuations could have a material effect on the results of operations of
Chrysalis. Chrysalis does not hedge its currency translation and transaction
exposure.
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SELECTED FINANCIAL DATA OF CHRYSALIS
The following table contains selected consolidated financial data for Chrysalis
as of the dates and for the periods indicated, and have been prepared in
accordance with U.S. GAAP and are presented in US dollars. The financial data
for each of the five years ended December 31, 1998 are derived from Chrysalis'
audited financial statements. You should be aware of the following factors that
affect comparisons from year to year:
- In 1994, Chrysalis entered into the Nextran joint venture, in which it
held a minority interest. In 1995, Chrysalis sold its minority interest
for $18 million. The sale resulted in a nonrecurring gain, net of
expenses, income taxes and related accruals of approximately $17.3
million. See "Description of Chrysalis--Nextran."
- In 1996, Chrysalis recorded business combination costs of approximately
$3.6 million related to the acquisition of the Bioclin Group. See
"Description of Chrysalis--General--Other Matters."
- In the fourth quarter of 1998, Chrysalis recorded a restructuring charge
of $3,872,000 in connection with the restructuring of its clinical
operations. Chrysalis expects to record an additional restructuring charge
of $825,000 in the second quarter of 1999 in connection with this
restructuring. See "Description of Chrysalis--General--Restructuring of
Clinical Operations" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Chrysalis--General
Summary."
- As a result of Chrysalis' default under its senior term loan, the
principal amount of the loan is classified as short-term debt at December
31, 1998. See "Other Agreements."
You should read the data set forth below in conjunction with the consolidated
financial statements of Chrysalis and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Chrysalis."
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
-------- ------- ------ ------ ------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.................................................................... $ 39,384 $42,298 41,487 39,609 36,188
Operating costs and expenses:
Direct costs.................................................................. 31,041 29,217 27,313 27,691 25,499
Research and development...................................................... -- 166 528 1,063 3,940
General, administrative and marketing......................................... 12,828 12,416 10,942 9,631 9,975
Depreciation and amortization................................................. 2,092 2,699 2,780 2,907 3,594
Business combination costs.................................................... -- -- 3,649 -- --
Restructuring costs........................................................... 3,872 -- -- -- --
-------- ------- ------ ------ ------
49,833 44,498 45,212 41,292 43,008
Loss from operations.......................................................... (10,449) (2,200) (3,725) (1,683) (6,820)
-------- ------- ------ ------ ------
Other income (expense), net................................................... (992) 390 742 (635) (525)
Net loss before equity in net loss of Nextran, gain on sale of Nextran and
taxes....................................................................... (11,441) (1,810) (2,983) (2,318) (7,345)
Equity in net loss of Nextran................................................. -- -- -- (2,700) (1,329)
Gain on sale of Nextran, net of income taxes.................................. -- -- -- 17,266 --
Income tax expense (benefit).................................................. 716 240 477 (177) 390
-------- ------- ------ ------ ------
Net income (loss)........................................................... $(12,157) $(2,050) (3,460) 12,425 (9,064)
-------- ------- ------ ------ ------
-------- ------- ------ ------ ------
Basic earnings (loss) per share............................................... $ (1.06) $ (0.18) (0.31) 1.12 (0.82)
-------- ------- ------ ------ ------
-------- ------- ------ ------ ------
Diluted earnings (loss) per share............................................. $ (1.06) $ (0.18) (0.31) 1.06 (0.82)
-------- ------- ------ ------ ------
-------- ------- ------ ------ ------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT YEAR END):
Cash, cash equivalents and investments.......................................... $ 6,705 $ 6,925 13,470 23,102 6,234
Restricted cash................................................................. -- 460 5,010 777 1,724
Accounts receivable, net........................................................ 8,766 9,669 10,788 10,907 9,340
Property, equipment and leasehold improvements, net............................. 15,686 15,127 15,963 17,806 18,548
Intangible assets, net.......................................................... 809 805 953 1,035 991
Investment in Nextran........................................................... -- -- -- -- 3,844
Other assets.................................................................... 2,615 2,254 1,759 1,797 1,454
-------- ------- ------ ------ ------
Total assets................................................................ $ 34,581 $35,240 47,943 55,424 42,135
-------- ------- ------ ------ ------
-------- ------- ------ ------ ------
Current liabilities, excluding debt............................................. 17,681 12,295 17,501 15,292 16,047
Short-term debt................................................................. 3,250 2,668 11,238 11,559 9,876
Current portion of long-term debt............................................... 4,821 768 180 744 784
Long-term debt, excluding current portion....................................... 6,010 6,561 2,376 7,830 8,502
Deferred income taxes........................................................... 1,832 1,646 2,053 2,059 2,075
Other liabilities............................................................... 725 633 1,054 948 1,180
Total stockholders' equity...................................................... 262 10,669 13,541 16,992 3,671
-------- ------- ------ ------ ------
Total liabilities and stockholders' equity.................................. $ 34,581 $35,240 47,943 55,424 42,135
-------- ------- ------ ------ ------
-------- ------- ------ ------ ------
</TABLE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CHRYSALIS
The following contains information regarding the beneficial ownership of
Chrysalis common stock as of March 1, 1999, by (1) each person known to
Chrysalis to be a beneficial owner of more than five percent of Chrysalis common
stock, (2) each of Chrysalis' directors and executive officers and (3) all
directors and executive officers of Chrysalis as a group. The directors and
executive officers have furnished their information. Chrysalis obtained the
information in the table regarding share ownership of other persons beneficially
owning five percent or more of Chrysalis common stock from required filings with
the Securities and Exchange Commission. Mr. Hackel, Dr. Barbut and Dr. Jensen
have filed a Schedule 13D disclosing that they intend to vote all shares owned
beneficially by them as a group. MDS Inc., MDS Washington, Inc. and Panlabs
International Inc. have filed a Schedule 13D disclosing that they share the
power to vote and dispose of the 2,000,000 shares shown as beneficially owned by
them. These 2,000,000 shares are issuable under a warrant granted to Panlabs.
Otherwise, each of the persons named below has sole voting and investment power
over the shares indicated in the table.
Outstanding shares of Chrysalis common stock owned beneficially are listed in
one column. Shares of Chrysalis common stock owned beneficially through stock
options and warrants that can be exercised by April 30, 1999 are shown in a
separate column. The percentage column reflects all shares owned beneficially.
An asterisk in the percent column means the person owns less than one percent of
the
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Chrysalis common stock. Each of the persons listed on the table below, other
than MDS, has entered into a support/voting agreement with Phoenix. See "Other
Agreements--Support/Voting Agreements.".
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------------
<S> <C> <C> <C>
NAMES AND ADDRESSES OUTSTANDING SHARES OPTIONS/WARRANTS PERCENT
- ------------------------------------------------------------------ ------------------ ---------------- -----------
Jack Barbut, Sc.D. 933,974 0 8.0
1 El Camino Bueno
Ross, CA 94957
Alec Hackel 933,975 0 8.0
Flueliweg 3
6045 Meggan, Switzerland
MDS Inc. 0 2,000,000 14.6
MDS Washington, Inc.
Panlabs International Inc.
11804 North Creek Parkway South
Bothell, WA 98011
J. Christian Jensen 622,649 0 5.3
Speedel Pharma Inc.
Petersgraben 35
4051 Basel
Switzerland
Paul J. Schmitt 155,881 297,500 3.8
John G. Cooper 8,259 292,500 2.5
Leif Modeweg, D.V.M. 0 250,000 2.1
Desmond H. O'Connell 35,220 69,000 *
Photios T. Paulson 6,000 60,000 *
W. Leigh Thompson, Ph.D., M.D. 0 30,000 *
Barry M. Sherman, M.D. 0 30,000 *
All directors and executive officers as a group (9 persons) 1,761,983 1,029,000 22.0
</TABLE>
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COMPARISON OF STOCKHOLDERS' RIGHTS
AND DESCRIPTION OF PHOENIX COMMON SHARES
AND CHRYSALIS COMMON STOCK
The rights of stockholders of Chrysalis are currently governed by:
- the Delaware General Corporation Law;
- Chrysalis' Third Amended and Restated Certificate of Incorporation; and
- Chrysalis' Third Amended and Restated By-Laws.
After the merger, these stockholders will become shareholders of Phoenix, and
their rights will be governed by:
- the Canada Business Corporations Act;
- Phoenix's certificate and articles of amalgamation and certificates and
articles of amendments; and
- Phoenix's by-laws as in effect at the merger date.
The following are summaries of material differences between the rights of
Chrysalis stockholders and Phoenix shareholders. On March 1, 1999, there were
208 record holders of Chrysalis common stock, including banks, brokerage firms
and other nominees, and 163 record holders of Phoenix common shares.
CLASSES AND SERIES OF CAPITAL STOCK
CHRYSALIS
Under Chrysalis' Third Amended and Restated Certificate of Incorporation,
Chrysalis may issue up to 20,000,000 shares of common stock and 5,000,000 shares
of preferred stock. As of the record date, 11,666,480 shares of Chrysalis common
stock were outstanding. As of the record date, no shares of Chrysalis preferred
stock were issued and outstanding.
In July 1998, Chrysalis adopted a rights agreement and issued, as a dividend,
one preferred stock purchase right for each outstanding share of Chrysalis
common stock. Chrysalis has also issued one preferred stock purchase right for
each share of Chrysalis common stock issued since the record date for that
dividend. Each Chrysalis purchase right entitles the holder to buy one-hundredth
of a share of Chrysalis Series A Junior Participating Preferred Stock at a
purchase price of $11.00 for each one-hundredth of a share of Series A preferred
stock. The number and type of securities for which a right is exercisable and
the exercise price of the rights are subject to adjustment.
Chrysalis may not redeem the Series A preferred stock. If Chrysalis declares a
dividend on its common stock, each share of Series A preferred stock is entitled
to a preferential dividend equal to $1.00 per share or, if greater than $1.00,
100 times the dividend declared on the common stock. If Chrysalis liquidates,
each share of Series A preferred stock is entitled to a preferential payment
equal to $100 or, if greater than $100, 100 times the per share payment made
with respect to the common stock. Each share of Series A preferred stock has 100
votes on all matters submitted to the vote of Chrysalis stockholders. The nature
of the dividend, liquidation and voting rights of the Series A preferred stock
make each right approximately equivalent in value to the value of a share of
Chrysalis common stock.
A holder of the rights may exercise his rights only if a person or group
acquires a specified percentage or more of the outstanding shares of Chrysalis
common stock or announces a tender or exchange offer, following which, the
person or group would hold at least a specified percentage of the outstanding
Chrysalis common stock. Except for the shares held by Messrs. Hackel, Barbut and
Jensen, the specified percentage is 15%. For the shares held collectively by
Messrs. Hackel, Barbut and Jensen, the
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specified percentage is 25%, as long as they collectively continue to own 15% or
more of the outstanding Chrysalis common stock. If a person or group acquires
the specified percentage of the outstanding shares of Chrysalis common stock, or
that person or group engages in specified self-dealing transactions or merges
into Chrysalis in a transaction in which Chrysalis' common stock is not changed
or exchanged, the rights will become exercisable for common stock instead of
preferred stock. Specifically, each holder of a right will receive, upon
exercise of each right, shares of Chrysalis common stock with a market value of
two times the exercise price of the right, except that rights owned by that
person or group will be void. If Chrysalis is acquired in a merger or other
business combination or 50% or more of its assets or earning power is sold, each
holder of a right will receive, upon exercise of the right, common stock of the
acquiring company with market value of two times the exercise price of the
right, except that rights owned by that person or group will be void. Chrysalis
may redeem the rights at a price of $.01 per right prior to the time the rights
become exercisable. The rights will expire on July 20, 2008, unless redeemed or
exchanged by the Chrysalis Board before that date.
In connection with the negotiation of the merger agreement, Chrysalis and
Phoenix agreed that the Chrysalis Board would amend the rights agreement prior
to signing the merger agreement to permit the merger to be completed, without
triggering the exercise of the rights. In addition, they agreed that the
amendment would cause the rights to expire immediately prior to the merger. The
Chrysalis Board adopted that amendment on November 13, 1998 and the amendment
became effective on November 18, 1998.
PHOENIX
Phoenix's certificate and articles of amalgamation incorporation permit Phoenix
to issue common shares without nominal or par value, and preferred shares
issuable in series without nominal or par value. There is no limit on the number
of common shares or preferred shares that Phoenix can issue. As of March 31,
1999, 26,068,989 common shares were issued and outstanding and no Phoenix
preferred shares were issued and outstanding. The following is a summary of the
attributes of the different classes and series of shares Phoenix may issue.
PHOENIX COMMON SHARES
Phoenix common shares entitle the holder to one vote per share at all meetings
of shareholders except meetings at which only holders of a specified class or
series of shares are entitled to vote. Phoenix common shares, subject to the
priority of the holders of Phoenix preferred shares, entitle their holders to
receive dividends and to share the balance of the property of Phoenix or other
distribution of its assets on an equal basis upon liquidation, dissolution or
winding-up of Phoenix.
PHOENIX PREFERRED SHARES
PRIORITY. The class provisions of Phoenix preferred shares provide that each
series of Phoenix preferred shares ranks equally with every other series of
Phoenix preferred shares. In addition, Phoenix preferred shares have priority
over Phoenix common shares with respect to the payment of dividends and the
distribution of assets in the event of the liquidation, dissolution or
winding-up of Phoenix or other distribution of its assets.
VOTING RIGHTS. The holders of Phoenix preferred shares are not entitled to vote
at any meetings of the shareholders of Phoenix other than as provided by law
with respect to, among other things:
- amendments to the articles;
- the execution of an amalgamation agreement, which is similar to a merger
agreement, which contains a provision that, if contained in a proposed
amemdment to the articles, would entitle the holders of preferred shares
to vote as a class or series;
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- the continuance of the corporation;
- the voluntary liquidation of dissolution of the corporation; and
- extraordinary sales, leases or exchanges.
ANNUAL MEETING OF STOCKHOLDERS
CHRYSALIS
Under the Delaware General Corporation Law, if a corporation does not hold an
annual meeting for the election of directors on the date, if any, designated in
the corporation's certificate of incorporation or by-laws, the directors must
hold the meeting as soon after that date as may be convenient. If they fail to
do so for a period of thirty days after the designated date, or if no date has
been designated for a period of thirteen months after the last annual meeting or
written consent to elect directors in lieu of an annual meeting, the Delaware
Court of Chancery may summarily order a meeting to be held upon application of
any stockholder or director. The shares of stock represented at this meeting
either in person or by proxy and entitled to vote at the meeting, constitute a
quorum for the purposes of the meeting, even if the corporation's certificate of
incorporation or by-laws provides for a different quorum requirement. The
Delaware General Corporation Law does not permit a stockholder to call an annual
meeting other than by application to the Delaware Court of Chancery.
PHOENIX
Under the Canada Business Corporations Act, the directors of Phoenix must call
an annual meeting of shareholders not later than fifteen months after holding
the last preceding annual meeting of Phoenix shareholders. If an annual meeting
is not called at the required time by the directors, it may be called by the
holders of not less than 5% of the issued and voting shares of Phoenix. The
Canada Business Corporations Act gives this power to call a meeting of
shareholders, as set forth under the caption "--Special Meetings of
Stockholders" below. If for any reason it is impracticable to call a meeting or
to conduct a meeting in the manner prescribed by Phoenix by-laws or the Canada
Business Corporations Act, any director or shareholder entitled to vote at such
a meeting or the director appointed under section 260 of the Canada Business
Corporations Act may apply to a court for an order calling the meeting and
setting forth the manner to hold and conduct the meeting.
SPECIAL MEETINGS OF STOCKHOLDERS
CHRYSALIS
Under the Delaware General Corporation Law, special meetings of stockholders may
be called only by the board of directors or other persons authorized by the
certificate of incorporation or by-laws. The Chrysalis by-laws only permit the
following persons to call a special meeting:
- the Chairman of the Board, if one is selected;
- the Chief Executive Officer or the President; or
- the Secretary, within 10 days after receipt of the written request of a
majority of the Chrysalis Board.
PHOENIX
Under the Phoenix by-laws, special meetings of shareholders may be called at any
time by order of the Chairman of the Board or the President or any Vice
President of Phoenix. Under the Canada Business Corporations Act, special
meetings of shareholders may be called by the board of directors. In addition,
the holders of not less than 5% of the issued and voting shares of Phoenix may
request that the
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directors call a meeting of shareholders for any purpose. If the directors do
not call a meeting within 21 days after receiving the requisition, any
shareholders who requested the directors to call the meeting may call the
meeting.
QUORUM OF STOCKHOLDERS
CHRYSALIS
Under the Delaware General Corporation Law, a quorum consists of a majority of
shares entitled to vote present in person or represented by proxy unless the
certificate of incorporation or by-laws provide otherwise. The Chrysalis by-laws
do not alter the majority requirement of this statutory quorum requirement.
PHOENIX
The Phoenix by-laws provide that a quorum at any meeting of shareholders will be
shareholders present in person and personally holding or represented by proxy
not less than twenty-five percent (25%) of the issued and outstanding shares of
Phoenix entitled to vote at the meeting.
STOCKHOLDER ACTION WITHOUT A MEETING
CHRYSALIS
As permitted by the Delaware General Corporation Law, the Chrysalis certificate
of incorporation and by-laws prohibit written actions by the Chrysalis
stockholders. As a result, all actions of Chrysalis stockholders are required to
be taken at an annual or special meeting.
PHOENIX
Under the Canada Business Corporations Act, shareholder action may be taken
without a meeting by written resolution signed by all shareholders who would be
entitled to vote on the matter at a meeting except with respect to a meeting
called for the purpose of (1) removing a director or the auditor or (2) electing
or appointing a director or auditor following the resignation, removal or expiry
of term of office of a director or auditor who has submitted a written statement
giving the reasons why he opposes proposed action or resolution.
NOTICE OF STOCKHOLDER PROPOSALS
CHRYSALIS
The Chrysalis by-laws do not contain provisions governing shareholder proposals
other than nominations of persons for election as directors. Under the Chrysalis
by-laws, to nominate a person for election as a director, a stockholder
generally must give notice to Chrysalis that is received by Chrysalis not less
than 60 days prior to the meeting. The notice must contain specified information
concerning the nominee and the stockholder submitting the proposal.
PHOENIX
Under the Canada Business Corporations Act, shareholder proposals may be
submitted only at annual meetings of shareholders. A shareholder entitled to
vote at an annual meeting of shareholders may submit to Phoenix notice of any
matter that the shareholder proposes to raise at the meeting provided that the
proposal is submitted to Phoenix at least ninety days before the anniversary
date of Phoenix's previous annual meeting of shareholders. Phoenix expects to
hold its next annual meeting of shareholders in December 1999. Any Phoenix
shareholder who intends to submit a proposal for inclusion in the
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management proxy material for the 1999 annual meeting of Phoenix must submit the
proposal to the Secretary of Phoenix by September 15, 1999.
ACCESS TO CORPORATE RECORDS AND FINANCIAL STATEMENTS
CHRYSALIS
Under the Delaware General Corporation Law, any stockholder may for any proper
purpose, inspect the corporation's stock ledger, a list of stockholders and its
other books and records, and may make copies of and extracts from the record. To
exercise this right, a stockholder must demand the right in writing under oath.
The inspection must occur during regular business hours.
PHOENIX
Under the Canada Business Corporations Act, a corporation is required to make
available to its shareholders and creditors, their agents and legal
representatives, specified books and records during usual business hours of the
corporation. These persons may, free of charge, take extracts from these books
and records. Any other person may take extracts from these books and records
upon payment of a reasonable fee. A Phoenix shareholder may also obtain a list
of Phoenix's shareholders by paying a reasonable fee and submitting an
affidavit. As well, in the case of a corporation, such as Phoenix, shareholders
and creditors, their agents and legal representatives, and any other person,
upon payment of a reasonable fee and sending to the corporation of an affidavit,
may require a corporation to furnish a list of shareholders. In addition,
directors of a corporation are entitled to examine additional records, documents
and instruments of the corporation.
CHARTER AMENDMENTS
CHRYSALIS
Under the Delaware General Corporation Law, unless its certificate of
incorporation or by-laws otherwise provide, amendments to a corporation's
certificate of incorporation generally require the approval of the holders of a
majority of the outstanding stock entitled to vote. In addition, if the
amendments would affect rights of holders of a particular class of stock, the
approval of a majority of the outstanding stock of that class may also be
required. The Chrysalis certificate of incorporation requires some amendments to
be approved by an affirmative vote of at least 66 2/3% of the Chrysalis stock
generally entitled to vote for the election of directors. Amendments to the
following provisions require the 66 2/3% vote:
- requiring a super-majority stockholder vote to amend specified provisions
of the Chrysalis by-laws;
- prohibiting stockholder action by written consent;
- governing who can call special stockholders meetings;
- providing for a classified Chrysalis Board and governing removal of
directors and filling vacancies on the Chrysalis Board;
- requiring a super-majority stockholder vote for some business combinations
with interested stockholders; and
- providing indemnification for Chrysalis directors and officers.
PHOENIX
Under the Canada Business Corporations Act, any amendment to a corporation's
articles of incorporation generally requires approval by special resolution.
This resolution must be passed by a majority of
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not less than two-thirds of the votes cast by shareholders of all shareholders
who voted in respect of the resolution. If the amendment affects rights of
holders of a particular class of shares, the holders of that particular class
must approve a separate special resolution by the same vote.
BY-LAW AMENDMENTS
CHRYSALIS
Under the Delaware General Corporation Law, the power to adopt, amend or repeal
by-laws is vested in the voting stockholders. The corporation may, however, in
its certificate of incorporation, permit the directors, in addition to the
stockholders, to adopt, amend or repeal by-laws. The Chrysalis certificate of
incorporation expressly grants the Chrysalis Board the power to adopt, amend and
repeal the Chrysalis by-laws. The Chrysalis certificate of incorporation also
requires the holders of 66 2/3% of the Chrysalis stock generally entitled to
vote for the election of directors to approve amendments to the provisions of
the Chrysalis by-laws governing:
- who can call special stockholders meetings;
- the classification of the Chrysalis Board;
- the removal of directors; and
- the filling of vacancies on the Chrysalis Board.
PHOENIX
The Phoenix Board may, by resolution, make, amend or repeal any by-laws that
regulate the business or affairs of Phoenix. The directors are required to
submit a by-law, or an amendment or a repeal of a by-law, to the shareholders at
the next meeting of shareholders of Phoenix. At this meeting, the shareholders
may pass by a majority of votes cast, confirm, reject or amend the by-law,
amendment or repeal. A by-law, or an amendment or a repeal of a by-law, is
effective from the date of the resolution of the directors until it is
confirmed, confirmed as amended or rejected by the shareholders of Phoenix or
until it ceases to be effective. A shareholder entitled to vote at an annual
meeting of shareholders of Phoenix may make a proposal to make, amend or repeal
a by-law.
SALE OR LEASE OF ASSETS
CHRYSALIS
Under the Delaware General Corporation Law, the Chrysalis Board may by
resolution sell, lease or exchange all or substantially all the corporation's
property and assets, if the transaction is authorized by the holders of a
majority of the outstanding stock. However, the Delaware General Corporation Law
or the Chrysalis certificate of incorporation may require a super-majority vote
for any of those transactions if an interested stockholder is involved. See
"--Anti-Takeover Provisions."
PHOENIX
Under the Canada Business Corporations Act, the sale, lease or exchange of all
or substantially all the property of a corporation other than in the ordinary
course of business requires, in addition to a resolution of Phoenix Board, the
general approval of the shareholders by special resolution. The resolution must
be approved by a majority of not less than two-thirds of the votes cast by the
shareholders, each share carrying the right to vote whether or not it otherwise
carries the right to vote. A separate special resolution is also required from
the holders of each class of shares which is particularly affected by the
transaction.
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PREEMPTIVE RIGHTS
CHRYSALIS
The Delaware General Corporation Law provides that security holders of a
corporation only have preemptive rights if these rights are specifically
provided in the corporation's certificate of incorporation. The Chrysalis
certificate of incorporation does not provide for preemptive rights.
PHOENIX
The Canada Business Corporations Act provides that shareholders may have a
preemptive right if this right is specifically provided in the corporation's
articles. Phoenix's articles do not provide for preemptive rights.
DIVIDENDS AND DISTRIBUTIONS
CHRYSALIS
Under the Delaware General Corporation Law, subject to any restriction contained
in a corporation's certificate of incorporation, the board of directors may
declare, and the corporation may pay, dividends or other distributions upon the
shares of its capital stock either:
- out of "surplus;" or
- if there is no surplus, out of the net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year, unless
net assets are less than the capital of all outstanding preferred stock.
"Surplus" is defined as the excess of the net assets of the corporation over the
amount determined to be the capital of the corporation by the board of
directors. The capital of the corporation cannot be less than the aggregate par
value of all issued shares of capital stock. Net assets equals total assets
minus total liabilities. The Chrysalis certificate of incorporation does not
alter these provisions of the Delaware General Corporation Law.
PHOENIX
Under the Canada Business Corporations Act, Phoenix may declare or pay a
dividend unless there are reasonable grounds for believing that Phoenix is or
would after the payment be unable to pay its liabilities as they become due or
the realizable value of Phoenix's assets would be less than the aggregate of
Phoenix's liabilities and stated capital of all classes of shares of Phoenix.
APPRAISAL AND DISSENT RIGHTS
CHRYSALIS
Stockholders of a Delaware corporation who dissent from a merger or
consolidation of the corporation that requires a stockholder vote are generally
entitled to appraisal rights. Appraisal rights require the surviving corporation
to purchase the dissenting shares at fair value. However, stockholders do not
have the appraisal rights if the shares they hold, at the record date for the
determination of stockholders entitled to vote at the meeting of stockholders to
act upon the merger or consolidation, or on the record date with respect to
action by written consent, are either:
- listed on a national securities exchange or designated as a Nasdaq
National Market security; or
- held of record by more than 2,000 stockholders.
Those stockholders will have appraisal rights unless their shares are converted
into anything other than:
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- stock of the surviving corporation;
- stock of another corporation which is either listed on a national
securities exchange or designated as a Nasdaq National Market security or
held of record by more than 2,000 stockholders;
- cash in lieu of fractional shares; or
- some combination of the above.
Because the Chrysalis common stock is listed on the Nasdaq National Market and
the Phoenix Common Stock will be listed on the Nasdaq National Market on or
before the merger, holders of Chrysalis common stock are not entitled to
appraisal rights in connection with the merger.
The Chrysalis certificate of incorporation and the Chrysalis by-laws do not
contain any additional provisions relating to dissenters' rights of appraisal.
PHOENIX
The Canada Business Corporations Act provides that shareholders of a corporation
constituted under the Canada Business Corporations Act entitled to vote on
specified matters are entitled to exercise dissent rights and to be paid the
fair value of their shares in connection therewith. These matters include:
- any amalgamation, which is similar to a merger, with another corporation
other than with certain affiliated corporations;
- an amendment to the corporation's articles to add, change or remove any
provisions restricting the issue, transfer or ownership of shares;
- an amendment to the corporation's articles to add, change or remove any
restriction upon the business or businesses that the corporation may carry
on;
- a continuance under the laws of another jurisdiction;
- a sale, lease or exchange of all or substantially all the property of the
corporation other than in the ordinary course of business;
- a court order permitting a shareholder to dissent in connection with an
application to the court for an order approving an arrangement proposed by
the corporation; or
- other amendments to the articles of a corporation which require a separate
class or series vote, provided that a shareholder is not entitled to
dissent if an amendment to the articles is effected by a court order
approving a reorganization, as defined in the Canada Business Corporations
Act, or by a court order made in connection with an action for an
oppression remedy.
Under the Canada Business Corporations Act, a shareholder may, in addition to or
instead of exercising dissent rights, seek an oppression remedy as described
below for any act or omission of a corporation which is oppressive, unfairly
prejudicial to or that unfairly disregards a shareholder's interest.
STOCK REPURCHASES
CHRYSALIS
Under the Delaware General Corporation Law, a corporation may not purchase or
redeem its shares of capital stock when the capital of the corporation is
impaired or if the purchase or redemption would cause any impairment of the
capital of the corporation. However, a corporation may purchase or redeem out of
capital any of its preferred shares if the shares will be retired upon
acquisition and the capital of the corporation will be reduced.
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PHOENIX
Under the Canada Business Corporations Act, Phoenix may purchase or otherwise
acquire its shares unless there are reasonable grounds for believing that
Phoenix is or would after the purchase be unable to pay its liabilities as they
become due or the realizable value of Phoenix's assets would after the purchase
be less than the aggregate of Phoenix's liabilities and stated capital of all
classes of shares. Canadian securities laws restrict the ability of Phoenix to
selectively repurchase its securities. Open market purchases of securities by
Phoenix may be made as long as these purchases do not exceed the limits of 5% of
the outstanding shares on an annual basis and 2% of the outstanding shares on a
monthly basis. Otherwise, issuer bid purchases must be made pursuant to an offer
extended on identical terms to all holders of those securities.
NUMBER AND QUALIFICATION OF DIRECTORS
CHRYSALIS
The Delaware General Corporation Law provides that the minimum number of
directors is one. The number of directors is fixed by or in the manner provided
in the by-laws, unless the certificate of incorporation fixes the number of
directors. If the certificate of incorporation fixes the number, a change in the
number may only be made by amendment to the certificate of incorporation.
The Chrysalis by-laws provide that Chrysalis must have at least three directors
and that the majority of the Chrysalis Board determines the exact number. The
Chrysalis certificate of incorporation and the Chrysalis by-laws provide for a
classified board, with each class being as nearly equal in number as possible.
There are three classes of directors. Each class serves a three-year term.
PHOENIX
Under the Canada Business Corporations Act, the Phoenix Board must have not
fewer than three members, at least two of whom are not officers or employees of
Phoenix or its affiliates. Under Phoenix's articles, the minimum number of
directors is three and the maximum number of directors is 15. A majority of
directors of Phoenix must be resident Canadians under the Canada Business
Corporations Act and, except in limited circumstances, directors may not
transact business at a meeting of directors or a committee of directors at which
a majority of the directors present are not resident Canadians under the Canada
Business Corporations Act.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
CHRYSALIS
The Delaware General Corporation Law provides that vacancies and newly created
directorships may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director, unless otherwise
provided in the certificate of incorporation or by-laws. If the certificate of
incorporation directs that a particular class is to elect one or more directors,
however, the vacancy may be filled only by a majority of the other directors
elected by that class then in office, or by a sole remaining director elected by
that class. If, at the time of filling any vacancy or newly created
directorship, the directors then in office constitute less than a majority of
the entire board, the Delaware Court of Chancery may, upon application of
stockholders holding at least 10% of the total number of shares outstanding and
having the right to vote for these directors, order an election to be held to
fill any vacancy or newly created directorship or to replace the directors
chosen by the directors then in office. The Chrysalis certificate of
incorporation does not permit stockholders to fill vacancies or newly created
directorships. It provides that vacancies and newly created directorships may be
filled solely by a majority of the remaining directors then in office, even
though less than a quorum, or by a sole remaining director.
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PHOENIX
Under the Canada Business Corporations Act, a quorum of directors may appoint
one or more directors to fill a vacancy among the directors as long as the
director or directors so appointed holds office for a term expiring at the close
of the next annual meeting of shareholders. Under Phoenix's articles, the
directors of Phoenix may also appoint one or more directors, who will hold
office for a term expiring not later than the close of the next annual meeting
of shareholders. The total number of additional directors appointed by the
directors may not exceed one-third of the number of directors elected at the
previous annual meeting of shareholders.
REMOVAL OF DIRECTORS
CHRYSALIS
Under the Delaware General Corporation Law, directors may be removed with or
without cause by a majority of the stockholders entitled to vote at an election
of directors. However, unless the certificate of incorporation otherwise
provides, if the board of directors is classified, removal may be for cause
only. In addition, where a corporation has cumulative voting, if less than the
entire board of directors is removed, no director may be removed without cause
if the votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire board of directors.
Stockholders of Chrysalis do not have the right to cumulate their votes in the
election of directors. Directors are elected by a plurality vote of all of the
votes cast at the annual meeting of stockholders. However, the Chrysalis Board
is classified. The Chrysalis certificate of incorporation does not permit
directors to be removed for any reason other than cause. In addition, removal of
a director for cause requires the affirmative vote of at least 66 2/3% of the
voting stock generally entitled to vote in the election of directors.
PHOENIX
Under the Canada Business Corporations Act, the shareholders of Phoenix may by
ordinary resolution at a special meeting remove any director or directors from
office.
TRANSACTIONS WITH DIRECTORS
CHRYSALIS
Under the Delaware General Corporation Law, no contract or transaction between a
corporation and one or more of its directors or officers, or between a
corporation and any other entity of which one or more of its directors or
officers are directors or officers, or in which one or more of its directors or
officers have a financial interest, is void or voidable if:
- the material facts regarding the director's or officer's relationship or
interest and the contract or transaction are disclosed or known to the
board of directors, or a committee, which authorizes the contract or
transaction in good faith by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors are less
than a quorum;
- the material facts regarding the director's or officer's relationship or
interest and the contract or transaction are disclosed or known to the
stockholders entitled to vote on the contract or transaction and the
contract or transaction is specifically approved in good faith by the
stockholders; or
- the contract or transaction is fair to the corporation as of the time it
is authorized, approved or ratified by the board of directors, a
committee, or the stockholders.
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A corporation may make loans to, guarantee the obligations of or otherwise
assist its officers or other employees and those of a subsidiary, including
directors who are also officers or employees of the corporation or a subsidiary,
if the directors determine the action may reasonably be expected to benefit the
corporation.
PHOENIX
Under the Canada Business Corporations Act no material contract between Phoenix
and one or more of its directors or officers or between Phoenix and another
entity of which a director or officer of Phoenix is a director or officer or in
which one or more of its directors or officers has a material interest, is void
or voidable as a result of that relationship or because that director is present
at or is counted to determine the presence of a quorum at a meeting of directors
or committee if:
- the director or officer disclosed his interest;
- the contract was approved by the directors or the shareholders; and
- the contract was reasonable and fair to Phoenix at the time the contract
was approved.
Under the Canada Business Corporations Act, Phoenix may not give financial
assistance by way of loan, guarantee or otherwise to any director, officer or
employee of the corporation or of an affiliated corporation or to an associate
of any director, officer or employee of the corporation or an affiliated
corporation where there are reasonable grounds for believing that Phoenix is, or
would be after giving the financial assistance, unable to pay its liabilities as
they become due. In addition, Phoenix may not give this financial assistance if
the realizable value of Phoenix's assets, excluding the amount of a financial
assistance in the form of a loan or in the form of assets pledged to secure a
guarantee, after giving the financial assistance, would be less than the
aggregate of Phoenix's liability and stated capital of all classes.
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
CHRYSALIS
The Delaware General Corporation Law allows a Delaware corporation to include a
provision in its certificate of incorporation limiting or eliminating the
liability of directors for monetary damages for a breach of their fiduciary
duty, if the directors acted in good faith. However, Chrysalis may not provide
for limitation of liability for:
- breaches of duty of loyalty;
- acts or omissions involving intentional misconduct or knowing violations
of law;
- the payment of unlawful dividends, stock repurchases or redemptions; or
- any transaction in which the director received an improper personal
benefit.
Delaware corporations may also indemnify directors, officers and agents. The
Delaware General Corporation Law mandates indemnification under limited
circumstances. Indemnification against expenses incurred by an officer, director
or agent in connection with a proceeding against a person for actions in his or
her capacity as an officer, director or agent is mandatory to the extent that a
person has been successful on the merits. Advancement of expenses is permissive
only. The indemnified person must reimburse expenses if it is ultimately
determined that the person is not entitled to indemnification.
Under the Delaware General Corporation Law, a corporation may indemnify a
director, officer or agent for fines, judgments or settlements, as well as
expenses in the context of third-party actions, if that person acted in good
faith and in a manner that person reasonably believed to be in or not opposed to
the best interest of the corporation. In the case of a criminal action, a
corporation may
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indemnify this person if he or she had no reasonable cause to believe his or her
conduct was unlawful. Indemnification in the context of derivative actions is
restricted to expenses only. Further, if an officer, director or agent is
adjudged liable to the corporation, payment of expenses is not allowable, unless
a court deems the award of expenses appropriate. Determinations regarding
permissive indemnification are to be made by the majority vote of disinterested
directors, even if less than a quorum, or, if there are no disinterested
directors, or if the disinterested directors so direct, by independent legal
counsel or by the stockholders.
The Delaware General Corporation Law expressly authorizes Delaware corporations
to purchase and maintain insurance for director and officer liability. The
insurance may be purchased for any officer, director or agent, even if that
individual is otherwise eligible for indemnification by the corporation.
The Chrysalis certificate of incorporation provides that, to the full extent
permitted by law, a director will not be personally liable to the corporation or
its stockholders for any act or omission in the performance of his or her duties
as a director. It also provides that no amendment or repeal of this provision
relating to limitation on director liability will adversely affect any right or
protection of any directors existing immediately prior to the amendment or
repeal.
The Chrysalis certificate of incorporation also provides that the corporation
will indemnify, to the fullest extent permitted by law, each person who is or
was a director or officer or agreed to serve at the request of the Chrysalis
Board or an officer of Chrysalis as a director or officer, of another
corporation, partnership, joint venture, trust or other enterprise.
PHOENIX
Under the Canada Business Corporations Act, directors have fiduciary obligations
to their corporation and must act in accordance with the so-called duties of
"care" and "loyalty." The duty of care requires that the directors act in an
informed and deliberative manner and inform themselves, prior to making a
business decision, of all material information reasonably available to them. The
duty of loyalty is the duty to act in good faith in a manner which the directors
reasonably believe to be in the best interests of the corporation. Under the
Canada Business Corporations Act, a corporation may not, in its articles, limit
the liability of its directors for breaches of their fiduciary duties. However,
the corporation may indemnify a director or officer, a former director or
officer or a person who acts or acted at the corporation's request as a director
or officer of a body corporate of which the corporation is or was a shareholder
or creditor, and his or her heirs and legal representatives, against all costs,
charges and expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him or her because of any civil, criminal or
administrative action or proceeding to which he or she is made a party by reason
of being or having been a director or officer of the corporation or such body
corporate, if:
(1) such person acted honestly and in good faith with a view to the best
interests of the corporation; and
(2) in the case of a criminal or administrative action or proceeding that is
enforced by a monetary penalty, such person had reasonable grounds for
believing that his or her conduct was lawful.
These people are entitled to the indemnity from the corporation if the person
was substantially successful on the merits of his or her defense of the action
or proceeding and fulfilled the conditions set out in (1) and (2) above. A
corporation may, with the approval of a court, also indemnify a person regarding
an action by or on behalf of the corporation or body corporate to procure a
judgment in its favor, to which the person is made a party by reason of being or
having been a director or an officer of the corporation or body corporate, if he
or she fulfills the conditions set out in (1) and (2) above. Phoenix has
provided for indemnification of directors and officers to the fullest extent
authorized by the Canada Business Corporations Act.
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OPPRESSION REMEDY
CHRYSALIS
The Delaware General Corporation Law does not provide for an oppression remedy
as discussed in relation to Phoenix below.
PHOENIX
The Canada Business Corporations Act provides an oppression remedy that enables
the court to make any order, both interim and final, to rectify the matters
complained of if the court is satisfied upon application by a person that:
- any act or omission of the corporation or of its affiliates effects a
result;
- the business or affairs of the corporation or any of its affiliates are or
have been carried on or conducted in a manner; or
- the powers of the directors of the corporation or any of its affiliates
are or have been exercised in a manner, that is oppressive or unfairly
prejudicial to or that unfairly disregards the interest of any security
holder, creditor, director or officer of the corporation.
The person pursuing this remedy must be:
- a present or former registered holder or beneficial owner of securities of
a corporation or any of its affiliates;
- a present or former officer or director of the corporation or any of its
affiliates;
- the director appointed under Section 260 of the Canada Business
Corporations Act; or
- any other person who in the discretion of the court is a proper person to
make this application.
Because of the breadth of the conduct which can be complained of and the scope
of the court's remedial powers, the oppression remedy is very flexible and is
sometimes relied upon to safeguard the interests of shareholders and other
persons with a substantial interest in the corporation. Under the Canada
Business Corporations Act, it is not necessary to prove that the directors of a
corporation acted in bad faith in order to seek an oppression remedy.
Furthermore, the court may order the corporation to pay the interim costs of a
person seeking an oppression remedy, including legal fees and disbursements, but
the person may be held accountable for these interim costs on final disposition
of the complaint, as in the case of a derivative action.
DERIVATIVE ACTION
CHRYSALIS
A stockholder may bring a derivative action in Delaware on behalf of the
corporation. The Delaware General Corporation Law requires a stockholder to
state in the complaint that he or she was a stockholder of the corporation at
the time of the transaction of which he or she complains. A stockholder may not
sue derivatively unless he or she has made demand on the corporation that it
bring suit and the demand has been refused, unless it is shown that the demand
would have been futile.
PHOENIX
Under the Canada Business Corporations Act, a person may apply to the applicable
court for leave to bring an action in the name of and on behalf of a corporation
or any subsidiary, or to intervene in an existing action to which the
corporation or a subsidiary is a party, for the purpose of prosecuting,
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defending or discontinuing the action on behalf of the corporation. Under the
Canada Business Corporations Act, no action may be brought and no intervention
in an action may be made unless the court is satisfied that:
- the complainant has given reasonable notice to the directors of the
corporation or its subsidiary of the person's intention to apply to the
court and if the directors of the corporation or its subsidiary do not
bring, diligently prosecute or defend or discontinue the action;
- the person is acting in good faith; and
- it appears to be in the interests of the corporation or its subsidiary
that the action be brought, prosecuted, defended or discontinued.
Under the Canada Business Corporations Act, the court in a derivative action may
make any order it thinks fit. Additionally, under the Canada Business
Corporations Act, a court may order a corporation or its subsidiary to pay the
person's interim costs, including reasonable legal fees.
ANTI-TAKEOVER PROVISIONS
CHRYSALIS
Section 203 of the Delaware General Corporation Law restricts the ability of an
"interested stockholder" to merge with or enter into other business combinations
with a corporation for a period of three years after becoming an "interested
stockholder." A person is deemed to be an "interested stockholder" upon
acquiring 15% or more of the outstanding voting stock of the target corporation.
However, Section 203 does not apply if:
- before the date the person became an interested stockholder, the board of
directors of the target corporation approves either the combination or the
transaction which results in the stockholder becoming an interested
stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding shares owned by directors, officers
and certain employee stock plans; or
- the combination is approved by the corporation's board of directors and
the holders of two-thirds of the corporation's voting stock at an annual
or special meeting of the stockholders, excluding shares owned by the
interested stockholder.
Section 203 applies to a Delaware corporations if its stock is (1) listed on a
national securities exchange, (2) designated as a Nasdaq National Market
security or (3) held of record by more than 2,000 stockholders. However, Section
203 does not apply, if;
- the corporation's original certificate of incorporation contains a
provision expressly electing not to be governed by Section 203;
- the corporation, by action of its board of directors, adopted within
ninety days following the enactment of Section 203 an amendment to its
by-laws expressly electing not to be governed by the statute;
- the corporation, by action of a majority of its stockholders, adopts an
amendment to its certificate of incorporation or by-laws expressly
electing not to be governed by the statute; or
- the stockholder becomes an interested stockholder inadvertently and
divests itself of sufficient shares so that the stockholder ceases to be
an interested stockholder.
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This exception applies only if the stockholder would not have been an interested
stockholder, but for the inadvertent acquisition, at any time within the
three-year period immediately prior to a business combination between the
corporation and the stockholder.
A Delaware corporation may elect, by amendment to its certificate of
incorporation, not to be governed by Section 203. Because none of the exceptions
is applicable to Chrysalis, Section 203 applies.
The Chrysalis certificate of incorporation requires the approval of the holders
of 66 2/3% of Chrysalis' voting stock, other than voting stock held by an
"interested stockholder," for a merger or for other business transactions with
an "interested stockholder." However, stockholder approval is not required if
the merger or other business transaction in approved by a majority of the
"disinterested directors." An "interested stockholder" is defined generally as a
holder of 15% or more of Chrysalis' outstanding stock. A "disinterested
director" is a director who is not an "interested stockholder" or affiliated
with an "interested stockholder" and who was a member of the Chrysalis Board
prior to the time the "interested stockholder" became an "interested
stockholder" or any member of the Board of Directors who is a successor to a
"disinterested director" and whose nomination or election to the Board of
Directors is recommended or approved by a majority of the "disinterested
directors." The "disinterested directors" of Chrysalis have approved the
transactions contemplated by the merger agreement for purposes of this provision
of the Chrysalis certificate of incorporation.
PHOENIX
The Canada Business Corporations Act does not contain a comparable provision to
Section 203 with respect to business combinations. However, policies of Canadian
securities regulatory authorities, including the Ontario Securities Commission
and the Commission des valeurs mobilieres du Quebec contain requirements in
connection with related party transactions. A related party transaction means,
any transaction by which an issuer directly or indirectly:
- acquires or transfers an asset;
- acquires or issues treasury securities; or
- assumes or transfers a liability from or to, as the case may be, a related
party by any means in any one or any combination of transactions.
"Related party" is defined in the Ontario Securities Commission Policy 9.1 and
Commission des valeurs mobilieres du Quebec Policy Statement Q-27 to include
directors, senior officers and holders of at least 10% of the voting securities
of the issuer.
Policy 9.1 and Policy Statement Q-27 require:
- more detailed disclosure in the proxy material sent to security holders in
connection with a related party transaction;
- subject to exceptions, the preparation of a formal valuation of the
subject matter of the related party transaction and any related non-cash
consideration; and
- the inclusion of a summary of the valuation in the proxy material.
Policy 9.1 and Policy Statement Q-27 also require, subject to exceptions, that
the minority shareholders of the issuer separately approve the transaction, by
either a simple majority or two-thirds of the votes cast, depending on the
circumstances.
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VOLUNTARY DISSOLUTION
CHRYSALIS
Under the Delaware General Corporation Law, a dissolution of a corporation
requires the written consent of stockholders holding 100% of the total voting
power of the corporation. However, the approval by 100% of the stockholders is
not required if the board of directors approve dissolution. If the dissolution
is initiated by the board of directors, it need only be approved by a majority
of the outstanding stock of the corporation entitled to vote on the dissolution.
PHOENIX
Under the Canada Business Corporations Act, the directors may propose or a
shareholder who is entitled to vote at an annual meeting of shareholders of
Phoenix may make a proposal for the voluntary liquidation and dissolution of
Phoenix. A voluntary dissolution of Phoenix would require approval by special
resolution of the holders of each class of shares, whether or not they are
otherwise entitled to vote, of Phoenix. A special resolution is a resolution
passed at a meeting by not less than two-thirds of the votes cast by the
shareholders who voted in respect of the resolution.
VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS
CHRYSALIS
Under the Delaware General Corporation Law, mergers or consolidations require
the approval of the holders of a majority of the outstanding stock of the
corporation entitled to vote on the transaction unless otherwise required by its
certificate of incorporation. Approval is not required by the holders of a
corporation surviving a merger if:
- the merger will not result in the issuance of more than 20% of the
corporation's common shares outstanding immediately prior to the merger;
- each share of stock of the corporation outstanding prior to the merger is
to be an identical share of stock of the surviving corporation following
the merger; and
- the merger agreement does not amend in any respect the survivor's
certificate of incorporation.
In addition, stockholder approval is not required for either the acquired or
surviving corporation if the corporation surviving the merger is a 90% parent of
the other corporation. However, mergers or consolidations with interested
stockholders may require a super-majority stockholder vote. See "--Anti-Takeover
Provisions."
PHOENIX
Under the Canada Business Corporations Act, extraordinary corporate actions
require authorization by special resolution or by the written consent of each
shareholder entitled to vote. These extraordinary corporate actions include
amalgamations, continuances, sales of substantially all the assets of a
corporation other than in the ordinary course of business, amendments to the
articles of incorporation, liquidations and dissolutions.
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LEGAL OPINIONS
McCarthy Tetrault, a general partnership, Montreal, Quebec, Canada, will pass
upon the legality of Phoenix common shares to be issued in the merger. Pepper
Hamilton LLP, counsel to Phoenix, has given its opinion that, based on factual
representations and covenants made by Phoenix and Chrysalis, the merger will be
a nontaxable reorganization under the U.S. Internal Revenue Code.
EXPERTS
The consolidated financial statements of Chrysalis as of December 31, 1997 and
1998 and for each of the years in the three year period ended December 31, 1998
have been audited by KPMG LLP, independent certified public accountants, as
stated in their report, which is included elsewhere in this proxy
statement/prospectus and have been so included in reliance upon the report of
KPMG LLP given upon their authority as experts in accounting and auditing. The
report of KPMG LLP covering the December 31, 1998 consolidated financial
statements of Chrysalis contains an explanatory paragraph that states that
Chrysalis' recurring losses from operations, net working capital deficiency and
default of some of its debt covenants raise substantial doubt about its ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
The financial statements of Phoenix as of August 31, 1997 and 1998 and for each
of the years in the three-year period ended August 31, 1998, and of IBRD-Rostrum
Global, Inc. as of and for the year ended December 31, 1997 have been audited by
Ernst & Young LLP, independent auditors, as stated in their report, which is
included elsewhere in this proxy statement/prospectus, and have been so included
in reliance upon the report of Ernst & Young LLP given upon their authority as
experts in accounting and auditing.
The financial statements of IBRD-Rostrum Global, Inc. as of and for the years
ended December 31, 1996 and 1995 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is included elsewhere in
this proxy statement/prospectus, and has been so included in reliance upon the
report of Deloitte & Touche LLP given their authority as experts in accounting
and auditing.
ANNUAL STOCKHOLDERS MEETING
Chrysalis has generally held an annual stockholders' meeting in June of each
year. Chrysalis typically circulated an annual report and a proxy statement to
its stockholders in late April. As a result of the pending merger, Chrysalis
does not currently intend to hold an annual stockholders' meeting in 1999.
However, if the merger is not consummated, Chrysalis will hold an annual
stockholders' meeting in June 1999. Proposals of stockholders intended to be
included in Chrysalis's proxy statement for the 1999 annual meeting under Rule
14a-8 under the Exchange Act had to be received by Chrysalis no later than
January 1, 1999 to be considered for inclusion in Chrysalis' proxy statement and
proxy for the 1999 annual meeting. Any proposal of stockholders submitted
outside the processes of Rule 14a-8 of the Exchange Act in connection with the
1999 annual meeting must be received by Chrysalis by March 21, 1999 or the
proposal will be considered untimely. Chrysalis' proxy for the 1999 annual
meeting will give discretionary authority to the proxy holders to vote with
respect to all proposals outside the processes of Rule 14a-8 and received after
March 21, 1999. In addition, any Chrysalis stockholder wishing to nominate a
person for election as a director at the 1999 annual meeting must also comply
with the notice and other requirements contained in the Chrysalis certificate of
incorporation and Chrysalis by-laws. Stockholders should address proposals and
notices and requests for copies of the Chrysalis certificate of incorporation
and Chrysalis by-laws to the Secretary, Chrysalis International Corporation, 575
Route 28, Raritan, New Jersey, 08869. Stockholders should send notices and
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proposals by certified mail, return receipt requested to eliminate controversy
as to the date of receipt by Chrysalis.
WHERE YOU CAN FIND MORE INFORMATION
Chrysalis files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. In addition,
Phoenix files similar reports with the Canadian securities authorities. You may
read and copy any reports, statements or other information that the companies
file with the Securities and Exchange Commission at the Securities and Exchange
Commission's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference rooms. These
filings are also available to the public from commercial document retrieval
services and at the Internet web site maintained by the Securities and Exchange
Commission at "http://www.sec.gov." You are also invited to read and copy any
reports, statements or other information that Phoenix files with the any of the
Canadian securities authorities at its public reference rooms. The Commission
des valeurs mobilieres du Quebec public reference room is located in Montreal,
Quebec. These Phoenix filings are also electronically available to the public
from the Canadian system for electronic document analysis and retrieval, the
Canadian equivalent of the Securities and Exchange Commission's electronic
document gathering and retrieval system at "http://www.sedar.com". Phoenix's
filings after the merger will not necessarily be available on the Securities and
Exchange Commission's website. However, the filings will be available on the
Canadian equivalent.
After the merger, Phoenix will file with the Securities and Exchange Commission
and continue to furnish to its shareholders the same periodic reports that are
currently furnished to Phoenix shareholders as required by, and in compliance
with, Canadian law. Not all of Phoenix's filings will be electronically
available through EDGAR, but these filings will be available through SEDAR.
Phoenix filed a Registration Statement on Form F-4 to register with the
Securities and Exchange Commission Phoenix common shares to be issued to
Chrysalis stockholders in the merger. This proxy statement/prospectus is a part
of the Form F-4 and constitutes a prospectus of Phoenix. As allowed by
Securities and Exchange Commission rules, this proxy statement/prospectus does
not contain all the information you can find in Phoenix's Registration Statement
or the exhibits to the Registration Statement.
Phoenix has supplied all information contained in this proxy
statement/prospectus relating to Phoenix. Chrysalis has supplied all information
contained in this proxy statement/prospectus relating to Chrysalis.
You should rely only on the information contained in this proxy
statement/prospectus. We have not authorized anyone to provide you with
information that is different from what is contained in this proxy
statement/prospectus. This proxy statement/prospectus is dated April 9, 1999.
You should not assume that the information contained in this proxy statement/
prospectus is accurate as of any date other than that date. Neither the mailing
of this proxy statement/prospectus to stockholders nor the issuance of Phoenix
common shares in the merger creates any implication to the contrary.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
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PAGE
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<S> <C>
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Management's Responsibility For Consolidated Financial Reporting........................................... F-2
Report of Independent Chartered Accountants (Ernst & Young LLP)............................................ F-3
Consolidated Balance Sheet as at August 31, 1997 and 1998.................................................. F-4
Consolidated Statements of Retained Earnings for the Years Ended August 31, 1996, 1997 and 1998............ F-5
Consolidated Statements of Income (Loss) for the Years Ended August 31, 1996, 1997 and
1998..................................................................................................... F-5
Consolidated Statements of Changes in Financial Position for the Years Ended August 31, 1996, 1997 and
1998..................................................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
Unaudited Consolidated Statements of Income in Accordance with Canadian GAAP for the First Quarter ended
November 30, 1998 and 1997............................................................................... F-35
Unaudited Consolidated Statements of Retained Earnings in Accordance with Canadian GAAP for the three
months ended November 30, 1998 and 1997.................................................................. F-35
Unaudited Consolidated Balance Sheets in Accordance with Canadian GAAP as at November 30, 1998 and August
31, 1998................................................................................................. F-36
Unaudited Consolidated Statements of Cash Flow in Accordance with Canadian GAAP for the three months ended
November 30, 1998 and 1997............................................................................... F-37
Unaudited Consolidated Statements of Income and Comprehensive Income in Accordance with U.S. GAAP, for the
First Quarter ended November 30, 1998 and 1997........................................................... F-38
Notes to Unaudited Consolidated Financial Statements....................................................... F-39
IBRD-ROSTRUM GLOBAL, INC.
Report of Independent Auditors (Ernst & Young LLP)......................................................... F-41
Consolidated Balance Sheet as of December 31, 1997......................................................... F-42
Consolidated Statement of Operations for the Year Ended December 31, 1997.................................. F-43
Consolidated Statement of Stockholders' Equity for the Year Ended December 31, 1997........................ F-44
Consolidated Statement of Cash Flows for the Year Ended December 31, 1997.................................. F-45
Notes to Consolidated Financial Statements................................................................. F-46
Independent Auditors' Report (Deloitte & Touche LLP)....................................................... F-53
Consolidated Balance Sheets as of December 31, 1996 and 1995............................................... F-54
Consolidated Statements of Operations for the Years Ended December 31, 1996 and 1995....................... F-55
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996 and 1995............. F-56
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996 and 1995....................... F-57
Notes to Consolidated Financial Statements................................................................. F-59
Unaudited Consolidated Statement of Operations for the 37-Day Period Ended February 6, 1998................ F-66
Unaudited Consolidated Statement of Stockholders' Equity for the 37-Day Period Ended February 6, 1998...... F-67
Unaudited Consolidated Statement of Cash Flows for the 37-Day Period Ended February 6, 1998................ F-68
Notes to Unaudited Interim Consolidated Financial Statements............................................... F-69
CHRYSALIS INTERNATIONAL CORPORATION
Independent Auditors' Report (KPMG LLP).................................................................... F-70
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................... F-71
Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and
1996..................................................................................................... F-72
Consolidated Statements of Stockholders' Equity and Comprehensive Loss for the Years Ended December 31,
1998, 1997 and 1996...................................................................................... F-73
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and
1996..................................................................................................... F-74
Notes to Consolidated Financial Statements................................................................. F-75
</TABLE>
F-1
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MANAGEMENT'S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL REPORTING
The consolidated financial statements of Phoenix International Life Sciences
Inc. are the responsibility of management and have been approved by the Board of
Directors. This responsibility includes the selection of appropriate accounting
principles and the exercise of a careful judgment in establishing reasonable
estimates in accordance with generally accepted accounting principles
appropriate in the circumstances. Financial information shown elsewhere in this
annual report is consistent with that contained in the consolidated financial
statements.
Management of Phoenix International Life Sciences Inc. and its subsidiaries has
developed and maintains accounting systems and internal controls designed to
provide reasonable assurance that assets are safeguarded from loss or
unauthorized use, and that the financial records are reliable for preparing the
consolidated financial statements.
The Board of Directors carries out its responsibility with regards to the
consolidated financial statements primarily through its Audit Committee. The
Audit Committee meets periodically with the external auditors and management to
discuss accounting policies and practices, internal control systems, financial
reporting issues, the scope of the annual audit and other matters. The
management's selection of external auditors is recommended to the Board of
Directors by this Committee. The external auditors have direct access to the
Committee to discuss the results of their audit and any recommendations they
have for improvements in internal controls, the quality of financial reporting
and any other matters of interest. The Committee reviews the Company's quarterly
and annual consolidated financial statements before recommending them to the
Board of Directors for approval. It also reviews the Annual Information Form
before it is filed with securities regulators and stock exchanges.
These consolidated financial statements have been audited by Ernst & Young,
Chartered Accountants on behalf of the Directors and their report stating the
scope of their audit examination and their opinion on the consolidated financial
statements is presented hereafter.
<TABLE>
<S> <C>
Dr. John Hooper Jean-Yves Caloz, C.A.
Chairman and Chief Executive Officer Senior Vice-President
International Finance and Acquisitions
</TABLE>
December 18, 1998
F-2
<PAGE>
TO THE DIRECTORS OF PHOENIX INTERNATIONAL LIFE SCIENCES INC.
We have audited the consolidated balance sheets of PHOENIX INTERNATIONAL LIFE
SCIENCES INC. as at August 31, 1998 and 1997 and the consolidated statements of
income (loss), retained earnings and changes in financial position for each of
the years in the three year period ended August 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at August 31, 1998 and 1997
and the results of its operations and the changes in its financial position for
each of the years in the three-year period ended August 31, 1998 in accordance
with accounting principles generally accepted in Canada.
ERNST & YOUNG LLP
Chartered Accountants
Montreal, Canada,
October 9, 1998
[Except for Note 18 which is as of December 18, 1998]
F-3
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1998 1997
AS AT AUGUST 31, (IN THOUSANDS OF CANADIAN DOLLARS) $ $
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
ASSETS [NOTE 8]
CURRENT
Cash...................................................................................... 17,009 2,530
Marketable securities [note 5]............................................................ 2,000 9,390
Accounts receivable [note 4].............................................................. 47,712 26,080
Investment tax credits recoverable [note 11].............................................. 3,362 3,416
Costs and estimated profit in excess of progress billings on contracts in progress........ 27,847 15,105
Prepaid expenses and other current assets................................................. 5,924 1,060
Future income taxes [note 11]............................................................. 922 --
--------- ---------
TOTAL CURRENT ASSETS...................................................................... 104,776 57,581
--------- ---------
Capital assets [note 6]................................................................... 56,638 46,745
Goodwill and other long-term assets [note 7].............................................. 110,056 56,532
--------- ---------
271,470 160,858
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank indebtedness [note 8]................................................................ 831 693
Accounts payable and accrued liabilities [note 14]........................................ 52,041 22,467
Current portion of long-term debt and capital lease obligations [note 8].................. 7,080 6,921
Progress billings in excess of costs and estimated profit on contracts in
progress [note 2]....................................................................... 34,882 11,002
--------- ---------
TOTAL CURRENT LIABILITIES................................................................. 94,834 41,083
--------- ---------
Long-term debt and capital lease obligations [note 8]..................................... 42,440 4,058
Other long-term liabilities............................................................... 3,718 3,128
Future income taxes [note 11]............................................................. 525 324
--------- ---------
141,517 48,593
--------- ---------
--------- ---------
SHAREHOLDERS' EQUITY
Capital stock [note 9].................................................................... 110,559 103,073
Cumulative translation adjustment......................................................... 1,135 --
Retained earnings......................................................................... 18,259 9,192
--------- ---------
TOTAL SHAREHOLDERS' EQUITY................................................................ 129,953 112,265
--------- ---------
271,470 160,858
--------- ---------
--------- ---------
</TABLE>
See accompanying notes
On behalf of the Board:
<TABLE>
<S> <C>
Claude Forget, Robert Raich,
Director Director
</TABLE>
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
1998 1997 1996
YEARS ENDED AUGUST 31 (IN THOUSANDS OF CANADIAN DOLLARS) $ $ $
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
RETAINED EARNINGS, BEGINNING OF YEAR.................................................. 9,192 6,843 13,476
Net income (loss)..................................................................... 9,067 2,349 (5,361)
Share issue costs..................................................................... -- -- (1,272)
--------- --------- ---------
Retained earnings, end of year........................................................ 18,259 9,192 6,843
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
1998 1997 1996
YEARS ENDED AUGUST 31 (IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AMOUNTS) $ $ $
- ------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
REVENUES............................................................................ 218,360 86,736 64,182
Reimbursed costs.................................................................... 47,122 4,259 1,100
--------- --------- ---------
NET REVENUES........................................................................ 171,238 82,477 63,082
Direct costs--net of refundable tax credits [note 11]............................... 99,971 52,992 43,911
--------- --------- ---------
71,267 29,485 19,171
EXPENSES--NET OF REFUNDABLE TAX CREDITS [NOTE 11]
Selling, general and administrative................................................. 51,855 22,853 19,782
Internal research and development................................................... 3,698 3,328 3,726
Interest on long-term debt and capital lease obligations............................ 3,323 659 981
Amortization of goodwill............................................................ 2,164 204 57
Write-off of deferred start-up costs [note 7]....................................... 932 -- --
Non-refundable tax credits [note 11]................................................ (5,000) (2,400) --
--------- --------- ---------
14,295 4,841 (5,375)
--------- --------- ---------
Interest and other income........................................................... 1,282 347 194
Share in earnings of equity accounted investees..................................... 114 -- --
--------- --------- ---------
Income (loss) before income taxes................................................... 15,691 5,188 (5,181)
--------- --------- ---------
Provision for income taxes [note 11]................................................ 6,624 2,839 180
--------- --------- ---------
NET INCOME (LOSS) FOR THE YEAR...................................................... 9,067 2,349 (5,361)
--------- --------- ---------
BASIC AND FULLY DILUTED EARNINGS (LOSS) PER SHARE [NOTE 9].......................... 0.37 0.12 (0.29)
--------- --------- ---------
</TABLE>
See accompanying notes
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
1998 1997 1996
FOR THE YEARS ENDED AUGUST 31, (IN THOUSANDS OF CANADIAN DOLLARS) $ $ $
- ---------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................................................. 9,067 2,349 (5,361)
--------- --------- ---------
Items not affecting cash
Amortization of capital assets.................................................. 9,375 6,929 5,579
Amortization of other long-term assets.......................................... 2,815 950 709
Write off of deferred start-up costs............................................ 932 -- --
Share of earnings in equity accounted investee.................................. (114) -- --
Future income taxes............................................................. 526 1,379 --
Nonrefundable tax credits....................................................... (5,000) (2,400) --
Change in operating assets and liabilities
Accounts receivable............................................................. (13,061) 3,651 (5,368)
Investment tax credits recoverable.............................................. 3,807 (610) 910
Costs and estimated profits in excess of progress billings on contracts in
process....................................................................... (6,727) 5,192 (1,390)
Prepaid expenses and other current assets....................................... (1,021) 218 (113)
Accounts payable and accrued liabilities........................................ 14,755 (8,844) (1,419)
Progress billings in excess of costs and estimated profit on contracts in
process....................................................................... (493) (1,097) 2,844
--------- --------- ---------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES................................... 14,861 7,717 (3,609)
--------- --------- ---------
--------- --------- ---------
INVESTING ACTIVITIES
Business acquisitions [note 3].................................................... (35,439) (49,348) --
Capital asset additions........................................................... (13,224) (6,240) (18,642)
Proceeds from disposal of marketable securities................................... 7,390 -- --
Decrease in loans receivable...................................................... 309 -- --
Other long-term assets............................................................ 91 (276) (1,696)
--------- --------- ---------
Cash used in investing activities................................................. (40,873) (55,864) (20,338)
--------- --------- ---------
--------- --------- ---------
FINANCING ACTIVITIES
Issue of common shares............................................................ 7,486 48,668 28,529
Share issue costs................................................................. -- -- (1,272)
Repayment of long-term debt and capital lease obligations......................... (3,817) (1,933) (10,916)
Other deferred credits and long-term liabilities.................................. 590 (28) 2,452
Proceeds of long-term debt and capital lease obligations.......................... 44,132 -- 10,199
Repayment of debentures........................................................... (5,250) -- --
--------- --------- ---------
Cash provided by (used in) financing activities................................... 43,141 46,707 28,992
--------- --------- ---------
Effect of exchange rate changes on cash........................................... (2,788) -- --
--------- --------- ---------
Increase (decrease) in cash position during the year.............................. 14,341 (1,440) 5,045
--------- --------- ---------
Cash position, beginning of period................................................ 1,837 3,277 (1,768)
--------- --------- ---------
Cash position, end of period...................................................... 16,178 1,837 3,277
--------- --------- ---------
Cash position is comprised of:
Cash.............................................................................. 17,009 2,530 3,277
Bank indebtedness................................................................. (831) (693) --
--------- --------- ---------
16,178 1,837 3,277
--------- --------- ---------
</TABLE>
See accompanying notes
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
The consolidated financial statements of the Company have been prepared by
management in accordance with accounting principles generally accepted in Canada
["Canadian GAAP"]. The consolidated financial statements have, in management's
opinion, been properly prepared using careful judgment within reasonable limits
of materiality and within the framework of the accounting policies summarized in
note 2.
As further described under note 15, the accounting policies followed by the
Company differ in certain respects from those that would have been followed had
these consolidated financial statements been prepared in conformity with
accounting principles generally accepted in the United States ["U.S. GAAP"].
1. DESCRIPTION OF BUSINESS AND BASIS OF FINANCIAL STATEMENT PRESENTATION
The Company is a multiservice contract research organization which provides
bioanalytical research, clinical studies as well as regulatory affairs services
to pharmaceutical and biotechnology companies, the majority of which are located
in the United States. The remaining customers are located in Europe and Canada.
These consolidated financial statements include the accounts of Phoenix
International Life Sciences Inc. and the following significant consolidated
subsidiaries:
<TABLE>
<CAPTION>
1998 1997 1996
OWNERSHIP AS AT AUGUST 31 $ $ $
- ------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Phoenix International Life Sciences (U.S.) Inc.
"Phoenix U.S."].................................................. 100% 100% 100%
Phoenix International Life Sciences (IBRD) Inc. "[IBRD"]........... 100% -- --
Phoenix International Life Sciences (ICCR) Inc. ["ICCR"]........... 100% -- --
I.T.E.M. Holding S.A. ["I.T.E.M."]................................. 100% 100% --
Phoenix International U.K.--(IBRD-Rostrum Global) Ltd. "Phoenix
U.K."]........................................................... 100% -- --
Anawa Holding AG ["Anawa"]......................................... 100% -- --
--------- --------- ---------
--------- --------- ---------
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES
INCOME TAXES
Effective September 1, 1997, the Company changed its method of accounting for
income taxes from the deferral method to the liability method of tax allocation
with the early adoption of Section 3465 of the Canadian Institute of Chartered
Accountants' Handbook "Accounting for Income Taxes". The Company has applied the
new recommendations retroactively. This change had no material impact on opening
retained earnings as at September 1, 1995 or on any of the financial statements
presented.
Under the liability method, future income tax assets and liabilities are
determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using substantively enacted tax
rates and laws that are expected to be in effect in the periods in which the
future tax assets or liabilities are expected to be realized or settled. A
valuation allowance is provided to the extent that it is more likely than not
that future income tax assets will not be realized.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Contract revenues are recognized on a percentage of completion basis determined
by reference to work performed. Customer advances and billings in excess of
costs and estimated profit on contracts in progress are shown as liabilities.
Losses, if any, are provided for in full as soon as they are anticipated. The
percentage of completion method necessarily requires the use of estimates to
determine the recorded amount of revenues and contracts in progress. Given this
estimation process, it is reasonably possible that changes in future conditions
could require a change in the recognized amount of revenue and contracts in
progress.
CAPITAL ASSETS
Capital assets are recorded at cost, net of investment tax credits. Amortization
is provided on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<CAPTION>
YEARS
---------------------------
<S> <C>
Buildings........................................................ 20-25
Analytical research equipment.................................... 6-10
Clinical research equipment...................................... 10
Office equipment, computers and software......................... 4-10
Leasehold improvements........................................... Remaining term of lease
</TABLE>
Costs relating primarily to the development of new software applications which
are considered management information systems are deferred until the software is
ready for its intended use. Amortization commences with commercial use using the
straight-line method over 5 years.
OTHER LONG-TERM ASSETS
Goodwill and intellectual property are recorded in the accounts at cost and are
amortized on a straight-line basis over the expected useful lives of such
assets. The amortization periods are as follows:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Goodwill.............................................................................. 30-40
Intellectual property................................................................. 5
</TABLE>
The unamortized balances of goodwill and intellectual property are periodically
reviewed to determine whether deferral criteria continue to be satisfied by
reference to expected future undiscounted cash flows over the remaining
amortization period. Should the deferral criteria cease to be satisfied, the
unamortized portion would be charged to income during the period.
INTERCORPORATE INVESTMENTS
Investments over which the Company exercises significant influence are accounted
for using the equity method.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT TAX CREDITS
Investment tax credits are accounted for under the cost reduction method and are
recorded as reductions of related capital assets or operating expenses. Such
credits are recognized in the accounts when earned and when there is reasonable
assurance as to their realization.
OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist primarily of leasehold inducements and are
amortized to income on the same basis as the related capital assets or expense
items.
FOREIGN CURRENCY TRANSLATION
[A] TRANSLATION OF FINANCIAL STATEMENTS OF FOREIGN SUBSIDIARIES
As at August 31, 1998, the financial statements of all foreign subsidiaries are
self-sustaining and are translated using the current rate method, whereby all
assets and liabilities are translated at year-end exchange rates and revenues
and expenses at the actual exchange rates during the year. Adjustments arising
from the translation of these financial statements are included as a separate
component of shareholders' equity.
In February 1998, given a change in economic circumstances following the
acquisition of IBRD Rostrum Global Ltd., the Company changed the method of
translating the financial statements of Phoenix U.S. from the temporal to the
current rate method. The change in functional currency of this subsidiary to the
U.S. dollar has been applied prospectively. Prior to the change, Phoenix U.S.
was considered an integrated subsidiary whose functional currency was the
Canadian dollar. As such, monetary assets and liabilities were translated at the
current exchange rate at each period end and non-monetary assets were translated
at their historical exchange rates. Exchange gains or losses arising from the
translation of the foreign currency balances were included in net income.
[B] FOREIGN CURRENCY TRANSACTIONS
Translation gains and losses are included in income except for unrealized gains
or losses arising from the translation of long-term monetary assets and
liabilities, which are deferred and amortized over the remaining lives of the
related items.
Realized gains and losses on foreign exchange forward contracts that hedge
anticipated revenues are included in earnings when that revenue is recognized.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[C] FOREIGN EXCHANGE RATES
The relevant foreign exchange rates used in the preparation of these financial
statements are as follows, expressed as the foreign currency equivalent of one
Canadian dollar:
<TABLE>
<CAPTION>
1998 1997 1996
FOR THE YEAR ENDED AUGUST 31, YEAR-END EXCHANGE RATES $ $ $
- ------------------------------------------------------------ ---------- ---------- ---------
<S> <C> <C> <C>
U.S. dollar................................................. 0.6376 0.7205 0.7330
French franc................................................ 3.7495 4.3840 N/A
Spanish peseta.............................................. 94.9668 109.8757 N/A
British pound............................................... 0.3795 N/A N/A
Swiss franc................................................. 0.9168 N/A N/A
---------- ---------- ---------
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
FOR THE YEAR ENDED AUGUST 31, AVERAGE EXCHANGE RATES $ $ $
- ------------------------------------------------------------ ---------- ---------- ---------
<S> <C> <C> <C>
US dollar................................................... 0.6950 0.7307 0.7335
French franc................................................ 4.1684 4.0681 N/A
Spanish peseta.............................................. 105.3741 101.5993 N/A
British pound............................................... 0.4157 N/A N/A
Swiss franc................................................. 1.0075 N/A N/A
---------- ---------- ---------
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
EARNINGS PER SHARE
Basic earnings per share are calculated using the weighted average number of
voting shares outstanding during the period. Fully diluted earnings per share
are calculated taking into consideration the dilutive effect of the potential
exercise of stock options.
3. BUSINESS ACQUISITIONS
[A] IBRD ROSTRUM GLOBAL LTD.
Effective February 7, 1998, the Company acquired all of the issued and
outstanding share capital of IBRD Rostrum Global Ltd., a privately held contract
research organization with operations in the United States and Europe. The IBRD
Rostrum Global Ltd. operations are carried out through IBRD, ICCR, Phoenix U.K.
and Kansas City Analytical Services ("KCAS") a company owned 44% by IBRD Rostrum
Global Ltd. at the acquisition date. The acquisition has been accounted for
using the purchase method and, accordingly, the purchase price was allocated to
the acquired assets and liabilities based on their estimated fair value as at
the acquisition date. The excess of the purchase price over the fair value of
the identifiable net assets acquired has been recorded as goodwill and is being
amortized on a straight-line basis over a period of 40 years.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
3. BUSINESS ACQUISITIONS (CONTINUED)
The results of operations related to this acquisition have been included in
these consolidated financial statements from the effective date of acquisition.
Details of the acquired assets and liabilities at fair value are as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
Cash................................................................................ 13,713
Capital assets...................................................................... 3,230
Other long-term assets.............................................................. 2,507
Current liabilities net of other current assets..................................... (20,763)
---------
Long-term debt...................................................................... (232)
---------
IDENTIFIABLE LIABILITIES IN EXCESS OF IDENTIFIABLE ASSETS........................... (1,545)
Consideration paid
Cash consideration.................................................................. 41,818
Acquisition costs................................................................... 1,958
Total consideration paid............................................................ 43,776
---------
Goodwill on acquisition............................................................. 45,321
---------
</TABLE>
In connection with the above acquisition, IBRD, ICCR and Phoenix U.K. undertook
a rationalization program which included the following:
a) the involuntary termination of certain senior executives as well as
certain operational personnel of the acquired business whose services
were no longer required.
b) the closing of certain extraneous facilities relating to the acquired
business.
The related restructuring costs approximated $4,599,000 and have been included
in the above purchase price allocation. The disposition of these amounts to
August 31, 1998 can be summarized as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
Total restructuring costs capitalized in the purchase price allocation at February 6,
1998................................................................................ 4,599
Amount of restructuring costs for the period February 6 to August 31, 1998............ 2,016
---------
Remaining liability included on the August 31, 1998 consolidated balance sheet........ 2,583
---------
</TABLE>
Should any adjustments arise from pre-acquisition contingencies identified after
August 31, 1998, they will be credited or charged to income in the period in
which they were identified. The purchase and sale agreement also provides for
additional consideration to be paid in the event that certain earnings targets
are met. The additional consideration is based on an earnings measure for the 12
month period ended December 31, 1998. As the amount of additional consideration
is not determinable until the end of this contingency period, no liability has
been recorded in these financial statements. The cost of the purchase will be
increased by the amount of such additional consideration in the period during
which the amount becomes determinable. Note 10[a] provides a definition of the
earnings measure which will be used to determine the contingent payment.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
3. BUSINESS ACQUISITIONS (CONTINUED)
[B] ANAWA HOLDING, AG
Effective April 30, 1998, the Company acquired all of the issued and outstanding
shares of Anawa, a privately held Swiss contract research organization in
exchange for 525,651 common shares of the Company. The acquisition has been
accounted for using the purchase method and, accordingly, the purchase price was
allocated to the acquired assets and liabilities based on their estimated fair
value as at the acquisition date. The excess of the purchase price over the fair
value of the identifiable net assets acquired has been recorded as goodwill and
is being amortized on a straight-line basis over a period of 30 years. The
results of operations related to this acquisition have been included in these
consolidated financial statements from the effective date of acquisition.
Details of the acquired assets and liabilities at fair value are as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
Cash.................................................................................. 558
Other current assets net of current liabilities....................................... 603
Capital and other long-term assets.................................................... 1,169
Long-term debt........................................................................ (207)
---------
IDENTIFIABLE ASSETS IN EXCESS OF IDENTIFIABLE LIABILITIES............................. 2,123
---------
CONSIDERATION PAID
525,651 common shares of the Company.................................................. 7,243
Acquisition costs..................................................................... 368
---------
TOTAL CONSIDERATION PAID.............................................................. 7,611
---------
GOODWILL ON ACQUISITION............................................................... 5,488
---------
---------
</TABLE>
For the purpose of measuring the consideration paid, the common shares of the
Company were valued at $13.78 each, this being the average value of the common
shares for the five trading days before and the five trading days after the
transaction on the Toronto and Montreal Stock Exchanges.
[C] I.T.E.M. HOLDING SA
Effective August 7, 1997, the Company acquired all of the issued and outstanding
shares of I.T.E.M., a privately held European contract research organization in
exchange for 4,690,142 common shares of the Company. The acquisition was
accounted for using the purchase method and, accordingly, the purchase price was
allocated to the acquired assets and liabilities based on their estimated fair
value as at the acquisition date. The excess of the purchase price over the fair
value of the identifiable net assets acquired has been recorded as goodwill and
is being amortized on a straight-line basis over a period of 40 years.
The results of operations related to this acquisition have been included in
these consolidated financial statements from the effective date of acquisition.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
3. BUSINESS ACQUISITIONS (CONTINUED)
Details of the acquired assets and liabilities at fair value are as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
Cash................................................................................. 1,577
Capital assets and other long-term assets............................................ 1,597
Other long-term liabilities net of other long-term assets............................ (134)
Short-term liabilities net of other short-term assets................................ (2,002)
Long-term debt....................................................................... (1,702)
---------
IDENTIFIABLE LIABILITIES IN EXCESS OF IDENTIFIABLE ASSETS............................ (664)
---------
CONSIDERATION PAID
4,690,142 common shares of the Company............................................... 48,496
Acquisition costs.................................................................... 2,312
---------
TOTAL CONSIDERATION PAID............................................................. 50,808
---------
GOODWILL ON ACQUISITION.............................................................. 51,472
---------
</TABLE>
For the purpose of measuring the consideration paid, the common shares of the
Company were valued at $10.34 each, this being the average value of the common
shares for the five trading days before and the five trading days after the
transaction on the Toronto and Montreal Stock Exchanges.
[D] OTHER
In addition to the above acquisitions, the Company has completed other
acquisitions during the three year period ended August 31, 1998 which are
immaterial to the consolidated financial statements.
4. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1998 1997
YEARS ENDED AUGUST 31, (IN THOUSANDS OF CANADIAN DOLLARS) $ $
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Trade...................................................................... 46,512 24,240
Due from related parties................................................... 1,105 1,612
Other...................................................................... 789 428
Allowance for doubtful accounts............................................ (694) (200)
--------- ---------
47,712 26,080
--------- ---------
--------- ---------
</TABLE>
Amounts due from related parties include amounts due from employees, directors,
shareholders and affiliated companies.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
5. MARKETABLE SECURITIES
<TABLE>
<CAPTION>
1998 1997
YEARS ENDED AUGUST 31, $ $
- ----------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Money market funds and shares of publicly traded corporations denominated in
Spanish pesetas............................................................ 528 330
Money market funds denominated in French francs.............................. 1,472 3,838
Corporate bond, which matured in September 1997.............................. -- 5,222
--------- ---------
2,000 9,390
--------- ---------
--------- ---------
</TABLE>
The cost of the above marketable securities approximates their market value.
6. CAPITAL ASSETS
<TABLE>
<CAPTION>
ACCUMULATED
GROSS AMORTIZATION NET
$ $ $
--------- ------------- ---------
<S> <C> <C> <C>
AUGUST 31, 1998
Analytical research equipment............................... 22,620 11,248 11,372
Land and buildings.......................................... 15,539 1,454 14,085
Clinical research equipment................................. 3,568 1,508 2,060
Office equipment, computers and software.................... 34,482 18,777 15,705
Leasehold improvements...................................... 15,845 4,776 11,069
Assets under capital leases................................. 6,759 4,412 2,347
--------- ------ ---------
98,813 42,175 56,638
--------- ------ ---------
--------- ------ ---------
AUGUST 31, 1997
Analytical research equipment............................... 18,022 7,531 10,491
Land and buildings.......................................... 11,232 817 10,415
Clinical research equipment................................. 2,003 838 1,165
Office equipment, computers and software.................... 19,825 7,681 12,144
Leasehold improvements...................................... 12,443 2,018 10,425
Assets under capital leases................................. 5,766 3,661 2,105
--------- ------ ---------
69,291 22,546 46,745
--------- ------ ---------
--------- ------ ---------
</TABLE>
INTERNALLY DEVELOPED SOFTWARE
As at August 31, 1998, the Company had deferred approximately $549,000 ($210,000
and nil as at August 31, 1997 and 1996 respectively) of internally developed
software costs which are included as part of capital assets.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
7. GOODWILL AND OTHER LONG-TERM ASSETS
<TABLE>
<CAPTION>
1998 1997
AS AT AUGUST 31 $ $
- ------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Goodwill [note 7a]....................................................... 104,796 52,941
Investment in KCAS [note 7b]............................................. 2,760 --
Deferred start-up costs [note 7c]........................................ -- 1,448
Other.................................................................... 2,500 2,143
--------- ---------
110,056 56,532
--------- ---------
--------- ---------
</TABLE>
[a] Goodwill is presented net of accumulated amortization of $2,425,000
[$261,000 at August 31, 1997, $57,000 at August 31, 1996].
[b] The investment in KCAS represents a 44% interest in the common stock of
KCAS, a contract research organization located in Kansas City, U.S.A. The
investment is accounted for using the equity method. On September 15, 1998
the investment was sold for proceeds of U.S. $2.4 million which was used to
repay a portion of the U.S. dollar denominated term acquisition loans.
[c] The deferred start-up costs relate primarily to the Company's Cincinnati
facility, which commenced commercial operations on September 1, 1995. The
deferred start-up costs have been written down to their net recoverable
amount.
8. FINANCING ARRANGEMENTS
The Company's principal lenders are located in Canada and the United States.
The Company has available facilities for bank indebtedness and term loans with
these principal lenders of approximately $20,000,000 and $70,000,000
respectively. Approximately $850,000 and $49,000,000 respectively had been drawn
at August 31, 1998 [$1,200,000 as at August 31, 1997].
The Company's bank indebtedness, denominated primarily in Canadian dollars,
bears interest at the Canadian prime rate and is due on demand. The Company's
U.S. dollar term acquisition loans bear interest at either the U.S. prime rate
plus 1/2%, or alternatively the LIBOR rate plus 1/2%. For the period February 6,
1998--August 31, 1998 the Company borrowed using both the U.S. prime rate and
LIBOR rate options. The applicable year-end interest rates are as follows:
<TABLE>
<CAPTION>
AS AT AUGUST 31 1998 1997
- ---------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Canadian prime.............................................................. 6.5% 4.75%
U.S. prime.................................................................. 8.5% N/A
LIBOR....................................................................... 6.1% N/A
--------- ---------
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
8. FINANCING ARRANGEMENTS (CONTINUED)
The principal components of long--term debt are as follows:
<TABLE>
<CAPTION>
1998 1997
AS AT AUGUST 31 $ $
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
U.S. dollar denominated term acquisition loans [NOTE 8A]................... 41,281 --
Other term loan [NOTE 8B].................................................. 2,500 --
State of Ohio loan [NOTE 8C]............................................... 1,686 1,848
Zero coupon balance of sale payable [NOTE 8D].............................. 1,029 1,318
Mortgage payable [NOTE 8E]................................................. 1,285 --
Obligations under capital leases [NOTE 8F]................................. 364 1,239
Government loans [NOTE 8G]................................................. 861 861
Other...................................................................... 514 463
Debentures payable [NOTE 8H]............................................... -- 5,250
--------- ---------
49,520 10,979
Less current portion....................................................... (7,080) (6,921)
--------- ---------
42,440 4,058
--------- ---------
--------- ---------
</TABLE>
[a] Term acquisition loans totalling U.S. $26,319,000 used to finance the
acquisition of IBRD Rostrum Global Ltd. These loans are collateralized by
substantially all of the assets of the Company's Canadian and United States
operations. The related debt agreements contain restrictive financial
covenants including net worth, debt service coverage and current ratio
tests. Furthermore, the agreements contain restrictions in respect of
dividend payments, capital expenditures, the assumption of additional
indebtedness and the continued employment of certain executives.
All restrictive covenants have been adhered to in the period to August 31, 1998.
The loans are repayable in quarterly instalments of U.S. $870,000 with the
balance repayable in February 2000.
[b] Term loan denominated in Canadian dollars bearing interest at prime plus
1/2%, repayable by February 2000 collateralized as noted in note 8[a] above.
[c] U.S. $1,075,000 State of Ohio loan, bearing interest at 2.25%, repayable in
sixty monthly instalments of U.S. $24,000 commencing in August 1997,
collateralized by a promissory note in the amount of U.S. $1,353,000.
[d] Zero coupon balance of sale payable denominated with Spanish Pesetas, with
an effective interest rate of 5%, repayable upon maturity in July 2000,
collateralized by the shares of a subsidiary of ITEM.
[e] Mortgage payable denominated in Spanish pesetas bearing interest at 5%,
collateralized by a building in Madrid, Spain with a net book value of
$2,000,000, maturing May 2008.
[f] Obligations under capital leases, interest rates varying between 8.2% and
10.7%, maturing on various dates up to 2001, collateralized by the related
capital assets.
[g] Government loans, non-interest bearing, repayable in annual instalments
commencing September 1998 and January 1999.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
8. FINANCING ARRANGEMENTS (CONTINUED)
[h] Debentures bearing interest at 3% per annum, which matured in September
1997, collateralized by an investment.
Scheduled maturity of long-term debt excluding capital lease obligations for
each of the next five years ending August 31 and thereafter are as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
1999................................................................................. 6,835
2000................................................................................. 38,457
2001................................................................................. 1,497
2002................................................................................. 1,783
2003 and thereafter.................................................................. 584
---------
TOTAL................................................................................ 49,156
---------
---------
</TABLE>
Future minimum lease payments under capital lease obligations are as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
1999.................................................................................. 275
2000.................................................................................. 126
---------
Total minimum payments............................................................ 401
Less: interest included in minimum lease payments..................................... 37
---------
Present value of minimum lease payments............................................... 364
Less: current portion................................................................. 245
---------
LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS........................................ 119
---------
---------
</TABLE>
9. CAPITAL STOCK
AUTHORIZED
An unlimited number of:
<TABLE>
<S> <C>
Common shares-- voting, participating.
Preferred shares-- non-voting preferred, discretionary preferential dividend rights to be
determined by the Board of Directors at the issue date of such shares
without nominal or par values, issuable in series.
</TABLE>
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
9. CAPITAL STOCK (CONTINUED)
The table below summarizes the changes in the Company's capital stock for the
years indicated:
<TABLE>
<CAPTION>
1998 1997 1996
NUMBER NUMBER NUMBER
YEARS ENDED AUGUST 31 OF SHARES $ OF SHARES $ OF SHARES $
- ---------------------------------------- ------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Common shares
Issued and outstanding, beginning of
year.................................. 24,289,208 103,073 19,579,696 54,405 17,675,000 25,876
Issued in public offering, for cash..... -- -- -- -- 1,803,278 27,500
Issued on acquisitions.................. 525,651 7,243 4,700,912 48,610 96,618 1,000
Issued for cash pursuant to stock
options............................... 42,200 243 8,600 58 4,800 29
------------ --------- ------------ --------- ------------ ---------
ISSUED AND OUTSTANDING, END OF YEAR..... 24,857,059 110,559 24,289,208 103,073 19,579,696 54,405
------------ --------- ------------ --------- ------------ ---------
------------ --------- ------------ --------- ------------ ---------
</TABLE>
The weighted average number of shares outstanding for the calculation of basic
earnings per share was 24,478,111 for the year ended August 31, 1998;
[19,911,199 for the year ended August 31, 1997 and 18,282,596 for the year ended
August 31, 1996].
Certain directors, officers and employees of the Company have options to
purchase common shares from the Company at prices ranging from $5.00 to $14.04
per share. These options have expiry dates extending to May 2008 and vest on a
progressive scale over 5 years and are eligible to be exercised within 10 years
of the date of grant, based on continued employment.
The changes in the number of options to purchase common shares can be summarized
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
YEAR ENDED AUGUST 31 (NUMBER OF OPTIONS) $ $ $
- ---------------------------------------------------------- ---------- ---------- ---------
<S> <C> <C> <C>
Outstanding, beginning of year............................ 887,000 737,250 576,250
Granted................................................... 796,350 395,000 210,000
Exercised................................................. (42,200) (8,600) (4,800)
Cancelled................................................. (179,650) (236,650) (44,200)
---------- ---------- ---------
OUTSTANDING, END OF YEAR.................................. 1,461,500 887,000 737,250
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
[a] In accordance with the terms of the IBRD Rostrum Global Ltd. business
acquisition, the vendors are entitled to a contingent payment equal to the
amount by which nine times EBITDA ("earnings before interest, taxes,
depreciation and amortization" adjusted for certain non-recurring and other
items as outlined in the agreement) of the acquired entity for the 12 month
period ending December 31, 1998 exceeds U.S. $3.0 million.
In 1996, the Company purchased certain assets of a research clinic located
in Montreal, Canada. Contingent consideration to a maximum of $1,000,000 is
payable over a five-year period ending 2001 in the event that the specified
levels of earnings as set out in the purchase agreement are satisfied.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
At present it is not determinable if any amounts will be payable under these
earn-out arrangements. Any amounts ultimately payable will be accounted for as
an increase to the cost of these acquisitions.
[b] The Company leases certain office space and equipment under long-term
operating leases. Annual minimum operating lease and rental commitments of
the Company for the next five years ending August 31 and thereafter are as
follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
1999................................................................................. 3,494
2000................................................................................. 3,511
2001................................................................................. 3,739
2002................................................................................. 3,680
2003................................................................................. 3,648
Thereafter........................................................................... 15,326
---------
33,398
---------
---------
</TABLE>
[c] In the normal course of operations, the Company is subject to certain
litigation. It is the opinion of management that the resolution of such
litigation will not have a material adverse effect on the Company.
[d] In accordance with the terms of a loan agreement, the Company issued a
promissory note in favour of a lender in the amount of U.S. $1,353,000 (see
note 8).
[e] The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the Year 2000 as 1900 or some other date, resulting in errors when
information using Year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect the Company's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the Company
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
[f] The Company is subject to regular inspections by the United States Food and
Drug Administration [the "FDA"]. In a 1997 inspection, the FDA raised
certain issues to which the Company has formally responded. In March 1998,
the Company received a United States grand jury subpoena requesting
documents from the Company including documents relating to the period
covered by the inspection referred to above. To date, the Company has not
been informed that it is a target of this investigation nor is the Company
aware that any of its current or former employees have been informed that
they are targets of such investigation. It is not possible to predict with
any degree of certainty the outcome of these proceedings and there can be no
assurance that the outcome of the proceedings will not have a material
adverse impact on the Company.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
11. INCOME TAXES AND INVESTMENT TAX CREDITS
[a] Significant components of the provision for income taxes consist of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
YEAR ENDED AUGUST 31 $ $ $
- ---------------------------------------------------------------------- --------- --------- -----
<S> <C> <C> <C>
Current income tax expense before the following:...................... 6,814 1,790 180
Benefit of previously unrecognized losses and temporary
differences....................................................... (716) (330) --
Current income tax expense............................................ 6,098 1,460 180
Future income tax expense............................................. 526 1,379 --
--------- --------- ---
PROVISION FOR INCOME TAXES............................................ 6,624 2,839 180
--------- --------- ---
--------- --------- ---
</TABLE>
[b] The income tax provision reported differs from the amount computed by
applying Canadian income tax rates to income (loss) before income taxes. The
reason for the difference and the related tax effects are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
YEARS ENDED AUGUST 31 $ $ $
- ------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Income (loss) before income taxes................................. 15,691 5,188 (5,181)
Canadian statutory income tax rate................................ 38.22% 38.22% 38.02%
--------- --------- ---------
Expected income tax expense (benefit)............................. 5,997 1,983 (1,970)
Adjustments
Effect of foreign tax rates..................................... (231) (66) (96)
Unrecognized income tax benefit on losses and temporary
differences................................................... 748 1,512 2,307
Benefit of previously unrecognized losses and temporary
differences................................................... (716) (330) --
Tax credits not taxable in Quebec............................... (756) (543) (305)
Tax effect related to non-deductible goodwill amortization...... 703 40 --
Foreign exchange gain on intercompany debt...................... 560 -- --
Large corporation tax and other................................. 319 243 244
--------- --------- ---------
PROVISION FOR INCOME TAXES...................................... 6,624 2,839 180
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
11. INCOME TAXES AND INVESTMENT TAX CREDITS (CONTINUED)
[c] The tax effects of temporary differences and net operating losses that give
rise to future income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1998 1997
YEAR ENDED AUGUST 31 $ $
- -------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Future income tax liabilities
Carrying values of capital assets in excess of tax bases................ 7,073 7,234
Investment tax credits.................................................. 3,682 2,567
Other................................................................... 405 687
--------- ---------
TOTAL FUTURE INCOME TAX LIABILITIES....................................... 11,160 10,488
--------- ---------
Future income tax assets
Net operating losses carried forward.................................... 14,294 4,753
Research & development (Quebec)......................................... 1,523 2,468
Provisions and other.................................................... 4,457 966
--------- ---------
Total future income tax assets............................................ 20,274 8,187
Valuation allowance....................................................... (17,167) (5,803)
--------- ---------
Net future income tax assets.............................................. 3,107 2,384
--------- ---------
Future income tax liabilities in excess of future income tax assets....... 8,053 8,104
Recognized non-refundable investment tax credits [see note [d]below]...... (8,450) (7,780)
--------- ---------
NET FUTURE INCOME TAX LIABILITY (ASSET)................................... (397) 324
--------- ---------
--------- ---------
</TABLE>
The net future income tax liability (asset) is presented as follows on the
consolidated balance sheet:
<TABLE>
<CAPTION>
1998 1997
YEAR ENDED AUGUST 31 $ $
- -------------------------------------------------------------------------------- --------- -----
<S> <C> <C>
Future income tax asset......................................................... (922) --
Future income tax liability..................................................... 525 324
--- ---
(397) 324
--- ---
--- ---
</TABLE>
The company has unrecognized net operating loss carryforwards of approximately
$31,700,000 for U.S. federal tax purposes, which expire in the years 2007 to
2012, and approximately $6,200,000 for UK tax purposes, which expire in the
years 2005 to 2007.
Approximately $25,100,000 of US net operating federal loss carryforwards and
temporary differences and $10,000,000 of U.K. loss carryforwards and temporary
differences resulted from the Company's 1998 acquisition of IBRD. These tax loss
carryforwards and temporary differences were not included in the preliminary
purchase price allocation set out in note 3, as a valuation allowance of
approximately $12,154,000 had been provided for the entire amount of the related
tax benefits. Accordingly, once it is more likely than not that the tax benefits
of these unrecognized loss carryforwards and temporary differences will be
realized, they will be applied to reduce unamortized goodwill related to the
acquisition of IBRD. During the year, approximately $270,000 of these tax
benefits were realized and reduced the unamortized goodwill balance related to
the acquisition.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
11. INCOME TAXES AND INVESTMENT TAX CREDITS (CONTINUED)
[d] Investment tax credits
Investment tax credits recoverable represent non-refundable federal investment
tax credits earned on both current and capital research and development
expenditures incurred by the company and Quebec tax credits earned on labour
costs attributed to research and development activities.
As at August 31, 1998, the company had non-refundable investment tax credits of
approximately $33,680,000 available to be carried forward and used to reduce
Canadian federal income taxes payable in future years. The company has recorded
approximately $8,450,000 of these credits as at August 31, 1998 as a reduction
of future income tax liabilities. These federal tax credits will be taxable at
applicable income tax rates in the year following the year in which they are
claimed. The unrecognized research and development tax credits and those
recognized to the extent of existing future income tax liabilities expire as
follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
2003................................................................................ 2,538
2004................................................................................ 516
2005................................................................................ 5,158
2006................................................................................ 8,299
2007................................................................................ 7,669
2008................................................................................ 9,500
33,680
---------
Less: unrecognized investment tax credits......................................... (25,230)
---------
Recognized investment tax credits............................................. 8,450
---------
---------
</TABLE>
In addition, the Company has a pool of expenses available, without expiry, to
reduce future taxable income for provincial income tax purposes of approximately
$16,900,000.
The Company has recorded the following refundable investment tax credits:
<TABLE>
<CAPTION>
1998 1997 1996
YEARS ENDED AUGUST 31 $ $ $
- --------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Refundable Quebec investment tax credits recorded as a reduction of
related expenses................................................... 3,700 3,500 3,425
--------- --------- ---------
--------- --------- ---------
</TABLE>
12. SEGMENTED INFORMATION
[a] The Company operates in one industry segment, being a multiservice contract
research organization providing services to the pharmaceutical and
biotechnology industries.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
12. SEGMENTED INFORMATION (CONTINUED)
[b] Geographic segmentation:
<TABLE>
<CAPTION>
1998 1997
AS AT AUGUST 31 $ $
- ------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
ASSETS FROM
Canadian operations..................................................... 82,788 72,529
European operations..................................................... 107,799 73,424
United States operations................................................ 80,883 14,905
--------- ---------
271,470 160,858
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
FOR THE YEARS ENDED AUGUST 31 $ $ $
- ---------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
NET REVENUES FROM
Canadian operations............................................. 86,556 68,042 55,756
European operations............................................. 38,730 1,536 --
United States operations........................................ 45,952 12,899 7,326
--------- --------- ---------
171,238 82,477 63,082
--------- --------- ---------
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
Canadian operations............................................. 14,141 9,522 (352)
European operations............................................. 2,018 -- --
United States operations........................................ (468) (4,334) (4,829)
--------- --------- ---------
15,691 5,188 (5,181)
--------- --------- ---------
--------- --------- ---------
</TABLE>
[c] Net revenues from Canadian operations by market destination.
<TABLE>
<CAPTION>
1998 1997 1996
FOR THE YEARS ENDED AUGUST 31 $ $ $
- ----------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
United States.................................................... 65,350 49,671 44,047
Canada........................................................... 21,206 18,371 11,709
--------- --------- ---------
86,556 68,042 55,756
--------- --------- ---------
--------- --------- ---------
</TABLE>
13. FINANCIAL INSTRUMENTS
[A] FAIR VALUES
The carrying amounts and fair values of those financial liabilities whose fair
values differ materially from their carrying values are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
AS AT AUGUST 31 $ $ $ $
- -------------------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Government loans........................................ 861 742 861 746
State of Ohio loan...................................... 1,686 1,383 1,848 1,586
----- --------- ----- ---------
----- --------- ----- ---------
</TABLE>
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
13. FINANCIAL INSTRUMENTS (CONTINUED)
The methods and assumptions used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate a fair value are
as follows:
SHORT-TERM FINANCIAL ASSETS AND LIABILITIES
The carrying amounts of these financial assets and liabilities are a reasonable
estimate of the fair values because of the short maturity of the instruments on
normal commercial terms and conditions. Short-term financial assets comprise
cash, accounts receivable and marketable securities. Short-term financial
liabilities comprise bank indebtedness and accounts payable and accrued
liabilities.
U.S. DOLLAR DENOMINATED TERM ACQUISITION LOANS, AND OTHER TERM LOAN
The carrying amount of these financial liabilities are a reasonable estimate of
the fair values of the instruments as the liabilities were incurred shortly
prior to period end and there has been no significant change in the underlying
economic conditions.
ZERO COUPON BALANCE OF SALE PAYABLE AND MORTGAGE PAYABLE
The carrying amounts of these financial liabilities are a reasonable estimate of
their fair values.
GOVERNMENT LOANS AND STATE OF OHIO LOANS
The fair value of the government loans and state of Ohio loan in above table are
based on estimated future cash flows discounted using the current market rate
for debt of the same remaining maturities, as advised by the Company's bankers.
FORWARD FOREIGN EXCHANGE CONTRACTS
The Company enters into forward foreign exchange contracts that oblige it to
sell specific amounts of U.S. dollars at set future dates at predetermined
exchange rates. The contracts are matched with anticipated U.S. dollar cash
flows resulting from the receipt of accounts receivable and future revenues from
export sales to the United States. The Company enters into the forward foreign
exchange contracts to partially protect itself from currency exchange risk
between the Canadian and US dollars.
The following table sets out the Canadian dollar amounts to be received, the
contractual exchange rates and the settlement dates of outstanding contracts:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
$ $
Less than one year, at rates averaging C$1.3970 (1997: C$1.3610)........... 52,470 51,037
One to two years, at rates averaging C$1.4728 (1997: nil).................. 15,454 --
--------- ---------
Total...................................................................... 67,924 51,037
--------- ---------
--------- ---------
</TABLE>
At August 31, 1998, accounts receivable included $12 million of amounts due in
U.S. dollars which had been hedged with forward foreign exchange contracts
included in the table above. The net unrealized loss on hedges of anticipated
future U.S. dollar sales revenues relates entirely to signed contracts and
approximates $5.2 million at August 31, 1998 (1997: $1.0 million).
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
13. FINANCIAL INSTRUMENTS (CONTINUED)
The Company is exposed to credit-related losses in the event of non-performance
by the counterparties to derivative financial instruments, but it does not
expect any counterparties to fail to meet their obligations. As at August 31,
1998, the sole counterparty was a Canadian financial institutions.
[B] CREDIT AND CURRENCY RISK
ACCOUNTS RECEIVABLE
The Company enters into contracts with customers primarily in the United States
and Europe. Allowances are maintained for potential credit losses. It is
reasonably possible that the actual amount of loss incurred, if any, will differ
from management's estimates.
CONCENTRATION OF CREDIT RISK
No customer accounted for more than 10% of total net revenues for the twelve
months ended August 31, 1998. Two customers accounted for approximately 25% of
accounts receivable at August 31, 1998. As at August 31, 1997 and for the years
ended August 31, 1997 and 1996 no customer accounted for more than 10% of total
net revenues or accounts receivable.
14. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
AS AT AUGUST 31 1998 1997
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
$ $
Trade...................................................................... 17,957 6,922
Wages and benefits......................................................... 12,025 7,520
Other accruals and reserves................................................ 22,059 8,025
--------- ---------
52,041 22,467
--------- ---------
--------- ---------
</TABLE>
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
15. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES
The consolidated financial statements have been prepared in accordance with
Canadian GAAP. The following summary sets out the material adjustments to these
consolidated financial statements which would be made in order to conform with
U.S. GAAP.
[A] CONSOLIDATED STATEMENT OF INCOME (LOSS)
The consolidated statements of income (loss) in accordance with U.S. GAAP is
presented below. The notes that follow describe the material differences between
U.S. GAAP and Canadian GAAP in this regard.
<TABLE>
<CAPTION>
1998 1997 1996
FOR THE YEAR ENDED AUGUST 31 $ $ $
- --------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Revenues [1]..................................................................... 223,281 120,115 100,385
Reimbursed costs [1]............................................................. 47,122 9,567 8,558
--------- --------- ---------
Net revenues..................................................................... 176,159 110,548 91,827
Direct costs--net of refundable tax credits [1][4]............................... 103,080 67,614 59,601
--------- --------- ---------
73,079 42,934 32,226
Expenses--net of refundable tax credits
Selling, general and administrative [1][3]....................................... 52,967 33,361 29,423
Internal research and development................................................ 3,698 3,328 3,726
Interest on long-term debt and capital lease
obligations [1].................................................................. 3,352 794 1,214
Amortization of goodwill [3]..................................................... 941 404 753
Nonrefundable tax credits........................................................ (5,000) (2,400) (206)
--------- --------- ---------
17,121 7,447 (2,684)
Interest and other income [1].................................................... 1,285 526 363
Merger costs [2]................................................................. (368) (2,464) --
Share of earnings in equity accounted for investees [1].......................... 114 350 130
--------- --------- ---------
Income (loss) before income taxes [1]............................................ 18,152 5,859 (2,191)
Provision for income taxes [1]................................................... 6,651 3,841 1,068
--------- --------- ---------
Net income (loss) for the year................................................... 11,501 2,018 (3,259)
--------- --------- ---------
Basic earnings (loss) per share [1].............................................. $ 0.46 $ 0.08 ($ 0.14)
Diluted earnings (loss) per share [1]............................................ $ 0.46 $ 0.08 ($ 0.14)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
15. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES (CONTINUED)
The following reconciliation of the Company's reported net income (loss) under
Canadian GAAP to net income (loss) under U.S. GAAP summarizes the material
adjustments which were included in the previous table:
<TABLE>
<CAPTION>
1998 1997 1996
FOR THE YEAR ENDED AUGUST 31 $ $ $
- ----------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Net income (loss) in accordance with Canadian GAAP............... 9,067 2,349 (5,361)
Adjustments [5]
Net income of pooled entities [1]................................ 52 1,392 1,636
Merger costs [2]................................................. (368) (2,312) --
Amortization of goodwill [3]..................................... 1,352 123 --
Amortization of deferred start-up costs [4]...................... 466 466 466
Write-off of deferred start-up costs [note 7c][4]................ 932 -- --
--------- --------- ---------
Net income (loss) in accordance with U.S. GAAP................... 11,501 2,018 (3,259)
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
[1] The acquisition of ITEM described in note 3 was accounted for using the
purchase method under Canadian GAAP. Under U.S. GAAP, this transaction is
accounted for using the pooling of interests method, which requires
restating the financial statements of periods prior to the pooling
transaction date in a manner such that the two companies had always been
combined.
As ITEM's year end was December 31, and the Company's year-end is (and
continues to be) August 31, the pooled data presented for the year ended
August 31, 1996 includes ITEM's December 31, 1996 fiscal year data in
combination with the Company's August 31, 1996 fiscal year data. The pooled
data presented as at August 31, 1997 and for the year then ended, includes
ITEM's twelve months ended August 31, 1997 data in combination with the
Company's August 31, 1997 fiscal year data. Due to the difference between
ITEM's fiscal year end and that of the Company, ITEM's results of operations
for the 4 month period ended December 31, 1996 are included in the Company's
pooled data for both 1996 and 1997. As a result, retained earnings under
U.S. GAAP as at August 31, 1997 has been reduced by $377,000, which
represents the net income of ITEM for the four-month period in question.
Under U.S. GAAP, the Company is required to disclose the following additional
information concerning the operating results of the two previous separate
companies.
<TABLE>
<CAPTION>
COMPANY COMBINED
ITEM $ $
PERIOD SEPTEMBER 1, 1996 TO AUGUST 7, 1997 $ (UNAUDITED) (UNAUDITED)
- ------------------------------------------------------------------------ --------- ----------- -----------
<S> <C> <C> <C>
Net revenues............................................................ 19,904 74,351 94,255
Net income.............................................................. 1,098 340 1,438
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
The acquisition of Anawa described in Note 3 was accounted for using the
purchase method under Canadian GAAP. Under U.S. GAAP, this transaction is
accounted for using the pooling of interests method, which requires
restating the financial statements of periods prior to the pooling
transaction date in a manner such that the two companies had always been
combined.
As Anawa's year-end was December 31, and the Company's year-end is (and
continues to be) August 31, the pooled data presented for the year ended
August 31, 1996 includes Anawa's
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
15. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES (CONTINUED)
December 31, 1996 fiscal year data in combination with the Company's August
31, 1996 fiscal year data. The pooled data presented as at August 31, 1997
and for the year then ended, includes Anawa's December 31, 1997 fiscal year
data in combination with the Company's August 31, 1997 fiscal year data. The
pooled data presented as at August 31, 1998 and for the year then ended,
includes Anawa's twelve months ended August 31, 1998 data in combination
with the Company's August 31, 1998 fiscal year data. Due to the difference
between Anawa's fiscal year-end and that of the Company, Anawa's results of
operations for the 4 month period ended December 31, 1997 are included in
the Company's pooled data for both 1997 and 1998. As a result, retained
earnings under U.S. GAAP as at August 31, 1998 has been reduced by $142,000,
which represents the net income of Anawa for the 4 month period in question.
Under U.S. GAAP, the Company is required to disclose the following additional
data concerning the operating results of the two previous separate
companies:
<TABLE>
<CAPTION>
COMPANY COMBINED
ANAWA $ $
PERIOD SEPTEMBER 1, 1997 TO APRIL 30, 1998 $ (UNAUDITED) (UNAUDITED)
- ---------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Net revenues.............................................. 4,921 99,606 104,527
Net income................................................ 52 5,369 5,421
</TABLE>
[2] Under Canadian GAAP, the costs incurred to effect the acquisition of both
Anawa and ITEM were included in the determination of the cost of the
purchase. Costs incurred to effect pooling transactions are expensed in
accordance with U.S. GAAP. These costs include all advisory, legal,
accounting and related costs.
[3] Under Canadian GAAP, the application of the purchase method of accounting to
the acquisitions of both Anawa and ITEM resulted in the revaluation of the
acquiree's assets and liabilities to their fair value, including an
allocation to goodwill. As the ITEM and Anawa transactions are treated as
pooling of interests transactions under U.S. GAAP, there would be no change
in the accounting basis of the underlying assets and liabilities of ITEM and
Anawa.
[4] Under Canadian GAAP, certain costs incurred to start up a new facility may
be deferred and amortized over future periods. In the year ended August 31,
1995 the Company incurred approximately $2,330 of such start-up costs, which
under U.S. GAAP, would have been expensed as incurred (amortization of the
amounts under Canadian GAAP commenced on September 1, 1995). The aggregate
of the reconciling amounts identified in the table above under the captions
"amortization of deferred start-up costs" and "write-off of deferred
start-up costs" represent amounts which would have been expensed in the year
ended August 31, 1995 under U.S. GAAP.
[5] As described in note 2[a] to the financial statements, the temporal method,
which uses the Canadian dollar as the unit of measure (and functional
currency), was used to translate the financial statements of Phoenix U.S.
prior to February 1998 under Canadian GAAP. This does not differ from U.S.
GAAP which would also require the financial statements of Phoenix U.S. to be
translated using the Canadian dollar as the functional currency prior to
February 1998.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
15. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES (CONTINUED)
[B] CONSOLIDATED BALANCE SHEETS
The following table outlines the impact of the application of U.S. GAAP on the
following summarized balance sheet accounts:
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------------------------
1998 1997
---------------------- ----------------------
CANADIAN US CANADIAN US
GAAP GAAP GAAP GAAP
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
$ $ $ $
Current assets................................... 104,776 104,776 57,581 60,757
Non-current assets [1][2]........................ 166,694 113,148 103,277 53,528
----------- --------- ----------- ---------
Total assets..................................... 271,470 217,924 160,858 114,285
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Current liabilities.............................. 94,834 94,834 41,083 42,771
Non-current liabilities.......................... 46,683 46,683 7,510 7,674
----------- --------- ----------- ---------
Total liabilities................................ 141,517 141,517 48,593 50,445
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Capital stock [1][4]............................. 110,559 54,421 103,073 54,178
Cumulative translation adjustment................ 1,135 651 -- (314)
Additional paid in capital [3]................... -- 1,686 -- 1,686
Retained earnings [5] 18,259 19,649 9,192 8,290
----------- --------- ----------- ---------
Total shareholders' equity....................... 129,953 76,407 112,265 63,840
----------- --------- ----------- ---------
----------- --------- ----------- ---------
271,470 217,924 160,858 114,285
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>
- ------------------------
[1] See note [a][3] above. Furthermore, the absence of such revaluation under
U.S. GAAP would also apply to the consideration paid, being the common
shares of the company.
[2] See note [a][4] above.
[3] Under Canadian GAAP, the redemption of certain preferred shares at less than
their stated value gives rise to financing income. In Fiscal 1993, the
Company redeemed $5,590 of preferred shares for $4,754, giving rise to $836
of financing income. In fiscal 1994, the Company redeemed $5,593 of
preferred shares for $4,743 giving rise to $850 of financing income. Under
U.S. GAAP, such transactions are accounted for by increasing additional
paid-in capital. As these transactions took place prior to September 1,
1995, there is no impact on the U.S. GAAP consolidated statements of income
(loss).
[4] In Fiscal 1996 and 1995, the Company incurred $1,272 and $2,391 respectively
of share issue costs in connection with public offerings. Under Canadian
GAAP, the Company has chosen to account for share issue costs as a charge to
retained earnings. Under U.S. GAAP, share issue costs are accounted for as a
reduction of the related capital stock.
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
15. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES (CONTINUED)
[5] The following reconciliation of the Company's reported retained earnings
under Canadian GAAP to retained earnings under U.S. GAAP summarizes the
material adjustments which were included in the above table:
<TABLE>
<CAPTION>
1998 1997
AS AT AUGUST 31 $ $
- ------------------------------------------------------------------- --------- ---------
<S> <C> <C> <C>
Regained earnings in accordance with Canadian GAAP................. 18,259 9,192
Adjustments:
Pre-merger retained earnings of ITEM at August 7, 1997............. see note [a][1] above 1,091 1,091
Pre-merger deficit of Anawa at April 30, 1998 and December 31, 1997
respectively..................................................... see note [a][1] above (473) (383)
Cumulative merger costs............................................ see note [a][2] above (2,680) (2,312)
Cumulative amortization of goodwill................................ see note [a][3] above 1,475 123
Deferred start-up costs at August 31, 1997......................... see note [a][4] above -- (1,398)
Cumulative financing income........................................ see note [b][3] above (1,686) (1,686)
Cumulative share issue costs....................................... see note [b][4] above 3,663 3,663
------------------------ --------- ---------
Retained earnings in accordance with U.S. GAAP..................... 19,649 8,290
--------- ---------
--------- ---------
</TABLE>
[C] CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
The consolidated statement of changes in financial position which are subject to
material differences under U.S. GAAP are restated below:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
CANADIAN CANADIAN CANADIAN
YEAR ENDED AUGUST 31 GAAP US GAAP GAAP US GAAP GAAP US GAAP
- --------------------------------------------------------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $
Cash provided by (used in) operating activities [1][2] 14,861 14,642 7,717 10,522 (3,609) (7,573)
Cash used in investing activities [1][2]................. (40,873) (33,262) (55,864) (10,398) (20,338) (20,850)
Cash provided by (used in) financing activities [1][2][3] 43,141 35,898 46,707 (170) 28,992 28,979
Effect of foreign currency change rates on cash [1]...... (2,788) (2,799) -- (841) -- (129)
Net Increase (decrease) in cash [1][3]................... 14,341 14,479 (1,440) (887) 5,045 427
Cash position beginning of year [1][3]................... 1,837 2,530 3,277 3,951 (1,768) 3,972
Cash position end of year [1][3]......................... 16,178 17,009 1,837 3,064 3,277 4,399
</TABLE>
- ------------------------
[1] See note b[1] above.
[2] See notes a[2] and a[3] above.
[3] In these financial statements, the definition of cash used in the
measurement of cash flows includes bank indebtedness. Under U.S. GAAP,
changes in short-term borrowings would be excluded from the definition of
cash and presented as financing transactions.
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
15. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES (CONTINUED)
Additional information required in the statement of cash flows under U.S. GAAP
is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31 1998 1997 1996
- --------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
$ $ $
Cash Interest paid................................................... 3,354 842 1,179
Cash Income taxes paid............................................... 1,630 1,448 960
</TABLE>
[D] ACCOUNTING FOR STOCK-BASED COMPENSATION
Under U.S. GAAP, the Company accounts for compensation expense associated with
Stock options in accordance with accounting principles Board Opinion No. 25. In
accordance with both Canadian GAAP and U.S. GAAP, the Company has not recognized
compensation expense for stock option grants in the statements of income (loss)
as the market price of the underlying stock on the grant dates did not exceed
the exercise price of the options granted.
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
FOR THE YEAR ENDED AUGUST 31 $ $ $
- --------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Risk free interest rates....................................... 6.5% 6.5% 6.5%
Dividend yields................................................ 0% 0% 0%
Volatility factors of expected market price of company's
shares....................................................... 41.5 41.5 41.5
Weighted average expected life of the options.................. 5 years 5 years 5 years
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option pricing models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially effect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. For purposes of pro
forma disclosures, the estimated fair value of the option is amortized to
expense over the options' vesting period. The pro forma impact of FAS 123 on the
Company's net income (loss) and basic earnings per share would be as follows:
<TABLE>
<CAPTION>
1998 1997 1996
FOR THE YEAR ENDED AUGUST 31 $ $ $
- ------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Net income (loss) as reported..................................... 11,501 2,018 (3,259)
Pro forma stock compensation expense.............................. (899) (516) (446)
--------- --------- ---------
Pro Forma net income (loss)....................................... 10,602 1,502 (3,705)
--------- --------- ---------
--------- --------- ---------
Basic earnings (loss) per share
As reported..................................................... 0.46 0.08 (0.14)
Pro forma....................................................... 0.43 0.06 (0.16)
</TABLE>
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
15. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES (CONTINUED)
[E] EARNINGS PER SHARE
The following table presents the earnings per share computations in accordance
with U.S. GAAP.
<TABLE>
<CAPTION>
1998 1997 1996
FOR THE YEAR ENDED AUGUST 31 $ $ $
- ---------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Numerator for basic and diluted earnings per share
income (loss) available to common stockholders.... 11,501 2,018 (3,259)
------------ ------------ ------------
Denominator
Denominator for basic earnings per share
weighted-average shares outstanding............... 24,828,545 25,126,992 23,498,389
Effect of dilutive stock options.................... 272,993 157,862 *
------------ ------------ ------------
Denominator for diluted earnings per share --
adjusted weighted-average shares.................. 25,101,538 25,284,854 23,498,389
------------ ------------ ------------
Basic earnings per share............................ 0.46 0.08 (0.14)
------------ ------------ ------------
Diluted earnings per share.......................... 0.46 0.08 (0.14)
</TABLE>
* Options to purchase 737,250 shares of common stock at exercise prices
ranging from $5.00 to $13.90 per share were outstanding during the year
ended December 31, 1996 but were not included in the computation of diluted
earnings per share because they had an anti-dilutive effect given the loss
for this period.
The weighted average shares issued and outstanding for the years ended August
31, 1997 and 1996 have been restated to reflect the shares issued on the
acquisition of ITEM. The weighted average shares issued and outstanding for the
years ended August 31, 1998, 1997 and 1996 have been restated to reflect the
shares issued upon the acquisition of Anawa.
[F] ACCOUNTING FOR INCOME TAXES
The following presents certain information related to accounting for income
taxes under U.S. GAAP.
Income tax expense and significant components of the provision for income taxes
under U.S. GAAP consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
YEAR ENDED AUGUST 31 $ $ $
- --------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Current income tax expense before the following:..................... 6,841 2,792 615
Benefit of previously unrecognized temporary differences............. (716) (330) --
--------- --------- ---------
Current income tax expense........................................... 6,125 2,462 615
Deferred income tax expense.......................................... 526 1,379 453
--------- --------- ---------
Income tax expense................................................... 6,651 3,841 1,068
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
15. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES (CONTINUED)
The income tax provision reported under U.S. GAAP differs from the amount
computed by applying Canadian income tax rates to income (loss) before income
taxes. The reason for the difference and the related tax effects are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
YEAR ENDED AUGUST 31 $ $ $
- ------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Income (loss) before income taxes................................. 18,152 5,859 (2,191)
Canadian statutory income tax rate................................ 38.22% 38.22% 38.02%
--------- --------- ---------
Expected income tax expense (benefit)............................. 6,938 2,239 (833)
Adjustments
Effect of foreign tax rates....................................... (231) 9 (125)
Unrecognized income tax benefit on losses and temporary
differences..................................................... 214 1,334 1,951
Benefit of previously unrecognized losses and temporary
differences..................................................... (716) (330) --
Tax credits not taxable in Quebec................................. (756) (543) (305)
Foreign exchange gain on intercompany debt........................ 560 -- --
Tax effect related to non-deductible goodwill amortization........ 186 -- --
Large corporations tax & other.................................... 456 1,132 380
--------- --------- ---------
Provision for income taxes........................................ 6,651 3,841 1,068
--------- --------- ---------
--------- --------- ---------
</TABLE>
[G] RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, FASB issued Statement No. 130, "Reporting Comprehensive Income'
which is effective for fiscal years beginning after December 15, 1997. Statement
No. 130 establishes standards for reporting and displaying comprehensive income
and its components in financial statements. The Company will adopt Statement No.
130 in the first quarter of fiscal 1999 and will provide the financial statement
disclosures as required. The application of the new rules will not have an
impact on the Company's reported financial position or results of operations.
In June 1997, FASB issued Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which is effective for fiscal years
beginning after December 15, 1997. Statement No. 131 changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial statements to shareholders. Statement No. 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The Company will adopt Statement No. 131 in fiscal 1999,
which may result in additional disclosures. The application of the new rules
will not have an impact on the Company's reported financial position or results
of operations.
In June 1998, FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Company is required to adopt
this standard in the first quarter of fiscal 2000. The Company is currently
assessing the impact that this standard will have on its reported financial
position and results of operations.
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[TABULAR FIGURES ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT AS OTHERWISE
INDICATED]
16. RELATED PARTY TRANSACTIONS
During the year ended August 31, 1998, $794,000 [$315,000 in the year ended
August 31, 1997 and nil in the year ended August 31, 1996]was paid to an
investment advisory firm, of which a member of the Company's board of directors
is an officer. These fees are included as part of the cost of acquisitions
related to ITEM, Anawa and IBRD.
17. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform to the
presentation adopted in the current year.
18. SUBSEQUENT EVENTS
[a] On November 5, 1998, the Company completed the acquisition of Clinserve
Laboratories in exchange for 316,805 common shares of the Company with an
approximate value of $3.8 million.
[b] On November 6, 1998, the Company completed the acquisition of McKnight
Laboratories GmbH in exchange for 873,325 common shares of the Company with
an approximate value of $10.7 million.
[c] On November 18, 1998, the Company entered into an agreement and plan of
merger to acquire 100% of the issued and outstanding capital stock of
Chrysalis International Corporation. The details with respect to the
proposed merger are set out in the related Proxy Statement/Prospectus.
[d] On December 15, 1998, the Company announced plans to build a new laboratory
which will house a portion of the Company's bioanalytical operations. The
facility, which will be built on land adjacent to the Company's headquarters
in Montreal, Canada is expected to cost $56 million (consisting of $15
million for the building and $41 million for equipment purchases over five
years).
F-34
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME IN ACCORDANCE WITH CANADIAN GAAP
UNAUDITED
<TABLE>
<CAPTION>
FIRST QUARTER, ENDED NOVEMBER 30 1998 1997
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AMOUNTS) $ $
- -------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Gross revenues........................................................................ 74,163 35,536
Reimbursed costs...................................................................... 15,502 3,857
------------ ------------
NET REVENUES.......................................................................... 58,661 31,679
Direct costs--net of refundable tax credits........................................... 34,695 18,531
------------ ------------
Gross profit.......................................................................... 23,966 13,148
------------ ------------
------------ ------------
EXPENSES--NET OF REFUNDABLE TAX CREDITS
Selling, general and administrative................................................... 17,520 9,745
Internal research and development..................................................... 866 902
Interest expense...................................................................... 1,425 199
Amortization of goodwill.............................................................. 732 322
------------ ------------
20,543 11,168
------------ ------------
Other income.......................................................................... 246 152
Non-refundable tax credits............................................................ 1,500 600
------------ ------------
Income before income taxes............................................................ 5,169 2,732
Income taxes.......................................................................... 2,315 902
------------ ------------
NET INCOME FOR THE PERIOD............................................................. 2,854 1,830
------------ ------------
------------ ------------
BASIC AND FULLY DILUTED EARNINGS PER SHARE............................................ 0.11 0.08
------------ ------------
------------ ------------
Weighted average shares outstanding................................................... 25,155,226 24,289,208
------------ ------------
------------ ------------
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS IN ACCORDANCE WITH CANADIAN GAAP
UNAUDITED
<TABLE>
<CAPTION>
1998 1997
FOR THE THREE MONTHS ENDED NOVEMBER 30 (IN THOUSANDS OF CANADIAN DOLLARS) $ $
- -------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
RETAINED EARNINGS, BEGINNING OF PERIOD................................................ 18,259 9,192
Net income............................................................................ 2,854 1,830
------------ ------------
Retained earnings, end of period...................................................... 21,113 11,022
------------ ------------
------------ ------------
</TABLE>
F-35
<PAGE>
CONSOLIDATED BALANCE SHEETS IN ACCORDANCE WITH CANADIAN GAAP
UNAUDITED
<TABLE>
<CAPTION>
NOVEMBER 30 AUGUST 31
1998 1998
AS AT, (IN THOUSANDS OF CANADIAN DOLLARS) $ $
- ---------------------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
ASSETS
Current
Cash.................................................................................... 18,329 17,009
Marketable securities................................................................... 2,000 2,000
Accounts receivable..................................................................... 56,459 47,712
Investment tax credits recoverable...................................................... 3,886 3,362
Costs and estimated profit in excess of progress billings on
contracts in progress................................................................. 28,147 27,847
Others.................................................................................. 8,741 6,846
------------ -----------
117,562 104,776
------------ -----------
Capital assets.......................................................................... 59,624 56,638
Other assets............................................................................ 126,729 110,056
------------ -----------
303,915 271,470
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness....................................................................... 3,565 831
Accounts payable and accrued liabilities................................................ 56,768 52,041
Progress billings in excess of costs and estimated profit on
contracts in progress................................................................. 42,334 34,882
Current portion of long-term debt and capital lease obligations......................... 8,382 7,080
------------ -----------
111,049 94,834
------------ -----------
Long-term debt and capital lease obligations............................................ 41,843 42,440
Other deferred credits.................................................................. 3,718 4,243
------------ -----------
156,610 141,517
Shareholders' equity
Capital stock........................................................................... 125,027 110,559
Retained earnings....................................................................... 21,113 18,259
Cumulative translation adjustment....................................................... 1,165 1,135
------------ -----------
147,305 129,953
------------ -----------
303,915 271,470
------------ -----------
------------ -----------
</TABLE>
F-36
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW IN ACCORDANCE WITH CANADIAN GAAP
UNAUDITED
<TABLE>
<CAPTION>
1998 1997
FOR THE THREE MONTHS PERIOD ENDED NOVEMBER 30 (IN THOUSANDS OF CANADIAN DOLLARS) $ $
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income..................................................................................... 2,854 1,830
Items not affecting cash
Amortization................................................................................... 3,733 2,398
--------- ---------
6,587 4,228
--------- ---------
Net change in non-cash working capital items related to operations............................. (456) (2,291)
--------- ---------
Cash provided by operating activities.......................................................... 6,131 1,937
--------- ---------
INVESTING ACTIVITIES
Capital asset additions........................................................................ (3,931) (1,682)
Investment in Chrysalis........................................................................ (7,246) --
Proceeds on disposal of Kansas City Analytical Services........................................ 3,672 --
Other assets................................................................................... (220) (50)
--------- ---------
Cash used in investing activities.............................................................. (7,725) (1,732)
--------- ---------
FINANCING ACTIVITIES
Assumption of long-term debt................................................................... 7,200 4,228
Repayment of long-term debt.................................................................... (6,495) (599)
Other deferred credits and long-term liabilities............................................... (525) 367
Increase (decrease) in bank indebtedness....................................................... 2,734 (690)
Proceeds on sale of marketable securities...................................................... -- 5,250
Repayment of debentures........................................................................ -- (5,250)
--------- ---------
Cash provided by financing activities.......................................................... 2,914 3,306
--------- ---------
Increase in cash position during the period.................................................... 1,320 3,511
Cash beginning of period....................................................................... 17,009 2,530
--------- ---------
Cash end of period............................................................................. 18,329 6,041
--------- ---------
--------- ---------
</TABLE>
F-37
<PAGE>
THE FOLLOWING PRESENTS THE CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME IN ACCORDANCE WITH U.S. GAAP
UNAUDITED
<TABLE>
<CAPTION>
FIRST QUARTER, ENDED NOVEMBER 30 1998 1997
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AMOUNTS) $ $
- -------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Gross revenues........................................................................ 76,216 38,618
Reimbursed costs...................................................................... 15,502 3,857
------------ ------------
NET REVENUES.......................................................................... 60,714 34,761
Direct costs--net of refundable tax credits........................................... 35,838 20,611
------------ ------------
Gross profit.......................................................................... 24,876 14,150
------------ ------------
------------ ------------
EXPENSES--NET OF REFUNDABLE TAX CREDITS
Selling, general and administrative................................................... 18,160 10,496
Internal research and development..................................................... 866 902
Interest expense...................................................................... 1,450 227
Amortization of goodwill.............................................................. 321 48
------------ ------------
20,797 11,673
------------ ------------
Other income.......................................................................... 246 153
Merger costs.......................................................................... 800 --
Non-refundable tax credits............................................................ 1,500 600
------------ ------------
Income before income taxes............................................................ 5,025 3,230
Income taxes.......................................................................... 2,334 916
------------ ------------
Net income for the period............................................................. 2,691 2,314
------------ ------------
------------ ------------
Foreign currency translation adjustment............................................... 30 --
------------ ------------
Comprehensive income.................................................................. 2,721 2,314
------------ ------------
------------ ------------
BASIC AND DILUTED EARNINGS PER SHARE.................................................. 0.10 0.09
------------ ------------
------------ ------------
Weighted average shares outstanding................................................... 26,047,189 25,131,664
------------ ------------
------------ ------------
</TABLE>
F-38
<PAGE>
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOVEMBER 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in Canada ("Canadian
GAAP") for interim financial information. Accordingly, they do not include all
of the information and footnotes required by Canadian GAAP for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ending November 30,
1998 are not necessarily indicative of the results that may be expected for the
year ended August 31, 1999. For further information, refer to the Consolidated
Financial Statements and notes thereto included in the Prospectus/Proxy Circular
for the year ended August 31, 1998 of Phoenix International Life Sciences Inc.
(the "Company").
2. MERGERS AND ACQUISITIONS
The Company acquired the following companies in the three month period ended
November 30, 1998 in transactions that were accounted for under the purchase
method under Canadian GAAP and as poolings of interests under US GAAP.
<TABLE>
<CAPTION>
APPROXIMATE COST OF
PURCHASE FOR CANADIAN
ACQUIRED COMPANY DATE ACQUIRED SHARES ISSUED* GAAP PURPOSES
- -------------------------------------------------- ---------------------- -------------- ---------------------
<S> <C> <C> <C>
Clinserve AG...................................... November 5, 1998 316,805 $3.8 million
McKnight GmBH..................................... November 6, 1998 873,325 $10.7 million
</TABLE>
- ------------------------
* The Company's Common Stock was issued in exchange for all the outstanding
shares of each of the acquired companies.
All consolidated financial data under US GAAP have been restated to include the
results of Clinserve AG on a retroactive basis. The financial data of McKnight
GmBH was not materially different from that previously reported by the Company,
and thus previous years' US GAAP data of Phoenix has not been restated.
3. STOCK OPTIONS
Subsequent to August 31, 1998, the Company issued 731,983 stock options to
certain directors, officers and employees of the Company. The options have
exercise prices ranging from $8.54 to $16.69 and expire in the years 2008 and
2009.
4. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES
COMPREHENSIVE INCOME
The Company adopted Financial Accounting Standard Board Statement No. 130,
"Reporting Comprehensive Income" for US GAAP purposes in the first quarter of
fiscal 1999.
F-39
<PAGE>
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 30, 1998
EARNINGS PER SHARE
The following table presents the earnings per share computations in accordance
with U.S. GAAP.
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD ENDED NOVEMBER 30 1998 1997
- -------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
$ $
Numerator for basic and diluted earnings per share income (loss) available to common
stockholders........................................................................ 2,691 2,314
------------ ------------
Denominator
Denominator for basic earnings per share weighted-average shares outstanding........ 26,047,189 25,131,664
Effect of dilutive stock options.................................................... 240,992 173,441
------------ ------------
Denominator for diluted earnings per share--adjusted weighted-average shares.......... 26,288,181 25,305,105
------------ ------------
Basic and diluted earnings per share.................................................. 0.10 0.09
------------ ------------
</TABLE>
The weighted average shares issued and outstanding for the quarters ended
November 30, 1998 and 1997 have been restated to reflect the shares issued on
the acquisitions of ITEM, Clinserve, and ANAWA, as applicable.
MATERIAL VARIATIONS FROM US GAAP WHICH HAVE ARISEN IN THE FIRST QUARTER OF 1999
As a result of the McKnight GmbH and the Clinserve AG acquisitions being
accounted for using the pooling of interests method under US GAAP and the
purchase method under Canadian GAAP, the following material adjustments would be
required to reconcile the Canadian GAAP balance sheet to US GAAP:
a. Reduce other assets by approximately $14,800, which represents the
goodwill recorded on the transactions;
b. Reduce capital stock by approximately $11,800;
c. Reduce retained earnings by approximately $3,000.
F-40
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
IBRD--Rostrum Global, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of IBRD--Rostrum
Global, Inc. and Subsidiaries as of December 31, 1997 and the related statements
of operations, stockholder's equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit of the financial statements provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the consolidated financial position of IBRD--Rostrum
Global, Inc. and Subsidiaries at December 31, 1997, and the consolidated results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Irvine, California
December 10, 1998
F-41
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash......................................................................... $11,068,033
Contract receivables, net.................................................... 10,624,921
Prepaid investigator costs................................................... 612,658
Prepaid expenses and other current assets.................................... 961,052
-----------
Total current assets........................................................... 23,266,664
Property and equipment
Furniture and equipment...................................................... 2,473,284
Computer equipment........................................................... 3,861,937
Leasehold improvements....................................................... 529,294
-----------
6,864,515
Less accumulated depreciation and amortization............................... (4,521,972)
-----------
2,342,543
Goodwill, net of accumulated amortization of $11,731,032....................... 19,250,200
Covenant not-to-compete, net of accumulated amortization of $1,211,274......... 34,608
Other assets................................................................... 114,065
Investment in KCAS............................................................. 2,139,502
-----------
Total assets................................................................... $47,147,582
-----------
-----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................. $ 1,603,552
Accrued expenses............................................................. 3,567,876
Accrued direct contract costs................................................ 4,868,780
Deferred contract revenues................................................... 13,905,423
Current maturities of notes payable and other borrowings..................... 11,571,196
Taxes payable................................................................ 421,207
-----------
Total current liabilities...................................................... 35,938,034
Capital leases, net of current maturities...................................... 203,167
-----------
Total liabilities.............................................................. 36,141,201
Commitments and contingencies
Stockholder's equity:
Common stock, $.01 par value:
Authorized shares--4,000,000
Issued and outstanding shares--10,000...................................... 100
Additional paid-in capital................................................... 48,574,817
Accumulated deficit.......................................................... (37,578,857)
Cumulative foreign currency translation...................................... 10,321
-----------
Total stockholder's equity..................................................... 11,006,381
-----------
Total liabilities and stockholder's equity..................................... $47,147,582
-----------
-----------
</TABLE>
See accompanying notes.
F-42
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Gross revenue.................................................. $61,149,608
Reimbursable costs............................................. 20,765,719
----------
Net revenue.................................................... 40,383,889
Service costs.................................................. 32,644,835
----------
Net contract margin............................................ 7,739,054
Kuraya administrative fees..................................... 315,614
Selling, general and administrative expenses................... 7,584,109
Amortization of intangible assets.............................. 2,478,368
----------
Operating loss................................................. 2,639,037
Interest and other expenses, net............................... (419,222)
----------
Loss before provision for income taxes......................... (3,058,259)
Provision for income taxes..................................... 52,000
----------
Net loss....................................................... $(3,110,259)
----------
----------
</TABLE>
See accompanying notes.
F-43
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK ADDITIONAL FOREIGN
---------------------- PAID-IN ACCUMULATED CURRENCY
SHARES AMOUNT CAPITAL DEFICIT TRANSLATION TOTAL
--------- ----------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997................. 10,000 $ 100 $ 48,574,817 $ (34,468,598) $ (62,524) $ 14,043,795
Foreign currency translation............. -- -- -- -- 72,845 72,845
Net loss................................. -- -- -- (3,110,259) -- (3,110,259)
--------- ----- ------------- -------------- ----------- -------------
Balance at December 31, 1997............... 10,000 $ 100 $ 48,574,817 $ (37,578,857) $ 10,321 $ 11,006,381
--------- ----- ------------- -------------- ----------- -------------
--------- ----- ------------- -------------- ----------- -------------
</TABLE>
See accompanying notes.
F-44
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss........................................................................ $(3,110,259)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of intangible assets............................................. 2,478,368
Depreciation and amortization of property and equipment....................... 1,131,866
Loss on disposition of furniture and equipment................................ 51,540
Equity in earnings of KCAS.................................................... (15,501)
Changes in operating assets and liabilities:
Contract receivables, net................................................... 1,002,593
Prepaid investigator costs.................................................. (480,094)
Prepaid expenses and other current assets................................... 158,087
Other assets................................................................ 35,877
Accounts payable and accrued expenses....................................... 18,021
Accrued direct contract costs............................................... 1,808,344
Deferred contract revenues.................................................. 2,827,454
----------
Net cash provided by operating activities....................................... 5,906,296
INVESTING ACTIVITIES
Proceeds from sale of property and equipment.................................... 16,429
Payments for purchases of property and equipment................................ (837,417)
----------
Net cash used in investing activities........................................... (820,988)
FINANCING ACTIVITIES
Proceeds from notes payable and other borrowings................................ 2,600,000
Repayments on notes payable and other borrowings................................ (2,707,218)
----------
Net cash used in financing activities........................................... (107,218)
Effect of exchange rate on cash................................................. (44,605)
Net increase in cash............................................................ 4,933,485
Cash at beginning of year....................................................... 6,134,548
----------
Cash at end of year............................................................. $11,068,033
----------
----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest........................................................................ $ 609,669
----------
----------
Income taxes.................................................................... $ 93,663
----------
----------
</TABLE>
See accompanying notes.
F-45
<PAGE>
IBRD--ROSTRUM GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. BUSINESS
IBRD--Rostrum Global, Inc. and Subsidiaries (IBRD--Rostrum or the Company)
provides independent clinical research and clinical design management services
to customers in the pharmaceutical industry for the evaluation and certification
of new pharmaceutical compounds, primarily in the United States and Europe. The
Company is a wholly-owned subsidiary of Kuraya American Systems Inc. (KAS or the
Parent) which is a subsidiary of Kuraya Corporation (Kuraya). The Company had
certain intercompany relationships with KAS during the year, and as such, the
accompanying consolidated financial statements may not be indicative of the
Company on a stand-alone basis. On December 24, 1997, KAS entered into an
agreement to sell the common stock of the Company to Phoenix International Life
Sciences, Inc. (Phoenix) (NOTE 10). The transaction was completed on February 6,
1998.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of IBRD--Rostrum and
its wholly-owned subsidiaries, IBRD--Rostrum Europe, Inc. (Europe, Inc.) and
IBRD Center for Clinical Research, Inc. (ICCR) (collectively, the Company). All
significant intercompany balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PREPAID INVESTIGATOR COSTS
Prepaid investigator costs represent amounts paid up front to investigators who
are engaged in clinical research. These amounts are used by investigators to
fund the costs of the projects. Reimbursable revenue is recognized and costs are
expensed as the funds are earned.
CONTRACT RECEIVABLES
Contract receivables arise in the normal course of performing services for
customers. The Company performs credit evaluations of its customers and does not
require collateral. The Company maintains allowances for potential credit
losses.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of furniture and
equipment is provided on the straight-line method over the estimated useful
lives of the assets or the related lease term, generally three to five years.
Amortization of leasehold improvements is provided over the shorter of the
related lease terms or the estimated useful lives of the improvements.
F-46
<PAGE>
IBRD--ROSTRUM GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill is being amortized on the straight-line method over 15 years.
Recoverability of this asset is dependent on future operating cash flows of the
Company. Management periodically evaluates the potential impairment of goodwill.
Such evaluation is based on undiscounted expected future operating cash flows.
INVESTMENTS
The Company accounts for its investments that are 50% or less owned under the
equity method of accounting, because the Company does not exercise control over
the investees.
REVENUE RECOGNITION
The Company recognizes contract revenues using the percentage-of-completion
method principally based on costs incurred to total estimated contract costs at
completion or the achievement of milestones. As such, revisions in estimates
during the course of completing the contract are reflected in the accounting
period in which the revision becomes known. At the time a loss on a contract
becomes known, the entire amount of the estimated loss on the contract is
accrued. Amounts billed and cash advances received in excess of earnings on
contracts are recorded as deferred contract revenues and recognized as contract
revenues when earned.
INCOME TAXES
The Company is included in the consolidated federal and state income tax returns
of KAS. The Company accounts for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES, as if it filed a separate tax return. SFAS No. 109
requires the recognition of deferred tax assets and liabilities for the future
consequences of events that have been recognized in the Company's financial
statements or tax returns. Measurement of the deferred items is based on enacted
tax laws. In the event the future consequences of differences between financial
reporting bases and the tax bases of the assets and liabilities result in a
deferred tax asset, SFAS No. 109 requires an evaluation of the probability of
being able to realize the future benefits indicated by such asset. A valuation
allowance related to a deferred tax asset is recorded when it is more likely
than not that some portion or all of the deferred tax asset will not be
realized.
FOREIGN CURRENCY TRANSLATION
In accordance with the provisions of SFAS No. 52, FOREIGN CURRENCY TRANSLATION,
the assets and liabilities located outside the United States are generally
translated into U.S. dollars at the rates of exchange in effect at the balance
sheet date. Income and expense items are translated at the average exchange
rates prevailing during the period. Gains and losses resulting from foreign
currency transactions are recognized currently in the results of operations, and
those resulting from translation of financial statements are accumulated as a
separate component of stockholder's equity.
F-47
<PAGE>
IBRD--ROSTRUM GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements. This
statement is effective for fiscal years beginning after December 15, 1997.
3. TRANSACTIONS WITH RELATED PARTIES
The Company has a management agreement with KAS whereby KAS provides
services such as the translation of documents, communications with Kuraya and
attendance at various meetings. The Company was charged $315,614 for management
fees and other expenses incurred by KAS on behalf of the Company and has
included these amounts in selling, general and administrative expenses.
During the year, interest expense of $60,000 was incurred related to KAS
borrowings. At December 31, 1997, accrued interest payable to KAS was $302,500
(NOTE 6).
4. INVESTMENT IN KCAS
The Company has a 44% investment in Kansas City Analytical Services (KCAS),
an analytical and pharmacokinetics consulting business.
5. CONTRACT RECEIVABLES
Contract receivables consisted of the following:
<TABLE>
<S> <C>
Billed......................................................... $8,162,316
Unbilled....................................................... 2,641,224
Allowance for doubtful accounts................................ (178,619)
----------
$10,624,921
----------
----------
</TABLE>
The Company records a deferred contract revenue liability when billed amounts
exceed revenue recognized for a contract. At December 31, 1997, deferred
contract revenues totaled $13,905,423.
6. NOTES PAYABLE AND OTHER BORROWINGS
In connection with the sale to Phoenix (NOTE 10), the Company repaid its
notes payable and other borrowings, except for its capital leases, as of
February 6, 1998. Accordingly, the Company recorded all such notes payable and
other borrowings as current liabilities.
F-48
<PAGE>
IBRD--ROSTRUM GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. NOTES PAYABLE AND OTHER BORROWINGS (CONTINUED)
Notes payable and other borrowings consisted of the following:
<TABLE>
<S> <C>
Line of credit with bank, interest at 7.215%, guaranteed by
KAS........................................................... $3,000,000
Note payable to bank, interest at 5.85% payable semi-annually in
arrears, guaranteed by KAS.................................... 2,400,000
Notes payable to KAS, interest at 3%............................ 2,000,000
Line of credit with bank, interest at 6.42%; guaranteed by
KAS........................................................... 1,600,000
Note payable to bank, interest at 6.55% payable semi-annually in
arrears, guaranteed by KAS.................................... 1,300,000
Line of credit with bank, interest at 7.78%, guaranteed by
KAS........................................................... 500,000
Line of credit with bank, interest at 6.48%, guaranteed by
KAS........................................................... 500,000
Capital leases (NOTE 7)......................................... 474,363
---------
11,774,363
Less current maturities......................................... 11,571,196
---------
$ 203,167
---------
---------
</TABLE>
7. LEASING ARRANGEMENTS
The Company is obligated under long-term, operating leases for office space
and office equipment which expire at various dates through 2004. The terms of
the Company's office leases include fixed rental payment increases. Accordingly,
rent expense has been recognized on the straight-line basis over the term of the
lease. Deferred rent of $346,536 is included in accrued expenses in the
accompanying consolidated balance sheet.
Additionally, the Company is obligated under long-term, capital leases for
equipment which expire at various dates through 1999. The Company has recorded
the capital lease obligations at the present value of the future minimum lease
payments.
Equipment included in the accompanying consolidated balance sheet under capital
leases was as follows:
<TABLE>
<S> <C>
Computer equipment.............................................. $1,023,899
Less accumulated amortization................................... (470,308)
---------
$ 553,591
---------
---------
</TABLE>
Amortization of equipment held under capital leases is included in selling,
general and administrative expenses in the accompanying consolidated financial
statements.
F-49
<PAGE>
IBRD--ROSTRUM GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
7. LEASING ARRANGEMENTS (CONTINUED)
Future minimum lease payments at December 31, 1997 and the present value of the
capital lease obligations are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ------------
<S> <C> <C>
Year ending December 31:
1998............................................................. $ 310,997 $ 1,456,158
1999............................................................. 201,439 1,408,275
2000............................................................. 26,807 1,174,886
2001............................................................. 5,893 823,915
2002............................................................. -- 701,973
Thereafter....................................................... -- 727,979
----------- ------------
Total future minimum lease payments.............................. 545,136 $ 6,293,186
------------
------------
Less amount representing interest................................ (70,773)
-----------
Present value of future minimum payments......................... 474,363
Less current portion............................................. (271,196)
-----------
Long-term portion of capital lease obligations................... $ 203,167
-----------
-----------
</TABLE>
Rent expense incurred under the Company's operating lease obligations was
$1,553,773 for the year. The Company has subleased office space with sublease
income of approximately $62,817 for the year.
8. INCOME TAXES
The reconciliation of the provision for income taxes to taxes computed at
U.S. federal statutory rates is as follows:
<TABLE>
<S> <C>
Income tax benefit at statutory rates........................... $(1,014,000)
Amortization of intangible assets............................... 473,000
Foreign income taxes............................................ 52,000
Losses recorded without benefit................................. 541,000
----------
$ 52,000
----------
----------
</TABLE>
F-50
<PAGE>
IBRD--ROSTRUM GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
8. INCOME TAXES (CONTINUED)
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $5,640,000
Nonqualifying revenue......................................... 755,000
Reserves...................................................... 513,000
Bonus accrual................................................. 389,000
Depreciation.................................................. 218,000
Other, net.................................................... 36,000
----------
Total deferred tax assets....................................... 7,551,000
Valuation allowance for deferred tax assets..................... (7,551,000)
----------
Net deferred tax assets......................................... $ --
----------
----------
</TABLE>
At December 31, 1997, the Company had approximately $11,072,000, $4,239,000 and
$5,390,000 of federal, foreign, and state net operating loss carryforwards,
respectively, which expire in various years through 2012.
9. BENEFIT PLANS
401(K) SAVINGS PLAN
In January 1989, the Company adopted a 401(k) Savings Plan (the Plan). The Plan
is a defined contribution plan for all employees located in the United States
who are at least age 18 and have met the required service of one year. Employer
contributions, which are made at the discretion of the Company's Board of
Directors, vest at a rate of 40% beginning the second year of participation and
increase by 20% per year thereafter. During the year, employer contributions to
the Plan were $183,285.
IBRD--ROSTRUM GLOBAL LIMITED PENSION PLAN
The Company contributes 3% of gross income to personal pension accounts for
participants located in the United Kingdom, of the IBRD--Rostrum Global Limited
Pension Plan (the Pension Plan). The plan participants must be employees of
IBRD--Rostrum Global Limited, a wholly-owned subsidiary of IBRD--Rostrum Group
Limited, which is a wholly-owned subsidiary of Europe, Inc., for over one year
and have an annual salary greater than approximately $27,000. During the year,
employer contributions to the Pension Plan were $96,907.
10. SUBSEQUENT EVENT
On December 24, 1997, KAS entered into an agreement to sell the common stock
of the Company to Phoenix International Life Sciences, Inc. (the Transaction).
The Transaction was completed on February 6, 1998. In connection with the
Transaction, the Company liquidated a foreign subsidiary whereby all of the
assets and liabilities including all of the issued and outstanding common stock
of the foreign
F-51
<PAGE>
IBRD--ROSTRUM GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
10. SUBSEQUENT EVENT (CONTINUED)
subsidiaries were distributed to IBRD--Rostrum Global, Inc. In addition, Phoenix
International Life Sciences (U.S.) Inc. repaid its notes payable and other
borrowings.
F-52
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
IBRD--Rostrum Global, Inc. and subsidiaries
Irvine, California
We have audited the accompanying consolidated balance sheets of the
IBRD--Rostrum Global, Inc. and subsidiaries (the Company) as of December 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the IBRD--Rostrum Global, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Costa Mesa, California
March 4, 1997
F-53
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................................... $ 6,134,548 $ 7,745,085
Contract receivables, net (Note 5)................................................. 11,727,902 10,950,101
Prepaid investigator costs......................................................... 220,990 1,074,334
Prepaid expenses and other current assets.......................................... 1,070,816 472,173
------------- -------------
Total current assets............................................................. 19,154,256 20,241,693
PROPERTY AND EQUIPMENT, net (Note 7):
Furniture and equipment............................................................ 2,465,473 2,193,494
Computer equipment................................................................. 3,412,553 2,568,813
Leasehold improvements............................................................. 539,026 489,795
------------- -------------
6,417,052 5,252,102
Less accumulated depreciation and amortization..................................... (3,888,327) (3,022,615)
------------- -------------
Property and equipment, net...................................................... 2,528,725 2,229,487
GOODWILL, net of accumulated amortization of $9,662,258 (1996) and $7,583,829
(1995) (Note 8).................................................................. 21,318,974 23,620,125
COVENANTS NOT-TO-COMPETE, net of accumulated amortization of $795,980 (1996) and
$4,240,674 (1995) (Notes 1 and 8)................................................ 449,902 865,196
OTHER ASSETS....................................................................... 130,020 88,792
INVESTMENT IN KCAS (Note 4)........................................................ 2,124,001 2,032,990
------------- -------------
$ 45,705,878 $ 49,078,283
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................... $ 1,296,389 $ 1,628,388
Accrued liabilities (Notes 3 and 7)................................................ 3,691,256 2,946,950
Accrued direct contract costs...................................................... 3,207,549 4,145,225
Deferred contract revenues (Note 5)................................................ 11,222,747 9,206,825
Current maturities of notes payable and other borrowings (Notes 6 and 7)........... 6,600,187 4,931,787
Current maturity of liability to former stockholder (Note 6)....................... 1,170,946
Taxes payable (Note 8)............................................................. 520,580 449,120
------------- -------------
Total current liabilities........................................................ 26,538,708 24,479,241
NOTES PAYABLE AND OTHER BORROWINGS, net of current maturities (Notes 6 and 7)...... 5,004,625 6,451,068
LIABILITY TO FORMER STOCKHOLDERS (Note 6).......................................... 3,431,806
OTHER LONG-TERM LIABILITIES........................................................ 118,750 182,500
------------- -------------
Total liabilities................................................................ 31,662,083 34,544,615
COMMITMENTS AND CONTINGENCIES (Notes 4 and 7)
STOCKHOLDERS' EQUITY (Notes 9 and 10):
Common stock--$.01 par value; authorized, 4,000,000 shares; issued and outstanding,
10,000 shares.................................................................... 100 100
Additional paid-in capital......................................................... 48,574,817 42,838,488
Accumulated deficit................................................................ (34,468,598) (28,433,157)
Cumulative foreign currency translation............................................ (62,524) 128,237
------------- -------------
Total stockholders' equity....................................................... 14,043,795 14,533,668
------------- -------------
$ 45,705,878 $ 49,078,283
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-54
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
GROSS REVENUE...................................................................... $ 59,766,765 $ 49,828,546
REIMBURSABLE COSTS................................................................. 26,003,808 21,089,038
------------- -------------
NET REVENUE........................................................................ 33,762,957 28,739,508
SERVICE COSTS...................................................................... 28,502,379 21,947,935
------------- -------------
Contract margin.................................................................. 5,260,578 6,791,573
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(Notes 3, 7 and 10).............................................................. 7,575,221 7,394,209
------------- -------------
OPERATING LOSS..................................................................... (2,314,643) (602,636)
EQUITY IN EARNINGS OF KCAS (Note 4)................................................ 91,010 146,507
OTHER EXPENSES:
Interest and other expense, net.................................................... (307,234) (422,936)
Amortization of intangible assets.................................................. (2,494,712) (3,175,588)
Compensation expense due to settlement of acquisition obligations (Notes 1 and
9)............................................................................... (1,009,862) (132,553)
------------- -------------
NET LOSS........................................................................... $ (6,035,441) $ (4,187,206)
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-55
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY TOTAL
---------------------- PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT GAIN (LOSS) EQUITY
--------- ----------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995................... 10,000 $ 100 $ 32,267,751 $ (24,245,951) $ -- $ 8,021,900
Contribution of capital to satisfy exercise
of stock put agreement (Note 9).......... 2,742,222 2,742,222
Contributions from KAS (Note 1)............ 7,828,515 7,828,515
Foreign currency translation gain.......... 128,237 128,237
Net loss................................... (4,187,206) (4,187,206)
--------- ----- ------------- -------------- ----------- -------------
BALANCE, December 31, 1995................. 10,000 100 42,838,488 (28,433,157) 128,237 14,533,668
Contributions from KAS (Note 1)............ 5,736,329 5,736,329
Foreign currency translation loss.......... (190,761) (190,761)
Net loss................................... (6,035,441) (6,035,441)
--------- ----- ------------- -------------- ----------- -------------
BALANCE, December 31, 1996................. 10,000 $ 100 $ 48,574,817 $ (34,468,598) $ (62,524) $ 14,043,795
--------- ----- ------------- -------------- ----------- -------------
--------- ----- ------------- -------------- ----------- -------------
</TABLE>
See notes to consolidated financial statements.
F-56
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................................ $ (6,035,441) $ (4,187,206)
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Amortization of intangible assets................................................. 2,494,712 3,175,588
Depreciation and amortization of property and equipment........................... 980,054 920,540
(Gain) loss on disposition of furniture and equipment and other assets............ (18,641) 14,772
Interest expense on repurchase obligation......................................... 133,998
Equity in earnings of KCAS........................................................ (91,010) (146,507)
Compensation expense due to settlement of acquisition obligations................. 1,018,560
(Increase) decrease in assets and increase (decrease) in liabilities:
Contract receivables............................................................ (515,010) (4,164,494)
Prepaid investigator costs...................................................... 853,344 (583,584)
Prepaid expenses and other current assets....................................... (272,957) 659,061
Other assets.................................................................... (2,020) 316,213
Accounts payable and accrued liabilities........................................ 122,761 580,374
Accrued direct contract costs................................................... (1,006,261) 2,610,750
Deferred contract revenues...................................................... 1,631,997 2,172,301
Accrued interest on notes payable............................................... 15,635 34,650
------------- -------------
Net cash (used in) provided by operating activities........................... (824,277) 1,536,456
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment........................................ 74,427 52,565
Payments for purchases of property and equipment.................................... (790,478) (866,513)
Cash used to purchase additional 10% of KCAS........................................ (796,267)
Cash used to purchase Rostrum, net of cash received................................. (6,916,798)
Net payments to discontinue operations of IBRD Europe............................... (108,265)
------------- -------------
Net cash used in investing activities......................................... (716,051) (8,635,278)
</TABLE>
See notes to consolidated financial statements.
F-57
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit...................................................... $ 153,000 $ 1,619,000
Repayments on note payable to bank................................................... (200,000)
Repayments to KAS.................................................................... (1,000,000)
Repayments under capital lease obligation............................................ (207,764) (31,002)
Contribution of capital by KAS....................................................... 5,736,329 8,251,470
Payments to satisfy exercise of stock put/call option................................ (422,955)
Payments to former shareholders of Rostrum........................................... (5,736,329)
------------- ------------
Net cash (used in) provided by financing activities................................ (254,764) 8,416,513
EFFECT OF EXCHANGE RATE ON CASH...................................................... 184,555 9,000
------------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................................. (1,610,537) 1,326,691
CASH, beginning of year.............................................................. 7,745,085 6,418,394
------------- ------------
CASH, end of year.................................................................... $ 6,134,548 $ 7,745,085
------------- ------------
------------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-- Cash paid during year:
Interest........................................................................... $ 701,258 $ 734,751
------------- ------------
------------- ------------
Income taxes......................................................................... $ 42,339 $ 116,762
------------- ------------
------------- ------------
</TABLE>
SCHEDULE OF NONCASH TRANSACTIONS--
In 1996, the Company acquired furniture and equipment and computer equipment
in exchange for capital lease obligations with a principal balance of
$467,430.
See notes to consolidated financial statements.
F-58
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1. BUSINESS
IBRD--Rostrum Global, Inc. and subsidiaries (IBRD--Rostrum or the Company)
provides independent clinical research and clinical design management services
to customers in the pharmaceutical industry for the evaluation and certification
of new pharmaceutical compounds, primarily in the United States and Europe.
Prior to February 1996, IBRD-Rostrum was a subsidiary of IBRD Holdings Co.
(Holdings), a wholly-owned subsidiary of Kuraya American Systems Inc. (KAS or
the Parent). In February 1996, Holdings was dissolved and the Company became
wholly-owned by KAS. IBRD--Rostrum has significant intercompany relationships
and depends on KAS for financing. As such, the accompanying consolidated
financial statements may not be indicative of the Company on a stand-alone
basis.
During February 1995, IBRD--Rostrum acquired the stock of Rostrum Limited
(Rostrum), a privately-held company that offers research and development
services to the pharmaceutical industry, for aggregate cash payments of
$7,600,857. Certain former stockholders of Rostrum, who remained on as employees
of the Company, were to be paid a minimum liability in accordance with an
earn-out clause under the purchase agreement. The present value of the minimum
obligation due under earn-out clause was $4,737,148, which was recorded as part
of the purchase price at the date of acquisition. Should future revenues and
profits of Rostrum reach certain targets, additional amounts would then be paid
to the former stockholders. In 1996, KAS contributed $5,736,329 to the Company,
which the Company paid to the former stockholders of Rostrum as an early
settlement of its obligations under the earn-out clause. The settlement amount
exceeded the present value of the minimum estimated obligation under the
earn-out clause by $1,018,560 which was recorded as compensation expense in
1996.
This transaction was accounted for as a purchase and has been reflected in the
consolidated financial statements subsequent to the date of acquisition. As a
result of this acquisition, the Company recorded an excess of cost over net
assets acquired (goodwill) of $10,345,552 in the transaction, which is being
amortized on the straight-line basis over 15 years. The Company also entered
into a covenant not-to-compete in the amount of $1,245,882 with one of the
principals of Rostrum. The covenant not-to-compete is being amortized over its
contract term of three years on a straight-line basis.
2. SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR--The Company utilizes a 4-4-5-week reporting period and has a
calendar year-end.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the
accounts of IBRD and its wholly-owned subsidiaries, IBRD-Rostrum Europe, Inc.
(Europe, Inc.) and IBRD Center for Clinical Research, Inc. (ICCR) (collectively,
the Company). All significant intercompany balances and transactions have been
eliminated in consolidation.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PREPAID INVESTIGATOR COSTS--Prepaid investigator costs represent amounts paid up
front to investigators who are engaged in clinical research. These amounts are
used by investigators to fund the costs of the projects. Reimbursable revenue is
recognized and costs are expensed as the funds are earned.
F-59
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONTRACT RECEIVABLES--Contract receivables arise in the normal course of
performing services for customers. The Company performs credit evaluations of
its customers and does not require collateral. The Company maintains allowances
for potential credit losses.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost. Depreciation
of furniture and equipment is provided on the straight-line method over the
estimated useful lives of the assets or the related lease term, generally three
to five years. Amortization of leasehold improvements is provided over the
shorter of the related lease terms or the estimated useful lives of the
improvements.
GOODWILL--Goodwill is being amortized on a straight-line basis over 15 years.
Recoverability of this asset is dependent on future operating cash flows of the
Company. Management periodically evaluates the potential impairment of goodwill
and plans to continue doing so. Such evaluation is based on undiscounted
expected future operating cash flows. In March 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED
ASSETS TO BE DISPOSED OF, which was adopted by the Company in 1996. SFAS No. 121
represented a change in the way the Company measures the recoverability of its
intangible assets. The adoption of SFAS No. 121 did not have a material impact
on the financial statements of the Company.
INVESTMENTS--The Company accounts for its investments that are 50% or less owned
under the equity method of accounting, because the Company does not exercise
control over the investees.
REVENUE RECOGNITION--The Company recognizes contract revenues using the
percentage-of-completion method principally based on cost incurred to total
estimated contract costs at completion or the achievement of milestones. As
such, revisions in estimates during the course of completing the contract are
reflected in the accounting period in which the revision becomes known. At the
time a loss on a contract becomes known, the entire amount of the estimated loss
on the contract is accrued. Amounts billed and cash advances received in excess
of earnings on contracts are recorded as deferred contract revenues and
recognized as contract revenues when earned.
PROVISION (BENEFIT) IN LIEU OF INCOME TAXES--The Company is included in the
consolidated federal and state income tax returns of KAS. For the years ended
December 31, 1996 and 1995, the provision (benefit) in lieu of income taxes has
been computed on the separate results of operations of the Company as if it
filed a separate tax return.
The Company accounts for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES, as if it filed a separate tax return. SFAS No. 109
requires the recognition of deferred tax assets and liabilities for the future
consequences of events that have been recognized in the Company's financial
statements or tax returns. Measurement of the deferred items is based on enacted
tax laws. In the event the future consequences of differences between financial
reporting bases and the tax bases of the assets and liabilities result in a
deferred tax asset, SFAS No. 109 requires an evaluation of the probability of
being able to realize the future benefits indicated by such asset. A valuation
allowance related to a deferred tax asset is recorded when it is more likely
than not that some portion or all of the deferred tax asset will not be
realized.
FOREIGN CURRENCY TRANSLATION--In accordance with the provisions of SFAS No. 52,
FOREIGN CURRENCY TRANSLATION, the assets and liabilities located outside the
United States are generally translated into U.S.
F-60
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
dollars at the rates of exchange in effect at the balance sheet dates. Income
and expense items are translated at the average exchange rates prevailing during
the period. Gains and losses resulting from foreign currency transactions are
recognized currently in income, and those resulting from translation of
financial statements are accumulated as a separate component of stockholders'
equity.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1995
consolidated financial statements to conform them to the 1996 consolidated
financial statement presentation.
3. TRANSACTIONS WITH RELATED PARTIES
IBRD entered into a management agreement with KAS whereby KAS would provide
services such as the translation of documents, communications with Kuraya
Corporation, Japan (the Parent), and attendance at various meetings. For the
year ended December 31, 1996, management fees of $150,000 and KAS administrative
expenses of $133,600 were included in selling, general and administrative
expenses. No such fees were charged in the year ended December 31, 1995.
For the years ended December 31, 1996 and 1995, interest expense of $60,000 and
$68,000, respectively, was incurred related to KAS borrowings. At December 31,
1996, accrued interest payable to KAS was $242,500.
The consolidated financial statements have been prepared on the basis that the
Company will be able to continue as a going concern. This basis assumes that
cash will be available to finance operations and that the realization of assets
and the settlement of liabilities will occur in the normal course of business.
The Company's ability to continue operations is dependent upon the financial
support of the Parent and ultimately upon its ability to achieve profitable
operations.
Management has received representation from KAS stating that it will continue to
provide the necessary financial support for the Company's operations through
December 31, 1997.
4. INVESTMENT IN KCAS
The Company acquired 34% of Kansas City Analytical Services (KCAS), an
analytical and pharmacokinetics consulting business on September 30, 1992, for
$850,000. Effective May 5, 1995, the Company acquired an additional 10% of KCAS
for $446,267. The Company also contributed $350,000 in cash in accordance with
the agreement, and KCAS entered into a five-year employment agreement with two
KCAS employees. In the event that the Company exercises its option to purchase
another 36% of KCAS on or after September 30, 1997, the $350,000 cash
contribution will be credited against the stock purchase. Additionally, at that
time, KCAS will pay bonuses in the amount of $350,000 to two KCAS employees. If
the Company elects not to exercise such option, the contribution will be
retained by KCAS. In connection with the agreement, IBRD and KAS will assist
KCAS in obtaining financing for capital expenditures and will provide guarantees
up to $1,500,000 following a formal request and plan from KCAS. No such request
or plan has been received by the Company.
The Company has the option to purchase the remaining stock of KCAS in increments
of 36% and 20% at September 30, 1997 and any time after September 30, 1999,
respectively.
F-61
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
5. CONTRACT RECEIVABLES
Contract receivables consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Billed......................................................... $ 8,725,010 $ 6,604,369
Unbilled....................................................... 3,237,740 4,544,181
Allowance for doubtful accounts................................ (234,848) (198,449)
------------- -------------
$ 11,727,902 $ 10,950,101
------------- -------------
------------- -------------
</TABLE>
The Company records a deferred contract revenue liability when billed amounts
exceed revenue recognized for a contract. At December 31, 1996 and 1995,
deferred contract revenues totaled $11,222,747 and $9,206,825, respectively.
6. NOTES PAYABLE AND OTHER BORROWINGS
Notes payable and other borrowings consisted of the following at December
31:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Note payable to bank, due in semi-annual principal payments of
$200,000, with the balance to be paid in full September 2000;
interest at 5.85% payable semi-annually in arrears;
guaranteed by KAS............................................ $ 2,800,000 $ 3,000,000
Note payable to bank, due in semi-annual principal payments of
$100,000, beginning January 1997 with the balance to be paid
in full January 2001; interest at 6.55% payable semi-annually
in arrears; guaranteed by KAS................................ 1,500,000 1,500,000
Line of credit with bank, principal and interest due June 1997;
interest at 6.25%; guaranteed by KAS......................... 1,000,000 1,000,000
Line of credit with bank, principal and interest due June 1997;
interest at 6.39%; guaranteed by KAS......................... 3,000,000 3,000,000
Notes payable to KAS, principal payments of $1,000,000 due
November 1997 and January 1998; interest at 3%............... 2,000,000 2,000,000
Amount due to former stockholder of Rostrum Limited............ 4,602,752
Line of credit with bank, principal and interest due March
1997; interest at 7%......................................... 774,700 619,200
Capital leases (Note 7)........................................ 530,112 263,655
------------- -------------
11,604,812 15,985,607
Less current maturities........................................ (6,600,187) (6,102,733)
------------- -------------
$ 5,004,625 $ 9,882,874
------------- -------------
------------- -------------
</TABLE>
F-62
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
6. NOTES PAYABLE AND OTHER BORROWINGS (CONTINUED)
Maturities for notes payable and other borrowings, excluding capital leases
(Note 7), as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $6,374,700
1998 1,600,000
1999 600,000
2000 1,800,000
2001 700,000
----------
Thereafter $11,074,700
----------
----------
</TABLE>
7. LEASING ARRANGEMENTS
The Company is obligated under long-term, operating leases for office space
and office equipment which expire at various dates through 2005. The terms of
the Company's office leases include fixed rental payment increases. Accordingly,
rental expense has been recognized on the straight-line basis over the term of
the lease. Deferred rent included in the accompanying consolidated balance
sheets as accrued liabilities was $275,600 and $423,261 at December 31, 1996 and
1995, respectively.
Additionally, the Company is obligated under long-term, capital leases for
equipment which expire at various dates through 1999. The Company has recorded
the capital lease obligations at the present value of the future minimum lease
payments.
Equipment included in the accompanying consolidated balance sheet under capital
leases as of December 31, 1996 is as follows:
<TABLE>
<S> <C>
Furniture and equipment and computer equipment................... $ 952,723
Less accumulated amortization.................................... (354,988)
---------
$ 597,735
---------
---------
</TABLE>
F-63
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
7. LEASING ARRANGEMENTS (CONTINUED)
Future minimum lease payments (net of sublease income) at December 31, 1996 and
the present value of the capital lease obligations are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ------------
<S> <C> <C>
Year ending December 31:
1997............................................................... $ 266,303 $ 1,226,302
1998............................................................... 225,737 1,030,523
1999............................................................... 113,147 1,003,310
2000............................................................... 9,165 855,491
2001............................................................... 6,111 635,484
Thereafter......................................................... 1,354,399
----------- ------------
Total future minimum lease payments................................ 620,463 $ 6,105,509
------------
------------
Less amount representing interest.................................. (90,351)
-----------
Present value of future minimum payments........................... 530,112
Less current portion............................................... (225,487)
-----------
Long-term portion of capital lease obligation...................... $ 304,625
-----------
-----------
</TABLE>
The Company has subleased office space with sublease income of approximately
$63,000 for the year ending December 31, 1997.
Rent expense incurred under the Company's operating lease obligations was
$1,286,280 and $1,311,274 for the years ended December 31, 1996 and 1995,
respectively.
8. INCOME TAXES
The Company has estimated net deferred tax assets of approximately $7,238,000,
which are offset by a corresponding full valuation allowance. The gross deferred
tax assets relate principally to the net operating losses, deferred revenue and
certain accrued liabilities. The Company has federal, state and foreign net
operating loss carryforwards of approximately $11,900,000, $4,600,000 and
$4,000,000, respectively, which expire at various times through 2010. KAS has
had correspondence with the Internal Revenue Service which may preclude the
deduction of amortization for the covenant not-to-compete taken in prior years.
KAS intends to contest such position when the net operating loss is utilized.
The net operating loss carryforwards differ from the Company's accumulated
deficit due to amortization of goodwill and certain temporary differences
including nonqualified revenue, accrued vacation, deferred rent and
depreciation. Principally all of these temporary differences will reverse in
1997, except for depreciation and deferred rent.
9. STOCK PUT AGREEMENT
As part of the purchase of the Company by KAS, KAS had the option to purchase
all or part of the surviving stockholders' stock and each stockholder also had
the right to require KAS to purchase his stock in the future. The Company
initially recorded an accrued liability of $2,614,000, representing the present
value of the minimum repurchase obligation under this agreement.
F-64
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
9. STOCK PUT AGREEMENT (CONTINUED)
In September 1995, KAS exercised its option and purchased the remaining shares
and stock options and satisfied its obligations with an aggregate payment of
$2,319,266. KAS then made a capital contribution which relieved the accrued
liability established by the Company. Interest expense related to the stock put
agreements was $133,998 for the year ended December 31, 1995.
10. BENEFIT PLANS
401(K) SAVINGS PLAN--In January 1989, the Company adopted a 401(k) Savings Plan
(the Plan). The Plan is a defined contribution plan for all employees of the
IBRD and ICCR who are at least age 18 and have met the required service of one
year. Employer contributions, which are made at the discretion of the Company's
Board of Directors, vest at a rate of 40% beginning the second year of
participation and increase by 20% per year thereafter. During the years ended
December 31, 1996 and 1995, employer contributions to the Plan were $208,899 and
$177,293, respectively.
IBRD--ROSTRUM GLOBAL LIMITED PENSION PLAN--The Company contributes 3% of gross
income to personal pension accounts for participants of the IBRD--Rostrum Global
Limited Pension Plan (the Pension Plan). The plan participants must be employees
of IBRD--Rostrum Global Limited, a wholly-owned subsidiary of IBRD--Rostrum
Group Limited, which is a wholly-owned subsidiary of Europe, Inc., for over one
year and have an annual salary greater than approximately $27,000. During the
year ended December 31, 1996, employer contributions to the Pension Plan were
$83,396.
PHANTOM STOCK PLAN--In December 1990, the Company adopted a phantom stock plan
(Phantom Plan) whereby key employees of the Company will receive shares of
common stock (Phantom Stock Units). The Phantom Plan is administered by the
Company's Board of Directors and is limited to 10% of the issued and outstanding
shares of IBRD as of December 1990 (plan adoption date). Phantom Stock Units
vest over 60 months of employment and are subject to maturity provisions.
Certain Phantom Stock Units have been issued to various key employees of the
Company. The issuance of such units did not result in a liability or expense for
the years ended December 31, 1996 and 1995.
F-65
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 37-DAY PERIOD ENDED FEBRUARY 6, 1998
<TABLE>
<CAPTION>
37 DAYS
FEBRUARY 6,
1998
$
-----------
<S> <C>
(UNAUDITED)
Gross revenue........................................................................................ 7,268,110
Reimbursable costs................................................................................... 3,585,148
-----------
Net revenue.......................................................................................... 3,682,962
Service costs........................................................................................ 3,671,565
-----------
Net contract margin.................................................................................. 11,397
Kuraya administrative fees........................................................................... --
Selling, general and administrative expenses......................................................... 820,122
Amortization of intangible assets.................................................................... 260,411
-----------
Operating loss....................................................................................... 1,069,136
Interest and other expenses, net..................................................................... (11,253)
-----------
Loss before provision for income taxes............................................................... (1,080,389)
Provision for income taxes........................................................................... 5,625
-----------
Net loss............................................................................................. (1,086,014)
-----------
-----------
</TABLE>
F-66
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE 37-DAY PERIOD ENDED FEBRUARY 6, 1998
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK ADDITIONAL FOREIGN
---------------------- PAID-IN ACCUMULATED CURRENCY
AMOUNT CAPITAL DEFICIT TRANSLATION TOTAL
SHARES $ $ $ $ $
--------- ----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998..................... 10,000 100 48,574,817 (37,578,857) 10,321 11,006,381
Foreign currency translation
(unaudited)................................ -- -- -- -- (6,784) (6,784)
Net loss (unaudited)......................... -- -- -- (1,086,014) -- (1,086,014)
--------- --- ------------ ------------- ----------- ------------
Balance at February 6, 1998
(unaudited)................................ 10,000 100 48,574,817 (38,664,871) 3,537 9,913,583
--------- --- ------------ ------------- ----------- ------------
--------- --- ------------ ------------- ----------- ------------
</TABLE>
F-67
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE 37-DAY PERIOD ENDED FEBRUARY 6, 1998
<TABLE>
<CAPTION>
37 DAYS
FEBRUARY 6,
1998
$
-------------
<S> <C>
(UNAUDITED)
OPERATING ACTIVITIES
Net loss........................................................................................... (1,086,014)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of intangible assets................................................................ 260,411
Depreciation and amortization of property and equipment.......................................... 117,913
(Gain)/loss on disposition of furniture and equipment............................................ (516)
Equity in earnings of KCAS....................................................................... --
Changes in operating assets and liabilities:
Contract receivables, net...................................................................... 1,342,624
Prepaid investigator costs..................................................................... (395,489)
Prepaid expenses and other current assets...................................................... 114,601
Other assets................................................................................... --
Accounts payable and accrued expenses.......................................................... 175,089
Accrued direct contract costs.................................................................. 573,623
Deferred contract revenues..................................................................... (2,428,793)
Taxes payable.................................................................................. (68,466)
Accrued interest in notes payable.............................................................. 5,684
-------------
Net cash provided by operating activities.......................................................... (1,389,333)
INVESTING ACTIVITIES
Proceeds from sale of property and equipment....................................................... 49,641
Payments for purchases of property and equipment................................................... (61,772)
-------------
Net cash used in investing activities.............................................................. (12,131)
FINANCING ACTIVITIES
Proceeds from notes payable and other borrowings................................................... --
Repayments under capital lease obligations......................................................... (39,089)
Repayments on notes payable and other borrowings................................................... (100,000)
-------------
Net cash used in financing activities.............................................................. (139,089)
Effect of exchange rate on cash.................................................................... (4,511)
Net increase (decrease) in cash.................................................................... (1,545,064)
Cash at beginning of period........................................................................ 11,068,033
-------------
Cash at end of period.............................................................................. 9,522,969
-------------
-------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest........................................................................................... 61,802
-------------
-------------
Income taxes....................................................................................... 73,661
-------------
-------------
</TABLE>
F-68
<PAGE>
IBRD--ROSTRUM GLOBAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1. STATEMENT OF ACCOUNTING PRESENTATION
In the opinion of IBRD-Rostrum Global, Inc. and its subsidiaries (the
"Company"), the accompanying unaudited consolidated financial statements include
all significant adjustments (consisting only of normal recurring accruals)
necessary to fairly state the consolidated results of operations and changes in
cash flows and stockholder's equity for the 37 day period ended February 6,
1998. The unaudited consolidated financial statements do not include all
disclosures of financial information required by generally accepted accounting
principles. The accompanying unaudited consolidated financial statements should
be read in conjunction with the audited consolidated financial statements for
the year ended December 31, 1997 included elsewhere in this proxy
statement/prospectus.
Interim results are not necessarily indicative of the results for the full year.
2. BUSINESS
IBRD--Rostrum Global, Inc. and Subsidiaries (IBRD--Rostrum or the Company)
provides independent clinical research and clinical design management services
to customers in the pharmaceutical industry for the evaluation and certification
of new pharmaceutical compounds, primarily in the United States and Europe. The
Company is a wholly-owned subsidiary of Kuraya American Systems Inc. (KAS or the
Parent) which is a subsidiary of Kuraya Corporation (Kuraya). The Company had
certain intercompany relationships with KAS during the period, and as such, the
accompanying consolidated financial statements may not be indicative of the
Company on a stand-alone basis. On December 24, 1997, KAS entered into an
agreement to sell the common stock of the Company to Phoenix International Life
Sciences, Inc. The transaction was completed on February 6, 1998. These
financial statements present the results of operations and changes in cash flows
and stockholder's equity for the 37 day period ending immediately prior to this
transaction.
F-69
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Chrysalis International Corporation:
We have audited the accompanying consolidated balance sheets of Chrysalis
International Corporation and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity and
comprehensive loss and cash flows for each of the years in the three-year period
ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Chrysalis
International Corporation and subsidiaries as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Chrysalis International Corporation and its subsidiaries will continue as
going concerns. As discussed in Note 5 to the financial statements, the Company
has suffered recurring losses from operations, has a net working capital
deficiency and is in default of certain of its debt covenants which raise
substantial doubt about their ability to continue as going concerns.
Management's plans in regard to these matters are also described in Note 5. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
KPMG LLP
Philadelphia, Pennsylvania
February 5, 1999
F-70
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997
------------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................................. $ 6,705 6,925
Trade accounts receivable, net (note 7)............................................... 8,766 9,669
Prepaid expenses and other current assets............................................. 1,928 1,916
------------- ---------
Total current assets.............................................................. 17,399 18,510
Property and equipment, net (note 9).................................................... 15,686 15,127
Intangible assets, net (note 10)........................................................ 809 805
Other assets............................................................................ 687 338
Restricted cash (note 12)............................................................... -- 460
------------- ---------
$ 34,581 35,240
------------- ---------
------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings (note 11)....................................................... 2,931 2,377
Note payable--related party (note 16)................................................. 319 291
Current portion of long-term debt (notes 4 and 12).................................... 4,821 768
Accounts payable...................................................................... 3,490 3,204
Accrued expenses (note 8)............................................................. 8,894 5,567
Deferred revenue...................................................................... 5,297 3,524
------------- ---------
Total current liabilities......................................................... 25,752 15,731
Long-term debt, excluding current portion (note 12)..................................... 6,010 6,561
Deferred income taxes (note 15)......................................................... 1,832 1,646
Other liabilities....................................................................... 725 633
------------- ---------
Total liabilities................................................................. 34,319 24,571
------------- ---------
Stockholders' equity (notes 13 and 14):
Serial preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued
and outstanding..................................................................... -- --
Common stock, $.01 par value, 20,000,000 shares authorized; issued and outstanding
11,518,105 in 1998 and 11,430,764 in 1997........................................... 115 114
Additional paid-in capital............................................................ 59,089 57,768
Cumulative comprehensive loss......................................................... (108) (536)
Employee stock purchase loans......................................................... (86) (86)
Accumulated deficit................................................................... (58,748) (46,591)
------------- ---------
Total stockholders' equity........................................................ 262 10,669
------------- ---------
Commitments and contingencies (notes 17 and 19)......................................... $ 34,581 35,240
------------- ---------
------------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-71
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXPECT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Revenues:
Service revenue............................................................... $ 43,426 47,271 47,398
Less: reimbursed costs........................................................ (4,908) (5,769) (6,425)
---------- --------- ---------
Net service revenue......................................................... 38,518 41,502 40,973
License fees.................................................................. 866 796 514
---------- --------- ---------
39,384 42,298 41,487
---------- --------- ---------
Operating expenses:
Direct costs.................................................................. 31,041 29,383 27,841
General, administrative and marketing......................................... 12,828 12,416 10,942
Depreciation and amortization................................................. 2,092 2,699 2,780
Business combination costs (note 6)........................................... -- -- 3,649
Restructuring costs (note 3).................................................. 3,872 -- --
---------- --------- ---------
49,833 44,498 45,212
---------- --------- ---------
Loss from operations........................................................ (10,449) (2,200) (3,725)
---------- --------- ---------
Other income (expense):
Interest income............................................................... 316 465 1,187
Interest expense (notes 11 and 12)............................................ (1,501) (769) (1,445)
Foreign currency gain, net.................................................... -- 11 517
Other (note 19)............................................................... 193 683 483
---------- --------- ---------
(992) 390 742
---------- --------- ---------
Loss before income taxes.................................................... (11,441) (1,810) (2,983)
Income tax expense (note 15).................................................... 716 240 477
---------- --------- ---------
Net loss.................................................................... $ (12,157) (2,050) (3,460)
---------- --------- ---------
---------- --------- ---------
Basic loss per share............................................................ $ (1.06) (0.18) (0.31)
---------- --------- ---------
---------- --------- ---------
Basic weighted average shares outstanding....................................... 11,467 11,396 11,307
---------- --------- ---------
---------- --------- ---------
Diluted loss per share.......................................................... $ (1.06) (0.18) (0.31)
---------- --------- ---------
---------- --------- ---------
Diluted weighted average shares outstanding..................................... 11,467 11,396 11,307
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-72
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED EMPLOYEE
ADDITIONAL OTHER STOCK
COMMON PAID-IN COMPREHENSIVE PURCHASE ACCUMULATED
STOCK CAPITAL LOSS LOAN DEFICIT
----------- ----------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995....................... $ 112 57,291 763 (93) (41,081)
Issuance of 101,650 shares of common stock upon
exercise of stock options (note 14)............ 1 112 -- -- --
Issuance of 18,065 shares of common stock
pursuant to 401(k) plan (note 18).............. -- 95 -- -- --
Cash received on employee stock purchase loan.... -- -- -- 7 --
Comprehensive income
Translation adjustment....................... -- -- (224) -- --
Increase in net unrealized gain on marketable
debt securities............................ -- -- 18 -- --
Net Loss..................................... -- -- -- -- (3,460)
--
----- ----------- --- -------------
Total comprehensive loss.........................
Balance, December 31, 1996....................... 113 57,498 557 (86) (44,541)
Issuance of 26,006 shares of common stock upon
exercise of stock options and warrants (note
14)............................................ -- 82 -- -- --
Issuance of 45,037 shares of common stock
pursuant to 401(k) plan (note 18).............. 1 188 -- -- --
Comprehensive income
Translation adjustment....................... -- -- (998) -- --
Decrease in net unrealized gain on marketable
debt securities............................ -- -- (95) -- --
Net loss..................................... -- -- -- -- (2,050)
--
----- ----------- --- -------------
Total comprehensive loss.........................
Balance, December 31, 1997....................... 114 57,768 (536) (86) (46,591)
Issuance of 2,864 shares of common stock upon
exercise of stock options and warrants (note
14)............................................ -- 1 -- -- --
Issuance of 141,328 shares of common stock
pursuant to 401(k) plan (note 18).............. 1 204 -- -- --
Receipt and retirement of 56,581 shares (note
16)............................................ -- (284) -- -- --
Issuance of 2,000,000 warrants convertible to
common stock upon exercise..................... -- 1,400 -- -- --
Comprehensive income
Translation adjustment....................... -- -- 428 -- --
Net loss..................................... -- -- -- -- (12,157)
--
----- ----------- --- -------------
Total comprehensive loss.........................
Balance, December 31, 1998....................... $ 115 59,089 (108) (86) (58,748)
--
--
----- ----------- --- -------------
----- ----------- --- -------------
<CAPTION>
TOTAL
STOCK-
HOLDERS'
EQUITY
-----------
<S> <C>
Balance, December 31, 1995....................... 16,992
Issuance of 101,650 shares of common stock upon
exercise of stock options (note 14)............ 113
Issuance of 18,065 shares of common stock
pursuant to 401(k) plan (note 18).............. 95
Cash received on employee stock purchase loan.... 7
Comprehensive income
Translation adjustment....................... (224)
Increase in net unrealized gain on marketable
debt securities............................ 18
Net Loss..................................... (3,460)
-----------
Total comprehensive loss......................... (3,666)
-----------
Balance, December 31, 1996....................... 13,541
Issuance of 26,006 shares of common stock upon
exercise of stock options and warrants (note
14)............................................ 82
Issuance of 45,037 shares of common stock
pursuant to 401(k) plan (note 18).............. 189
Comprehensive income
Translation adjustment....................... (998)
Decrease in net unrealized gain on marketable
debt securities............................ (95)
Net loss..................................... (2,050)
-----------
Total comprehensive loss......................... (3,143)
-----------
Balance, December 31, 1997....................... 10,669
Issuance of 2,864 shares of common stock upon
exercise of stock options and warrants (note
14)............................................ 1
Issuance of 141,328 shares of common stock
pursuant to 401(k) plan (note 18).............. 205
Receipt and retirement of 56,581 shares (note
16)............................................ (284)
Issuance of 2,000,000 warrants convertible to
common stock upon exercise..................... 1,400
Comprehensive income
Translation adjustment....................... 428
Net loss..................................... (12,157)
-----------
Total comprehensive loss......................... (11,729)
-----------
Balance, December 31, 1998....................... 262
-----------
-----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-73
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $ (12,157) (2,050) (3,460)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Non-cash items:
Depreciation and amortization................................................... 2,092 2,699 2,958
Foreign currency transaction loss............................................... -- (11) (517)
Deferred income tax expense (benefit)........................................... 482 (306) (37)
Loss on disposal of property and equipment...................................... 3 4 12
Impairment of property and equipment............................................ 815 -- --
Amortization of premium on short and long-term investments...................... -- -- 195
Amortization of warrant value................................................... 372 -- --
Return of common stock held in escrow........................................... (284) -- --
Non-cash charges................................................................ 204 188 96
Gain on settlement.............................................................. -- (700) --
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable, net................................. 1,277 207 (460)
Increase in prepaid expenses and other current assets........................... (343) (461) (22)
Increase in other assets........................................................ (348) (68) (179)
Increase in accounts payable.................................................... 162 66 590
Increase (decrease) in accrued expenses......................................... 3,034 (1,528) 2,271
Increase (decrease) in deferred revenue......................................... 1,583 (1,847) 30
Increase (decrease) in other liabilities........................................ 158 (212) 502
--------- --------- ---------
Net cash provided by (used in) operating activities........................... (2,950) (4,019) 1,979
--------- --------- ---------
Cash flows from investing activities:
Decrease in restricted cash......................................................... 460 -- 317
(Increase) decrease in cash in escrow............................................... -- 4,550 (4,550)
Purchases of property and equipment................................................. (2,391) (3,281) (1,815)
Proceeds from disposal of property and equipment.................................... (3) -- 73
Purchases of intangible assets...................................................... (4) (22) (31)
Purchases of investments............................................................ -- -- (5,409)
Proceeds from maturities of investments............................................. -- 2,518 3,697
--------- --------- ---------
Net cash provided by (used in) investing activities........................... (1,938) 3,765 (7,718)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from short-term borrowings................................................. 548 2,398 660
Payments on short-term borrowings................................................... -- (5,401) (5,130)
Proceeds from borrowings of long-term debt.......................................... 5,000 5,000 --
Principal payments on long-term debt................................................ (464) (5,203) (1,014)
Proceeds from stock options exercised and warrants issued........................... 1 82 113
Payments received on employee stock purchase loans.................................. -- -- 7
Increase in note payable--related party............................................. -- -- 17
--------- --------- ---------
Net cash provided by (used in) financing activities........................... 5,085 (3,124) (5,347)
--------- --------- ---------
Effect of exchange rate changes on cash............................................... (417) (152) 373
--------- --------- ---------
Decrease in cash and cash equivalents................................................. (220) (3,530) (10,713)
Cash and cash equivalents, beginning of year.......................................... 6,925 10,455 21,168
--------- --------- ---------
Cash and cash equivalents, end of year................................................ $ 6,705 6,925 10,455
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest.......................................................................... $ 977 769 1,005
Income taxes...................................................................... 570 1,093 57
--------- --------- ---------
Noncash investing and financing activities:
Unrealized gain on marketable debt securities..................................... $ -- -- 95
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-74
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
Chrysalis International Corporation, a Delaware corporation incorporated in
1988, (the "Company"), formerly DNX Corporation ("DNX"), is an international
contract research organization ("CRO") providing drug development services
primarily to the pharmaceutical and biotechnology industries. This portfolio of
drug development services includes transgenic discovery research, preclinical
development and clinical capabilities. In addition, Chrysalis uses its
proprietary transgenic and licensed gene targeting technology to provide
services for its clients that require transgenic animal models in order to
determine the function of human genes and identify therapeutic targets
implicated in disease and for the evaluation of therapeutic lead compounds for
further development. Chrysalis generates substantially all of its revenues from
its drug development services.
Chrysalis is also the exclusive commercial licensee of a U.S. patent covering
DNA Microinjection technology, the process widely used in the pharmaceutical and
biotechnology industries to develop transgenic animals. The Company utilizes
this license for its drug development services and grants sublicenses for the
use of this technology. These sublicenses entitle the Company to receive
revenues consisting of fees and, in certain cases, royalties.
On December 18, 1996, the Company issued 2,632,600 shares of Common Stock in
connection with the acquisition by the Company of all of the outstanding capital
stock of, or equity interests in, BioClin, Inc., a Delaware corporation, BioClin
Europe AG, a Swiss corporation, BioClin GmbH, a German corporation, Kilmer N.V.,
a Netherlands Antilles corporation, and BioClin Institute of Clinical
Pharmacology GmbH, a German corporation (collectively, the "BioClin Group").
This transaction was recorded using the "pooling-of-interests" method of
accounting (note 6).
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions have
been eliminated in consolidation.
REVENUE RECOGNITION:
Revenues from services are generally recognized in accordance with the terms of
the contract and in the periods in which the related services have been rendered
and the related costs incurred. Revenue related to contract modifications is
recognized after performance and when realization is assured and the amounts are
reasonably determinable. Adjustments to contract cost estimates are made in the
period in which the facts that require the revisions become known. When the
revised estimate indicates a loss, such loss is provided for in its entirety.
Revenues earned but not billed as of a given date are reflected in the
accompanying consolidated balance sheets as trade accounts receivable (note 7).
Funds received that relate to future performance under service contracts are
deferred and recognized as revenue when earned.
Revenue from other contracts, primarily cost plus fixed-fee government
contracts, is recognized in the period in which the related services have been
rendered and costs incurred.
Revenue from license fees is recognized upon issuance or renewal of technology
licenses. Additionally, sublicenses of the Company's proprietary DNA
Microinjection technology entitle the Company to
F-75
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
receive additional revenues consisting of royalties and milestone payments,
which amounts are recognized as revenue when received. To date, no material
revenues have been received from royalties and milestone payments.
REIMBURSED COSTS:
Substantially all amounts recorded as reimbursed costs in the accompanying
statements of operations relate to independent investigator and travel costs.
These costs are reimbursed by sponsors of the respective studies in accordance
with the respective contract terms. Payments received from sponsors for
investigator and travel costs in excess of costs incurred are classified as
deferred revenue and costs incurred in excess of amounts paid by sponsors are
classified as trade accounts receivable--unbilled.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Cash equivalents consist primarily
of money market funds, corporate obligations and U.S. Government obligations and
are carried at cost, which approximates market value. Short-term investments
consist primarily of U.S. Government and corporate obligations that mature in
one year or less. The Company has both the intent and ability to hold its
investments until maturity, and accordingly, all investments are carried at
amortized cost.
CONCENTRATION OF CREDIT RISKS:
The Company invests its excess cash in deposits with major financial
institutions, money market funds and notes issued by companies with strong
credit ratings. The Company has established guidelines relating to
diversification and maturities that maintain safety and liquidity. To date, the
Company has not experienced any losses on its cash equivalents and short-term
investments.
The Company extends unsecured trade credit in connection with its commercial
services to a diversified customer base comprised of both foreign and domestic
entities, most of which are concentrated in the pharmaceutical and biotechnology
industries.
PROPERTY AND EQUIPMENT:
Major additions and replacements of assets are capitalized at cost. Maintenance,
repairs and minor replacements are expensed as incurred. Property and equipment
are depreciated using the straight-line method over the following periods:
buildings and improvements--twenty to forty years; laboratory equipment,
vehicles, office and computer equipment, furniture and software--three to ten
years. Leasehold improvements are amortized using the straight-line method over
the estimated useful life of the asset or the lease term, whichever is shorter.
Upon retirement or sale, the cost of the assets disposed of and the related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is credited or charged to operations. Equipment leased under capital leases
is capitalized with corresponding payment obligations recorded in current and
long-term debt.
F-76
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS:
Costs in excess of net assets acquired are capitalized and are being amortized
on a straight-line basis over twenty years.
Costs incurred in filing for patents are capitalized. Capitalized costs related
to unsuccessful patent applications are expensed when it becomes determinable
that such applications will be rejected. Capitalized costs related to successful
patent applications are amortized on a straight-line basis over a period not to
exceed seventeen years or the remaining life of the patent, whichever is
shorter.
INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" (FAS 109).
Under the asset and liability method of FAS 109, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. Valuation allowances are established to reduce deferred tax assets if
it is determined to be "more likely than not" that all or some portion of the
potential deferred tax assets will not be realized. Under FAS 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date of the tax rate change.
EARNINGS (LOSS) PER SHARE:
SFAS No. 128, "Earnings Per Share" (SFAS 128), was adopted by the Company on
December 31, 1997. In accordance with the pronouncement, all prior year earnings
per share data were restated upon adoption to conform to the new standards. SFAS
128 simplifies the calculation of earnings per share data by replacing primary
and fully diluted earnings per share with basic and diluted earnings per share,
respectively. Basic earnings per share excludes potentially dilutive securities,
including stock options, and is calculated by dividing net income (loss)
available to common stockholders by the weighted average common shares
outstanding for the period. Diluted earnings per share reflects the dilution to
earnings that would occur if convertible securities, stock options and
potentially dilutive securities were converted into common stock resulting in
the issuance of common stock.
In computing diluted earnings per share for the years ended December 31, 1998,
1997 and 1996, the denominator did not change from the computation of basic
earnings per share, because the effect of including potential common shares in
this calculation would be antidilutive. If the effect on diluted earnings per
share had not been antidilutive, the denominator would have increased by
189,000, 339,000 and 561,000 shares for 1998, 1997 and 1996, respectively. This
increase in shares represents the inclusion of stock options and warrants
outstanding at December 31, 1998, 1997 and 1996 with an exercise price less than
the average market price of Chrysalis' common stock during 1998, 1997 and 1996,
respectively.
F-77
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION:
The financial statements of the Company's European subsidiaries are translated
into U.S. dollars in accordance with SFAS No. 52, "Foreign Currency
Translation." Substantially all assets and liabilities are translated at
year-end exchange rates and income and expense items are translated at an
average exchange rate. Exchange adjustments resulting from foreign currency
transactions are generally recognized in operations, whereas adjustments
resulting from the translation of financial statements are reflected as a
separate component of stockholders' equity.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF:
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
STOCK OPTION PLANS:
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations, in accounting for its fixed plan
stock options. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," established accounting and disclosure
requirements using a fair value based method of accounting for stock based
employee compensation plans. The Company has elected to remain on its current
method of accounting, as described above, and has adopted the disclosure
requirements of SFAS No. 123.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
COMPREHENSIVE INCOME:
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". This Statement establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. Components
of comprehensive income include net income (loss) and all other nonowner changes
in equity such as the change in the cumulative translation adjustment. In
accordance with SFAS No. 130, total comprehensive income (loss), is
($11,729,000), ($3,143,000),
F-78
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
($3,666,000) for the years ended December 31, 1998, 1997 and 1996, respectively.
The Company's total comprehensive income represents net income (loss) plus the
changes in the cumulative translation adjustment equity account and unrealized
gain on marketable securities for the periods presented.
RECLASSIFICATION:
Certain amounts contained in the 1996 and 1997 consolidated financial statements
have been reclassified to conform to the 1998 presentation.
NEW ACCOUNTING PRONOUNCEMENTS:
In March 1998, the Accounting Standards Executive Committee ("AcSEC") of the
American Institute of Certified Public Accountants issued Statement of Position
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use ("SOP 98-1"). SOP 98-1 provides guidance for the accounting
treatment of various costs typically incurred during the development or purchase
of computer software for internal use. SOP 98-1 shall be effective for fiscal
periods beginning after December 15, 1998. Application of SOP 98-1 is not
expected to have a material impact on the Company's consolidated results of
operations, financial position or cash flows.
In April 1998, The AcSEC issued Statement of Position 98-5, Reporting on the
Costs of Start--Up Activities ("SOP 98-5"). SOP 98-5 provides guidance on the
financial reporting of start--up and organization costs and requires such costs
be expensed as incurred. SOP 98-5 shall be effective for fiscal periods
beginning after December 15, 1998. Application of SOP 98-5 is not expected to
have a material impact on the Company's consolidated results of operations,
financial position or cash flows.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities and requires all derivatives to be recorded
on the balance sheet at fair value. SFAS 133 is effective for years beginning
after June 15, 1999. Adoption of SFAS 133 is not expected to have a material
impact on the Company's consolidated results of operations, financial position
or cash flows.
(2) POTENTIAL MERGER
On November 18, 1998, the Company executed an agreement and plan of merger
(the "Merger Agreement") pursuant to which the Company will be acquired by
Phoenix International Life Sciences Inc. ("Phoenix") pursuant to a merger of a
wholly owned subsidiary of Phoenix with and into the Company (the "Merger").
Pursuant to the Merger, each outstanding share of the Company's Common Stock
will be converted into Phoenix Common Shares and cash in lieu of fractional
shares having a value, determined under the Merger Agreement, equal to
approximately $0.71. Consummation of the Merger is subject to receipt of
necessary regulatory approvals, a proxy solicitation to obtain the adoption of
the Merger Agreement (and receipt of such adoption) by the Company's
stockholders and other closing conditions, some of which are beyond the control
of the Company and Phoenix.
The Merger Agreement contains a number of covenants restricting the Company's
ability to conduct its operations. These covenants include restrictions on the
Company's ability to increase compensation to employees, make capital
expenditures and enter into or amend real property leases.
F-79
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(2) POTENTIAL MERGER (CONTINUED)
The merger agreement also requires the Company to pay to Phoenix a termination
fee of $1.5 million if the Merger Agreement terminates under certain
circumstances described in the Merger Agreement. These circumstances include the
failure of the Company's stockholders to adopt the Merger Agreement and certain
bankruptcy or dissolution events involving the Company or its subsidiaries.
There can be no assurance that the Merger will be consummated.
The Company has expensed approximately $320,000 in "General, administrative and
marketing expenses" in the fourth quarter of 1998 for professional fees incurred
in connection with the Merger Agreement. Additionally, the Company anticipates
incurring approximately $1,050,000 for professional fees in the period or
periods prior to the consummation of the Merger.
(3) RESTRUCTURING OF CLINICAL OPERATIONS
In connection with the execution of the Merger Agreement, the Company agreed
to shut down and discontinue providing clinical services in the United States
and at several of its clinical operations in Europe. The Merger Agreement
contemplates the shut down of the Company's clinical operations in Austin,
Texas, Dusseldorf, Germany and Cham, Switzerland. As a result of these shut
downs, the Company will no longer provide services for Phase I clinical studies
and it will focus on providing services for any Phase II or Phase III clinical
studies in Germany, Eastern Europe and Israel. The Company has implemented plans
for shut downs in Dusseldorf, Germany, Austin, Texas and a significant
downsizing of European Clinical operations which will be executed even if the
Merger is not consummated. If the Merger is not consummated, the Company expects
to continue to provide Phase II and Phase III clinical services focused on
Eastern Europe and Israel, as well as in Western Europe on a significantly
downsized basis. If the Merger is consummated, the Company's principal executive
offices are also likely to be shut down.
In connection with the restructuring of the clinical operations, $3,872,000 of
costs were expensed in the fourth quarter of 1998. These restructuring expenses
primarily consist of personnel related charges, provisions for real estate
leases, write downs of certain fixed assets and other related expenses. See
table below for further detail. In addition to the fourth quarter expense, the
Company expects to incur approximately $825,000 at the time the merger is
consummated primarily related to additional personnel related expenses and
corporate office shut down expenses.
Related expenses in connection with the restructuring of the clinical operations
consists of the following:
<TABLE>
<CAPTION>
1998
-------------
<S> <C>
(IN
THOUSANDS)
Severance and related.......................................................... $ 1,249
Lease termination.............................................................. 1,211
Fixed asset impairment......................................................... 815
Other.......................................................................... 597
------
3,872
Paid (including asset write-down) as of December 31, 1998...................... 1,110
------
Remaining costs to be paid..................................................... $ 2,762
------
------
</TABLE>
F-80
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(3) RESTRUCTURING OF CLINICAL OPERATIONS (CONTINUED)
The total number of employees to be terminated, as a result of the restructuring
is 75, of which 18 have been terminated as of December 31, 1998. The balance of
the terminations will occur by June 30, 1999.
(4) FORBEARANCE AGREEMENT
At September 30, 1998 and at December 31, 1998 the Company failed to satisfy
certain financial covenants contained in the loan agreement related to its
senior secured term loan and, thus, was in default under the loan agreement. The
amount outstanding under this loan was $4,687,500 at December 31, 1998. As a
result of the default, the entire outstanding amount of the senior secured term
loan is classified as a current liability at December 31, 1998. In connection
with the execution of the Merger Agreement on November 18, 1998, the Company's
senior secured lender (the "Bank"), the Company and Phoenix executed a
Forbearance Agreement, pursuant to which the Bank (i) agreed not to accelerate
the term loan or otherwise exercise its remedies with respect to the September
30 and December 31 defaults so long as the Merger is consummated by March 31,
1999 and the Company does not otherwise default on its obligations under the
loan agreement and (ii) waived the principal payment due in December 1998. In
connection with the Forbearance Agreement, Phoenix delivered to the Bank a
guaranty of the Company's obligations to the Bank and a cash pledge to secure
such guaranty. In addition, Phoenix obtained an option to purchase the Company's
debt to the Bank.
(5) LIQUIDITY
The Company anticipates that its capital requirements through March 31, 1999
will include satisfying working capital needs, costs to shut down certain of its
European and United States clinical operations, capital expenditures for its
preclinical and transgenic businesses and meeting its principal and interest
requirements under debt arrangements. Cash and cash equivalents (which was
$6,705,000 as of December 31, 1998) and cash provided by operations is expected
to fund certain of these cash requirements, including satisfying the outstanding
balance of $2,931,000 as of December 31, 1998 under a line of credit with a
Swiss bank. If the Forbearance Agreement does not terminate, the Company
believes that it will have sufficient cash to continue to fund operating
activities through March 1999. However, if the Forbearance Agreement terminates
(because of an additional default by the Company under the loan agreement, a
material breach by the Company or Phoenix of the Merger Agreement or termination
of the Merger Agreement), the Company will not have sufficient cash to satisfy
its obligations to its creditors and fund operating activities. There can be no
assurance that the Forbearance Agreement will not terminate.
As a result of these issues, the Company must consummate the Merger in a timely
manner. While the Company has been exploring various strategic alternatives for
some period of time, it now believes that an outright sale of the Company
through a vehicle other than the Merger is unlikely. After evaluating a number
of strategic alternatives with the assistance of Vector Securities
International, Inc., the Company currently believes that the Merger Agreement
offers the most viable solution to the Company's financial condition. There can
be no assurance, however, that the Merger will be consummated in a timely
manner. If the Company cannot consummate the Merger or otherwise resolve its
liquidity constraints by March 31, 1999, the Company will likely not have
sufficient liquidity both to operate its business and to satisfy its obligations
to various lenders. In addition, if the Forbearance Agreement
F-81
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(5) LIQUIDITY (CONTINUED)
were to terminate, $5.0 of other Company debt would also be in default. It is
the intention of the Company to pursue alternatives outside of bankruptcy;
however, alternative strategies may not be successful, and it is possible that
the Company could be forced into bankruptcy by its creditors. In these
circumstances, the Company would most likely seek reorganization under chapter
11 of the Bankruptcy Code. Although it would be the intention of the Company to
seek reorganization under chapter 11 of the Bankruptcy Code, it currently
believes that a successful reorganization would likely require a similar
strategic transaction involving a sale of one or more of the Company's
facilities or operations to generate a source of liquidity during any bankruptcy
proceeding.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations, has a net working capital deficiency and is in default
of its debt covenants which raise substantial doubt about their ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
(6) MERGER WITH THE BIOCLIN GROUP
On December 18, 1996, the Company issued approximately 2.6 million shares of
its common stock in exchange for all of the outstanding common stock of the
BioClin Group. The merger was accounted for as a pooling-of-interests and
accordingly, the Company's consolidated financial statements were restated to
include the accounts and operations of the BioClin Group for all periods prior
to the merger. Separate net revenue, net income (loss) and related earnings
(loss) per share amounts of the merged entities are presented in the following
table. In addition, the table includes unaudited pro forma net income (loss) and
earnings (loss) per share amounts that reflect the elimination of the
nonrecurring business combination costs in 1996.
<TABLE>
<CAPTION>
1996
-------------------
<S> <C>
(IN THOUSANDS,
EXCEPT
PER SHARE DATA)
Net revenue
DNX (predecessor of Chrysalis)......................................... $ 29,604
BioClin Group.......................................................... 11,883
-------
Total................................................................ $ 41,487
-------
-------
Net income (loss)
DNX (predecessor of Chrysalis)......................................... $ 474
BioClin Group.......................................................... (285)
-------
Proforma net income (loss)............................................. 189
Merger costs........................................................... (3,649)
-------
Net income (loss), as reported......................................... $ (3,460)
-------
-------
Diluted Earnings (loss) per share
As reported............................................................ $ (0.31)
Pro forma.............................................................. 0.02
</TABLE>
F-82
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(6) MERGER WITH THE BIOCLIN GROUP (CONTINUED)
In connection with the merger, $3.6 million of business combination costs and
related expenses were incurred and expensed in the fourth quarter of 1996. The
business combination costs and expenses primarily consisted of legal,
accounting, and investment banking fees, expenses related to creating and
promoting the new company name and other related expenses.
(7) TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable as of December 31, 1998 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Trade accounts receivable--billed.......................................... $ 7,180 6,500
Trade accounts receivable--unbilled........................................ 1,848 3,310
--------- ---------
9,028 9,810
Less: allowance for doubtful accounts...................................... 262 141
--------- ---------
$ 8,766 9,669
--------- ---------
--------- ---------
</TABLE>
Trade accounts receivable--unbilled relates to revenues earned on commercial
services when the related services have been rendered and costs incurred, but
which were not billed to the customer as of the end of the reporting period. At
December 31, 1998 and 1997, there were no prerequisites for billing such
unbilled trade accounts receivable.
(8) SUPPLEMENTAL BALANCE SHEET INFORMATION
Accrued expenses as of December 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Payroll and fringe benefits................................................ $ 2,284 2,735
Value-added taxes.......................................................... 1,036 605
Investigator payment and contract expenses................................. 664 575
Restructuring costs........................................................ 2,762 --
Other...................................................................... 2,148 1,652
--------- ---------
$ 8,894 5,567
--------- ---------
--------- ---------
</TABLE>
F-83
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(9) PROPERTY AND EQUIPMENT
A summary of property and equipment as of December 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Land..................................................................... $ 546 501
Buildings and improvements............................................... 12,725 11,620
Leasehold improvements................................................... 746 837
Laboratory equipment..................................................... 8,646 7,497
Office and computer equipment, software and furniture.................... 5,410 6,379
--------- ---------
28,073 26,834
Less accumulated depreciation and amortization........................... 12,387 11,707
--------- ---------
$ 15,686 15,127
--------- ---------
--------- ---------
</TABLE>
(10) INTANGIBLE ASSETS
Intangible assets consist of the following components at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Costs in excess of net assets acquired..................................... $ 1,055 983
Licensed technology........................................................ 61 61
Patent application costs................................................... 96 91
--------- ---------
1,212 1,135
Less accumulated amortization.............................................. 403 330
--------- ---------
$ 809 805
--------- ---------
--------- ---------
</TABLE>
(11) SHORT-TERM BORROWINGS
To support operations in France, the Company has lines of credit and
overdraft privileges with French banks in the aggregate amount of 10.5 million
French Francs ($1,876,000 at the exchange rates in effect on December 31, 1998).
At December 31, 1998 and 1997 there were no outstanding borrowings under these
credit facilities.
To support its European clinical operations, the Company has a line of credit
arrangement with a Swiss bank totaling $3,000,000. The clinical operation's
trade accounts receivable and a guarantee by the Company secures his line. The
amount outstanding under this line of credit was approximately $2,931,000 and
$2,377,000 at December 31, 1998 and 1997, respectively.
F-84
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) LONG-TERM DEBT
Long-term debt consists of the following components at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Term loan with a large commercial bank bearing interest at the prime rate
plus 1.0% (9.25% and 9.5% as of December 31, 1998 and 1997) with interest
payable monthly, and principal payable in quarterly installments
beginning September 1998................................................. $ 4,688 5,000
Note payable to MDS Inc. bearing interest at 6.0% with interest payable
semi annually and the principal payable March 16, 2001................... 3,973 --
Mortgage with a commercial bank, bearing interest at the prime rate plus
1.5% (9.25% as of December 31, 1998) due in monthly installments through
2009..................................................................... 1,270 1,348
Mortgage with a Pennsylvania state agency, bearing interest at 2%, due in
monthly installments through 2009........................................ 900 975
Obligation under capital lease............................................. -- 6
--------- ---------
10,831 7,329
Less: Current portion...................................................... 4,821 768
--------- ---------
$ 6,010 6,561
--------- ---------
--------- ---------
</TABLE>
Future principal maturities of long-term debt at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
1999........................................................................... 4,821
2000........................................................................... 158
2001........................................................................... 5,168
2002........................................................................... 178
2003........................................................................... 202
Thereafter..................................................................... 1,331
Less unamortized warrant value................................................. (1,027)
-------------
$ 10,831
-------------
-------------
</TABLE>
In December 1992, the Company acquired preclinical operations in France.
Included in the purchase price were promissory notes having an aggregate
principal amount of $7,000,000 (the "Notes"). The unpaid principal balance on
the Notes as of December 31, 1996 of $5,000,000 was paid-off in August 1997. In
the third quarter of 1997, the Company refinanced this debt by obtaining a five
year $5,000,000 term loan from a large commercial bank, with the principal
payable in quarterly installments beginning September 1998. This loan is secured
by substantially all of the Company's domestic assets, including the capital
stock of its subsidiaries. The Company was in default at December 31, 1998 under
certain financial covenants set forth in the credit agreement with respect to
this term loan and accordingly the outstanding amount of this note amounting to
approximately $4,688,000 is classified as current. See also footnote (4)
"Forebearance Agreement".
F-85
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) LONG-TERM DEBT (CONTINUED)
On March 16, 1998, the Company issued, in exchange for $5,000,000 cash, a
subordinated note and a warrant to purchase 2,000,000 shares of Common Stock for
$2.50 per share to a wholly-owned subsidiary of MDS Inc. ("MDS"). The terms of
the subordinated note provide for semi-annual interest payments with the
aggregate principal amount of $5.0 million payable on March 16, 2001. The note
is subordinate to certain outstanding indebtedness of the Company, including its
existing bank debt and mortgages. In addition, the principal amount of the note
may, at the option of the holder, be satisfied by issuance of shares of Common
Stock in accordance with the terms of the warrant. The Company will also incur
non-cash charges to interest expense over the life of the note related to the
amortization of the value of the warrants. The value of the warrants was
determined based upon the relative fair values of the two securities at the time
of issuance. As of December 31, 1998, the unamortized value of the warrants was
$1,027,000. When considering the amortization of the warrant value, the
effective interest rate on this note payable is approximately 15%.
In connection with its U.S. facility, the preclinical business secured (i) a
$1,500,000, 15-year mortgage with a bank, which originally required cash
collateral of $180,000, and (ii) a $1,200,000, 15-year mortgage from a
Pennsylvania agency, which required cash collateral of $450,000. These two loans
are also secured by mortgages on the property acquired. As a result of achieving
certain financial covenants, the cash collateral on the mortgage loan with the
bank was released in 1995. The cash collateral on the mortgage with the
Pennsylvania agency was classified as restricted cash as of December 31, 1997.
Upon the achievement of certain financial milestones in 1998, this $450,000 of
cash collateral was released. Additionally, the favorable interest rate on the
mortgage with the Pennsylvania agency is subject to change upon review by the
agency of certain future conditions.
(13) STOCKHOLDERS' EQUITY
Warrants:
In March 1998, in conjunction with the $5.0 million subordinated debenture with
a wholly-owned subsidiary of MDS, the Company issued a warrant to purchase
2,000,000 shares of Common Stock at an exercise price of $2.50 per share. The
warrant is currently exercisable. It will expires in March 2001 or, if the
Merger is consummated, on the day before the Merger.
(14) STOCK OPTION PLANS
The Company maintains three stock incentive plans, the 1988 Stock Plan, the
1991 Stock Option Plan and the 1996 Stock Option Plan, (the Plans), which
provide for the granting of options to officers, directors, employees and
consultants at an option price equal to or above the fair market value of such
common shares at the date of grant. The Plans provide for an aggregate of
2,460,250 options to be granted. The options are exercisable for a period of ten
years after the date of grant and generally vest over a four-year period. The
weighted average exercise price of the options granted under these plans was
$3.40, $3.91 and $3.75 per share at December 31, 1998, 1997 and 1996,
respectively.
F-86
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) STOCK OPTION PLANS (CONTINUED)
A summary of activity under the Plans for the years ending December 31, 1998,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
COMMON STOCK OPTIONS
OUTSTANDING
--------------------------
<S> <C> <C>
PRICE PER
SHARES SHARE
---------- --------------
Balance, December 31, 1995....................................... 1,603,394 $ 0.40-7.25
Granted........................................................ 473,150 4.44-7.25
Exercised...................................................... (101,650) 0.40-6.00
Canceled....................................................... (50,131) 2.50-6.50
----------
Balance, December 31, 1996....................................... 1,924,763 0.40-7.25
Granted........................................................ 123,000 3.44-5.50
Exercised...................................................... (26,006) 0.50-4.75
Canceled....................................................... (96,582) 2.50-6.00
----------
Balance, December 31, 1997....................................... 1,925,175 0.40-7.25
----------
Granted........................................................ 481,915 1.13-2.98
Exercised...................................................... (2,864) 0.40
Canceled....................................................... (344,375) 3.50-7.25
----------
Balance, December 31, 1998....................................... 2,059,851 0.40-7.25
----------
----------
Shares exercisable at December 31, 1998.......................... 1,955,801
----------
----------
</TABLE>
In June 1998, the Company authorized the repricing of potentially 524,000 stock
options, held by non-officer employees, under the Company's 1991 and 1996 Stock
Option Plans. The repricing excluded officers, directors and all non-employee
option holders. This repricing, with the agreement of the affected employees,
was a 2 for 1 exchange in option shares. Pursuant to the repricing 208,100
options were repriced at $1.6875, the fair value at the date of the repricing,
resulting in 104,050 new options. One-half of these options will vest one year
after the date of the agreement and the remaining one-half will vest daily for a
period of one year beginning June 25, 1999.
The Company applies APB Opinion No. 25 in accounting for its Plans. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net income (loss) would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Net income (loss)
As reported................................................ $ (12,157) $ (2,050) $ (3,460)
Pro forma.................................................. (13,233) (2,669) (3,827)
Loss per share:
As reported................................................ $ (1.06) $ (0.18) $ (0.31)
Pro forma loss per share................................... (1.15) (0.23) (0.34)
</TABLE>
The pro forma net income (loss) reflects only the options granted in 1998, 1997,
1996 and 1995. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net income
(loss) amounts presented above because compensation cost
F-87
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) STOCK OPTION PLANS (CONTINUED)
is reflected over the option's vesting period of four years and compensation
cost for options granted prior to January 1, 1995 is not considered.
For purposes of pro forma disclosure requirements of SFAS 123, the weighted
average fair values of stock options granted during 1998, 1997 and 1996 were
$1.91, $3.11 and $2.77 per share respectively. Such fair values are estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions: in 1998, dividend yield of 0%; expected volatility of
75%; risk-free interest rates of 5.28%; and expected lives of 7 years. In 1997
the assumptions were: dividend yield of 0%; expected volatility of 66%;
risk-free interest rates of 6.25%; and expected lives of 7 years. In 1996 the
assumptions were dividend yield of 0%; expected volatility of 35%; risk-free
interest rates of 7%; and expected lives of 7 years.
Summary information about the Company's stock options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
RANGE NUMBER
OF NUMBER WEIGHTED-AVG. EXERCISABLE
EXERCISE OUTSTANDING REMAINING WEIGHTED-AVG. AT WEIGHTED-AVG.
PRICE AT 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE 12/31/98 EXERCISE PRICE
- ------------- ----------- ------------------- --------------- ---------- ---------------
$ 0.40-0.50 229,143 0.62 $ 0.41 229,143 $ 0.41
1.13-1.69 460,300 9.50 1.63 356,250 1.61
2.50-3.88 487,472 5.50 3.22 487,472 3.22
4.00-5.00 484,186 5.66 4.53 484,186 4.53
5.06-7.25 398,750 6.51 5.68 398,750 5.68
----------- ----------
2,059,851 1,955,801
</TABLE>
(15) INCOME TAXES
Income tax expense (benefit) attributable to the net income (loss) consists
of the following during the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- -----
<S> <C> <C> <C>
(IN THOUSANDS)
Current
U.S. Federal.............................................................................. $ -- -- --
State and local........................................................................... -- -- --
Foreign................................................................................... 121 756 514
--------- --- ---
121 756 514
Deferred
U.S. Federal.............................................................................. -- -- --
State and local........................................................................... -- -- --
Foreign................................................................................... 595 (516) (37)
--------- --- ---
595 (516) (37)
--------- --- ---
$ 716 240 477
--------- --- ---
--------- --- ---
</TABLE>
F-88
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) INCOME TAXES (CONTINUED)
Income tax expense (benefit) attributable to the net income (loss) for the years
ended December 31, 1998, 1997 and 1996 differed from the amounts computed by
applying the U.S. federal income tax rate of 34 percent to the income (loss)
before income tax expense (benefit) as a result of the following:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Computed "expected" income tax expense (benefit).................. $ (3,890) (615) (1,014)
Increase (reduction) in income taxes resulting from:
Change in the beginning-of-the-year balance of the valuation
allowance for Federal deferred tax assets allocated to income
tax expense................................................... 4,129 326 206
Nondeductible reorganization expenses........................... -- -- 1,241
Foreign tax rate differential................................... 479 499 82
Changes in enacted tax rates.................................... -- 30 --
Alternative minimum taxes....................................... -- -- --
Other, net...................................................... (2) -- (38)
--------- --- ---------
$ 716 240 477
--------- --- ---------
--------- --- ---------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998 and
1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Retirement indemnities................................................. $ -- 192
Property and equipment................................................. 982 --
Intangible assets...................................................... 392 --
Other.................................................................. 55 139
Deferred revenue....................................................... 752 288
Accrued expenses....................................................... 645 223
Capitalized research and development costs............................. 525 643
Net operating loss carryforwards....................................... 14,375 13,547
Tax credit carryforward................................................ 2,932 3,179
--------- ---------
Total gross deferred tax assets.................................... 20,658 18,211
Less valuations allowance.............................................. 20,658 17,803
--------- ---------
Net deferred tax assets............................................ -- 408
--------- ---------
Deferred tax liabilities:
Property and equipment, principally due to allocation of the purchase
price of the French operation and differences in depreciation and
capitalized interest................................................. (1,736) (1,259)
Other.................................................................. (96) (387)
--------- ---------
Total gross deferred liabilities................................... (1,832) (1,646)
--------- ---------
Net deferred tax liability......................................... $ (1,832) (1,238)
--------- ---------
--------- ---------
</TABLE>
F-89
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) INCOME TAXES (CONTINUED)
The valuation allowance for deferred tax assets as of January 1, 1995 was
$17,197,000. The net change in the total valuation allowance for the years ended
December 31, 1998, 1997 and 1996 were increases of $3,181,000, $326,000, and
$206,000, respectively.
At December 31, 1998, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $34,873,000 which are available to
offset future Federal taxable income, if any, through 2012.
The Company also has research and development tax credit carryforwards of
approximately $2,932,000 for federal income tax reporting purposes which are
available to reduce federal income taxes, if any, through 2012. The Company has
alternative minimum tax credit carryforwards of approximately $164,000 for
federal income tax reporting purposes which are available to reduce federal
income taxes, if any. These tax credits have an unlimited carryforward period.
(16) RELATED PARTY TRANSACTIONS
NOTE PAYABLE--RELATED PARTY:
As of December 31, 1998 and 1997, the Company owed approximately $319,000 and
$291,000, respectively, to a relative of a former officer and major shareholder.
The note payable bears interest at a rate of 6.75%, is unsecured, and due the
earlier of October 29, 1999 or consummation of sale, merger, reorganization or
other arrangement resulting in a change of control of the Company. Amounts
outstanding as of December 31, 1998 and 1997 include accrued interest of
approximately $9,400 and $17,000, respectively.
INDEMNIFICATION BY CERTAIN STOCKHOLDERS:
Pursuant to the acquisition agreement related to the acquisition of the Bioclin
Group (note 6), certain stockholders indemnify the Company for certain named
litigation costs. As a result of this indemnification, the Company established a
receivable due from the stockholders in the amount of $284,000 as of December
31, 1997 payable in Common Stock at $5.0625 per share, the closing price at
December 18, 1996. In November of 1998 this receivable was satisfied by the
delivery and cancellation of 56,851 shares of common stock to the Company.
(17) COMMITMENTS AND CONTINGENCIES
The Company leases office and laboratory facilities and equipment under
various noncancellable operating lease agreements. In September 1998, the
Company entered into an operating lease for a facility under construction for
its Transgenics business. The new lease is expected to commence during the
summer of 1999 and will have a ten year term. The following table includes an
estimate of these
F-90
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(17) COMMITMENTS AND CONTINGENCIES (CONTINUED)
annual lease commitments. Future minimum rental commitments for the next five
years as of December 31, 1998 on the aforementioned operating leases are as
follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-------------
<S> <C>
(IN
THOUSANDS)
1999........................................................................... $ 1,693
2000........................................................................... 1,579
2001........................................................................... 996
2002........................................................................... 843
2003........................................................................... 784
Thereafter..................................................................... 4,994
-------------
Total minimum lease payments................................................... $ 10,889
-------------
-------------
</TABLE>
Rental expense aggregated $1,853,000, $1,493,000, and $1,312,000 in 1998, 1997
and 1996, respectively.
(18) EMPLOYEE BENEFITS
PENSION PLANS:
The clinical business maintains a pension plan for its key management employees
in Europe, one of whom is also a major shareholder. The plan provides benefits
based upon age, years of service, and remuneration. The plan is an unfunded book
reserve plan. Expenses for this plan totaled approximately $0, $158,000, and
$104,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Most retirement benefits in France are paid out under the auspices of a
government-sponsored defined contribution retirement plan. Under the terms of
labor agreements, however, employees are entitled to an additional lump sum
payment at retirement provided they are still employed by the French preclinical
operation at their normal retirement date.
Net periodic pension cost, related to the French preclinical operations, for
1998, 1997 and 1996 includes the following components:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ----- -----
<S> <C> <C> <C>
(IN THOUSANDS)
Service costs-benefits earned during the period......................... $ 198 32 34
Interest cost on projected benefit obligation........................... 165 26 25
Net amortization and deferral........................................... (140) (18) 25
-- --
---------
Net periodic pension cost........................................... $ 223 40 84
-- --
-- --
---------
---------
</TABLE>
F-91
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) EMPLOYEE BENEFITS (CONTINUED)
The present value of benefit obligations and the funded status of the French
preclinical operation's retirement indemnities recognized in the Company's
consolidated balance sheets as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- -----
<S> <C> <C>
(IN THOUSANDS)
Actuarial present value of accumulated benefit obligations (no amounts are
vested)................................................................... $ 490 418
Additional amounts related to salary increases.............................. 40 38
--------- ---
Total projected benefit obligation........................................ 530 456
--------- ---
Plan assets at fair value................................................... -- --
Accrued pension cost...................................................... $ 530 456
--------- ---
--------- ---
</TABLE>
Assumptions used in the actuarial computations for 1998, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Discount rate............................................................ 5.0% 6.0% 6.0%
Rate of compensation increases........................................... 2.5% 2.0% 2.0%
</TABLE>
PROFIT-SHARING OF THE OPERATIONS IN FRANCE:
Profit-sharing is a requirement under French law. The payments are made to
employees after a period of 5 years unless certain conditions are met and
payment can be made earlier. During 1998, 1997 and 1996, profit sharing costs
aggregated $0, $199,000 and $181,000, respectively.
SAVINGS PLAN:
The Company has an employee savings plan ("Savings Plan"), that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating U.S. employees may defer a portion of
their pretax earnings, up to the Internal Revenue Service annual contribution
limit. Effective May 1, 1993, the Company amended the Savings Plan to provide
for a Company match of 50% of each employee's contributions with newly issued
common stock of the Company. For the years ended December 31, 1998, 1997 and
1996, the Company issued 141,328, 45,037 and 18,065 shares of common stock,
respectively, to participants in the Savings Plan. Charges to operations for the
years ended December 31, 1998, 1997 and 1996 aggregated $204,000, $188,000 and
$95,000, respectively, under this plan.
(19) LEGAL PROCEEDINGS
In the ordinary course of business, the Company is involved in certain legal
actions. In the opinion of management, based upon the advice of counsel, the
resolution of these legal matters will not have a material effect upon the
Company or its financial condition.
In 1995, the Company terminated its relationship with the Virginia Commonwealth
University (VCU), which performed Phase I and analytical services on behalf of
the Company in the United States. The Company signed a settlement agreement with
VCU in the third quarter of 1997 that was significantly less than the recorded
liability. This action resulted in a book gain of $700,000, which was recorded
in other income in the third quarter of 1997.
F-92
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(20) GEOGRAPHICAL SEGMENT, BUSINESS SEGMENT AND CUSTOMER INFORMATION
GEOGRAPHICAL SEGMENT INFORMATION:
The Company operates in two geographic areas. Information on the Company's
geographic operations is set forth in the table below.
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Net revenues:
United States operations..................................... $ 15,386 15,520 13,165
International operations..................................... 23,998 26,778 28,322
---------- --------- ---------
Total net revenues....................................... $ 39,384 42,298 41,487
---------- --------- ---------
---------- --------- ---------
Identifiable assets:
United States operations..................................... $ 9,566 11,017 9,388
International operations..................................... 22,678 19,839 24,129
General corporate............................................ 2,337 4,384 14,426
---------- --------- ---------
Total identifiable assets................................ $ 34,581 35,240 47,943
---------- --------- ---------
---------- --------- ---------
</TABLE>
BUSINESS SEGMENT INFORMATION:
The Company has three reportable segments: Transgenics, Preclinical and Clinical
services. Transgenic services include the use of transgenic laboratory animal
model technology as a tool to improve drug discovery programs. Preclinical
services include a broad range of preclinical drug development services that
provide a majority of the preclinical testing requirements necessary to secure
FDA (U.S.), EC (Europe) and MHW (Japan) approval to initiate human clinical
trials. Clinical services include clinical trial management services, clinical
data management and biostatistical services, and product registration and
regulatory services.
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Net Revenues:
Transgenics.................................................. $ 4,735 2,066 1,150
Preclinical.................................................. 25,422 25,192 27,940
Clinical..................................................... 8,361 14,244 11,883
Licensing/Other.............................................. 866 796 514
---------- --------- ---------
Total net revenues....................................... $ 39,384 42,298 41,487
---------- --------- ---------
---------- --------- ---------
Operating Income (loss):
Transgenics.................................................. $ 811 (386) (433)
Preclinical.................................................. 444 424 1,606
Clinical..................................................... (9,464) (1,123) (1,415)
Licensing/Other.............................................. (2,240) (1,115) (3,483)
---------- --------- ---------
Total operating loss..................................... $ (10,449) (2,200) (3,725)
---------- --------- ---------
---------- --------- ---------
</TABLE>
F-93
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(20) GEOGRAPHICAL SEGMENT, BUSINESS SEGMENT AND CUSTOMER INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Identifiable assets:
Transgenics.................................................. $ 2,726 2,445 745
Preclinical.................................................. 24,418 20,895 25,430
Clinical..................................................... 5,100 7,516 7,342
Licensing/Other.............................................. 2,337 4,384 14,426
---------- --------- ---------
Total identifiable assets................................ $ 34,581 35,240 47,943
---------- --------- ---------
---------- --------- ---------
</TABLE>
CUSTOMER INFORMATION:
For the year ended December 31, 1998 net revenues from one customer aggregated
approximately $5,166,000 or 13% of the Company's total net revenues. For the
year ended December 31, 1997 net revenues from one customer aggregated
approximately $9,537,000 or 23% of the Company's total net revenues. For the
year ended December 31, 1996, net revenues from one customer aggregated
approximately $5,021,000 or 12% of the Company's total net revenues.
(21) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS, TRADE ACCOUNTS
RECEIVABLE, ACCRUED INTEREST RECEIVABLE, RESTRICTED CASH, ACCOUNTS PAYABLE, AND
ACCRUED EXPENSES:
The carrying amount approximates fair value because of the short term maturity
of these instruments.
LONG-TERM DEBT:
The carrying amount of long-term debt with variable interest rates approximates
fair value due to its variable nature. The fair value of long-term debt with
fixed interest rates is estimated based on the current rates offered to the
Company for debt of the same remaining maturities. The carrying amount of
long-term debt with fixed interest rates aggregated $900,000 and $975,000 while
the fair value approximated $601,000 and $605,000 as of December 31, 1998 and
1997, respectively.
F-94
<PAGE>
APPENDIX A
COMPOSITE COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF
NOVEMBER 18, 1998
AND AS AMENDED BY AMENDMENT NO. 1
DATED AS OF
MARCH 24, 1999
AMONG
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
CHRYSALIS INTERNATIONAL CORPORATION
AND
PHOENIX MERGER SUB CORP.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE 1
THE MERGER.................................................................................. A-1
Section 1.01 Merger......................................................................... A-1
Section 1.02 Surrender and Payment.......................................................... A-2
Section 1.03 The Merger Date................................................................ A-3
Section 1.04 Stock Options and Warrants of the Company...................................... A-3
Section 1.05 Adjustments.................................................................... A-5
Section 1.06 Fractional Shares.............................................................. A-5
Section 1.07 Failure to Obtain Approval for Listing; Cash Merger Consideration.............. A-5
Section 1.08 Dissenting Shares.............................................................. A-6
Section 1.09 Purchase Price; Exchange Ratio; Valuation of Buyer Common Stock................ A-6
ARTICLE 2
THE SURVIVING CORPORATION................................................................... A-7
Section 2.01 Certificate of Incorporation; Bylaws........................................... A-7
Section 2.02 Directors and Officers......................................................... A-7
Section 2.03 Subscription................................................................... A-7
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................... A-8
Section 3.01 Corporate Existence and Power.................................................. A-8
Section 3.02 Corporate Authorization........................................................ A-8
Section 3.03 Governmental Authorization..................................................... A-9
Section 3.04 Non-Contravention.............................................................. A-9
Section 3.05 Capitalization................................................................. A-9
Section 3.06 Subsidiaries................................................................... A-10
Section 3.07 SEC Filings.................................................................... A-11
Section 3.08 Financial Statements........................................................... A-11
Section 3.09 Disclosure Documents........................................................... A-11
Section 3.10 Information Supplied........................................................... A-12
Section 3.11 Absence of Certain Changes..................................................... A-12
Section 3.12 No Undisclosed Material Liabilities............................................ A-13
Section 3.13 Litigation; Investigations; Orders and Decrees................................. A-13
Section 3.14 Taxes.......................................................................... A-14
Section 3.15 ERISA and Labor Matters........................................................ A-15
Section 3.16 Compliance with Laws........................................................... A-16
Section 3.17 Intellectual Property Rights................................................... A-17
Section 3.18 Environmental Matters.......................................................... A-18
Section 3.19 Opinion of Financial Advisor................................................... A-19
Section 3.20 Antitakeover Statutes and Certificate of Incorporation Provisions.............. A-20
Section 3.21 Rights Agreement............................................................... A-20
Section 3.22 Finders Fees................................................................... A-20
Section 3.23 Title to and Condition of Properties........................................... A-20
Section 3.24 Contracts...................................................................... A-20
Section 3.25 Accounts Receivable............................................................ A-21
Section 3.26 Relationships.................................................................. A-21
Section 3.27 Product Warranties and Liabilities............................................. A-21
Section 3.28 Affiliate Transactions......................................................... A-22
Section 3.29 Insurance...................................................................... A-22
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER..................................................... A-22
Section 4.01 Corporate Existence and Power.................................................. A-22
Section 4.02 Corporate Authorization........................................................ A-23
Section 4.03 Governmental Authorization..................................................... A-23
Section 4.04 Non-Contravention.............................................................. A-23
Section 4.05 Capitalization................................................................. A-23
Section 4.06 Public Filings................................................................. A-23
Section 4.07 Financial Statements........................................................... A-24
Section 4.08 Disclosure Documents........................................................... A-24
Section 4.09 Information Supplied........................................................... A-24
Section 4.10 Absence of Certain Changes..................................................... A-25
Section 4.11 No Undisclosed Material Liabilities............................................ A-25
Section 4.12 Ownership of Company Stock..................................................... A-25
Section 4.13 Finders Fees................................................................... A-25
Section 4.14 Sufficient Cash to Repay Certain Debt.......................................... A-25
ARTICLE 5
COVENANTS OF THE COMPANY.................................................................... A-26
Section 5.01 Conduct of the Company......................................................... A-26
Section 5.02 Stockholder Meeting; Proxy Materials........................................... A-29
Section 5.03 Other Offers................................................................... A-29
Section 5.04 Shut-Downs..................................................................... A-30
Section 5.05 Intellectual Property Matters.................................................. A-30
Section 5.06 Notice of Prepayment........................................................... A-30
Section 5.07 Shared Services................................................................ A-30
Section 5.08 Hackel Affiliate Letter and Support/Voting Agreement........................... A-30
ARTICLE 6
COVENANTS OF BUYER.......................................................................... A-31
Section 6.01 Conduct of Buyer............................................................... A-31
Section 6.02 Listing of Stock............................................................... A-31
Section 6.03 Repayment of Certain Debt...................................................... A-31
Section 6.04 Financing...................................................................... A-31
ARTICLE 7
COVENANTS OF BUYER AND THE COMPANY.......................................................... A-31
Section 7.01 Commercially Reasonable Efforts................................................ A-31
Section 7.02 Cooperation.................................................................... A-31
Section 7.03 Public Announcements........................................................... A-32
Section 7.04 Access to Information.......................................................... A-32
Section 7.05 Further Assurances............................................................. A-32
Section 7.06 Notices of Certain Events...................................................... A-32
Section 7.07 Director and Officer Liability................................................. A-33
Section 7.08 Registration Statement......................................................... A-34
Section 7.09 Governmental Authorization..................................................... A-34
Section 7.10 Certain Corporate Matters...................................................... A-34
Section 7.11 Employment..................................................................... A-34
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE 8
CONDITIONS TO THE MERGER.................................................................... A-34
Section 8.01 Conditions to the Obligations of Each Party.................................... A-34
Section 8.02 Conditions to the Obligations of Buyer......................................... A-35
Section 8.03 Conditions to the Obligations of the Company................................... A-36
ARTICLE 9
TERMINATION................................................................................. A-36
Section 9.01 Termination.................................................................... A-36
Section 9.02 Effect of Termination.......................................................... A-37
Section 9.03 Termination Upon Bankruptcy.................................................... A-37
ARTICLE 10
MISCELLANEOUS............................................................................... A-38
Section 10.01 Notices....................................................................... A-38
Section 10.02 Entire Agreement; Non-Survival of Representations and Warranties; No Third
Party Beneficiaries........................................................... A-39
Section 10.03 Amendments; No Waivers........................................................ A-39
Section 10.04 Expenses...................................................................... A-39
Section 10.05 Dollar Amounts................................................................ A-40
Section 10.06 Successors and Assigns........................................................ A-40
Section 10.07 Governing Law................................................................. A-40
Section 10.08 Jurisdiction.................................................................. A-40
Section 10.09 Counterparts; Effectiveness................................................... A-40
Section 10.10 Relief from Automatic Stay.................................................... A-40
EXHIBITS
EXHIBIT A--Form of Support/Voting Agreement
EXHIBIT B--Form of Affiliate Letter
EXHIBIT C--Form of Representation Related to D&O Insurance
</TABLE>
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<PAGE>
TABLE OF DEFINITIONS
<TABLE>
<CAPTION>
TERM SECTION
- ----------------------------------------------------------------------------------------- -----------------------
<S> <C>
191 Patent............................................................................... 3.17
1933 Act................................................................................. 3.03
1934 Act................................................................................. 3.03
Acquisition Proposal..................................................................... 3.03
Action................................................................................... 3.13
Adjusted Option.......................................................................... 1.04(a)(i)
Adjusted Warrant......................................................................... 1.04(a)(i)
Affiliate................................................................................ 1.01(b)
Affiliate Letter......................................................................... 3.02(c)
Applicable Laws.......................................................................... 3.16(a)
Barbut Agreement......................................................................... 3.02(a)
Benefit Arrangements..................................................................... 3.15(d)
Buyer.................................................................................... Preamble
Buyer Balance Sheet...................................................................... 4.07
Buyer Balance Sheet Date................................................................. 4.07
Buyer Common Stock....................................................................... 1.01(b)(ii)
Buyer Disclosure Documents............................................................... 4.08(a)
Buyer Disclosure Schedule................................................................ Article 4
Buyer Option Plan........................................................................ 1.04(c)
Buyer Party.............................................................................. 4.02
Buyer Preferred Stock.................................................................... 4.05
Buyer Prospectus......................................................................... 4.08(b)
Buyer Public Documents................................................................... 4.06
Buyer SEC Disclosure Documents........................................................... 4.08(a)
Buyer Common Stock....................................................................... 1.01(b)(ii)
Canadian GAAP............................................................................ 4.07
Canadian Securities Commission........................................................... 4.06
Certificate of Merger.................................................................... 1.03
Chrysalis DNX............................................................................ 3.13
Claim.................................................................................... 7.07(a)
Code..................................................................................... 1.04(b)
Company.................................................................................. Preamble
Company 10-K............................................................................. 3.07
Company 10-Qs............................................................................ 3.07
Company Balance Sheet.................................................................... 3.08
Company Balance Sheet Date............................................................... 3.08
Company Disclosure Documents............................................................. 3.09(a)
Company Disclosure Schedule.............................................................. Article 3
Company Proxy Statement.................................................................. 3.09(a)
Company SEC Documents.................................................................... 3.07
Company Securities....................................................................... 3.05
Company Stockholder Meeting.............................................................. 5.02(a)
Company Stock............................................................................ 1.01(b)(i)
Company Stock Options.................................................................... 1.04(a)(i)
Company Stock Plans...................................................................... 1.04(a)(i)
Company Subsidiary Securities............................................................ 3.06(b)
Company Warrants......................................................................... 1.04(a)(i)
Confidentiality Agreement................................................................ 5.03
Contract................................................................................. 3.24
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
- ----------------------------------------------------------------------------------------- -----------------------
<S> <C>
Costs.................................................................................... 9.02
DEA...................................................................................... 3.16(a)
D&O Insurance............................................................................ 7.08(c)
Delaware Law............................................................................. 1.03
EMEA..................................................................................... 3.16(a)
Employee Plans........................................................................... 3.15(a)
Environmental Laws....................................................................... 3.18(f)(i)
Environmental Permits.................................................................... 3.18(f)(ii)
ERISA.................................................................................... 3.15(a)
ERISA Affiliate.......................................................................... 3.15(a)
Excess Shares............................................................................ 1.06
Exchange Agent........................................................................... 1.02(a)
Exchange Ratio........................................................................... 1.09(b)
FDA...................................................................................... 3.16(a)
FDCA..................................................................................... 3.16(b)
First Union.............................................................................. 5.06
First Union Agreements................................................................... 5.06
Forbearance Agreement.................................................................... 3.02(a)
Form F-4................................................................................. 4.08(a)
Governmental Authority................................................................... 3.03
Hazardous Substance...................................................................... 3.18(f)(iii)
HSR Act.................................................................................. 3.03
Iffa..................................................................................... 5.07
Indemnified Party........................................................................ 7.07(a)
Intellectual Property.................................................................... 3.17(a)
Lien..................................................................................... 3.04
Listing Failure.......................................................................... 1.07
Listing Period........................................................................... 1.07
MDS Amendment............................................................................ 3.02(a)
MDS Note................................................................................. 6.03
Material Adverse Effect.................................................................. 3.01
Material Insolvency Event................................................................ 9.03(b)
Merger................................................................................... 1.01(a)
Merger Consideration..................................................................... 1.01(b)(ii) or 1.07(a)
Merger Date.............................................................................. 1.03
Phoenix Merger Sub....................................................................... Preamble
Phoenix Merger Sub Common Stock.......................................................... 1.02(b)(iii)
NMS...................................................................................... 6.02
Nasdaq................................................................................... 1.06
Nasdaq Letter............................................................................ 1.07
Organizational Documents................................................................. 4.01
Pension Plans............................................................................ 3.15(a)
Person................................................................................... 1.01(b)
Pre-Merger Matters....................................................................... 7.08(a)
Product Liability........................................................................ 3.27
Providing Party.......................................................................... 7.04
Purchase Price........................................................................... 1.09(a)
Receiving Party.......................................................................... 7.04
Regulation S-X........................................................................... 3.11(i)
Required Stockholder Vote................................................................ 3.02(a)
Rights Agreement......................................................................... 3.21(a)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
- ----------------------------------------------------------------------------------------- -----------------------
<S> <C>
SEC...................................................................................... 3.07
Shut-Downs............................................................................... 5.04
Subscription Stock....................................................................... 2.03
Subsequent Buyer Public Documents........................................................ 4.06
Subsequent Company SEC Documents......................................................... 3.07
Subsidiary............................................................................... 1.01(b)
Superior Proposal........................................................................ 5.03
Support/Voting Agreement................................................................. 3.02(c)
Surviving Corporation.................................................................... 1.01(a)
Surviving Corporation Common Stock....................................................... 1.01(b)(iii)
Tax Return............................................................................... 3.14(b)
Taxes.................................................................................... 3.14(b)
Taxing Authorities....................................................................... 3.14(b)
USDA..................................................................................... 3.16(a)
US GAAP.................................................................................. 3.08
</TABLE>
A-vi
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 18, 1998, among Phoenix
International Life Sciences Inc., a corporation constituted under the laws of
Canada ("Buyer"), Chrysalis International Corporation, a Delaware corporation
(the "Company"), and Phoenix Merger Sub Corp., a Delaware corporation and a
wholly-owned subsidiary of Buyer ("Phoenix Merger Sub"). The parties intend that
the Merger (as defined herein) be the adoption of a plan of reorganization
qualifying under Section 368(a) of the Code (as defined herein).
The parties hereto agree as follows:
ARTICLE 1
THE MERGER
Section 1.01. Merger. (a) Upon the terms and subject to the conditions set forth
herein, on the Merger Date, Phoenix Merger Sub shall merge into the Company (the
"Merger") and the separate existence of Phoenix Merger Sub shall cease. The
Company shall be the surviving corporation in the Merger (hereinafter sometimes
referred to as the "Surviving Corporation") and its separate corporate
existence, with all its purposes, objects, rights, privileges, powers and
franchises, shall continue unaffected and unimpaired by the Merger.
(b) Pursuant to the Merger:
(i) Each share of common stock, $.01 par value, of the Company (the
"Company Stock") held by the Company or any Subsidiary of the Company as
treasury stock or by Buyer, in each case immediately prior to the Merger
Date, shall be canceled and no payment shall be made with respect thereto;
(ii) Subject to Section 1.07, each share of Company Stock outstanding
immediately prior to the Merger Date shall, except as otherwise provided in
Section 1.01(b)(i), be converted into the right to receive a number of
common shares of Buyer ("Buyer Common Stock") equal to the Exchange Ratio
(the "Merger Consideration") (determined in accordance with Section
1.09(b)); and
(iii) At the Merger Date, each share of common stock, par value $0.01 per
share, of Phoenix Merger Sub ("Phoenix Merger Sub Common Stock") outstanding
immediately prior to the Merger Date shall be converted into an equal number
of shares of common stock, par value $.01 per share, of the Surviving
Corporation ("Surviving Corporation Common Stock").
From and after the Merger Date, all shares of Company Stock converted in
accordance with Section 1.01(b)(ii) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of such shares shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration, the right to exercise appraisal
rights in accordance with and subject to the provisions of the Delaware Law if
Section 1.08 is applicable and the other rights specified in this Agreement.
From and after the Merger Date, all certificates representing Phoenix Merger Sub
Common Stock shall be deemed for all purposes to represent the number of shares
of Surviving Corporation Common Stock into which they were converted in
accordance with Section 1.01(b)(iii). For purposes of this Agreement,
"Subsidiary", when used with respect to any Person, means any other Person,
whether incorporated or unincorporated, of which securities or other ownership
interests having ordinary power to elect a majority of the board of directors or
other persons performing similar functions are directly or indirectly owned or
controlled by such Person or by any one or more of its Subsidiaries. For
purposes of this Agreement, "Person" means an individual, a corporation, a
limited liability company, a partnership (general or limited), an association, a
trust or
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<PAGE>
any other entity or organization, including, without limitation, a government or
political subdivision or any agency or instrumentality thereof. For purposes of
this Agreement, an "Affiliate", when used with respect to any Person, means any
other Person who is, or is deemed to be, an affiliate of such Person within the
meaning of the 1933 Act.
Section 1.02. Surrender and Payment. (a) Prior to the Merger Date, Buyer shall
appoint an agent reasonably satisfactory to the Company (the "Exchange Agent")
for the purpose of exchanging certificates representing shares of Company Stock
for the Merger Consideration. Buyer will make available to the Exchange Agent,
as needed, certificates representing the Buyer Common Stock (or, if a Listing
Failure occurs, United States Dollars) in respect of the Merger Consideration to
be paid in respect of shares of Company Stock, in accordance with the terms of
Section 1.01(b), together with any Excess Shares (as defined below). The
Exchange Agent shall invest any cash amounts delivered by Buyer to the Exchange
Agent as directed by Buyer. Any interest and other income resulting from such
investments shall be paid to Buyer pursuant to Section 1.02(e). Promptly after
the Merger Date, Buyer shall send, or shall cause the Exchange Agent to send, to
each holder of shares of Company Stock whose shares were converted into a right
to receive the Merger Consideration in accordance with Section 1.01(b)(ii) at
the Merger Date a letter of transmittal for use in such exchange (which shall
specify that delivery of the Merger Consideration shall be effected, and risk of
loss and title shall pass, only upon proper delivery of the certificates
representing shares of Company Stock, to the Exchange Agent).
(b) Each holder of shares of Company Stock that have been converted into a right
to receive the Merger Consideration, upon surrender to the Exchange Agent of a
certificate or certificates representing such shares of Company Stock, together
with a properly completed letter of transmittal covering such shares of Company
Stock, will be entitled to receive (i) the Merger Consideration payable in
respect of such shares of Company Stock, (ii) subject to Section 1.07, cash in
lieu of any fractional shares pursuant to Section 1.06 and (iii) subject to
Section 1.07, certain dividends or other distributions in accordance with
Section 1.02(g). Until so surrendered, each such certificate shall, after the
Merger Date, represent for all purposes only the right to receive (i) the Merger
Consideration, (ii) subject to Section 1.07, cash in lieu of any fractional
shares pursuant to Section 1.06 and (iii) subject to Section 1.07, certain
dividends or other distributions in accordance with Section 1.02(g). All Buyer
Common Stock issued and/or cash paid pursuant to this Article 1 upon surrender
of certificates representing shares of Company Stock shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Company Stock represented thereby.
(c) If any portion of the Merger Consideration is to be paid to a Person other
than the registered holder of the shares of Company Stock represented by the
certificate or certificates surrendered in exchange therefor, it shall be a
condition to such payment that the certificate or certificates so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the Person requesting such payment shall pay to the Exchange Agent any transfer
or other taxes required as a result of such payment to a Person other than the
registered holder of such shares of Company Stock or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) After the Merger Date, there shall be no further registration of transfers
of shares of Company Stock. If, after the Merger Date, certificates representing
shares of Company Stock are presented to the Surviving Corporation, they shall
be canceled and exchanged for the consideration provided for, and in accordance
with the procedures set forth, in this Article 1.
(e) Any portion of the Merger Consideration made available to the Exchange Agent
pursuant to Section 1.02(a) that remains unclaimed by the holders of shares of
Company Stock twelve months after the Merger Date shall be returned to Buyer,
upon demand, and any such holder who has not exchanged his shares of Company
Stock for the Merger Consideration in accordance with this Section 1.02 prior to
that time shall thereafter look only to Buyer for his claim for (i) Merger
Consideration, (ii) subject to Section 1.07, any cash in lieu of any fractional
shares pursuant to Section 1.06 and
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<PAGE>
(iii) subject to Section 1.07, certain dividends or other distributions in
accordance with Section 1.02(g). Notwithstanding the foregoing, Buyer shall not
be liable to any holder of shares of Company Stock for any amount paid to a
public official pursuant to applicable escheat or abandoned property laws. Any
amounts remaining unclaimed by holders of shares of Company Stock two years
after the Merger Date (or such earlier date immediately prior to such time as
such amounts would otherwise escheat to or become property of any governmental
entity) shall, to the extent permitted by applicable law, become the property of
Buyer free and clear of any claim or interest of any Person previously entitled
thereto.
(f) If a Listing Failure occurs, any portion of the Merger Consideration made
available to the Exchange Agent pursuant to Section 1.02(a) to pay for shares of
Company Stock in respect of which appraisal rights have been perfected shall be
returned to Buyer, upon demand.
(g) No dividends or other distributions with respect to the Buyer Common Stock
constituting all or a portion of the Merger Consideration shall be paid to the
holder of any unsurrendered certificate representing Company Stock until such
certificates are surrendered as provided in this Section 1.02. Subject to the
effect of applicable laws and Section 1.07, following such surrender, there
shall be paid, without interest, to the record holder of the certificates
representing the Buyer Common Stock (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the Merger
Date payable prior to or on the date of such surrender with respect to such
whole shares of Buyer Common Stock, and not paid, and the amount of cash payable
in lieu of any fractional shares pursuant to Section 1.06, less the amount of
any withholding taxes which may be required thereon under any provision of
federal, state, local or foreign tax law, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Merger Date but prior to the date of surrender and a payment date subsequent
to the date of surrender payable with respect to such whole shares of Buyer
Common Stock, less the amount of any withholding taxes which may be required
thereon under any provision of federal, state, local or foreign tax law. Buyer
shall make available to the Exchange Agent cash for these purposes.
(h) If any certificate representing Company Stock that was converted into a
right to receive the Merger Consideration in accordance with Section 1.01(b)(ii)
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such certificate to be lost, stolen or
destroyed and, if required by Buyer, the posting by such Person of a bond in
such reasonable amount as Buyer may direct as indemnity against any claim that
may be made against it with respect to such certificate, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed certificate (i) the
Merger Consideration, (ii) subject to Section 1.07, cash in lieu of any
fractional shares pursuant to Section 1.06, and (iii) subject to Section 1.07
and if applicable, any unpaid dividends and distributions on shares of Buyer
Common Stock deliverable in respect thereof in accordance with Section 1.02(g).
Section 1.03. The Merger Date. As soon as practicable (but in no event more than
two business days) after the satisfaction or, to the extent permitted hereunder
or under applicable law, waiver of all conditions to the Merger, (a) Phoenix
Merger Sub and the Company shall file a copy of this Agreement (or, to the
extent permitted by the Delaware General Corporation Law ("Delaware Law"), a
Certificate of Merger) (the "Certificate of Merger") with the Delaware Secretary
of State and make all other filings or recordings required by the Delaware Law
in connection with the Merger, and (b) the Merger shall become effective at such
time as the Certificate of Merger is duly filed with the Secretary of State, or
at such later date or time as Buyer and the Company shall agree and shall be
specified in the Certificate of Merger (such time and date are referred to as
the "Merger Date").
Section 1.04. Stock Options and Warrants of the Company. (a) As soon as
practicable following the date of this Agreement, the Board of Directors of the
Company (or, if appropriate, any committee of the Board of Directors
administering the Company Stock Plans, as defined below) shall adopt such
resolutions or take such other actions as may be required to effect the
following:
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<PAGE>
(i) adjust the terms of all outstanding options to purchase shares of
Company Stock (the "Company Stock Options") granted under any plan or
arrangement providing for the grant of options to purchase shares of Company
Stock to current or former officers, directors, employees or consultants of
the Company (the "Company Stock Plans"), whether vested or unvested, and all
outstanding warrants to purchase shares of Company Stock (the "Company
Warrants"), whether vested or unvested, as necessary to provide that, at the
Merger Date, each Company Stock Option and Company Warrants outstanding
immediately prior to the Merger Date shall be amended and converted into an
option or warrant, as the case may be, to acquire, on the same terms and
conditions as were applicable under the Company Stock Option or Company
Warrant, as the case may be, the number of shares of Buyer Common Stock
(rounded down to the nearest whole share) determined by multiplying the
number of shares of Company Stock subject to such Company Stock Option or
Company Warrant by the Exchange Ratio, at a price per share of Buyer Common
Stock equal to (A) the aggregate exercise price for the shares of Company
Stock otherwise purchasable pursuant to such Company Stock Option or Company
Warrant divided by (B) the aggregate number of shares of Buyer Common Stock
deemed purchasable pursuant to such Company Stock Option (each, as so
adjusted, an "Adjusted Option") or Company Warrant (each as so adjusted, an
"Adjusted Warrant"); provided that such exercise price shall be rounded up
to the nearest whole cent; and
(ii) make such other changes to the Company Stock Plans, Company Stock
Options and Company Warrants as Buyer and the Company may agree are
appropriate solely to give effect to the Merger.
(b) Notwithstanding Section 1.04(a), the adjustments provided in Section 1.04(a)
with respect to any Company Stock Options that are "incentive stock options" as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") shall be and are intended to be effected in a manner which is
consistent, to the extent permitted by applicable law, with Section 424(a) of
the Code.
(c) Prior to the Merger Date, Buyer shall amend its option plan to provide, or
shall adopt an option plan which shall provide (in each case, the "Buyer Option
Plan"), for the issuance of the Adjusted Options at the Merger Date and by
virtue of the Merger and without the need of any further corporate action, Buyer
shall assume all obligations of the Company under the Company Stock Plans,
including with respect to the Company Stock Options outstanding at the Merger
Date.
(d) Within two (2) business days after the Merger Date, Buyer shall prepare and
file with the SEC a registration statement on Form S-8 (or another appropriate
form) registering a number of shares of Buyer Common Stock equal to the number
of shares subject to the Adjusted Options. Such registration statement shall be
kept effective (and the current status of the initial offering prospectus or
prospectuses required thereby shall be maintained) at least for so long as any
Adjusted Options may remain outstanding.
(e) As soon as practicable after the Merger Date, Buyer shall deliver to the
holders of Company Stock Options appropriate notices setting forth such holders'
rights pursuant to the respective Company Stock Plans and the agreements
evidencing the grants of such Company Stock Options and that such Company Stock
Options and agreements shall be assumed by Buyer and shall continue in effect on
the same terms and conditions (subject to the adjustments required by this
Section 1.04 after giving effect to the Merger).
(f) A holder of an Adjusted Option may exercise such Adjusted Option in
accordance with its terms.
(g) Buyer shall issue the Adjusted Warrants, if any, at the Merger Date and by
virtue of the Merger and without the need for any further corporate action,
Buyer shall assume all obligations of the Company under any Company Warrant
outstanding at the Merger Date.
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<PAGE>
(h) As soon as practicable after the Merger Date, Buyer shall deliver to any
holders of Company Warrants, upon due surrender of the Company Warrants,
warrants evidencing the Assumed Warrants.
(i) Except to the extent required under the respective terms of the Company
Stock Options or Company Warrants or other applicable agreements, all
restrictions or limitations on transfer and vesting with respect to Company
Stock Options awarded under the Company Stock Plans or any other plan, program
or arrangement of the Company, and with respect to Company Warrants, to the
extent that such restrictions or limitations shall not have already lapsed,
shall remain in full force and effect with respect to such options or warrants
after giving effect to the Merger and the assumption by Buyer as set forth
above.
Section 1.05. Adjustments. If at any time during the period between the date of
this Agreement and the Merger Date, any change in the outstanding shares of
Buyer Common Stock shall occur by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any stock dividend thereon with a record date during such period or
any similar transaction or event, the Merger Consideration shall be
appropriately adjusted to provide to the holders of Company Stock the same
economic effect as contemplated prior to such change or dividend. If at any time
during the period between the date of this Agreement and the Merger Date, any
change in the outstanding shares of Company Stock shall occur by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period or any similar transaction or event, the Merger Consideration shall
be appropriately adjusted to provide to the Buyer the same economic effect as
contemplated prior to such change or dividend.
Section 1.06. Fractional Shares. No fractional shares of Buyer Common Stock
shall be issued in the Merger, but in lieu thereof each holder of Company Stock
otherwise entitled to a fractional share of Buyer Common Stock will be entitled,
subject to Section 1.07, to receive, from the Exchange Agent in accordance with
the provisions of this Section 1.06, a cash payment in lieu of such fractional
shares of Buyer Common Stock representing such holder's proportionate interest,
if any, in the net proceeds from the sale by the Exchange Agent in one or more
transactions (which sale transactions shall be made at such times, in such
manner and on such terms as the Exchange Agent shall determine in its reasonable
discretion) on behalf of all such holders of the aggregate of the fractional
shares of Buyer Common Stock which would otherwise have been issued (the "Excess
Shares"). The sale of the Excess Shares by the Exchange Agent shall be executed
on The Nasdaq Stock Market ("Nasdaq") through one or more member firms of the
National Association of Securities Dealers, Inc. and shall be executed in round
lots to the extent practicable. Until the net proceeds of such sale or sales
have been distributed to the appropriate holders of shares of Company Stock, the
Exchange Agent will hold such proceeds in trust for the appropriate holders of
Company Stock. Buyer shall pay all commissions, transfer taxes and other
out-of-pocket transaction costs, including, without limitation, the expenses and
compensation of the Exchange Agent, incurred in connection with such sale of the
Excess Shares. As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Company Stock in lieu of any fractional
shares of Buyer Common Stock the Exchange Agent shall make available such
amounts to such holders of shares of Company Stock without interest.
Section 1.07 Failure to Obtain Approval for Listing; Cash Merger Consideration.
If Buyer is unable to obtain, within sixty (60) days after the filing of the
applications and forms referred to in Section 6.02 ("Listing Period"), a letter
from Nasdaq ("Nasdaq Letter") indicating that the Buyer Common Stock has been
approved for listing on the Nasdaq NMS subject to customary conditions to be
contained in such approval letter for a transaction of this type (a "Listing
Failure"), then:
(a) Section 1.01(b)(ii) shall be deemed to be amended and restated in its
entirety as follows without any action by the parties hereto:
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<PAGE>
"(ii) Each share of Company Stock outstanding immediately prior to the
Merger Date shall, except as otherwise provided in Section 1.01(b)(i) or in
Section 1.08 with respect to shares of Company Stock as to which appraisal
rights have been exercised (which shares shall be treated in accordance with
Section 262 of the Delaware Law), be converted into the right to receive an
amount of cash (in United States dollars and rounded to the nearest cent)
equal to (A) the Purchase Price (as determined in accordance with Section
1.09) divided by (B) (x) the number of shares of Company Stock outstanding
on the date immediately prior to the Merger Date plus (y) the number of
shares of Company Stock subject to Company Options and Company Warrants that
have an exercise or conversion price less than $.71 minus (z) the number of
shares of Company Stock owned by Buyer. As of the date of this Agreement,
(B) in the immediately preceding sentence would be 11,695,549 (the "Merger
Consideration").
(b) Section 1.02(g) shall be deemed to be deleted in its entirety without any
action by the parties hereto;
(c) Section 1.06 shall be deemed to be deleted in its entirety without any
action by the parties hereto; and
(d) (i) The (A) representations and warranties of the Company contained in
Section 3.10(i), (B) representations and warranties of Buyer contained in
Sections 4.05 through 4.08 and Sections 4.10 through 4.11, (C) covenants
contained in Sections 6.01, 6.02, the last sentence of Section 7.02 and Section
7.08 and (D) the closing conditions set forth in Sections 8.01(e) and 8.01(f)
shall cease to be applicable, and (ii) the accuracy of any such representation
and warranty or failure to comply with any such covenant will not be a condition
to the closing of the Merger and the breach of any such representation and
warranty or failure to perform any such covenant shall not serve as the basis
for any termination right set forth in Section 9.01.
Section 1.08 Dissenting Shares. Notwithstanding Section 1.01, in the event of a
Listing Failure, shares of Company Stock outstanding immediately prior to the
Merger Date and held by a holder who has not voted in favor of the Merger and
who has exercised appraisal rights in respect of such shares of Company Stock in
accordance with the Delaware Law shall not be converted into a right to receive
the Merger Consideration unless such holder fails to perfect or withdraws or
otherwise loses his appraisal or objecting stockholders' rights. Shares of
Company Stock in respect of which appraisal rights have been exercised shall be
treated in accordance with Section 262 of the Delaware Law. If after the Merger
Date such holder fails to perfect or withdraws or otherwise loses his right to
demand the payment of fair value for shares of Company Stock under Delaware Law,
such shares of Company Stock shall be treated as if they had been converted as
of the Merger Date into a right to receive the Merger Consideration. The Company
shall give Buyer prompt notice of any demands received by the Company for the
exercise of appraisal rights with respect to shares of Company Stock and Buyer
shall have the right to participate in all negotiations and proceedings with
respect to such demands. The Company shall not, except with the prior written
consent of Buyer, make any payment with respect to, or settle or offer to
settle, any such demands. In the event any amounts shall become due and payable
in respect of any such demands, such amounts shall be paid by the Surviving
Corporation.
Section 1.09 Purchase Price; Exchange Ratio; Valuation of Buyer Common Stock.
(a) For purposes of this Agreement, the term "Purchase Price" shall mean Eight
Million Two Hundred Ninety Thousand United States Dollars (U.S.$8,290,000). On
or before the date immediately prior to the Merger Date, Buyer and the Company
shall agree on the appropriate calculation of the Merger Consideration (pursuant
to Section 1.01(b)(ii)) and the Exchange Ratio (pursuant to Sections 1.09(b) and
(c)) and will cause the Merger Consideration (as so calculated) to be reflected
correctly in the Certificate of Merger to be effective on the Merger Date.
(b) For purposes of this Agreement, the term "Exchange Ratio" shall mean a
fraction of which (i) the numerator shall be (x) the Purchase Price divided by
(y) (A) the number of shares of Company Stock
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outstanding on the date immediately prior to the Merger Date plus (B) the number
of shares of Company Stock subject to Company Options and Company Warrants that
have an exercise or conversion price less than $.71 minus (C) the number of
shares of Company Stock owned beneficially by Buyer other than beneficial
ownership arising from the execution of the Support/Voting Agreements, and (ii)
the denominator shall be the value of Buyer Common Stock (determined in
accordance with Section 1.09(c)). As of the date of this Agreement, (y) in the
immediately preceding sentence is 11,695,549.
(c) For purposes of Section 1.09(b), the value of Buyer Common Stock shall be
determined by dividing by two the following sum: (I) the average of the closing
prices for the Buyer Common Stock on the Toronto Stock Exchange for each
business day commencing on the 30th day prior to the public announcement of the
transactions contemplated by this Agreement and (II) the average of the closing
prices for the Buyer Common Stock on the Toronto Stock Exchange for each
business day commencing on the day immediately following such announcement and
ending on the 30th day following such public announcement. Such value shall then
be converted from Canadian dollars into U.S. dollars based upon the average
applicable exchange rate for such calculation period as published in The Wall
Street Journal (Exchange Rate table in Currency Trading section).
ARTICLE 2
THE SURVIVING CORPORATION
Section 2.01. Certificate of Incorporation; Bylaws. The certificate of
incorporation and bylaws of the Phoenix Merger Sub in effect at the Merger Date
shall be the certificate of incorporation and bylaws, respectively, of the
Surviving Corporation until amended in accordance with applicable law, except
for Article I thereof which shall include the name of the Surviving Corporation
designated by Buyer. The Surviving Corporation shall succeed to all of the
rights, privileges, powers and franchises, of a public as well as of a private
nature, of the Company and Phoenix Merger Sub, all of the properties and assets
and all of the debts of the Company and Phoenix Merger Sub, choses in action and
other interests due or belonging to the Company and Phoenix Merger Sub and shall
be subject to, and responsible for, all of the debts, liabilities and duties of
the Company and Phoenix Merger Sub with the effect set forth in the Delaware
Law.
Section 2.02. Directors and Officers. From and after the Merger Date, until
successors are duly elected or appointed and qualified in accordance with
applicable law, (a) the directors of Phoenix Merger Sub immediately prior to the
Merger Date shall be the directors of the Surviving Corporation, and (b) the
officers of Phoenix Merger Sub immediately prior to the Merger Date shall be the
officers of the Surviving Corporation. On or prior to the Merger Date, the
Company shall deliver to Buyer evidence satisfactory to Buyer of the
resignations (to be effective as of the Merger Date) of each of the directors of
the Company and/or its Subsidiaries, and, without affecting their employment
status or any rights they may have under any severance agreement, employment
agreement or similar arrangement disclosed in the Company Disclosure Schedule,
each of the officers of the Company and/or its Subsidiaries.
Section 2.03. Subscription. As part of the overall transactions described in
this Agreement, in consideration of Buyer agreeing to issue and deliver Buyer
Common Stock in accordance with Section 1.02 of this Agreement, Buyer will be
entitled to subscribe and agrees to subscribe, at the Merger Date, for a number
of shares of common stock ( par value $.01 per share), of the Surviving
Corporation equivalent to the number of shares of Company Stock outstanding
immediately prior to the Merger Date (the "Subscription Stock"). The acquisition
of the Subscription Stock shall occur simultaneously with the conversions
provided for under Sections 1.01(b)(ii) and 1.01(b)(iii) of this Agreement. The
Subscription Stock will, at the Merger Date, have been duly authorized and, when
issued to Buyer pursuant to this Agreement, will be validly issued and
outstanding, fully paid and non-assessable.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule (each section of which qualifies
the correspondingly numbered representation and warranty only, except where the
information in any such section is disclosed in such a way to make its relevance
to any other representation or warranty readily apparent, in which case, such
section shall be deemed to also qualify such other representation and warranty)
of the Company attached hereto (the "Company Disclosure Schedule") (and except
as to any matter set forth in or contemplated by Section 2.03 hereof as to which
the representations and warranties in this Article 3 do not apply) or as
otherwise provided herein, the Company represents and warrants to Buyer that:
Section 3.01. Corporate Existence and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and has all corporate powers required to carry on its business as
now conducted and is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so qualified
or in good standing is not, individually or in the aggregate, reasonably likely
to have a Material Adverse Effect on the Company. For purposes of this
Agreement, a "Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the financial condition, business, operations, assets
or results of operations of such Person and its Subsidiaries taken as a whole or
on the ability of such Person to perform its obligations under this Agreement in
all material respects. Section 3.01(a) of the Company Disclosure Schedule
includes true and complete copies of the Company's certificate of incorporation
and bylaws as currently in effect. Section 3.01(b) of the Company Disclosure
Schedule includes a list of all jurisdictions in which the Company or any
Subsidiary of the Company is duly qualified to conduct business.
Section 3.02. Corporate Authorization. (a) The execution, delivery and
performance by the Company of each of (I) this Agreement, (ii) the letter
agreement dated October 29, 1998 between the Company and Dr. Jack Barbut (the
"Barbut Agreement"), (iii) the Agreement dated November 16, 1998 among the
Company, Panlabs International, Inc. and MDS, Inc. (the "MDS Amendment") and
(iv) the Forbearance Agreement dated the date hereof among the Company, its
Subsidiaries named therein and First Union National Bank (the "Forbearance
Agreement") and the consummation by the Company of the transactions contemplated
by this Agreement, the Barbut Agreement, the MDS Amendment and the Forbearance
Agreement are within the Company's corporate powers and, except for the required
approval of the stockholders of the Company in connection with the consummation
of the Merger, have been duly authorized by all necessary corporate action. The
affirmative vote of a majority of the shares of Company Stock outstanding as of
the record date for the Company Stockholder Meeting (the "Required Stockholder
Vote") is the only vote of any class or series of the Company's capital stock
necessary to approve and adopt this Agreement and the transactions contemplated
by this Agreement. This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding agreement of the Company enforceable
against the Company in accordance with its terms.
(b) The Board of Directors of the Company, at a meeting duly called and held,
has (i) determined that this Agreement and the transactions contemplated by this
Agreement (including the Merger) are fair to and in the best interests of the
stockholders of the Company, (ii) approved this Agreement and the transactions
contemplated by this Agreement (including the Merger), and (iii) resolved to
recommend adoption of this Agreement and the transactions contemplated hereby by
the stockholders of the Company, subject to the terms hereof.
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(c) Each of the persons identified in Section 3.02(c) of the Company Disclosure
Schedule has (i) entered into a Support/Voting Agreement in the form attached
hereto as Exhibit A (each a "Support/Voting Agreement"), whereby each such
individual has agreed, among other things, to vote all shares of Company Stock
beneficially owned by them in favor of adoption of this Agreement and (ii) a
written undertaking in the form attached hereto as Exhibit B (each an "Affiliate
Letter"), whereby each such individual has agreed, among other things, to comply
with the requirements of Rule 145 under the 1933 Act with respect to public
sales of Buyer Common Stock received by them in the Merger. The persons
identified in Section 3.02(c) are the only persons which the Company believes
may be Affiliates of the Company.
Section 3.03. Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated by this Agreement require no action, by or in
respect of, or filing with, any federal, state, local or foreign governmental
body, agency, official or authority ("Governmental Authority") other than (a)
the filing of the Certificate of Merger in accordance with the Delaware Law; (b)
compliance with any applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"); (c) compliance with any
applicable requirements of the Securities and Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder (the "1934 Act"); (d)
compliance with any applicable requirements of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "1933 Act");
(e) compliance with any applicable foreign or state securities or Blue Sky laws;
and (f) immaterial actions or filings relating to ordinary operational matters.
Section 3.04. Non-Contravention. The execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the
transactions contemplated by this Agreement do not and will not, assuming
receipt of the Required Stockholder Vote, (a) contravene or conflict with the
certificate of incorporation or bylaws of the Company or any Subsidiary of the
Company, (b) assuming compliance with the matters referred to in Section 3.03
and Section 3.03 of the Company Disclosure Schedule, contravene or conflict with
or constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Company or any
Subsidiary of the Company, (c) constitute a default (or an event which with
notice, the lapse of time or both would become a default) under or give rise to
a right of termination, cancellation or acceleration of any right or obligation
of the Company or any Subsidiary of the Company or to a loss of any benefit to
which the Company or any Subsidiary of the Company is entitled under any
provision of any agreement, contract or other instrument binding upon the
Company or any Subsidiary of the Company or any license, franchise, permit or
other similar authorization held by the Company or any Subsidiary of the
Company, (d) require any action or consent or approval of any Person other than
a Governmental Authority or (e) result in the creation or imposition of any Lien
on any asset of the Company or any Subsidiary of the Company, other than, (i) in
the case of the events specified in clauses (b), (c), and (e) (other than
indebtedness of the Company or any Subsidiary of the Company) and (ii) in the
case of the events specified in clause (d) (other than indebtedness of the
Company and licenses and sublicenses related to the 191 patent to which the
Company or any Subsidiary is a party on the date hereof), any such event which,
individually or in the aggregate, has not had, and is not reasonably likely to
have, a Material Adverse Effect on the Company. For purposes of this Agreement,
"Lien" means, with respect to any asset, any mortgage, claim, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
Section 3.05. Capitalization. The authorized capital stock of the Company
consists of 20,000,000 shares of Company Stock and 5,000,000 shares of serial
preferred stock. As of September 30, 1998, there were (i)11,523,257 shares of
Company Stock (together with associated Rights as described in Section 3.21)
outstanding and (ii) no shares of serial preferred stock outstanding. As of
September 30, 1998, there were (i) employee and director stock options to
purchase an aggregate of 1,962,851 shares of Company Stock outstanding (none of
which options were exercisable, other than options in respect of 1,367,241
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shares of Company Stock) and (ii) warrants to purchase 2,110,000 shares of
Company Stock outstanding (all of which were exercisable). All outstanding
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable and, as to shares issued and sold by
the Company within the three years prior to the date of this Agreement, to the
Company's knowledge, have been issued in compliance with all federal and state
securities laws. Except (i) as set forth in this Section 3.05, (ii) for changes
since September 30, 1998 resulting from the expiration, vesting, termination or
exercise in accordance with their respective terms of stock options or warrants
outstanding on such date, (iii) modifications of the Rights as described in
Section 3.21, (iv) acceleration of vesting of stock options resulting from the
execution of this Agreement as set forth in Section 3.04 of the Company
Disclosure Schedule, and (v) issuances after September 30, 1998 in the ordinary
course of business consistent with past practice of shares of Company Stock to
the Company's 401(k) plan, there are outstanding (a) no shares of capital stock
or other voting securities of the Company, (b) no securities of the Company
convertible into or exchangeable for shares of capital stock or voting
securities of the Company, and (c) no options, warrants, calls, subscriptions or
other rights to acquire from the Company, and no obligation of the Company to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company (the items in
clauses (a), (b) and (c) being referred to collectively as the "Company
Securities"). There are no outstanding obligations of the Company or any
Subsidiary of the Company to repurchase, redeem or otherwise acquire any Company
Securities. Section 3.05 of the Company Disclosure Schedule sets forth, with
respect to each stock option and warrant for Company Stock outstanding at
September 30, 1998, the name of the optionee or warrant holder, as the case may
be, the number of shares of Company Stock subject thereto, the per share
exercise price thereof and the initial vesting date thereof. Section 3.05 of the
Company Disclosure Schedule sets forth (i) every agreement pursuant to which the
Company has granted to any Person registration rights related to shares of
Company Stock and (ii) every agreement of which the Company has knowledge
relating to the voting of any shares of Company Stock.
Section 3.06. Subsidiaries. (a) Each Subsidiary of the Company is duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all corporate powers to carry on its business
as now conducted and is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where failure to be so qualified or
licensed is not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on the Company.
(b) The Company does not own, directly or indirectly, any equity or other
ownership interest in any corporation, partnership, joint venture or other
entity or enterprise, except for the Subsidiaries of the Company set forth in
Section 3.06 of the Company Disclosure Schedule. Except as set forth in Section
3.06 of the Company Disclosure Schedule, the Company is not subject to any
obligation or requirement to provide funds to or make any investment (in the
form of a loan, capital contribution or otherwise) in any such entity. The
ownership interests having by their terms ordinary voting power to elect a
majority of directors (or others performing similar functions with respect to
such Subsidiary) of each of the Company's Subsidiaries is held of record by the
Company or one of its other Subsidiaries, free and clear of any Liens. Each of
the outstanding shares of capital stock of each of the Company's Subsidiaries is
duly authorized, validly issued, fully paid and nonassessable. The following
information for each Subsidiary of the Company is set forth in Section 3.06 of
the Company Disclosure Schedule, as applicable: (i) its name and jurisdiction of
incorporation or organization; (ii) its authorized capital stock or share
capital; and (iii) the number of issued and outstanding shares of capital stock
or share capital and the record owner(s) thereof. There are no outstanding
subscriptions, options, warrants, puts, calls, agreements, understandings,
claims or other commitments or rights of any type relating to the issuance, sale
or transfer of any securities of any Subsidiary of the Company (collectively,
the "Company Subsidiary Securities"), nor are there outstanding any securities
which are convertible into or exchangeable for
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any Company Subsidiary Securities; and no Subsidiary of the Company has any
obligation of any kind to issue any additional Company Subsidiary Securities or
to pay for any Company Subsidiary Securities.
Section 3.07. SEC Filings. The Company has delivered to Buyer (i) the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the
"Company 10- K"), (ii) its Quarterly Reports on Form 10-Q for its fiscal
quarters ended after December 31, 1997 and filed with the Securities and
Exchange Commission (the "SEC") prior to the date of this Agreement (the
"Company 10-Qs"), and (iii) its proxy or information statements relating to
meetings of, or actions taken without a meeting by, the stockholders of the
Company held since December 31, 1997, and (iv) all of its other reports,
statements, schedules and registration statements filed with the SEC since
January 1, 1998 and through the date of this Agreement. The Company has timely
filed all required reports, schedules, forms, statements and other documents
with the SEC since January 1, 1998 (collectively, the "Company SEC Documents").
As of their respective dates, or if amended, as of the date of the last such
amendment, the Company SEC Documents complied, and all documents required to be
filed by the Company with the SEC after the date hereof and prior to the Merger
Date (the "Subsequent Company SEC Documents") will comply, in all material
respects with the requirements of the 1933 Act or the 1934 Act, as the case may
be, and the applicable rules and regulations promulgated thereunder, and none of
the Company SEC Documents contained, and the Subsequent Company SEC Documents
when filed will not contain, any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
Section 3.08. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the Company SEC Documents at the time such Company SEC
Documents were filed with the SEC complied as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
generally accepted accounting principles applied in the United States ("U.S.
GAAP") applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto or, in the case of the unaudited statements,
as permitted by Form 10-Q of the SEC), and fairly present (subject in the case
of unaudited statements to normal, recurring audit adjustments) the consolidated
financial position of the Company as at the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended. For
purposes of this Agreement, "Company Balance Sheet" means the consolidated
balance sheet of the Company as of December 31, 1997 set forth in the Company
10-K and "Company Balance Sheet Date" means December 31, 1997.
For purposes of financial presentation, the Company and its Subsidiaries
recognize net revenue from their contracts on a percentage of completion basis
as work is performed. The percentage of completion, and consequently the revenue
to be recorded, of each individual contract is determined through detailed
analysis and discussion between all appropriate operational and financial
department management. Although the Company and its Subsidiaries do not require
collateral for unpaid balances, credit losses have consistently been within
management's expectations. Certain contracts contain provisions for price
adjustment for cost overruns. Such adjusted amounts are included in service
revenue when realization is assured and the amounts can be reasonably
determined. In the period in which it is determined that a loss will result from
the performance of a contract, the entire amount of the estimated ultimate loss
is charged against income.
Section 3.09. Disclosure Documents. (a) Each document required to be filed by
the Company with the SEC in connection with the transactions contemplated by
this Agreement (the "Company Disclosure Documents"), including, without
limitation, the proxy or information statement of the Company (the "Company
Proxy Statement") to be filed with the SEC in connection with the adoption of
this Agreement by the holders of Company Stock, and any amendments or
supplements thereto, will, when filed, comply as to form in all material
respects with the applicable requirements of the 1934 Act.
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(b) At the time the Company Proxy Statement or any amendment or supplement
thereto is first mailed to stockholders of the Company, and at the time such
stockholders vote on the adoption of this Agreement, the Company Proxy
Statement, as supplemented or amended, if applicable, will not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. At the time of the filing of any
Company Disclosure Document other than the Company Proxy Statement and at the
time of any distribution thereof, such Company Disclosure Document will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The representations
and warranties contained in this Section 3.09(b) will not apply to statements
included in or omissions from the Company Disclosure Documents based upon
information furnished to the Company by Buyer specifically for use therein.
Section 3.10. Information Supplied. The information supplied or to be supplied
by the Company for inclusion or incorporation by reference in (i) the Buyer's
Form F-4 or any amendment or supplement thereto will not, at the time the Form
F-4 or any amendment or supplement thereto becomes effective under the 1933 Act
and on the Merger Date, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading and (ii) any Buyer Disclosure Documents (other
than the Form F-4 and any amendments or supplements to either) will not, at the
time of effectiveness of such Buyer Disclosure Document and at the time of any
distribution thereof, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
Section 3.11. Absence of Certain Changes. From the Company Balance Sheet Date,
except (i) as set forth in the Company SEC Documents, (ii) as contemplated by
this Agreement (including, without limitation, Sections 1.04 and 3.21 hereof) or
(iii) related to the Shut-Downs, the Company and its Subsidiaries have conducted
their business in the ordinary course consistent with past practice and there
has not been:
(a) any event, occurrence or development of a state of circumstances or facts
which has had or is reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on the Company other than any of the foregoing (i)
relating to the economy or securities markets in general, (ii) relating to the
Company's industry in general or (iii) arising from the announcement or
thereafter the pendency of this Agreement or the transactions contemplated by
this Agreement;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any Subsidiary of
the Company of any amount of outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any of its
Subsidiaries;
(c) any amendment of any material term of any outstanding security of the
Company or any Subsidiary of the Company;
(d) any incurrence, assumption or guarantee by the Company or any Subsidiary of
the Company of any indebtedness from any third party for borrowed money;
(e) any creation or assumption by the Company or any Subsidiary of the Company
of any Lien on any material asset other than Liens arising solely by operation
of applicable law;
(f) any making of any loan, advance or capital contribution to or investment in
any Person other than (i) loans and advances to any employees of the Company in
an amount not in excess of $5,000 per employee and (ii) loans, advances or
capital contributions to or investments in wholly-owned Subsidiaries of the
Company;
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(g) any damage, destruction or other casualty loss (whether or not covered by
insurance) affecting the business or assets of the Company or any Subsidiary of
the Company which, individually or in the aggregate, has had or is reasonably
likely to have a Material Adverse Effect on the Company;
(h) any transaction or commitment made, or any contract or agreement entered
into, by the Company or any Subsidiary of the Company relating to its assets or
business (including, without limitation, the acquisition or disposition of any
assets) (other than transactions and commitments contemplated by this Agreement)
inconsistent with the Company's budget and/or spending plans disclosed to Buyer
prior to the date of this Agreement or any relinquishment by the Company or any
Subsidiary of the Company of any material contract, license or right;
(i) any change in any method of accounting or accounting principle or practice
by the Company or any Subsidiary of the Company, except for any such change
required by U.S. GAAP or SEC Regulation S-X promulgated under the 1934 Act and,
as to changes occurring prior to the date of this Agreement, as set forth in
Section 3.11 of the Company Disclosure Schedule ("Regulation S-X");
(j) any (i) grant by the Company or any of its Subsidiaries of any severance or
termination pay to, or entry into any employment, termination or severance
arrangement with, any director, officer or employee of the Company or any
Subsidiary of the Company; (ii) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) with any director, officer or employee of the Company or any
Subsidiary, (iii) increase in benefits payable under any existing severance or
termination pay policies or employment agreements or (iv) increase in
compensation, bonus or other benefits payable to directors, officers or
employees of the Company or any Subsidiary of the Company, other than in the
ordinary course of business and consistent with past practice.
Section 3.12. No Undisclosed Material Liabilities. There are no liabilities,
commitments or obligations (whether pursuant to contracts or otherwise) of the
Company or any Subsidiary of the Company of any kind whatsoever which,
individually or in the aggregate, have had or are reasonably likely to have a
Material Adverse Effect on the Company, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances which is reasonably likely to result in such a
liability, commitment or obligation, including, without limitation, any fines,
disciplinary actions or other adverse actions that may be taken or reported
concerning the conduct of the Company or any of its Subsidiaries, other than:
(a) liabilities, commitments or obligations disclosed or provided for in the
Company Balance Sheet (including the notes thereto) or disclosed in the Company
SEC Documents;
(b) liabilities, commitments or obligations incurred in the ordinary course of
business consistent with past practice since the Company Balance Sheet Date;
(c) liabilities, commitments or obligations arising from the Shut-Downs and
disclosed to Buyer; and
(d) liabilities, commitments or obligations under this Agreement.
Section 3.13. Litigation; Investigations; Orders and Decrees. There is no
action, claim, suit, investigation, proceeding or examination ("Action") pending
against or affecting, or to the knowledge of the Company, threatened or
reasonably likely to be brought against or affecting, the Company or any
Subsidiary of the Company or any of their respective properties before any
arbitrator or any Governmental Authority which, individually or in the
aggregate, has had or is reasonably likely to have a Material Adverse Effect on
the Company or on Chrysalis DNX Transgenic Sciences Corporation ("Chrysalis
DNX"). The foregoing representation and warranty does not include or relate to
any Action, pending or threatened, challenging or seeking to prevent, enjoin,
alter or delay the Merger or any of the transactions contemplated by this
Agreement. Neither the Company nor any Subsidiary is subject to any outstanding
order, writ, injunction or decree which, individually or in the aggregate,
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would have a Material Adverse Effect on the Company or Chrysalis DNX. Since
December 31, 1993, (i) there has not been any Action asserted or, to the
knowledge of the Company, threatened before any Governmental Authority against
the Company or any Subsidiary of the Company relating to the Company or any of
its Subsidiary's method of doing business or its relationship with past,
existing or future users or purchasers of any goods or services of the Company
or any Subsidiary of the Company which has had, individually or in the
aggregate, a Material Adverse Effect on the Company and (ii) neither the Company
nor any Subsidiary of the Company has been subject to any outstanding order,
writ, injunction or decree relating to the Company's or any of its Subsidiary's
method of doing business or its relationship with past, existing or future
lessees, users, purchasers, licensees or sublicensees of any Intellectual
Property, goods or services of the Company or any Subsidiary of the Company
which has had, individually or in the aggregate, a Material Adverse Effect on
the Company.
Section 3.14. Taxes. (a) Except as set forth in the Company Balance Sheet
(including the notes thereto), (i) all Tax Returns for the Company or any
Subsidiary of the Company required to be filed with any taxing authority by, or
with respect to, the Company and its Subsidiaries have been filed in accordance
with all applicable laws and are true, correct and complete in all material
respects; (ii) the Company and its Subsidiaries have timely paid all Taxes shown
as due and payable on the Tax Returns for the Company or any Subsidiary of the
Company that have been so filed; (iii) the Company and its Subsidiaries have
made provision for all Taxes payable by the Company and its Subsidiaries for
which no Tax Return for the Company or any Subsidiary of the Company has yet
been filed; (iv) there is no action, suit, proceeding, audit or claim now
proposed or pending against or with respect to the Company or any of its
Subsidiaries in respect of any Tax where there is a reasonable possibility of an
adverse determination; (v) neither the Company nor any of its Subsidiaries has
been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code; (vi) neither the Company nor any of its
Subsidiaries has been a member of an affiliated, consolidated, combined or
unitary group other than one of which the Company was the common parent and no
members of that group have left the group; (vii) all Tax Returns filed with
respect to tax years of the Company and its Subsidiaries through the tax year
ended December 31, 1994, have been examined and closed or are returns with
respect to which the applicable period for assessment under applicable law,
after giving effect to extensions or waivers, has expired; (viii) neither the
Company nor any Subsidiary (or any member of any affiliated, consolidated,
combined or unitary group of the Company or any Subsidiary of the Company is or
has been a member) has been granted any extension or waiver of the statute of
limitations period applicable to any Tax Return, which period (after giving
effect to such extension or waiver) has not yet expired; and (ix) neither the
Company nor any Subsidiary of the Company is a party to a tax sharing agreement,
including, without limitation, any agreement with respect to the shifting of
losses or income among parties or has been a party to a tax sharing agreement
that imposes obligations of the Company or any Subsidiary of the Company as of
the date of this Agreement. For purposes of the representations contained in
this Section 3.14, none of these representations shall be deemed to have been
breached unless such breach would have, individually or in the aggregate, a
Material Adverse Effect on the Company.
(b) For purposes of this Agreement, "Taxes" means all United States Federal,
state, local and foreign taxes, levies and other assessments, including, without
limitation, all income, sales, use, goods and services, value added, capital,
capital gains, net worth, transfer, profits, withholding, payroll, PAYE,
employer health, unemployment insurance payments, excise, real property and
personal property taxes, and any other taxes, assessments or similar charges in
the nature of a tax, including, without limitation, interest, additions to tax,
fines and penalties, imposed by a governmental or public body, agency, official
or authority (the "Taxing Authorities"). "Tax Return" means any return, report,
information return or other document (including any related or supporting
information) required to be filed with any Taxing Authority in connection with
the determination, assessment, collection, administration or imposition of any
Taxes.
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Section 3.15. ERISA and Labor Matters. (a) Section 3.15(a) of the Company
Disclosure Schedule contains a list identifying each "employee benefit plan", as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA"), which is subject to any provision of ERISA and is maintained,
administered or contributed to by the Company or any ERISA Affiliate of the
Company and covers any employee or former employee of the Company or any
Subsidiary of the Company or in connection with which the Company or any
Subsidiary of the Company has any liability. Copies of such plans (and, if
applicable, related trust agreements) and all amendments thereto and written
interpretations thereof, if any, have been furnished to Buyer together with the
three most recent annual reports (Form 5500 including, if applicable, Schedule B
thereto) prepared in connection with, and any favorable determination letter
issued in connection with, any such plan. Such plans are referred to
collectively herein as the "Employee Plans". For purposes of this Section,
"ERISA Affiliate" of the Company means any other Person which, together with the
Company, would be treated as a single employer under Section 414 of the Code.
The only Employee Plans which individually or collectively would constitute an
"employee pension benefit plan" as defined in Section 3(2) of ERISA (the
"Pension Plans") are identified as such in the list referred to above.
(b) Neither the Company nor any ERISA Affiliate has ever maintained or been
obligated to contribute to or had any liability in connection with any
"multiemployer plan", as defined in Section 3(37) of ERISA, or any "defined
benefit plan", as defined in Section 3(35) of ERISA. Nothing done or omitted to
be done and no transaction or holding of any asset under or in connection with
any Employee Plan has or will make the Company or any Subsidiary of the Company,
any officer or director of the Company or any Subsidiary of the Company subject
to any liability under Title I of ERISA or liable for any tax pursuant to
Section 4975 of the Code that is reasonably likely to have a Material Adverse
Effect on the Company.
(c) Each Employee Plan which is intended to be qualified under Section 401(a) of
the Code has received a favorable determination letter from the IRS that it is
so qualified. The Company has furnished to Buyer copies of the most recent IRS
determination letters with respect to each such Employee Plan. Each Employee
Plan has been maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations, including but
not limited to ERISA and the Code, which are applicable to the Employee Plan,
excluding any instances of non-compliance that would not individually or in the
aggregate be reasonably likely to have a Material Adverse Effect on the Company.
(d) Section 3.15(d) of the Company Disclosure Schedule contains a list of each
employment, severance (including the duration of severance periods or, in the
case of stay bonuses, the amount) or other similar contract, arrangement or
policy and each plan or arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits or for deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which is not an Employee
Plan, is entered into, maintained or contributed to, as the case may be, by the
Company or any Subsidiary of the Company and covers any employee or former
employee of the Company or any of its Subsidiaries or in connection with which
the Company or any Subsidiary of the Company could have liability. Such
contracts, plans and arrangements as are described above, copies or descriptions
of all of which have been furnished previously to Buyer, are referred to
collectively herein as the "Benefit Arrangements". Each Benefit Arrangement has
been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
that are applicable to such Benefit Arrangement, excluding any instances of
non-compliance that would not individually or in the aggregate be reasonably
likely to have a Material Adverse Effect on the Company.
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(e) Except as would not be reasonably likely to have a Material Adverse Effect
on the Company, no Employee Plan, Benefit Arrangement or related document
contains any provision that would prevent the Company or any Subsidiary of the
Company from amending or terminating any post-retirement health, medical or life
insurance benefits and no agent or representative of the Company or of any
Subsidiary of the Company has made any statements that would limit the ability
of the Company or any of its Subsidiaries to amend or terminate any such
benefits.
(f) There has been no amendment to, written interpretation or announcement
(whether or not written) by the Company or any Subsidiary of the Company
relating to, or change in employee participation or coverage under, any Employee
Plan or Benefit Arrangement which would increase materially the expense of
maintaining such Employee Plan or Benefit Arrangement above the level of the
expense incurred in respect thereof for the fiscal year ended on the Company
Balance Sheet Date.
(g) The execution of, and performance of the transactions contemplated in, this
Agreement will not (either alone or upon the occurrence of any additional or
subsequent events) constitute an event under any Employee Plan, Benefit
Arrangement, trust or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any employee or former employee of the Company or any of its Subsidiaries, or
result in the triggering or imposition of any restrictions or limitations on the
right of Buyer, the Company or any Subsidiary of the Company to amend or
terminate any Employee Plan and receive the full amount of any excess assets
remaining or resulting from such amendment or termination, subject to applicable
taxes. Except as otherwise identified in Section 3.15(d) of the Company
Disclosure Schedule, there is no contract, agreement, plan or arrangement
covering any employee or former employee of the Company or any Subsidiary that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to the terms of Sections 162(a)(1), 162(a)(2)
or 280G of the Code.
(h) Neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement. There are no labor unions voluntarily recognized or
certified to represent any bargaining unit of employees at the Company or any of
its Subsidiaries. No work stoppage, labor strike or slowdown against the Company
or any of its Subsidiaries is pending or threatened nor has any of the foregoing
occurred since December 18, 1996. Neither the Company nor any of its
Subsidiaries is involved in or threatened with any labor dispute or grievance
which individually or in the aggregate has had or is reasonably likely to have a
Material Adverse Effect on the Company. To the knowledge of the Company, there
is no organizing effort or representation question at issue with respect to any
employee of the Company or any of its Subsidiaries. No collective bargaining
agreement to which the Company or any of its Subsidiaries is or may be a party
is currently under negotiation or renegotiation and no existing collective
bargaining agreement is due for expiration, renewal or renegotiation within the
one year period after the date hereof.
Section 3.16. Compliance with Laws. (a) Each of the Company and its Subsidiaries
has all permits, licenses, authorizations, consents, approvals and franchises
necessary to own, lease and operate its respective properties and to carry on
its respective business as it is now being conducted except for any of the
foregoing, the absence of which would not, individually or in the aggregate,
have a Material Adverse Effect on the Company or Chrysalis DNX. The Company and
each Subsidiary is in compliance in all material respects with the terms and
conditions of all such permits, licenses, authorizations, consents, approvals
and franchises. Section 3.16 of the Company Disclosure Schedule sets forth, as
of the date of this Agreement, a list of all material permits, licenses,
authorizations, consents, approvals and franchises of the Company and each
Subsidiary of the Company along with their expiration dates, each one of which
is currently valid and in full force. The Company and each Subsidiary has filed
such timely and complete renewal applications as may be required with respect to
its material permits, licenses, authorizations, consents, approvals and
franchises. No suspension, revocation, cancellation or
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withdrawal of, or any Action related to, any material permits, licenses,
authorizations, consents, approvals or franchises of the Company and any
Subsidiary of the Company has been filed or, to the knowledge of the Company or
its Subsidiaries, has been commenced or is threatened. The Company and each
Subsidiary is currently in compliance with, and at all times since December 31,
1993, has been in compliance with, all applicable federal, state, local or
foreign laws, statutes, orders, judgments, decisions, rules, regulations,
policies or guidelines (collectively "Applicable Laws"), including those
promulgated or entered by the United States Food and Drug Administration
("FDA"), United States Department of Agriculture ("USDA"), United States Drug
Enforcement Agency ("DEA"), European Medicines Evaluation Agency ("EMEA"),
relating to the Company, any Subsidiary of the Company or its respective
businesses or properties, except for any non-compliance which has not had, and
is not reasonably likely to have, a Material Adverse Effect on the Company.
(b) As to each product or service (including preclinical and clinical trials)
subject to the jurisdiction of any Governmental Authority that is manufactured,
tested, distributed, held, performed, offered and/or marketed by the Company or
its Subsidiaries, such product or service is being, and since December 31, 1993
has been, manufactured, tested, distributed, held, performed, offered and/or
marketed in compliance, to the extent required, with all Applicable Laws
including, but not limited to, those provisions of the Federal Food, Drug and
Cosmetic Act ("FDCA") relating to investigational use, informed consent,
premarket clearance, good manufacturing practices, good laboratory practices,
good clinical practices, labeling, advertising, record keeping, filing of report
and security, except for any non-compliance which has not had, and is not
reasonably likely to have, a Material Adverse Effect on the Company, and during
the past five years there have been no deaths or serious adverse events, as
defined in Title 21 of CFR, related or alleged to have been related to any drug,
device or biologic product being studied in any such clinical trials or to the
negligence of the Company or any of its Subsidiaries or agents.
(c) Section 3.16(c) of the Company Disclosure Schedule lists (i) all notices of
violation issued by the FDA, USDA, DEA or EMEA during the five years prior to
the date of this Agreement to the Company or any of its Subsidiaries; (ii) all
audit reports performed during the five years prior to the date of this
Agreement by the Company, any Subsidiary, or any outside consultant retained by
the Company or one of its Subsidiaries with respect to matters over which the
FDA, USDA, DEA or EMEA has jurisdiction; and (iii) any document concerning any
oral or written communication received from the FDA, the USDA, the DEA or the
Department of Justice during the five years prior to the date of this Agreement.
Section 3.17. Intellectual Property Rights. (a) Set forth in Section 3.17 of the
Company Disclosure Schedule is a true and complete list, as of the date of this
Agreement, of (i) all of the Company's and each of its Subsidiary's foreign and
domestic material patents, patent applications, invention disclosures,
trademarks, service marks, trade names (and any registrations or applications
for registration for any of the foregoing) and all material design right and
copyright applications and registrations, including all patents, trademarks,
copyrights and applications under which the Company or any Subsidiary has
obtained rights from others, and (ii) all material agreements to which the
Company or any Subsidiary of the Company is a party which may concern any of the
Intellectual Property. "Intellectual Property" shall mean all intellectual
property or other proprietary rights of every kind, including, without
limitation, all domestic or foreign patents, patent applications, inventions
(whether or not patentable) processes, products, technologies, discoveries,
copyrightable and copyrighted works, apparatus, trade secrets, trademarks and
trademark applications and registrations, service marks and service mark
applications and registrations, trade names, trade dress, copyright regulations,
design rights, customer list, marketing and customer information, mask works
rights, know-how, licenses, technical information (whether confidential or
otherwise), software, and all documentation thereof). Other than the
Intellectual Property set forth in Section 3.17 of the Company Disclosure
Schedule, no name, patent invention, trade secret, proprietary right, computer
software, trademark, trade name, service mark, logo, copyright, franchise,
license, sublicense, or other such right is necessary for the operation of the
business of the
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Company or any Subsidiary in substantially the same manner as such business is
presently or proposed to be conducted. Except as set forth in Section 3.17 of
the Company Disclosure Schedule, (i) the Company or its Subsidiaries, as
applicable, owns, free and clear of any Liens the Intellectual Property set
forth in Section 3.17 of the Disclosure Schedule and has the exclusive right to
bring actions for the infringement thereof; (ii) no person or entity has
asserted to the Company or any Subsidiary of the Company (and the Company or any
Subsidiary is not otherwise aware) that, with respect to the Intellectual
Property and the research, development and commercial activities of the Company
or any Subsidiary, the Company or any Subsidiary of the Company is infringing or
has infringed any domestic or foreign patent, trademark, service mark, trade
name, or copyright or design right or misappropriated or improperly used or
disclosed any trade secret, or know-how, (iii) all working requirements and all
maintenance fees, annuities, and other payments which are due from or controlled
by the Company or any Subsidiary of the Company on or before the date of this
Agreement for any of the Intellectual Property, including, without limitation,
all material foreign or domestic patents, patent applications, trademarks
registrations service mark registrations, copyright registrations and any
applications for any of the preceding, have been met or paid; (iv) the Company
is not aware of any part of the Intellectual Property having been obtained
through inequitable conduct or fraud in the United States Patent and Trademark
Office or any foreign Governmental Authority; (v) neither the Company nor any
Subsidiary of the Company is aware of any conduct or use by the Company or any
Subsidiary of the Company that would, to the Company's knowledge, void or
invalidate or constitute misuse of, any of the Intellectual Property (vi) the
execution, delivery and performance of this Agreement by the Company, and the
consummation of the transactions contemplated by this Agreement will not
materially impair the right of Buyer or the Surviving Corporation, after the
Merger Date, to use, sell, license or dispose of, or to bring any action for the
infringement of, any Intellectual Property; (vii) the Company or any Subsidiary
of the Company is not aware of any prior art that has been identified to the
Company or any Subsidiary of the Company as invalidating or potentially
invalidating prior art with respect to U.S. Patent No. 4,873,191 (the "191
Patent"); (viii) the Company or any Subsidiary of the Company is not aware of
any Person who has made or asserted a claim of ownership, inventorship, license
or material interest in the 191 patent; and (ix) there are no material
royalties, honoraria, fees or other payments payable to any Person by reason of
the ownership, use, license, sublicense, sale or disposition of the Intellectual
Property.
Section 3.18. Environmental Matters. (a) (i) No notice, notification, demand,
request for information, citation, summons or order has been received by the
Company, no complaint has been filed, no penalty has been assessed, no Action or
review is pending before any Governmental Authority or, to the knowledge of the
Company or any Subsidiary of the Company, threatened by any Governmental
Authority or other Person with respect to any matters relating to the Company or
any Subsidiary of the Company and arising out of any Environmental Law or
Environmental Permit which, individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect on the Company; and
(ii) the Company and each Subsidiary of the Company are in compliance
with all Environmental Laws and have, and are in compliance with, all
Environmental Permits, except where any noncompliance or failure to obtain
or comply with Environmental Permits is not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on the
Company; and
(iii) there are no liabilities of, or relating to, the Company or any
Subsidiary of the Company of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, arising under
or relating to any Environmental Law or Environmental Permit which,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on the Company.
(b) There are no liabilities disclosed in any environmental assessment,
investigation, study, audit, test, review or other analysis conducted at the
request of the Company or any Subsidiary of the Company in relation to the
current or prior business of the Company or any Subsidiary of the Company or any
property or facility now or previously owned, leased or operated by the Company
or any Subsidiary of
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the Company and of which the Company has knowledge which individually or in the
aggregate are reasonably likely to exceed $25,000 which have not been disclosed
to Buyer in writing as of the date hereof.
(c) Neither the Company nor any Subsidiary of the Company has knowledge in
relation to the current or prior business of the Company or any Subsidiary of
the Company owning or operating or having owned or operated any underground
storage tank which has been closed or abandoned in place, other than in
compliance with Environmental Laws and Environmental Permits, as in effect on
the date of such closure or abandonment, and each underground storage tank
presently owned, leased or operated by the Company or any Subsidiary of the
Company is in compliance with Environmental Laws and Environmental Permits and,
as of the date hereof, meets applicable local, state, federal and foreign
standards, including new system performance standards and upgrading requirements
contained in Subtitle I of the Resource Conservation and Recovery Act, 42 U.S.
C. 6991, et seq., as amended, and any rules or regulations promulgated
thereunder, including 40 C.F.R. Section 280.20, et seq., except to the extent
that any non-compliance, assessment or remediation costs arising from or
relating to underground storage tanks would not, individually or in the
aggregate, be reasonably likely to result in liabilities in excess of $10,000.
(d) Neither the Company nor any Subsidiary of the Company has knowledge of any
releases of Hazardous Substances at, to or from a facility or property while
owned or operated by the Company or any Subsidiary that either (i) required
reporting to a Governmental Authority under Environmental Laws or Environmental
Permits, or (ii) are reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on the Company.
(e) To the knowledge of the Company or any Subsidiary of the Company, no
Hazardous Substances (exclusive of inventory and finished products) have been
transferred from any facility or property while owned or operated by the Company
or any Subsidiary of the Company to any off-site location for treatment,
storage, disposal, recycling or other waste management activity.
(f) For purposes of this Section 3.18, the following terms shall have the
meanings set forth below:
(i) "Environmental Laws" means any federal, state, local and foreign law
(including, without limitation, common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, agreement or contract
with any Governmental Authority relating to protection of human health and
safety, the environment or to the regulation or remediation of pollutants,
contaminants, wastes or chemicals or toxic, radioactive, ignitable,
corrosive, reactive or otherwise hazardous substances, wastes or materials;
(ii) "Environmental Permits" means all permits, licenses, franchises,
certificates, approvals and other similar authorizations of Governmental
Authorities relating to or required by Environmental Laws for operation of
the business of the Company or any Subsidiary of the Company as currently
conducted;
(iii) "Hazardous Substance" means any material, substance, chemical, raw
material, product, byproduct or waste whose release to the environment,
including remediation of such releases, is regulated under any Environmental
law or Environmental Permit; and
(iv) "Company" and "Subsidiary of the Company" shall include any entity
which is, in whole or in part, a predecessor of the Company or any
Subsidiary of the Company.
Section 3.19. Opinion of Financial Advisor. The Board of Directors of the
Company has received the opinion of Vector Securities International, Inc.,
financial advisor to the Company, to the effect that, as of the date of this
Agreement, the Merger Consideration (whether in the form of Buyer Common Stock
or United States dollars) is fair to the stockholders of the Company from a
financial point of view, and such opinion has not been withdrawn.
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Section 3.20. Antitakeover Statutes and Certificate of Incorporation Provisions.
The Board of Directors of the Company have taken all appropriate and necessary
actions such that, assuming the truth and accuracy of the representations and
warranties contained in Section 4.12, Section 203 of the Delaware Law and
Article Eighth of the Company's Third Amended and Restated Certificate of
Incorporation will not have any effect (including, without limitation, a
required vote of the stockholders of the Company owning more than a majority of
the outstanding shares of Company Stock as of the record date for the Company
Stockholder Meeting) on the Merger or the other transactions contemplated by
this Agreement. No other "fair price," "moratorium," "control share
acquisition," or other similar antitakeover statute or regulation of the
Delaware Law or, to the knowledge of the Company, any other jurisdiction is
applicable to the Merger or the other transactions contemplated by this
Agreement.
Section 3.21. Rights Agreement. (a) The Company has adopted an amendment to the
Rights Agreement, dated July 1, 1998, between the Company and American Stock
Transfer & Trust Company (the "Rights Agreement") with the effect that as a
result of entering into this Agreement or consummating the Merger and/or the
other transactions contemplated by this Agreement in accordance with the terms
of this Agreement (i) neither Buyer nor Phoenix Merger Sub shall be deemed to be
an Acquiring Person (as defined in the Rights Agreement), (ii) neither the
Distribution Date (as defined in the Rights Agreement) nor a Flip-In Event or
Flip-Over Event (each as defined in the Rights Agreement) shall be deemed to
occur, (iii) the Rights (as defined in the Rights Agreement) will not separate
from the Company Stock, and (iv) the Rights will expire immediately prior to the
Merger Date.
(b) The Company has taken or will take all necessary action with respect to all
of the outstanding Rights (as defined in the Rights Agreement) so that, as of
immediately prior to the Merger Date, as a result of entering into this
Agreement and/or consummating in accordance with the terms of this Agreement the
Merger and/or the other transactions contemplated by this Agreement, (i) neither
the Company nor Buyer will have any obligations under the Rights or the Rights
Agreement as a result of the Merger and (ii) the holders of the Rights will have
no rights under the Rights or the Rights Agreement as a result of the Merger.
Section 3.22. Finders Fees. Except for Vector Securities International, Inc., a
copy of whose engagement agreement has been provided to Buyer, there is no
investment banker, broker, finder or other intermediary which has been retained
by or is authorized to act on behalf of the Company or any of its Subsidiaries
who might be entitled to any fee or commission in connection with the
transactions contemplated by this Agreement.
Section 3.23. Title to and Condition of Properties. The Company and each
Subsidiary owns or holds under valid leases all real property, plants, machinery
and equipment necessary for the conduct of the business of the Company and such
Subsidiary as presently conducted, except where the failure to own or hold such
property, plants, machinery and equipment would not have a Material Adverse
Effect on the Company. Section 3.23 of the Company Disclosure Schedule lists,
and the Company has furnished to Buyer copies of, all appraisals and valuations
prepared by or on behalf of the Company during the two years preceding the date
of this Agreement with respect to the real property owned, leased or used by the
Company or any Subsidiary. There are no Liens on any assets, rights or
properties of the Company or any Subsidiary other than Liens arising solely by
operation of law.
Section 3.24. Contracts. Schedule 3.24 lists all written or oral contracts,
agreements, guarantees, leases and executory commitments (each a "Contract") to
which the Company or any Subsidiary is a party as of the date of this Agreement
and which fall within any of the following categories: (a) contracts not entered
into in the ordinary course of the Company's or any of its Subsidiary's
business; (b) joint venture, partnership and like agreements; (c) Contracts
which are service contracts (excluding contracts for delivery services entered
into in the ordinary course of business) or equipment leases involving payments
by the Company or any Subsidiary of more than $250,000 per year, (d) Contracts
containing
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covenants purporting to limit the freedom of the Company or any Subsidiary of
the Company to compete in any line of business in any geographic area or to hire
any individual or group of individuals, (e) Contracts which contain minimum
purchase conditions or requirements or other terms that restrict or limit the
purchasing relationships of the Company or any Subsidiary of the Company, (f)
Contracts relating to any outstanding commitment for capital expenditures of the
Company or any Subsidiary of the Company in excess of $50,000, (g) indentures,
mortgages, promissory notes, loan agreements, guarantees, in each case involving
amounts in excess of $50,000, letters of credit or other agreements or
instruments of the Company or any Subsidiary of the Company or commitments for
the borrowing or the lending of amounts, in each case in excess of $50,000, by
the Company or any Subsidiary of the Company or providing for the creation of
any charge, security interest, encumbrance or lien upon any of the assets of the
Company or any Subsidiary of the Company, (h) Contracts relating to the lease or
sublease of or sale or purchase of real or personal property involving any
annual expense or price in excess of $50,000 and not cancelable by the Company
or any Subsidiary (without premium or penalty) within one month, (i) Contracts
involving annual revenues or expenditures to the business of the Company or any
Subsidiary of the Company in excess of 1.0% of the Company's consolidated annual
revenues, and (j) Contracts providing for "earn-outs" or other contingent
payments involving more than $20,000 over the term of the Contract. All such
Contracts are valid and binding obligations of the Company and its Subsidiaries,
as applicable, and, to the knowledge of the Company, the valid and binding
obligation of each other party thereto except such Contracts which if not so
valid and binding would not, individually or in the aggregate, have a Material
Adverse Effect on the Company. None of the Company, any Subsidiary of the
Company nor, to the knowledge of the Company, any other party thereto is in
violation of or in default in respect of, nor has there occurred any event or
condition which with the passage of time or giving of notice (or both) would
constitute a default under, any such Contract except such violations or defaults
under such Contracts which, individually or in the aggregate, would not have a
Material Adverse Effect on the Company.
Section 3.25 Accounts Receivable. All accounts receivable and accrued interest
receivable of the Company and its Subsidiaries have arisen out of the ordinary
course of business and the accounts receivable reserves reflected on the
consolidated balance sheet of the Company as of September 30, 1998 are as of
such date established in accordance with U.S. GAAP and to the knowledge of the
Company will be collectible in the aggregate, in an amount not less than the
amounts carried on the balance sheet of the Company as of such date, net of any
reserves included therein, except for any uncollectible amounts which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
Section 3.26 Relationships. As of the date of this Agreement, (i) to the
Company's knowledge, the relationship of the Company and its Subsidiaries with
its respective customers and suppliers are satisfactory and, (ii) to the
Company's knowledge, the execution of this Agreement and consummation of the
transactions contemplated by this Agreement to be undertaken by the Company will
not have a Material Adverse Effect on the relationships of the Company or any
Subsidiary with such customers or suppliers, the effect of which, individually
or in the aggregate, would have a Material Adverse Effect on the Company or
Chrysalis DNX.
Section 3.27 Product Warranties and Liabilities. Neither the Company nor any
Subsidiary of the Company has any forms of warranties or guarantees of its
products and services that are in effect or proposed to be used by it. There are
no pending or, to the knowledge of the Company, threatened Actions under any
warranty or guaranty against the Company or any Subsidiary of the Company.
Neither the Company nor any Subsidiary of the Company has incurred, nor does the
Company know or have any reason to believe that there is any basis for alleging,
any material liability, damage, loss, cost or expense as a result of any
material defect or other deficiency (whether of design, materials, workmanship,
labeling instructions or otherwise) ("Product Liability") with respect to any
product sold or services rendered by or on behalf of the Company or any
Subsidiary of the Company whether such Product Liability is incurred by reason
of any express or implied warranty (including, without limitation,
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any warranty of merchantability or fitness), any doctrine of common law (tort,
contract or other), any statutory provision or otherwise and irrespective of
whether such Product Liability is covered by insurance, except for any Product
Liability which would not have a Material Adverse Effect on the Company.
Section 3.28 Affiliate Transactions. Except as contemplated by the transactions
contemplated by this Agreement, there are no Contracts or other transactions
between the Company or any Subsidiary of the Company, on the one hand, and any
(i) officer or director of the Company or any Subsidiary of the Company, (ii)
record or beneficial owner of five percent (5%) or more of the voting securities
of the Company or (iii) affiliate (as such term is defined in Regulation 12b-2
promulgated under the Exchange Act) of any such officer, director or beneficial
owner, on the other hand.
Section 3.29 Insurance. The Company and its Subsidiaries are presently insured,
and during each of the past five calendar years have been insured against such
risks as companies engaged in a similar business would, in accordance with good
business practice, customarily be insured. The policies of fire, theft, errors
and omission, liability and other insurance maintained with respect to the
assets or businesses of the Company and its Subsidiaries provide adequate
coverage against loss and may be continued by the Company or any Subsidiary of
the Company without modification or premium increase after the Merger Date and
for the duration of their current terms.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Except as set forth in the disclosure schedule (each section of which qualifies
the correspondingly numbered representation and warrant only, except where the
information in any such section is disclosed in such a way to make its relevance
to any other representation or warranty readily apparent, in which case, such
section shall be deemed to also qualify such other representation and warranty)
of Buyer attached hereto (the "Buyer Disclosure Schedule"), Buyer represents and
warrants to the Company that:
Section 4.01. Corporate Existence and Power. (a) Buyer is a corporation duly
incorporated, validly existing and in good standing under the Canada Business
Corporations Act, and has all corporate powers and has or has applied for all
permits, licenses, authorizations, consents, approvals and franchises necessary
to own, lease and operate its properties and to carry on its business as it is
now being conducted and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except (i) where the failure to have such permits,
licenses, authorizations, consents, approvals and franchises and (ii) for those
jurisdictions where the failure to be so qualified or in good standing is not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on Buyer. Buyer has heretofore delivered to the Company true and complete
copies of Buyer's Articles of Amalgamation and Certificate of Amalgamation
("Organizational Documents") as currently in effect.
(b) Phoenix Merger Sub is a corporation duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation, and has
all corporate powers and all permits, licenses, authorizations, consents,
approvals and franchises required to carry on its business as it is now being
conducted except where the failure to have such permits, licenses,
authorizations, consents, approvals and franchises is not individually, or in
the aggregate, reasonably likely to have a Material Adverse Effect on Phoenix
Merger Sub. Since its date of incorporation, Phoenix Merger Sub has not engaged
in any activities other than in connection with the transactions contemplated by
this Agreement.
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Section 4.02. Corporate Authorization. The execution, delivery and performance
by each of Buyer and Phoenix Merger Sub (each, a "Buyer Party") of this
Agreement and the consummation by each Buyer Party of the transactions
contemplated by this Agreement are within the corporate powers of such Buyer
Party and have been duly authorized by all necessary corporate action. This
Agreement has been duly executed and delivered by each Buyer Party and
constitutes a valid and binding agreement of such Buyer Party enforceable
against such Buyer Party in accordance with its terms.
Section 4.03. Governmental Authorization. The execution, delivery and
performance by each Buyer Party of this Agreement and the consummation by such
Buyer Party of the transactions contemplated by this Agreement require no
action, by or in respect of, or filing with, any Governmental Authority other
than (a) the filing of the Certificate of Merger in accordance with the Delaware
Law; (b) compliance with any applicable requirements of the HSR Act; (c)
compliance with any applicable requirements of the 1934 Act; (d) compliance with
any applicable requirements of the 1933 Act; (e) compliance with any applicable
foreign or state securities or Blue Sky laws; (f) filings and notices not
required to be made or given until on or after the Merger Date; and (g)
immaterial actions or filings relating to ordinary operational matters.
Section 4.04. Non-Contravention. The execution, delivery and performance by each
Buyer Party of this Agreement and the consummation by such Buyer Party of the
transactions contemplated by this Agreement do not and will not (a) contravene
or conflict with the Organizational Documents or certificate of incorporation or
bylaws, as the case may be, of such Buyer Party, (b) assuming compliance with
the matters referred to in Section 4.03 and Section 4.03 of the Buyer Disclosure
Schedule, contravene or conflict with or constitute a violation of any provision
of any law, regulation, judgment, injunction, order or decree binding upon or
applicable to Buyer or any Subsidiary of Buyer, (c) constitute a default (or an
event which with notice, the lapse of time or both would become a default) under
or give rise to a right of termination, cancellation or acceleration of any
right or obligation of Buyer or any Subsidiary of Buyer or to a loss of any
benefit to which Buyer or any Subsidiary of Buyer is entitled under any
provision of any agreement, contract or other instrument binding upon Buyer or
any Subsidiary of Buyer or any license, franchise, permit or other similar
authorization held by Buyer or any Subsidiary of Buyer, (d) require any action
or consent or approval of any Person other than a Governmental Authority, or (e)
result in the creation or imposition of any Lien on any asset of Buyer or any
Subsidiary of Buyer, other than, in the case of the events specified in clauses
(b), (c), (d) and (e) (other than indebtedness of Buyer or any subsidiary of
Buyer), any such event which, individually or in the aggregate, has not had, and
is not reasonably likely to have, a Material Adverse Effect on Buyer.
Section 4.05. Capitalization. The authorized capital stock of (a) Buyer
consisted of (i) an unlimited number of shares of Buyer Common Stock and (ii) an
unlimited number of preferred shares issuable in series ("Buyer Preferred
Stock"), and (b) on the date hereof, Phoenix Merger Sub consisted of 3,000
shares of Phoenix Merger Sub Common Stock. As of August 31, 1998, there were
24,857,059 shares of Buyer Common Stock outstanding and no shares of Buyer
Preferred Stock outstanding. As of August 31, 1998, an aggregate of 2,428,920
shares of Buyer Common Stock were reserved for issuance or issuable under
employee benefit or other compensation plans or programs of Buyer. All
outstanding shares of capital stock of each Buyer Party have been duly
authorized and validly issued and are fully paid and nonassessable. All shares
of Buyer Common Stock, when issued in the Merger, will be duly authorized and
validly issued and will be fully paid and non-assessable.
Section 4.06. Public Filings. Buyer has delivered to the Company all documents,
reports, schedules, registration statements and proxy statements filed by Buyer
with the Ontario Securities Commission or the Quebec Securities Commission
(each, a "Canadian Securities Commission") on or after August 1, 1997. Buyer has
filed all required documents, reports, schedules, forms and statements with
either Canadian Securities Commission since August 1, 1997 (collectively, the
"Buyer Public Documents"). As of their respective dates, or if amended, as of
the date of the last such amendment, the Buyer Public
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Documents complied, and all documents required to be filed by Buyer with the
either Canadian Securities Commission after the date hereof and prior to the
Merger Date (the "Subsequent Buyer Public Documents") will comply, in all
material respects with the requirements of the Ontario or Quebec securities
laws, as the case may be, and none of the Buyer Public Documents contained, and
the Subsequent Buyer Public Documents will not 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 made therein, in the light of the
circumstances under which they were made, not misleading.
Section 4.07. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of Buyer
included in the Buyer Public Documents at the time filed (and, in the case of
registration statements and proxy statements, on the date of effectiveness and
the date of mailing, respectively) complied as to form in all material respects
with applicable accounting requirements of the Ontario or Quebec securities
laws, as the case may be, were prepared in accordance with generally accepted
accounting principles applied in Canada ("Canadian GAAP") applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present (subject in the case of unaudited statements
to normal, recurring audit adjustments) the consolidated financial position of
Buyer as at the dates thereof and the consolidated results of its operations and
cash flows for the periods then ended. For purposes of this Agreement, "Buyer
Balance Sheet" means the consolidated balance sheet of Buyer as of August 31,
1998 set forth in the Buyer Annual Report filed with the Canadian Securities
Commissions and "Buyer Balance Sheet Date" means August 31, 1998.
Section 4.08. Disclosure Documents. (a) Each document required to be filed by
Buyer with the SEC in connection with the transactions contemplated by this
Agreement (the "Buyer SEC Disclosure Documents"), including, without limitation,
the registration statement of Buyer to be filed with the SEC on Form F-4 (or
other appropriate form) in connection with the issuance of Buyer Common Stock
pursuant to this Agreement (the "Form F-4") and any amendments or supplements
thereto, will, when filed, comply as to form in all material respects with the
applicable requirements of the 1933 Act. Buyer is eligible to use Form F-4 for
the registration of the Buyer Common Stock to be issued pursuant to the Merger.
Each document required to be filed by Buyer under the Ontario or Quebec
Securities laws in connection with the transactions contemplated by this
Agreement (together with the Buyer SEC Disclosure Documents, the "Buyer
Disclosure Documents"), will, when filed, comply as to form in all material
respects with the applicable requirements of the Ontario or Quebec securities
laws, as applicable.
(b) At the time the prospectus which forms a part of the Form F-4 (the "Buyer
Prospectus") or any amendment or supplement thereto is first mailed to
stockholders of the Company, and at the time such stockholders vote on the
Merger, and at the Merger Date the Buyer Prospectus, as supplemented or amended,
if applicable, will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. At the time of the filing of any Buyer Disclosure Document and at
the time of any distribution thereof, such Buyer Disclosure Document will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The representations
and warranties contained in this Section 4.08 will not apply to statements
included in or omissions from the Buyer Disclosure Documents based upon
information furnished to Buyer by the Company specifically for use therein.
Section 4.09. Information Supplied. The information supplied or to be supplied
by Buyer for inclusion or incorporation by reference in (i) the Company Proxy
Statement or any amendment or supplement thereto will not, at the time the
Company Proxy Statement is first mailed to stockholders of the Company and at
the time such stockholders vote on the adoption of this Agreement, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading,
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and (ii) any Company Disclosure Document (other than the Company Proxy
Statement, and any amendments or supplements thereto) will not, at the time of
effectiveness of such Company Disclosure Document and at the time of any
distribution by the Company thereof, contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
Section 4.10. Absence of Certain Changes. Since the Buyer Balance Sheet Date and
except as set forth in the Buyer Public Documents, Buyer and its Subsidiaries
have conducted their business in the ordinary course consistent with past
practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Buyer other than any of the
foregoing (i) relating to the economy or securities markets in general, (ii)
relating to Buyer's industry in general or (iii) arising from the
announcement or thereafter the pendency of this Agreement or the
transactions contemplated by the Transaction Document;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Buyer, or any
repurchase, redemption or other acquisition by Buyer or any Subsidiary of
Buyer of any amount of outstanding shares of capital stock or other
securities of, or other ownership interests in, Buyer or any of its
Subsidiaries;
(c) any amendment of any material term of any outstanding security of
Buyer or any Subsidiary of Buyer; or
(d) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of Buyer or any
Subsidiary of Buyer which, individually or in the aggregate, has had or is
reasonably likely to have a Material Adverse Effect on Buyer.
Section 4.11. No Undisclosed Material Liabilities. There are no liabilities,
commitments or obligations (whether pursuant to contracts or otherwise) of Buyer
or any Subsidiary of Buyer of any kind whatsoever which, individually or in the
aggregate, have had or are reasonably likely to have a Material Adverse Effect
on Buyer, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which is reasonably likely to result in such a liability, commitment or
obligation, including, without limitation, any fines, disciplinary actions or
other adverse actions that may be taken or reported concerning the conduct of
Buyer or any of its Subsidiaries, other than:
(a) liabilities, commitments or obligations disclosed or provided for in
the Buyer Balance Sheet (including the notes thereto) or in the Buyer Public
Documents;
(b) liabilities, commitments or obligations incurred in the ordinary
course of business consistent with past practice since the Buyer Balance
Sheet Date; and
(c) liabilities, commitments or obligations under this Agreement.
Section 4.12. Ownership of Company Stock. None of Buyer nor its associates or
affiliates (as such terms are defined in Section 203(c) of the Delaware Law)
owns, or has owned (within the meaning of Section 203(c)(9) of the Delaware Law)
at any time during the three years immediately prior to the date of this
Agreement, any shares of Company Common Stock.
Section 4.13. Finders Fees. Except for Pennsylvania Merchant Group, a copy of
whose engagement agreement has been provided to the Company, there is no
investment banker, broker, finder or other intermediary which has been retained
by or is authorized to act on behalf of the Buyer or any of its Subsidiaries who
might be entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.
Section 4.14. Sufficient Cash to Repay Certain Debt. Buyer will have sufficient
cash on hand (or amounts available for borrowing under loan facilities which
would permit the borrowings to be used for such purpose) to pay immediately
after the Merger Date the amounts referred to in Section 6.03.
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ARTICLE 5
COVENANTS OF THE COMPANY
The Company agrees that:
Section 5.01. Conduct of the Company. From the date hereof until the Merger
Date, except (i) as provided in the Company Disclosure Schedule, (ii) actions
related to the Shut-Downs contemplated by Section 5.04, or (iii) as otherwise
consented to by Buyer (which consent shall not be unreasonably withheld or
delayed), the Company shall, and shall cause its Subsidiaries to, conduct their
business in the ordinary course consistent with past practice and use their
commercially reasonable efforts to preserve intact their business organizations
and relationships with third parties and to keep available the services of their
present officers and employees. Without limiting the generality of the
foregoing, except as expressly permitted in this Agreement (including, without
limitation, the preceding sentence), from the date hereof until the Merger Date
without prior consent of Buyer (which consent shall not be unreasonably withheld
or delayed):
(a) Neither the Company, nor any Subsidiary of the Company, will adopt
or propose any change in its respective certificate of incorporation or
bylaws;
(b) The Company will not, and will not permit any Subsidiary of the
Company to, merge or consolidate with any other Person or, other than as
provided in the Company's capital expenditure budget (included as Section
5.01(b) of the Company Disclosure Schedule) in the ordinary course of
business, acquire a material amount of assets of any other Person;
(c) The Company will not, and will not permit any Subsidiary of the
Company to, sell, lease, license or otherwise dispose of any material assets
or property except pursuant to (i) existing contracts or commitments and
(ii) any sale of operating procedures, computerized project tracking systems
and training manuals to BML Japan (provided, however, that any such sale to
BML Japan shall not obligate the Company to provide any services or training
beyond January 31, 1999); provided, however, that the Company and its
Subsidiaries may continue to grant non-exclusive sublicenses related to the
191 patent in the ordinary course of business consistent with past practice.
(d) The Company will not, and will not permit any Subsidiary of the
Company to, declare, set aside or pay any dividend or make any other
distribution with respect to any shares of the capital stock of the Company
or any Subsidiary of the Company or in respect of any securities convertible
or exchangeable for, or any rights, options or warrants to acquire, any
capital stock of the Company or any Subsidiary of the Company;
(e) The Company will not, and will not permit any Subsidiary of the
Company to, create or assume any Lien on any material asset other than Liens
arising solely by operation of law;
(f) The Company will not, and will not permit any Subsidiary of the
Company to, issue, grant, deliver or sell, or authorize or propose the
issuance, grant, delivery or sale of, any Company Securities, any Company
Subsidiary Securities or any securities convertible into or exchangeable
for, or any rights, warrants or options to acquire, any Company Securities
or Company Subsidiary Securities other than (i) pursuant to the exercise of
a stock option or warrant to purchase shares of Company Stock outstanding on
the date of this Agreement, or (ii) the issuance in the ordinary course of
business consistent with past practice of shares of Company Stock to the
Company's 401(k) plan.
(g) The Company (i) will not adjust, split, combine or reclassify, or
take any other similar action with respect to, any capital stock of the
Company, and (ii) the Company will not, and will
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not permit any Subsidiary of the Company to, directly or indirectly,
repurchase, redeem or otherwise acquire an amount of shares of capital stock
of, or in respect of any securities convertible or exchangeable for, or any
rights, options or warrants to acquire, any capital stock of, or other
ownership interests in, the Company or any Subsidiary of the Company, or
(iii) enter into any agreement, understanding or arrangement with respect to
the sale or voting of any capital stock of the Company or any Subsidiary;
(h) The Company will not, and will not permit any Subsidiary of the
Company to, incur or assume any indebtedness from any Person (other than, in
the case of a Subsidiary of the Company, the Company or any other subsidiary
of the Company) for borrowed money or guarantee any such indebtedness;
(i) Except for (i) loans, advances or capital contributions to or
investments in Subsidiaries of the Company, (ii) loans or advances to
employees in the ordinary course of business consistent with past practice
and in amounts not exceeding $5,000 per employee or (iii) investments in
securities in the ordinary course of business consistent with past
practices, the Company will not, and will not permit any Subsidiary of the
Company to, make any material loans, advances or capital contributions to,
or investments in, any other Person;
(j) The Company will not, and will not permit any of its Subsidiaries
to, (i) grant any severance or termination pay to, or enter into any
employment, termination or severance arrangement with, any director,
officer, consultant or employee of the Company or any Subsidiary of the
Company, (ii) enter into any employment, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with any
director, officer or employee of the Company or any Subsidiary, (iii)
increase or decrease benefits payable under any existing severance or
termination pay policies or employment agreements, (iv) increase
compensation, bonus or other benefits payable to directors, officers,
consultant or employees of the Company or any Subsidiary of the Company,
other than in the ordinary course of business consistent with past practice;
(v) adopt any new Employee Plan or Benefit Arrangement; or (vi) otherwise
amend or modify, any existing Employee Plan or Benefit Arrangement except to
the extent required by applicable law;
(k) The Company will not, and will not permit any of its Subsidiaries
to, authorize, recommend, propose or announce an intention to adopt a plan
of complete or partial liquidation or dissolution of the Company or any
Subsidiary of the Company, or any plan of division or share exchange
involving the Company or any of its Subsidiaries;
(l) The Company will not, and will not permit any Subsidiary of the
Company to, change any method of accounting or any accounting principle or
practice used by the Company or any Subsidiary of the Company, except for
any such change required by reason of a change in U.S. GAAP or Regulation
S-X;
(m) Neither the Company nor any Subsidiary shall, to the extent it may
affect or relate to the Company or any Subsidiary, make or change any tax
election, change any annual tax accounting period, adopt or change any
method of tax accounting, file any amended Tax Return, enter into any
closing agreement, settle any Tax claim or assessment, surrender any right
to claim a Tax refund, consent to any extension or waiver of the limitations
period applicable to any Tax claim or assessment or take or omit to take any
other action, if any such action or omission would have the effect of, in
the aggregate, increasing the Tax liability, or in the aggregate, reducing
any Tax asset of the Company or any Subsidiary of the Company except to the
extent such increase or reduction is adequately provided for, under U.S.
GAAP, on the Company Balance Sheet;
(n) All Tax Returns not required to be filed on or before the date
hereof (i) shall be filed when due in accordance with all applicable laws
and (ii) as of the time of filing, shall correctly reflect in all material
respects the facts regarding the income, business, assets, operations,
activities
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and status of the Company, its Subsidiaries and any other information
required to be shown therein;
(o) Neither the Company nor any Subsidiary of the Company shall reserve
any amount for or make any payment of Taxes to any Person or any Taxing
Authority, except for such Taxes as are due or payable or have been properly
estimated in accordance with applicable law as applied in a manner
consistent with past practice of the Company or any such Subsidiary, as the
case may be;
(p) Neither the Company nor any of its Subsidiaries will:
(i) settle any Actions, whether now pending or hereafter made or
brought, for an amount in excess of $25,000;
(ii) modify, amend or terminate, or waive, release or assign any
material rights or claims with respect to, any Contract set forth in
Section 3.24 of the Company Disclosure Schedule, or, except to the extent
required by Applicable Law and advised by outside counsel, any
confidentiality agreement to which the Company or any Subsidiary of the
Company is a party;
(iii) incur or commit to any capital expenditures, obligations or
liabilities in respect thereof which exceed or would exceed $10,000,
individually, or $50,000 in the aggregate, other than capital
expenditures related to the Company's on-going construction of facilities
which do not exceed amounts previously disclosed by the Company to Buyer;
(iv) make any material changes or modifications to any pricing policy
or investment policy;
(v) take any action that would result in the representations and
warranties set forth in Article III being false or incorrect in any
material respect, other than inadvertent actions that do not result in
the representations and warranties being unable to be true and correct in
all material respects by the Merger Date;
(vi) enter into any customer contract or agreement, or any other
contract, lease, agreement or commitment not otherwise specified in this
Section 5.01, for an amount in excess of $100,000 individually;
(vii) enter into, amend or terminate any real property lease or any
commitment in respect thereof;
(viii) terminate the employment or engagement of any employee or
consultant or agent of the Company or any Subsidiary; or
(ix) pay or approve any other expense or disbursement in excess of
$25,000 individually (except for payroll and related tax withholding and
other expenses (including insurance and 401(k) contributions), Tax
liabilities, utilities, lease payments, principal and interest payments
on outstanding indebtedness of the Company and/or any of its
Subsidiaries, payments to suppliers, Shut-Down expenses, legal fees and
expenses and, upon closing of the Merger, investment banking fees and
expenses).
(q) The Company will not, and will not permit any Subsidiary of the
Company to, agree to do any of the foregoing.
The Company and its Subsidiaries will consult regularly with the Buyer in
respect of the operation of its business prior to the Merger Date; provided,
however, that the provisions of this sentence will not be deemed to have been
breached unless and until Buyer has notified the Company in writing of such
breach and the Company and its Subsidiaries have failed to comply with the
specific terms of such notice.
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Section 5.02. Stockholder Meeting; Proxy Materials. (a) Subject to Section 5.03,
the Company shall cause a meeting of its stockholders (the "Company Stockholder
Meeting") to be duly called and held
as soon as reasonably practicable for the purpose of voting on the adoption of
this Agreement and, to the extent submitted to the Company's stockholders for
approval, the, transactions contemplated by this Agreement, and the Board of
Directors of the Company shall recommend adoption of this Agreement by the
Company's stockholders; provided that such mailing shall not in any event be
mailed during the Listing Period unless Buyer has received the Nasdaq Letter;
provided further that such meeting need not be called and held and, prior to the
Company Stockholder Meeting, such recommendation may be withdrawn, modified or
amended to the extent that, as a result of the commencement or receipt of an
Acquisition Proposal with respect to the Company, the Board of Directors of the
Company determines in good faith, in accordance with Section 5.03, that such
Acquisition Proposal constitutes a Superior Proposal.
(b) Subject to Section 5.03, in connection with the Company Stockholder Meeting,
the Company will (i) promptly prepare and file with the SEC, will use
commercially reasonable efforts to have cleared by the SEC and will thereafter
mail to its stockholders as promptly as practicable after the time period
referred to in Section 1.07 for determination of whether a Listing Failure has
occurred the Company Proxy Statement and all other proxy materials for such
meeting, (ii) use commercially reasonable efforts to obtain the necessary
adoption by its stockholders of this Agreement and the approval of the
transactions contemplated by this Agreement, and (iii) otherwise comply with all
legal requirements applicable to such meeting.
Section 5.03. Other Offers. From the date hereof until the termination of this
Agreement, the Company will not, and will cause its Subsidiaries and the
directors, officers, employees, financial advisors and other agents or
representatives of the Company or any of its Subsidiaries not to, directly or
indirectly, take any action to solicit, initiate or encourage any Acquisition
Proposal with respect to the Company or engage in negotiations with, or disclose
any non-public information relating to the Company or any Subsidiary of the
Company or afford access to the properties, books or records of the Company or
any Subsidiary of the Company to, any Person that has informed the Company that
it is considering making, or has made, an Acquisition Proposal with respect to
the Company, or any Person that the Company after reasonable inquiry believes is
a potential purchaser of the Company, provided, however, that the Company may,
in response to an unsolicited bona fide written proposal regarding an
Acquisition Proposal by any Person, disclose such non-public information to or
engage in negotiations with such Person, if the Board of Directors of the
Company determines in good faith that such Acquisition Proposal is reasonably
likely to be a Superior Proposal, and, provided further, that prior to
furnishing non-public information to, or entering into discussions or
negotiations with, such Person, the Company receives from such Person an
executed confidentiality agreement with terms no less favorable to the Company
than those contained in the Letter Agreement dated as of July 21, 1998 between
Buyer and the Company ("Confidentiality Agreement"). The Company will promptly
(and in no event later than 24 hours after receipt of the relevant Acquisition
Proposal with respect to the Company), notify (which notice shall be provided
orally and in writing and shall identify the Person making the relevant
Acquisition Proposal with respect to the Company) Buyer after receipt of any
Acquisition Proposal or any indication from any Person that such Person is
considering making an Acquisition Proposal with respect to the Company or any
request for non-public information relating to the Company or any Subsidiary of
the Company or for access to any properties, books or records of the Company or
any Subsidiary of the Company by any Person that may be considering making, or
has made, an Acquisition Proposal with respect to the Company and will keep
Buyer fully informed of the status of any such Acquisition Proposal with respect
to the Company. The Company shall give Buyer at least one business day's advance
notice of any information to be supplied to, and at least two days' advance
notice of any agreement to be entered into with, any Person making such
Acquisition Proposal with respect to the Company. Except as provided herein, the
Company shall, and shall cause its
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Subsidiaries and the directors, officers, employees, financial advisors and
other agents or representatives of the Company or any of its Subsidiaries to,
cease immediately and cause to be terminated all activities, discussions or
negotiations, if any, with any Persons conducted heretofore with respect to any
Acquisition Proposal with respect to the Company. For purposes of this
Agreement, "Acquisition Proposal" means any offer or proposal for, or any
indication of interest in, (i) a merger or other business combination in any
manner of an equity interest in an amount equal to or greater than 20% of the
class of such equity security then outstanding or a substantial portion of the
assets of, the Company or any Subsidiary of the Company, in each case other than
the transactions contemplated by this Agreement. For purposes of this Agreement,
"Superior Proposal" means an Acquisition Proposal with respect to the Company
which the Board of Directors of the Company determines in good faith (based on
the written advice of an investment banking firm of national reputation taking
into account all of the terms and conditions of the Acquisition Proposal,
including any conditions to consummation) to be more favorable and provide
greater value to the Company's stockholders than the Merger.
Section 5.04. Shut-Downs. After execution of this Agreement, the Company shall
commence the process of shutting down its facilities located in Austin, Texas,
Cham, Switzerland and Dusseldorf, Germany, and reducing expenses in respect of
its operations in Mannheim, Germany, and Israel (collectively, the "Shut-Downs")
with the goal of completing each of the Shut-Downs as soon as practicable
(consistent with maintaining good client relationships). The Company shall
accrue, in accordance with U.S. GAAP, all costs and expenses related to the
ShutDowns. Notwithstanding the foregoing, Buyer acknowledges that the Shut-Downs
in the time and in the manner agreed to by Buyer and the Company may not be
completed prior to the Merger Date and that a significant portion of the
activities, costs and expenses related to the Shut-Downs will occur after the
Merger Date. The Company agrees to update Buyer on a regular basis (no less than
every two (2) weeks and within one (1) business day of request by Buyer) prior
to the Merger Date regarding the status, activities and costs and expenses (and
related accounting therefor) of the Shut-Downs. Schedule 5.04 sets forth a good
faith estimate of all costs and expenses (including reserves and accruals) the
Company and its Subsidiaries expect to incur after the date hereof until the
Merger Date in connection with the Shut-Downs, on a location-by-location and
item-by-item basis.
Section 5.05. Intellectual Property Matters. The Company and its Subsidiaries
shall use its respective commercially reasonable efforts to preserve its
ownership rights to the Intellectual Property free and clear of any Liens and
shall use its commercially reasonable efforts to assert, contest and prosecute
any infringement of any issued foreign or domestic patent, trademark, service
mark, or copyright that forms a part of the Intellectual Property or any
misappropriation or disclosure of any trade secret, confidential information or
know-how that forms the Intellectual Property; provided, however, that the
Company and its Subsidiaries need not preserve or prosecute any foreign
trademark if the failure to preserve or prosecute such trademark would not have
a Material Adverse Effect on the Company.
Section 5.06. Notice of Prepayment. The Company will provide written notice of
its intent to prepay immediately after the Merger Date all amounts outstanding
under the Term Loan and Security Agreement dated as of August 29, 1997, as
amended, among the Company, its Subsidiaries listed therein and First Union
National Bank, as successor to CoreStates Bank, N.A. ("First Union"), and the
ancillary documents, as amended, related thereto (the "First Union Agreements").
Section 5.07. Shared Services. The Company shall use commercially reasonably
efforts to obtain written confirmation from Iffa Credo SA ("Iffa") reasonably
satisfactory to Buyer that Iffa will continue to provide after the Merger Date
to Buyer, the Surviving Corporation and/or its Subsidiaries services of the same
nature, type, quantity and on the same terms as have been provided by Iffa to
the Company and/or its Subsidiaries prior to the date of this Agreement and
consistent with past practice.
Section 5.08. Hackel Affiliate Letter and Support/Voting Agreement. The Company
shall use commercially reasonable efforts to cause Alec Hackel to execute an
Affiliate Letter and Support/Voting Agreement prior to the mailing of the
Company Proxy Statement.
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ARTICLE 6
COVENANTS OF BUYER
Buyer agrees that:
Section 6.01. Conduct of Buyer. From the date hereof until the Merger Date,
Buyer shall, and shall cause its Subsidiaries to, conduct their business in all
material respects in the ordinary course consistent with past practice and use
their commercially reasonable efforts to preserve intact their business
organizations and relationships with third parties and to keep available the
services of their present officers and employees. Without limiting the
generality of the foregoing, except as expressly permitted in this Agreement,
from the date hereof until the Merger Date:
(a) Buyer will not adopt or propose any change in its Organizational
Documents that would materially and adversely affect the rights of holders
of Company Stock as anticipated holders of Buyer Common Stock;
(b) Buyer will not declare, set aside or pay any dividend or make any
other distribution with respect to any shares of Buyer's capital stock.
Section 6.02. Listing of Stock. Within five (5) business days of the date of
this Agreement, Buyer shall make application to Nasdaq and to all applicable
regulatory authorities, including, without limitation, the filing of a Form 40-F
with the SEC, for the listing on Nasdaq's National Market System ("NMS") of the
Buyer Common Stock and to use its commercially reasonable efforts to cause such
Buyer Common Stock to be approved for listing on Nasdaq's NMS effective on or
prior to the Merger Date.
Section 6.03. Repayment of Certain Debt. Immediately after the Merger Date,
Buyer shall (or shall cause Phoenix Merger Sub to) repay or refinance all
amounts outstanding under (i) the First Union Agreements and (ii) the 6%
Subordinated Note due March 16, 2001 issued by the Company to Panlabs
International, Inc., as amended (the "MDS Note").
Section 6.04. Financing. If a Listing Failure occurs, Buyer shall use its best
efforts to secure any financing required to permit it to pay on the Merger Date
the Merger Consideration.
ARTICLE 7
COVENANTS OF BUYER AND THE COMPANY
Section 7.01. Commercially Reasonable Efforts. (a) Subject to the terms and
conditions of this Agreement, each party will use its commercially reasonable
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 the Merger and the other transactions contemplated by
this Agreement.
(b) Neither Buyer nor the Company shall take any action, or omit to take any
action, that would cause its representations and warranties contained herein to
be inaccurate such that the conditions in Article 8 would not be satisfied.
Section 7.02. Cooperation. Without limiting the generality of Section 7.01(a),
Buyer and the Company shall together, or pursuant to an allocation of
responsibility to be agreed between them, coordinate and cooperate (i) in
connection with the preparation of the Company Disclosure Documents and the
Buyer Disclosure Documents, (ii) in determining whether any action by or in
respect of, or filing with, any Governmental Authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the Merger or
the other transactions contemplated by this Agreement, and (iii) in seeking any
such actions, consents,
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approvals or waivers or making any such filings, furnishing information required
in connection therewith or with the Company Disclosure Documents and the Buyer
Disclosure Documents, and timely seeking to obtain any such actions, consents,
approvals or waivers. Subject to the terms and conditions of this Agreement,
Buyer and the Company will each use its reasonable best efforts to have the Form
F-4 declared effective by the SEC under the 1933 Act as promptly as practicable
after the Form F-4 is filed with the SEC.
Section 7.03. Public Announcements. Upon execution of this Agreement, Buyer and
the Company will each issue a press release, each in form satisfactory to the
other party, announcing the transactions contemplated by this Agreement. Buyer
and the Company will consult with each other before issuing any other press
release or making any public statement with respect to this Agreement and the
transactions contemplated by this Agreement and, except, as may be required by
applicable law or any listing or similar agreement with any securities exchange
on which the Buyer Common Stock is listed or Nasdaq, will not issue any such
press release or make any such public statement prior to such consultation.
Section 7.04. Access to Information. From the date hereof until the Merger Date,
the Company and Buyer (each, in such capacity, a "Providing Party") will give
(or cause to be given) to the other party (the "Receiving Party"), its counsel,
financial advisors, auditors and other authorized representatives full access,
during regular business hours, to the offices, properties, employees and
consultants, books and records of the Providing Party, will furnish (or cause to
be furnished) to the Receiving Party, its counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and other
information as such Receiving Party may reasonably request and will instruct the
employees, counsel and financial advisors of the Providing Party and its
Subsidiaries to cooperate with the Receiving Party in its investigation of the
business of the Providing Party and its Subsidiaries; provided that no
investigation pursuant to this Section shall affect any representation or
warranty given by the Providing Party to the Receiving Party hereunder. Unless
otherwise required by applicable law, each party hereto agrees that it shall,
and it shall cause its Subsidiaries and its and their respective officers,
directors, employees, auditors and agents to, hold, in confidence all non-public
information so acquired and to use such information solely for purposes of
effecting the transactions contemplated by this Agreement. From the date hereof
until the Merger Date, each Providing Party will cooperate with the efforts of
the Receiving Party, its counsel, financial advisors, auditors and other
authorized representatives to have reasonable access to the Providing Party's
customers and suppliers. The information obtained pursuant to this Section shall
be subject to any confidentiality agreements or other confidentiality
obligations currently binding upon the Providing Party or any of its
Subsidiaries; provided that the Providing Party shall use commercially
reasonable efforts to obtain any waivers under such agreements or obligations to
permit the Providing Party to comply with its obligations hereunder.
Section 7.05. Further Assurances. At and after the Merger Date, the directors
and officers of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of (x) the Company or Phoenix Merger Sub, and
(y) Buyer, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of (x) the Company or Phoenix Merger Sub, and (y)
Buyer, any other actions and things to vest, perfect or confirm of record or
otherwise in the Surviving Corporation any and all right, title and interest in,
to and under any of the rights, properties or assets of the Company acquired or
to be acquired by the Surviving Corporation as a result of the Merger or
otherwise carry out the provisions of the Agreement, and the Company and its
officers and directors shall be deemed to have granted to the Surviving
Corporation an irrevocable power of attorney in respect of the foregoing.
Section 7.06. Notices of Certain Events. Each of the Company and Buyer shall
promptly notify the other party of:
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(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any Governmental Authority in
connection with the transactions contemplated by this Agreement;
(c) any notice or any communication from any customer or supplier
indicating that such customer or supplier intends to terminate or restrict
its existing relationship as a result of the public announcement or the
pendency of the transactions contemplated by this Agreement;
(d) any Actions commenced or, to its knowledge threatened against,
relating to or involving or otherwise affecting such party that, if pending
on the date of this Agreement, would have been required to have been
disclosed pursuant to Section 3.13 only or that relate to the consummation
of the transactions contemplated by this Agreement; and
(e)(i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would cause any representation or warranty of such
party contained in this Agreement to be untrue or inaccurate at or prior to
the Merger Date, and (ii) any material failure of such party to comply with
or satisfy any covenant, condition or agreement to be complied with or
satisfied by its hereunder; provided, however, that the delivery of any
notice pursuant to this Section 7.06(e) shall not limit or otherwise affect
the remedies available hereunder to either Buyer or the Company, as
applicable.
Section 7.07. Director and Officer Liability. (a) From and after the Merger
Date, Buyer shall cause the Surviving Corporation to indemnify, defend and hold
harmless any Person who is on the date hereof, or has been at any time prior to
the date hereof, or who becomes prior to the Merger Date, an officer, director,
or employee or agent (the "Indemnified Party") of the Company or any of its
Subsidiaries against all losses, claims, damages, liabilities, costs and
expenses (including attorney's fees and expenses), judgments, fines, losses, and
amounts paid in settlement in connection with any actual or threatened action,
suit, claim, proceeding or investigation (each a "Claim") to the extent that any
such Claim is based on, or arises out of, (i) the fact that such Person is or
was a director, officer, employee or agent of the Company or any of its
Subsidiaries at any time prior to the Merger Date or is or was serving at the
request of the Company or any of its Subsidiaries as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise at any time prior to the Merger Date, or (ii) this Agreement or
any of the transactions contemplated hereby or thereby in each case to the
extent that any such Claim pertains to any matter or fact arising, existing, or
occurring prior to or at the Merger Date, regardless of whether such Claim is
asserted or claimed prior to, at or after the Merger Date (the matters described
in clauses (i) and (ii) the "Pre-Merger Matters") to the fullest extent
indemnified under the Company's certificate of incorporation, bylaws in effect
as of the date hereof or indemnification agreements in effect at the date
hereof, including provisions relating to advancement of expenses incurred in the
defense of any action or suit; provided that such indemnification shall be
subject to any limitation imposed from time to time under applicable laws. Buyer
and the Surviving Corporation shall also honor the indemnification agreements
between the Company or any of its Subsidiaries, as the case may be, and any
current or former officer or director of the Company or any such Subsidiary, as
the case may be, existing on the date of this Agreement and which are listed in
the Company Disclosure Schedule (and a form of which has been provided to
Buyer).
(b) Buyer and the Surviving Corporation agree that all rights to indemnification
and all limitations or exculpation of liabilities existing in favor of the
Indemnified Party as provided in the Company's certificate of incorporation and
bylaws as in effect as of the date hereof shall continue in full force and
effect with respect to Pre-Merger Matters, without any amendment thereto, for a
period of six years from the Merger Date to the extent such rights are
consistent with Delaware Law; provided that, in the event any Claim or Claims
with respect to any such Pre-Merger Matters are asserted or made within such six
year period, all rights to indemnification in respect of any such Claim or
Claims shall continue
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until disposition of any and all such Claims; provided however, that any
determination required to be made with respect to whether an Indemnified Party's
conduct complies with the standards set forth under Delaware Law, the Company's
certificate of incorporation or bylaws or such agreements, as the case may be,
shall be made by independent legal counsel selected by the Indemnified Party and
reasonably acceptable to Buyer, retained at Buyer's expense; and provided
further, that nothing in this Section 7.07 shall impair any rights or
obligations of any present or former directors or officers of the Company.
(c) Buyer or the Surviving Corporation shall provide directors and officers of
the Company officers' and directors' liability insurance coverage as of the
Merger Date ("D&O Insurance") with respect to Pre-Merger Matters for a period of
not less than six years after the Merger Date which coverage will be
substantially similar to the Company's existing D&O Insurance including, without
limitation, (i) an overall coverage amount not less than the overall coverage
amount under the Company's existing D&O Insurance and (ii) coverage for
liability under the 1933 and 1934 Acts in an amount not less than the coverage
amounts for such liabilities under the Company's existing D&O Insurance. Buyer's
obligations hereunder shall be expressly conditioned on all directors and
officers of the Company or any Subsidiary having executed representation letter
agreements at Buyer's request in respect of such insurance in the form attached
hereto as Exhibit C.
Section 7.08. Registration Statement. Buyer shall (i) promptly prepare and file
with the SEC the Form F-4 with respect to the Buyer Common Stock issuable in
connection with the Merger and shall use its reasonable best efforts to cause
the Form F-4 to be declared effective by the SEC as soon as practicable and (ii)
take any action required to be taken under applicable Blue Sky law in connection
with such issuance of Buyer Common Stock or pursuant to any Adjusted Option or
Adjusted Warrant.
Section 7.09. Governmental Authorization. Each of Buyer and the Company shall
take all actions by or in respect of, or filing with, any Governmental Authority
required for the execution, delivery and performance by Buyer and the Company of
this Agreement and the consummation by Buyer and the Company of the transactions
contemplated by this Agreement, including compliance with any requirements
referred to in Section 3.03 or Section 3.03 of the Company Disclosure Schedule
or Section 4.03 or Section 4.03 of the Buyer Disclosure Schedule
Section 7.10. Certain Corporate Matters. Buyer shall take all necessary
corporate action for the amendment to or establishment of the Buyer Stock Option
Plan contemplated by Section 1.04 hereof.
Section 7.11. Employment. As of the Merger Date, Buyer shall assume the
obligation of the Company to perform any and all employment and severance
agreements identified in the Company Disclosure Schedules.
ARTICLE 8
CONDITIONS TO THE MERGER
Section 8.01. Conditions to the Obligations of Each Party. The obligations of
Buyer and the Company to consummate the Merger are subject to the satisfaction
of the following conditions:
(a) this Agreement and the transactions contemplated by this Agreement
shall have been adopted by the stockholders of the Company in accordance
with the Delaware Law;
(b) any applicable waiting period under the HSR Act and any applicable
pre-merger notification or similar statutes and rules listed in Section 3.03
of the Company Disclosure Schedule or Section 4.03 of the Buyer Disclosure
Schedule shall have expired;
(c) no provision of any applicable law or regulation and no judgment,
injunction, order or decree of a court of competent jurisdiction shall
prohibit the consummation of the Merger;
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(d) no Action shall be instituted by any Governmental Authority which
seeks to prevent consummation of the Merger or seeking material damages in
connection with the transactions contemplated hereby which continues to be
outstanding.
(e) the Form F-4 shall have been declared effective under the 1933 Act
and no stop order suspending the effectiveness of the Form F-4 shall be in
effect and no proceedings for such purpose shall be pending before or
threatened by the SEC;
(f) (i) the Buyer Common Stock shall have been approved for listing,
effective on or before the Merger Date, on Nasdaq's NMS, (ii) Buyer shall
have received the approval of all applicable regulatory authorities related
to such listing; and (iii) Buyer's Common Stock shall have been registered
with the SEC under the Exchange Act; and
(g) all actions by or in respect of or filings with any Governmental
Authority required to permit the consummation of the Merger shall have been
made or obtained other than any such actions or filings, the failure of
which to make or obtain shall not be reasonably likely to have a Material
Adverse Effect on Buyer or the Company.
Section 8.02. Conditions to the Obligations of Buyer. The obligations of Buyer
to consummate the Merger are subject to the satisfaction of the following
further conditions:
(a) (i) The Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Merger Date, (ii) the representations and warranties of the Company
contained in this Agreement shall be true and correct at and as of the
Merger Date, as if made at and as of the Merger Date (except to the extent
expressly made as of an earlier date, in which case as of such date), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth therein) is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on the
Company (or to the extent expressly set forth in any specific representation
or warranty, Chrysalis DNX) and (iii) Buyer shall have received a
certificate signed by an executive officer of the Company to the foregoing
effect.
(b) There shall not have been a breach of any obligation by any
stockholder which has entered into a Support/Voting Agreement other than any
breach which (i) does not result in the failure of the Company to obtain the
Required Stockholder Vote in favor of adoption of this Agreement and (ii)
does not result in the exercise of appraisal rights by any such stockholder.
(c) In the event of a Listing Failure, holders of no more than 10% in
the aggregate of outstanding shares of Company Stock shall be eligible to
exercise their appraisal rights.
(d) The Liens on (i) 7,989 shares of Chrysalis International in favor of
Institut Merieux and (ii) 11,995 shares of Chrysalis International in favor
of International Laboratories Holdings shall have been released.
(e) All consents and approvals of third parties (including, but not
limited to PIDA) to the transactions contemplated by this Agreement shall
have been obtained, and all notices with respect to the transactions
contemplated by this Agreement and required to be delivered prior to the
Merger Date shall have been delivered.
(f) The Barbut Agreement shall be in full force and effect and shall not
have been revoked by Dr. Barbut. All loans (other than the loan to the
Company from Dr. Jules Barbut) by the Company or any Subsidiary to any
shareholder or affiliate shall have been repaid in full and there shall be
no outstanding debts (other than the debt of Dr. Jack Barbut which reduces
amounts payable under the loan to the Company from Dr. Jules Barbut) due
from any directors, shareholders or affiliates to the Company or any
Subsidiary of the Company. All directors, shareholders and affiliates of the
Subsidiaries shall have assigned their ownership interests (including but
not limited
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to director qualifying shares) in any Subsidiary of the Company to Buyer or
a Person designated by Buyer.
(g) The losses of the Company and its Subsidiaries for the fiscal
quarter ending December 31, 1998 shall not exceed $2,000,000 (excluding for
purposes of this calculation any losses attributable to non-cash expenses
required by U.S. GAAP or Regulation S-X to be expensed).
(h) Buyer shall have received written confirmation from Iffa in respect
of the matters set forth in Section 5.07 in form and substance reasonably
satisfactory to Buyer.
(i) Hackel shall have executed an Affiliate Letter.
(j) The Company shall have satisfied all of its obligations to BML
Japan.
Section 8.03. Conditions to the Obligations of the Company. The obligations of
the Company to consummate the Merger are subject to the satisfaction of the
following further conditions:
(a) (i) Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Merger Date, (ii) the representations and warranties of Buyer and Phoenix
Merger Sub contained in this Agreement shall be true and correct at and as
of the Merger Date, as if made at and as of the Merger Date (except to the
extent expressly made as of an earlier date, in which case as of such date),
except where the failure of such representations and warranties to be so
true and correct (without giving effect to any limitation as to
"materiality" or "Material Adverse Effect" set forth therein) is not
reasonably like to have, individually or in the aggregate, a Material
Adverse Effect on Buyer or Phoenix Merger Sub and (iii) the Company shall
have received a certificate signed by an executive officer of Buyer to the
foregoing effect.
(b) If a Listing Failure occurs, Buyer shall have secured any financing
required to permit it to pay on the Merger Date the aggregate Merger
Consideration.
ARTICLE 9
TERMINATION
Section 9.01. Termination. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Merger Date (notwithstanding any approval
or adoption of this Agreement by the stockholders of the Company or the
shareholders of Buyer):
(a) by mutual written consent of the Company and Buyer;
(b) by either the Company or Buyer, if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining Buyer
or the Company from consummating the Merger is entered and such judgment,
injunction, order or decree shall have become final and non-appealable;
(provided that any judgment, injunction, order or decree other than a
temporary restraining order shall be deemed to have become final and
non-appealable thirty days following the entry thereof);
(c) (i) by Buyer or, in connection with a Superior Proposal and upon
satisfaction of its obligations under Section 10.04(c), by the Company, if the
Board of Directors of the Company determines not to call or hold the Company
Stockholders' Meeting as provided in Section 5.02 or (ii) by either the Company
or Buyer if the adoption by the stockholders of the Company contemplated by this
Agreement shall not have been obtained by reason of the failure to obtain the
Required Stockholder Vote at a duly held meeting of stockholders of the Company
or any adjournment thereof;
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(d) by the Company, if a Listing Failure occurs and, within two (2)
business days of the satisfaction of all closing conditions other than the
conditions set forth in Section 8.03, the condition set forth in Section
8.03(b) has not been satisfied;
(e) by Buyer or, in connection with a Superior Proposal and upon
satisfaction of its obligations under Section 10.04(c), by the Company, if
prior to the Company Stockholder Meeting, the Board of Directors of the
Company shall have withdrawn, modified or changed in a manner adverse to
Buyer their approval or recommendation of this Agreement;
(f) by Buyer, upon a breach of any representation, warranty, covenant or
agreement of the Company, or if any representation or warranty of the
Company shall become untrue, the effect of which is a Material Adverse
Effect on the Company, in either case such that any of the conditions set
forth in Section 8.02(a) would be incapable of being satisfied by April 30,
1999; and
(g) by the Company, upon a breach of any representation, warranty,
covenant or agreement of Buyer, or if any representation or warranty of
Buyer shall become untrue, the effect of which is a Material Adverse Effect
on Buyer, in either case such that any of the conditions set forth in
Section 8.03(a) would be incapable of being satisfied by April 30, 1999.
The party desiring to terminate this Agreement pursuant to this Section 9.01
shall give written notice of such termination to the other party in accordance
with Section 10.01.
Section 9.02. Effect of Termination. If this Agreement is terminated pursuant to
Section 9.01, this Agreement shall become void and of no effect with no
liability on the part of any party hereto, except that the agreements contained
in the second sentence of Section 7.04, this Section 9.02 and Article 10 shall
survive the termination hereof. Notwithstanding the foregoing, nothing in this
Section 9.02 shall relieve any party to this Agreement of liability for a
willful breach of any provision of this Agreement and provided further that if
it shall be judicially determined that the termination of this Agreement was
caused by a willful breach of this Agreement, then, in addition to other
remedies at law or equity for breach of this Agreement, the party found to have
willfully breached this Agreement shall be responsible for payment or
reimbursement of the other parties' costs, fees and expenses related to the
negotiation, preparation and execution of this Agreement and related consents
and related to the calling, holding and preparing, printing and distributing of
any documents related to a meeting of the other parties' stockholders ("Costs").
Section 9.03. Termination Upon Bankruptcy. (a) The affirmative vote upon,
consent to or adoption of a resolution or similar act by the Board of Directors
of the Company or any Subsidiary authorizing the filing or commencement by the
Company or any Subsidiary of the Company of a voluntary petition for relief
under title 11 of the United States Code or any other law providing for relief
to or liquidation of debtors, and to which Buyer shall not have consented, shall
cause this Agreement to be terminated immediately and without notice.
(b) Upon the occurrence of a Material Insolvency Event, Buyer may immediately
seek relief from any court, if required, to effectuate termination of this
Agreement, provided, however, that termination of this Agreement due to a
Material Insolvency Event shall not be effective until the earlier of (i) sixty
(60) days after the occurrence of a Material Insolvency Event or (ii) April 30,
1999. A "Material Insolvency Event" shall mean any of the following: (i) the
Company or any Subsidiary shall (A) apply for or consent to the appointment of a
receiver, trustee, liquidator or custodian or the like of itself or its
property, (B) admit in writing its inability to pay its debts generally as they
become due, (C) make a general assignment for the benefit of creditors, or (D)
if, without the application, approval or consent of the Company or any
Subsidiary, a proceeding shall be instituted by any Person other than Buyer or
any of its Affiliates in any court seeking in respect of the Company or any
Subsidiary an order for relief under Title 11 of the United States Code, or an
adjudication in bankruptcy, reorganization, dissolution, winding up,
liquidation, a composition or arrangement with creditors, the appointment of a
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trustee, receiver, liquidator, custodian, fiscal agent or the like of the
Company or any Subsidiary or all or any material part of the Company's or any
Subsidiary's assets, and, if such proceeding is being contested by the Company,
in good faith, the same shall (i) result in the entry of an order for relief or
any such adjudication or appointment, or (ii) continue undismissed or pending
for any period of sixty (60) consecutive days.
ARTICLE 10
MISCELLANEOUS
Section 10.01. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including telecopy or similar writing) and
shall be given,
if to either Buyer Party, to:
Phoenix International Life Sciences Inc.
2350 Cohen Street
Saint-Laurent, Montreal, Quebec
Canada H4R 2N6
Fax: (514) 333-8861
Attention: Jean-Yves Caloz
Senior Vice President,
Chief Financial Officer and Secretary
with a copy to:
Pepper Hamilton LLP
Suite 400
1235 Westlakes Drive
Berwyn, PA 19312-2401
Fax: (610) 640-7835
Attention: Michael P. Gallagher, Esq.
and
McCarthy Tetrault
1170 Peel Street
Montreal, Quebec
Canada H38 4S8
Fax: (514) 397-4170
Attention: Hubert T. Lacroix
if to the Company, to:
Chrysalis International Corporation
575 Route 28
Raritan, New Jersey 08869
Fax: (908) 722-6677
Attention: President
A-38
<PAGE>
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Fax: (216) 579-0212
Attention: Thomas C. Daniels
or to such other address or telecopy number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice, request
or other communication shall be effective (a) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section and the
appropriate telecopy confirmation is received (b) if by overnight delivery
service, with proof of delivery, the next business day or (c) if given by any
other means, when delivered at the address specified in this Section.
Section 10.02. Entire Agreement; Non-Survival of Representations and Warranties;
No Third Party Beneficiaries. (a) This Agreement and the Confidentiality
Agreement constitute the entire agreement among the parties with respect to the
subject matter hereof and thereof and supersede all prior agreements,
understandings and negotiations, both written and oral, between the parties with
respect to such subject matter. None of this Agreement or any other agreement
contemplated hereby or thereby (or any provision hereof or thereof) is intended
to confer on or give any Person other than the parties hereto or thereto any
rights or remedies (except that Sections 7.07 and 7.11 are intended to confer
rights and remedies on the respective Persons specified therein).
(b) The representations and warranties contained herein shall not survive the
Merger Date.
Section 10.03. Amendments; No Waivers. (a) Any provision of this Agreement may
be amended or waived prior to the Merger Date if, and only if, such amendment or
waiver is in writing and signed, in the case of an amendment, by the Company and
Buyer or, in the case of a waiver, by the party against whom the waiver is to be
effective; provided that after the adoption of this Agreement by (i) the
stockholders of the Company, no such amendment or waiver shall, without the
further approval of such stockholders, alter or change (A) the amount or kind of
consideration to be received in exchange for any shares of capital stock of the
Company, or (B) any of the terms or conditions of this Agreement if such
alteration or change would adversely affect the holders of any shares of capital
stock of the Company and (ii) the shareholders of Buyer, no such amendment or
waiver shall, without the further approval of such shareholders, alter or change
any of the terms or conditions of this Agreement if such alteration or change
would adversely affect the holders of any shares of capital stock of Buyer.
Notwithstanding the foregoing, the provisions of Section 8.01(b) may not be
amended or waived.
(b) No failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
Section 10.04. Expenses. (a) Except as otherwise provided in this Section, all
costs and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense.
(b) Buyer agrees to pay to the Company, within three (3) business days of the
date of any termination of this Agreement by the Company pursuant to Section
9.01(d) or 9.01(g), U.S. $1,500,000 (inclusive of the Company's Costs).
(c) The Company agrees to pay to Buyer, within three (3) business days of the
date of any termination of this Agreement by Buyer or the Company pursuant to
Sections 9.01(c) or 9.01(e), or a termination of this Agreement pursuant to
Section 9.03, U.S. $1,500,000 (inclusive of Buyer's Costs).
A-39
<PAGE>
(d) Buyer's right to receive any amounts contemplated by this Section 10.04, and
its ability to enforce the provisions of Section 10.04 shall not be subject to
approval by the stockholders of the Company.
(e) Each of Buyer and the Company shall bear and pay one-half of the costs and
expenses incurred in connection with the filing, printing and mailing of the
Form F-4 and the Company Proxy Statement (including SEC filing fees but
excluding legal and accounting fees related thereto).
Section 10.05. Dollar Amounts. All dollar amounts in this Agreement refer to
United States Dollars.
Section 10.06. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
consent of the other parties hereto; provided further that Buyer may assign its
rights, but not its obligations, under this Agreement to a wholly-owned
subsidiary of Buyer.
Section 10.07. Governing Law. This Agreement shall be construed in accordance
with and governed by the law of the State of Delaware (without regard to
principles of conflict of laws).
Section 10.08. Jurisdiction. Any Action seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or the
transactions contemplated by this Agreement may be brought against any of the
parties in the United States District Court for the District of Delaware or any
state court sitting in the City of Wilmington, Delaware and each of the parties
hereto hereby consents to the exclusive jurisdiction of such courts (and of the
appropriate appellate courts) in any such Action or waives any objection to
venue laid therein. Process in any such Action proceeding may be served on any
party anywhere in the world, whether within or without the State of Delaware.
Without limiting the generality of the foregoing, each party hereto agrees that
service of process upon such party at the address referred to in Section 10.01,
together with written notice of such service to such party, shall be deemed
effective service of process upon such party.
Section 10.09. Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
Section 10.10. Relief from Automatic Stay. In the event the Company or any
Subsidiary is the subject of an involuntary petition in bankruptcy, insolvency,
receivership or similar law, and the transactions contemplated by this Agreement
are subject to bankruptcy court approval, the Company or such Subsidiary shall
seek to obtain bankruptcy court approval of the transactions contemplated by
this Agreement, as soon as reasonably practicable, in accordance with and
subject to its terms.
[SIGNATURE PAGE FOLLOWS]
A-40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
<TABLE>
<S> <C> <C>
PHOENIX INTERNATIONAL LIFE
SCIENCES INC.
By: /s/ JEAN-YVES CALOZ
-----------------------------------------
Name: Jean-Yves Caloz
Title: Senior Vice President and Secretary
CHRYSALIS INTERNATIONAL CORPORATION
By: /s/ PAUL J. SCHMITT
-----------------------------------------
Name: Paul J. Schmitt
Title: Chairman, President and Chief
Executive Officer
PHOENIX MERGER SUB CORP.
By: /s/ JEAN-YVES CALOZ
-----------------------------------------
Name: Jean-Yves Caloz
Title: Treasurer and Secretary
</TABLE>
A-41
<PAGE>
APPENDIX B
<TABLE>
<S> <C>
Vector VECTOR SECURITIES
Securities INTERNATIONAL, INC.
International 1751 LAKE COOK ROAD,
SUITE 350
DEERFIELD, ILLINOIS
60015
TELEPHONE (847)
940-1970
FAX (847) 940-0774
</TABLE>
November 13, 1998
The Board of Directors
Chrysalis International Corporation
575 Route 25
Raritan, New Jersey 08869
Members of the Board:
You have requested our opinion as investment bankers with respect to the
fairness, from a financial point of view as of the date hereof, to the holders
of common stock, par value $0.01 per share (the "Common Stock"), of Chrysalis
International Corporation, a Delaware corporation ("Chrysalis"), of the
consideration to be received by such stockholders pursuant to the terms of the
draft Agreement and Plan of Merger, dated November 12, 1998 (the "Draft
Agreement"), among (i) Phoenix International Life Sciences Inc., a public
corporation constituted under the laws of Canada ("Phoenix"), (ii) Phoenix
Merger Sub Corp., a Delaware corporation and a wholly-owned subsidiary of
Phoenix ("Phoenix Merger Sub") and (iii) Chrysalis.
Pursuant to the Draft Agreement and subject to the terms and conditions
contained therein, Phoenix Merger Sub shall merge into Chrysalis (the "Merger")
and, at the effective time of the Merger (the "Effective Time"), each
outstanding share of Common Stock (a "Chrysalis Share") will be converted into
the right to receive a fraction of a share of Phoenix (a "Phoenix Share"). Such
fraction (the "Exchange Ratio") will have a numerator equal to $8,290,000
divided by (i) the number of shares of Common Stock outstanding at the Effective
Time plus (ii) all in-the-money options outstanding at the Effective Time, and a
denominator equal to a designated stock price for a Phoenix Share based on the
average of the last closing sales price per share as reported on the Toronto
Stock Exchange (the "Toronto Exchange") for the thirty days prior to and the
thirty days following the public announcement of the Merger and converted from
Canadian dollars into United States dollars at the prevailing exchange rates as
of the end of the calculation period as reported in the Wall Street Journal. The
closing sales price of a Phoenix Share on the Toronto Exchange on November 12,
1998 was US$8.07. This opinion assumes that the average closing sales price per
Phoenix Share for the thirty days following the public announcement of the
Merger is substantially equivalent to the average closing sales price per
Phoenix Share for the thirty days prior to the public announcement of the
Merger. If Phoenix is unable to obtain, within sixty days after filing the
necessary applications and forms, a letter from Nasdaq indicating that Phoenix
Shares have been approved for listing on the Nasdaq National Market System
subject to customary conditions to be contained in such approval letter for a
transaction of this type, the consideration for the Merger will be paid by
Phoenix to Chrysalis' stockholders in cash. The terms and conditions of the
Merger are more fully set forth in the Draft Agreement.
In arriving at the opinion set forth herein, we among other things: (i) reviewed
Chrysalis' Annual Reports, Forms 10-K and related financial information for the
three fiscal years ended December 31, 1997, Form 10-Q and related unaudited
financial information for the three and six months ended March 31, 1998 and June
30, 1998 and draft of Form 10-Q and related unaudited financial information
B-1
<PAGE>
Chrysalis International Corporation
November 13, 1998
Page 2
for the nine months ended September 30, 1998; (ii) reviewed Phoenix's Annual
Reports and related financial information for the three fiscal years ended
August 31, 1998; (iii) reviewed certain information, including financial
forecasts, relating to the respective businesses, earnings, cash flows, assets
and prospects of Chrysalis and Phoenix furnished to us by Chrysalis and Phoenix;
(iv) conducted discussions with members of senior management of Chrysalis and
Phoenix concerning their respective businesses and prospects; (v) reviewed the
historical market prices and trading activity for Chrysalis shares and Phoenix
Shares and compared such prices and trading histories with those of certain
publicly traded companies which we deemed to be relevant; (vi) compared the
financial position and operating results of Chrysalis and Phoenix with those of
certain other publicly traded companies which we deemed relevant; (vii) compared
the proposed financial terms of the Merger with the financial terms of certain
other transactions which we deemed to be relevant; (viii) reviewed the financial
terms of the Merger as set forth in the Draft Agreement; and (ix reviewed such
other financial studies and analyses and performed such other investigations and
took into account such other matters as we deemed appropriate.
In connection with our opinion, we have not assumed any responsibility for
independent verification of any information publicly available or supplied or
otherwise made available to us regarding Chrysalis and Phoenix and we have
assumed and relied on such information being accurate and complete in all
respects. We have not made or obtained any independent evaluation or appraisal
of the assets of Chrysalis or Phoenix. With respect to the financial projections
of Chrysalis and Phoenix referred to above, we have assumed that they have been
reasonably prepared on bases reflecting the best available estimates and
judgements of the managements of Chrysalis and Phoenix as to the future
financial performance of Chrysalis and Phoenix, respectively. We assume no
responsibility for and express no view as to such forecasts or the assumptions
under which they are prepared. We note that, as of the date of this opinion,
Chrysalis does not have sufficient funds to continue its operations beyond March
1999 and has no immediate sources of equity or other financing. Our conclusions
are based solely on information available to us on or before the date hereof and
reflect economic, market, and other conditions as of such date. In rendering our
opinion, we have assumed that the Merger will be consummated on the terms
described in the Draft Agreement, without any amendment or waiver of any
material terms or conditions, and that obtaining any necessary regulatory
approvals for the transaction will not have an adverse effect on Chrysalis or
Phoenix. We are expressing no opinion as to what the value of Phoenix Shares to
be issued to Chrysalis' common stockholders will actually be when issued
pursuant to the Merger or the prices at which such Phoenix Shares will actually
trade at any time following the date hereof. We note that the Merger is intended
to qualify as a reorganization under the provisions of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended and we have assumed that
the Merger will so qualify.
Vector Securities International, Inc. is a full service securities firm, and in
the course of its normal trading activities, may from time to time effect
transactions and hold positions in securities of Chrysalis and/or Phoenix. We
have performed investment banking services for Chrysalis in the past and have
received customary compensation for such services.
This opinion does not constitute a recommendation to any stockholder of
Chrysalis as to how any such stockholder should vote on the Merger. This opinion
does not address the relative merits of the Merger and any other transactions or
business strategies discussed by the Board of Directors of Chrysalis as
alternatives to the Merger or the decision of the Board of Directors of
Chrysalis to proceed with the Merger.
This opinion has been prepared at the request and for the use of the Board of
Directors of Chrysalis and shall not be reproduced, summarized, described or
referred to, or provided to any other person,
B-2
<PAGE>
Chrysalis International Corporation
November 13, 1998
Page 3
without our prior written consent, except that this letter may be reproduced in
full in the proxy statement of Chrysalis to be filed with the Securities and
Exchange Commission in connection with the Merger.
We are acting as financial advisor to Chrysalis in connection with the Merger
and will receive a fee in connection therewith, with such fee being contingent
upon consummation of the Merger.
On the basis of and subject to the foregoing, including the various assumptions
and limitations set forth herein, and based upon such other matters as we
consider relevant, it is our opinion as of the date hereof that the
consideration to be received by the holders of Common Stock of Chrysalis in the
Merger is fair to such stockholders from a financial point of view.
<TABLE>
<S> <C> <C>
Very truly yours,
VECTOR SECURITIES INTERNATIONAL, INC.
By: /s/ SHAHAB FATHEAZAM
-----------------------------------------
Shahab Fatheazam
MANAGING DIRECTOR
</TABLE>
B-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Canada Business Corporations Act, as amended, the Registrant may
indemnify a present or former director or officer or a person who acts or acted
at the Registrant's request as a director or officer of another corporation of
which the Registrant is or was a stockholder or creditor, and his heirs and
legal representatives, against all costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgment, reasonably incurred by
him in respect of any civil, criminal or administrative action or proceeding to
which he is made a party by reason of his position with the Registrant or such
other corporation; provided that the director or officer acted honestly and in
good faith with a view to the best interests of the Registrant and, in the case
of a criminal or administrative action or proceeding that is enforced by a
monetary penalty, had reasonable grounds for believing that his conduct was
lawful. Such indemnification may be made in connection with a derivative action
only with court approval. A director or officer is entitled to indemnification
from the Registrant if he was substantially successful on the merits and
fulfilled the conditions set forth above.
In accordance with the Canada Business Corporations Act, the by-laws of the
Registrant provide that the Registrant shall indemnify a director or officer, a
former director or officer, or a person who acts or acted at the Registrant's
request as a director or officer of a body corporate of which the Registrant is
or was a shareholder or creditor (or a person who undertakes or has undertaken
any liability on behalf of the Registrant or any such body corporate) and the
heirs, executors, administrators and legal representatives of such person, from
and against all costs, charges and expenses whatsoever, including all amounts
paid to settle an action or satisfy a judgment sustained or reasonably incurred
by him in respect of any civil, criminal or administrative action or proceeding
to which he is made a party by reason of being or having been director or
officer of the Registrant or such body corporate if he acted honestly and in
good faith with a view to the best interest of the Registrant and in the case of
a criminal or administrative action or proceeding that is enforced by a monetary
penalty, he had reasonable grounds for believing that his conduct was lawful.
The Registrant maintains a policy of directors' and officers' liability
insurance which insures directors and officers of the Registrant and its
subsidiaries for losses as a result of claims based upon the acts or omissions
as directors and officers of the Registrant, including liabilities arising under
the Securities Act of 1933, and also reimburses the Registrant for payments made
pursuant to the indemnity provisions under the Canada Business Corporations Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith or incorporated herein by
reference:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Share and Debenture Purchase Agreement among Phoenix, ITEM Holding SA, Lucien Steru, Dominique Steru,
Domingos Martins, Roger Porsolt, CO.DE.MA, BNP Developpement, Siparex Developpement, Epicea and Natio
Fonds Venture II dated as of August 7, 1997 including related escrow agreement.
2.2 Stock Purchase Agreement by and among Kuraya American Systems Inc., Kuraya Corporation, IBRD-Rostrum
Global, Inc., IBRD-Rostrum Europe, Inc., Phoenix International Life Sciences (U.S.) Inc. and Phoenix
dated December 24, 1997 including related escrow agreement.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.3 Share Purchase Agreement among Phoenix, Dr. Johann Jakob Vollenweider, Albers & Co., Dr. Ernst Fischer,
Innovent Capital Ltd., Werner Hassler, Dr. Peter Joller, Dr. David Karabelnik, Dr. Andeas Wicki and ANAWA
Holding AG dated as of April 30, 1998 including related escrow agreement.
2.4 Agreement and Plan of Merger between Applied Analytical Industries, Inc., KCAS Acquisition, Inc. and
Kansas City Analytical Services, Inc. dated as of September 2, 1998, including related indemnification
agreement.
2.5 Share Purchase Agreement among Phoenix, Dr. Andre Von Froreich, Dr. Andreas Wicki and Clinserve A.G.
dated November 5, 1998 and related escrow agreement.
2.6 Share Purchase Agreement among Phoenix, Prof. Dr. Klaus-Georg Buhrens, Martin Geist, Dr. Bernd Blohm,
Christian Hilgenstock, Claus Hemker, Dr. Ivan Kozak, Dr. Bernhard Vens-Cappell, Wolfgang Tetzloff, Dr.
Jurgen Henke, Dr. Lotte Henke, Trend Finanzanalysen GmbH and McKnight Laboratories GmbH dated as of
November 6, 1998 and related escrow agreement.
2.7 Agreement and Plan of Merger, dated as of November 18, 1998, by and among Chrysalis, Phoenix and Phoenix
Merger Sub Corp., as amended.
2.8 Purchase of Business Assets between Dr. Klaus Schaffler and Institute for Pharmacodynamic Research
Phoenix International GmbH i.G. dated April 1, 1998.
3.1 Certificate of Incorporation of Phoenix, as amended (including the Certificate of Amalgamation of Phoenix
International Life Sciences Inc. and PILS Investments Inc. dated October 21, 1994).
3.2 Bylaws of Phoenix.
4 Specimen Stock Certificate of Phoenix.
5 Opinion of McCarthy Tetrault.
8 Opinion of Pepper Hamilton LLP.
10.1 Worldwide Executive Renumeration Plan.
10.2 Plan for Incentive for Employees.
10.3 Key Employee Share Option Plan.
10.4 Employment Agreement between Phoenix and John Hooper, Ph.D. dated June 2, 1998.
10.5 Employment Agreement between Phoenix and Jean-Yves Caloz dated November 18, 1998.
10.6 Employment Agreement between Phoenix and Lucien Steru, M.D. dated August 7, 1997.
10.7 Employment Agreement between Phoenix and Stephane Huguet, M.D. dated November 7, 1997.
10.8 Employment Agreement between Phoenix and David Moszkowski dated October 5, 1998.
10.9 Employment Agreement between Phoenix and George Engelberg dated January 7, 1997.
10.10 Employment Agreement between Phoenix and Susan Thornton, Ph.D. dated June 1, 1998.
10.11 Employment Agreement between Phoenix and James J. Conklin, M.D. dated as of September 1, 1998.
10.12 Lease Agreement by and between Gamma Three Associates Limited Partnership and Institute for Biological
Research and Development Inc. dated November 27, 1991 (Neptune Township, NJ).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.13 Office Lease between Sentry West Joint Venture and Institute for Biological Research and Development
dated as of February 1, 1994, including the First Amendment thereto (Blue Bell, PA).
10.14 Deed of Lease between Belcourt Inc., Les Investissements Renary Inc. and Phoenix dated February 28, 1989,
as amended (2330 Cohen Street, St. Laurent, Quebec).
10.15 Lease Agreement between Amenagements Rovo Inc. and Phoenix dated April 18, 1995, as amended (2350 Cohen
Street, St. Laurent, Quebec).
10.16 Memorandum to Agreement of Lease by and between Liberty Sites Ltd. and Phoenix dated as of March 3, 1995,
as amended (4850 Dobrin Street and 4901 Levy Street, St. Laurent, Quebec).
10.17 Lease Agreement between Institute for Biological Research and Development, Inc. and Jamboree Associates
dated September 30, 1993, including the Addendum thereto (Irvine, CA).
10.18 Civil Lease Agreement between Jeroun S.A. and Phoenix International (Brussels) dated February 13, 1998,
as amended.
10.19 Commercial Lease between Lion SCPI, Societe Lyonnaise De Gerance Immobilier "Sligeri" S.A. and Phoenix
International France, SA dated October 1, 1998.
10.20 Revolving Credit Agreement between IBRD-Rostrum Global Inc. and Banque Nationale de Paris (Los Angeles
Branch) dated as of March 13, 1998.
10.21 Term Loan Agreement between Phoenix International Life Sciences (U.S.) Inc. and Banque Nationale de Paris
(Los Angeles Branch) dated as of February 5, 1998.
10.22 Credit Agreement dated February 5, 1998 among Phoenix, Banque Nationale de Paris (Canada) and Royal Bank
of Canada.
10.23 Unconditional Guaranty by Phoenix in favor of First Union National Bank dated November 18, 1998.
10.24 Pledge and Assignment Agreement dated November 18, 1998 by Phoenix in favor of First Union National Bank.
10.25 Letter Agreement dated November 18, 1998 between Phoenix and First Union National Bank.
10.26 Loan Agreement between the Director of Development of the State of Ohio and Phoenix International Life
Sciences (U.S.) Inc. dated as of June 12, 1995.
21 Subsidiaries of Phoenix.
23.1 Consent of Ernst & Young LLP (Phoenix).
23.2 Consent of Ernst & Young LLP (IBRD-Rostrum Global, Inc.).
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of McCarthy Tetrault (included in Exhibit 5).
23.6 Consent of Vector Securities International, Inc.
23.7 Consent of Pepper Hamilton LLP (included in Exhibit 8).
24 Powers of Attorney (included in the signature page to the Registration Statement).
99.1 Opinion of Vector Securities International, Inc. (filed as Appendix B to the proxy statement/ prospectus
which forms a part of this Registration Statement).
99.2 Form of Proxy.
99.3 Form of Letter to Participants in the Chrysalis Employee Savings Plan.
</TABLE>
II-3
<PAGE>
ITEM 22. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
2. The Registrant undertakes that every prospectus: (i) that is filed pursuant
to paragraph 1 immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the Registration Statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
3. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the United
States Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
4. The undersigned Registrant hereby undertakes: (i) to respond to requests for
information that is incorporated by reference into the proxy
statement/prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means;
and (ii) to arrange or provide for a facility in the United States for the
purpose of responding to such requests. The undertaking in clause (i) above
include information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
request.
5. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning the transaction and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"Act") the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Saint-Laurent (Montreal), Province of Quebec, on April 6, 1999.
<TABLE>
<S> <C> <C>
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
By: /s/ JEAN-YVES CALOZ
-----------------------------------------
Jean-Yves Caloz
Senior Vice President, International
Finance and Acquisitions and Secretary
</TABLE>
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated. Each of the undersigned directors and officers, of Phoenix
International Life Sciences Inc. (the "Company"), does hereby authorize and
appoint John W. Hooper and Jean-Yves Caloz, or either of them, his true and
lawful attorneys and agents, to do any and all acts and all things and to
execute any and all instruments which said attorneys and agents, or either of
them, may deem necessary or desirable to enable the Company to comply with the
Act, and any rules, regulations and requirements of the Securities and Exchange
Commission thereunder in connection with the registration under the Act of
shares of common stock of the Company ("Common Shares"), including, without
limitation, the power and authority to sign the name of each of the undersigned
in the capacities indicated below to Registration Statements on Form F-4 and
Form S-8 (or any other form) or a Registration Statement pursuant to Rule 462(b)
of the Securities Act relating to the sale of such Common Shares, to be filed
with the Securities and Exchange Commission with respect to such Common Shares,
to any and all amendments or supplements to such Registration Statements,
whether such amendments or supplements are filed before or after the effective
date of such Registration Statements, and to any and all instruments or
documents filed as part of or in connection with such Registration Statements or
any and all amendments or supplements thereto; and each of the undersigned
hereby ratifies and confirms all that said attorneys and agents, or either of
them, shall do or cause to be done by virtue hereof.
<TABLE>
<S> <C>
Date: April 6, 1999 /s/ JOHN W. HOOPER, PH.D.
--------------------------------------------
John W. Hooper, Ph.D.
Chief Executive Officer and Chairman of the
Board of Directors (Principal Executive
Officer)
Date: April 6, 1999 /s/ DAVID MOSZKOWSKI
--------------------------------------------
David Moszkowski
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer and Principal
Accounting Officer)
</TABLE>
[SIGNATURES CONTINUED ON NEXT PAGE]
II-5
<PAGE>
<TABLE>
<S> <C>
Date: April 6, 1999 /s/ LUCIEN STERU, M.D.
--------------------------------------------
Lucien Steru, M.D.
President and Chief Operating Officer
ITEM Europe SA and Director
Date: April 6, 1999 /s/ CLAUDE E. FORGET
--------------------------------------------
Claude E. Forget
Director
Date: April 6, 1999 /s/ DAVID GOLDMAN
--------------------------------------------
David Goldman
Director
Date: April 6, 1999 /s/ ROBERT RAICH
--------------------------------------------
Robert Raich
Director
Date: April 6, 1999 /s/ CORNELIUS P. MCCARTHY, III
--------------------------------------------
Cornelius P. McCarthy, III
Director
Date: April 6, 1999 /s/ BERTRAM A. SPILKER, PH.D., M.D.
--------------------------------------------
Bertram A. Spilker, Ph.D., M.D.
Director
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Share and Debenture Purchase Agreement among Phoenix, ITEM Holding SA, Lucien Steru, Dominique Steru,
Domingos Martins, Roger Porsolt, CO.DE.MA, BNP Developpement, Siparex Developpement, Epicea and Natio
Fonds Venture II dated as of August 7, 1997 including related escrow agreement.
2.2 Stock Purchase Agreement by and among Kuraya American Systems Inc., Kuraya Corporation, IBRD-Rostrum
Global, Inc., IBRD-Rostrum Europe, Inc., Phoenix International Life Sciences (U.S.) Inc. and Phoenix
dated December 24, 1997 including related escrow agreement.
2.3 Share Purchase Agreement among Phoenix, Dr. Johann Jakob Vollenweider, Albers & Co., Dr. Ernst Fischer,
Innovent Capital Ltd., Werner Hassler, Dr. Peter Joller, Dr. David Karabelnik, Dr. Andeas Wicki and ANAWA
Holding AG dated as of April 30, 1998 including related escrow agreement.
2.4 Agreement and Plan of Merger between Applied Anayltical Industries, Inc., KCAS Acquisition, Inc. and
Kansas City Analytical Services, Inc. dated as of September 2, 1998, including related indemnification
agreement.
2.5 Share Purchase Agreement among Phoenix, Dr. Andre Von Froreich, Dr. Andreas Wicki and Clinserve A.G.
dated November 5, 1998 and related escrow agreement.
2.6 Share Purchase Agreement among Phoenix, Prof. Dr. Klaus-Georg Buhrens, Martin Geist, Dr. Bernd Blohm,
Christian Hilgenstock, Claus Hemker, Dr. Ivan Kozak, Dr. Bernhard Vens-Cappell, Wolfgang Tetzloff, Dr.
Jurgen Henke, Dr. Lotte Henke, Trend Finanzanalysen GmbH and McKnight Laboratories GmbH dated as of
November 6, 1998 and related escrow agreement.
2.7 Agreement and Plan of Merger, dated as of November 18, 1998, by and among Chrysalis, Phoenix and Phoenix
Merger Sub Corp., as amended.
2.8 Purchase of Business Assets between Dr. Klaus Schaffler and Institute for Pharmacodynamic Research
Phoenix International GmbH i.G. dated April 1, 1998.
3.1 Certificate of Incorporation of Phoenix, as amended (including the Certificate of Amalgamation of Phoenix
International Life Sciences Inc. and PILS Investments Inc. dated October 21, 1994).
3.2 Bylaws of Phoenix.
4 Specimen Stock Certificate of Phoenix.
5 Opinion of McCarthy Tetrault.
8 Opinion of Pepper Hamilton LLP.
10.1 Worldwide Executive Renumeration Plan.
10.2 Plan for Incentive for Employees.
10.3 Key Employee Share Option Plan.
10.4 Employment Agreement between Phoenix and John Hooper, Ph.D. dated June 2, 1998.
10.5 Employment Agreement between Phoenix and Jean-Yves Caloz dated November 18, 1998.
10.6 Employment Agreement between Phoenix and Lucien Steru, M.D. dated August 7, 1997 and supplement dated
October 1, 1997.
10.7 Employment Agreement between Phoenix and Stephane Huguet, M.D. dated November 7, 1997.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.8 Employment Agreement between Phoenix and David Moszkowski dated October 5, 1998.
10.9 Employment Agreement between Phoenix and George Engelberg dated January 7, 1997.
10.10 Employment Agreement between Phoenix and Susan Thornton, Ph.D. dated June 1, 1998.
10.11 Employment Agreement between Phoenix and James J. Conklin, M.D. dated as of September 1, 1998.
10.12 Lease Agreement by and between Gamma Three Associates Limited Partnership and Institute for Biological
Research and Development Inc. dated November 27, 1991 (Neptune Township, NJ).
10.13 Office Lease between Sentry West Joint Venture and Institute for Biological Research and Development
dated as of February 1, 1994, including the First Amendment thereto (Blue Bell, PA).
10.14 Deed of Lease between Belcourt Inc., Les Investissements Renary Inc. and Phoenix dated February 28, 1989,
as amended (2330 Cohen Street, St. Laurent, Quebec).
10.15 Lease Agreement between Amenagements Rovo Inc. and Phoenix dated April 18, 1995, as amended (2350 Cohen
Street, St. Laurent, Quebec).
10.16 Memorandum to Agreement of Lease by and between Liberty Sites Ltd. and Phoenix dated as of March 3, 1995,
as amended (4850 Dobrin Street and 4901 Levy Street, St. Laurent, Quebec).
10.17 Lease Agreement between Institute for Biological Research and Development, Inc. and Jamboree Associates
dated September 30, 1993, including the Addendum thereto (Irvine, CA).
10.18 Civil Lease Agreement between Jeroun S.A. and Phoenix International (Brussels) dated February 13, 1998,
as amended.
10.19 Commercial Lease between Lion SCPI, Societe Lyonnaise de Gerance Immobilier "Sligeri" S.A. and Phoenix
International France, SA dated October 1, 1998.
10.20 Revolving Credit Agreement between IBRD-Rostrum Global Inc. and Banque Nationale de Paris (Los Angeles
Branch) dated as of March 13, 1998.
10.21 Term Loan Agreement between Phoenix International Life Sciences (U.S.) Inc. and Banque Nationale de Paris
(Los Angeles Branch) dated as of February 5, 1998.
10.22 Credit Agreement dated February 5, 1998 among Phoenix, Banque Nationale de Paris (Canada) and Royal Bank
of Canada.
10.23 Unconditional Guaranty by Phoenix in favor of First Union National Bank dated November 18, 1998.
10.24 Pledge and Assignment Agreement dated November 18, 1998 by Phoenix in favor of First Union National Bank.
10.25 Letter Agreement dated November 18, 1998 between Phoenix and First Union National Bank.
10.26 Loan Agreement between the Director of Development of the State of Ohio and Phoenix International Life
Sciences (U.S.) Inc. dated as of June 12, 1995.
21 Subsidiaries of Phoenix.
23.1 Consent of Ernst & Young LLP (Phoenix).
23.2 Consent of Ernst & Young LLP (IBRD-Rostrum Global, Inc.).
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of KPMG LLP.
23.5 Consent of McCarthy Tetrault (included in Exhibit 5).
23.6 Consent of Vector Securities International, Inc.
23.7 Consent of Pepper Hamilton LLP (included in Exhibit 8).
24 Powers of Attorney (included in signature page to the Registration Statement).
99.1 Opinion of Vector Securities International, Inc. (filed as Appendix B to the proxy statement/ prospectus
which forms a part of this Registration Statement).
99.2 Form of Proxy.
99.3 Form of Letter to Participants in the Chrysalis Employee Savings Plan.
</TABLE>
II-9
<PAGE>
Exhibit 2.1
SHARE AND DEBENTURE PURCHASE AGREEMENT
AMONG
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
AND
ITEM HOLDING
AND
LUCIEN STERU
AND
DOMINIQUE STERU
AND
DOMINGOS MARTINS
AND
ROGER PORSOLT
AND
CO.DE.MA.
AND
BNP DEVELOPPEMENT
AND
SIPAREX DEVELOPPEMENT
AND
EPICEA
AND
NATIO FONDS VENTURE II
--------------------------
DATED AS OF AUGUST 7, 1997
--------------------------
<PAGE>
SHARE AND DEBENTURE PURCHASE AGREEMENT dated as of August 7, 1997
AMONG: PHOENIX INTERNATIONAL LIFE SCIENCES INC., a
corporation incorporated under the Canada
Business Corporations Act, having its head
office at 2350, Cohen Street, Saint-Laurent,
Quebec, Canada, H4R 2N6, herein acting and
represented by John W. Hooper and Jean-Yves
Caloz, its duly authorized representatives;
(hereinafter "Phoenix")
AND: ITEM HOLDING S.A. a French SOCIETE ANONYME
with capital of FF15,737,100, registered in
the Paris commercial and companies register
under number B 389 402 801 and having its
head office at 93, Avenue de Fontainebleau,
94270, Le Kremlin-Bicetre, herein acting and
represented by Lucien Steru, its duly
authorized representative;
(hereinafter "ITEM Holding")
AND: LUCIEN STERU, executive, residing at 31, rue
Robert de Flers, 75015, Paris, married under
the matrimonial regime of COMMUNAUTE LEGALE
to Dominique Steru;
(hereinafter "Lucien Steru")
AND: DOMINIQUE STERU, executive, residing at 31,
rue Robert de Flers, 75015, Paris, married
under the matrimonial regime of COMMUNAUTE
LEGALE to Lucien Steru;
(hereinafter "Dominique Steru")
AND: DOMINGOS MARTINS, residing at rua do Arco
Carvalhao No. 14, 3rd esq., 1071 Lisboa,
Portugal, married under the matrimonial
regime of COMMUNAUTE LEGALE to Manuela
Viegas ;
(hereinafter "Domingos Martins")
AND: ROGER PORSOLT, executive, residing at 34,
Avenue de la Porte Jaune, 92210, St. Cloud,
married under the matrimonial regime of
COMMUNAUTE UNIVERSELLE to Ursula Dorner,
under a contract of marriage entered into
before Maitre Marchand ;
(hereinafter "Roger Porsolt")
AND: CO.DE.MA., a Belgian corporation having its
head office at 216 avenue Marcel Thiry,
Bruxelles 1200, Belgique, herein acting and
represented by its duly authorized
representative, Lucien Steru;
(hereinafter "Codema")
<PAGE>
- 2 -
AND: BNP DEVELOPPEMENT, a French SOCIETE ANONYME,
with capital of FF500,000,000, registered in
the Paris commercial and companies register
under number B 348 540 592 and having its
head office at 1, boulevard Haussmann,
75009, Paris, herein acting and represented
by its duly authorized representative,
Josiane Raspiller;
(hereinafter "BNP Developpement")
AND: SIPAREX DEVELOPPEMENT, a French SOCIETE EN
COMMANDITE PAR ACTIONS, with capital of
FF196,489,400, registered in the Lyon
commercial and companies register under
number B 378 213 375 and having its head
office at 114, rue de la Boetie, 75008,
Paris, herein acting and represented by its
duly authorized representative, Christian
d'Argoubet;
(hereinafter "Siparex Developpement")
AND: EPICEA, a French SOCIETE ANONYME, with
capital of FF67,000,000, registered in the
Paris commercial and companies register
under number B 319 308 615 and having its
head office at 31-33, rue Federation, 75015,
Paris, herein acting and represented by its
duly authorized representative, Pascal
Demichel;
(hereinafter "Epicea")
AND: NATIO FONDS VENTURE II, a French FONDS
COMMUN DE PLACEMENT A RISQUE, herein acting
and represented by its administrator BNP
Gestions, a French SOCIETE ANONYME, with
capital of FF 64,919,400, registered in the
Paris commercial and companies register
under number B 682 001 904 and having its
head office at 150, rue du Faubourg
Poissonniere, 75484 Paris Cedex 10, herein
acting and represented by its duly
authorized representative, Dominique
Bellanger;
(hereinafter "Natio Fonds Venture")
(Lucien Steru, Dominique Steru, Domingos
Martins, Roger Porsolt, Codema, BNP
Developpement, Siparex Developpement, Epicea
and Natio Fonds Venture are hereinafter
collectively referred to as the "Vendors").
WHEREAS, the Vendors hold, directly or indirectly, as more fully set
out in Schedule A, all of the outstanding convertible debentures and all of the
outstanding shares and voting rights of ITEM Holding;
WHEREAS, Institut Technique pour l'Etude du Medicament ("ITEM SA"), a
French SOCIETE ANONYME, with capital of FF2,295,000, registered in the Creteil
commercial and companies register under number B 326 152 195 and having its head
office at 93, avenue de Fontainebleau, 94276, Le Kremlin Bicetre, France, is a
subsidiary of ITEM Holding, held as to 99.99% by ITEM Holding and as to 0.01% by
ITEM Labo. The capital structure of ITEM SA is set forth in Schedule B;
<PAGE>
- 3 -
WHEREAS, Institut Technique pour l'Etude du Medicament - Laboratoire de
Recherche ("ITEM Labo"), a French SOCIETE ANONYME, with capital of FF250,000,
registered in the Laval commercial and companies register under number B 329 968
465 and having its head office at Z.I. des Suhards au Genest Saint Isle, 53940,
Saint-Berthelin, France, is a subsidiary of ITEM Holding controlled as to 99.8%
by ITEM Holding and as to 0.2% by ITEM SA. The capital structure of ITEM Labo is
set forth in Schedule C;
WHEREAS, S.C. VERUM I.T.E.M. Clinica SRL ("ITEM Clinica"), a Romanian
societate cu rasponderer limitata, having its head office at 44 bd I.C.
Bratianu, sc B, apt 69, sector 3, Bucarest, Romania, is a subsidiary of ITEM SA,
controlled as to 100% by ITEM SA. The capital structure of ITEM Clinica is set
forth in Schedule D;
WHEREAS, VERUM I.T.E.M. Italia Srl ("ITEM Italia"), an Italian SOCIETE
A RESPONSABILITE LIMITEE, having its head office at Via Cornaggia 10, Milan,
Italy, is a subsidiary of ITEM SA, controlled as to 98% by ITEM SA and as to 2%
by Lucien Steru. The capital structure of ITEM Italia is set forth in Schedule
E;
WHEREAS, ITEM International ("ITEM International"), a French SOCIETE A
RESPONSABILITE LIMITEE, with capital of FF400,000, registered in the Laval
commercial and companies register under number B 329 439 996 and having its head
office at Z.I. des Suhards au Genest Saint Isle, 53940, Saint-Berthelin, France,
is a subsidiary of ITEM SA controlled as to 100% by ITEM SA. The capital
structure of ITEM International is set forth in Schedule F;
WHEREAS, METI - Madrid, S.A. ("ITEM Spain"), a Spanish company, with
capital of Pesetas 12,000,000, having its head office at calle Capitan Haya n.
60, 1st floor, Madrid, Spain, is a subsidiary of ITEM SA controlled as to 100%
by ITEM SA. The capital structure of ITEM Spain is set forth in Schedule G;
WHEREAS, I.T.E.M. - Pharma, S.A. ("ITEM Pharma"), a Spanish company,
with capital of Pesetas 10,000,000, having its head office at calle Caleruega,
67, 5a Madrid, 28033, Spain, is a subsidiary of ITEM International and ITEM
Spain controlled as to 50% by ITEM International and as to 50% by ITEM Spain.
The capital structure of ITEM Pharma is set forth in Schedule H;
WHEREAS, Verum TIL Occam Limited ("Verum TIL Occam"), a private company
limited by shares incorporated in England, registered as no. 2317735 under the
COMPANIES ACT 1985 and having its head office at 50 Occam Road, Surrey Research
Park, Guildford, Surrey, GU2 5YN, England, is a subsidiary of ITEM SA controlled
as to 50% by ITEM SA. The capital structure of Verum TIL Occam is set forth in
Schedule I;
WHEREAS, GEIE Verum ("GEIE Verum"), a Groupement Europeen d'Interets
Economiques, having its head office at 50 Occam Road, Surrey Research Park,
Guildford, Surrey, GU2 5YN, England, controlled as to 25% by ITEM International
and as to 25% by Verum TIL Occam. The capital structure of GEIE Verum is set
forth in Schedule J;
WHEREAS, the principal activity of ITEM Holding, ITEM SA, ITEM
Labo, ITEM Clinica, ITEM Italia, ITEM International, ITEM Spain, ITEM Pharma,
Verum TIL Occam and GEIE Verum is the conduct of contract clinical research for
the pharmaceutical industry and pharmaceutical research, primarily in phases II
to IV;
WHEREAS, Phoenix is a multi-service contract research organization
which provides bioanalytical research, clinical studies, animal metabolism
studies as well as regulatory affairs services to pharmaceutical and
biotechnology companies in the United States and Canada;
<PAGE>
- 4 -
WHEREAS the Vendors have agreed to sell all of the outstanding shares
and all of the outstanding debentures of ITEM Holding to Phoenix in
consideration for the issuance to the Vendors of common shares of Phoenix;
NOW, THEREFORE, the parties hereto agree as follows:
1. INTERPRETATION AND DEFINITIONS
Except as the context otherwise explicitly requires, (a) the
capitalized term "Section" refers to sections of this Agreement; (b) the
capitalized terms "Schedules" and "Exhibit" refer to schedules and exhibits to
this Agreement; (c) references to a particular Section include all subsections
thereof; (d) the word "including" shall be construed as "including without
limitation"; (e) accounting terms not otherwise defined herein have the meaning
provided under GAAP (as defined below); (f) references to a particular law,
statute or regulation include all rules and regulations thereunder and any
successor, law, statute, regulation or rules, in each case as from time to time
in effect; (g) references to a particular Person include such Person's
successors and assigns to the extent not prohibited by this Agreement; (h)
references to dollars or $ in this Agreement are to Canadian dollars. In this
Agreement, unless the context otherwise requires, the following terms shall have
the respective meanings assigned to them:
<TABLE>
<CAPTION>
<S> <C>
1.1 "AFFILIATE" means, with respect to any Person, any Person
which, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common
control with such Person.
1.2 "ARTICLES" means the original or restated articles of
incorporation, articles of amendment, articles of
amalgamation, articles of continuance, articles of
reorganization and articles of arrangement, including
amendments thereto, as in effect from time to time, of ITEM
Holding.
1.3 "COMPENSATION" as applied to any Person means the aggregate of
all salaries, compensation, remuneration or bonuses of any
character, retirement or pension benefits of any kind, or
other payments of any kind whatsoever (other than health and
medical benefits made available to employees generally and
advances and reimbursements of business expenses) made
directly or indirectly by ITEM Holding, any of the
Subsidiaries or other specified Persons to such Person and
affiliates of such Person.
1.4 "COMPLETION DATE" means the date of this Agreement, i.e.
August 7, 1997.
1.5 "CONSOLIDATED", when used with reference to any term, means
that term as applied to the accounts of ITEM Holding or other
indicated Person and each of its respective Subsidiaries,
consolidated or combined in accordance with GAAP after
eliminating all inter-company operations and with appropriate
deductions for minority interests in Subsidiaries.
1.6 "CONTRACTUAL OBLIGATION" means, with respect to any Person,
any contracts, agreements, deeds, hypothecs, mortgages,
indentures, leases, licenses, other instruments, commitments,
undertakings, arrangements or understandings, written or oral,
or other documents or instruments , including any provisions
of its articles of incorporation or other constating documents
or by-laws and any document or instrument evidencing
Indebtedness, to which any
</TABLE>
<PAGE>
- 5 -
<TABLE>
<CAPTION>
<S> <C>
such Person is a party or otherwise subject to or bound by or
to which any property or asset of any such Person is subject.
1.7 "DEBENTURES" means FF 711,800 convertible debentures of ITEM
Holding being all of the issued and outstanding convertible
debentures of ITEM Holding.
1.8 "DISTRIBUTION" means (a) the declaration or payment of any
dividend on or in respect of the shares of any class or series
of shares of ITEM Holding, any of the Subsidiaries or other
specified Person, other than dividends payable solely in
common shares of the share capital of the payor; (b) the
purchase, redemption or other retirement of any shares of any
class of ITEM Holding, any of the Subsidiaries or other
specified Person directly, or indirectly through a Subsidiary
or otherwise; or (c) any other distribution on or in respect
of any shares of any class or series of shares of ITEM
Holding, any of the Subsidiaries or other specified Person.
1.9 "ESCROW AGENT" means Montreal Trust Company.
1.10 "ESCROW AGREEMENT" means the escrow agreement entered between
the parties hereto and the Escrow Agent a copy of which is
attached hereto as Schedule 1.10.
1.11 "ESCROWED SECURITIES" means the Phoenix Shares escrowed
pursuant to Section 2.6 together with all Proceeds (as defined
in the Escrow Agreement).
1.12 "ENVIRONMENTAL LAWS" means all Legal Requirements (including
consent decrees, administrative orders and contractual
obligations) relating to public health and safety, workers
health and safety and pollution or protection of the
environment.
1.13 "GAAP" means generally accepted accounting principles, as in
effect from time to time, consistently applied.
1.14 "GUARANTEE" means (a) any guarantee of the payment or
performance of, or any contingent obligation in respect of,
any indebtedness or other obligation of any other Person, (b)
any other arrangement whereby credit or financial assistance
is extended to one obligor on the basis of any promise or
undertaking of another Person (i) to pay the Indebtedness of
such obligor, (ii) to purchase any obligation owed by such
obligor, or (iii) to maintain the capital, working capital,
solvency or general financial condition of such obligor,
whether or not such arrangement is disclosed in the balance
sheet of such other Person or is referred to in a footnote
thereto or appears in a "keep well" agreement, "comfort
letter" or "take or pay" agreement, and (c) any liability of
ITEM Holding or any of the Subsidiaries or Significant
Investments as general partner of a partnership or as a
venturer in a joint venture in respect of Indebtedness or
other obligations of such partnership or venture; provided,
however, that in no event shall Guarantees include product
warranties given or the endorsement of negotiable instruments
for deposit or collection in the ordinary course of business.
1.15 "ITEM AFFILIATE" means any of Lucien Steru, Dominique Steru,
Codema and Roger Porsolt.
1.16 "LEGAL REQUIREMENT" means any national, provincial, regional,
municipal, local or foreign law, statute, standard, ordinance,
code, order, rule, regulation, resolution, promulgation,
by-
</TABLE>
<PAGE>
- 6 -
<TABLE>
<CAPTION>
<S> <C>
law, policy, guideline, directive, standard and any other
provision having the force or effect of law or any final
order, judgment or decree of any court, arbitrator, tribunal
or governmental authority, or any license, franchise, permit,
certificate, authorization, registration or similar right
granted under any of the foregoing.
1.17 "LIEN" means (a) any hypothec, priority, mortgage, pledge,
lien, charge, security interest or other similar encumbrance
upon any property or assets of any character, or upon the
income or profits therefrom, whether arising by agreement or
under law, or otherwise (b) any conditional sale or other
title retention agreement or arrangement (including a
capitalized lease); (c) any sale, assignment, pledge or other
transfer for security of any accounts, general intangibles, or
chattel paper, with or without recourse, or (d) any
transaction (regardless of form) which is intended to create
any charge or encumbrance on property to secure the payment or
performance of an obligation.
1.18 "MANAGEMENT" means each of Lucien Steru, Dominique Steru,
Roger Porsolt, Bruno Maugee, Grigore Voinov, Rene Lardinois.
1.19 "MATERIAL ADVERSE EFFECT" means any (a) material adverse
effect whatsoever upon the validity, performance or
enforceability of this Agreement, (b) material adverse effect
upon the business, assets, financial condition, income or
prospects of ITEM Holding, the Subsidiaries and the
Significant Investments on a Consolidated basis, or (c)
material adverse effect upon the ability of the Vendors to
perform their obligations under this Agreement.
1.20 "PERMITTED LIEN" means those Liens indicated on Schedule 1.20.
1.21 "PERSON" means an individual, partnership, corporation,
company, association, trust, joint venture, unincorporated
organization, business trust, limited liability company and
any governmental or administrative department or agency or
political subdivision.
1.22 "PHOENIX AFFILIATES" means John Hooper, Heather Baker, Judy
Zilber, Jean-Yves Caloz, Sue Campbell, Susan Baker, Dr.
Richard Lalonde, Diane Bouchard, Diane Matheou, Todd Joron,
Millicent Broderick, Blake Glover, Carmen Discenza, Richard L.
Lalonde, Tom Pillsworth, Pamela Burnett, Ebi Kimanani, John
Burrows, John Capicchioni, Chris Kemper, Martine Ortega and
Louise Rochon.
1.23 "SEC" means the United States Securities and Exchange
Commission.
1.24 "SECURITIES ACT" means the United States Securities Act of
1933, as amended, and all rules and regulations promulgated
thereunder.
1.25 "SHARES" means 157,371 ordinary shares of ITEM Holding being
all of the issued and outstanding shares of ITEM Holding.
1.26 "SIGNIFICANT INVESTMENTS" means Verum TIL Occam and GEIE Verum
and "SIGNIFICANT INVESTMENT" means either Verum TIL Occam or
GEIE Verum.
</TABLE>
<PAGE>
- 7 -
<TABLE>
<CAPTION>
<S> <C>
1.27 "SUBSIDIARIES" means ITEM SA, ITEM Labo, ITEM Clinica, ITEM
Italia, ITEM International, ITEM Spain and ITEM Pharma and
"SUBSIDIARY" means any of the Subsidiaries on an individual
basis.
2. SALE AND PURCHASE OF SHARES AND DEBENTURES
2.1 AGREEMENT TO PURCHASE AND SELL SHARES
Upon the terms and subject to the conditions hereof and in
reliance on the representations and warranties of Phoenix set forth in
Section 4, Lucien Steru, Dominique Steru, Domingos Martins, Roger
Porsolt, Codema, Siparex Developpement, BNP Developpement and Epicea
hereby sell to Phoenix and, upon the terms and subject to the
conditions hereof and in reliance on the representations and warranties
of the Vendors set forth in Section 3, Phoenix hereby purchases from
Lucien Steru, Dominique Steru, Domingos Martins, Roger Porsolt, Codema,
Siparex Developpement, BNP Developpement and Epicea, the Shares, as set
forth below:
</TABLE>
<TABLE>
<CAPTION>
VENDOR NUMBER OF ITEM HOLDING ORDINARY SHARES
- ------ --------------------------------------
<S> <C>
Lucien Steru 1
Dominique Steru 1
Domingos Martins 2,795
Roger Porsolt 13,000
Codema 116,295
Siparex Developpement 10,279
BNP Developpement 7,500
Epicea 7,500
</TABLE>
2.2 PRICE OF SHARES
The purchase price of the Shares is payable by the issuance by Phoenix
to Lucien Steru, Dominique Steru, Domingos Martins, Roger Porsolt, Codema,
Siparex Developpement, BNP Developpement and Epicea of an aggregate of 4,486,555
common shares of Phoenix being 28.509414 common shares of Phoenix for each
Share. The aggregate purchase price for the Shares is to be allocated among
Lucien Steru, Dominique Steru, Domingos Martins, Roger Porsolt, Codema, Siparex
Developpement, BNP Developpement and Epicea as follows:
<TABLE>
<CAPTION>
VENDOR NUMBER OF PHOENIX SHARES
- ------ -------------------------
<S> <C>
Lucien Steru 29
Dominique Steru 29
Domingos Martins 79,683
Roger Porsolt 370,622
Codema 3,315,502
Siparex Developpement 293,048
BNP Developpement 213,821
Epicea 213,821
</TABLE>
<PAGE>
-8-
2.3 AGREEMENT TO PURCHASE AND SELL THE DEBENTURES
Upon the terms and subject to the conditions hereof and in reliance on
the representations and warranties of Phoenix set forth in Section 4, Lucien
Steru, Siparex Developpement, BNP Developpement and Natio Fonds Venture hereby
sell to Phoenix and, upon the terms and subject to the conditions hereof and in
reliance on the representations and warranties of the Vendors set forth in
Section 3, Phoenix hereby purchases from Lucien Steru, Siparex Developpement,
BNP Developpement and Natio Fonds Venture, the Debentures, as set forth below:
<TABLE>
<CAPTION>
VENDOR AMOUNT OF ITEM HOLDING
- ------ ----------------------
CONVERTIBLE DEBENTURES
----------------------
<S> <C>
Lucien Steru 72,600 FF
Siparex Developpement 277,900 FF
BNP Developpement 192,500 FF
Natio Fonds Venture 168,800 FF
</TABLE>
2.4 PRICE OF THE DEBENTURES
The purchase price of the Debentures is payable by the issuance by
Phoenix to Lucien Steru, Siparex Developpement, BNP Developpement and Natio
Fonds Venture of an aggregate of 203,587 common shares of Phoenix (the common
shares of Phoenix referred to in Sections 2.2 and 2.4 being hereinafter
collectively referred to as the "Phoenix Shares"). The aggregate purchase price
for the Debentures is to be allocated among Lucien Steru, Siparex Developpement,
BNP Developpement and Natio Fonds Venture as follows:
<TABLE>
<CAPTION>
VENDOR NUMBER OF PHOENIX SHARES
- ------ ------------------------
<S> <C>
Lucien Steru 20,765
Siparex Developpement 79,484
BNP Developpement 55,058
Natio Fonds Venture 48,280
</TABLE>
2.5 DELIVERY OF SHARES AND DEBENTURES AND PAYMENT OF PURCHASE PRICE
2.5.1 Phoenix hereby acknowledges receipt from
Lucien Steru, Dominique Steru, Domingos
Martins, Roger Porsolt, Codema, Siparex
Developpement, BNP Developpement and Epicea
of deeds of transfer of the Shares for
transfer by Lucien Steru, Dominique Steru,
Domingos Martins, Roger Porsolt, Codema,
Siparex Developpement, BNP Developpement and
Epicea to Phoenix.
<PAGE>
- 9 -
2.5.2 Phoenix hereby acknowledges receipt from
Lucien Steru, Siparex Developpement, BNP
Developpement and Natio Fonds Venture of
deeds of transfer of the Debentures for
transfer by Lucien Steru, Siparex
Developpement, BNP Developpement and Natio
Fonds Venture of the Debentures to Phoenix.
2.5.3 Lucien Steru, Dominique Steru, Domingos
Martins, Roger Porsolt, Codema, Siparex
Developpement, BNP Developpement and Epicea
hereby acknowledge receipt from Phoenix of
certificates registered in the names of
Lucien Steru, Dominique Steru, Domingos
Martins, Roger Porsolt, Codema, Siparex
Developpement, BNP Developpement and Epicea
representing an aggregate of 4,037,900
common shares of Phoenix in payment 90% of
the purchase price for the Shares.
2.5.4 Lucien Steru, Siparex Developpement, BNP
Developpement and Natio Fonds Venture hereby
acknowledge receipt from Phoenix of
certificates registered in the names of
Lucien Steru, Siparex Developpement, BNP
Developpement and Natio Fonds Venture
representing an aggregate of 183,228 common
shares of Phoenix in payment of 90% of the
purchase price for the Debentures.
2.6 ISSUANCE INTO ESCROW
Notwithstanding any provision of this Agreement, upon delivery of the
Phoenix Shares pursuant to Section 2.5, 10% of the aggregate number of the
common shares of Phoenix issuable in payment of the purchase price of the Shares
and the Debentures shall be delivered immediately to the Escrow Agent, on a pro
rata basis among the Vendors, to be held and released by the Escrow Agent
pursuant to the terms of this Agreement and the Escrow Agreement. All such
Phoenix Shares shall be issued in the name of the Escrow Agent, as escrow agent
under the Escrow Agreement. The Vendors hereby acknowledge receipt of such 10%
of the purchase price of the Shares and the Debentures on their behalf by the
Escrow Agent.
2.7 TRANSFER TAXES
The parties agree that, for purposes of transfer tax filings in France,
a separate document in form and substance similar to Schedule 2.7 shall be
prepared for the purposes of registration of each sale with French taxation
authorities. The parties agree that such document shall not have precedence over
this Agreement and shall not constitute a waiver of any of the terms and
conditions, representations and warranties of this Agreement. The parties
undertake not to disclose such document to any third parties with the exception
of the relevant taxation authorities for purposes of registration.
2.8 UNDERTAKING RE TRANSFER OF ITEM ITALIA SHARES
Lucien Steru hereby undertakes to transfer all of the shares of the
share capital of ITEM Italia held by him to ITEM SA for no additional
consideration, by no later than September 30, 1997. All expenses related to the
transfer of such shares shall be borne by Lucien Steru.
2.8 UNDERTAKING RE RELEASE OF GUARANTEES AND INDEMNIFICATION
<PAGE>
- 10 -
Phoenix hereby undertakes to use its best efforts to obtain the release
by Banque Nationale de Paris of the guarantee given by Lucien Steru of the
obligations of ITEM Holding under a loan of FF 2,200,000 pursuant to a loan
agreement dated July 7, 1993. In the event that Lucien Steru is called upon to
make any payment under the terms of such guarantee, Phoenix hereby agrees to
defend, indemnify and hold harmless Lucien Steru from and against all claims
made against him by Banque Nationale de Paris in connection with such guarantee.
3.1 REPRESENTATIONS AND WARRANTIES OF VENDORS
For the purposes of this Section 3, "Significant Investments" shall not
include Verum Til Occam. In order to induce Phoenix to enter into this Agreement
and to purchase the Shares and the Debentures hereunder, the Vendors hereby make
the following representations and warranties to Phoenix. The Vendors' liability
for the following representations and warranties shall be joint, and not
solidary, except in the event of fraud with respect thereto.
3.1 SHARES AND DEBENTURES
Lucien Steru, Dominique Steru, Domingos Martins, Roger
Porsolt, Codema, Siparex Developpement, BNP Developpement and Epicea
own the Shares free and clear of all Liens and there are no rights or
other obstacles of any nature whatsoever to the sale of the Shares to
Phoenix and Lucien Steru, Siparex Developpement, BNP Developpement and
Natio Fonds Venture own the Debentures free and clear of all Liens and
there are no rights or other obstacles of any nature whatsoever to the
sale of the Debentures to Phoenix.
3.2 ORGANIZATION
3.2.1 DUE INCORPORATION, ETC. Each of ITEM
Holding, the Subsidiaries and the
Significant Investments is duly incorporated
or organised and validly exists under the
laws of its jurisdiction of incorporation,
and is in good standing under the laws
applicable to it and has all necessary
corporate capacity and power to own and
lease its property and assets and to carry
on the businesses now conducted or presently
proposed to be conducted by it.
3.2.2 SUBSIDIARIES AND SIGNIFICANT INVESTMENTS.
ITEM Holding does not own or control,
directly or indirectly, or have an interest
in, any other corporation, partnership,
association or business entity other than
the Subsidiaries and the Significant
Investments.
3.2.3 MANAGEMENT. The management of ITEM Holding,
the Subsidiaries and the Significant
Investments is exclusively comprised of the
Persons referred to in Section 1.18.
3.2.4 AUTHORIZATIONS AND APPROVALS. All
authorizations, approvals, licences,
permits, certificates, registrations,
consents, exemptions or declarations
required in order for each of ITEM Holding,
the Subsidiaries and the Significant
Investments to own or lease their property
and assets and to carry on their business in
all jurisdictions in which such property and
assets are located or such business is
carried on have been duly obtained or
effected and are in full force and effect
except for authorizations,
<PAGE>
- 11 -
approvals, licences, permits, certificates,
registrations, consents, exemptions or
declarations, the absence of which,
individually or in the aggregate, does not
and shall not result in a Material Adverse
Effect.
In particular:
(a) except for permits, certificates, licences,
registrations and other authorizations, the
absence of which, individually or in the
aggregate, does not and shall not result in
a Material Adverse Effect, each of ITEM
Holding, the Subsidiaries and the
Significant Investments hold all permits,
certificates, licenses, registrations and
other authorizations required under
applicable Environmental Laws for their
operations (the "Environmental Permits");
each such Environmental Permit is valid and
in force and the operations of ITEM Holding,
the Subsidiaries and the Significant
Investments are in compliance with the
conditions set out in such Environmental
Permits; the Vendors and Management do not
have any knowledge of any grounds for
revocation, expiry or annulment of any such
Environmental Permits;
(b) except for permits, certificates, licences,
registrations and other authorizations, the
absence of which, individually or in the
aggregate, does not and shall not result in
a Material Adverse Effect, each of ITEM
Holding, the Subsidiaries and the
Significant Investments hold all permits,
certificates, licenses, registrations and
other authorizations required under
applicable Legal Requirement for clinical
research for the pharmaceutical industry and
pharmaceutical research (the "Research
Permits"); each such Research Permit is
valid and in force and, to the Vendors'
knowledge and to the knowledge of
Management, the operations of ITEM Holding,
the Subsidiaries and the Significant
Investments are in compliance with the
conditions set out in such Research Permits;
the Vendors and Management do not have any
knowledge of any grounds for revocation,
expiry or annulment of any such Research
Permits;
3.2.5 CORPORATE RECORDS. The Corporate minute
books and records of ITEM Holding and each
of the Subsidiaries and Significant
Investments are complete and up to date.
3.2.6 OFFICERS AND DIRECTORS. The officers and
directors of ITEM Holding and each of the
Subsidiaries and Significant Investments
have been properly elected or appointed in
accordance with applicable laws and the
relevant articles of incorporation or other
constating documents.
3.2.7 CORPORATE ACTION. All necessary corporate
action has been taken by ITEM Holding, to
authorize the execution of this Agreement
and the consummation of the transactions
contemplated hereby.
3.3 CAPITALIZATION
<PAGE>
- 12 -
3.3.1 SHARE CAPITAL OF ITEM HOLDING. The
authorized share capital of ITEM Holding is
exhaustively set forth in Schedule A, all of
which has been validly issued and is fully
paid and non-assessable and, subject to no
Lien, adverse claim or restriction on
transfer, except restrictions on transfer
under this Agreement.
3.3.2 OPTIONS, ETC. Other than as set forth in
Schedule A and Schedule 3.3.5, ITEM Holding
does not have outstanding (a) any rights
(either preemptive or otherwise) or options
to subscribe for or purchase, or any
warrants or other agreements providing for
or requiring the issuance of, any shares or
any securities convertible into or
exchangeable for its shares, (b) any
obligation to redeem, purchase or otherwise
acquire or retire any of its shares, any
securities convertible into or exchangeable
for its shares or any rights, options or
warrants with respect thereto, (c) any
rights to require ITEM Holding to qualify
for distribution for securities laws
purposes, or (d) any restrictions on voting.
3.3.3 CAPITAL STOCK OF THE SUBSIDIARIES. The
authorized issued and outstanding share
capital of each Subsidiary and Significant
Investment is set forth in Schedules B to J.
Other than as set forth in Schedule 3.3.3
and Schedule 3.19, the issued and
outstanding share capital of each Subsidiary
and Significant Investment is validly
issued, and paid and non-assessable and
subject to no Lien, adverse claim or
restriction on transfer.
3.3.4 SUBSIDIARY AND SIGNIFICANT INVESTMENT
OPTIONS, ETC. Other than as set forth in
Schedule 3.3.4, none of the Subsidiaries and
none of the Significant Investments has
outstanding (a) any rights (either
preemptive or otherwise) or options to
subscribe for or purchase, or any warrants
or other agreements providing for or
requiring the issuance of, any shares or any
securities convertible into or exchangeable
for its shares, (b) any obligation to
redeem, purchase or otherwise acquire or
retire any of its shares, any securities
convertible into or exchangeable for its
shares or any rights, options or warrants
with respect thereto, (c) any rights to
require the Subsidiary or the Significant
Investment to qualify for distribution for
securities laws purposes, or (d) any
restrictions on voting.
3.3.5 NO COMMITMENTS AFFECTING SHARE CAPITAL, ETC.
Other than as set forth in Schedule 3.3.5
and Schedule 3.19, neither ITEM Holding nor
any of the Subsidiaries or Significant
Investments is a party to or bound by any
agreement, commitment or understanding,
whether verbal or written, affecting its
share capital or the voting rights attached
thereto.
3.4 REPORTS, FINANCIAL STATEMENTS AND OTHER DOCUMENTS
Phoenix has been provided with complete and correct copies of
consolidated financial statements of ITEM Holding and its Subsidiaries
and the non consolidated financial statements of ITEM Holding and of
each of its Subsidiaries, except ITEM Italia and ITEM Clinica, for
which limited financial information is available and has been provided,
and Significant Investments (balance sheet, statement of earnings and
schedules) for both the year ended December 31, 1996, and for the
period ended May 31, 1997, copies of which are attached hereto as
Schedule 3.4A.
<PAGE>
- 13 -
The consolidated financial statements and the non-consolidated
financial statements of ITEM Holding, ITEM SA, ITEM Labo and ITEM
International referred to above have been prepared in accordance with
French GAAP, the non-consolidated financial statements of ITEM Pharma
referred to above have been prepared in accordance with Spanish GAAP,
the non-consolidated financial statements of Verum TIL Occam referred
to above have been prepared in accordance with English GAAP, the
non-consolidated financial statements ofGEIE Verum referred to above
have been prepared in accordance with French GAAP and all such
financial statements fairly present the financial condition of ITEM
Holding, the Subsidiaries and the Significant Investments, other than
ITEM Italia and ITEM Clinica, at the dates thereof and the results of
their operations for the periods covered thereby. Other than as set
forth in Schedule 3.5, neither ITEM Holding nor any of the Subsidiaries
or Significant Investments has material liabilities, contingent or
otherwise, which are not referred to in the financial statements.
The financial statements for the year ended December 31, 1996,
copies of which are attached hereto as Schedule 3.4A have been properly
approved by the annual general meetings of shareholders of the relevant
entities in due form without reservation, except the financial
statements of Verum TIL Occam, which have been approved by its board of
directors in due form without reservation.
For purposes of financial presentation, ITEM Holding
recognizes net revenue from its contracts on a percentage of completion
basis as work is performed. The percentage of completion, and
consequently the revenue to be recorded, of each individual contracts
is determined through detailed analysis and discussion between all
appropriate operational and financial department management. Although
ITEM Holding does not require collateral for unpaid balances, credit
losses have consistently been within Management's expectations. Certain
contracts contain provisions for price adjustment for cost overruns.
Such adjusted amounts are included in service revenue when realization
is assured and the amounts can be reasonably determined. In the period
in which it is determined that a loss will result from the performance
of a contract, the entire amount of the estimated ultimate loss is
charged against income.
ITEM Holding backlog (calculated based on fee payments
anticipated to be received under letters of intent and legally binding
written agreements for the provision of contract research to third
parties) ("Backlog") as of May 31, 1997 was as described in Schedule
3.4B, as certified by ITEM Holding's principal financial officer.
3.5 OFF BALANCE SHEET OBLIGATIONS
Schedule 3.5 contains a complete list of the off-balance sheet
obligations of ITEM Holding, the Subsidiaries and the Significant
Investments, including all guarantees and obligations to the benefit of
the Vendors, members of their families or third parties.
3.6 CHANGES IN CONDITION
3.6.1 MATERIAL ADVERSE EFFECT. Since May, 1997, no
event having a Material Adverse Effect has
occurred.
3.6.2 EXTRAORDINARY TRANSACTIONS, ETC. Since
December 31, 1996, neither ITEM Holding nor
any of the Subsidiaries or Significant
Investments has (a) made any Distribution,
(b) other than as set forth in Schedule 3.6.
2, made any payment (other
<PAGE>
- 14 -
than Compensation of its directors, officers
and employees in amounts in effect prior to
December 31, 1996 or for bonuses accrued in
accordance with normal practice prior to
December 31, 1996) to any of the Vendors,
(c) other than as set forth in Schedule
3.6.2, increased the Compensation, including
bonuses, payable or to be payable to any of
its directors, officers or employees by more
than 5% (10% with respect to the directors,
officers or employees of Verum TIL Occam),
or (d) entered into any Contractual
Obligation, or entered into or performed any
other transaction, not in the ordinary and
usual course of business and consistent with
past practice.
3.6.3 INVENTORY AND WORK-IN-PROGRESS. The value of
inventory and work-in-progress reflected in
the financial statements of ITEM Holding,
ITEM SA, ITEM Labo and ITEM International
has been established in accordance with
French GAAP and there has been no material
change in the period subsequent to May 31,
1997. The value of inventory and
work-in-progress reflected in the financial
statements of ITEM Pharma and ITEM Spain
have been established in accordance with
Spanish GAAP and there has been no material
change in the period subsequent to May 31,
1997. The value of inventory and
work-in-progress reflected in the financial
statements of Verum TIL Occam has been
established in accordance with English GAAP
and there has been no material change in the
period subsequent to May 31, 1997.
3.7 (INTENTIONALLY OMITTED).
3.8 SOLVENCY
After giving effect to the transactions contemplated hereby,
ITEM Holding shall be able to pay its liabilities as they become due.
3.9 CONTRACTUAL OBLIGATIONS, ETC.
3.9.1 CERTAIN CONTRACTS. Schedule 3.9.1 contains,
together with a reference to the
subparagraph pursuant to which each item is
being disclosed, a correct and complete list
of all Contractual Obligations of ITEM
Holding, the Subsidiaries and the
Significant Investments of the types
described below:
(a) All collective bargaining agreements; all
employment agreements, all profit sharing,
profit participation, deferred compensation,
bonus, stock option, stock purchase,
pension, retainer, consulting, retirement,
welfare or incentive plans or agreements;
and all plans, agreements or practices which
constitute Compensation or "fringe benefits"
to any of the employees of ITEM Holding, the
Subsidiaries or the Significant Investments,
including vacation programs, sick leave
programs, group medical insurance, group
life insurance, disability insurance and
related benefits.
(b) All Contractual Obligations under which ITEM
Holding, the Subsidiaries or the Significant
Investments are restricted from carrying on
any business, venture or other activities
anywhere in the world.
<PAGE>
- 15 -
(c) All Contractual Obligations (including
options) to sell, lease (as lessor),
exchange or otherwise dispose of or transfer
any of the properties or assets of ITEM
Holding, the Subsidiaries or the Significant
Investments except in the ordinary course of
business.
(d) All Contractual Obligations pursuant to
which ITEM Holding, the Subsidiaries or the
Significant Investments guarantees or
otherwise assumes any liability of or gives
financial assistance to any Person, or
pursuant to which any Person guarantees or
otherwise assumes any liability of ITEM
Holding, the Subsidiaries or the Significant
Investments.
(e) All Contractual Obligations constituting
license agreements, service agreements,
consulting agreements or other similar
arrangements, the termination of which,
individually or in the aggregate, would
result in a Material Adverse Effect.
(f) All Contractual Obligations under which ITEM
Holding, any of the Subsidiaries and any of
the Significant Investments leases immovable
property or is obligated to lease or
purchase immovable property or incur capital
expenditures in excess of FF100,000.
(g) All Contractual Obligations of ITEM Holding,
any of the Subsidiaries or the Significant
Investments relating to the borrowing of
money or to the creation of a Lien, other
than a Permitted Lien, on any property or
asset of ITEM Holding, any of the
Subsidiaries or the Significant Investments.
(h) All Contractual Obligations of ITEM Holding,
any of the Subsidiaries and any of the
Significant Investments requiring a notice
exceeding 6 (six) months for termination.
(i) All Contractual Obligations of ITEM Italia
and ITEM Clinica.
3.9.2 NATURE OF CONTRACTS. All of the Contractual
Obligations of ITEM Holding, the
Subsidiaries and the Significant Investments
at the Completion Date are enforceable
against ITEM Holding, the Subsidiaries and
the Significant Investments and, to the
Vendors' knowledge and to the knowledge of
Management, the other parties thereto, in
accordance with their terms; except for
Contractual Obligations the failure of which
to be so enforceable does not and shall not,
individually or in the aggregate, result in
a Material Adverse Effect. Except for
breaches, defaults and liabilities which do
not and shall not individually or in the
aggregate result in a Material Adverse
Effect, neither ITEM Holding nor any of the
Subsidiaries or Significant Investments is
now in default, and no event has occurred
which with notice or lapse of time or both
would constitute a default under, nor are
there any liabilities arising from any
breach or default by any of them or event
which with notice or lapse of time or both
would constitute a default by any of them
prior to the Completion Date of, any
provision of any such Contractual
Obligation.
<PAGE>
- 16 -
3.9.3 ARTICLES. Except as set forth in Schedule
3.19, neither ITEM Holding nor any of the
Subsidiaries or Significant Investments is
in violation of, or in default under, any
provision of its articles or constating
documents and Phoenix has been provided with
complete and correct copies of such articles
or constating documents.
3.9.4 INSURANCE. Each of ITEM Holding, the
Subsidiaries and the Significant Investments
carries insurance policies with independent
third party insurers which, with respect to
their amounts and types of coverage, are
adequate to insure against risks to which
each of ITEM Holding, the Subsidiaries and
the Significant Investments and their
respective property and assets are normally
exposed in the operation of their respective
businesses, including without limitation
professional liability. All policies, the
absence of which, individually or in the
aggregate, would result in a Material
Adverse Effect, are in full force and effect
and are free from any right of termination
on the part of the applicable insurance
carriers. To the knowledge of the Vendors
and Management, there are no outstanding
unpaid premiums except in the ordinary
course of business, and neither ITEM Holding
nor any Subsidiary or Significant Investment
has received any notice of cancellation or
non-renewal of any such policy. Neither ITEM
Holding nor any Subsidiary or Significant
Investment is aware of any risks,
situations, occurrences or other matters
which have been disclosed, or should have
been disclosed, to insurance carriers or
brokers in connection with any application
for such insurance as a result of which an
insurance carrier would have a right to
cancel the corresponding insurance policy or
deny coverage with respect to any rights
under any such policies. There exists no
event of default or event, occurrence,
condition or act (including the transactions
contemplated by this Agreement) which, with
the giving of notice, the lapse of time or
the happening of any further event or
condition, would become a default or
occasion a material premium increase under
any such policy or give rise to, and neither
ITEM Holding, nor any Subsidiary or
Significant Investment has any anticipation
of, any termination or cancellation thereof
or material premium increase therefor.
3.9.5 DISPUTE. Neither ITEM Holding nor any of the
Subsidiaries or the Significant Investments
has received any notice from any supplier,
vendor, contractor, customer or client with
which ITEM Holding or such Subsidiary or
Significant Investment has conducted
business during the one-year period ending
on the date of this Agreement confirming
such Person's intention to reduce the volume
under, terminate or otherwise alter any
Contractual Obligation with ITEM Holding or
any Subsidiary or Significant Investment,
the effect of which, individually or in the
aggregate, would result in a Material
Adverse Effect.
3.10 OPERATIONS IN CONFORMITY WITH LAW, ETC.
The operations of ITEM Holding, the Subsidiaries and the
Significant Investments as now conducted, and their properties, assets,
equipments, buildings, immoveables and leased or occupied properties,
are not, and have not been, in violation of, nor is ITEM Holding or any
of the Subsidiaries or Significant Investments in default and no event
has occurred which with notice or lapse of time or both would
constitute a default under, any Legal Requirements including, in
particular, any Environmental Laws or Legal Requirements regarding
clinical research and experimentation on
<PAGE>
- 17 -
animals, except for such violations and defaults as do not and shall
not, in the aggregate, have a Material Adverse Effect. Neither ITEM
Holding nor any of the Subsidiaries or the Significant Investments has
received notice of any such violation or default and neither the
Vendors nor the Management have knowledge of any basis on which the
operations of ITEM Holding or any of the Subsidiaries or Significant
Investments, when conducted as currently proposed to be conducted after
the Completion Date, would be held so as to violate or to give rise to
any such violation or default. ITEM Holding, the Subsidiaries and the
Significant Investments have all franchises, licenses, permits,
certificates, authorizations, registrations or other authority
presently necessary for the conduct of their business as now conducted,
except for franchises, licences, permits, certificates, authorizations,
registrations or other authority, the absence of which, individually or
in the aggregate, does not and shall not result in a Material Adverse
Effect. Based on the facts presently known to the Vendors and
Management, all future expenditures on the part of ITEM Holding, the
Subsidiaries and the Significant Investments required to meet the
provisions of any presently existing Legal Requirements (including
Legal Requirements relating to employment practices or to occupational
or health standards or to environmental considerations) shall not, in
the aggregate, have a Material Adverse Effect. To the knowledge of the
Vendors and Management, ITEM Holding, the Subsidiaries and the
Significant Investments have complied and are in compliance with
applicable competition regulations and have never infringed fair
competition in the markets where they operate, either with or towards
third companies or between themselves. To the knowledge of the Vendors
and Management, ITEM Holding, the Subsidiaries and the Significant
Investments do not hold separately or together a dominant position on
the markets involved and their market share and net aggregate turnover
do not meet the European, French, Italian, Spanish, British and
Romanian thresholds which authorizes European or domestic competition
authorities to control the operation and impede the completion of the
transaction contemplated hereby.
3.11 INTELLECTUAL PROPERTY
Schedule 3.11 contains a list of all the trade-marks, trade
names and patents used by any of ITEM Holding, the Subsidiaries or the
Significant Investments (collectively "Used Intellectual Property").
The entity indicated in said Schedule as owner of Used Intellectual
Property is the registered and beneficial owner of such Used
Intellectual Property or the registration thereof, if applicable,
(except as set forth in Schedule 3.11), with good and marketable title,
unencumbered (except for Permitted Liens), and with full right to sell,
assign or otherwise transfer or license to others and subject to no
pending challenge, refutation, expiry or termination other than as set
forth in Schedule 3.11. To the knowledge of Management and the Vendors,
none of ITEM Holding, the Subsidiaries or the Significant Investments
uses any intellectual property not owned by it, other than software
purchased "off the shelf", except as set forth in Schedule 3.11, all of
which each entity using said property has the right to use
(collectively "Licenced Intellectual Property"). (Used Intellectual
Property and Licensed Intellectual Property are sometimes hereinafter
referred to collectively as "Intellectual Property"). To the knowledge
of Management and the Vendors, none of ITEM Holding, the Subsidiaries
or the Significant Investments is required to pay royalties, fees or
other consideration to any other person with respect to the use of any
of the Intellectual Property or in connection with the conduct of its
business or otherwise. To the knowledge of Management, none of ITEM
Holding, the Subsidiaries or the Significant Investments has infringed
the intellectual or industrial property rights of any other person, nor
has any of them used any intellectual or industrial property
(including, without limitation, trade-marks, trade names, patents,
models, designs and copyrights) which it does not own or have the right
to use other than as set forth in Schedule 3.11. There are no
outstanding claims asserted against any of ITEM Holding, the
Subsidiaries or the Significant Investments alleging
<PAGE>
- 18 -
the infringement or the misappropriation by any of them of any
intellectual or industrial property. None of ITEM Holding, the
Subsidiaries or the Significant Investments has granted any licences or
sub-licences to third parties with respect to any of the Intellectual
Property other than as set forth in Schedule 3.11 and neither the
Vendors nor Management has any knowledge of any infringement or
misappropriation by any other Person of any of the Intellectual
Property. Neither the execution nor delivery of this Agreement will
constitute a breach of or a default under any agreement relating to the
Intellectual Property.
3.12 ENVIRONMENTAL MATTERS
3.12.1 ITEM Holding, the Subsidiaries and the
Significant Investments, their employees,
agents, shareholders, directors and officers
have never been declared guilty of
committing an offence for a violation of
Environmental Laws and have never been fined
for such an offence or have otherwise
settled such a prosecution in connection
with the activities of ITEM Holding, the
Subsidiaries and the Significant
Investments;
3.12.2 There are no contaminants, waste or
pollutants of any kind whatsoever in, on or
under the equipment, buildings, immoveables
or properties owned, leased or occupied by
ITEM Holding or any of the Subsidiaries or
Significant Investments, the presence of
which constitutes a violation of applicable
Environmental Laws and the presence of
which, individually or in the aggregate,
constitutes a Material Adverse Effect;
3.12.3 Neither ITEM Holding nor any of the
Subsidiaries or Significant Investments has
received any written notice or request for
information in the context of any national,
supra-national, provincial, regional, local
or municipal environmental investigation or
inspection;
3.12.4 There are no PCBs, asbestos, urea
formaldehyde or radioactive substances in,
on or under the equipment, buildings,
immoveables or properties owned, leased or
occupied by ITEM Holding, the Subsidiaries
or the Significant Investments;
3.12.5 There is no action, suit or proceeding
pending in relation to environmental matters
against ITEM Holding, the Subsidiaries or
the Significant Investments, its employees,
agents, shareholders, directors and
officers, or involving ITEM Holding, the
Subsidiaries or the Significant Investments
or its assets, before any judicial body,
tribunal, commission, agency or other
governmental entity, and to the Vendors'
knowledge and to the knowledge of
Management, there is no threat of, or event
or fact based on which, such action, suit or
proceeding may be instituted.
3.12.6 To the knowledge of Management and the
Vendors, ITEM Holding, the Subsidiairies and
the Significant Investments are in
compliance with all applicable environmental
and health and safety laws and regulations,
with the exception of instances of non-
compliance which, individually or in the
aggregate, do not constitute a Material
Adverse Effect, and the absence of fire
doors at the premises of ITEM SA in Paris
and the non-conformity of the main entrance
to the same premises to the requirements of
the Labour Code concerning the size of such
entrance.
<PAGE>
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3.13 LABOUR AND EMPLOYMENT MATTERS
3.13.1 Without limiting the generality of Section
3.10, each of ITEM Holding, the Subsidiaries
and the Significant Investments has complied
with all laws relating to the employment of
labour, including provisions thereof
relating to wages, hours and collective
bargaining rights.
3.13.2 Other than as set forth in Schedule 3.13.2,
there is no collective agreement by which
ITEM Holding or any of the Subsidiaries or
Significant Investments is bound which
relates to the employees of ITEM Holding,
the Subsidiaries or the Significant
Investments. To the knowledge of the Vendors
and to the knowledge of Management, there
are no threatened or pending attempts to
organize or establish any labour union or
employee association in connection with the
business of ITEM Holding, any of the
Subsidiaries or any of the Significant
Investments. To the knowledge of the Vendors
and to the knowledge of Management, there is
no pending or threatened labour dispute,
grievance, strike, or work stoppage
materially affecting the business of any of
ITEM Holding, any of the Subsidiaries or any
of the Significant Investments. Neither ITEM
Holding nor any of the Subsidiaries or
Significant Investments is a party to any
other written employment agreement,
contract, arrangement, management contract
or service contract affecting employees
other than as set forth in Schedule 3.9.1,
nor are any such contracts, agreements,
arrangements, management contracts or
service contracts being currently negotiated
or proposed other than in the ordinary
course of business.
3.13.3 There exist no retirement plans, profit
sharing, option or incentive plans, or
insurance disability, medical, surgical,
dental or other employee benefit plans for
employees of ITEM Holding, any of the
Subsidiaries or any of the Significant
Investments other than as set forth in
Schedule 3.9.1 for which adequate
arrangements have been made since December
31, 1996 to set aside the requisite amounts
in the prescribed fashion, and neither ITEM
Holding nor any of the Subsidiaries or
Significant Investments has promised or
intends to implement other such plans.
3.13.4 Other than as set forth in Schedule 3.13.4,
neither ITEM Holding nor any of the
Subsidiaries or Significant Investments has
any employee who cannot be dismissed without
further liability upon such notice period
not exceeding what it is required by the
Legal Requirement.
3.13.5 Each of ITEM Holding's or any of the
Subsidiary's or Significant Investment's
employees who is practising as a physician,
nurse or pharmacist is identified in
Schedule 3.13.5, and each such employee is
duly licensed and in good standing to
practice as a physician, nurse or
pharmacist, as the case may be, in each
jurisdiction in which such employee renders
services for or on behalf of ITEM Holding or
any Subsidiary or Significant Investment.
None of the employees listed on Schedule
3.13.5 is or has been subject to any claim
in connection with his or her practice as a
physician, nurse or pharmacist while
employed by ITEM Holding, the Subsidiary or
the Significant Investment, as the case may
be, and no fact or occurrence is known to
the Management to exist which is likely to
give rise to the revocation of any such
licence.
<PAGE>
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3.13.6 Each of ITEM Holding's or any of the
Subsidiary's or Significant Investment's
employees other than those identified in
Schedule 3.13.6 has signed non-compete
covenants in favour of ITEM Holding, the
Subsidiary or the Significant Investment, as
the case may be.
3.14 TAXES
Other than as set forth in Schedule 3.14 and with respect to
the specific tax related contingencies referred to in Section 8, all
tax returns required to be filed by ITEM Holding, the Subsidiaries and
the Significant Investments in any jurisdiction have been filed and all
taxes, assessments, levies and other governmental charges upon ITEM
Holding, the Subsidiaries and the Significant Investments or upon any
of their properties or income, including any tax in respect of value
added, have been duly paid unless such payment is being contested in
good faith and by appropriate proceedings and adequate reserves with
respect thereto determined in accordance with applicable policies have
been established by ITEM Holding, the Subsidiaries and the Significant
Investments. Other than as set forth in Schedule 3.14, there is no tax
assessment threatened in writing against ITEM Holding and any of the
Subsidiaries or Significant Investments and, to the knowledge of
Management, there is no basis for such assessment.
3.15 WITHHOLDINGS
Each of ITEM Holding, the Subsidiaries and the Significant
Investments has withheld from each payment made to any of its
shareholders, officers, directors, non-resident creditors and employees
the amount of all taxes and other deductions required to be withheld
and has remitted all such amounts to the appropriate authorities within
the prescribed times, and has otherwise fulfilled all requirements of
all Legal Requirements governing such deductions and withholdings. Each
of ITEM Holding, the Subsidiaries and the Significant Investments has
remitted to the proper authorities all employer contributions due and
payable under all social security, occupational health and safety and
pension plans.
3.16 GOOD TITLE
Other than as set forth in Schedule 3.16 each of ITEM Holding,
the Subsidiaries and the Significant Investments has good and
marketable title to all of its property free and clear of Liens and
other adverse claims.
3.17 LITIGATION
Outstanding litigation is disclosed in Schedule 3.17. No
litigation or proceeding before, or investigation by, any foreign,
national, supra-national or municipal, judicial, tax or customs
tribunal or board or other governmental or administrative agency or any
arbitrator, is pending or to the knowledge of the Vendors and the
knowledge of Management, threatened (or does any basis exist therefor),
against ITEM Holding, the Subsidiaries or the Significant Investments
or, to the Vendors' knowledge or to the knowledge of Management, any
director or officer of ITEM Holding or any of the Subsidiaries or
Significant Investments, which individually or in the aggregate could
result in a Material Adverse Effect, or which seeks rescission of,
seeks to enjoin the consummation of, or which
<PAGE>
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questions the validity of, this Agreement or any of the transactions
contemplated hereby. Neither ITEM Holding nor the Subsidiaries or
Significant Investments has been charged, nor to the Vendors' knowledge
or to the knowledge of Management, is it threatened to be charged, with
infringement of any trademark, trade name, service mark, copyright,
patent, patent right or other proprietary right of any Person.
3.18 PRESS COVERAGE
Neither ITEM Holding, nor any of the Subsidiaries or
Significant Investments has been the object of any demonstrations,
press campaigns or other attacks due to the nature of its activities,
since January 1, 1994.
3.19 VIOLATION OF OTHER INSTRUMENTS
Neither the execution and delivery of this Agreement by the
Vendors or ITEM Holding, the consummation of any of the transactions
contemplated hereby or in Schedule 3.19, shall (a) constitute a breach
of or a default or an event which with notice or lapse of time or both
would constitute a default under any Contractual Obligation of ITEM
Holding or any of the Subsidiaries or Significant Investments or any
officer of ITEM Holding, the Subsidiaries or Significant Investments,
(b) result in acceleration in the time for performance of any
obligation of ITEM Holding, the Subsidiaries or the Significant
Investments under any such Contractual Obligation, (c) result in the
creation of any Lien upon any property or asset of ITEM Holding, the
Subsidiaries or the Significant Investments, (d) require any consent,
waiver or amendment to any such Contractual Obligation that has not
been obtained and remains in full force and effect, (e) give rise to
any severance payment, right of termination, securities purchase or
redemption right or other right under any such Contractual Obligation,
or (f) violate or give rise to a default or an event which with notice
or lapse of time or both could constitute a default under any Legal
Requirements, except for events or conditions described in clauses (a)
through (f) above which shall not, individually or in the aggregate,
have any Material Adverse Effect or (g) result in any state of facts
which could have a Material Adverse Effect.
3.20 APPROVALS, CONSENTS, ETC.
Other than as set forth in Schedule 3.20, no approval,
consent, authorization or other order of, and no declaration, filing,
registration, qualification or recording with, any governmental
authority or any other Person is required to be made by or on behalf of
the Vendors, ITEM Holding or any of the Subsidiaries or Significant
Investments in connection with the execution, delivery or performance
of this Agreement or any of the transactions contemplated hereby.
3.21 INVESTMENT OR DIVESTITURE
Schedule 3.21 contains a complete list of all investments and
divestitures in process which are not mentioned in the financial
statements of ITEM Holding, the Subsidiaries and the Significant
Investments (balance sheet, statement of earnings and schedules) for
the period ended May 31, 1997.
3.22 FULL DISCLOSURE
To the knowledge of Management and the Vendors, there is no
fact that the Vendors have not disclosed to Phoenix which could have a
Material Adverse Effect on the properties, business,
<PAGE>
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prospects or condition (financial or otherwise) of ITEM Holding or any
of the Subsidiaries or Significant Investments. Neither the reports,
financial statements and other documents referred to in Section 3.4,
nor any certificate, statement or document delivered by the Vendors to
Phoenix in connection with this Agreement contains any untrue statement
of a fact or omits to state any fact necessary to keep the statements
contained herein or therein from being misleading in a manner that
would constitute a Material Adverse Effect.
4. REPRESENTATIONS AND WARRANTIES OF PHOENIX
Phoenix represents and warrants to the Vendors that:
4.1 DUE INCORPORATION, ETC.
Phoenix is duly incorporated, validly exists and is in good
standing under the Canada Business Corporations Act and has all
necessary corporate capacity and power to own and lease its property
and assets and to carry on the business now conducted by it.
4.2 SHARE CAPITAL OF PHOENIX
The authorized share capital of Phoenix is composed of an
unlimited number of common shares and an unlimited number of preferred
shares issuable in series of which, as at August 4, 1997, there were
19,601,226 common shares issued and outstanding.
4.3 OPTIONS
Other than the options to acquire common shares of Phoenix
granted pursuant to Phoenix' Key Employee Share Option Plan and shares
to be issued to Dorn Cook under an earn-out formula which has been
disclosed to the Vendors, Phoenix does not have any rights or options
to subscribe for, or any warrants or other agreements providing for or
requiring the issuance of common shares or preferred shares.
4.4 DUE AUTHORIZATION
All necessary corporate action has been taken by Phoenix to
authorize the execution of this Agreement and the consummation of the
transactions contemplated hereby, including the issuance of the Phoenix
Shares as fully paid and non-assessable in consideration for the
purchase of the Shares and Debentures.
4.5 CONFORMITY WITH APPLICABLE SECURITIES LAWS
All documents have been filed, all requisite proceedings have
been taken and all approvals, exemptions, consents, orders and
authorizations required under applicable securities laws have been
obtained in order to issue the Phoenix Shares issued hereunder and
Phoenix is in full compliance with its continuous disclosure
obligations under applicable securities laws.
<PAGE>
- 23 -
4.6 STOCK EXCHANGE APPROVALS
The listing of the Phoenix Shares on The Montreal Exchange and
the Toronto Stock Exchange has been approved by such exchanges, subject
to Phoenix fulfilling all of the standard requirements of such
exchanges before September 4, 1997.
5. POOLING OF INTERESTS
5.1 ACCOUNTING TREATMENT
Phoenix, ITEM Holding and the Vendors intend and desire for
the transactions contemplated by this Agreement to qualify for "pooling
of interests" treatment for US GAAP purposes in accordance with
Accounting Principles Board Opinion No. 16.
5.2 POOLING LETTERS
On or prior to the Completion Date, ITEM Holding shall cause
to be executed and delivered to Ernst & Young, auditors to Phoenix, and
to Phoenix a letter or letters, dated the Completion Date, from ITEM
Holding's management in form and substance reasonably satisfactory to
Phoenix and its auditors relating to "pooling of interests" accounting.
On or prior to the Completion Date, Phoenix shall deliver to Ernst &
Young, auditors to Phoenix, a letter or letters, dated the Completion
Date, from Phoenix's management in form and substance reasonably
satisfactory to its auditors relating to "pooling of interests"
accounting.
5.3 OPINIONS OF ACCOUNTANTS AND AUDITORS OF PHOENIX
On or prior to the Completion Date, Phoenix shall have
received a letter, dated the Completion Date, from Ernst & Young,
accountants and auditors to Phoenix, in form and substance satisfactory
to Phoenix, regarding the appropriateness of pooling of interests
treatment for the transactions contemplated herein.
5.4 OPINIONS OF ACCOUNTANTS AND AUDITORS OF ITEM HOLDING
On or prior to the Completion Date, ITEM Holding and Phoenix
shall have received a letter, dated the Completion Date, from Claude
Mayer et Associes, commissaire aux comptes accountants and auditors of
ITEM Holding, attesting to the validity of the letter referred to in
Section 5.2, in form and substance satisfactory to ITEM Holding and
Phoenix.
5.5 PLACEMENT AND STOCK TRANSFER RESTRICTIONS AND RELATED MATTERS
Each party to this Agreement agrees that from and after the
date of this Agreement, such party shall not knowingly take any action,
or knowingly fail to take any action, which action or failure is
reasonably likely to disqualify the transactions contemplated by this
Agreement from pooling of interests accounting treatment by Phoenix,
and that such party shall take all reasonable actions necessary to
cause the transactions contemplated by this Agreement to qualify as a
pooling of interest, if such characterization shall be jeopardized by
action taken by such party. Without limiting the foregoing, each Vendor
who is a Pooling Affiliate of ITEM Holding agrees that such Vendor
shall not
<PAGE>
- 24 -
sell, transfer, pledge, or otherwise dispose of such Vendor's interests
in or reduce such Vendor's risk relative to any of the Phoenix Shares
until Phoenix shall have published financial results (including
combined sales and net income) covering at least thirty (30) days of
combined operations of Phoenix and ITEM Holding after the Completion
Date. As soon as reasonably practicable following the first full month
of combined operations of Phoenix and ITEM Holding after the Completion
Date, Phoenix shall prepare and publish such financial results for the
first full month of operations following the Completion Date. Each of
the Vendors and ITEM Holding acknowledge and agree with Phoenix that
none of the Vendors or ITEM Holding is a party to any agreement or
arrangement among themselves or with third parties regarding the
transactions contemplated by this Agreement or the subject matter
hereof.
Prior to the Completion Date, Phoenix shall deliver to ITEM
Holding a list of names and addresses of those persons who are or may
be, in Phoenix's reasonable judgement, Affiliates of Phoenix within the
meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act or applicable SEC accounting releases with respect to
pooling of interests accounting treatment (each such persons, a
"Pooling Affiliate"). Phoenix also shall provide ITEM Holding with such
information and documents as ITEM Holding shall reasonably request for
purposes of reviewing such list. Prior to the Completion Date, Phoenix
shall deliver to ITEM Holding an affiliate letter, in form and
substance reasonably satisfactory to ITEM Holding, executed by each of
the Pooling Affiliates identified in the foregoing list.
Prior to the Completion Date, ITEM Holding shall deliver to
Phoenix a list of names and addresses of those persons who are or may
be, in ITEM Holding's reasonable judgment, Pooling Affiliates of ITEM
Holding. ITEM Holding also shall provide Phoenix with such information
and documents as Phoenix shall reasonably request for purposes of
reviewing such list. Prior to the Completion Date, ITEM Holding shall
deliver to Phoenix an affiliate letter, in form and substance
reasonably satisfactory to Phoenix, executed by each of the Pooling
Affiliate of ITEM Holding identified in the foregoing list.
6. EMPLOYMENT AGREEMENT
6.1 EMPLOYMENT AGREEMENT WITH LUCIEN STERU
Lucien Steru and Phoenix shall execute an employment
agreement, providing for Lucien Steru's employment as President of
Phoenix Europe and ITEM SA (the name of which will be changed to
Phoenix International (France)), which shall, among other things,
include a non-competition provision for a period ending two years after
the termination of his employment.
7. SURVIVAL OF REPRESENTATIONS; INDEMNITY
7.1 SURVIVAL OF REPRESENTATIONS
The respective representations and warranties of the Vendors
contained in this Agreement or in any schedule attached hereto shall
survive the consummation of the transactions contemplated hereby and
shall remain in full force and effect notwithstanding any investigation
or examination of, or knowledge with respect to, the subject matter
thereof by or on behalf of Phoenix until the earlier of November 30,
1997 or the date of completion of the audit of the combined financial
statements of
<PAGE>
- 25 -
Phoenix and ITEM Holding as at August 31,1997 (the period ending on
such date being referred to herein as the "Representations Period"),
except that such representations and warranties shall survive
indefinitely in the event of fraud with respect thereto. No claim for
indemnification pursuant to Section 7.2.1 below may be brought after
the expiration of the Representations Period, except for claims made in
good faith in writing prior to such expiration and setting forth in
reasonable detail the claim, regardless of whether any action or demand
has been commenced against Phoenix (it being understood without
limitation, that any and all Losses (as defined below) arising after
the expiration of the Representations Period shall be recoverable upon
notice properly given prior to the expiration of the Representations
Period in accordance with this Section 7.1). The representations and
warranties of Phoenix contained in this Agreement or in any schedule
attached hereto shall terminate upon and not survive the Completion
Date, except in the event of fraud by Phoenix with respect thereto, in
which case they shall survive indefinitely.
7.2 INDEMNIFICATION
7.2.1 From and after the Completion Date, Phoenix
and its Affiliates (including ITEM Holding,
the Subsidiaries and the Significant
Investments) and all of their respective
officers, directors, employees, agents and
shareholders (each, an "Indemnitee") shall
be defended, indemnified and held harmless
by the Vendors pursuant to this Agreement
and the Escrow Agreement to the full extent
permitted by law, from and against any and
all losses, claims, actions, damages,
liabilities, costs and expenses (including
attorneys' fees and expenses) (collectively,
"Losses") relating to or arising from or in
connection with (i) any misrepresentation or
any non-fulfilment of any representation,
warranty, covenant, obligation or agreement
by any Vendor contained in or made pursuant
to this Agreement or any other document,
agreement, officer's certificate or other
certificate delivered to Phoenix in
connection with this Agreement, (ii) any
statement contained in Section 3 which
pertains to Significant Investments which
would be untrue if such statement were to be
made in respect of Verum TIL Occam, without
regard to any knowledge qualifications
contained in such statement, and (iii) the
enforcement by Phoenix of its rights
pursuant to this Section 7.2, or any
litigation, proceeding or investigation
relating to any of the foregoing. The
indemnification obligations of the Vendors
pursuant hereto shall be joint and not
solidary.
7.2.2 Notwithstanding the foregoing provisions of
this Section 7.2, but except with respect to
any Losses resulting from or arising out of
fraud or other intentional or knowing
misconduct or misrepresentation, (i) the
maximum aggregate recourse by the
Indemnitees pursuant to subsection 7.2.1
above shall not exceed the aggregate value
(calculated by adding together the opening
and closing prices of the common shares of
Phoenix on each of the Toronto Stock
Exchange and The Montreal Exchange for each
of the ten trading days preceding the
Completion Date, and dividing this sum by
40) of the Escrowed Securities (the
"Indemnity Cap"), (ii) the Indemnitees shall
not be entitled to indemnification under
subsection 7.2.1 above for any amount unless
and until the aggregate of all amounts for
which the Indemnitees otherwise would be
entitled to be indemnified exceeds FF
300,000 or its equivalent (in the
aggregate), after which the Indemnitees
shall be indemnified in full for the full
amount, up to the Indemnity Cap, and (iii)
the sole recourse of any Indemnitee in
respect of Losses (but not in respect of
fraud or other intentional or knowing
<PAGE>
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misconduct or misrepresentation) shall be
from, out of, and to the extent of the
Escrowed Securities. Any indemnification
shall be payable by the return of Escrowed
Securities to Phoenix in accordance with the
provisions of the Escrow Agreement. In
particular, the number of Escrowed Shares to
be remitted to Phoenix in payment of any
indemnification obligation shall be
calculated on the basis of the average price
of the Escrowed Shares obtained by adding
together the opening and closing prices of
the common shares of Phoenix on each of the
Toronto Stock Exchange and The Montreal
Exchange for each of the ten trading days
preceding the Completion Date, and dividing
this sum by 40. All dividends or other
distributions received by a Vendor in
respect of common shares of Phoenix which
are remitted to Phoenix in satisfaction of
an indemnification obligation under this
Section 7, shall also be repaid to Phoenix
at the time of payment of indemnification.
For purposes of determining whether the
aggregate of all amounts for which the
Indemnitees would otherwise be entitled to
be indemnified exceed FF 300,000 or its
equivalent, the amount of each indemnifiable
claim and the aggregate amount of all
indemnifiable claims shall not be limited by
use of the term "material" or of the defined
term Material Adverse Effect or its related
forms in any representations or warranties,
or by the establishment of any dollar
threshold in any representation or warranty
for inclusion of any event or matter herein.
7.2.3 Notwithstanding any other provision of this
Agreement, as of and after the Completion
Date, ITEM Holding shall not have any
liability under this Agreement, and no
Vendor shall threaten or bring any claim or
action whatsoever against for contribution
to any amounts payable under this Section
7.2 by such Vendor.
8. SPECIFIC CONTINGENCIES
The Vendors hereby undertake to indemnify Phoenix in respect
of the occurrence, in whole or in part, of any of the specific
contingencies described below, each of which exists at the Completion
Date and will only be finally resolved or determined at some time in
the future. The provision for these contingencies is not made as an
attempt to anticipate future events, but merely to provide for a
reasonable period of time within which such contingencies may be
resolved. Any indemnification pursuant to this Section shall be payable
by all of the Vendors, pro rata to the number of common shares of
Phoenix issuable to each of them pursuant to this Agreement.
In the event of the realization of any of the specific
contingencies contemplated in this Section 8, the Vendors shall
indemnify Phoenix by remitting to Phoenix for cancellation such number
of common shares of Phoenix as corresponds to the amount of
indemnification owed (calculated on the basis of the average price of
Phoenix common shares obtained by adding together the opening and
closing prices of the common shares of Phoenix on each of the Toronto
Stock Exchange and The Montreal Exchange for each of the ten trading
days preceding the Completion Date, and dividing this sum by 40). Any
obligation to remit common shares of Phoenix upon the occurrence of a
specific contingency shall be satisfied by return of Escrowed Shares in
accordance with the Escrow Agreement. In the event that there does not
remain a sufficient number of Escrowed Shares or Proceeds to satisfy an
an obligation under this Section, the balance of such indemnification
obligation shall be paid in cash. All dividends or other distributions
received by a Vendor in respect of common
<PAGE>
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shares of Phoenix which are remitted to Phoenix in satisfaction of an
indemnification obligation under this Section 8, shall also be repaid
to Phoenix at the time of payment of indemnification.
8.1 Any tax liability in France related to the dissolution of ITEM
Phase I and its withdrawal from the relevant tax consolidation
regime. The maximum amount payable in respect of this
contingency is $55,000 plus any interest due to the relevant
taxation authorities from the date of this Agreement to the
final settlement of this specific contingency. Notwithstanding
any other provision of this Agreement, the Vendors'
indemnification obligation with respect to this contingency
shall survive until any possible related claims by the
relevant taxation authorities have been prescribed under
applicable law.
8.2 Any tax liability in France in respect of the granting of
certain indirect subsidies to nonmembers of the consolidation
tax regime and the failure to properly report certain indirect
subsidies to members of the consolidation tax regime. The
maximum amount payable in respect of this contingency is
$55,000 plus any interest due to the relevant taxation
authorities from the date of this Agreement to the final
settlement of this specific contingency. Notwithstanding any
other provision of this Agreement, the Vendors'
indemnification obligation with respect to this contingency
shall survive until any possible related claims by the
relevant taxation authorities have been prescribed under
applicable law.
8.3 Any tax liability in Spain with respect to certain commissions
paid by ITEM Pharma to Pharma Consult SA during 1995 and 1996.
The maximum amount payable in respect of this contingency is
$70,000 plus any interest due to the relevant taxation
authorities from the date of this Agreement to the final
settlement of this specific contingency. Notwithstanding any
other provision of this Agreement, the Vendors'
indemnification obligation with respect to this contingency
shall survive until any possible related claims by the
relevant taxation authorities have been prescribed under
applicable law.
8.4 Any tax liability in France or the United Kingdom with respect
to the non-deductibility of certain expenses incurred by GEIE
Verum and rebilled to ITEM Holding or any of its Subsidiaries
or Significant Investments. The maximum amount payable in
respect of this contingency is $355,000 plus any interest due
to the relevant taxation authorities from the date of this
Agreement to the final settlement of this specific
contingency. Notwithstanding any other provision of this
Agreement, the Vendors' indemnification obligation with
respect to this contingency shall survive until any possible
related claims by the relevant taxation authorities have been
prescribed under applicable law.
<PAGE>
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9. NOTICES
Any demand, notice or other communication to be given in connection
with this Agreement shall be given in writing and shall be given by personal
delivery, by registered mail or by electronic means of communication addressed
to the recipient as follows:
9.1 To Phoenix:
Phoenix International Life Sciences Inc.
2350, Cohen Street
Saint-Laurent, Quebec
H4R 2N6 Canada
Telecopier No.: (514) 333-7306
ATTENTION: JEAN-YVES CALOZ
9.2 To ITEM Holding :
ITEM Holding S.A.
93, avenue de Fontainebleau
94276 Le Kremlin-Bicetre Cedex
France
Telecopier No.: 01.49.59.25.70
ATTENTION: LUCIEN STERU
9.3 To Lucien Steru or Dominique Steru:
Lucien Steru or Dominique Steru
31, rue Robert de Flers
75015 Paris
France
Telecopier No.: 01.40.58.15.14
<PAGE>
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9.4 To Domingos Martins:
Domingos Martins
rua do Arco Carvalhao No. 14
3rd esq.
1071 Lisboa
Portugal
9.5 To Roger Porsolt:
Roger Porsolt
34, avenue de la Porte Jaune
92210, St. Cloud
France
Telecopier No.: 01.46.02.20.33
9.6 To Siparex Developpement:
Siparex Developpement
114, rue de la Boetie
75008 Paris
France
Attention: Christian d'Argoubet
Telecopier No.: 01.53.93.02.30
9.7 To BNP Developpement:
BNP Developpement
1, boulevard Haussmann
75009 Paris
France
Attention: Josiane Raspiller
Telecopier No.: 01.40.14.51.37
<PAGE>
- 30 -
9.8 To Epicea:
EPICEA
31-33, rue de la Federation
75015 Paris
France
Attention: Pascal Demichel
Telecopier No.: 01.40.56.19.19
9.9 To CO.DE.MA.:
Avenue Marcel Thiry 216
1200 Bruxelles
Belgique
Attention: Lucien Steru
Telecopier No.: (32) 2.774.42.99
9.10 To Natio Fonds Venture:
Natio Fonds Venture II
12, rue Chauchat
75009 Paris
France
Attention: Dominique Bellanger
Telecopier No.: 01.40.14.69.60
10. MODIFICATION
All modifications or amendments of any provision of this Agreement
shall be effective only if the same shall be in writing and then shall be
effective only in the specific instance and for the purpose for which given.
11. WAIVER
No failure to exercise, and no delay in exercising, on the part of a
party hereto, any right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right. No waiver of any provision of this
Agreement shall be effective unless in writing. No notice or demand given in any
case shall constitute a waiver of the right to take other action in the same,
similar or other instances without such notice or demand.
<PAGE>
- 31 -
12. CONFIDENTIALITY
The parties agree to treat this Agreement as confidential and not to
disclose its contents to third parties other than their advisers, except to the
extent necessary to enforce performance of obligations hereunder, or as is
required to comply with applicable laws or regulations, including regulations of
any stock exchange on which the securities of Phoenix are listed following
consultations with Lucien Steru.
13. FURTHER ASSURANCES
The parties shall, with all reasonable diligence, do all such things
and provide all such reasonable assurances as may be required to consummate the
transactions contemplated hereby, and each party shall provide such further
documents or instruments required by another party as may be reasonably
necessary or desirable to give effect to the purpose of this Agreement and to
carry out its provisions.
14. GOVERNING LAWS
This Agreement shall be governed by the laws of the Province of Quebec
and the laws of Canada applicable therein.
15. ARBITRATION
Any dispute which arises in the course of or following the performance
of this Agreement or any of the transactions contemplated herein will be
definitively settled under the auspices of The Quebec National and International
Commercial Arbitration Centre, by means of arbitration and to the exclusion of
courts of law, in accordance with its General Commercial Arbitration Rules in
force at the time this Agreement is signed and to which the parties declare they
have adhered.
16. GENERAL
The invalidity or unenforceability of any term or provision hereof
shall not affect the validity or enforceability of any other term or provision
hereof. The headings in this Agreement are for convenience of reference only and
shall not alter or otherwise affect the meaning hereof. This Agreement and the
other documents and instruments referred to herein constitute the entire
understanding of the parties hereto with respect to the subject matter hereof
and thereof and supersede all present and prior agreements, whether written or
oral. No investigation made by or on behalf of a party hereto shall mitigate,
diminish or affect the representations and warranties made herein by the
Vendors. This Agreement may be executed in any number of counterparts which
together shall constitute one instrument and shall be governed by and construed
in accordance with the laws of the Province of Quebec and the laws of Canada
applicable therein, and shall bind and inure to the benefit of the parties
hereto and their respective heirs, executors, administrators, personal
representatives, successors and assigns. The parties hereto have expressly
required that this Agreement and all documents and notices related hereto be
drafted in English. LES PARTIES AUX PRESENTES ONT EXPRESSEMENT EXIGE QUE LE
PRESENT CONTRAT ET TOUS LES DOCUMENTS ET AVIS Y AFFERENTS SOIENT REDIGES EN
ANGLAIS.
<PAGE>
- 32 -
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be duly
executed as of the Completion Date.
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
By: /s/ John W. Hooper
--------------------------------------------
John W. Hooper
Title:
--------------------------------------------
Chairman and Chief Executive Officer
By: /s/ Jean-Yves Caloz
---------------------------------------------
Jean-Yves Caloz
Title:
--------------------------------------------
Senior Vice-President
and Chief Financial Officer
ITEM HOLDING S.A.
By: /s/ Lucien Steru
---------------------------------------------
Lucien Steru
Title:
--------------------------------------------
/s/ Lucien Steru
--------------------------------------------------
LUCIEN STERU
/s/ Dominique Steru
--------------------------------------------------
DOMINIQUE STERU
/s/ Domingos Martins
--------------------------------------------------
DOMINGOS MARTINS
<PAGE>
- 33 -
/s/ Roger Porsolt
--------------------------------------------------
ROGER PORSOLT
CO.DE.MA.
By: /s/ Lucien Steru
-----------------------------------------------
Lucien Steru
Title:
--------------------------------------------
BNP DEVELOPPEMENT
By: /s/ Josiane Raspiller
-----------------------------------------------
Josiane Raspiller
Title:
--------------------------------------------
SIPAREX DEVELOPPEMENT
By: /s/ Christian d'Argoubet
-----------------------------------------------
Christian d'Argoubet
Title:
--------------------------------------------
EPICEA
By: /s/ Pascal Demichel
-----------------------------------------------
Pascal Demichel
Title:
--------------------------------------------
NATIO FONDS VENTURE II
By: /s/ Dominique Bellanger
-----------------------------------------------
Dominique Bellanger
Title:
--------------------------------------------
<PAGE>
ESCROW AGREEMENT dated as of August 7, 1997
AMONG: PHOENIX INTERNATIONAL LIFE SCIENCES INC., a corporation incorporated
under the CANADA BUSINESS CORPORATIONS ACT. having its head office at
2350 Cohen Street, Saint-Laurent, Quebec, Canada, H4R 2N6, herein
acting and represented by John W. Hooper and Jean-Yves Caloz, its duly
authorized representatives;
(hereinafter "Phoenix")
AND: LUCIEN STERU, executive, residing at 31, rue Robert de Flers, 75015
Paris, married under the matrimonial regime of COMMUNAUTE LEGALE to
Dominique Steru;
(hereinafter "Lucien Steru")
AND: DOMINIQUE STERU, executive, residing at 31, rue Robert de Flers, 75015
Paris, married under the matrimonial regime of COMMUNAUTE LEGALE to
Lucien Steru;
(hereinafter "Dominique Steru")
AND: CO.DE.MA., a Belgian corporation having its head office at Avenue
Marcel Thiry 216, 1200 Bruxelles, Belgique, herein acting and
represented by its duly authorized representative, Lucien Steru;
(hereinafter "Codema")
AND: DOMINGOS MARTINS, executive, residing at rua do Arco Carvalhao N1 14,
3rd esq., 107A Lisboa, Portugal, married under the matrimonial regime
of COMMUNAUTE LEGALE TO Manuela Viegas;
(hereinafter "Domingos Martins')
AND: ROGER PORSOLT, executive, residing at 34, avenue de la Porte Jaime,
92210 Saint Cloud, married under the matrimonial regime of COMMUNAUTE
UNIVERSELLE to Ursula Dorner;
(hereinafter "Roger Porsolt")
AND: BNP DEVELOPPEMENT, a French SOCIETE ANONYME, with issued capital of FF
500,000,000, registered in the Paris commercial and companies register
under number B348 540 592 and having its head
<PAGE>
office at 1, boulevard Haussmann, 75009 Paris, herein acting and
represented by its duly authorized representative, Josiane Raspiller;
(hereinafter "BNP Developpement")
AND: SEPAREX DEVELOPPEMENT, a French SOIETE EN COMMANDITE PAR ACTIONS, with
issued capital of FF 196,489,400, registered in the Lyon commercial
and companies register under number B378 213 375 and having its head
office at 114, rue de la Boetie, 75008 Paris, herein acting and
represented by its duly authorized representative, Christian
D'Argoubert;
(hereinafter "Siparex Developpement")
AND: EPICEA, a French SOCIETE ANONYME, with issued capital of FF
67,000,000, registered in the Paris commercial and companies register
under number B319 308 615 and having its head office at 31-33, rue de
la Federation, 75015 Paris, herein acting and represented by its duly
authorized representative, Pascal Demichel;
(hereinafter "Epicea")
AND: NATIO FONDS VENTURE II, a French fonds commun de placements a risques,
herein acting and represented by its manager, BNP Gestion , a French
SOCIETE ANONYME, with capital of FF 64,919,400, registered in the
Paris commercial and companies register under number B682001904 and
having its head office at 150, rue du Faubourg Poissonniere, 75484,
Paris, Cedex 10, herein acting and represented by its duly authorized
representatives and Dominique Bellanger;
(hereinafter "Natio Fonds Venture")
AND: MONTREAL TRUST COMPANY, 1800 McGill College Avenue, Montreal, Quebec,
H3A 3K9, as escrow agent, herein represented by its duly authorized
representative, Henri Beaudry Jr.
(hereinafter the "Escrow Agent").
WHEREAS Phoenix and the Vendors are parties to a share and
<PAGE>
debenture purchase agreement dated August 7, 1997 (the "Purchase Agreement").
WHEREAS the Purchase Agreement provides that certain shares of Phoenix
issued to the Vendors pursuant thereto are to be held in escrow for the purposes
described therein.
NOW THEREFORE the parties hereby agree as follows:
1 DEFINITIONS AND INTERPRETATION
1.1 Whenever used in this Agreement:
1.1.1 "Affiliate" means any of Lucien Steru, Dominique Steru, Codema and
Roger Porsolt, and "Affiliates" means more than one of them.
1.1.2 1.1.2 "Claim" means any claim by Phoenix against the Vendors under
Section 7.2 or a claim for a Specific Contingency under Section 8 of
the Purchase Agreement;
1.1.3 "Distributions" has the meaning ascribed thereto in Section 3.1
hereof,
1.1.4 "Escrowed Shares" has the meaning ascribed thereto in Section 2.1
hereof;
1.1.5 "Escrowed Share Price" means, in respect of any Claim set forth in a
Notice of Claim, the amount obtained by adding the opening and closing
prices of the common shares of Phoenix on each of the Montreal
Exchange and The Toronto Stock Exchange for the ten trading days
preceding the date of execution of the Purchase Agreement, divided by
40;
1.1.6 "Notice of Claim" means a written notice of any Claim given by
Phoenix setting forth the details of each Claim referred to therein
including the amount thereof, if known to Phoenix, or Phoenix's
reasonable estimate thereof, as well as the provisions of the Purchase
Agreement upon which such Claim is based;
1.1.7 "Non-Affiliate" means Domingos Martins, BNP Developpement, Siparex
Developpement, Epicea and Natio Fonds Venture II, and "Non-Affiliates"
means more than one of them.
3
<PAGE>
1.1.8 "Objection" means, in respect of any Claim, any objection raised in
the Response by any of the Vendors to such Claim;
1.1.9 "Proceeds" has the meaning ascribed thereto in Section 3.2 hereof;
1.1.10 "Purchase Agreement" has the meaning ascribed thereto in the
preamble to this Agreement;
1.1.11 "Released Shares" has the meaning ascribed thereto in Section
3.5.1.1 hereof;
1.1.12 "Response" means, in respect of any Claim, the written response of
any of the Vendors indicating whether it accepts or disputes such
Claim; and
1.1.13 "Specific Contingency" means any of the specific contingencies
referred to in Section 8 of the Purchase Agreement;
1.1.14 "Vendors" means Lucien Steru, Dominique Steru, Codema, Domingos
Martins, Roger Porsolt, BNP Developpement, Siparex Developpement,
Epicea and Natio Fonds Venture.
1.2 Each capitalized term used in this Agreement but not defined herein has the
meaning ascribed thereto in the Purchase Agreement.
1.3 In the event of (i) any subdivision, consolidation or reclassification of
the class of shares comprising the Escrowed Shares or (ii) any
REORGANIZATION of the share capital of Phoenix affecting the Escrowed
Shares or (iii) the amalgamation of Phoenix with any other company, the
number of Escrowed Shares and Escrowed Share Price shall be adjusted, if
required, so that none of the parties hereto shall be in a position less
favourable to it than as provided in this Agreement as a result of any of
the foregoing actions.
1.4 For all purposes of this Agreement, the amount of any Claim in a currency
other than Canadian dollars shall be converted to Canadian dollars at the
exchange rate between Canadian and such currency shall be the "Spot Rate"
of the alternate currency on the business day preceding the day as of which
the conversion from one currency to the other is to be effected, as
reported in the Financial Post on that day.
1.5 If any calculation hereunder of the applicable number of Escrowed Shares
results in fractional shares, the result shall be rounded up or
4
<PAGE>
down, as the case may be, to the nearest whole number and, if such result
represents exactly one-half of a whole number, then such fraction shall be
rounded up to the next whole number.
2 ESTABLISHMENT OF ESCROW
2.1 Phoenix hereby delivers in escrow to the Escrow Agent certificates
representing an aggregate of 469,014 common shares of Phoenix registered in
the name of the Escrow Agent, as escrow agent (the "Escrowed Shares"). The
Vendors' interests in the Escrowed Shares are as set forth below:
<TABLE>
<CAPTION>
VENDOR ESCROWED SHARES
<S> <C>
Lucien Steru 2,079
Dominique Steru 3
Codema 331,550
Domingos Martins 7,968
Roger Porsolt 37,062
Siparex Developpement 37,253
BNP Developpement 26,889
Epicea 21,382
Natio Fonds Venture 4,828
</TABLE>
2.2 The Escrow Agent hereby accepts delivery of the Escrowed Shares and agrees
to act as escrow agent and to hold, safeguard and release the Escrowed
Shares in accordance with the provisions of this Agreement. The Escrowed
Shares shall not be sold, assigned, hypothecated, alienated, released from
escrow, transferred within escrow or dealt with in any manner whatsoever
except as provided in this Agreement.
2.3 Notwithstanding the registration of the Escrowed Shares in the name of the
Escrow Agent, the Vendors shall, subject to the provisions hereof, remain
the owners thereof in the proportion contemplated by Section 2.1 hereof and
be entitled to the exercise of all voting rights related thereto and to
receive all dividends, income and other distributions in respect thereof
(collectively, "Distributions"). In the event that any Escrowed
5
<PAGE>
Shares are remitted to Phoenix for cancellation pursuant to the provisions
of Section 3 hereof, the Vendors shall repay to Phoenix any Distributions
received in respect of such Escrowed Shares.
3 INSTRUCTIONS TO ESCROW AGENT
3.1 At any time while the Escrowed Shares are held by the Escrow Agent, and
provided that the Escrowed Shares are not then subject to any restrictions
on transfer imposed by any Regulatory Authority, a Non-Affiliate my
instruct the Escrow Agent in writing to sell all or part of such
Non-Affiliate's portion of the Escrowed Shares. Upon receipt of such
written instruction, the Escrow Agent shall sell such Escrowed Shares on
the open market and shall retain the proceeds of sale, less any expenses
incurred in realizing such sale (the "Proceeds") as escrowed property for
such Non-Affiliate. The Escrow Agent shall invest such Proceeds in an
interest-bearing account for the duration of the escrow. The Escrow Agent
shall keep complete records of any such sales of Escrowed Shares.
3.2 At any time after receipt by the Escrow Agent of written notice by Phoenix
of the release, in the format prescribed by the SEC, of at least 30 days of
post-combination financial results of Phoenix and ITEM Holding, and
provided that the Escrowed Shares are not then subject to any restrictions
on transfer imposed by any Regulatory Authority, an Affiliate may also
instruct the Escrow Agent to sell all or part of their portion of the
Escrowed Shares in the manner set forth in section 3.2. In such event, the
Escrow Agent shall proceed as set forth in section 3.2.
3.3 Whenever Phoenix has a Claim it shall give a Notice of Claim in respect
thereof to Vendors and the Escrow Agent. Upon receipt of a Notice of Claim,
the Escrow Agent shall immediately reserve for distribution in accordance
with the provisions of paragraph 3.4 hereof (but shall not release from
escrow except in accordance with the provisions hereof) that number of the
Escrowed Shares which is equal in value to the amount provided for in the
Notice of Claim, calculated on the basis of the Escrowed Share Price for
such Notice of Claim; provided that, notwithstanding anything contained
herein, the Escrow Agent shall not reserve any shares from the Escrowed
Shares in respect of any Claim until the aggregate amount claimed by
Phoenix under all Notices of Claim exceeds the amount of the Indemnity Cap
set forth in paragraph 7.2.2 of the Purchase Agreement.
3.4 Within ten (10) days of receipt of a Notice of Claim, the Vendors (or any
of them) shall give to Phoenix and the Escrow Agent a Response with
6
<PAGE>
respect to each Claim set forth therein: If:
3.4.1 the Response indicates that the Vendors accept a Claim set forth in the
Notice of Claim, or if the Escrow Agent does not receive a Response with
respect to a Claim within said ten (10) day period, the Vendors shall be
deemed to have irrevocably consented to each Claim so accepted or in
respect of which no Response is so received, as made, and the Escrow Agent
shall forthwith give written notice thereof to Phoenix:
3.4.1.1 setting forth the total amount of all Claims which have been
consented. to and the number of shares from the Escrowed Shares to be
released from escrow for the benefit of Phoenix (the "Released
Shares"), being that number of the Escrowed Shares which is equal in
value to the amount of the admitted Claims set forth in such Notice of
Claim. calculated on the basis of the Escrowed Share Price for such
Notice of Claim; and
3.4.1.2 surrender for cancellation to Phoenix the share certificate(s) in
its possession representing the Released Shares, duly endorsed for
transfer, and the Escrow Agent shall retain in its possession the
other share certificate(s) representing the balance of the Escrowed
Shares, if any, to be held by it in escrow and dealt with in
accordance with the terms hereof, or
7
<PAGE>
3.4.2 the Response indicates that the Vendors (or any of them) dispute a Claim
set forth in the Notice of Claim (whether or not arbitration proceedings
have been instituted), the Escrow Agent shall retain in its possession and
continue to hold in escrow that number of the Escrowed Shares which is
equal in value to the amount provided for in the disputed Claims,
calculated on the basis of the Escrowed Share Price for such Notice of
Claim:
3.4.2.1 until the Escrow Agent receives a joint written notice from Phoenix
and the Vendors directing the Escrow Agent as to the manner in which
such Escrowed Shares and the share certificate(s) representing same
are to be dealt with, in which case the Escrow Agent shall deal with
same in accordance with such joint written instructions; or
3.4.2.2 in the absence of such a joint written notice within ten (IO)
business days of the Escrow Agent's receipt of the Response, the
Escrow Agent shall deal with such Escrowed Shares and the share
certificates) representing same in accordance with a final arbitration
order in respect of such disputed Claim(s) pursuant to the arbitration
contemplated by Section 12 hereof. Any arbitration order shall be
accompanied by a legal opinion by counsel for the presenting party
satisfactory to the Escrow Agent to the effect that the said order is
final and non-appealable.
3.5 If, at the time of receipt by the Escrow Agent of any Notice of Claims as
provided for in section 3.4 hereof, the number of Escrowed Shares remaining
in escrow for the account of any Vendor is insufficient to meet such
Vendor's pro rata portion of the number of Released Shares to be remitted
to Phoenix, the balance of such Vendor's pro rata portion of the admitted
Claims shall be satisfied by payment in cash from the Proceeds of those
Escrowed Shares sold by the Escrow Agent at the direction of such Vendor
pursuant to Section 3.1 or 3.2 hereof.
3.6 On the earlier of (i) November 30, 1997, or (ii) the date at which the
Escrow receives a notice from Phoenix confirming that the audit of the
combined financial statements of Phoenix and ITEM Holding as at August 31,
1997 has been completed, the Escrow Agent will deliver the Escrowed Shares
and all Distributions and Proceeds with the exception of such number of
Escrowed Shares as may be necessary to satisfy any obligation to indemnify
for a Specific Contingency which has not yet occurred. The notice from
Phoenix referred to above shall indicate the
8
<PAGE>
maximum amount of Specific Contingencies which have not been prescribed or
definitively settled and the number of Escrowed Shares, calculated on the
basis of the Escrowed Share Price, which may not be released from the
escrow for such Specific Contingencies.
3.7 Upon receipt by the Escrow Agent of a written notice instructing it to
release, pro rata to the Vendors, such further number of Escrowed Shares as
is no longer necessary to satisfy remaining indemnification obligations in
respect of remaining Specific Contingencies which have been prescribed or
definitively settled, the Escrow Agent shall release such number of
Escrowed Shares to the Vendors, pro rata to their respective interests the
Escrowed Shares, Distributions and Proceeds, if any.
4 VOTING RIGHTS
4.1 The Escrow Agent shall provide to each of the Vendors a proxy entitling
such Vendor to vote those of the Escrowed Shares which are owned by it,
forthwith upon the Escrow Agent's receipt thereof in its capacity as
registered shareholder of Phoenix, in order to allow each Vendor to vote
its Escrowed Shares in the same manner as if it were the registered owner
thereof.
5 RIGHTS AND OBLIGATIONS OF THE ESCROW AGENT
5.1 The Escrow Agent is not a party to, and is not bound by, any provisions
which may be evidenced by, or arise out of, any agreement other than as
therein set forth under the express provisions of this Agreement.
5.2 The Escrow Agent acts hereunder as a depositary only and is not responsible
or liable in any manner whatever for the sufficiency, correctness,
genuineness or validity of any instrument deposited with it, or for the
form of execution of such instrument or for the identity or authority or
right of any person or party executing or depositing it. 1.1
5.3 The Escrow Agent shall not be under any duty to give the Escrowed Shares,
Distributions and Proceeds, if any, held by it hereunder any greater degree
of care than it gives its own similar property and shall not be required to
invest any funds held hereunder except as directed in this Agreement.
Uninvested funds held hereunder shall not earn or accrue interest.
5.4 The Escrow Agent shall not be liable, except for its own gross negligence
9
<PAGE>
or willful misconduct and, except with respect to claims based upon such
gross negligence or willful misconduct that are successfully asserted
against the Escrow Agent, the other parties hereto shall solidarity
indemnify and hold harmless the Escrow Agent (and any successor Escrow
Agent) from and against any and all losses, liabilities, claims, actions,
damages and expenses, including reasonable attorneys' fees and
disbursements, arising out of and in connection with this Agreement.
Without limiting the foregoing, the Escrow Agent shall in no event be
liable in connection with its investment or reinvestment of any cash held
by it hereunder in good faith, in accordance with the terms hereof.
5.5 The Escrow Agent shall be entitled to rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof. The Escrow Agent may act in reliance upon any instrument
or signature believed by it to be genuine and may assume that the person
purporting to give receipt or advice or make any statement or execute any
document in connection with the provisions hereof has been duly authorized
to do so. The Escrow Agent may conclusively presume that the undersigned
representative of any party hereto which is an entity other than a natural
person has full power and authority to instruct the Escrow Agent on behalf
of that party unless written notice to the contrary is delivered to the
Escrow Agent.
5.6 The Escrow Agent may act pursuant to the advice of counsel with respect to
any matter relating to this Agreement and shall not be liable for any
action taken or omitted by it in good faith in accordance with such advice.
5.7 The Escrow Agent makes no representation as to the validity, value,
genuineness or the collectability of any security or other document or
instrument held by or delivered to it.
5.8 The Escrow Agent shall not be called upon to advise any party as to the
wisdom in selling or retaining or taking or refraining from any action with
respect to any securities or other property deposited hereunder.
5.9 The Escrow Agent (and any successor Escrow Agent) may at any time resign as
such by delivering the Escrowed Shares, Distributions and Proceeds, if any,
to any successor Escrow Agent jointly designated by the other parties
hereto in writing, or to any court of competent jurisdiction, whereupon
Escrow Agent shall be discharged of and from any and all
10
<PAGE>
further obligations arising in connection with this Agreement. The
resignation of Escrow Agent will take effect on the earlier of (a) the
appointment of a successor (including a court of competent jurisdiction)
or (b) the day which is 30 days after the date of delivery of its written
notice of resignation to the other parties hereto. If at that time Escrow
Agent has not received a designation of a successor Escrow Agent, Escrow
Agent's sole responsibility after that time shall be to retain and
safeguard the Escrowed Shares and Proceeds, if any, until receipt of a
designation of successor Escrow Agent or a joint written disposition
instruction by the other parties hereto or a final non-appealable order of
a court of competent jurisdiction.
5.10 Phoenix and the Vendors shall pay Escrow Agent compensation (as payment in
full) for the services to be rendered by Escrow Agent hereunder in the
amount of $500 at the time of execution of this Agreement and agree to
reimburse Escrow Agent for all reasonable expenses, disbursements and
advances incurred or made by Escrow Agent in performance of its duties
hereunder (including reasonable fees, expenses and disbursements of its
counsel).
6 LIMITED RESPONSIBILITY
This Agreement expressly sets forth all the duties of Escrow Agent with
respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Agreement against the Escrow Agent. The
Escrow Agent shall not be bound by the provisions of any agreement among the
other parties hereto except this Agreement. No trust is created by this
Agreement and the Escrow Agent does not act in any capacity as a trustee.
7 NOTICES
All notices, consents, waivers and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt) provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
11
<PAGE>
7.1 To Phoenix:
Phoenix International Life Sciences Inc.
2350, Cohen Street
Saint-Laurent, Quebec
H4R 2N6 Canada
Telecopier No.: (514) 333-7306
Attention: Jean-Yves Caloz
7.2 To ITEM Holding:
ITEM Holding S.A.
93, avenue de Fontainebleau
94276 Le Kremlin-Bicetre Cedex
France
Telecopier No.: 01.49.59.25.70
Attention: Lucien Steru
7.3 To Lucien Steru or Dominique Steru:
Lucien Steru or Dorninique Steru
31, rue Robert de Flers
75015 Paris
France
Telecopier No.: 01.40.58.15.14
7.4 To CO.DE.MA.:
Avenue Marcel Thiry 216
1200 Bruxelles
Belgique
Telecopier No.: (32) 2.774.42.99
Attention: Lucien Steru
7.5 To Domingos Martins:
12
<PAGE>
Domingos Martins
rua do Arco Carvalhao
N1 14, 3rd esq.
107A Lisboa
Portugal
7.6 To Roger Porsolt:
Roger Porsolt
34, avenue de la Porte Jaune
92210 Saint-Cloud
France
Telecopier No.: 01.46.02.20.33
7.7 To Siparex Developpement:
Siparex Developpement
114, rue de la Boetie
75008 Paris
France
Telecopier No.: (33) 1.53-93.02.30
Attention: Christian d'Argoubet
7.8 To BNP Developpement:
BNP Developpement
1, boulevard Haussmann
75009 Paris
France
Telecopier No.: 01.40.14.51.37
Attention: Josiane Raspiller
7.9 To Epicea:
EPICEA
31-33,
rue de la Federation
75015 Paris
13
<PAGE>
France
Telecopier No.: 01.40.56.19.19
Attention: Pascal Demichel
7.10 To Natio Fonds Venture II:
Natio Fonds Venture II
12, rue Chauchat
75009 Paris
France
Telecopier No.: 01.40.14.69.60
Attention: Dominique Bellanger
8 GOVERNING LAW
This Agreement shall be governed by the laws of the Province of Quebec and
the laws of Canada applicable therein.
9 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original and all of which, when taken together, will be
deemed to constitute one and the same.
10 SECTION HEADINGS
The headings of sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation.
11 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and
not alternative. Neither the failure nor any delay by any party in exercising
any right, power, or privilege under this Agreement or the documents referred to
in this Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power,
14
<PAGE>
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other parties, (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
12 ARBITRATION
Any dispute which arises in the course of or following the performance of
this Agreement or any of the transactions contemplated herein will be
definitively settled under the auspices of The Quebec National and International
Commercial Arbitration Centre, by means of arbitration and to the exclusion of
courts of law, in accordance with its General Commercial Arbitration Rules in
force at the time this Agreement is signed and to which the parties declare they
have adhered.
13 CONFIDENTIALITY
The parties agree to treat this Agreement as confidential and not to
disclose its contents to third parties other than their advisers, except to the
extent necessary to enforce performance of obligations hereunder, or as is
required to comply with applicable laws or regulations, including regulations of
any stock exchange on which the securities of Phoenix are listed, following
consultations with Lucien Steru.
14 FURTHER ASSURANCES
The parties shall, with all reasonable diligence, do all such things and
provide all such reasonable assurances as may be required to consummate the
transactions contemplated hereby, and each party shall provide such further
documents or instruments required by another party as may be reasonably
necessary or desirable to give effect to the purpose of this Agreement and to
carry out its provisions.
15 GENERAL
15
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The invalidity or unenforceability of any term or provision hereof shall
not affect the validity or enforceability of any other term or provision hereof.
This Agreement and the other documents and instruments referred to herein
constitute the entire understanding of the parties hereto with respect to the
subject matter hereof and thereof and supersede all present and prior
agreements, whether written or oral. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective heirs. executors,
administrators, personal representatives, successors and assigns. The parties
hereto have expressly required that this Agreement and all documents and notices
related hereto be drafted in English. LES PARTIES AUX PRESENTES ONT EXPRESSEMENT
EXIGE QUE LE PRESENT CONTRAT ET TOUS LES DOCUMENTS ET AVIS Y AFFERENTS SOIENT
REDIGES EN ANGLAIS.
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
PHOENIX INTERNATIONAL LIFE
SCIENCES INC
By:/S/ John W. Hooper
---------------------------------
John W. Hooper
Title:
------------------------------
Chairman and Chief Executive
Officer
By:/S/ Jean-Yves Caloz
---------------------------------
Jean-Yves Caloz
Title:
-----------------------------
Senior Vice President and Chief
Financial Officer
/S/ Lucien Steru
-----------------------------------
LUCIEN STERU
/S/ Dominque Steru
-----------------------------------
DOMINIQUE STERU
CO.DE.MA.
By: /S/ Lucien Steru
--------------------------------
Lucien Steru
17
<PAGE>
Title:
-----------------------------
/S/ Domingos Martins
-----------------------------------
DOMINGOS MARTINS
/S/ Roger Porsolt
-----------------------------------
ROGER PORSOLT
BNP DEVELOPPEMENT
By: /S/ Josiane Raspiller
--------------------------------
Josiane Raspiller
Title:
-----------------------------
SIPAREX DEVELOPPEMENT
By: /S/ Christian D'Argoubert
--------------------------------
Christian d'Argoubert
Title:
-----------------------------
EPICEA
By: /S/ Pascal Demichel
--------------------------------
Pascal Demichel
Title:
-----------------------------
NATIO FONDS VENTURE II
By: /S/ Dominque Belanger
--------------------------------
Dominique Bellanger
18
<PAGE>
Title:
-----------------------------
MONTREAL TRUST COMPANY
By: /S/ Robert Sicotte
--------------------------------
Robert Sicotte
Title:
-----------------------------
19
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Exhibit 2.2
STOCK PURCHASE AGREEMENT
BY AND AMONG
KURAYA AMERICAN SYSTEMS INC.,
KURAYA CORPORATION,
IBRD-ROSTRUM GLOBAL, INC.,
IBRD-ROSTRUM EUROPE, INC.,
PHOENIX INTERNATIONAL LIFE SCIENCES (U.S.) INC.,
AND
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
DATED DECEMBER 24, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
ARTICLE 1
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SALE AND PURCHASE OF SHARES............................................... 2
1.1. Sale and Purchase of Shares............................... 2
1.2. Purchase Price............................................ 3
1.3. Earn-Out.................................................. 3
ARTICLE 2
CLOSINGS; EARN-OUT PAYMENT; PURCHASE PRICE ADJUSTMENT..................... 3
2.1. Closing Date.............................................. 3
2.2. Sellers' Deliveries....................................... 4
2.3. The Buyers' Deliveries.................................... 5
2.4. Earn-Out. ............................................... 5
2.5. Net Debt Adjustment....................................... 8
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF KAS AND KURAYA.......................... 9
3.1. Organization and Standing................................. 9
3.2. Authority................................................. 9
3.3. No Violation of Law....................................... 10
3.4. Capitalization............................................ 10
3.5. Subsidiaries.............................................. 11
3.6. Financial Statements...................................... 12
3.7. Books and Records. ...................................... 13
3.8. Accounts Receivable....................................... 13
3.9. No Undisclosed Liabilities................................ 13
3.10. Insurance................................................ 14
3.11. Absence of Certain Changes............................... 14
3.12. Compliance with Laws..................................... 14
3.13. Governmental Permits..................................... 14
3.14. Taxes and Tax Returns.................................... 15
3.15. Contracts................................................ 17
3.16. Personal Property........................................ 19
3.17. Real Property............................................ 19
3.18. Intellectual Property.................................... 19
</TABLE>
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<TABLE>
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3.19. Labor and Employment Matters............................. 20
3.20. Employee Licenses........................................ 20
3.21. Non-Competition.......................................... 20
3.22. Employee Benefit Plans................................... 20
3.23. Legal Proceedings and Compliance with Laws:
Environmental Matters .................................. 22
3.24. Compensation Arrangements; Bank Accounts; Officers
and Directors .......................................... 23
3.25. KAS's Brokers............................................ 24
3.26. Customers and Suppliers.................................. 24
3.27. Condition of Assets. .................................... 24
3.28. Completeness and Accuracy of Information................. 24
3.29. IBRD Japan............................................... 25
3.30. No Implied Representations............................... 25
3.31. Transactions with Related Parties........................ 25
3.32. IBRD-Europe Companies. .................................. 26
3.33. Clinical Trials. ........................................ 26
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYERS.............................. 26
4.1. Organization and Standing................................. 26
4.2. Authority................................................. 26
4.3. No Violation of Law....................................... 27
4.4. The Buyers' Brokers....................................... 27
4.5. Investment Intention...................................... 27
4.6. Securities Filings........................................ 28
4.7. Financial Statements...................................... 28
ARTICLE 5
COVENANTS AND AGREEMENTS OF KAS........................................... 28
5.1. Required Actions.......................................... 28
5.2. Prohibited Transactions................................... 31
5.3. Efforts to Close.......................................... 32
5.4. Expenses.................................................. 32
5.5. Supplements to Schedules; Covenants....................... 33
5.6. Further Assurances........................................ 33
5.7. HSR Act and ISRA.......................................... 33
5.8. No Solicitation of Transactions........................... 33
5.9. Cooperation with Financing; Capital Contribution.......... 34
5.10. Liquidation.............................................. 34
5.11. Professional Liability Insurance Policy.................. 34
</TABLE>
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<TABLE>
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ARTICLE 6
COVENANTS AND AGREEMENTS OF THE BUYERS.................................... 34
6.1. Efforts to Close.......................................... 34
6.2. Expenses.................................................. 34
6.3. Further Assurances........................................ 35
6.4. HSR Act................................................... 35
6.5. Records................................................... 35
6.6. Confidentiality Agreement................................. 35
6.7. Guaranties................................................ 35
ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF KAS...................................... 36
7.1. Representations and Covenants............................. 36
7.2. Compliance with Covenants................................. 36
7.3. Corporate Action.......................................... 36
7.4. Litigation................................................ 36
7.5. Absence of Adverse Governmental Action.................... 36
7.6. Filings; Consents; Waiting Periods........................ 36
7.7. Approval of Documentation................................. 37
7.8. Debt...................................................... 37
7.9. Legal Opinion............................................. 37
7.10. Professional Liability Insurance Policy.................. 37
ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF THE BUYERS............................... 37
8.1. Representations and Covenants............................. 38
8.2. Compliance with Covenants................................. 38
8.3. Corporate Action.......................................... 38
8.4. Litigation................................................ 38
8.5. Absence of Adverse Governmental Action.................... 38
8.6. No Material Adverse Effect or Damage...................... 38
8.7. Filings; Consents; Waiting Periods........................ 38
8.8. Approval of Documentation................................. 39
8.9. Resignations; Semler...................................... 39
8.10. Legal Opinions........................................... 39
8.11. Ancillary Documents...................................... 39
8.12. Consent and Release...................................... 39
</TABLE>
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<TABLE>
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Page
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8.13. Environmental Assessment................................. 39
8.14. Termination of Tax Sharing Agreement..................... 39
8.15. Professional Liability Insurance Policy.................. 39
8.16. IBRD Shares. ........................................... 40
8.17. Liquidation.............................................. 40
ARTICLE 9
COMPETITION AND CONFIDENTIALITY BY THE SELLING PARTIES.................... 40
9.1. Noncompetition............................................ 40
9.2. Confidentiality........................................... 41
9.3. Affiliates................................................ 41
9.4. Injunctive Relief......................................... 41
ARTICLE 10
INDEMNIFICATION........................................................... 41
10.1. Survival of Representations and Warranties............... 41
10.2. Indemnification by KAS and Kuraya........................ 42
10.3. Limitations on Obligation of KAS and Kuraya to
Indemnify .............................................. 43
10.4. Indemnification by the Buyers............................ 45
10.5. Limitations on Obligation of the Buyers to Indemnify..... 46
10.6. Procedures for Indemnification........................... 46
10.7. Payment of Indemnification Obligations................... 48
10.8. Interest on Unpaid Obligations........................... 48
10.9. Exclusive Remedy. ...................................... 49
ARTICLE 11
TAXES..................................................................... 49
11.1. Final Tax Return......................................... 49
11.2. Audits and Tax Litigation................................ 51
11.3. Tax Indemnity............................................ 52
ARTICLE 12
TERMINATION OF AGREEMENT.................................................. 52
12.1. Termination............................................... 52
12.2. Survival.................................................. 53
12.3. Return of Materials....................................... 53
</TABLE>
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Page
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ARTICLE 13
MISCELLANEOUS............................................................. 54
13.1. Notices................................................... 54
13.2. Taxes..................................................... 55
13.3. Entire Agreement.......................................... 55
13.4. Waivers and Amendments.................................... 55
13.5. Governing Law............................................. 55
13.6. Reference to U.S. Dollars................................. 56
13.7. Binding Effect; Assignment................................ 56
13.8. No Third Party Beneficiaries.............................. 56
13.9. Counterparts.............................................. 56
13.10. Schedules and Exhibits.................................... 56
13.11. Headings.................................................. 56
13.12. Publicity................................................. 56
13.13. Severability.............................................. 57
13.14. Confidential Information.................................. 57
13.15. Waiver of Conflict........................................ 57
13.16. Injunctive Relief......................................... 57
13.17. Venue..................................................... 58
ARTICLE 14
DEFINITIONS............................................................... 58
14.1. Certain Defined Terms..................................... 58
14.2. Other Defined Terms....................................... 63
</TABLE>
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SCHEDULE INDEX
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Schedule A Subsidiaries
Schedule 1.2 Allocation of IBRD-Europe Subsidiaries
Schedule 2.3 IBRD-Europe Purchase Price
Schedule 3.1 Jurisdiction of Incorporation
Schedule 3.3(b) Violations (Laws)
Schedule 3.3(c) Consents
Schedule 3.4 Capitalization
Schedule 3.5 Subsidiaries
Schedule 3.6 Exceptions to Financial Statements
Schedule 3.8 Accounts Receivable
Schedule 3.9 Undisclosed Liabilities
Schedule 3.10 Insurance
Schedule 3.11 Absence of Certain Changes
Schedule 3.12 Compliance with Laws
Schedule 3.13 Governmental Permits
Schedule 3.15 Contracts
Schedule 3.16 Personal Property
Schedule 3.17 Real Property
Schedule 3.18 Intellectual Property
Schedule 3.19 Labor and Employment Matters
Schedule 3.20 Employee Licenses
Schedule 3.21 Non-Competition
Schedule 3.22 Employee Benefit Plans
Schedule 3.23 Compliance with Laws; Environmental Matters
Schedule 3.24 Compensation Arrangements; Bank Accounts; Officers and Directors
Schedule 3.25 KAS's Brokers
Schedule 3.26 Customers and Suppliers
Schedule 3.28 Completeness of Information
Schedule 3.29 IBRD-Japan
Schedule 3.31 Transactions with Related Parties
Schedule 3.33 Clinical Trials
Schedule 4.3(b) Violations (Laws)
Schedule 4.4 The Buyers' Brokers
Schedule 5.2 Prohibited Transactions
Schedule 6.7 Guaranties
Schedule 7.8 Debt
Schedule 10.2 Indemnifiable Disclosed Items
</TABLE>
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<S> <C>
ATTACHMENTS
- -----------
Attachment A U.K. Tax Representations and Warranties
Attachment B U.K. and Europe General Compliance
EXHIBITS
- --------
Exhibit A Form of Escrow Agreement
Exhibit B Form of Legal Opinion of Counsel to the Sellers and Kuraya
Exhibit C-1 Form of Legal Opinion of Counsel to the Buyers (U.S.)
Exhibit C-2 Form of Legal Opinion of Counsel to the Buyers (Canada)
Exhibit D Form of Amended Tax Sharing Agreement
</TABLE>
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
December 24, 1997 by and among PHOENIX INTERNATIONAL LIFE SCIENCES (U.S.), INC.,
a Delaware corporation ("Phoenix U.S."), PHOENIX INTERNATIONAL LIFE SCIENCES
INC., a corporation constituted under the laws of Canada ("Phoenix Canada"),
KURAYA AMERICAN SYSTEMS INC., a California corporation ("KAS"), KURAYA
CORPORATION, a corporation organized under the laws of Japan ("Kuraya")
IBRD-ROSTRUM GLOBAL, INC., a Delaware corporation (the "Company") and
IBRD-ROSTRUM EUROPE, INC., a Delaware corporation ("IBRD-Rostrum"). Phoenix
Canada and Phoenix U.S. are sometimes referred to hereinafter individually as a
"Buyer" and together as the "Buyers." KAS and the Company are sometimes referred
to hereinafter individually as a "Seller" and together as the "Sellers."
BACKGROUND
A. The Company, directly or indirectly, owns all of the entire issued and
outstanding common stock of each entity listed in SCHEDULE A (collectively, the
"Subsidiaries," and singly, a "Subsidiary").
B. Not later than five business days after the execution of this Agreement,
IBRD-Rostrum shall adopt a Plan of Liquidation (the "Liquidation"). Under the
Plan of Liquidation, IBRD-Rostrum, as the sole stockholder, will distribute to
the Company not later than one business day prior to the closing date of the
Canada Acquisition (as hereinafter defined) all of its assets and liabilities
including all of the issued and outstanding common stock of the following
entities: (i) IBRD-Rostrum Group Limited, a corporation organized under the laws
of the England ("IBRD-U.K.") which directly owns all of the issued and
outstanding common stock of IBRD-Rostrum Global Limited, a company organized
under the laws of England, and indirectly owns 50% of Bath Clinical Trials
Limited, a company organized under the laws of England ("Bath"), (ii)
IBRD-Rostrum GmbH, a corporation organized under the laws of Germany
("IBRD-Germany"), and (iii) IBRD-Rostrum Sarl, a corporation organized under the
laws of France ("IBRD-France"). IBRD-U.K., IBRD-Germany and IBRD-France are
sometimes referred to hereinafter collectively as "IBRD-Europe," and the shares
of IBRD-U.K., IBRD-Germany and IBRD-France distributed to the Company are
sometimes referred to hereinafter collectively as the "IBRD-Europe Shares."
C. Following the completion of the Liquidation and prior to the sale by KAS
of the IBRD-U.S. Shares (as hereinafter defined), Phoenix Canada desires to
purchase, and the Company desires to sell, the IBRD-Europe Shares on the terms
and conditions set forth herein (the "Canada Acquisition"). The Company shall,
immediately after the completion of the Canada
<PAGE>
Acquisition, declare and pay a distribution to KAS in the amount equal to the
cash proceeds received by the Company from the Canada Acquisition to KAS (the
"KAS Dividend").
D. Effective as of the business day immediately following the Canada
Acquisition, Phoenix U.S. desires to purchase, and KAS desires to sell, all of
the issued and outstanding common stock of the Company (the "IBRD-U.S. Shares")
which will own all of the issued and outstanding common stock of IBRD Center for
Clinical Research, Inc., a Delaware corporation, and 44% of the issued and
outstanding stock of Kansas City Analytical Services, Inc., a Kansas corporation
("KCAS") on the terms and conditions set forth herein (the "U.S. Acquisition").
E. The IBRD-Europe Shares and the IBRD-U.S. Shares are sometimes referred
to hereinafter together as the "Shares." The Canada Acquisition and the U.S.
Acquisition are sometimes referred to hereinafter together as the
"Acquisitions."
F. Phoenix Canada, Phoenix U.S., KAS, the Company, IBRD-Rostrum and Kuraya
each desire to effect the Acquisitions and the other transactions contemplated
by this Agreement on the terms and conditions set forth herein.
TERMS
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, intending to be legally bound, the parties
hereby agree as follows (capitalized terms shall have the meanings ascribed to
them in Article 14 hereof, unless otherwise indicated):
ARTICLE 1
SALE AND PURCHASE OF SHARES
1.1. SALE AND PURCHASE OF SHARES. On the terms and subject to the
conditions set forth herein, on the Closing Dates, the Sellers hereby agree to
sell to the Buyers, and the Buyers hereby agree to purchase from the Sellers,
the Shares, as described herein.
1.1.1. CANADA ACQUISITION - SALE AND PURCHASE OF IBRD-EUROPE SHARES.
On the Canada Closing Date referred to in Section 2.1 below, the Company will
sell and assign to Phoenix Canada, and Phoenix Canada will purchase and accept
from the Company, the IBRD-Europe Shares.
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1.1.2. U.S. ACQUISITION - SALE AND PURCHASE OF IBRD-U.S. SHARES. On
the U.S. Closing Date referred to in Section 2.1 below, KAS will sell and assign
to Phoenix U.S., and Phoenix U.S. will purchase and accept from KAS, the
IBRD-U.S. Shares.
1.2. PURCHASE PRICE. As payment for the Shares indicated below, the Buyers
shall pay the following amounts to the Sellers (in the aggregate, the "Purchase
Price") in the manner indicated and at the dates and times set forth in Article
2 below:
(a) to KAS for the IBRD-U.S. Shares an amount equal to:
(1) Twenty-Eight Million Five Hundred Thousand Dollars (U.S.
$28,500,000) LESS
(2) the IBRD-Europe Purchase Price, LESS
(3) The Net Debt Amount
The amount being paid in respect of the U.S. Acquisition is referred to herein
as "U.S. Purchase Price"; and
(b) to the Company Three Million Five Hundred Thousand Dollars
($3,500,000) for the IBRD-Europe Shares ("IBRD-Europe Purchase Price"), to
be allocated among IBRD-U.K., IBRD-Germany and IBRD-France (based on their
respective fair market values) in accordance with SCHEDULE 1.2, to be
provided by Phoenix Canada not later than two (2) business days prior to
the closing of the Canada Acquisition.
1.3. EARN-OUT. In addition, at the date and time set forth in Section 2.4
below, the Buyers shall pay to KAS an amount equal to nine (9) times the dollar
amount by which the 1998 EBITDA exceeds the 1998 EBITDA Target (the "Earn-Out
Payment"). The Earn-Out Payment shall be considered additional U.S. Purchase
Price for all purposes.
ARTICLE 2
CLOSINGS; EARN-OUT PAYMENT; PURCHASE PRICE ADJUSTMENT
2.1. CLOSING DATE. Subject to the satisfaction of the conditions set forth
in Articles 7 and 8 hereof, the closing of the Canada Acquisition under this
Agreement (the "Canada Closing") will take place on the later of (x) January 20,
1998 (effective 11:59 P.M.) and (y) the second business day after the later of
(A) the day the waiting period under the HSR Act with respect to the U.S.
Acquisition has passed or otherwise terminated, (B) the day all notices,
consents and approvals
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from any Governmental Authority have been provided or obtained, or at such date
as the parties shall mutually agree to in writing. The closing of the U.S.
Acquisition under this Agreement (the "U.S. Closing") will take place the
business day following the Canada Closing, at 8:00 A.M., effective on 11:59 P.M.
of that day provided, however, that the contribution made by Phoenix U.S. in
accordance with Section 7.8 hereof shall be deemed to be made at the beginning
of the day immediately following the U.S. Closing. The Canada Closing and the
U.S. Closing are sometimes referred to hereinafter together as the "Closings" or
the "Closing Dates." The Closings shall take place at the offices of Sheppard,
Mullin, Richter & Hampton LLP, 333 South Hope Street Los Angeles, California
90071, at 8:00 a.m., or at such place or time as the parties may mutually agree
to in writing. The "Closing Date" shall refer to the date on which the U.S.
Closing occurs. Notwithstanding anything to the contrary contained herein, (a)
the Closings shall not occur until after each of the conditions set forth in
Articles 7 and 8 hereof have been satisfied or waived by the relevant party, and
(b) in the event the U.S. Closing does not occur in accordance with this
Agreement after the Canada Closing, Phoenix Canada and the Company each shall
have the unconditional right to rescind the purchase and sale of the IBRD-Europe
Shares, whereby Phoenix Canada would return the IBRD-Europe Shares to the
Company and KAS would return the IBRD-Europe Purchase Price to Phoenix Canada.
2.2. SELLERS' DELIVERIES.
2.2.1. THE COMPANY'S DELIVERIES - CANADA CLOSING. At the Canada
Closing the Company shall deliver:
(a) to Phoenix Canada, certificates evidencing the IBRD-Europe Shares,
duly endorsed for transfer to Phoenix Canada or accompanied by a stock
power or assignment separate from certificate executed in favor of Phoenix
Canada; and
(b) such other documents, certificates and instruments as Phoenix
Canada requests from the Company pursuant to the specific terms of this
Agreement or as Phoenix Canada otherwise reasonably requests from the
Company to effect completely the steps required to be taken by it at or
before the Canada Closing in order to carry out the Transactions.
2.2.2. KAS'S DELIVERIES - U.S. CLOSING. At the U.S. Closing, KAS shall
deliver:
(a) to Phoenix U.S. a certificate evidencing the IBRD-U.S. Shares,
duly endorsed for transfer to Phoenix U.S. or accompanied by a stock power
or assignment separate from certificate duly executed in favor of Phoenix
U.S.;
(b) the Escrow Agreement, duly executed by KAS and Kuraya; and
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(c) such other documents, certificates and instruments as the Buyers
request from KAS pursuant to the specific terms of this Agreement or as the
Buyers otherwise reasonably requests from KAS to effect completely the
steps required to be taken by it at or before each Closing in order to
carry out the Transactions.
2.3. THE BUYERS' DELIVERIES.
2.3.1. PHOENIX CANADA DELIVERIES - CANADA CLOSING. At the Canada
Closing, Phoenix Canada shall deliver to the Company the portion of the
IBRD-Europe Purchase Price by wire transfer in immediately available funds to an
account designated in writing by the Company. The Company shall immediately
after the completion of the Canada Closing declare and pay a distribution to KAS
in respect of the IBRD-Europe Shares in the amount equal to the IBRD-Europe
Purchase Price.
2.3.2. PHOENIX U.S. DELIVERIES - U.S. CLOSING. At the U.S. Closing
Phoenix U.S. shall deliver:
(a) to the Escrow Agent an amount equal to Five Million Dollars (U.S.
$5,000,000) (the "Escrow Amount") to be held in accordance with the Escrow
Agreement to secure the Sellers' indemnification obligations under Article
10 hereof;
(b) to KAS an amount equal to (1) the U.S. Purchase Price minus (2)
the Escrow Amount in U.S. dollars by wire transfer of immediately available
funds to an account designated in writing by KAS;
(c) the Escrow Agreement, duly executed by the Buyers;
(d) the Net Debt Amount as a loan or capital contribution by Phoenix
U.S. in accordance with Section 7.8 below; and
(e) such other documents, certificates and instruments as KAS requests
from the Buyers pursuant to the specific terms of this Agreement or as KAS
otherwise reasonably requests from the Buyers to effect completely the
steps required to be taken by it at or before each Closing in order to
carry out the Transactions.
2.4. EARN-OUT.
(a) As used herein, (i) "1998 EBITDA" means the combined earnings of
the Company and the Subsidiaries before interest, taxes, depreciation and
amortization, for the twelve month period ending December 31, 1998 and (ii)
"1998 EBITDA Target" means
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$3,000,000. The 1998 EBITDA shall be determined in accordance with GAAP, applied
consistent with past practices of the Company; PROVIDED that to the extent
included in the combined earnings of the Company and the Subsidiaries, excluding
the effect of the following items:
(i) the gain or loss from any sale, exchange or other disposition of
assets other than in the ordinary course of business consistent with past
practice;
(ii) the gain or loss from the exchange of securities, or any increase
or reduction in the carrying value of such securities, or any increase or
reduction in the carrying value of such securities;
(iii) any extraordinary gain or loss or expense;
(iv) any expenses directly or indirectly incurred in connection with
the acquisition or the financing of the acquisition of the Company or the
Subsidiaries;
(v) any gain, loss, income or expense resulting from a change in the
Company's accounting methods, principles or practices or a change in GAAP
or any GAAP election or treatment not made or utilized by the Company in
its financial statements for the year ended December 31, 1996 or
subsequently adopted by the Company prior to the date hereof;
(vi) intercompany allocations of general overhead and other charges
not directly related to the operations of the Company and the Subsidiaries,
or that are charges in excess of amounts that would otherwise have been
incurred on an arms-length basis between the Company or any Subsidiary and
Buyer or any Affiliate thereof;
(vii) any costs or expenses (including payments under the Company's
Phantom Stock Plan) caused by or arising out of the Company's Phantom Stock
Plan; and
(viii) any gain, loss, income or expense associated with KCAS.
During calendar year 1998, the Buyers will operate the Company and its
Subsidiaries in a manner reasonably consistent with the past practice of the
business as conducted prior to the Closing Date. During such period, the Buyers
shall not divert existing customers of the business conducted by the Company and
its Subsidiaries to other Phoenix affiliates.
(b) By March 31, 1999, Buyer shall have prepared and delivered to
Seller the Company's consolidated balance sheet and income statements for the
year ending
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December 31, 1998 (the "EBITDA Financial Statements") which statements shall
have been prepared in accordance with GAAP (including footnotes and other
disclosures required by GAAP), applied consistent with past practices of the
Company, along with a statement setting forth in reasonable detail the
computation of 1998 EBITDA, including identification of all excluded items and
adjustments and all necessary back up calculations. Buyer shall promptly provide
to Seller all information which Seller shall reasonably request in connection
with preparation of the EBITDA Financial Statements. Except as otherwise
provided in subparagraph (d) below, Buyer shall deliver the Earn-Out Payment to
Seller no later than April 30, 1999.
(c) Buyer's calculation of 1998 EBITDA shall be used in determining
the Earn-Out Payment unless, within thirty (30) days following Seller's receipt
of the EBITDA Financial Statements, Seller has given Buyer notice (the "EBITDA
Dispute Notice") that Seller disputes Buyer's calculation, which notice shall
set forth in reasonable detail the exclusions or calculations being disputed in
good faith. In the event an EBITDA Dispute Notice is timely given to Buyer,
Seller and Buyer shall have fifteen (15) days to resolve the dispute and if not
resolved, the dispute shall be submitted to a nationally recognized "Big Six"
accounting firm or its successor (other than auditors used by Seller or Buyer or
any Affiliate of either within the past three (3) years, or their successors)
chosen by lot (the "EBITDA Arbitrator") which shall be instructed to arbitrate
such disputed item(s) and determine 1998 EBITDA within thirty (30) days. The
fees and expenses of the EBITDA Arbitrator shall be borne equally by Buyer and
Seller. The resolution of disputes by the EBITDA Arbitrator shall be set forth
in writing and shall be conclusive and binding upon and non-appealable by the
parties, and the determination of 1998 EBITDA shall become final upon the date
of such resolution, and may be entered as a final judgment in any court of
proper jurisdiction.
(d) If an EBITDA Dispute Notice has been delivered in accordance with
subparagraph (c) above and the dispute has not been resolved by the Earn-Out due
date, (a) the amount not in dispute shall be paid as required hereunder, and (b)
the amount, if any, required to be paid as an adjustment shall be paid by Buyer
or Seller, as applicable, no later than 10 days after the dispute is resolved,
which amount shall bear interest, from May 1, 1999 until paid, at the rate equal
to the lower of (i) the maximum rate permitted by Applicable Law or (ii) two
percent (2%) plus the Prime Rate of Bank of Canada on May 1, 1999. In addition,
in the event that Buyer has not delivered an EBITDA Dispute Notice in accordance
with subparagraph (c) above, the amount required to be paid by Buyer pursuant to
Section 1.3 hereof shall bear interest, from May 1, 1999 until paid, at the rate
described in the previous sentence.
(e) All payments required to be made in respect of the Earn-Out
Payment shall be made by cashier's check or wire transfer of immediately
available funds to an account designated by the payee.
(f) For purposes of determining the Earn-Out, in the event that, prior
to January 1, 1999, Phoenix U.S. or Phoenix Canada (i) terminates any operation
of the
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Company or any Subsidiary, (ii) sells assets, except in the ordinary course of
business, of the Company or any Subsidiary or (iii) sells a controlling interest
in the Company or any Subsidiary or merges the Company or any Subsidiary with
any other Person (other than an Affiliate) (each such transaction an "Earn-Out
Restricted Transaction"), then the 1998 EBITDA shall equal (x) the annualized
1998 EBITDA for such business or assets sold (the "Divested Operations") based
on the 1998 EBITDA for the period beginning on January 1, 1998 through the last
day of the month prior to the closing of such Earn-Out Restricted Transaction
(the "Reference Period") PLUS (y) the 1998 EBITDA contributed by the remainder
of the Company and Subsidiaries.
2.5. NET DEBT ADJUSTMENT.
2.5.1. PRELIMINARY EARNED CASH CERTIFICATE. As soon as practicable and
in any event not later than five (5) business days prior to the U.S. Closing,
KAS will prepare and deliver to Phoenix U.S. a certificate setting forth the
Earned Cash of the Company and its Subsidiaries as of December 31, 1997 (or as
of the end of the month prior to the Closing Date if the Closing occurs after
January 31, 1998) (the "Preliminary Earned Cash"), and shall also include a
calculation of the Net Debt Amount as of December 31, 1997 (or as of the end of
the month prior to the Closing Date) (the "Preliminary Earned Cash
Certificate"). "Earned Cash" means at any particular date, the amount of cash
that would be on hand which is not subject to a corresponding liability,
determined in accordance with the Company's historical revenue recognition
policies as currently applied to each of the contracts of the Company and any
Subsidiary as set forth on SCHEDULE 3.6 (the "Company Policies") and equal to:
(x) the amount of cash reflected on the consolidated balance sheet of the
Company and its Subsidiaries minus the sum of (y) the amount of cash
representing customer deposits for services not yet performed by the Company or
a Subsidiary and (z) the amount of cash representing advanced payments of
reimbursable costs, with respect to which revenue should not be recognized other
than in accordance with the Company Policies.
2.5.2. NET DEBT ADJUSTMENT. As soon as practicable following the
Closing Date, but not later than ninety (90) days thereafter, Ernst & Young LLP
(the "Buyers' Accountant") shall prepare and deliver a certificate proposing the
final amount of Earned Cash of the Company and its Subsidiaries as of the
Closing Date utilizing the Company Policies, and a calculation of the Net Debt
Amount as at such date (the "Earned Cash Certificate"). Deloitte & Touche LLP
(the "Sellers' Accountant") shall review the Final Earned Cash Certificate. In
the event Buyers' Accountant and Sellers' Accountant cannot agree on the final
amount of Earned Cash and the final Net Debt Amount the matter shall be
submitted to the EBITDA Arbitrator. The EBITDA Arbitrator shall review the
proposed Final Earned Cash Certificate and shall independently verify the
accuracy and completeness thereof and shall make such adjustments thereto as it,
in its independent judgment, believes appropriate to make such Final Earned Cash
Certificate fairly reflect the amount of Earned Cash available on the U.S.
Closing Date utilizing the Company Policies. If the Earned Cash as reflected on
the Earned Cash Certificate (agreed by the Sellers' Accountant and Buyers'
Accountant
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or determined by the EBITDA Arbitrator) is less than the Preliminary Earned
Cash, then KAS shall pay in cash to Phoenix U.S. the amount of the difference
(the "Net Debt Adjustment") which shall be treated as a reduction in the U.S.
Purchase Price. If the Earned Cash or the Final Earned Cash Certificate is more
than the amount of Earned Cash set forth on the Preliminary Earned Cash
Certificate, then Phoenix U.S. will pay in cash to KAS the amount of the
difference as additional U.S. Purchase Price. The payment, if any, to be made
under this Section 2.5.2 shall be made, without interest thereon, within five
(5) business days after delivery of the Final Earned Cash Certificate by the
Buyers' Accountant to the Parties. The fees and expenses of the Buyers'
Accountant in connection with the audit shall be paid by the Buyers, the fees
and expenses of the Sellers' Accountants shall be paid by the Sellers, and the
Buyers and Sellers shall each pay one half of the fees of the EBITDA Arbitrator.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF KAS AND KURAYA
Except as otherwise set forth in any Disclosure Schedule (it being
understood and agreed that (a) any item disclosed in a Disclosure Schedule in
reference to any particular Section hereof will be deemed to be disclosed for
purposes of another Section hereof, even if there is no express cross-reference,
so long as such disclosure is made with such specificity that no other
explanation or additional information is necessary for a reasonable person to
determine that such disclosed item also represents an exception to a
representation or warranty contained in such other Section; and (b) the
specification of any dollar amount in the representations and warranties
contained herein or the inclusion of any specific item in any Disclosure
Schedule is not intended to imply that such amounts or higher or lower amounts,
or the items so included or other items, are or are not material). KAS and
Kuraya, jointly and severally, hereby represent and warrant to the Buyers as
follows:
3.1. ORGANIZATION AND STANDING. Each of KAS, the Company, each Subsidiary,
and to the Knowledge of KAS, each of KCAS and Bath (a) is duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation as set forth in SCHEDULE 3.1; (b) has all necessary corporate
power and authority to carry on its business as it is now being conducted and to
own, lease, license or use the properties and assets that it purports to own,
lease, license or use; and (c) is duly qualified as a foreign entity in good
standing in each jurisdiction where the character of its properties owned or
leased or the nature of its activities make such qualification necessary,
except, solely as to Bath and KCAS, where the failure to qualify could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
3.2. AUTHORITY. Each of KAS, Kuraya, IBRD-Rostrum and the Company has all
requisite corporate power and authority to execute and deliver this Agreement
and each Transaction
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Document to which it is a party and to perform its respective obligations
hereunder and thereunder. This Agreement has been, and each Transaction Document
to which it is a party will be prior to the Closing, duly authorized, executed
and delivered by each of KAS, Kuraya, IBRD-Rostrum and the Company, and
(assuming the due authorization, execution and delivery by the Buyers) this
Agreement constitutes, and each Transaction Document to which it is a party when
so executed and delivered will constitute, legal, valid and binding obligations
of each of KAS, Kuraya, IBRD-Rostrum and the Company enforceable against each of
KAS, Kuraya, IBRD-Rostrum and the Company in accordance with their terms except
to the extent that enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar law affecting
enforcement of creditors' rights generally, and general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity).
3.3. NO VIOLATION OF LAW. The execution and delivery by each of KAS,
Kuraya, IBRD-Rostrum and the Company of this Agreement and each Transaction
Document to which it is a party, and the performance by each of KAS, Kuraya,
IBRD-Rostrum and the Company of its respective obligations hereunder or
thereunder, does not and will not:
(a) violate any provision of the Certificate of Incorporation (or
other similar charter instrument) or Bylaws of KAS, Kuraya, IBRD-Rostrum, the
Company, any Subsidiary or, to the Knowledge of KAS, KCAS or Bath;
(b) except as set forth in SCHEDULE 3.3(B), (i) violate any provision
of Applicable Law relating to KAS, Kuraya, IBRD-Rostrum, the Company, any
Subsidiary or, to the Knowledge of KAS, KCAS or Bath; (ii) violate any provision
under any Court Order, arbitration award, judgment or decree to which KAS,
Kuraya, IBRD-Rostrum, the Company or any Subsidiary or, to the Knowledge of KAS,
KCAS or Bath is subject; and (iii) require a registration, filing, application,
notice, consent, approval, order, qualification or waiver with, to or from any
Governmental Authority; or
(c) except as set forth in SCHEDULE 3.3(C), (i) require a consent,
approval or waiver from, or notice to, any party to a Contract or (ii) result in
a breach of or cause a default under any provision of a Contract; except, solely
as to KCAS and Bath, where such violation, registration, filing, notice,
consent, approval, order, qualification or waiver would not in the aggregate
have a Material Adverse Effect.
3.4. CAPITALIZATION. The total authorized capital stock of the Company
consists solely of Ten Thousand (10,000) shares of common stock, $.01 par value
per share, one (1) of which is issued and outstanding. All issued and
outstanding shares of the Company's common stock are validly issued, fully paid
and nonassessable and were acquired by KAS pursuant to an exemption from the
registration requirements of federal and state securities laws. Except as set
forth in SCHEDULE 3.4, there are no outstanding (a) securities convertible into
or exchangeable for any capital
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stock of the Company; (b) options, warrants or other rights to purchase or
subscribe to capital stock of the Company or securities convertible into or
exchangeable for stock of the Company; or (c) contracts, commitments,
agreements, understandings, arrangements, calls, demands or claims of any kind
relating to the issuance of any capital stock of the Company, any such
convertible or exchangeable securities or any such options, warrants or rights;
in each instance other than those, if any, as set forth in SCHEDULE 3.4. KAS is
the sole record and beneficial owner of the IBRD-U.S. Shares, free and clear of
all liens, encumbrances, charges, adverse claims and restrictions (other than
restrictions of general applicability imposed by federal or state securities
laws). Prior to the Liquidation, IBRD-Rostrum was the sole record and beneficial
owner of all of the issued and outstanding capital stock of each of IBRD-U.K.,
IBRD-France and IBRD-Germany, in each case, free and clear of all liens,
encumbrances, charges, adverse claims and restrictions (other than restrictions
of general applicability imposed by federal or state securities laws). All
options, warrants or rights set forth in SCHEDULE 3.4 were issued in compliance
with Applicable Law. SCHEDULE 3.4 sets forth the sole record and beneficial
owners of all of such options, warrants or rights.
3.5. SUBSIDIARIES.
(a) The total authorized capital stock of each Subsidiary consists of
the number and type of shares of capital stock set forth under Column II of
SCHEDULE A opposite the name of such Subsidiary. The number of shares of each
Subsidiary that is issued and outstanding is set forth under Column III of
SCHEDULE A opposite the name of such Subsidiary. All issued and outstanding
shares of each Subsidiary's capital stock are validly issued, fully paid and
nonassessable and were acquired by the Company or a Subsidiary pursuant to an
exemption from the registration requirements of federal and state securities
laws. Each of the IBRD-Europe Shares was issued by the respective IBRD-Europe
Subsidiary to IBRD-Rostrum (and will have been issued to the Company upon
completion of the Liquidation of IBRD-Rostrum) in compliance with Applicable
Law. Except as set forth in SCHEDULE 3.5, there are no outstanding (a)
securities convertible into or exchangeable for any capital stock of any
Subsidiary; (b) options, warrants or other rights to purchase or subscribe to
capital stock of any Subsidiary or securities convertible into or exchangeable
for capital stock of any Subsidiary; or (c) contracts, commitments, agreements,
understandings, arrangement, calls, demands, or claims of any kind relating to
the issuance of any capital stock of any Subsidiary, any such convertible or
exchangeable securities or any such options, warrants or rights; in each
instance other than those, if any, created by the Buyers. Except as set forth in
SCHEDULE 3.5, the Company directly or indirectly owns beneficially and of record
all of the issued and outstanding capital stock of each Subsidiary, in each case
free and clear of all liens, encumbrances, charges, adverse claims and
restrictions (other than restrictions of general applicability imposed by
federal or state securities laws). Except as set forth in SCHEDULE 3.5, the
Company does not, directly or indirectly, own any stock or other equity interest
in any other Person. All options, warrants or rights set forth in SCHEDULE 3.5
were issued in compliance with Applicable
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Law. SCHEDULE 3.5 sets forth the sole record and beneficial owners of all of
such options, warrants or rights.
(b) Except as set forth in SCHEDULE 3.5 hereto, to the Knowledge of
KAS: (i) the total authorized capital stock of KCAS consists of the number and
type of shares of capital stock set forth under Column II of SCHEDULE A; (ii)
the number of shares of KCAS that are issued and outstanding is set forth under
Column III of SCHEDULE A; (iii) all issued and outstanding shares of each of
KCAS' and Bath's capital stock held by the Company or any Subsidiary are validly
issued, fully paid and nonassessable and were acquired by the Company or a
Subsidiary, as applicable, pursuant to an exemption from the registration
requirements of federal and state securities laws; (iv) there are no outstanding
(a) securities convertible into or exchangeable for any capital stock of KCAS;
(b) options, warrants or other rights to purchase or subscribe to capital stock
of KCAS or securities convertible into or exchangeable for capital stock of
KCAS; or (c) contracts, commitments, agreements, understandings, arrangement,
calls, demands or claims of any kind relating to the issuance of any capital
stock of KCAS, any such convertible or exchangeable securities or any such
options, warrants or rights; in each instance other than those, if any, created
by the Buyers; (v) the Company directly or indirectly owns beneficially and of
record that number of issued and outstanding capital stock of, KCAS as set forth
in SCHEDULE A, and of Bath, in each case free and clear of all liens,
encumbrances, charges, adverse claims and restrictions (other than restrictions
of general applicability imposed by federal or state securities laws); (vi) all
options, warrants or rights set forth in SCHEDULE 3.5 in respect of KCAS were
issued in compliance with Applicable Law; and (vii) SCHEDULE 3.5 sets forth the
sole record and beneficial owners of all of such options, warrants or rights in
respect of KCAS.
3.6. FINANCIAL STATEMENTS. KAS has delivered to the Buyers: (a) the
Company's audited consolidated balance sheets dated December 31, 1996 (the
"Company Audited Balance Sheet"), December 31, 1995 and December 31, 1994,
including the notes thereto, and the related audited consolidated statements of
income and retained earnings and cash flow for each of the fiscal years then
ended, together with the report thereon of Deloitte Touche Tohmatsu independent
certified public accountants (collectively, the "Company Year-End Financial
Statements"); and (b) the Company's unaudited consolidated interim balance sheet
(the "Company Interim Balance Sheet") dated September 30, 1997 (the "Company
Interim Balance Sheet Date") and the related unaudited consolidated statements
of income and retained earnings and cash flow for the nine-month period ended on
the Company Interim Balance Sheet Date (collectively, the "Company Interim
Financial Statements," and together with the Company Year-End Financial
Statements, the "Company Financial Statements"). Except as set forth in SCHEDULE
3.6, the Company Financial Statements (a) are correct and complete and in
accordance with the books and records of the Company; (b) have been prepared in
accordance with GAAP consistently applied throughout the periods covered
thereby; and (c) fairly reflect the financial position of the Company and the
Subsidiaries on a consolidated basis as of the respective dates thereof and the
results of operations and changes in stockholders' equity and cash flow for the
periods then ended, subject in the case of the Company
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Interim Financial Statements, to normal recurring year-end adjustments, none of
which will be material, and the absence of notes.
For purposes of financial presentation, the Company recognizes net revenue
from its contracts as set forth in SCHEDULE 3.6.
The Company backlog (calculated based on fee payments anticipated to be
received under letters of intent and legally binding written agreements for the
provision of contract research to third parties) ("Backlog") as of September 30,
1997 was as described in SCHEDULE 3.6, as certified by the Company's principal
financial officer.
3.7. BOOKS AND RECORDS. All material books of account of the Company and
each Subsidiary and other financial records prepared by or on behalf of the
Company or any Subsidiary (the "Books and Records") are complete and correct in
all respects and fairly reflect in reasonable detail its assets, liabilities and
transactions and, where applicable, are in accordance with GAAP (except as
otherwise stated therein). Except as set forth in SCHEDULE 3.7, all of the Books
and Records have been prepared and maintained in accordance with good business
practices and, where applicable, in conformity with GAAP (except as otherwise
stated therein) and are in compliance in all respects with Applicable Law.
3.8. ACCOUNTS RECEIVABLE. Except as set forth in SCHEDULE 3.8, all of the
accounts and notes receivable of the Company and each Subsidiary as set forth on
the Company Audited Balance Sheet or arising since the date thereof (including
all of the accounts receivable listed in SCHEDULE 3.8A) (a) are valid and
genuine; (b) have arisen only in the ordinary course of business; and (c) except
to the extent of any reserves with respect thereto are not subject to valid
defenses, set-offs or counterclaims and have been (or will be in the ordinary
course of business) billed. SCHEDULE 3.8A sets forth a true, correct and
complete list of all accounts receivable as of December 18, 1997 (in respect of
IBRD-U.K., IBRD-France and IBRD-Germany) and December 19, 1997 (in respect of
the Company and the U.S. Subsidiary). The allowance for doubtful accounts
reflected on the Company Audited Balance Sheet and Company Interim Balance Sheet
has been determined in accordance with GAAP. Except as set forth in SCHEDULE 3.8
KAS does not know of any facts or circumstances (other than general economic
conditions) that are likely to result in any material increase in the
uncollectibility of such accounts and notes receivable in excess of any
allowance therefor set forth on the Company Interim Balance Sheet.
3.9. NO UNDISCLOSED LIABILITIES. Except as set forth in SCHEDULE 3.9,
neither the Company nor any Subsidiary has any liabilities, debts or obligations
(whether due or to become due, absolute, accrued, contingent, matured or
unmatured), other than those that (a) are disclosed or reserved against on the
Company Interim Balance Sheet; (b) have been incurred in the ordinary course of
business since the Company Interim Balance Sheet Date; or (c) are disclosed in a
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Disclosure Schedule. Except as set forth in SCHEDULE 3.9, neither the Company
nor any Subsidiary is obligated in respect of any Liability of KCAS or Bath.
3.10. INSURANCE. SCHEDULE 3.10 lists all policies or binders of insurance
held by or on behalf of the Company and each Subsidiary, specifying with respect
to each policy the insurer, the amount of the coverage (as reflected on the
declarations page thereon), the type of insurance, the expiration date, the
policy number and any pending claims thereunder, including all insurance
policies that, to the Knowledge of Seller, have been maintained by any other
Person that may provide any coverage with respect to any Environmental Losses.
All such policies are in full force and effect. There is no Default with respect
to any such policy or binder, nor has there been any failure to give any notice
or present any claim under any such policy or binder in a timely fashion or in
the manner or detail required by the policy or binder. Except as set forth in
SCHEDULE 3.10, there is no notice of nonrenewal or cancellation with respect to,
or disallowance of any claim under, any such policy or binder that has been
received by the Company or any Subsidiary within the past twelve (12) months.
3.11. ABSENCE OF CERTAIN CHANGES. Except as set forth in SCHEDULE 3.11,
since December 31, 1996 the Company and each Subsidiary has conducted its
operations in the ordinary course and there has not occurred any event that,
individually or in the aggregate, has had, or reasonably could be expected to
have, a Material Adverse Effect, and neither the Company nor any Subsidiary has
taken any action or agreed to take any action that, if taken after the date
hereof would constitute a breach of Section 5.2 hereof.
3.12. COMPLIANCE WITH LAWS. Except as set forth in SCHEDULE 3.12 the
Company and each Subsidiary has complied with, and is in compliance with, all
Applicable Law, except for any noncompliance that would not have a Material
Adverse Effect.
3.13. GOVERNMENTAL PERMITS. The Company and each Subsidiary has all
Governmental Permits of federal, state or local governmental or regulatory
bodies that are required to operate their respective businesses (including,
without limitation, those required under any Environmental Law or FDA law) and
the Company and each Subsidiary is in compliance with the terms and conditions
of the Governmental Permits. SCHEDULE 3.13 sets forth a correct and complete
list of all Governmental Permits along with their expiration dates, each one of
which is currently valid and in full force. The Company and each Subsidiary has
filed such timely and complete renewal applications as may be required with
respect to its Governmental Permits. No suspension, revocation, cancellation or
withdrawal of any of the Governmental Permits has been filed or, to the
Knowledge of KAS, is threatened and no cause exists for such suspension,
revocation, cancellation or withdrawal. Any Governmental Permits that cannot be
transferred in connection with the Transactions are identified in SCHEDULE 3.13.
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3.14. TAXES AND TAX RETURNS.
(a) The Company and each of its Subsidiaries has duly and timely filed
all tax returns required by Applicable Law including all information returns,
schedules, forms or other certificates (the "Tax Returns"), and each such Tax
Return as amended (if amended prior to November 27, 1997) is true, accurate and
complete. The Company and each of its Subsidiaries has paid in full all Taxes
for the period covered by such Tax Returns. All Taxes for the period ending on
the Closing Date and which are not yet due and payable will have been withheld
or reserved for on the Books and Records of the Company and its Subsidiaries, in
accordance with GAAP on a consistent basis, or, to the extent that they relate
to periods on or prior to the date of the Company Audited Balance Sheet, are
reflected as a liability thereon.
(b) The Company and each of its Subsidiaries has complied with the
requirements of all Applicable Law relating to the payment and withholding of
Taxes (including, without limitation, withholding of Taxes pursuant to Section
1441 and 1442 of the Code, or similar provisions under any foreign Applicable
Law) and have, within the time and in the manner prescribed by Applicable Law,
withheld from employee wages and paid over, in a timely manner, to the proper
taxing authorities all amounts required to be so withheld and paid over under
Applicable Law.
(c) No deficiency for any Taxes has been asserted or assessed against
the Company or any of its Subsidiaries that has not been resolved and paid in
full or fully reserved for and identified on the Company Audited Balance Sheet
and, no deficiency for any Taxes has been proposed in writing to the Company or
is otherwise known to the Company that has not been fully reserved for and
identified on the Company Audited Balance Sheet. Neither the Company nor any of
its Subsidiaries has received any outstanding and unresolved notices from the
IRS or any other taxing authority of any proposed examination or of any proposed
change in reported information relating to the Company or any such Subsidiary.
Except as set forth in SCHEDULE 3.14 (which sets forth the nature of the
proceeding, the type of Tax Return, the deficiencies proposed or assessed and
the amount thereof, and the taxable year in question), no Action or audit or
similar foreign proceedings is pending with regard to any of the Company's or
any of its Subsidiaries' Taxes or Tax Returns.
(d) No waiver or comparable consent given by the Company or any of its
Subsidiaries regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns is outstanding, nor, to the Knowledge of
KAS, is any request for any such waiver or consent pending.
(e) There are no liens or encumbrances of any kind for Taxes upon any
assets or properties of the Company or any of its Subsidiaries other than for
Taxes not yet due and payable.
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(f) Neither the Company nor any of its Subsidiaries has requested any
extension of time within which to file any Tax Return, which Tax Return has not
since been filed.
(g) The Company and certain of its Subsidiaries are a party to an
agreement dated December 15, 1992 providing for the allocation or sharing of
Taxes (the "Tax Sharing Agreement") and no other arrangements, whether or not in
writing exist concerning the sharing of tax cost or benefits.
(h) Neither of the Company nor any of its Subsidiaries has made any
election under Section 341(f) of the Code.
(i) Neither the Company nor any of its Subsidiaries has agreed to
make, nor is any of them required to make, any adjustment under Section 481(a)
of the Code for any period ending after the Closing Date by reason of a change
in accounting method or otherwise and neither the Company nor any of its
Subsidiaries has any knowledge that the IRS has proposed such adjustment or
change in accounting method.
(j) None of the assets of the Company or any of its Subsidiaries is
required to be treated as owned by any other person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code.
(k) Neither the Company nor any of its Subsidiaries is a party to any
venture, partnership, contract, agreement, understanding or arrangement under
which it could be treated as a partner for federal income tax purposes.
(l) Other than in respect of a period for which a Tax is not yet due,
no state of facts exists or has existed that would constitute grounds for the
assessment of any Tax liability with respect to a period that has not been
audited by any Governmental Authority.
(m) Except as provided in SCHEDULE 3.14, no power of attorney has been
granted by the Company or any of its Subsidiaries with respect to any matter
relating to Taxes that is currently in force.
(n) Neither the Company nor any of its Subsidiaries is or has been a
United States real property holding company (as defined in Section 897(c)(2) of
the Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of
the Code.
(o) Neither the Company nor any of its Subsidiaries is a party to any
Contract or arrangement that would, nor will the execution of and performance of
this
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Agreement, result in the payment of any "excess parachute payment" within the
meaning of Section 280G of the Code.
(p) All transactions that could give rise to an understatement of
federal income tax (within the meaning of Section 6662 of the Code or any
predecessor provision thereof) have been adequately disclosed on the Tax Returns
required in accordance with Section 6662(d)(2)(B) of the Code or any predecessor
provision thereto.
(q) No election under Code Section 338 (or any predecessor
provisions) has been made by or with respect to the Company or any of its
Subsidiaries or any of their respective assets or properties.
(r) No indebtedness of the Company or any of its Subsidiaries is
"corporate acquisition indebtedness" within the meaning of Code Section
279(b).
(s) The additional representations and warranties set forth on
ATTACHMENT A apply with respect to IBRD-U.K. and its Subsidiaries.
3.15. CONTRACTS. SCHEDULE 3.15 sets forth all of the following
(collectively, the "Contracts"):
(a) written or unwritten contracts, agreements or understandings
between the Company or any Subsidiary and any current or former officer,
director or employee thereof;
(b) notes, mortgages, indentures and other agreements and instruments
for money borrowed in excess of $100,000 and guarantees of third-party
obligations of $100,000 or more entered into by or binding on the Company
or any Subsidiary;
(c) joint venture or partnership agreements to which the Company or
any Subsidiary is a party;
(d) real property leases to which the Company or any Subsidiary is a
party;
(e) personal property leases to which the Company or any Subsidiary is
a party involving total future payments in excess of $100,000;
(f) written or unwritten contracts, agreements or understandings to
which the Company or any Subsidiary is a party containing covenants of the
Company or any Subsidiary not to compete in a line of business or with a
Person;
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(g) contracts granting or permitting any Encumbrances with respect to
any assets, rights or capital stock of the Company or any Subsidiary;
(h) contracts, licenses or distributorships that relate in whole or in
part to any Intellectual Property or Software;
(i) representative, sales agency, dealer or distributor contracts;
(j) other written or unwritten contracts, agreements, understandings
or offers (which if accepted by the other party would be binding upon the
parties thereto) involving an estimated total future payment or payments or
liability, individually or, with respect to a group of related written
contracts with a single third party, taken as a whole, in excess of
$100,000 to or by the Company or any Subsidiary;
(k) employment or consulting agreements;
(l) bonus, profit-sharing, compensation, stock option, severance,
pension, retirement, accrued vacation pay, group insurance, welfare
arrangements or other plans, agreements, trusts or arrangements for the
benefit of employees; or
(m) any other material contracts not made in the ordinary course of
business.
Except as disclosed in SCHEDULE 3.15(B), (i) each of the Contracts listed
in SCHEDULE 3.15(A) is valid and enforceable in accordance with its terms, (ii)
the Company or the applicable Subsidiary, and to the Knowledge of Seller, the
other party(ies) to such Contract are in compliance with the provisions thereof,
and are not in default in the performance, observance or fulfillment of any
material obligation, covenant or condition contained therein, and no event has
occurred that would constitute a Default by the Company or a Subsidiary, or to
the Knowledge of Seller, the other party thereto, (iii) no Contract contains any
contractual requirement within which there is a reasonable likelihood the
Company or any Subsidiary or, to the Knowledge of Seller, any other party
thereto will be unable to comply, (iv) no advance payments have been received by
the Company or any Subsidiary by or on behalf of any party to any such Contracts
for services to be rendered or products to be delivered to such party following
the Closing Date, (v) no consent or approval of any party to such Contracts is
required for the execution, delivery, consummation and performance of this
Agreement, (vi) neither KAS nor any Affiliates of KAS other than the Company and
its Subsidiaries is a party to any such Contracts or is entitled to any benefits
thereof.
All Contracts (i) have been entered into in the ordinary course of business
consistent with past practices; (ii) have been priced in the ordinary course of
business consistent with past
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practice; and (iii) when entered into (including, without limitation, when
change orders and extensions were given) provide for operating profit margins
which in the aggregate are consistent with past practice.
Neither the Company nor any Subsidiary has diverted, or will divert,
revenue or earnings on a particular contract to Kuraya, IBRD-Japan or any
Affiliate of either organized under the laws of Japan.
3.16. PERSONAL PROPERTY. The Company and the Subsidiaries have good and
marketable title to all of their properties and assets, including the property
and assets reflected on the Company Interim Balance Sheet (except as since sold
or disposed of in the ordinary course of business), free and clear of
Encumbrances, except (a) as set forth in SCHEDULE 3.16; and (b) for any
Encumbrance, that would not have a Material Adverse Effect.
3.17. REAL PROPERTY. Neither the Company nor any Subsidiary owns any real
property. SCHEDULE 3.17 sets forth an accurate, correct and complete list of all
Leased Real Property, including the street address thereof. The Company or a
Subsidiary has been in peaceable possession of the Leased Real Property since
the commencement of the original term of the applicable lease thereon, and has
performed all material obligations required to be performed by it to date under
such lease. Neither the leases identified in SCHEDULE 3.15 nor the leasehold
interest of the Company or any Subsidiary with respect to such Leased Real
Property is subject to any Encumbrances granted by the Company or Subsidiary or,
to the Knowledge of KAS, any third party, except as set forth in SCHEDULE 3.15.
3.18. INTELLECTUAL PROPERTY.
(a) SCHEDULE 3.18 sets forth a correct and complete list and
description of all Intellectual Property and all Software owned by or licensed
to the Company or any Subsidiary and used directly, in whole or in part, in and
material to the business of the Company or any Subsidiary, and indicates whether
such Intellectual Property and Software is owned or licensed by the Company or
any Subsidiary. Except as set forth in SCHEDULE 3.18, the Company or a
Subsidiary owns or licenses all material Intellectual Property and Software used
directly, in whole or in part, in the business of the Company or any Subsidiary.
(b) Except as set forth in SCHEDULE 3.18, either the Company or a
Subsidiary owns or is licensed to use or otherwise possesses legally enforceable
rights to use all trademarks, service marks, trade names, patents (other than
patents that have expired), patent applications and copyrights used in and
material to the Company's or a Subsidiary's business as currently conducted.
Except as disclosed in SCHEDULE 3.18, neither the Company nor any Subsidiary is
infringing on any Person's intellectual property rights.
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3.19. LABOR AND EMPLOYMENT MATTERS. Neither the Company nor any Subsidiary
is a party to any collective bargaining agreement or currently negotiating any
collective bargaining agreement. Except as set forth in SCHEDULE 3.19 or for
events that occur after the date hereof in a manner not prohibited by this
Agreement, (a) there is no labor strike, slowdown, work stoppage or lockout
pending or, to the Knowledge of KAS, threatened against or affecting the Company
or any Subsidiary and, during the past five (5) years, there has not been any
such action; (b) there are no union claims to represent the employees of the
Company or any Subsidiary; and (c) neither the Company nor any Subsidiary is a
party to or bound by any collective bargaining or similar agreement with any
labor organization.
3.20. EMPLOYEE LICENSES. (a) Each employee of the Company or any Subsidiary
who is practicing as a physician, nurse or pharmacist is identified in SCHEDULE
3.20, (b) each such employee is duly licensed and in good standing to practice
as a physician, nurse or pharmacist, as the case may be, in each jurisdiction in
which such employee renders services for or on behalf of the Company or any
Subsidiary where such licensure and standing is required by Applicable Law in
order for such person to render such services, (c) none of such employees is or
has been subject to any claim in connection with his or her practice as a
physician, nurse or pharmacist while employed by the Company or the Subsidiary,
as the case may be, and (d) no fact or occurrence exists, which is likely to
give rise to the revocation of any such license.
3.21. NON-COMPETITION. SCHEDULE 3.21 sets forth a true and complete list of
each employee of the Company or any Subsidiary that has signed non-compete
covenants in favor of the Company or the Subsidiary, as the case may be.
3.22. EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 3.22 contains a current, correct and complete list of
each Employee Benefit Plan maintained by, or under which, the Company or any
Subsidiary has any Liability, whether actual or contingent, to employees of the
Company or any Subsidiary or their respective beneficiaries, former employees of
the Company or any Subsidiary or their respective beneficiaries, or otherwise in
connection with the business of the Company or any Subsidiary.
(b) Except as set forth in SCHEDULE 3.22, all Employee Benefit Plans
conform (and at all times have conformed) in all material respects to, and are
being administered and operated (and have at all time been administered and
operated) in material compliance with, the requirements of ERISA, the Code
and/or all other Applicable Law. All returns, reports and disclosure statements
required to be made under ERISA and the Code with respect to all such Employee
Benefit Plans have been timely filed or delivered. There have not been any
"prohibited transactions," as such term is defined in Section 4975 of the Code
or Section 406 of ERISA, involving any of the Employee Benefit Plans subject to
ERISA, that could subject the Company or any Subsidiary to any material penalty
or tax imposed under the Code or ERISA.
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(c) Except as set forth in SCHEDULE 3.22, any Employee Benefit Plan
that is intended to be qualified under Section 401(a) of the Code and exempt
from tax under Section 501(a) of the Code has been determined by the Internal
Revenue Service to be so qualified or an application for such determination is
pending. Any such determination that has been obtained remains in effect and has
not been revoked, and with respect to any application that is pending, KAS has
no reason to suspect that such application for determination will be denied.
Nothing has occurred since the date of any such determination that is reasonably
likely to affect adversely such qualification or exemption, or result in the
imposition of excise taxes or income taxes on unrelated business income under
the Code or ERISA with respect to any such Employee Benefit Plan.
(d) The Company and the ERISA Affiliates do not sponsor or contribute
to, and have not in the past sponsored or contributed to, and have no Liability
with respect to, any defined benefit plan subject to Title IV of ERISA or any
multi-employer plan (as defined in Section 3(37) of ERISA). Neither the Company
nor any ERISA Affiliate has any current or contingent obligation to any
multi-employer plan (as defined in Section 3(37) of ERISA). The Company and the
Subsidiaries do not have any Liability with respect to any employee benefit plan
or arrangement other than with respect to the Employee Benefit Plans listed in
SCHEDULE 3.22.
(e) There are no pending or, to the Knowledge of KAS, threatened
claims by or on behalf of any such Employee Benefit Plans, or by or on behalf of
any individual participants or beneficiaries of any such Employee Benefit Plans,
alleging any violation in respect of such Employee Benefit Plans of ERISA or any
other Applicable Laws or regulations, or claiming benefit payments (other than
those made in the ordinary operation of such plans), nor is there, to the
Knowledge of KAS, any basis for such claim. Except as set forth in SCHEDULE
3.22, such Employee Benefit Plans are not the subject of any pending (or to the
Knowledge of KAS, any threatened) investigation or audit by the Internal Revenue
Service, the U.S. Department of Labor or the Pension Benefit Guaranty
Corporation or any similar regulatory agency, foreign or domestic.
(f) The Company and each Subsidiary has timely made all required
payments and contributions under the Employee Benefit Plans including the
payment of all insurance premiums. All such payments and contributions have been
deducted fully to the extent permitted by Applicable Law by the Company or a
Subsidiary for federal income tax purposes. Such deductions have not been
challenged or disallowed by any Governmental Entity and KAS has no reason to
believe that such deductions are not properly allowable. There have been no
accumulated funding deficiencies (as defined in Section 412 of the Code or
Section 302 of ERISA) with respect to any Employee Benefit Plan and no request
for a waiver from the Internal Revenue Service with respect to any minimum
funding requirement under Section 412 of the Code. The Company and each
Subsidiary has not incurred any Liability for any tax, excise tax, penalty or
fee with respect to any Employee Benefit Plan, and no event has occurred and no
circumstance exists or has existed that could give rise to any such Liability.
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(g) Except as set forth in SCHEDULE 3.22, the execution of and
performance of the Transactions contemplated by this Agreement will not (either
alone or upon the occurrence of any additional or subsequent events) result in
any payment, acceleration, vesting or increase in benefits with respect to any
employee or former employee of the Company or any Subsidiary.
(h) Neither the Company nor any Subsidiary maintains any plan or
arrangement that provides post retirement medical benefits, post retirement
death benefits or other post retirement welfare benefits, other than to the
extent required by Part 6 of Title I of ERISA.
(i) Neither the Company nor any Subsidiary maintains or contributes
to, nor has maintained or contributed to any "welfare benefit fund" (within the
meaning of Section 419 of the Code).
(j) Any Employee Benefit Plan that is a group health plan (within the
meaning of Section 4980B(g)(2) of the Code) complies and has been administered
in material respects in accordance with all of the applicable requirements of
Section 4980B of the Code, Part 6 of Title I of ERISA, Title XXII of the Public
Health Service Act, the Social Security Act and all other Applicable Law.
(k) Any Employee Benefit Plan that is a group health plan (within the
meaning of Section 4980D(f)(1) of the Code) complies and has been administered
in material respects in accordance with all of the applicable requirements of
Subtitle K of the Code, Part 7 of Title I of ERISA, the Public Health Service
Act and all other Applicable Law, and
(l) Neither the Company nor any ERISA Affiliate has contributed to a
non-conforming group health plan (as that term is defined in Code section
5000(c)) or incurred any tax Liability under Code section 5000(a).
3.23. LEGAL PROCEEDINGS AND COMPLIANCE WITH LAWS; ENVIRONMENTAL MATTERS.
(a) Except as set forth in SCHEDULE 3.23, there is no Action that is
pending or, to the Knowledge of KAS, threatened against the Company or any
Subsidiary, or relating to the Transactions, nor to the Knowledge of Seller, are
there any reasonable grounds for any such Action. There has been no Default
under any Applicable Law relating to the operation of the Company or any
Subsidiary, including Environmental Law, and the Company and each Subsidiary has
not received any notices from any governmental entity regarding any alleged
Defaults under any Applicable Law. Except as set forth in SCHEDULE 3.23, the
Company and each Subsidiary has not received any notice relating to the business
or the Leased Real Property alleging any violation of any Environmental Law or
any written request for information from any governmental agency or other
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Person pursuant to any Environmental Law. The Company and each Subsidiary is in
compliance with the terms and conditions of all Governmental Permits required
under any Environmental Law or relating to any Hazardous Substance. Except as
set forth in SCHEDULE 3.23, neither the Company nor any Subsidiary is a party to
any Court Order, nor, to the Knowledge of Seller, is there any Court Order that
might affect the Transactions. There has been no Default by the Company or any
Subsidiary with respect to any Court Order applicable to the Company or any
Subsidiary.
(b) Without limiting the generality of Section 3.23(a), there has not
been any Environmental Condition (i) at any property or premises at which the
business of the Company or any Subsidiary has been conducted, (ii) at any
property owned, leased or operated at any time by the Company or any Subsidiary
or any predecessor of any of them, or (iii) at any property at which Hazardous
Substances have been deposited or disposed by or at the behest or direction of
any of the foregoing, nor has the Company or any Subsidiary received written
notice of any such Environmental Condition. "Environmental Condition" means any
condition or circumstance, including the presence of Hazardous Substances,
whether created by the Company or any Subsidiary or any other Person, at or
relating to any such property or premises that (x) requires abatement or
correction under an Environmental Law, (y) gives rise to any civil or criminal
liability on the part of the Company or any Subsidiary under an Environmental
Law, or (z) has created a public or private nuisance. To the Knowledge of KAS,
the Leased Real Property does not contain any: (A) underground storage tanks,
(B) underground injection wells; (C) septic tanks in which process wastewater or
any Hazardous Substances have been disposed; (D) asbestos; (E) equipment using
polychlorinated biphenyls; or (F) drums buried in the ground.
(c) SCHEDULE 3.23 identifies all environmental reports, studies,
assessments, analyses or any other related documents in the possession or
custody or under the control of KAS relating to any Environmental Condition, the
Company or any Subsidiary or the Leased Real Property, true and complete copies
of which have been delivered to the Buyers.
3.24. COMPENSATION ARRANGEMENTS; BANK ACCOUNTS; OFFICERS AND DIRECTORS.
SCHEDULE 3.24 hereto sets forth the following information:
(a) the names and current annual salary, including any bonus, if
applicable, of all present officers and employees of the Company or the
Subsidiaries whose current annual salary, including any promised, expected or
customary bonus, equals or exceeds $80,000, together with a statement of the
full amount of all remuneration paid during the twelve (12) month period
preceding the date hereof and currently payable by the Company and the
Subsidiaries to each such person and to any director of the Company or the
Subsidiaries;
(b) the name of each bank in which the Company or any Subsidiary has
an account or safe deposit box, the identifying numbers or symbols thereof and
the names of all persons authorized to draw thereon or the have access thereto;
and
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(c) the names and titles of all directors and officers of the Company
and of each Subsidiary and of each trustee, fiduciary or plan administrator of
each Employee Benefit Plan.
3.25. KAS'S BROKERS. Except as set forth in SCHEDULE 3.25, (a) no broker,
finder or investment banker has acted directly or indirectly for KAS or any
Affiliate thereof in connection with this Agreement or the transactions
contemplated hereby; and (b) no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in respect thereof based
in any way on agreements, arrangements or understandings made by or on behalf of
KAS or any Affiliate thereof.
3.26. CUSTOMERS AND SUPPLIERS. Except as set forth in SCHEDULE 3.26 KAS has
used its reasonable business efforts to maintain and currently maintains, good
working relationships with all of its customers. SCHEDULE 3.26 contains lists of
the names of each of the twenty customers that, for each of the years ended
December 31, 1995 and 1996 and for the nine months ended September 30, 1997,
were the largest dollar volume customers of the Company or the Subsidiaries.
Except as specified in SCHEDULE 3.26, none of such customers has given the
Company or any Subsidiary notice terminating, canceling or threatening to
terminate or cancel any contract or relationship with the Company or any
Subsidiary. To the Knowledge of Seller, no major customer intends to cease doing
business with the Company or any Subsidiary or, after the Closing, with the
Buyers, or to alter materially the amount of business done with the Company or
any Subsidiary or the Buyers due to the consummation of the Transactions or any
other reason.
3.27. CONDITION OF ASSETS. All Leased Real Property and tangible personal
property of the Company and each Subsidiary are suitable for the purposes for
which they are used, are in good operating condition and repair, reasonable wear
and tear excepted, are usable in the ordinary course of business, are free from
any known defects, except such minor defects that would not have a Material
Adverse Effect, individually or in the aggregate, and conform in all material
respects to all Applicable Law relating to their construction, use and
operation. Any Software used by the Company and each Subsidiary, together with
all know-how and processes used in connection therewith, functions as intended
and is in machine-readable form.
3.28. COMPLETENESS AND ACCURACY OF INFORMATION. All information set forth
in any Schedule hereto is true and correct. No representation or warranty by KAS
or Kuraya in any Transaction Document, and no information contained therein or
otherwise delivered by or on behalf of KAS or Kuraya to the Buyers in writing in
connection with the Transactions, including the Company Financial Statements,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements contained herein or therein not
misleading. All Contracts, permits and other documents and instruments furnished
or made available to the Buyers by KAS or Kuraya, when so furnished or made
available are or will be true, complete and
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accurate originals or copies of originals and include all amendments,
supplements, waivers and modifications thereto. There is no fact, development or
threatened development (excluding general economic factors affecting business in
general) that KAS or Kuraya has not disclosed to the Buyers in writing that has
or, so far as KAS or Kuraya can now foresee, may have, a Material Adverse
Effect. To the Knowledge of KAS, except as set forth in SCHEDULE 3.28, there is
no fact, development or threatened development (excluding general economic
factors affecting business in general) that KAS or Kuraya has not disclosed to
the Buyers in writing that has or, may have, a Material Adverse Effect in
respect of KCAS or Bath.
3.29. IBRD JAPAN. Except as set forth in SCHEDULE 3.29, IBRD Japan, a
wholly owned subsidiary of Kuraya ("IBRD Japan"), does not conduct operations in
competition with, or otherwise in conflict with, the business of the Company and
the Subsidiaries. IBRD Japan currently does not use any property belonging to
the Company or any of the Subsidiaries. There are no obligations of IBRD Japan
to the Company or any Subsidiary, and no obligations of the Company or any
Subsidiary to IBRD Japan.
3.30. NO IMPLIED REPRESENTATIONS. Notwithstanding anything contained herein
to the contrary, it is the explicit intent of each party hereto that neither KAS
nor any Affiliate thereof is making or has made any representation or warranty
whatsoever, express or implied, beyond those expressly given by KAS or Kuraya
herein, including but not limited to any implied warranty or representation as
to the future business, results of operations, financial condition or prospects
of the Company or any Subsidiary or as to the value, condition, merchantability
or suitability of any of the properties or assets of the Company or any
Subsidiary.
3.31. TRANSACTIONS WITH RELATED PARTIES. Except as disclosed in SCHEDULE
3.31, no Related Party (as hereinafter defined) has:
1. borrowed money or loaned money to the Company or any Subsidiary
which remains outstanding;
2. any contractual or other claim, express or implied, of any kind
whatsoever against the Company or any Subsidiary (other than solely by
reason of his or her employment with the Company);
3. had any interest in any property or assets used by the Company or
any Subsidiary in their businesses; or
4. engaged in any other transaction with the Company, any Subsidiary
(other than employment relationships), any Affiliate of the Company or any
Subsidiary, or any customer, contractor or subcontractor.
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As used herein, a "Related Party" means KAS, Kuraya, the Company or IBRD
Japan, any of the officers, directors or employees of Kuraya, KAS, the Company,
any Subsidiary, IBRD Japan or any Affiliate of any of the foregoing, or any
Affiliate or relative of Kuraya, KAS, the Company, any Subsidiary or IBRD Japan,
or any of their respective officers, directors or employees, or any business or
entity in which Kuraya, KAS, the Company any Subsidiary or any Affiliate,
associate or relative of any such Affiliates or associates has any direct or
material indirect interest.
3.32. IBRD-EUROPE COMPANIES. The representations and warranties set forth
on ATTACHMENT B hereto are incorporated herein by reference and made a part
hereof.
3.33. CLINICAL TRIALS. Except as set forth in SCHEDULE 3.33, all clinical
trials conducted by the Company or any Subsidiary have been conducted in
compliance with good clinical practices and Applicable Law, including, but not
limited to, Title 21 of the United States Code of Federal Regulations
(particularly subchapters A, D and F) and the United States Food, Drug and
Cosmetic Act (particularly 21 U.S.C. subchapter V), and there have been no
deaths or serious injuries related to any drug or biologic being studied in any
such clinical trials. Except as set forth in SCHEDULE 3.33, to the Knowledge of
KAS all services provided by KCAS and Bath in clinical trials have been provided
in compliance with good laboratory practices and Applicable Law.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYERS
The Buyers jointly and severally represent and warrant to KAS as follows:
4.1. ORGANIZATION AND STANDING. Phoenix U.S. (a) is duly incorporated,
validly existing and in good standing under the laws of Delaware; (b) has all
necessary corporate power and authority to carry on its business as it is now
being conducted and to own or use the properties and assets that it purports to
own or use; and (c) is duly qualified as a foreign entity in good standing in
each jurisdiction where the character of its properties owned or leased or the
nature of its activities make such qualification necessary, except where the
failure to be so qualified or licensed would not have a Material Adverse Effect.
Phoenix Canada is (a) is duly incorporated, validly exists and is in good
standing under the Canada Business Corporations Act and (b) has all necessary
corporate capacity and power to own and lease its property and assets and to
carry on the business now conducted by it.
4.2. AUTHORITY. Each Buyer has all requisite corporate power and authority
to execute and deliver this Agreement and each Transaction Document to which it
is a party and to perform its obligations hereunder and thereunder. This
Agreement has been, and each Transaction Document to which it is a party will be
prior to the Closing, duly authorized, executed and delivered by each
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Buyer, and (assuming the due authorization, execution and delivery by KAS) this
Agreement constitutes, and each Transaction Document to which it is a party when
so executed and delivered will constitute, the legal, valid and binding
obligations of each Buyer enforceable against each Buyer in accordance with its
terms except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting enforcement of creditors' rights generally and
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).
4.3. NO VIOLATION OF LAW. The execution and delivery by each Buyer of this
Agreement and each Transaction Document to which it is a party, and the
performance by each Buyer of its respective obligations hereunder or thereunder,
does not and will not:
(a) violate any provision of the Certificate of Incorporation or
Bylaws of either Buyer;
(b) (i) violate any provision of Applicable Law relating to either
Buyer; (ii) violate any provision of any Order, arbitration award, judgment or
decree to which either Buyer is subject; or (iii) require a registration,
filing, application, notice, consent, approval, order, qualification or waiver
with, to or from any Governmental Authority, except under the HSR Act or as set
forth in SCHEDULE 4.3(B); except in either case where such violation or the
failure to comply with such requirement would not have a Material Adverse
Effect; or
(c) require a consent, approval or waiver from, or notice to, any
party to any material contract to which either Buyer or any Affiliate thereof is
a party which has not been obtained or sent, as the case may be, or result in a
breach of or cause a default under any provision of any such contract, except
where such breach would not have a Material Adverse Effect.
4.4. THE BUYERS' BROKERS. Except as set forth in SCHEDULE 4.4, (a) no
broker, finder or investment banker has acted directly or indirectly for either
Buyer or any Affiliate thereof in connection with this Agreement or the
transactions contemplated hereby; and (b) no broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in respect
thereof based in any way on agreements, arrangements or understandings made by
or on behalf of either Buyer or any Affiliate thereof.
4.5. INVESTMENT INTENTION. Each Buyer has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the Transactions. Each Buyer is acquiring its respective Shares for
investment only, and not with a view toward or for sale in connection with any
distribution thereof, or with any present intention of distributing or selling
any of its respective Shares. Each Buyer understands that the transactions
contemplated hereby have not been, and will not be, the subject of a
registration statement filed under the Securities Act, or qualified under
applicable states securities law, by reason of a specific exemption
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from the registration provisions of the Securities Act and the qualification
provisions of the applicable state securities laws. Each Buyer understands that
none of the Shares may be resold unless such resale is registered under the
Securities Act and qualified under applicable state securities laws, or an
exemption from such registration and qualification is available.
4.6. SECURITIES FILINGS. The Buyers have made available to KAS a complete
and accurate copy of each report, schedule, registration statement and
definitive proxy statement filed by Phoenix Canada with the Ontario Securities
Commission or the Quebec Securities Commission (each, a "Canadian Securities
Commission") on or after January 1, 1996 (the "Phoenix Securities Reports"),
which are all the forms, reports and documents required to be filed by Phoenix
Canada with either Canadian Securities Commission since December 31, 1995. The
Phoenix Security Reports (i) complied in all material respects with the
requirements of the Ontario or Quebec securities laws, as the case may be, at
and as of the times they were filed (or, if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing) and (ii)
did not at and as of the time they were filed (or, if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.7. FINANCIAL STATEMENTS. Each of the sets of financial statements
(including, in each case, any related notes thereto) contained in Phoenix
Security Reports were prepared in accordance with generally accepted accounting
principles of Canada applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and fairly presents
the consolidated financial position of Phoenix Canada and its subsidiaries as at
the respective dates thereof and the consolidated results of its operations and
cash flows for the periods indicated. Except for changes in the ordinary course
of business, since August 31, 1997, there has not occurred any event that,
individually or in the aggregate, has had, or reasonably could be expected to
have, a Material Adverse Effect.
ARTICLE 5
COVENANTS AND AGREEMENTS OF KAS
5.1. REQUIRED ACTIONS. Except as otherwise agreed by the Buyers in writing,
between the date of this Agreement and the Closing Date and as contemplated in
this Agreement, KAS and Kuraya shall, and KAS and Kuraya shall cause the Company
to:
(a) subject to reasonable conditions to avoid disruption of business
activities, give to the Buyers and their counsel, accountants, consultants and
other representatives, prior to the Closing Date, upon reasonable notice and
during normal business hours, reasonable access to communicate with all
employees who are project managers and project accountants (those
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responsible for accruing revenue for each project) and to all employees and
officers senior to such project managers and project accountants of the Company
and each Subsidiary, provided, however that the Buyers shall use commercially
reasonable efforts to minimize any potential disruptive affects of such access
by, for example, limiting the number of representatives seeking such access, and
give to the Buyers and their counsel, accountants, consultants and other
representatives, at the Buyers' sole expense and risk, upon reasonable notice
and during normal business hours, full access to such properties (including the
right to investigate the Leased Real Properties and inspect and copy all
relevant documents and records relating to any Environmental Losses or other
environmental matters), books, accounts, contracts, records and affairs as are
relevant to the Company and each Subsidiary and to TAP Holdings, Inc., and
furnish or otherwise make available to the Buyers all such information
concerning the Company and the Subsidiaries as either Buyer may reasonably
request; provided that notwithstanding the foregoing (i) the confidentiality of
any data or information so acquired shall be maintained as confidential by the
Buyers and their representatives in accordance with the Confidentiality
Agreement; (ii) in no event shall the Buyers or their counsel, accountants,
consultants or other representatives be entitled to contact any other employees,
vendor, or customer (except for TAP or any current customer of the Buyers) of
the Company or a Subsidiary or enter onto any of the premises of the Company or
a Subsidiary, without the prior consent of KAS (it being acknowledged by the
Buyers that Seller desires to restrict Buyers' access to the Company's and the
Subsidiaries' employees so as to prevent the disruption of the Company's and the
Subsidiaries' respective workforces, but that Seller shall endeavor to make
access to such employees available to the Buyers to the extent that doing so
will not result in such disruption); and (iii) the Buyers and their counsel,
accountants, consultants and other representatives shall use all reasonable
efforts to refrain from imposing any undue burden upon the Company and any
Affiliate thereof and from interfering with the Company's and any such
Affiliate's operations while conducting its due diligence activities;
(b) operate the business of the Company and each Subsidiary only in
the usual, regular and ordinary manner as such business was conducted prior to
the date hereof and, to the extent consistent with such operation, use its
reasonable efforts until the Closing Date to (i) preserve and keep intact the
business of the Company and each Subsidiary, and (ii) preserve its relationships
with customers and others having business dealings with the Company and each
Subsidiary;
(c) maintain the assets of the Company and each Subsidiary, whether
owned or leased, in good repair, order and condition, in accordance with
manufacturers' instructions and the Company's and each Subsidiary's past
practice (reasonable wear and tear excepted), maintain the insurance policies or
binders referred to in SCHEDULE 3.10 in accordance with past practice and notify
the Buyers of any material changes in the terms of the insurance policies or
binders referred to in SCHEDULE 3.10;
(d) maintain the Books and Records in the usual, regular and ordinary
manner, on a basis consistent with past practice;
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(e) comply in all material respects with all Applicable Law relating
to the Company and each Subsidiary and to the conduct of the operations of the
business and all Applicable Law in connection with the execution, delivery and
performance of the Transaction Documents or affecting the Transactions;
(f) promptly advise the Buyers in writing of the commencement or,
where to the Knowledge of Seller it exists, the threat of any Action against or
involving the Company or any Subsidiary or affecting the Transactions or of the
occurrence of any development (exclusive of general economic factors affecting
business in general) of a nature that has or may have a Material Adverse Effect;
(g) promptly advise the Buyers in writing of any event or development
that occurs that (i) had it existed or been known on the date hereof would have
been required to be set forth or disclosed in or pursuant to this Agreement;
(ii) would cause any of the representations and warranties of KAS contained
herein to be inaccurate or otherwise misleading or would result in the breach in
any material respect by KAS of any of its representations, warranties, covenants
or agreements hereunder; or (iii) gives KAS any reason to believe that any of
the conditions set forth herein applicable to KAS will not be satisfied;
(h) perform all the material obligations and satisfy all material
liabilities of KAS relating to the Company and each Subsidiary in accordance
with the past practice of KAS;
(i) provide to the Buyers all environmental reports, studies,
assessments, analyses and any other related documents in the Company's, any
Subsidiaries', KAS's or Kuraya's possession relating to any Environmental
Condition, the business of the Company and each Subsidiary or the Leased Real
Property, and cooperate with the Buyers in conducting an environmental
assessment of any Environmental Condition, the business of the Company and each
Subsidiary and the Leased Real Property, including physical inspection of the
Leased Real Property and the operations of the business of the Company and each
Subsidiary, review of all relevant records in the possession or custody or under
the control of KAS, review of relevant governmental agency records and contact
with governmental agency personnel and conduct of sampling activities and any
other investigatory activities, all of a scope satisfactory to the Buyers (the
"Environmental Assessment"), the costs of which shall be borne by the Buyers;
(j) pay all accounts and trade payables in the ordinary course of
business and consistent with past practice; collect all accounts receivable in
the ordinary course of business and consistent with past practice; and continue
to recognize revenues in accordance with the Company Policies; and
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(k) use its reasonable efforts to obtain in writing as promptly as
possible all waivers, approvals and consents, required to be obtained by KAS in
order to effectuate the Transactions and deliver to the Buyers copies of such
waivers, approvals and required consents.
In respect of Section 5.1(i), the Buyers shall, jointly and severally,
indemnify each Seller Indemnified Party (as defined in Section 10.4) from,
against and in respect of, any Losses incurred by such Seller Indemnified Party
directly caused by the performance of the Environmental Assessment by the Buyers
and their representatives.
In respect of Section 5.1(j), the Company shall provide to the Buyers on a
weekly basis prior to the Closing Date beginning on January 15, 1998 a schedule
providing aging schedules by accounts payable and accounts receivable.
5.2. PROHIBITED TRANSACTIONS. Except as otherwise contemplated herein or as
set forth in SCHEDULE 5.2, from the date hereof through the Closing Date, KAS
and Kuraya shall not without the prior written consent of the Buyers (which
consent shall not be unreasonably withheld), cause or suffer the Company or any
Subsidiary to do or agree to do any of the following:
(a) incur any new obligations for borrowed money, except for working
capital borrowings and other indebtedness incurred in the ordinary course of
business;
(b) issue or sell any equity securities or securities convertible into
equity securities including, without limitation, any options, rights, puts,
calls or warrants;
(c) amend its Certificate of Incorporation (or similar charter
document) or Bylaws in any material respect;
(d) mortgage, pledge or otherwise encumber any of its properties or
assets or sell, transfer or otherwise dispose of any of its properties or
assets, except in each case in the ordinary course of business;
(e) terminate or materially amend any Contract, except in the ordinary
course of business;
(f) waive any material right or forebear any material debt or release
any material claim, except in each case in the ordinary course of business;
(g) change in any material respect the character of the business,
including, without limitation, closing any office or facility used, in whole or
in part, by KAS in the conduct of the operations as of the date hereof;
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(h) subject to lien, security interest or any other Encumbrance any of
the assets or capital stock of the Company or any Subsidiary, except for (i)
purchase money security interests arising in the ordinary course of business of
no more than $50,000 individually or $150,000 in the aggregate, and (ii) Taxes
not yet due and payable;
(i) make any capital expenditure involving in any individual case more
than $20,000;
(j) increase or commit to increase the rate of compensation paid, or
pay any bonus, except for those increases or bonuses planned, in the ordinary
course of business, or establish or adopt any new pension or profit-sharing
plan, deferred compensation agreement or employee benefit arrangement of any
kind whatsoever;
(k) declare or make any distribution or payment in respect of the
Company's or any Subsidiary's capital stock by way of dividend, purchase or
redemption of shares or otherwise or make any extraordinary distribution;
(l) except as may be required by Applicable Law or as may be necessary
to preserve an Employee Benefit Plan's qualified status under Section 401 of the
Code, adopt, terminate, amend, extend, or otherwise change any Employee Benefit
Plan, and KAS shall give the Buyers prior written notice of the Company's or any
Subsidiary's intention to take any such action required by Applicable Law or
necessary to continue the qualified status of any Employee Benefit Plan;
(m) except as required by Applicable Law, publicize, advertise or
announce to any third party, except as required pursuant to this Agreement to
obtain a required consent, the entering into of the Transaction Documents or the
terms of the Transaction Documents or the Transactions; or
(n) enter into any new contract for services with a value in excess of
$500,000 other than the offers listed in SCHEDULE 3.15.
5.3. EFFORTS TO CLOSE. From the date hereof through the Closing Date, KAS
and Kuraya shall use its reasonable efforts to take, or cause to be taken, all
actions, and shall do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
Transactions (including, without limitation, using its reasonable efforts to
satisfy the Buyers' conditions to Closing), and shall cooperate with the Buyers
in connection with the foregoing.
5.4. EXPENSES. KAS and Kuraya shall bear all expenses incurred on behalf of
KAS, Kuraya, the Company and each Subsidiary in connection with the preparation,
execution and
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performance of this Agreement and the Transactions, including, without
limitation, all fees and expenses of their respective agents, representatives,
brokers, counsel and accountants.
5.5. SUPPLEMENTS TO SCHEDULES; COVENANTS. If prior to the Closing Date but
after the date hereof KAS shall become aware of any event or condition that
causes any of its representations or warranties herein to be inaccurate or
become aware that any of its representations or warranties herein was inaccurate
when made, KAS shall promptly notify the Buyers in writing (the "Supplemental
Notice"). KAS may thereafter (prior to but not on or following the Canada
Closing Date) supplement the Disclosure Schedule to account for such inaccuracy
and promptly will deliver the revised Disclosure Schedules to the Buyers. In
respect of any Schedule which has been revised to disclose information relating
to periods prior to the date hereof, the Buyers shall then at their sole
discretion have the option to terminate the Agreement, or proceed to the
Closings. If the Buyers determine to proceed to the Closings, then the
indemnification obligations of KAS and Kuraya under Section 10.2(i) shall be
limited and reduced to the extent of any Losses resulting from the event or
condition described in the Supplemental Notice. In respect of any Schedule which
has been revised to disclose information relating to the period after the date
hereof, Buyers' only right shall be to terminate this Agreement if such
information could reasonably be expected to result in a Material Adverse Effect.
If the Buyers determine to proceed to the Closings, then the indemnification
obligations of KAS and Kuraya under Section 10.2(i) as to such information shall
be limited and reduced to the extent of any Losses resulting from the event or
condition described in the Supplemental Notice.
5.6. FURTHER ASSURANCES. KAS and Kuraya shall execute such documents and
other papers and take such further actions as may be reasonably required or
desirable to carry out the provisions hereof and the transactions contemplated
hereby.
5.7. HSR ACT AND ISRA. KAS and Kuraya shall promptly take all such action
as may be necessary, desirable or convenient to satisfy the requirement of
filing notification under (a) the HSR Act and the rules of the FTC thereunder
and to comply at the earliest practicable date with any request for additional
information received by them from the FTC or from Justice pursuant to the HSR
Act. KAS shall promptly file an application with the New Jersey Department of
Environmental Protection for a decision that ISRA is not applicable to the
Company's New Jersey operations and in the event ISRA is applicable to comply
with ISRA (including entering into a remediation or similar agreement). KAS
shall use all reasonable efforts to assist the Buyers in complying with its
obligations under Section 6.4 hereof.
5.8. NO SOLICITATION OF TRANSACTIONS. KAS shall not directly or indirectly
solicit encourage, initiate or hold discussions or negotiations with, provide
any non-public information to, or enter into any agreement with, any Person
(other than the Buyers and their employees, representatives and agents) with
respect to a merger, consolidation, sale of substantial amount of assets, sale
of securities or acquisition of beneficial ownership of the Company or any
Subsidiary.
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5.9. COOPERATION WITH FINANCING; CAPITAL CONTRIBUTION. KAS and Kuraya
hereby agree, and agree to use their reasonable efforts to cause Deloitte &
Touche, to cooperate with Phoenix Canada, at the request and sole expense of
Phoenix Canada, its underwriters, accountants and advisors in connection with
their efforts in regard to any public offering of securities of Phoenix Canada
or any Affiliate after the Closing Date. Simultaneously with the Closing, Seller
shall cause the capital contribution or loan received by the Company pursuant to
Section 7.8 hereof to be used to pay off all amounts outstanding under the
obligations identified in SCHEDULE 7.8.
5.10. LIQUIDATION. No later than five business days after the execution of
this Agreement, IBRD-Rostrum shall adopt a plan of liquidation, as defined for
purposes of section 332 of the Code, which will provide for the distribution of
all of its assets and liabilities to IBRD-Rostrum prior to the Canadian
Acquisition. Within five business days after the adoption of such plan, KAS
shall prepare Internal Revenue Service Form 966, with attachments and provide it
to Phoenix Canada for its review and approval, which shall not be unreasonably
withheld. Unless Phoenix Canada objects, KAS shall file such form on the
business day before the Canada Closing. No later than the business day before
the Canadian Acquisition, IBRD-Rostrum shall, pursuant to the plan of
liquidation, distribute all of its assets and liabilities to the Company, in
complete liquidation of IBRD-Rostrum.
5.11. PROFESSIONAL LIABILITY INSURANCE POLICY. The Company, KAS, Kuraya and
IBRD-Rostrum shall, and shall cause the Subsidiaries to, execute all
certificates reasonably required by the Buyers and take all other actions
reasonably necessary, to enable Buyers' to obtain the Professional Liability
Insurance Policy.
ARTICLE 6
COVENANTS AND AGREEMENTS OF THE BUYERS
6.1. EFFORTS TO CLOSE. From the date hereof through the Closing Date, the
Buyers shall use reasonable efforts to take, or cause to be taken, all actions,
and shall do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the Transactions
(including, without limitation, using reasonable efforts to satisfy KAS
conditions to the Closings), and shall cooperate with KAS in connection with the
foregoing.
6.2. EXPENSES. The Buyers shall bear all expenses incurred on behalf of the
Buyers in connection with the preparation, execution and performance of this
Agreement and the Transactions, including, without limitation, all fees and
expenses of their respective agents, representatives, counsel, brokers and
accountants.
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6.3. FURTHER ASSURANCES. The Buyers shall execute such documents and other
papers and take such further actions as may be reasonably required or desirable
to carry out the provisions hereof and the transactions contemplated hereby.
6.4. HSR ACT. The Buyers shall promptly take all such action as may be
necessary, desirable or convenient to satisfy the requirement of filing
notification under the HSR Act and the rules of the FTC thereunder and to comply
at the earliest practicable date with any request for additional information
received by it from the FTC or from Justice pursuant to the HSR Act. The Buyers
shall use all reasonable efforts to assist KAS in complying with its obligations
under Section 5.7 hereof.
6.5. RECORDS. For a period of six (6) years after the Closings, the Buyers
shall cause the Company and each Subsidiary (i) to maintain in an orderly and
businesslike fashion all books, records and data in such Person's possession on
the Closing Date; (ii) to permit KAS and each of its Affiliate's employees,
agents and representatives to have reasonable access at KAS expense to such
books, records and data in connection with the preparation of KAS or such
Affiliate's financial reports, tax returns, tax audits and the defense or
prosecution of litigation (including arbitration); and (iii) to provide KAS and
its Affiliates with reasonable assistance at KAS's expense (but only for the
Buyers' documented, out-of-pocket expenses that have been pre-approved by KAS)
by the provision of employees of the Company or a Subsidiary (as applicable) to
act as witnesses and to prepare documents, reports and other information by KAS
and its Affiliates in support of activities described in clause.
6.6. CONFIDENTIALITY AGREEMENT. Until the Closing Date, the letter
agreement dated October 31, 1997 between Merrill Lynch, Pierce, Fenner & Smith,
Inc.(whose rights thereunder have been assigned to the Company) and Phoenix
Canada (the "Confidentiality Agreement") shall continue in full force and effect
in accordance with its terms.
6.7. GUARANTIES. After the Closing Date, the Buyers shall use commercially
reasonable efforts to cause each of the landlords set forth in SCHEDULE 6.7
hereto to release Kuraya from its guaranty of the leases set forth in SCHEDULE
6.7 by offering to substitute either or both Buyers as guarantors. After the
Closing Date, the Buyers shall, jointly and severally, indemnify Kuraya from,
against and in respect of, any Losses incurred by Kuraya under such guaranties
for events after the Closing Date. In the event KCAS subsequent to the Closing
requires Kuraya to provide a guaranty in favor of KCAS in accordance with the
Purchase Option Agreement, then the Buyers shall use commercially reasonable
efforts to have Kuraya released from such guaranty or the obligation to provide
such guaranty, by offering to substitute either or both Buyers as guarantors, or
in the alternative, the Buyers shall jointly and severally, indemnify Kuraya,
from, against and in respect of, any Losses incurred by Kuraya under such
guaranty.
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ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF KAS
The obligation of KAS and Kuraya to enter into and complete the Closings is
subject to the fulfillment on or prior to the Closing Date of the following
conditions, any one or more of which may be waived by KAS, in its sole and
absolute discretion.
7.1. REPRESENTATIONS AND COVENANTS. The representations and warranties of
the Buyers contained herein shall be true and correct in all material respects
on and as of the Closing Date as though made at and as of that date (except for
representations and warranties, if any, made as of a specified date, which shall
be true and correct as of the specified date), and the Buyers shall have
delivered to KAS a certificate to such effect.
7.2. COMPLIANCE WITH COVENANTS. The Buyers shall in all material respects
have performed and complied with all terms, agreements, covenants and conditions
of this Agreement to be performed or complied with by it on or prior to the
Closing Date, and the Buyers shall have delivered a certificate to that effect.
7.3. CORPORATE ACTION. The Buyers shall have delivered to KAS (a) certified
copies of the Buyers' charter documents and resolutions of the Buyers' Boards of
Directors, in form reasonably satisfactory to KAS, approving the execution and
delivery of this Agreement and each Transaction Document to which it is a party
and the performance of the Buyers' obligations hereunder and thereunder; (b) a
certificate of good standing with respect to the Buyers issued by appropriate
Governmental Authority of the Buyers' jurisdiction of incorporation showing that
each of the Buyers is in good standing in such jurisdiction, dated within ten
(10) business days prior to the Closings; and (c) an incumbency certificate of
each Buyer, certified by the Secretary or Assistant Secretary of each Buyer.
7.4. LITIGATION. On the Closing Date, there shall be no Action pending or
threatened pertaining to the Transactions.
7.5. ABSENCE OF ADVERSE GOVERNMENTAL ACTION. No action shall have been
taken, proposed or threatened and no statute, rule, regulation or order shall
have been proposed, enacted or entered by any Governmental Authority or by any
court with jurisdiction over the Transactions that threatens to prohibit or
unduly delay consummation of such Transactions on the terms and provisions
herein set forth.
7.6. FILINGS; CONSENTS; WAITING PERIODS. All registrations, filings,
applications, notices, consents, approvals, orders, qualifications and waivers
listed in SCHEDULES 3.3(B) OR 3.3(C),
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shall have been filed, made or obtained, and all waiting periods applicable
under the HSR Act shall have expired or been terminated.
7.7. APPROVAL OF DOCUMENTATION. The form and substance of all certificates,
instruments, opinions and other documents delivered to KAS under this Agreement
shall be satisfactory in all reasonable respects to KAS and its counsel.
7.8. DEBT. Phoenix U.S. shall have made a capital contribution, or, at the
Buyers' election, a loan, to the Company in an amount equal to the difference
between (i) the sum of all amounts outstanding immediately prior to the Closing
Date under the obligations identified in SCHEDULE 7.8 (as reflected in the
pay-off letters referred to in Section 8.12 hereof) and (ii) the amount of
Earned Cash of the Company and the Subsidiaries as of December 31, 1997 (or the
most recent month end prior to the Closing Date) as reflected on the Preliminary
Earned Cash Certificate, (the "Net Debt Amount") so that the Company may pay and
satisfy in full on the U.S. Closing Date all amounts outstanding on such date
under each loan set forth in SCHEDULE 7.8.
7.9. LEGAL OPINION. KAS shall have received a legal opinion from each of
Pepper, Hamilton & Scheetz LLP and McCarthy Tetrault, counsel to the Buyers in
substance and form reasonably satisfactory to KAS and its counsel, substantially
in the forms of EXHIBIT C-1 and EXHIBIT C-2 hereto, it being understood that
such firms shall opine only with respect to federal, Pennsylvania and Delaware
law, and Canadian law, respectively.
7.10. PROFESSIONAL LIABILITY INSURANCE POLICY. Buyer shall have obtained,
at Buyer's expense, and delivered to Seller, an occurrence professional
liability insurance policy (the "Professional Liability Insurance Policy")
covering the Company and the Subsidiaries for events or occurrences of the
business of the Company and the Subsidiaries for the five (5) year period prior
to the Closing Date; provided, however, the Sellers shall have no right to
terminate this Agreement or otherwise obtain the benefits of this Agreement, at
law or in equity on account of the failure to this provision to have been
satisfied unless the Sellers have delivered the certificates required under
Section 5.11. The Professional Liability Insurance Policy shall name KAS and
Kuraya as additional insureds. The Professional Liability Insurance Policy shall
be maintained for a period of not less than three years from the Closing Date,
with a deductible of not more than One Hundred Thousand Dollars ($100,000).
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ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF THE BUYERS
The obligation of the Buyers to enter into and complete the Closings is
subject to the fulfillment on or prior to the Closing Date of the following
conditions, any one or more of which may be waived by the Buyers, in their sole
and absolute discretion.
8.1. REPRESENTATIONS AND COVENANTS. The representations and warranties of
KAS and Kuraya contained herein and any amendments to the Schedules in
accordance with Section 5.5 hereof shall be true and correct on and as of the
Closing Date as though made at and as of that date (except for the
representations and warranties, if any, made as of a specified date, which shall
be true and correct as of the specified date), and KAS and Kuraya shall have
delivered to the Buyers a certificate of a duly authorized officer of KAS to
such effect.
8.2. COMPLIANCE WITH COVENANTS. KAS shall have performed and complied with
all terms, agreements, covenants and conditions of this Agreement to be
performed or complied with by it on or prior to the Closing Date, and KAS shall
have delivered to the Buyers a certificate of a duly authorized officer of KAS
to that effect.
8.3. CORPORATE ACTION. The Buyers shall have received (a) certified copies
of KAS's, the Company's and each Subsidiary's charter documents and resolutions
of KAS's Board of Directors, in form reasonably satisfactory to the Buyers,
approving the execution and delivery of this Agreement and each Transaction
Document to which it is a party and the obligations of KAS hereunder and
thereunder; (b) a certificate of good standing with respect to KAS, the Company
and each Subsidiary issued by the appropriate Governmental Authority of such
Person's jurisdiction of incorporation showing that such Person is in good
standing in such jurisdiction, dated within ten (10) days of the Closing Date;
and (c) incumbency certificates of KAS, the Company and each Subsidiary,
certified by the Secretary or Assistant Secretary of each such Person.
8.4. LITIGATION. On the Closing Date, there shall be no Action pending or
threatened pertaining to the Transactions or to their consummation.
8.5. ABSENCE OF ADVERSE GOVERNMENTAL ACTION. No action shall have been
taken, proposed or threatened and no statute, rule, regulation or order shall
have been proposed, enacted or entered by any Governmental Authority or by any
court with jurisdiction over the Transactions that threatens to prohibit or
unduly delay consummation of such transactions on the terms and provisions
herein set forth.
8.6. NO MATERIAL ADVERSE EFFECT OR DAMAGE. No event, occurrence, fact,
condition, change, development or effect shall have occurred, exist or come to
exist that, individually or in the
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aggregate, has constituted or resulted in, or could reasonably be expected to
constitute or result in, a Material Adverse Effect with respect to the Company
and the Subsidiaries, taken as a whole. No material damage to or destruction or
loss of (whether or not covered by insurance) any of the assets of the Company
and the Subsidiaries, taken as a whole, shall have occurred.
8.7. FILINGS; CONSENTS; WAITING PERIODS. All registrations, filings,
applications, notices, consents, approvals, orders, qualifications and waivers
listed in SCHEDULES 3.3(B) OR 3.3(C), or required by any Governmental Authority
or under Applicable Law, shall have been filed, made or obtained, all waiting
periods applicable under the HSR Act shall have expired or been terminated and
the Sellers shall (i) have received a determination that ISRA is not applicable,
or (ii) if ISRA is applicable, shall have complied with ISRA.
8.8. APPROVAL OF DOCUMENTATION. The form and substance of all certificates,
instruments, opinions and other documents delivered to the Buyers under this
Agreement shall be satisfactory in all reasonable respects to the Buyers and its
counsel.
8.9. RESIGNATIONS; SEMLER. The Buyers shall have received resignations from
all directors and officers of the Company and the Subsidiaries. All positions
and the employment of Tom Semler shall have terminated with the Company and any
Subsidiary, and neither the Company, any Subsidiary or the Buyers shall have
incurred or will incur any Liability (for severance or otherwise) in connection
therewith.
8.10. LEGAL OPINIONS. The Buyers shall have received a legal opinion of
Sheppard, Mullin, Richter & Hampton LLP, counsel for KAS, substantially in the
form attached hereto as EXHIBIT B, it being understood that such firm shall
opine only with respect to federal law, the General Corporation Law of Delaware,
and California law.
8.11. ANCILLARY DOCUMENTS. KAS and Kuraya shall have executed and delivered
all Transaction Documents to which they are intended to be parties, including
the Escrow Agreement.
8.12. CONSENT AND RELEASE. KAS shall have obtained pay-off letters and lien
releases from each lender set forth in SCHEDULE 7.8. All Encumbrances on the
assets of, or affecting in any way, the Company or any Subsidiary on account
thereof shall have been released.
8.13. ENVIRONMENTAL ASSESSMENT. The Buyers shall have received an
Environmental Assessment in form and substance satisfactory to the Buyers.
8.14. TERMINATION OF TAX SHARING AGREEMENT. Prior to the Closings, KAS, the
Company and the Subsidiaries shall have terminated the Tax Sharing Agreement,
and such termination shall include a release of the Company and each Subsidiary
from all obligations and liabilities under the Tax Sharing Agreement and neither
the Company nor a Subsidiary shall have any further liabilities or obligations
thereunder as of the Closing Date. At the U.S. Closing, KAS shall deliver the
amended executed Tax Sharing Agreement in the form attached hereto as EXHIBIT D.
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8.15. PROFESSIONAL LIABILITY INSURANCE POLICY. Buyer shall have obtained,
at Buyers' expense, the Professional Liability Insurance Policy covering the
Company and its Subsidiaries for events or occurrences of the business of the
Company and its Subsidiaries for the five (5) year period prior to the Closing
Date. The Professional Liability Insurance Policy shall name the Buyers, KAS and
Kuraya as additional insureds and the Buyers shall have provided Kuraya and KAS
with a certificate evidencing such insurance. Notwithstanding anything to the
contrary contained herein except as provided in Section 10.3(f) below, the
existence of any such insurance shall not be deemed to affect any
indemnification obligations or limitation of Liability provided for in this
Agreement. The Company, KAS, IBRD-Rostrum and Kuraya shall have executed and
delivered the certificates reasonably requested by the Buyers, and taken such
other action reasonably required by the Buyers' insurance carrier.
8.16. IBRD SHARES. KAS and Kuraya shall have taken all action necessary, to
the satisfaction of the Buyers and their counsel, to effect the valid transfer
of the IBRD-Europe Shares from the Company to Phoenix Canada on the Canada
Closing Date.
8.17. LIQUIDATION. The Liquidation shall have been consummated.
ARTICLE 9
COMPETITION AND CONFIDENTIALITY BY THE SELLING PARTIES
9.1. NONCOMPETITION. In consideration of the execution and performance by
the Buyers of its obligations under this Agreement, from the Closing Date
through the end of the second year following the Closing Date, KAS, Kuraya and
any Affiliate of KAS or Kuraya (including without limitation IBRD Japan) will
not, unless acting in accordance with the written consent of the Buyers, (a)
furnish for use in North America or Europe any services of the type provided by
the Company or any Subsidiary within the one year period prior to the Closing
Date, including, without limitation, services related to obtaining FDA
regulatory approvals or its European equivalent with respect to new drugs or
biotechnology products; or (b) hire any employee of the Company or any
Subsidiary to become employed by KAS, Kuraya or any Affiliate of KAS or Kuraya.
The restrictions contained in the preceding sentence are not intended to, nor
shall they be construed to, prohibit the general use of advertising and other
forms of public communications designed to obtain employees.
Notwithstanding any provisions in this Section 9.1, IBRD-Japan shall be
entitled to continue to provide regulatory consulting services to companies
organized under the laws of Japan, or any other Asian country, and any Affiliate
of such companies
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organized under the laws of Japan, or any other Asian country, in each case,
conducting their principal business activities in Asia, with respect to the
regulatory approval process in North America and Europe with respect to new
drugs or biotechnology products, so long as such consulting services do not
consist of (a) managing actual clinical trials or (b) providing any other drug
development service. For purposes of this Section 9.1, "Asia" shall consist only
of, and an Asian country shall be any of the following: Japan, North and South
Korea, Hong Kong, Singapore, Taiwan, China, Vietnam, Cambodia, Thailand,
Malaysia, Indonesia, India, Burma, Sri Lanka and Laos.
9.2. CONFIDENTIALITY. Prior to the Closings and indefinitely thereafter,
unless this Agreement is terminated, KAS or Kuraya shall not, except as may be
required by Applicable Law or court order, at any time reveal, divulge,
communicate or make known to any Person (other than the Buyers or their agents
or Affiliates) or, after the Closings, use in any way any information that
relates to this Agreement, the Transactions or the Company and the Subsidiaries
(whether now possessed by the KAS or furnished by the Buyers after the Closing
Date), including, without limitation, all trade secrets, customer lists or other
customer information, marketing plans or proposals, financial information,
personnel information or any data, written material, records or documents used
by or relating to the Company or any Subsidiary that are of a confidential
nature (collectively, the "Confidential Information").
9.3. AFFILIATES. The terms of this Article 9 shall apply to KAS and any of
its Affiliates to the same extent as if they were parties hereto, and KAS shall
take whatever actions may be necessary to cause its Affiliates to adhere to the
terms of this Article 9.
9.4. INJUNCTIVE RELIEF. Each of KAS and Kuraya acknowledges that the
provisions of this Article 9 are reasonable and necessary to protect the
interests of the Buyers, that any violation of this Article will result in an
irreparable injury to the Buyers and that damages at law would not be reasonable
or adequate compensation to the Buyers for violation of this Article. In the
event of any breach or threatened breach by KAS or any Affiliate thereof of any
provision of this Article 9, the Buyers shall be entitled to injunctive or other
equitable relief, restraining such party from using or disclosing any
Confidential Information in whole or in part, or from engaging in conduct that
would constitute a breach of the obligations of such party under this Article 9.
Such relief shall be in addition to and not in lieu of any other remedies that
may be available, including an action for the recovery of damages. In addition
to any other available remedies, the Buyers shall be entitled to have the
provisions of this Article 9 specifically enforced by preliminary and permanent
injunctive relief without the necessity of proving actual damages or posting a
bond or other security and to an equitable accounting of all earnings, profits
and other benefits arising out of any violation of this Article 9. In the event
that the provisions of this Article 9 shall ever be deemed to exceed the time,
geographic, product or other limitations permitted by Applicable Law, then the
provisions shall be deemed reformed to the maximum extent permitted by
Applicable Law. KAS acknowledges,
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however, that this Article 9 has been negotiated by the Parties and that the
time, geographic and product limitations, as well as the limitation on
activities, are reasonable in light of the circumstances pertaining to the
Company and the Subsidiaries.
ARTICLE 10
INDEMNIFICATION
10.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as otherwise set
forth in this Section 10.1, all representations and warranties of KAS and Kuraya
shall survive for eighteen (18) months after the Closing Date; provided that
there shall be no termination of any such representation or warranty as to which
a claim, including an Unliquidated Claim, has been asserted prior to the
termination of such survival period. All representations and warranties of KAS
and Kuraya set forth in Sections 3.4, 3.5 and 3.16 shall survive indefinitely.
All representations and warranties of KAS and Kuraya set forth in Sections 3.14,
3.22 and 3.23(b) and (c) and 3.33 shall survive the Closings and remain
effective until 60 days after the expiration of the applicable statute of
limitations for claims that might be asserted for matters related thereto;
provided, however, that, for purposes of this Section 10.1 as applied in respect
of Section 3.14, (i) the "statute of limitations" shall mean the later of (A)
the statute of limitations for the relevant period ending on or before the
Closing Date or (B) the statute of limitations for a later period in which the
Loss with respect to Taxes arises, (ii) the statute of limitations for Taxes
(including extensions thereto); provided that the statute of limitations with
respect to any Taxes may not be extended by the Buyers without the prior written
consent of KAS, which consent shall not be unreasonably withheld, and (iii)
notwithstanding the immediately preceding clause (i), all statutes of
limitations in respect of Taxes shall be deemed to have expired no later than
the fifteenth anniversary of the U.S. Closing. Except as provided in Section 5.5
above, all representations, warranties and covenants contained herein shall not
be deemed to be waived or otherwise affected by any investigation at any time
made by or on behalf of any Party hereto. Except as otherwise expressly provided
in this Agreement, all covenants, agreements, undertakings and indemnities set
forth in this Agreement shall survive indefinitely.
10.2. INDEMNIFICATION BY KAS AND KURAYA. Subject to the provisions of
Section 10.3 and to the further provisions of this Section 10, KAS and Kuraya
shall, jointly and severally, indemnify each of the Buyer Indemnified Parties,
and hold them harmless from, against and in respect of, any and all Sellers'
General Liabilities. "Sellers' General Liabilities" shall mean all Losses
resulting from, arising out of, or incurred by the Buyers, the Company, any
Subsidiary or any of their respective successors or assigns and their respective
directors, officers and employees (each a "Buyer Indemnified Party") after the
Closing Date in connection with (i) any breach of any of the representations or
warranties made by the KAS or Kuraya in this Agreement, (ii) any Default by KAS,
Kuraya or IBRD-Rostrum in respect of any of the covenants or agreements made by
KAS, Kuraya or IBRD-Rostrum in this Agreement, (iii) any injuries to Persons,
property or business by
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reason of defectiveness of any services provided by or on behalf of, or
business operations of, the Company or any Subsidiary, whether known or
unknown, currently asserted or arising hereafter, if such claims are based
upon or arise out of services performed or business operations on or prior to
the Closing Date, provided that in the event of a Contract Claim (as
hereinafter defined) such Claim is made within the applicable statute of
limitations; such Losses for purposes of this Section 10.2(iii) shall be (A)
"Contract Claims" if the gravamen of the action is based on breach of
contract, or (B) "Tort Claims" if such Losses are not Contract Claims, (iv)
any attempt by any Person to collect any Liability for Taxes relating to a
period that ends on or before the Closing Date, or a Straddle Period (for
which, in accord with the terms of Section 11.1(e) KAS is obligated to pay),
including, without limitation, Taxes due under Treasury Regulation Section
1.1502-6 (or any successor provision or any similar provision under state,
local or foreign laws), provided such Claim is made within the applicable
statute of limitations (as defined in Section 10.1 in respect of Taxes,
except for (A) Taxes reserved for on the September Balance Sheet or incurred
in the ordinary course of business from such date up to and including the
Closing Date, (B) Taxes which the Buyers are required to pay pursuant to
Sections 11.3 and 13.2 and (C) Taxes as to which disclosure is made in
SCHEDULE 3.14 other than items set forth in SCHEDULE 10.2, (v) any
Environmental Loss provided a Claim relating thereto is brought within the
applicable statute of limitations, (vi) each item set forth in SCHEDULE 10.2
hereof or (vii) costs incurred without corresponding contractual change
orders to increase above the amount due thereunder on the date hereof revenue
due under (A) Contract Research Organization Agreement (8/15/96) between
Astra Merck Inc. and the Company (ASMUS 9602) and (B) Master Agreement
(8/13/93) between the Company and Aviron (AVIRO 9506), to the extent such
increased revenue on such contracts is less then $245,000 and $122,000,
respectively.
Notwithstanding the restrictions set forth in Section 9.1 hereof, in the
event Dainippon requests that the Company reperform any services in respect of
the Zonisamide study or NDA filing, the Buyers shall promptly notify KAS of such
request. KAS, subject to the consent of Dainippon and at KAS's and Kuraya's sole
expense, may elect to reperform such services, or cause such services to be
reperformed, which reperformance shall not constitute a breach of Section 9.1
hereof. Notwithstanding the preceding sentence, KAS and Kuraya shall pay,
perform and discharge all Liabilities, and shall indemnify any Buyer Indemnified
Party in respect of any Losses incurred by such Buyer Indemnified Party relating
to the Dainippon matter.
10.3. LIMITATIONS ON OBLIGATION OF KAS AND KURAYA TO INDEMNIFY.
(a) Except as otherwise provided in Section 10.1 with respect to
surviving provisions, KAS and Kuraya shall have no obligation to indemnify any
Buyer Indemnified Party pursuant to Section 10.2(i) above based solely upon any
breach by KAS or Kuraya of any representation or warranty as to which KAS or
Kuraya has not received a Claim Notice within eighteen months after the Closing
Date.
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(b) Nothing herein shall be deemed to limit or restrict in any manner
any rights or remedies available at law, in equity or otherwise against KAS or
Kuraya based on a willful misrepresentation or willful breach of warranty by KAS
or Kuraya hereunder.
(c) Notwithstanding anything to the contrary contained in this
Agreement, except as set forth below, KAS or Kuraya shall not have any Liability
for indemnification under Section 10.2(i), (ii) (except in respect of breaches
of representations, warranties or covenants affecting the determination of
Purchase Price or Net Debt Amount, which shall not be limited in any way) or
(iii) of this Agreement unless the aggregate of all Losses relating thereto for
which KAS and Kuraya would, but for this Section 10.3(c), be liable exceeds on a
cumulative and aggregate basis $250,000 (the "Threshold"), and then only to the
extent of such excess; provided, however, that such Threshold shall not apply to
any Losses attributable to or arising out of (1) an inaccuracy in any
representation or warranty set forth in (A) Section 3.14, 3.22, 3.23(b),
3.23(c), or (B) 3.13 or 3.23(a), in each case solely in connection with an
inaccuracy in any representation or warranty relating to an environmental matter
or (2) Section 10.2(iii) (in respect of Tort Claims), (iv), (v) and (vi) of this
Agreement, and, in the case of clauses (1) or (2) above the obligation of KAS
and Kuraya under Section 10.2 shall begin with the first dollar of loss;
further, provided that if but for the Loss giving rise to the indemnification
obligation under Section 10.2(i) or (ii), the Purchase Price or Net Debt Amount
would have been less, the Liability of the Sellers under Section 10.2(i) and
(ii) shall begin with the first dollar of Loss and should not be reduced or
otherwise affected by the Threshold.
(d) Seller and Kuraya shall not be liable hereunder for any individual
Loss that is less than $5,000; provided, however, that all such Losses of or in
excess of $5,000 (from the first dollar of loss) shall be considered for
purposes of determining the Threshold.
(e) Except for Losses indemnifiable under Section 10.2(iii) (in
respect of Tort Claims and Contract Claims), (iv) or (v), the maximum aggregate
amount of indemnifiable Losses that may be recovered by the Buyer Indemnified
Parties from KAS and Kuraya under this Article 10 shall not exceed $10,000,000.
The maximum aggregate amount of indemnifiable Losses under Section 10.2(iii) (in
respect of Tort Claims and Contract Claims), (iv) or (v) that may be recovered
by the Buyer Indemnified Parties from KAS and Kuraya under this Article 10 shall
not exceed the Purchase Price.
(f) Subject to the limitation set forth in this Article 10, the amount
of any Losses for which indemnification by KAS or Kuraya is provided under
Article 10 of this Agreement shall be net of the amount of any insurance
proceeds actually recovered by a Buyer Indemnified Party pursuant to any
insurance policy in force and owned by the Company or any Subsidiary (the
"Insurance Proceeds"); provided, however, that notwithstanding this Section
10.3(f), any payment required under Article 10 shall accrue and become due and
payable in full as provided herein at the time such payment obligation arises
without taking into account any such Insurance
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Proceeds. In the event that Insurance Proceeds are actually recovered by a Buyer
Indemnified Party after payment by the indemnifying Party of any amount required
to be paid to a Buyer Indemnified Party under this Article 10, such Buyer
Indemnified Party shall repay to the indemnifying Party, promptly after such
recovery, any amount that the indemnifying Party would not have had to pay
pursuant to this Section 10.3(f) had such recovery been made to the Buyer
Indemnified Party at the time of the payment by the indemnifying Party.
(g) Seller's and Kuraya's indemnities herein are intended solely for
the benefit of Buyer Indemnified Parties and are in no way intended to, nor
shall they, constitute an agreement for the benefit of, or be enforceable by,
any other Person.
(h) Notwithstanding anything to the contrary in this Article 10, the
Buyers shall not be entitled to indemnification under Section 10.2 for any
Losses on account of the Company's or any Subsidiary's recognizing revenue for
periods on or prior to Closing for services to be performed by the Company or
its Subsidiaries after the Closing Date, except that the limitation of liability
in the preceding clause shall not apply for (i) any known material deviations to
the revenue recognition policy set forth in SCHEDULE 3.6, or (ii) Losses
relating to (A) the Contract Clinical Research Services Agreement dated 7/15/97
between Genetics Institute and IBRD-U.K.("GI Contract") and (B) Clinical
Development Agreement dated 4/29/96 between Bracco S.p.A. and IBRD-U.K. (Study
B16880/015) ("Bracco Contract").
As soon as practicable after the Closing Date, but in any event, not later
than sixty (60) days after the Closing Date, the Buyers shall prepare and
deliver to the Sellers a certificate (the "Revenue Certificate") setting forth
their proposed calculation of Losses relating to the amount of revenue which was
recognized prior to the Closing Date in connection with the GI Contract and/or
Bracco Contract (the "Revenue Losses"). The amount of indemnifiable Loss shall
equal 76% of the Revenue Loss. The Sellers shall have thirty (30) days after
receipt of the proposed Revenue Loss Certificate to provide written notice to
Buyers if, and to the extent it disagrees with the proposed Revenue Losses set
forth in the Revenue Loss Certificate. If Sellers do not provide written notice
of a disagreement with the Revenue Loss Certificate, then the Revenue Losses set
forth therein shall be considered final, binding and conclusive on the Parties.
If Sellers provide a notice disputing the amount of Revenue Losses, then
Sellers' Accountant and Buyers' Accountant shall attempt to resolve the amount
of the Revenue Losses. If Sellers' Accountant and Buyers' Accountant are unable
to reach agreement after thirty (30) days of receipt by Buyers Accountant of the
written dispute notice, then the dispute shall be submitted to a nationally
recognized "Big Six" accounting firm or its successor (other than auditors used
by the Sellers or the Buyers or any Affiliate of either written the part three
(3) years, or their successors) chosen by lot (the "Third Accounting Firm")
which shall be instructed to arbitrate the disputed items and determine the
final Revenue Losses within thirty (30) days. The fees and expenses of the Third
Accounting Firm shall be borne equally by the Buyers and Sellers. The resolution
of disputes by the Third Accounting Firm shall be set forth in writing and shall
be conclusive and binding upon and non-appealable by the Parties
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and the determination of Revenue Losses shall become final upon the date of such
resolution, and may be entered as a final judgment in any court of proper
jurisdiction. KAS shall pay to Phoenix U.S. the final Revenue Losses within five
(5) days of the date of resolution. Amounts not paid when due shall bear
interest from the date due until paid at a rate equal to the lower of (i) the
Maximum Rate permitted by Applicable Law or (ii) two percent plus the prime rate
of the Bank of Canada on the date payment is due. Amounts of Revenue Losses
shall not be subject to the Threshold.
10.4. INDEMNIFICATION BY THE BUYERS. Subject to the provisions of Section
10.5 and to the further provisions of this Section 10, Phoenix Canada and
Phoenix U.S. shall jointly and severally indemnify all Seller Indemnified
Parties, and hold them harmless from, against and in respect of, any and all the
Buyers' General Liabilities. "Buyers' General Liabilities" shall mean all Losses
resulting from, arising out of, or incurred by KAS or any of its Affiliates, or
any of their respective successors or assigns and their respective directors,
officers and employees (each a "Seller Indemnified Party") after the Closing
Date in connection with (i) any breach of any of the representations or
warranties made by the Buyers in this Agreement, (ii) any Default by the Buyers
in respect of any of the covenants or agreements made by the Buyers in this
Agreement, (iii) any attempt (whether or not successful) by any Person to cause
or require a Seller Indemnified Party to pay or discharge any liability of, or
claim against, the Buyers of any kind in respect of the operation of the Company
or any Subsidiary after the Closing Date to the extent not specifically subject
to an indemnity by the KAS under the terms of this Agreement, or (iv) any
liability under Section 500 of the California Corporations Code directly
resulting from liquidation distribution of the IBRD-Europe Purchase Price to
KAS.
10.5. LIMITATIONS ON OBLIGATION OF THE BUYERS TO INDEMNIFY.
(a) The Buyers shall have no obligation to indemnify any Seller
Indemnified Party based solely upon any breach by the Buyers of any
representation or warranty as to which the Buyers have not received a Claim
Notice within eighteen months after the Closing Date; provided, however, that
the representations and warranties of the Buyers under Section 4.5 shall survive
indefinitely and the representations and warranties of the Buyers under Sections
4.6 and 4.7 shall terminate at Closing.
(b) Notwithstanding anything to the contrary contained in this
Agreement, the Buyers shall not have any Liability for indemnification for
breaches of representations and warranties under this Agreement unless the
aggregate of all Losses relating thereto for which the Buyers would, but for
this Section 10.5(b), be liable exceeds on a cumulative and aggregate basis
$500,000 and then only to the extent of such excess, except for Sections
10.4(iv) and 11.3.
(c) The maximum aggregate amount of indemnifiable Losses that may be
recovered by the Seller Indemnified Parties from the Buyers for breaches of
representations
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and warranties under this Article 10 shall not exceed $10,000,000, except for
Sections 10.4(iv) and 11.3.
10.6. PROCEDURES FOR INDEMNIFICATION.
(a) Each Indemnified Party shall promptly give notice hereunder (the
"Claim Notice") to the indemnifying Party and, to the extent applicable, in
accordance with the Escrow Agreement, after becoming aware of any claim as to
which recovery may be sought against the indemnifying Party because of the
indemnity provided in this Article 10 or otherwise in this Agreement. The
Indemnified Party shall provide the indemnifying Party with full and
unrestricted access to all books and records relating to the claim, and to all
employees or other persons who are knowledgeable about such claim, in order to
allow the indemnifying Party to audit the status of such claim and the payments
that have been or will be, made with respect thereto. After receiving such Claim
Notice, the indemnifying Party shall have thirty (30) days from the delivery of
the Claim Notice to notify the Indemnified Party that the indemnifying Party
will assume the defense of any such claim or any litigation resulting from such
claim; provided that if the period of time to respond, answer, defend or
otherwise plead to any claim or other item is less than such thirty (30) day
period, the Indemnified Party shall give prior notice to the indemnifying Party,
who shall have the right to so respond, defend, answer or otherwise plead by
giving timely notice to the Indemnified Party and if the indemnifying Party
fails to give such timely notice to the Indemnified Party, the Indemnified
Party, acting reasonably shall have the right to so respond, defend, answer or
otherwise plead to such claim. If the indemnifying Party assumes the defense of
the claim or litigation at issue, the Indemnified Party shall have the right to
employ separate counsel in such claim or litigation and to participate in the
defense or conduct thereof, but the fees and expenses of such counsel shall not
be at the expense of the indemnifying Party unless (i) the indemnifying party
shall have failed, within the time limits set forth in the preceding sentence,
to assume the defense of such claim or litigation, (ii) the employment of such
counsel has been specifically authorized in writing by the indemnifying Party,
(iii) the named parties to any such action (including any impleaded parties)
include both such Indemnified Party and the indemnifying Party and such
Indemnified Party and indemnifying Party shall have determined that there are
material conflicting interests between the indemnifying Party and the
Indemnified Party in the legal defense thereof and, in such event, each of legal
counsel selected by the indemnifying Party and the Indemnified Party shall be
required to cooperate fully with each other, (iv) the relief sought exceeds the
indemnifying Party's maximum indemnification obligations under Article 10
hereof, or (v) equitable relief is being sought against any Indemnified Party.
Notwithstanding the foregoing, the right to indemnification hereunder shall not
be affected by any failure of an Indemnified Party to give such Claim Notice (or
by delay by an Indemnified Party in giving such Claim Notice) unless, and then
only to the extent that, the rights and remedies of the indemnifying Party shall
have been prejudiced as a result of the failure to give, or delay in giving,
such Claim Notice. The Claim Notice required hereunder shall specify the basis
for the claim for indemnification to the extent ascertainable at the time of the
Claim Notice. If the matter to which a claim relates shall not have been
resolved as of the date of the Claim Notice, the Indemnified Party
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shall include an estimate of the amount of the claim in the Claim Notice to be
provided pursuant to this Section 10.6(a), accompanied by a statement therein
that the claim has not yet been liquidated (an "Unliquidated Claim"). In the
event that an Indemnified Party gives a Claim Notice for an Unliquidated Claim
relating to or arising from the breach of a representation or warranty prior to
the termination of the survival period of a representation or warranty set forth
in this Section 10, such survival period shall be tolled with respect to such
Unliquidated Claim until it becomes finally resolved pursuant to the provisions
of this Article 10. If an Indemnified Party gives a Claim Notice for an
Unliquidated Claim, the Indemnified Party shall also give a second Claim Notice
within thirty (30) days after the matter giving rise to the claim becomes
finally resolved, and such second Claim Notice shall specify the amount of the
claim.
(b) Failure by the indemnifying Party to notify the Indemnified Party
of its election to defend any such claim or litigation by a third party within
thirty (30) days from the delivery of the Claim Notice to the indemnifying Party
shall be deemed a waiver by the indemnifying Party of its right to defend such
claim or litigation. If the indemnifying Party shall not assume the defense of
any such claim by a third party or litigation resulting therefrom, the
Indemnified Party may defend against such claim or litigation in such manner as
it may deem appropriate, acting reasonably, and may settle such claim of
litigation on such terms as it may deem appropriate, acting reasonably, without
prejudicing its rights against the indemnifying Party provided for herein. The
parties and their respective counsel shall provide reasonable cooperation and
information in connection with any claim or litigation as to which
indemnification is sought.
(c) The indemnifying Party shall not, in the defense of such claim or
any Action resulting therefrom, consent to entry of any judgment (other than a
judgment of dismissal on the merits without costs) or enter into any settlement,
except with the written consent, which consent shall not be unreasonably
withheld, of the Indemnified Party, which does not include as an unconditional
term thereof the giving by the claimant or the plaintiff to the Indemnified
Party a release from all liability in respect of such claim or Action or which
would in any way restrict or impair the business of the Buyers, the Company, any
Subsidiary or any Affiliate of any of the foregoing.
(d) If an indemnifying Party does not, within thirty (30) days after
its receipt of the Claim Notice required by Section 10.6(a) hereof or in
accordance with the Escrow Agreement or, in the case of an Unliquidated Claim,
within thirty (30) days after its receipt of the second Claim Notice described
in Section 10.6(a), advise the Indemnified Party that the indemnifying Party
denies the right of the Indemnified Party to indemnity in respect of the claim,
then the amount of such claim shall be deemed to be finally determined between
the Parties hereto. If the indemnifying Party notifies the Indemnified Party
that it disputes any claim made by the Indemnified Party, then the Parties
hereto shall endeavor to settle and compromise such claim, and if unable to
agree on any settlement or compromise, such claim for indemnification shall be
settled by appropriate arbitration in accordance with the terms of this
Agreement, and any Liability
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established by reason of such settlement, compromise or litigation shall be
deemed to be finally determined. Any claim that is finally determined in the
manner set forth above shall be paid promptly by the indemnifying Party in cash.
10.7. PAYMENT OF INDEMNIFICATION OBLIGATIONS. Each Party shall pay promptly
to any Indemnified Party the amount of all Losses to which the foregoing
indemnity relates.
10.8. INTEREST ON UNPAID OBLIGATIONS. If all or part of any indemnification
obligation under this Agreement is not paid when due, the indemnifying Party
shall pay the Indemnified Party interest on the unpaid amount of such obligation
for each day from the date the amount became due until it is paid in full,
payable on demand, at the rate equal to the lower of (i) the maximum rate
permitted by Applicable Law or (ii) two percent (2%) per annum plus the prime
rate of Bank of Canada.
10.9. EXCLUSIVE REMEDY. Except as otherwise provided in this Agreement, the
provisions for indemnification set forth in this Article 10 are the exclusive
remedies of the parties hereto with respect to the matters addressed in this
Article 10, except for the remedies for injunctive relief provided elsewhere
herein and except for the indemnification obligations expressly provided
elsewhere in this Agreement and except as set forth in Section 10.3(b).
ARTICLE 11
TAXES
11.1. FINAL TAX RETURN.
(a) KAS will prepare the Federal consolidated income tax return for
each taxable year (including any short taxable year) ending on or before the
Closing Date (individually and in the aggregate, the "Final Return") that
includes the Company (including IBRD-U.K.), IBRD-Rostrum and IBRD Center for
Clinical Research, Inc. (the "IBRD Group") consistent with the consolidated
return regulations promulgated pursuant to the Code and in a manner that is
substantially similar to all prior KAS consolidated Federal income tax
returns. In preparing the Final Return, (i) the allocation of tax items as
between the last period covered by the Final Returns and the period
commencing immediately after the end of such last period shall be made
pursuant to the general Code method in accordance with Treasury Regulations
Section 1.1502-76(b)(2)(i), and (ii) KAS shall not make any elections not
made in prior returns nor shall it revoke any elections previously made,
without the prior written consent of Phoenix U.S., which consent shall not be
unreasonably withheld. KAS will present the draft Final Return to Phoenix
U.S. 45 days prior to its filing due date (with extensions) for the review
and approval of Phoenix U.S., which shall not be unreasonably withheld.
Should Phoenix U.S. object to a reporting of an item or items of income,
gain, loss,
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deduction or credit by sending written notice to KAS of such objection and the
reasons therefor within 10 business days of receipt of the draft Final Return
for review (the "Tax Notice"), the parties shall endeavor in good faith to reach
an acceptable reporting position. If such agreement cannot be reached within 10
business days after receipt by KAS of the Tax Notice, the issue shall be
reviewed and decided the Third Accounting Firm, taking into account the terms of
this Agreement. If the decision of the Third Accounting Firm is not received by
KAS by the day before the filing due date (with extensions) for the Final
Return, then the Final Return shall be filed in the manner determined by KAS,
and if the decision of the Third Accounting Firm requires a different action or
treatment in respect of any item on the Final Return then KAS shall file an
amended Final Return consistent with the decision of the Third Accounting Firm.
The fees of such Third Accounting firm shall be paid by Phoenix U.S. unless such
accounting firm determines that the Tax Notice is materially correct, in which
case, KAS shall bear such fees.
(1) Without limiting the foregoing, KAS shall not make an election
pursuant to Treasury Regulation Section 1.1502-20 of Section 1502 of the
Code (or any other regulation or successor thereto) to reattribute to KAS
any portion of the net operating loss carryover and net capital loss
carryover attributable to any member of the IBRD Group.
(2) Without the prior written consent of KAS, which consent shall not
be unreasonably withheld, (i) a Buyer shall make no Code Section 338(g)
election with respect to any IBRD-Europe Subsidiary.
(3) Buyers and KAS acknowledge that the liquidation of IBRD-Rostrum
and the sale of the IBRD-Europe Shares by the Company will be includible in
the Final Return. Buyers agree not to cause the Company or any Subsidiary
to take any action outside the ordinary course of business on either
Closing Date (or to allow any such action to occur with respect to any
IBRD-Europe Subsidiary once the Canadian Closing has occurred or with
respect to the Company or any Subsidiary once the U.S. Closing has
occurred), unless all Tax consequences of any such action shall be (i)
reported under the "next day rule" of Treasury Regulations
Section 1.1502-76(b)(1)(ii)(B) or (ii) if such rule is not applicable,
treated for all purposes as having occurred on the first day after the
Closings have occurred.
(b) Buyers shall deliver to KAS any refund of Tax received by Buyers,
the Company or any Subsidiary after the Closing Date attributable to any Taxes
paid for any period ending on or before the Closing Date, and KAS shall deliver
to Buyers any refund of income Tax received by KAS, in its capacity as common
parent and agent of the Company and Subsidiaries, as a result of any carryback
of net operating loss or other similar item attributable to activities after the
U.S. Closing Date. KAS and the Buyers shall not have any obligation to seek any
such refunds but shall cooperate as reasonably required with the efforts of the
other to do so. Nothing in this
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Agreement shall require Buyer to incur any costs with respect to a refund that
will be delivered to KAS, and a refund that is derived or available because of a
payment between IBRD-U.K. and IBRD-Rostrum Global Limited with respect to Group
Relief, ACT or Taxation Refund, shall be retained by such Subsidiary and shall
not be deliverable to KAS.
(c) All state and local Tax Returns for any member of the IBRD Group
not filed prior to the date of this Agreement for periods that end before or on
the U.S. Closing Date (the "Final State and Local Tax Returns") shall be
prepared by KAS in a manner consistent with the principles for preparation of
the Final Return set forth above and substantially similar to the same prior
state and local Tax Returns. KAS shall not make any elections not made in prior
returns nor shall it revoke any elections previously made, without the prior
written consent of Phoenix U.S., which consent shall not be unreasonably
withheld. Such Final State and Local Tax Returns shall be submitted to Phoenix
U.S. for review and approval, which shall not be unreasonably withheld, in the
same manner and subject to the same procedures as described in 11.1(a) above.
(d) All non-U.S. tax returns for any of IBRD-Europe for periods that
end before or on the Canadian Closing Date, and which are due after such date
shall be completed by Phoenix Canada, or its agents. If any such returns are due
prior to the Closing of the Canadian Acquisition, they shall be prepared by the
relevant company. In either case, such Tax Returns shall be prepared in a manner
consistent with prior returns and the principles for preparation of the Final
Return set forth above, and the company shall allow Phoenix Canada or KAS, as
the case may be, to review and approve such returns prior to the filing, which
approval shall not be unreasonably withheld.
(e) The Buyers shall, in accordance with Applicable Law, prepare or
cause to be prepared each Tax Return for the Company and each Subsidiary for any
period that includes but does not end upon the U.S. or Canada Closing Date as
applicable (such period the "Straddle Period," such Tax Return the "Straddle
Period Return"), in a manner consistent with prior such Tax Returns filed by or
on behalf of the Company and Subsidiaries. Except for (A) Taxes reserved for on
the September Balance Sheet or incurred in the ordinary course of business from
such date up to and including the Closing Date that have been accrued or
reserved for in the Books and Records of the Company or any Subsidiary, (B)
Taxes which Buyers are required to pay pursuant to Sections and 11.3 and 13.2
and (C) Taxes as to which disclosure is made in SCHEDULE 3.14 other than items
set forth in SCHEDULE 10.2, KAS shall pay the Taxes reported on a Straddle
Period Returns that are allocable to the portion of the Straddle Period ending
on the U.S. or Canada Closing Date. Such allocation of Taxes based on income
shall be done on the "closing of the books" basis; all other allocations of
Taxes shall be allocated based on the days in the Straddle Period. The Buyers
shall present the Straddle Period Return to KAS for review and approval, which
shall not be unreasonably withheld, in accord with the procedures set forth in
Section 11.1(a) above.
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11.2. AUDITS AND TAX LITIGATION. KAS shall have control over any audit,
examination, appeal, and Tax Court or other Action relating to any Tax Return
required to be filed by KAS hereunder, and any Tax Return filed before Closing
with respect to which KAS or Kuraya may have Liability to a Buyer or any other
person under this Agreement or otherwise, and Buyers shall execute, verify,
acknowledge and deliver any and all powers of attorney and other documents and
instruments necessary for KAS to exercise such control; provided, however, that
Buyers shall have the right to participate in any such events, at Buyers'
expense, and provided further that KAS shall not enter into any settlement or
closing agreement with respect to Taxes without the prior written consent of
Buyers, which shall not be unreasonably withheld. Buyers shall have control over
any audit, examination, appeal, and Tax Court or other Action relating to any
Straddle Period Return or other Tax Return not filed by KAS that relates to any
Taxes for which KAS or Kuraya may have Liability to a Buyer or any other person
under this Agreement or otherwise; provided, however, that KAS shall have the
right to participate in any such events, at its expense solely as it relates to
an indemnifiable item, and provided further that Buyers shall not enter into any
settlement or closing agreement with respect to such item without the prior
written consent of KAS, which shall not be unreasonably withheld.
11.3. TAX INDEMNITY. Without regard to any limitation expressed in Article
10, (i) Buyers shall, jointly and severally, indemnify KAS, and hold KAS
harmless from, against and in respect of, any and all Excess Tax Liabilities,
and Buyers shall pay to KAS the Gross-Up Amount with respect to any and all
Excess Tax Liabilities. "Excess Tax Liabilities"shall mean all Losses with
respect to Taxes incurred by KAS for Taxes as a result of the Transactions, to
the extent such Losses exceed the amount, if any, of the total liability for
Taxes that KAS would have incurred if the Transactions had been structured as a
sale by KAS of the IBRD-U.S. Shares for the Purchase Price instead of as (1)
first a sale by the Company of the IBRD-Europe Shares for the IBRD-Europe
Purchase Price and (2) then a sale by KAS of the IBRD-U.S. Shares for the
balance of the Purchase Price; provided, however, that Buyers shall have no
obligations under this Section 11.3 to the extent the Loss arose because the tax
basis of the IBRD-Europe Shares (as determined for federal or state purposes) to
the Company is, at the time of the Canadian Acquisition, less than $9,000,000 in
the aggregate. "Gross-Up Amount" shall the amount required to be paid to KAS
such that, after taking into account all Taxes incurred by KAS by reason of both
(i) indemnification of KAS in respect of the Excess Tax Liabilities and (ii) the
Gross-Up Amount, KAS shall have received a net amount after payment of such
Taxes equal to the Excess Tax Liabilities. Section 10.3(h) shall apply in
calculating the Losses under this paragraph, and nothing in this paragraph shall
be deemed to override Section 5.4.
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ARTICLE 12
TERMINATION OF AGREEMENT
12.1. TERMINATION. This Agreement may be terminated prior to the Closings
as follows:
(a) at the election of KAS, if any one or more of the conditions to
its obligation to close has not been fulfilled by March 1, 1998;
(b) at the election of the Buyers, if any one or more of the
conditions to its obligation to close has not been fulfilled by March 1, 1998;
(c) at the election of KAS, if the Buyers has materially breached any
material representation, warranty, covenant or agreement contained herein;
(d) at the election of the Buyers, if KAS or Kuraya has materially
breached any material representation, warranty, covenant or agreement contained
herein;
(e) at the election of KAS on the one hand, or the Buyers, on the
other hand, if any action shall have been instituted and be continuing by any
Governmental Authority with proper authority to restrain, modify or prohibited
carrying out of the transactions contemplated hereby;
(f) at any time on or prior to the Closing Date, by mutual written
consent of KAS and the Buyers; or
(g) at the election of the Buyers pursuant to Section 5.5 hereof.
If the Buyers or KAS, as the case may be, elects to terminate this
Agreement pursuant to Section 12.1(a), (b), (c), (d), (e) or (g) hereof, the
terminating party shall deliver a notice to the other party hereto declaring its
election to so terminate this Agreement in accordance with the provisions of
Section 12.1(a), (b), (c), (d), (e) or (g), as the case may be, and setting
forth therein the basis for such termination.
If this Agreement so terminates, it shall become null and void and have no
further force or effect, except as provided in Section 12.2 hereof.
12.2. SURVIVAL. If this Agreement is terminated, this Agreement shall
become void and of no further force and effect, except for the provisions of
this Agreement relating to the obligation of the Buyers to keep confidential and
not to use certain information and data obtained
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by it from KAS or any Affiliate thereof and except for the provisions of
Sections 5.4 and 6.2 hereof, Article 10, this Article 12 and Articles 13 and 14
hereof. None of the parties hereto shall have any liability in respect to a
termination of this Agreement pursuant to this Article 12, except to the extent
that failure to satisfy the conditions of Articles 7 or 8, as applicable,
results from the intentional or willful breach or violation of the
representations, warranties, covenants or agreements of such party under this
Agreement. For purposes of the preceding sentence, the failure of any party to
comply with its respective obligations under Article 1 promptly after all
conditions to such compliance shall have been fulfilled, shall constitute an
intentional or willful violation of the agreement herein contained by such
failing party.
12.3. RETURN OF MATERIALS. If this Agreement is terminated for any reason
whatsoever, each party shall return to the other all documents, work papers and
other material (including all copies thereof) obtained in connection with the
transactions contemplated hereby and will use all reasonable efforts, including
instructing its employees, agents and representatives and others who have had
access to such information, to keep confidential and not to use any such
information, unless such information is now, or is hereafter disclosed, through
no act or omission of such party, in any manner making it available to the
general public.
ARTICLE 13
MISCELLANEOUS
13.1. NOTICES. Any notice or other communication required or permitted
hereunder or under any Transaction Document shall be in writing, shall be
delivered personally, by facsimile transmission or by overnight courier, shall
be deemed given upon receipt if delivered personally, or upon confirmation of
receipt, if given by facsimile, or on the first business day following delivery
by overnight courier, if delivered by overnight courier, and shall be as
follows:
(a) If to either Buyer to:
Phoenix International Life Sciences (U.S.) Inc.
Phoenix International Life Sciences Inc.
2350 Cohen Street
Saint-Laurent (Montreal) Quebec
Canada H4R 2N6
Attention: Chief Executive Officer
Telecopier: (514)333-7306
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with a copy to:
Pepper, Hamilton & Scheetz LLP
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
Attention: James D. Rosener, Esquire
Telecopier: (610) 640-7835
(b) If to KAS or Kuraya to:
Kuraya American Systems Inc.
3625 Del Amo Blvd., Ste. 180
Torrance, CA
90503 Attention: Mr. Gerry Shishido, Vice President
Telecopier: (310)
542-4175
with a copy to:
Sheppard, Mullin, Richter & Hampton
LLP 333 South Hope Street 48th Floor
Los Angeles, California 90071
Attention: Scott J. Lochner, Esq.
Telecopier: (213) 620-1398
Any party may, by notice given in accordance with this Section 13.1 to the
other parties, designate another address or person for receipt of notices
hereunder.
13.2. TAXES. The Buyers shall pay all sales, use, transfer, stock transfer,
and other similar taxes and fees arising out of or in connection with the
transactions contemplated hereby, and the Buyers shall cooperate with KAS in
filing all necessary documentation and tax returns with respect to such taxes
and fees.
13.3. ENTIRE AGREEMENT. This Agreement (including the Schedules hereto),
the Transaction Documents and the Confidentiality Agreement contain the entire
agreement of the parties with respect to the purchase of the Shares and related
transactions, and supersedes all prior agreements, representation and
warranties, written or oral, with respect thereto.
13.4. WAIVERS AND AMENDMENTS. Except as provided for in Section 5.5, this
Agreement and each Transaction Document may be amended, superseded, canceled,
renewed or extended, and the terms hereof or thereof may be waived, only by a
written instrument signed by each of the parties hereto or thereto or, in the
case of a waiver, by the party waiving compliance. The failure of a party to
insist, in any one or more instances, upon performance of the terms or
conditions of this Agreement or any Transaction Document shall not be construed
as a waiver or relinquishment
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of any right granted hereunder or of the future performance of any such term,
covenant or condition. No waiver on the part of any party of any right, power or
privilege, nor any single or partial exercise of any such right, power or
privilege, shall preclude any further exercise thereof or the exercise of any
other such right, power or privilege.
13.5. GOVERNING LAW. This Agreement and each Transaction Document shall be
governed by and construed in accordance with the substantive and procedural laws
of the State of California without regard to California conflict of law rules.
Each of the Parties hereby consents to the exclusive jurisdiction of any state
or federal court located in Los Angeles, California. Any controversy or claim
arising out of or relating to this Agreement or the breach thereof, other than a
claim for specific performance or injunctive relief, shall be settled by
arbitration before a single arbitrator in the State of California in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
and judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. All costs associated with such arbitration
shall be borne equally by the parties to the dispute, except that each party
shall bear the costs of its own attorneys and experts (except as otherwise
provided in this Agreement).
13.6. REFERENCE TO U.S. DOLLARS. All references in this Agreement and in
any Transaction Document to amounts of money expressed in dollars are references
to United States dollars, unless otherwise indicated.
13.7. BINDING EFFECT; ASSIGNMENT. This Agreement and each Transaction
Document shall be binding upon and inure to the benefit of the parties and their
respective permitted successors and permitted assigns. Neither this Agreement or
any Transaction Document, nor any of the rights hereunder or thereunder, may be
assigned by any party, nor may any party delegate any obligations hereunder or
thereunder, without the written consent of the other party hereto or thereto.
Any non-permitted assignment or attempted assignment shall be void.
Notwithstanding the foregoing, KAS may assign this Agreement and the Transaction
Documents, and any of its rights hereunder or thereunder, and may delegate any
of its obligations hereunder or thereunder, to Kuraya Corporation or any
Affiliate thereof and the Buyers may assign this Agreement to any of its
Affiliates.
13.8. NO THIRD PARTY BENEFICIARIES. Nothing herein is intended or shall be
construed to give any person any legal or equitable right, remedy or claim under
or in respect of this Agreement or any provision contained herein, except as
otherwise provided herein.
13.9. COUNTERPARTS. This Agreement and each Transaction Document may be
executed by the parties in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof or thereof each signed by less than all, but together signed by
all of the parties.
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13.10. SCHEDULES AND EXHIBITS. The schedules and exhibits attached to this
Agreement or to any Transaction Document are a part hereof or thereof, as
applicable, as if fully set forth herein or therein.
13.11. HEADINGS. The heading herein or in any Transaction Document are for
reference only and shall not affect the interpretation of this Agreement or such
Transaction Document.
13.12. PUBLICITY. All notices to third parties and all other publicity
concerning the transactions contemplated hereby or by any Transaction Document
shall be jointly planned and coordinated by the Buyers and KAS provided,
however, that any of the Buyers, KAS or Kuraya may issue any press release or
public announcement in form and content as the issuing party determines is
required by Applicable Law.
13.13. SEVERABILITY. Whenever possible, each provision of this Agreement
and any Transaction Document shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
or any Transaction Document is held to be prohibited or invalid under applicable
law, such provision shall be ineffective only to the extent of such prohibition
or invalidity without invalidating the remainder of such provision or the
remaining provisions of this Agreement or such Transaction Document.
13.14. CONFIDENTIAL INFORMATION. The parties acknowledge that the
transactions described herein are of a confidential nature and shall not be
disclosed except to each party's respective Affiliates, consultants and
advisors, or as required by law, until such time as the parties make a public
announcement regarding the transactions in accordance with Section 13.12 hereof.
Each party shall treat such information as confidential, preserve the
confidentiality thereof and not duplicate or use such information, except to
Affiliates, advisors and consultants in connection with the transactions
contemplated hereby or by any Transaction Document. KAS, at a time and in a
manner which reasonably determines and after prior notice to and consultation
with the Buyers, may notify employees of the Company and the Subsidiaries of the
fact of the subject transaction.
13.15. WAIVER OF CONFLICT. The Buyers acknowledge that KAS, the Company and
each Subsidiary have been jointly represented by Sheppard, Mullin, Richter &
Hampton LLP in connection with this transaction and in other matters, and each
Buyer hereby agrees to waive on behalf of itself, the Company and each
Subsidiary any and all conflicts of interest and privileges that may apply to
any future representation by such firm of KAS or its Affiliates in connection
with disputes arising from the transactions contemplated hereby or in connection
with any other matters.
13.16. INJUNCTIVE RELIEF. The Buyers acknowledge that the provisions of
this Agreement or the Confidentiality Agreement requiring the Buyers (or any
Affiliate of the Buyers) to keep certain information confidential (the
"Confidentiality Provisions") are reasonable and
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necessary to protect the interests of KAS and Kuraya, that any violation of the
Confidentiality Provisions will result in an irreparable injury to KAS and
Kuraya and that damages at law would not be reasonable or adequate compensation
to KAS and Kuraya for such violation. Accordingly, in the event of any breach or
threatened breach by the Buyers (or any Affiliate of the Buyers) of the
Confidentiality Provisions, KAS and Kuraya shall be entitled to injunctive or
other equitable relief (from a Los Angeles County Court), restraining the Buyers
(or any Affiliate of the Buyers), as applicable, from engaging in conduct that
would constitute a breach of the Confidentiality Provisions. Such relief shall
be in addition to and not in lieu of any other remedies that may be available,
including an action for the recovery of damages. In addition to any other
available remedies, KAS and Kuraya shall be entitled to have the Confidentiality
Provisions specifically enforced by preliminary and permanent injunctive relief
without the necessity of proving actual damages or posting a bond or other
security and to an equitable accounting of all earnings, profits and other
benefits arising out of any violation of the Confidentiality Provisions.
13.17. VENUE. The parties hereby agree that any action, suit arbitration or
other proceeding arising out of or related to this Agreement or any Transaction
Document or the relationship created hereby or thereby shall be conducted only
in Los Angeles County, California. Each party hereby irrevocably consents and
submits to the personal jurisdiction of and venue in United States District
Court for the Central District of California and in the Superior Court and
Municipal Court for Los Angeles County in any legal action, equitable suit or
other proceeding arising out of or related to this Agreement or any Transaction
Document, the negotiations thereof or the relationship between the parties
created hereby or thereby.
ARTICLE 14
DEFINITIONS
14.1. CERTAIN DEFINED TERMS. As used herein, the terms below shall have the
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
"Action" means any action, suit, proceeding or investigation (provided
that such investigation is by a Governmental Authority).
"Affiliate" has the meaning set forth in Regulation 12B of the
Securities Exchange Act of 1934, as amended, as applicable to "affiliate."
"Applicable Law" means, with respect to any Person, any domestic or
foreign, federal, state or local statute, law, ordinance, rule or
regulation of any Governmental Authority applicable to such Person.
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"Code" means the Internal Revenue Code of 1986, as it may be amended
from time to time, and any successor thereto.
"Court Order" means any judgment, decree, injunction, order or ruling
of any federal, state, local or foreign court or governmental or regulatory
body or authority that is binding on any Person or its property under
Applicable Law.
"Default" means (i) a breach, default or violation, (ii) the
occurrence of an event that with or without the passage of time or the
giving of notice, or both, would constitute a breach, default or violation
or (iii) with respect to any contract, agreement or understanding, the
occurrence of an event that with or without the passage of time or the
giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration or a right to receive damages or a payment of
penalties.
"Disclosure Schedule" means a schedule prepared and delivered by KAS
to the Buyers pursuant to this Agreement that sets forth the exceptions to
the representations and warranties of KAS and Kuraya contained herein.
Unless the context clearly indicates otherwise, each reference herein to
any numbered schedule is a reference to that numbered schedule which is
included in the Disclosure Schedule.
"Employee Benefit Plan" means a written pension, retirement
profit-sharing, deferred compensation, bonus, incentive, performance, stock
option, phantom stock, stock purchase, restricted stock, medical,
hospitalization, vision, dental or other health, life, disability,
severance, termination or other employee benefit plan, program,
arrangement, agreement or policy to which the Company or any Subsidiary
contributes or is obligated to contribute or is a party or is bound or
under which the Company or any Subsidiary may have any liability and under
which present or former employees of the Company or any Subsidiary (or
their beneficiaries or dependents) are eligible to participate or to
continue to accrue a benefit.
"Encumbrances" means any lien, mortgage, security interest, license
right, pledge, restriction on transferability, defect of title or other
claim, charge or encumbrance of any nature whatsoever on any property or
property interest.
"Environmental Law" means any Applicable Law (including but not
limited to the Clean Water Act, 33 U.S.C. Sections 1251 ET SEQ., the
Toxic Substances Control Act, 15 U.S.C. Sections 2601 ET SEQ., the Clean
Air Act, 42 U.S.C. Sections 7401 ET SEQ., the Safe Drinking Water Act,
42 U.S.C. Sections 300f ET SEQ., the Comprehensive Environmental
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Response, Compensation and Liability Act, 42 U.S.C. Sections 9601 ET
SEQ., the Resource Conservation and Recovery Act, 42 U.S.C. Sections
6901 ET SEQ., the River and Harbor Act, 33 U.S.C. Section 407, and the
Occupational Safety and Health Act, 29 U.S.C. Sections 651 ET. SEQ.,
each as may be amended from time to time), Court Order (whether or not
by consent), any duties imposed by applicable common law and any
applicable provision or condition of any Governmental Permit relating to
(i) the protection of the environment, employees or the public welfare
from actual or potential exposure (or the effects of exposure) to any
actual or potential release, discharge, disposal or emission (whether
past or present) of any Hazardous Substance or (ii) the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of any Hazardous Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means (i) a member of any "controlled group," as
defined in Section 414(b) of the Code, of which the Company is a member,
(ii) a trade or business, whether or not incorporated, under common control
(within the meaning of Section 414(c) of the Code) with the Company, or
(iii) a member of any affiliated service groups (within the meaning of
Section 414(m) of the Code) of which the Company is a member.
"Escrow Agent" means a party mutually selected by the Parties to hold
funds pursuant to the terms of the Escrow Agreement.
"Escrow Agreement" means the Escrow Agreement among KAS, the Buyers
and the Escrow Agent to be entered into effective as of the Closing Date,
substantially in the form of EXHIBIT A.
"FTC" means the Federal Trade Commission.
"GAAP" means generally accepted accounting principles of the United
States of America consistently applied.
"Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority or instrumentality, or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any
of the foregoing.
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"Governmental Permits" means all governmental permits, licenses,
registrations, certificates of occupancy, orders, approvals and other
governmental authorizations.
"Hazardous Substances" means any toxic or hazardous gaseous, liquid
or solid material or waste that may or could pose a hazard to the
environment or human health or safety including (i) any "hazardous
substances" as defined by the federal Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601 ET
SEQ., (ii) any "extremely hazardous substance," "hazardous chemical" or
"toxic chemical" as those terms are defined by the federal Emergency
Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001 ET
SEQ., (iii) any "hazardous waste," as defined under the federal Solid
Waste Disposal Act, as amended by the Resource Conservation and Recovery
Act, 42 U.S.C. Sections 6901 ET SEQ., (iv) any "pollutant," as defined
under the federal Water Pollution Control Act, 33 U.S.C. Sections 1251
ET SEQ., as any of such laws in clauses (i) through (iv) may be amended
from time to time, and (v) any regulated substance or waste under any
Laws or Court Orders that currently exist or that may be enacted,
promulgated or issued in the future by any federal, state or local
governmental authorities concerning protection of the environment or the
public welfare.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Indemnified Party" means either a Seller Indemnified Party or a Buyer
Indemnified Party, as the context so requires.
"Intellectual Property" means any and all copyrights, patents,
trademarks, technology rights and licenses, logos, trade names, trade
secrets, franchises, know-how, inventions, methods, techniques and other
intellectual property used, in whole or in part, directly or indirectly, by
the Company or any Subsidiary.
"ISRA" means New Jersey Industrial Site Recovery Act, as amended, and
the rules and regulations promulgated thereunder.
"Justice" means the Antitrust Division of the Department of Justice.
"Knowledge of the Buyers" means to the knowledge or understanding of
Dr. John W. Hooper or Jean-Yves Caloz, including any knowledge or
understanding that each of them should have gained upon reasonable inquiry
with respect to the performance of their respective duties and
responsibilities.
-61-
<PAGE>
"Knowledge of Seller, KAS or Kuraya" means to the knowledge or
understanding of Malcolm VandenBerg, Thomas B. Semler, Lynda Wight, Susan
Thornton, Sally Claybourn Evans, Sharon Anderson, Gerry Shishido, C.
Shishido, or K. Yamazaki including any knowledge or understanding that each
of them should have gained upon reasonable inquiry with respect to the
performance of their respective duties and responsibilities. As to KCAS or
Bath, Knowledge of Seller shall not imply any duty to make inquiry with
respect to a particular matter.
"Leased Real Property" means the real property that is the subject of
the leases set forth in SCHEDULE 3.15(D).
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or
endorsement of or by any Person, absolute or contingent, accrued or
unaccrued, due or to become due, liquidated or unliquidated.
"Losses" means all losses, costs, claims, Liabilities, demands, fines,
judgments, penalties, damages and expenses of any nature whatsoever,
including interest which may be imposed in connection therewith and court
costs and reasonable fees and disbursements of counsel and consultants of
every kind, nature and description charged to or incurred by them in
connection therewith.
"Material Adverse Effect" means, with respect to any Person, any
significant and substantial adverse effect in the financial condition,
business, results of operations, assets, liabilities or operations of such
Person.
"Party" means KAS, Kuraya, the Company, IBRD-Rostrum, Phoenix Canada,
Phoenix U.S., individually, as the context so requires, and the term
"Parties" means KAS, Kuraya, the Company, IBRD-Rostrum, Phoenix Canada and
Phoenix U.S., collectively.
"Person" means an individual corporation, partnership, association,
trust, estate or other entity or organization, including a Governmental
Authority.
"Software" means any computer software of any nature whatsoever,
including all systems software, all applications software, whether for
general business usage (e.g., accounting, finance, word processing,
graphics, spreadsheet analysis, etc.) or specific, unique-to-the-business
of the Company or any Subsidiary usage and all computer operating, security
or programming software, that is owned by or licensed to the Company or any
Subsidiary or used, in whole or in part, directly or indirectly, or has
been developed or designed for or is in the process of being developed or
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<PAGE>
designed for use, in whole or in part, directly or indirectly, in the
conduct of the business of the Company or any Subsidiary, and any and all
documentation and object and source codes related thereto.
"Taxes" shall mean (i) any tax, charge, fee, levy or other assessment
including, without limitation, any net income, gross income, gross
receipts, sales, use, value added tax, ad valorem, transfer, franchise,
profits, payroll, employment, social security, unemployment, excise,
estimated, stamp, occupancy, occupation, property or other similar taxes,
including any interest or penalties thereon, and additions to tax or
additional amounts imposed by any federal, state, local or foreign
governmental authority, domestic or foreign (a "Taxing Authority") or (ii)
any liability for the payment of any taxes, interest, penalty, addition to
tax or like additional amount resulting from the application of Treasury
Regulation Section 1.1502-6 or comparable Requirement of Law.
"Transaction Document" means, when used in reference to a particular
Person, any agreement, document or instrument to be executed by such Person
in connection with the transactions contemplated hereby.
"Transactions" means the sale of the Shares and the other transactions
contemplated by the Transaction Documents.
"Unliquidated Claim" is defined in Section 10.6(a).
14.2. Other Defined Terms. The following terms are defined in the Section
set forth opposite such term.
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Acquisition Recitals
Agreement Recitals
Backlog 3.6
Bath Recitals
Books and Records 3.7
Bracco Contract 10.3
Buyer or Buyers Recitals
Buyers' Accountant 2.5
Buyers' General Liabilities 10.4
Buyer Indemnified Party 10.2
Canada Acquisition Recitals
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Canada Closing 2.1
Canadian Securities Commission 4.6
Claim Notice 10.6
Closings or Closing Date 2.1
Company Recitals
Company Audited Balance Sheet 3.6
Company Financial Statements 3.6
Company Interim Balance Sheet 3.6
Company Interim Balance Sheet Date 3.6
Company Interim Financial Statements 3.6
Company Policies 2.5
Company Year-End Financial Statements 3.6
Confidential Information 9.2
Confidentiality Agreement 6.6
Confidentiality Provisions 13.16
Contracts 3.15
Divested Operations 2.4
Earned Cash 2.5
Earned Cash Certificate 2.5
Earn-Out Payment 1.3
Earn-Out Restricted Transaction 2.4
EBITDA Arbitrator 2.4
EBITDA Dispute Notice 2.4
EBITDA Financial Statements 2.4
Environmental Assessment 5.1
Environmental Condition 3.23
Escrow Amount 2.3
Excess Tax Liabilities 11.3
Final Return 11.1
Final State and Local Tax Returns 11.1
GI Contract 10.3
Gross up Amount 11.3
IBRD-Europe Recitals
IBRD-Europe Purchase Price 1.2
IBRD-Europe Shares Recitals
IBRD-France Recitals
IBRD-Germany Recitals
IBRD Group 11.1
IBRD-Japan 3.29
IBRD-Rostrum Recitals
IBRD-U.K. Recitals
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
IBRD-U.S. Shares Recitals
Insurance Proceeds 10.3
KAS Recitals
KAS Dividend Recitals
KCAS Recitals
Kuraya Recitals
Liquidation Recitals
Net Debt Adjustment 2.5
Net Debt Amount 7.8
Phoenix Canada Recitals
Phoenix Securities Reports 4.6
Phoenix U.S. Recitals
Preliminary Earned Cash 2.5
Preliminary Earned Cash Certificate 2.5
Professional Liability Insurance Policy 7.10
Purchase Price 1.2
Reference Period 2.4
Related Parties 3.31
Revenue Certificate 10.3
Revenue Losses 10.3
Seller or Sellers Recitals
Sellers' Accountant 2.5
Sellers' General Liabilities 10.2
Seller Indemnified Party 10.4
Shares Recitals
Straddle Period 11.1
Straddle Period Return 11.1
Subsidiary Recitals
Supplemental Notice 5.5
Tax Notice 11.1
Tax Returns 3.14
Tax Sharing Agreement 3.14
Third Accounting Firm 10.3
Threshold 10.3
Unliquidated Claim 10.6
U.S. Acquisition Recitals
U.S. Closing 2.1
U.S. Purchase Price 1.2
1998 EBITDA 2.4
1998 EBITDA Target 2.4
</TABLE>
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
KURAYA AMERICAN SYSTEMS INC.,
a California corporation
By /s/ Gerry Shishido
----------------------------------------------
Gerry Shishido, Vice President
------------------------------------------------
Printed Name and Title
KURAYA CORPORATION,
a corporation organized under the laws of Japan
By /s/ Osamu Takumiva
----------------------------------------------
Osamu Takumiva, Executive Vice President
------------------------------------------------
Printed Name and Title
IBRD-ROSTRUM GLOBAL, INC.,
a Delaware corporation
By /s/ Gerry Shishido
----------------------------------------------
Gerry Shishido, Vice President
------------------------------------------------
Printed Name and Title
IBRD-ROSTRUM EUROPE, INC.,
a Delaware corporation
By /s/ Gerry Shishido
---------------------------------------------------
Gerry Shishido, President and Chief Executive Officer
-----------------------------------------------------
Printed Name and Title
PHOENIX INTERNATIONAL LIFE SCIENCES
(U.S.) INC., a Delaware corporation
By /s/ Jean-Yves Caloz
----------------------------------------------
Jean-Yves Caloz, Treasurer
------------------------------------------------
Printed Name and Title
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<PAGE>
PHOENIX INTERNATIONAL LIFE SCIENCES
INC., a corporation organized under the laws of
Quebec, Canada
By /s/ Jean-Yves Caloz
------------------------------------------------
Jean-Yves Caloz, Senior Vice President and Chief
Financial Officer
--------------------------------------------------
Printed Name and Title
-67-
<PAGE>
ATTACHMENT A
Without limiting Section 3.14, the following additional representations and
warranties are made with respect to IBRD-Rostrum Group Ltd., IBRD-Rostrum Global
Ltd. and Bath Clinical Trials Ltd., each a "UK Company." Statements herein with
respect to Bath Clinical Trials Ltd. are made to the Knowledge of KAS.
DEFINITIONS
"ACCOUNTING DATE"
This means the financial year end date which for both of the UK Companies
is 31 December.
"AUDITED ACCOUNTS"
The Audited Accounts of the Company for the accounting reference period
ended on the Accounting Date.
"EVENT"
Any event, act, transaction or omission of whatever nature and includes
without limitation any change in the residence of any person and a
failure to distribute.
"ICTA 1988"
Income and Corporation Taxes Act 1988.
"IHTA 1984"
Inheritance Tax Act 1984.
"REVENUE"
The Board of the Inland Revenue.
"TAXATION"
Any form of taxation, duty, levy, impost, charge, national insurance or
other similar contribution, or rates, created or imposed by any
governmental, state, federal, local, municipal or other body, in the
United Kingdom including any payment which the Company
A-1
<PAGE>
may be or become bound to make or obliged to account for to any person in
respect of taxation and also including any related penalty, interest,
fine or surcharge.
"TCGA 1992"
The Taxation Chargeable Gains Act 1992.
"VATA 1994"
Value Added Tax Act 1994; and
1. RETURNS AND INFORMATION
1.1 All returns, computations, notices and information which are or have been
required to be made or given by each UK Company to a UK governmental
authority for each Taxation purpose
1.1.1 have been made or given within the requisite periods required by
law and on a correct and proper basis proper basis in all material
respects filed; and
1.1.2 none of them is or is likely to be, the subject of any material
dispute with the Revenue except that in relation to the 1995
return there is an open issue regarding a covenant not to compete
1.1.3 did not improperly claim any relief, allowance, deduction or
credit so as to result in the likelihood of a relief claimed being
disallowed or the imposition or assessment or increased assessment
(including any claim for any penalty, interest, surcharge or fine)
for the periods covered.
1.2 Each UK Company has paid all Taxation which it has become liable to pay
and is not, and has not in the six years ending on the date of this
Agreement been, liable to pay a penalty, surcharge, fine or interest in
connection with Taxation or the submission or failure to submit any
returns.
1.3. Each UK Company is in possession of sufficient information or has
reasonable access to such information to enable it to compute its
liability to Taxation insofar as it depends on any Event occurring on or
before the Closing Date and the books and records of each UK Company
contain sufficient detail in appropriate form to enable the Taxation
liability of such UK Company to be established in all material respects
and to determine the Taxation consequences in all material respects which
would arise on any disposal or realization of any asset owned at the
Accounting Date or acquired since that date but before the Closing Date.
A-2
<PAGE>
1.4 No Taxation authority has, to the Knowledge of KAS, investigated or
indicated in writing to a U.K. Subsidiary that it intends to investigate
the Taxation affairs of any UK Company or carried out any audit in
relation to the Taxation affairs of a UK Company.
1.5 All material Taxation liabilities of each UK Company including contingent
and deferred liabilities as at the Accounting Date are fully and properly
provided for or reserved in the Audited Accounts.
1.6 The execution or completion of this Agreement will not result in any
profit or gain being deemed to accrue to any of the UK Companies for
Taxation purposes whether under Section 178, or 179 TCGA 1992 or
otherwise.
1.7 SCHEDULE 3.14 sets out full particulars of any special agreement or
arrangement currently in place between the UK Company and the Revenue as
a result of which such UK Company is permitted not to comply with its
statutory obligations.
1.8 No Event has occurred as a result of which the Company has or may become
liable to pay or to bear any Taxation which is primarily or directly
chargeable against or attributable to any person, firm or company other
than the Company.
1.9 No notice has been given to the Company or any UK Company or enquiry made
nor are pursuant to Section 770 ICTA 1988, other than an enquiry
concerning transfer pricing between UK Companies and the German and
French IBRD Subsidiaries..
2. TAXATION CLAIMS, LIABILITIES AND RELIEFS
2.1 SCHEDULE 3.14 sets forth all matters rating to Taxation in respect of
which each UK Company (either alone or jointly with any other person)
has, or at the Closings will have an outstanding entitlement in relation
to any accounting period commencing prior to Closing to make.
2.1.1 any claim for relief,
2.1.2 any application to make an election, including an election for one
type of relief, or one basis, system or method of Taxation, as
opposed to another,
2.1.3 any appeal or further appeal against an assessment to Taxation;
and
2.1.4 any application for the postponement of, or payment by instalments
of, Taxation; or to disclaim or require the postponement of any
allowance or relief;
A-3
<PAGE>
2.2 No relief from Taxation (whether by way of deduction, reduction, set off,
exemption, postponement, rollover, holdover, repayment or allowance or
otherwise) from, against or in respect of any Taxation has been given to
any UK Company by Revenue which properly should be effectively withdrawn,
postponed, restricted, clawed back or otherwise lost as a result of any
act or omission of a UK Company.
3 CLOSE COMPANIES
3.1 No UK Company is, nor has never been since the acquisition of
IBRD-Rostrum Group, Ltd by IBRD-Rostrum Europe, Inc., a close company.
4. DISTRIBUTIONS
4.1 No UK Company has failed to treat as a distribution any amount which
ought to have been so treated for Taxation purposes.
4.2 No UK Company has made any distribution for Taxation purposes since the
Accounting Date.
4.3 Since the acquisition of IBRD-Rostrum Group Ltd. by IBRD-Rostrum Europe,
Inc., none of the UK Companies have made a repayment of share capital to
which Section 210 ICTA 1988 (bonus issue following repayment of share
capital) applies or issued share capital as paid up other than by the
receipt of new consideration within the meaning of Part VI ICTA 1988
(company distributions, tax credits etc.).
5. COMPANY RESIDENCE
Each UK Company has been resident for tax purposes in the United Kingdom
and nowhere else at all times since its incorporation and will be so
resident at Closing.
6. GROUP RELATIONSHIPS
6.1 No UK Company has ever been a member of any group (other than the Group
comprised of the three UK Companies) for any Taxation purpose.
6.2 No UK Company is liable to make a payment for Group Relief, ACT or
Taxation Refund surrendered to it, provided, however, the Audited
Accounts have been prepared based on the assumption that IBRD-Rostrum
Group Ltd would make such payment to IBRD-Rostrum Global Ltd.
A-4
<PAGE>
6.3 No UK Company is liable under an obligation, agreement or arrangement
entered into before the Closings to surrender Group Relief, ACT or Taxation
Refund which has not been surrendered.
6.4 There is no arrangement by which a UK Company may become liable to repay a
sum paid to it for the surrender of the Group Relief, ACT or Taxation
Refund.
7. REPLACEMENT OF BUSINESS ASSETS
No disposal of a business asst has been made in respect of which gain was
deferred through replacement of business assets.
8. CORPORATION TAX
8.1 If each of the assets (other than trading stock) each UK Company was
disposed of for a consideration equal to the book value of that asset in,
or adopted for the purpose of, the Audited Accounts, no liability to
Taxation, not fully provided for in the Audited Amounts, would arise.
8.2 No UK Company is entitled to any capital loss to which section 18(3) TCGA
1992 applies.
8.3 A balancing charge of not more than (pound)90,000 UK would arise in
respect of capital allowances claimed by or given to each UK Company if
the assets of the UK Companies or the plant and machinery taken as a
whole were to be realized for a consideration equal to the amount of
their book value as shown or included in the Audited Accounts.
9. PAYE, NATIONAL INSURANCE AND OTHER WITHHOLDING TAX
9.1 All income tax under the Pay As You Earn system and payments due in
respect of employees' National Insurance Contributions have been deducted
from all payments made or treated as made by each UK Company and have
been duly paid by each UK Company to the Revenue in the appropriate
manner, and each UK Company has complied with all its reporting
obligations in connection with all payments to and benefits provided for
employees and directors of such UK Company.
9.2 No PAYE audit has been made in respect of each UK Company by the Revenue
and no notice has been given that any such audit will or may be made;
however, in a National Insurance Contributions Agency examination in
August 1996 the status of two persons as self-employed was questioned but
agreed to have been correctly characterized as such.
A-5
<PAGE>
9.3 Each UK Company has in all material respects, accounted to the Revenue,
as required by law, for all secondary Class 1 and Class 1A National
Insurance Contributions which it is required by law to make.
10. DEPRECIATORY TRANSACTIONS AND VALUE SHIFTING
10.1 No asset owned by any UK Company has at any time since its acquisition by
that or any other UK Company or any UK Company which has at any time been
a member of a group (as defined from time to time for any Taxation
purpose) of which the Company has at any time been a member, been
subjected to a reduction in value such that any allowable loss arising on
its disposal is likely to be reduced or eliminated or any chargeable gain
arising on its disposal is likely to be increased.
11. LOANS
The UK Companies have been party to a loan relationship within the
meaning of Section 81 Finance Act 1996. Group has accrued interest
payable on such loan. When Group decides to pay the interest, it will
need to apply for clearance to enable the interest to be paid gross I.E.,
without making a deduction for withholding tax. If clearance is not
applied for, then Group will be obliged to deduct withholding tax on any
such interest payments. party to any loan relationship within the meaning
of Section 81 Finance Act 1996.
12. VALUE ADDED TAX (VAT)
12.1 For the purpose of this paragraph:
"the VAT legislation" means the law relating to VAT in any jurisdiction
including VATA 1994 and all regulations made or imposed thereunder (or
any earlier enactment of which VATA 1994 is a consolidation) and any
other statutes or other provisions relating to value added tax including
all SEC legislation whether in the form of directives, regulations or
otherwise; and
"VAT" means UK value added tax and its equivalent under the law of any
other country.
12.2 Each UK Company is registered for the purposes of VAT and has been so
registered at all times that it has been required to be so registered in
accordance with the VAT legislation.
12.3 Each UK Company has compiled in all material respects with the VAT
legislation and has made and maintained in all material respects at the
date hereof full complete correct and up-to-date records invoices and
other documents appropriate or requisite for the
A-6
<PAGE>
purpose of such legislation and has at all times punctually paid and made
all payments and returns required under the VAT legislation.
12.4 No UK Company is in arrears with any payment or return due under the VAT
legislation and no UK Company has been liable to any abnormal or
non-routine payment of VAT or to any penalty or interest for late payment
of VAT or non-compliance with the VAT legislation.
12.5 No UK Company has been partially exempt for any VAT accounting period in
the last six years prior to Completion and no UK Company has in that
period been denied credit for any input tax.
12.6 No UK Company nor any company of which the UK Company is a relevant
associate within the meaning of Paragraph 3 (7) Schedule 10 VATA 1994 has
elected to waive exemption under paragraph 2 Schedule 10 VATA 1994 in
relation to any land except as disclosed in Schedule 3.1.
13. STAMP DUTY
13.1 All documents in the possession or under the control of each UK Company
to which it has been a party and which attract stamp duty or stamp duty
reserve tax have been Property stamped, no such document is currently
subject to adjudication of claims for exemption of relief, and there are
no circumstances which may result in such UK Company becoming liable for
any interest or penalties in respect of stamp duty or stamp reserve tax.
13.2 All documents which form part of the title of each UK Company to any
asset or in the enforcement of which such UK Company is or may be
interested have been duly stamped and (where appropriate) adjudicated.
No UK Company has been a party to any transaction which could cause such
UK Company to become liable to stamp duty reserve tax.
14. INHERITANCE TAX
14.1 The Company has made no transfer of value within section 94 or 99 IHTA
1984.
14.2 No person has or may as a result of any event occurring on or before
Closing have the power under section 212 IHTA 1984 to raise any capital
transfer tax or inheritance tax by the sale of or charge over any of the
such UK Company's assets.
A-7
<PAGE>
14.3 There is no unsatisfied liability to capital transfer tax or inheritance
tax attached or attributable to the assets of each UK Company or the
shares in such UK Company, and neither the assets not the Shares are
subject to any Inland Revenue charge as is mentioned in section 237 IRTA
1984.
A-8
<PAGE>
ATTACHMENT B
GENERAL COMPLIANCE WITH STATUTES AND LICENSES
General
1.1 Each UK Company has obtained all licenses, consents, approvals,
permissions, permits, (including, without limitation Home Office permits
for, inter alia, animal experimentation), test and other certificates and
authorities (public or private) and details of compliance procedures
and/or Accreditations relating to the Good Laboratory Practise, Good
Clinical Practise and Good Manufacturing Practice Guidelines (together
"Licenses") necessary for the carrying on of its business in the places
and in the manner in which such business is now carried on.
1.2 All Licenses are accurately listed in SCHEDULE 3.13 and are valid and
subsisting.
1.3 There are no reasons or any facts or circumstances which (with or without
the giving of notice or lapse of time) would be likely to give rise to
any reason why any of the Licenses should be suspended, canceled, revoked
or not renewed.
2. Each UK Company and each of IBRD-France and IBRD-Germany has conducted
and is conducting its business in all material respects in accordance
with all applicable contracts, laws, rules, regulations, judgments,
decisions, decrees, orders, Licenses or other requirements of any
government, quasi government, statutory, administrative or regulatory
body, court or agency (whether of the U.K., France, Germany or
elsewhere), including, without limitation, with respect to:
2.1 selecting investigators;
2.2 obtaining documentation from investigators;
2.3 verifying that patient informed consent is obtained;
2.4 monitoring the validity and accuracy of data;
2.5 verifying drug countability and instructing investigators to maintain
records and reports.
B-1
<PAGE>
SCHEDULE 10.2
INDEMNIFIABLE DISCLOSED ITEMS
SCHEDULE 3.6
1. Bracco (study B16880/015)
2. Reckitt & Coleman and Daiichi
SCHEDULE 3.8
1. Roche to the extent, when taken together with all other bad debt and
doubtful accounts, is in excess of accounts receivable bad debt and
doubtful accounts reserve
SCHEDULE 3.9
1. Dainippon
2. Japan tobacco
3. Novartis
4. Schwabe
5. Roche
6. Tap Holdings, Inc.
SCHEDULE 3.14 AND ATTACHMENT A
1. South Africa Branch Office of IBRD-Rostrum Global Limited to the extent
in excess of Rand 190,500
2. VandenBurg
3. Nonfilings in Colorado, Florida, Idaho, Illinois, Maryland,
Massachusetts, Minnesota, Missouri, North Carolina, Ohio, Tennessee,
Texas, Wisconsin 401(k) Plan Audit
5. IBRD-Rostrum Global Limited 1995 expected corporation tax refund
6. 1995 U.K. Tax Returns - treatment of restrictive covenant cost
7. 1996 U.K. Tax Returns - treatment of restrictive covenant cost
8. Interaction between IBRD-Rostrum Global Limited and IBRD-France and
IBRD-Germany
9. 1996 Federal Tax return amendment
<PAGE>
Exhibit A
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of February ___, 1998
by and among Phoenix International Life Sciences (U.S.), Inc., a Delaware
corporation ("Phoenix U.S."), Phoenix International Life Sciences Inc., a
corporation constituted under the laws of Canada ("Phoenix Canada" and together
with Phoenix U.S., the "Phoenix Parties"), Kuraya American Systems Inc., a
California corporation ("KAS"), Kuraya Corporation, a corporation organized
under the laws of Japan ("Kuraya" and together with KAS, the "Kuraya Parties"),
and First Trust of California, National Association (the "Escrow Agent").
BACKGROUND
The Phoenix Parties and the Kuraya Parties are parties to a Stock
Purchase Agreement dated as of December 24, 1997 (the "Stock Purchase
Agreement") pursuant to which Phoenix Canada is purchasing all of the issued and
outstanding shares of certain subsidiaries of the Company, and Phoenix U.S. is
purchasing from KAS all of the issued and outstanding Common Stock of the
Company
This Agreement is the Escrow Agreement that is referred to in the Stock
Purchase Agreement. Unless otherwise defined herein, terms are used herein as
defined in the Stock Purchase Agreement.
WITNESSETH
NOW, THEREFORE, in consideration of the respective covenants contained
herein and in the Stock Purchase Agreement and intending to be legally bound,
the parties hereto agree as follows:
1. INCORPORATION OF TERMS OF STOCK PURCHASE AGREEMENT.
The provisions of the Stock Purchase Agreement, a conformed copy of which
has been delivered to the Escrow Agent, are hereby incorporated herein by
reference but only as the context of this Agreement may require.
<PAGE>
2. ESCROW FUNDS.
2.1 The Phoenix Parties and the Kuraya Parties hereby appoint the Escrow
Agent as their agent and custodian to hold, invest and disburse the funds
deposited with the Escrow Agent on the date hereof and all earnings thereon
(collectively, the "Escrow Funds") in accordance with the terms of this
Agreement.
2.2 On the date of this Agreement, the Phoenix Parties are depositing a
portion of the Purchase Price with the Escrow Agent in the amount of Five
Million Dollars ($5,000,000). The parties hereto acknowledge and agree that,
subject to the terms hereof, the Escrow Funds shall be the property of KAS.
2.3 Upon receipt of the Escrow Funds, the Escrow Agent shall send a
notice to the Kuraya Parties and the Phoenix Parties acknowledging receipt of
the Escrow Funds and shall hold the Escrow Funds in escrow pursuant to the terms
of this Agreement. The Escrow Agent shall segregate the Escrow Funds from all
other property held by the Escrow Agent and shall identify the Escrow Funds as
being held in connection with this Agreement. The Escrow Agent agrees that its
documents and records with respect to the transactions contemplated hereby will
be available for examination by authorized representatives of the Phoenix
Parties and the Kuraya Parties upon reasonable notice and during normal business
hours.
2.4 The Escrow Funds shall not be subject to lien or attachment by any
creditor of any party hereto and shall be used solely for the purpose set forth
in this Agreement.
2.5 The Escrow Funds shall be invested exclusively in (i) any money
market mutual fund that invests exclusively in obligations of the United States
Government, or any agencies or instrumentalities thereof or any combination of
the foregoing, (ii) short-term obligations issued by the United States Treasury
and (iii) such other government securities as may be approved in writing from
time to time by the Phoenix Parties and the Kuraya Parties. The Chief Financial
Officer of KAS shall direct, with the consent of Phoenix U.S., the investment of
the Escrow Funds in accordance with this Section 2.5. Any interest income or
other investment proceeds shall be credited to the account of KAS, and KAS shall
be obligated to pay all income and other taxes in respect thereof. The Escrow
Agent shall release to KAS by the fifth business day of each calendar quarter
hereafter all interest income and other investment proceeds of the Escrow Funds
earned during the previous period.
3. CLAIMS UNDER STOCK PURCHASE AGREEMENT.
3.1 If a Buyer Indemnified Party shall claim indemnification under the
Stock Purchase Agreement (a "CLAIM"), the Buyer Indemnified Party shall give
written notice of the Claim (a "CLAIM NOTICE") to the Escrow Agent and the
Kuraya Parties. The Claim shall then be resolved
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<PAGE>
in accordance with the procedures set forth in the Stock Purchase Agreement.
Upon resolution of a Claim, the Kuraya Parties and the Phoenix Parties shall
issue a joint written direction to the Escrow Agent with respect to the Claim at
issue. The Escrow Agent shall act in accordance with a written direction from
the Phoenix Parties and the Kuraya Parties if and when issued. If the Phoenix
Parties and the Kuraya Parties are unable to resolve the Claim, such Claim shall
be settled by appropriate arbitration, and any Losses established by reason of
such litigation shall be deemed to be finally determined. Upon such final
determination, the Escrow Agent shall pay over to the Buyer Indemnified Party
the amount set forth in a copy of a binding arbitration award evidencing a
final, binding and enforceable award.
4. TERMINATION OF ESCROW.
Promptly after the eighteenth complete calendar month following the date
hereof, the Escrow Agent shall deliver the remainder of the Escrow Funds to KAS,
except that if a Claim under the Stock Purchase Agreement is unresolved at that
time, a portion of the Escrow Funds that is equal to any such outstanding Claim
shall continue to be held until the resolution of the Claim in accordance with
this Agreement. Upon delivery of all the Escrow Funds to the Kuraya Parties
and/or to a Buyer Indemnified Party pursuant to Section 3 above, this Agreement
will thereupon terminate.
5. EXPENSES.
The Escrow Agent's fee schedule is attached hereto as Exhibit A and
incorporated herein. All expenses and fees (including reasonable attorneys'
fees) of the Escrow Agent shall be borne by the Phoenix Parties. The Phoenix
Parties and the Kuraya Parties shall bear their own expenses in connection with
the resolution of any Claim or other dispute with respect to this Agreement,
except as otherwise provided in the Stock Purchase Agreement.
6. NOTICES.
Any notice or other communication required or permitted hereunder shall
be in writing, shall be delivered personally, by facsimile transmission or by
overnight courier, shall be deemed given upon receipt if delivered personally,
or upon confirmation of receipt, if given by facsimile, or on the first business
day following delivery by overnight courier, if delivered by overnight courier,
and shall be as follows:
-3-
<PAGE>
(1) If to Phoenix U.S. or Phoenix Canada to:
Phoenix International Life Sciences (U.S.) Inc.
Phoenix International Life Sciences Inc.
2350 Cohen Street
Saint-Laurent (Montreal) Quebec
Canada H4R 2N6
Attention: Chief Executive Officer
Telecopier: (514) 333-7306
with a copy to:
Pepper Hamilton LLP
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
Attention: James D. Rosener, Esquire
Telecopier: (610) 640-7835
(2) If to KAS or Kuraya to:
Kuraya American Systems Inc.
3625 Del Amo Blvd., Ste. 180
Torrance, CA 90503
Attention: Mr. Gerry Shishido, Vice President
Telecopier: (310) 542-4175
with a copy to:
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street 48th Floor
Los Angeles, California 90071
Attention: Scott J. Lochner, Esq.
Telecopier: (213) 620-1398
(3) If to the Escrow Agent to:
First Trust of California, National Association
550 South Hope Street, Ste. 500
Los Angeles, California 90071
Attention: Brad Scarbrough
Telecopier (213) 533-8750; Telephone: (213) 533-8741
-4-
<PAGE>
Any party may, by notice given in accordance with this Section 6 to the
other parties, designate another address or person for receipt of notices
hereunder.
7. SECURITY INTEREST.
7.1 As security for the payment of any Claim that a Buyer Indemnified
Party may have against KAS hereunder, the Kuraya Parties hereby grant to the
Phoenix Parties a security interest in the Escrow Funds to the extent of the
Kuraya Parties' ownership interest, if any, and other rights that the Kuraya
Parties may have hereunder (collectively, the "Collateral").
7.2 The Kuraya Parties will execute, from time to time, such financing
statements and other documents covering the Collateral as the Phoenix Parties
may reasonably request in order to create, evidence, perfect, maintain or
continue its security interest in the Collateral.
7.3 The Kuraya Parties acknowledge that they are granting to the Phoenix
Parties a first priority security interest in the Collateral under the Uniform
Commercial Code as in effect in California, and that the Kuraya Parties will not
assign the Collateral or any interest therein in any manner without the prior
written consent of the Phoenix Parties. In particular, the Kuraya Parties will
not grant any other security interest in the Collateral without the prior
written consent of the Phoenix Parties.
7.4 The security interest granted in the Collateral shall be deemed
automatically released upon the Escrow Agent's release of the Escrow Funds to
KAS in accordance with the terms of this Agreement.
7.5 The Escrow Agent hereby waives any right, title and interest it may
have in or to the Collateral except to the extent of fees and expenses in the
amounts provided on Exhibit A hereto.
8. LIABILITY OF ESCROW AGENT.
8.1 The Phoenix Parties and the Kuraya Parties, jointly and severally,
shall indemnify the Escrow Agent and hold it harmless from and against any
losses, liabilities, expenses (including reasonable attorneys' fees and
expenses), claims or demands arising out of or in connection with the
performance of its obligations in accordance with the provisions of this
Agreement, except for losses, liabilities, expenses, claims or demands resulting
from the gross negligence or willful misconduct of the Escrow Agent. These
indemnities shall survive the resignation of the Escrow Agent and the
termination of this Agreement.
8.2 The Escrow Agent shall have no duties except those specifically set
forth in this Agreement and shall not be subject to, nor have any liability or
responsibility under, any other
-5-
<PAGE>
agreement or document the parties hereto may be responsible for, even if same is
referenced herein.
8.3 The Escrow Agent shall be protected in acting upon written
instructions from the Phoenix Parties and the Kuraya Parties if it, in good
faith, believes such written instructions to be genuine and what it purports to
be.
8.4 The Escrow Agent may confer with legal counsel, including its own
in-house counsel, in the event of any dispute or questions as to the
construction of any of the provisions hereof, or its duties hereunder, and it
shall incur no liability and it shall be fully protected in acting in accordance
with the opinions of such counsel except to the extent of any willful misconduct
or gross negligence of the Escrow Agent.
8.5 If a dispute arises between or among any of the parties to this
Agreement, the Escrow Agent shall be entitled, at its option, and upon written
notice to the Phoenix Parties and the Kuraya Parties, to tender into the custody
of any court of competent jurisdiction in California all funds and all materials
that the Escrow Agent may be holding under this Agreement and to begin such
legal proceedings as the Escrow Agent deems appropriate. After taking such
actions, the Escrow Agent shall then be discharged from any further duties and
liability under this Agreement except to the extent of any prior willful
misconduct or gross negligence of the Escrow Agent.
9. RESIGNATION AND REMOVAL OF ESCROW AGENT.
9.1 The Escrow Agent may resign at any time and for any reason upon
notice to the Phoenix Parties and the Kuraya Parties given at least 30 days
prior to the effective date of such resignation. During such 30-day period, the
Phoenix Parties and the Kuraya Parties shall endeavor to agree upon a successor
Escrow Agent. If the Phoenix Parties and the Kuraya Parties fail to agree on a
successor Escrow Agent within such 30-day period, the Escrow Agent shall deliver
the funds and all materials that it may then be holding to a court in accordance
with Section 8.2 above. If the Escrow Agent becomes unable to fulfill its duties
hereunder, or if for any reason, the Phoenix Parties and the Kuraya Parties
desire to remove the Escrow Agent hereunder, the Phoenix Parties and the Kuraya
Parties may appoint a successor Escrow Agent for the purposes of this Agreement.
Upon the appointment of any successor Escrow Agent under this Agreement, the
successor Escrow Agent shall have all the rights, duties and powers that applied
to the original Escrow Agent hereunder.
9.2 Any company into which the Escrow Agent may be merged or with which
it may be consolidated, or any company to whom Escrow Agent may transfer a
substantial amount of its global escrow business, shall be the successor to the
Escrow Agent without the execution or
-6-
<PAGE>
filing of any paper or any further act on the part of any of the parties hereto,
anything to the contrary herein notwithstanding.
10. GENERAL.
10.1 ENTIRE AGREEMENT. This Agreement and the Stock Purchase Agreement
contain the entire agreement of the parties with respect to the subject matter
hereof, and supersede all prior agreements, representation and warranties,
written or oral, with respect thereto.
10.2 WAIVERS AND AMENDMENTS. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof or thereof may be waived,
only by a written instrument signed by each of the parties hereto, in the case
of a waiver, by the party waiving compliance. The failure of a party to insist,
in any one or more instances, upon performance of the terms or conditions of
this Agreement shall not be construed as a waiver or relinquishment of any right
granted hereunder or of the future performance of any such term, covenant or
condition. No waiver on the part of any party of any right, power or privilege,
nor any single or partial exercise of any such right, power or privilege, shall
preclude any further exercise thereof or the exercise of any other such right,
power or privilege.
10.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the substantive and procedural laws of the State of California
applicable to agreements made and to be performed entirely within such State.
Each of the parties hereby consents to the jurisdiction of any state or federal
court located in the State of California. Notwithstanding any provision herein
to the contrary, any controversy or claim arising out of or relating to this
Agreement or the breach thereof, other than a claim for specific performance or
injunctive relief, shall be settled by arbitration before a single arbitrator in
the State of California in accordance with the Commercial Arbitration Rules of
the American Arbitration Association, and judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. All
costs associated with such arbitration shall be borne equally by the parties to
the dispute, except that each party shall bear the costs of its own attorneys
and experts (except as otherwise provided in this Agreement).
10.4 REFERENCE TO U.S. DOLLARS. All references in this Agreement to
amounts of money expressed in dollars are references to United States dollars,
unless otherwise indicated.
10.5 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective permitted successors
and permitted assigns. Neither this Agreement nor any of the rights hereunder,
may be assigned by any party, nor may any party delegate any obligations
hereunder, without the written consent of the other party hereto or thereto. Any
non-permitted assignment or attempted assignment shall be void. Notwithstanding
the foregoing, any party hereto (other than the Escrow Agent) may assign this
Agreement, and
-7-
<PAGE>
any of its rights hereunder, and may delegate any of its obligations hereunder,
to any of its Affiliates.
10.6 NO THIRD PARTY BENEFICIARIES. Nothing herein is intended or shall be
construed to give any person any legal or equitable right, remedy or claim under
or in respect of this Agreement or any provision contained herein, except as
otherwise provided herein.
10.7 COUNTERPARTS. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof or thereof
each signed by less than all, but together signed by all of the parties.
10.8 HEADINGS. The heading herein are for reference only and shall not
affect the interpretation of this Agreement.
10.9 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
or invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
[SIGNATURE PAGE FOLLOWS.]
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
KURAYA AMERICAN SYSTEMS INC.,
a California corporation
By /s/ Gerry Shishido
--------------------------------
Gerry Shishido, Vice President
-----------------------------------
Printed Name and Title
KURAYA CORPORATION
By /s/ /s/ Osamu Takumiya
--------------------------------
Osamu Takumiya, Executive Vice President
-----------------------------------
Printed Name and Title
PHOENIX INTERNATIONAL LIFE
SCIENCES, INC., a Canadian corporation
By /s/ Jean-Yves Caloz
--------------------------------
Jean-Yves Caloz, Chief Financial
Officer
-----------------------------------
Printed Name and Title
PHOENIX INTERNATIONAL LIFE
SCIENCES (U.S.) INC., a Delaware corporation
By /s/ Jean-Yves Caloz
--------------------------------
Jean-Yves Caloz, Treasurer
-----------------------------------
Printed Name and Title
FIRST TRUST OF CALIFORNIA,
NATIONAL ASSOCIATION, as Escrow Agent
By /s/ Brad E. Scarbrough
--------------------------------
Brad E. Scarbrough, Assistant Vice
President
-----------------------------------
Printed Name and Title
-9-
<PAGE>
Exhibit 2.3
SHARE PURCHASE AGREEMENT
AMONG
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
AND
DR. JOHANN JAKOB VOLLENWEIDER
AND
ALBERS & CO.
AND
DR. ERNST FISCHER
AND
INNOVENT CAPITAL LTD.
AND
WERNER HASSLER
AND
DR. PETER JOLLER
AND
DR. DAVID KARABELNIK
AND
DR. ANDREAS WICKI
AND
ANAWA HOLDING AG
--------------------------
DATED AS OF APRIL 30, 1998
--------------------------
<PAGE>
SHARE PURCHASE AGREEMENT dated as of April 30, 1998
AMONG: PHOENIX INTERNATIONAL LIFE SCIENCES INC., a
corporation incorporated under the Canada
Business Corporations Act, having its head
office at 2350, Cohen Street, Saint-Laurent,
Quebec, Canada, H4R 2N6, herein acting and
represented by Suzanne Peeters, its duly
authorized representative;
(hereinafter "Phoenix")
AND: DR. JOHANN JAKOB VOLLENWEIDER, residing at
Unterdorfstrasse 23, 8602 Wangen,
Switzerland;
(hereinafter "Vollenweider")
AND: ALBERS & CO., a Swiss partnership having its
head office at Schanzengasse 14, 8000
Zurich, Switzerland, herein acting and
represented by Dr. Johann Jakob
Vollenweider, its duly authorized
representative;
(hereinafter "Albers")
AND: DR. ERNST FISCHER, residing at
Heugatterstrasse 24, 8600 Dubendorf,
Switzerland;
(hereinafter "Fischer")
AND: INNOVENT CAPITAL LTD., a company
incorporated under the laws of the Cayman
Islands, with a corporate seat at Midland
Bank Trust Building, P.O. Box 1109, Fort
Street, Grand Cayman, B.W.I., herein acting
and represented by Dr. Johann Jakob
Vollenweider, its duly authorized
representative;
(hereinafter "Innovent")
AND: WERNER HASSLER, residing at Buchserstrasse
43, 8157, Dielsdorf, Switzerland;
(hereinafter "Hassler")
<PAGE>
- 2 -
AND: DR. PETER JOLLER, residing at
Spitzackerstrasse 8, 8057 Zurich,
Switzerland;
(hereinafter "Joller")
AND: DR. DAVID KARABELNIK, residing at Untere
Allmend 12, 8702 Zollikon, Switzerland;
(hereinafter "Karabelnik")
AND: DR. ANDREAS WICKI, residing at Hohestrasse
39, 8702 Zollikon, Switzerland;
(hereinafter "Wicki")
(Vollenweider, Albers, Fischer, Innovent,
Hassler, Joller, Karabelnik and Wicki are
hereinafter collectively referred to as the
"Vendors")
AND: ANAWA HOLDING AG, a Swiss corporation with
capital of SFr3,000,000, registered in the
Commercial Register of the Canton of Zug
under number CH-170.3.016.195-4 and having
its head office at Industriestrasse 13c,
6300 Zug, Switzerland, herein acting and
represented by Dr. Johann Jakob
Vollenweider, its duly authorized
representative;
(hereinafter "Anawa")
WHEREAS, the Vendors hold, directly or indirectly, as more fully set
out in Schedule A, all of the outstanding shares and voting rights of Anawa;
WHEREAS, ANAWA Laboratorien AG ("Laboratories"), a Swiss corporation,
with capital of SFr1,110,000, registered in the Commercial Register of the
Canton of Zurich under number CH- 020.3.901.417-4 and having its head office at
Unterdorfstrasse 23, 8602 Wangen-Bruttisellen, Switzerland, is a subsidiary of
Anawa, held as to 100% by Anawa. The capital structure of Laboratories is set
forth in Schedule B;
WHEREAS, ANAWA Trading AG ("Trading"), a Swiss corporation, with
capital of SFr100,000, registered in the Commercial Register of the Canton of
Zurich under number CH-020.3.901.440-9 and having its head office at
Unterdorfstrasse 23, 8602 Wangen-Bruttisellen, Switzerland, is a subsidiary of
Anawa, held as to 100% by Anawa. The capital structure of Trading is set forth
in Schedule C;
WHEREAS the Vendors have agreed to sell all of the outstanding shares
of Anawa to Phoenix in consideration for the issuance to the Vendors of common
shares of Phoenix;
<PAGE>
- 3 -
NOW, THEREFORE, the parties hereto agree as follows:
1. INTERPRETATION AND DEFINITIONS
Except as the context otherwise explicitly requires, (a) the
capitalized term "Section" refers to sections of this Agreement; (b) the
capitalized terms "Schedules" and "Exhibit" refer to schedules and exhibits to
this Agreement; (c) references to a particular Section include all subsections
thereof; (d) the word "including" shall be construed as "including without
limitation"; (e) accounting terms not otherwise defined herein have the meaning
provided under GAAP (as defined below); (f) references to a particular law,
statute or regulation include all rules and regulations thereunder and any
successor, law, statute, regulation or rules, in each case as from time to time
in effect; (g) references to a particular Person include such Person's
successors and assigns to the extent not prohibited by this Agreement; (h)
references to dollars or $ in this Agreement are to Canadian dollars. In this
Agreement, unless the context otherwise requires, the following terms shall have
the respective meanings assigned to them:
1.1 "AFFILIATE" means, with respect to any Person, any Person
which, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common
control with such Person. For the purposes of this Agreement,
"Affiliate" also means an affiliate as such term is defined by
the SEC.
1.2 "ANAWA AFFILIATE" means any of Vollenweider, Albers, Fischer,
Innovent, Karabelnik and Wicki.
1.3 "ARTICLES" means the original or restated articles of
incorporation, articles of amendment, articles of
amalgamation, articles of continuance, articles of
reorganization and articles of arrangement, including
amendments thereto, as in effect from time to time, of Anawa.
1.4 "COMPENSATION" as applied to any Person means the aggregate of
all salaries, compensation, remuneration or bonuses of any
character, retirement or pension benefits of any kind, or
other payments of any kind whatsoever (other than health and
medical benefits made available to employees generally and
advances and reimbursements of business expenses) made
directly or indirectly by Anawa, any of the Subsidiaries or
other specified Persons to such Person and affiliates of such
Person.
1.5 "COMPLETION DATE" means the date of this Agreement, i.e. April
30, 1998.
1.6 "CONSOLIDATED", when used with reference to any term, means
that term as applied to the accounts of Anawa or other
indicated Person and each of its respective Subsidiaries,
consolidated or combined in accordance with GAAP after
eliminating all inter-company operations and with appropriate
deductions for minority interests in Subsidiaries.
1.7 "CONTRACTUAL OBLIGATION" means, with respect to any Person,
any contracts, agreements, deeds, hypothecs, mortgages,
indentures, leases, licenses, other instruments, commitments,
undertakings, arrangements or understandings, written or oral,
or other documents or instruments, including any provisions of
its articles of incorporation or other constituting documents
or by-laws and any document or instrument evidencing
Indebtedness, to which any such Person is a
<PAGE>
- 4 -
party or otherwise subject to or bound by or to which any
property or asset of any such Person is subject.
1.8 "DISTRIBUTION" means (a) the declaration or payment of any
dividend on or in respect of the shares of any class or series
of shares of Anawa, any of the Subsidiaries or other specified
Person, other than dividends payable solely in common shares
of the share capital of the payor; (b) the purchase,
redemption or other retirement of any shares of any class of
Anawa, any of the Subsidiaries or other specified Person
directly, or indirectly through a Subsidiary or otherwise; or
(c) any other distribution on or in respect of any shares of
any class or series of shares of Anawa, any of the
Subsidiaries or other specified Person.
1.9 "ESCROW AGENT" means Montreal Trust Company.
1.10 "ESCROW AGREEMENT" means the escrow agreement entered between
the parties hereto and the Escrow Agent a copy of which is
attached hereto as Schedule 1.10.
1.11 "ESCROWED SECURITIES" means the Phoenix Shares escrowed
pursuant to Section 2.4 together with all Proceeds (as defined
in the Escrow Agreement).
1.12 "ESCROWED SHARE PRICE" means the amount obtained by adding the
opening and closing prices of the common shares of Phoenix on
each of the Montreal Exchange and The Toronto Stock Exchange
for the ten trading days preceding the date of execution of
the present Agreement, divided by 40.
1.13 "ENVIRONMENTAL LAWS" means all Legal Requirements (including
consent decrees, administrative orders and contractual
obligations) relating to public health and safety, workers
health and safety and pollution or protection of the
environment.
1.14 "GAAP" means generally accepted accounting principles, as in
effect from time to time, consistently applied.
1.15 "GUARANTEE" means (a) any guarantee of the payment or
performance of, or any contingent obligation in respect of,
any indebtedness or other obligation of any other Person, (b)
any other arrangement whereby credit or financial assistance
is extended to one obligor on the basis of any promise or
undertaking of another Person (i) to pay the Indebtedness of
such obligor, (ii) to purchase any obligation owed by such
obligor, or (iii) to maintain the capital, working capital,
solvency or general financial condition of such obligor,
whether or not such arrangement is disclosed in the balance
sheet of such other Person or is referred to in a footnote
thereto or appears in a "keep well" agreement, "comfort
letter" or "take or pay" agreement, and (c) any liability of
Anawa or any of the Subsidiaries as general partner of a
partnership or as a venturer in a joint venture in respect of
Indebtedness or other obligations of such partnership or
venture; provided, however, that in no event shall Guarantees
include product warranties given or the endorsement of
negotiable instruments for deposit or collection in the
ordinary course of business.
1.16 "INDEBTEDNESS" means (a) all indebtedness, obligations and
liabilities for borrowed money and similar monetary
obligations evidenced by bonds, notes debentures, evidences of
indebtedness,
<PAGE>
- 5 -
capitalized lease obligations, deferred purchase price of
property (other than ordinary trade payables) or otherwise,
whether direct or indirect; and (b) all indebtedness,
obligations and liabilities secured by any Liens existing on
property owned or acquired, whether or not the liability
secured thereby shall have been assumed.
1.17 "LEGAL REQUIREMENT" means any national, provincial, regional,
municipal, local or foreign law, statute, standard, ordinance,
code, order, rule, regulation, resolution, promulgation,
by-law, policy, guideline, directive, standard and any other
provision having the force or effect of law or any final
order, judgment or decree of any court, arbitrator, tribunal
or governmental authority, or any license, franchise, permit,
certificate, authorization, registration or similar right
granted under any of the foregoing.
1.18 "LIEN" means (a) any hypothec, priority, mortgage, pledge,
lien, charge, security interest or other similar encumbrance
upon any property or assets of any character, or upon the
income or profits therefrom, whether arising by agreement or
under law, or otherwise (b) any conditional sale or other
title retention agreement or arrangement (including a
capitalized lease); (c) any sale, assignment, pledge or other
transfer for security of any accounts, general intangibles, or
chattel paper, with or without recourse, or (d) any
transaction (regardless of form) which is intended to create
any charge or encumbrance on property to secure the payment or
performance of an obligation.
1.19 "MANAGEMENT" means each of Wicki, Vollenweider, Hassler,
Karabelnik and Joller.
.
1.20 "MATERIAL ADVERSE EFFECT" means any (a) material adverse
effect whatsoever upon the validity, performance or
enforceability of this Agreement, (b) material adverse effect
upon the business, assets, financial condition, income or
prospects of Anawa and the Subsidiaries on a Consolidated
basis, or (c) material adverse effect upon the ability of the
Vendors to perform their obligations under this Agreement.
1.21 "PERMITTED LIEN" means those Liens indicated on Schedule 1.21.
1.22 "PERSON" means an individual, partnership, corporation,
company, association, trust, joint venture, unincorporated
organization, business trust, limited liability company and
any governmental or administrative department or agency or
political subdivision.
1.23 "PHOENIX AFFILIATES" means John Hooper, Heather Baker, Judy
Zilber, Jean-Yves Caloz, Sue Campbell, Dr. Richard Lalonde,
Diane Bouchard, Diane Matheou, Millicent Broderick, Blake
Glover, Carmen Discenza, Richard L. Lalonde, Tom Pillsworth,
Pamela Burnett, Ebi Kimanani, John Burrows, John Capicchioni,
Chris Kemper, Martine Ortega, Lucien Steru, Dominique Steru,
Claude E. Forget, Bertran Spilker, Robert Raich, David Goldman
and Suzanne Peeters.
1.24 "SEC" means the United States Securities and Exchange
Commission.
1.25 "SECURITIES ACT" means the United States Securities Act of
1933, as amended, and all rules and regulations promulgated
thereunder.
<PAGE>
- 6 -
1.26 "SHARES" means 9,016 bearer shares with a nominal value of
SFr200 each and 11,968 registered shares with a nominal value
of SFr100 each of Anawa being all of the issued and
outstanding shares of Anawa.
1.27 "SUBSIDIARIES" means Laboratories and Trading and "SUBSIDIARY"
means any of the Subsidiaries on an individual basis.
2. SALE AND PURCHASE OF SHARES
2.1 AGREEMENT TO PURCHASE AND SELL SHARES
Upon the terms and subject to the conditions hereof and in
reliance on the representations and warranties of Phoenix set forth in
Section 4, Vollenweider, Albers, Fischer, Innovent, Hassler, Joller,
Karabelnik and Wicki hereby sell to Phoenix and, upon the terms and
subject to the conditions hereof and in reliance on the representations
and warranties of the Vendors set forth in Section 3, Phoenix hereby
purchases from Vollenweider, Albers, Fischer, Innovent, Hassler,
Joller, Karabelnik and Wicki, the Shares, as set forth below:
<TABLE>
<CAPTION>
VENDOR NUMBER OF ANAWA REGISTERED AND BEARER SHARES
------ --------------------------------------------
REGISTERED BEARER
-------------- ----------
<S> <C> <C>
Vollenweider 3,430 797
Albers 0 2,350
Fischer 1,973 275
Innovent 0 2,600
Hassler 200 75
Joller 1,480 0
Karabelnik 3,429 797
Wicki 1,456 2,122
----- -----
TOTAL 11,968 9,016
</TABLE>
2.2 PRICE OF SHARES
The purchase price of the bearer shares is payable by the issuance by
Phoenix to Vollenweider, Albers, Fischer, Innovent, Hassler, Karabelnik and
Wicki of an aggregate of 315,954 common shares of Phoenix. The aggregate
purchase price for the bearer shares is to be allocated among Vollenweider,
Albers, Fischer, Innovent, Hassler, Karabelnik and Wicki as follows:
<PAGE>
- 7 -
<TABLE>
<CAPTION>
VENDOR NUMBER OF PHOENIX SHARES
------ ------------------------
<S> <C>
Vollenweider 27,930
Albers 82,352
Fischer 9,637
Innovent 91,114
Hassler 2,627
Karabelnik 27,931
Wicki 74,363
--------
TOTAL 315,954
</TABLE>
The purchase price of the registered shares is payable by the issuance
by Phoenix to Vollenweider, Fischer, Hassler, Joller, Karabelnik and Wicki of an
aggregate of 209,697 common shares of Phoenix. The aggregate purchase price for
the registered shares is to be allocated among Vollenweider, Fischer, Hassler,
Joller, Karabelnik and Wicki as follows:
<TABLE>
<CAPTION>
VENDOR NUMBER OF PHOENIX SHARES
------ ------------------------
<S> <C>
Vollenweider 60,099
Fischer 34,570
Hassler 3,505
Joller 25,932
Karabelnik 60,080
Wicki 25,511
--------
TOTAL 209,697
</TABLE>
(The common shares of Phoenix issued to the Vendors pursuant to this
Section 2.2 are hereinafter collectively referred to as the "Phoenix
Shares".)
2.3 DELIVERY OF SHARES AND PAYMENT OF PURCHASE PRICE
2.3.1 Phoenix hereby acknowledges receipt from each of
Vollenweider, Albers, Fischer, Innovent, Hassler,
Joller, Karabelnik and Wicki of certificates
representing the Shares duly endorsed in blank for
transfer by Vollenweider, Albers, Fischer, Innovent,
Hassler, Joller, Karabelnik and Wicki.
2.3.2 Vollenweider, Albers, Fischer, Innovent, Hassler,
Joller, Karabelnik and Wicki hereby acknowledge
receipt from Phoenix of certificates registered in
the names of Vollenweider, Albers, Fischer, Innovent,
Hassler, Joller, Karabelnik and Wicki representing
66.4% of the purchase price for the Shares.
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2.4 ISSUANCE INTO ESCROW
Notwithstanding any provision of this Agreement, upon delivery
of the Phoenix Shares pursuant to Section 2.3, 10% of the aggregate
number of the Phoenix Shares and Phoenix Shares representing the total
amount of the specific contingencies referred to in Section 8 hereof
calculated using an amount of SFr220,000 in respect of the specific
contingency referred to in Section 8.2 hereof shall be delivered
immediately to the Escrow Agent, on a pro rata basis among the Vendors,
to be held and released by the Escrow Agent pursuant to the terms of
this Agreement and the Escrow Agreement. All such Phoenix Shares shall
be issued in the name of the Escrow Agent, as escrow agent under the
Escrow Agreement. The Vendors hereby acknowledge receipt of such 33.6%
of the purchase price of the Shares on their behalf by the Escrow
Agent.
3. REPRESENTATIONS AND WARRANTIES OF VENDORS
In order to induce Phoenix to enter into this Agreement and to purchase
the Shares hereunder, the Vendors hereby make the following representations and
warranties to Phoenix. The Vendors' liability for the following representations
and warranties shall be joint, and not solidary i.e. pro rata to the number of
Phoenix Shares received by each Vendor according to Section 2.2, except in the
event of fraud with respect thereto.
3.1 SHARES
The Vendors own the Shares free and clear of all Liens and
there are no rights or other obstacles of any nature whatsoever to the
sale of the Shares to Phoenix.
3.2 ORGANIZATION
3.2.1 DUE INCORPORATION, ETC. Each of Anawa and the
Subsidiaries is duly incorporated or organized and
validly exists under the laws of its jurisdiction of
incorporation, and is in good standing under the laws
applicable to it and has all necessary corporate
capacity and power to own and lease its property and
assets and to carry on the businesses now conducted
or presently proposed to be conducted by it.
3.2.2 SUBSIDIARIES. Anawa does not own or control, directly
or indirectly, or have an interest in, any other
corporation, partnership, association or business
entity other than the Subsidiaries.
3.2.3 MANAGEMENT. The Management of Anawa and the
Subsidiaries is exclusively comprised of the Persons
referred to in Section 1.19.
3.2.4 AUTHORIZATIONS AND APPROVALS. All authorizations,
approvals, licences, permits, certificates,
registrations, consents, exemptions or declarations
required in order for each of Anawa and the
Subsidiaries to own or lease their property and
assets and to carry on their business in all
jurisdictions in which such property and assets are
located or such business is carried on have been duly
obtained or effected and are in full force and effect
except for authorizations, approvals, licences,
permits, certificates, registrations, consents,
exemptions or declarations, the absence of which,
individually or in the aggregate, does not and shall
not result in a Material Adverse Effect.
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In particular:
(a) except for permits, certificates, licences,
registrations and other authorizations, the
absence of which, individually or in the
aggregate, does not and shall not result in
a Material Adverse Effect, each of Anawa and
the Subsidiaries hold all permits,
certificates, licenses, registrations and
other authorizations required under
applicable Environmental Laws for their
operations (the "Environmental Permits");
each such Environmental Permit is valid and
in force and the operations of Anawa and the
Subsidiaries are in compliance with the
conditions set out in such Environmental
Permits and their is no ground for
revocation, expiry or annulment of any such
Environmental Permits;
(b) except for permits, certificates, licences,
registrations and other authorizations, the
absence of which, individually or in the
aggregate, does not and shall not result in
a Material Adverse Effect, each of Anawa and
the Subsidiaries hold all permits,
certificates, licenses, registrations and
other authorizations required under
applicable Legal Requirement for clinical
research for the pharmaceutical industry and
pharmaceutical research (the "Research
Permits"); each such Research Permit is
valid and in force, the operations of Anawa
and the Subsidiaries are in compliance with
the conditions set out in such Research
Permits and there is no ground for
revocation, expiry or annulment of any such
Research Permits;
3.2.5 CORPORATE RECORDS. The Corporate records of Anawa and
each of the Subsidiaries are complete and up to date.
3.2.6 OFFICERS AND DIRECTORS. The officers and directors of
Anawa and each of the Subsidiaries have been properly
elected or appointed in accordance with applicable
laws and the relevant articles of incorporation or
other constituting documents.
3.2.7 CORPORATE ACTION. All necessary corporate action has
been taken by Anawa, to authorize the execution of
this Agreement and the consummation of the
transactions contemplated hereby. The Board of
directors of Anawa has agreed to register Phoenix in
the share ledger of Anawa as the owner of 11,968
registered shares.
3.3 CAPITALIZATION
3.3.1 SHARE CAPITAL OF ANAWA. The outstanding share capital
of Anawa is exhaustively set forth in Schedule A, all
of which has been validly issued and is fully paid
and non-assessable and, subject to no Lien, adverse
claim or restriction on transfer, except restrictions
on transfer under this Agreement.
3.3.2 OPTIONS, ETC. Other than as set forth in Schedule A
and Schedule 3.3.5, Anawa does not have outstanding
(a) any rights (either preemptive or otherwise) or
options to subscribe for or purchase, or any warrants
or other agreements providing for or requiring the
issuance of, any shares or any securities convertible
into or exchangeable for its shares, (b) any
obligation to redeem, purchase or otherwise acquire
or retire any of its shares,
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any securities convertible into or exchangeable for
its shares or any rights, options or warrants with
respect thereto, (c) any rights to require Anawa to
qualify for distribution for securities laws
purposes, or (d) any restrictions on voting.
3.3.3 CAPITAL STOCK OF THE SUBSIDIARIES. The issued and
outstanding shares of each Subsidiary are as set
forth in Schedules B and C. The issued and
outstanding shares of each Subsidiary are validly
issued, and paid and non-assessable and subject to no
Lien, adverse claim or restriction on transfer, other
than as set forth in Schedule 3.3.3.
3.3.4 SUBSIDIARY OPTIONS, ETC. Other than as set forth in
Schedule 3.3.4, none of the Subsidiaries has
outstanding (a) any rights (either preemptive or
otherwise) or options to subscribe for or purchase,
or any warrants or other agreements providing for or
requiring the issuance of, any shares or any
securities convertible into or exchangeable for its
shares, (b) any obligation to redeem, purchase or
otherwise acquire or retire any of its shares, any
securities convertible into or exchangeable for its
shares or any rights, options or warrants with
respect thereto, (c) any rights to require the
Subsidiary to qualify for distribution for securities
laws purposes, or (d) any restrictions on voting.
3.3.5 NO COMMITMENTS AFFECTING SHARES, ETC. Other than as
set forth in Schedule 3.3.5, neither Anawa nor any of
the Subsidiaries is a party to or bound by any
agreement, commitment or understanding, whether
verbal or written, affecting its shares or the
participating or voting rights attached thereto.
3.4 REPORTS, FINANCIAL STATEMENTS AND OTHER DOCUMENTS
Phoenix has been provided with complete and correct copies of
audited financial statements of Anawa and its Subsidiaries for the
years ended December 31, 1994, 1995, 1996 and 1997, copies of which are
attached hereto as Schedule 3.4A.
The financial statements of Anawa and the Subsidiaries
referred to above have been prepared in accordance with Swiss GAAP and
all such financial statements fairly present the financial condition of
Anawa and the Subsidiaries at the dates thereof and the results of
their operations for the periods covered thereby. Other than as set
forth in Schedule 3.5, neither Anawa nor any of the Subsidiaries has
material liabilities, contingent or otherwise, which are not referred
to in the financial statements.
The financial statements for the year ended December 31, 1994,
1995, 1996 and 1997, copies of which are attached hereto as Schedule
3.4A have been properly approved by the annual general meetings of
shareholders of the relevant entities in due form without reservation.
For purposes of financial presentation, Anawa recognizes net
revenue from its contracts on a percentage of completion basis as work
is performed. The percentage of completion, and consequently the
revenue to be recorded, of each individual contract is determined
through detailed analysis and discussion between all appropriate
operational and financial department management. Although Anawa does
not require collateral for unpaid balances, credit losses have
consistently been within Management's expectations. Certain contracts
contain provisions for price adjustment for cost overruns. Such
adjusted amounts are included in service revenue when realization is
assured and the amounts can be reasonably
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determined. In the period in which it is determined that a loss will
result from the performance of a contract, the entire amount of the
estimated ultimate loss is charged against income.
Since January 1, 1998, the business of Anawa and the
Subsidiaries has been operated in the customary fashion and no revenues
that would have been earned by Anawa or the Subsidiaries have been
earned by any Person who is an Affiliate of any of the Vendors.
Notwithstanding anything else in this Agreement, including,
without limitation, the provisions of this Section 3.4, the Vendors
make no representation or warranty of any kind whatsoever with respect
to future business, financial performance or future profitability of
Anawa.
3.5 OFF BALANCE SHEET OBLIGATIONS
Schedule 3.5 contains a complete list of the off-balance sheet
obligations of Anawa and the Subsidiaries, including all guarantees and
obligations to the benefit of the Vendors, members of their families or
third parties.
3.6 CHANGES IN CONDITION
Since January 1, 1998:
3.6.1 MATERIAL ADVERSE EFFECT. No event having a
Material Adverse Effect has occurred.
3.6.2 EXTRAORDINARY TRANSACTIONS, ETC. Other than as set
forth in Schedule 3.4A, neither Anawa nor any of the
Subsidiaries has (a) made any Distribution, (b) other
than as set forth in Schedule 3.6.2, made any payment
(other than Compensation of its directors, officers
and employees in amounts in effect prior to January
1, 1998 or for bonuses accrued in accordance with
normal practice prior to January 1, 1998) to any of
the Vendors, (c) other than as set forth in Schedule
3.6.2, increased the Compensation, including bonuses,
payable or to be payable to any of its directors,
officers or employees by more than 5%, or (d) entered
into any Contractual Obligation, or entered into or
performed any other transaction, not in the ordinary
and usual course of business and consistent with past
practice.
3.6.3 INVENTORY AND WORK-IN-PROGRESS. The value of
inventory and work-in-progress reflected in the
financial statements of Anawa and the Subsidiaries
has been established in accordance with Swiss GAAP
and there has been no material change in the period
subsequent to December 31, 1997, other than in the
ordinary and usual courses of business.
3.6.4 REVENUES. The business of Anawa and the Subsidiaries
has been operated in the customary fashion and no
revenues that would have been earned by Anawa or the
Subsidiaries have been earned by any Person which is
an Affiliate of any of the Vendors.
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3.7 SOLVENCY
Each of Anawa and the Subsidiaries shall be able to pay its
liabilities existing at the time of the signing of this Agreement and
based on the financial condition of Anawa and the Subsidiaries at the
time of signing this Agreement as they become due.
3.8 CONTRACTUAL OBLIGATIONS, ETC.
3.8.1 CERTAIN CONTRACTS. Schedule 3.8.1 contains, together
with a reference to the subparagraph pursuant to
which each item is being disclosed, a correct and
complete list of all Contractual Obligations of Anawa
and the Subsidiaries of the types described below:
(a) All collective bargaining agreements; all
employment agreements, all profit sharing,
profit participation, deferred compensation,
bonus, stock option, stock purchase,
pension, retainer, consulting, retirement,
welfare or incentive plans or agreements;
and all plans, agreements or practices which
constitute Compensation or "fringe benefits"
to any of the employees of Anawa or the
Subsidiaries, including vacation programs,
sick leave programs, group medical
insurance, group life insurance, disability
insurance and related benefits.
(b) All Contractual Obligations under which
Anawa or the Subsidiaries are restricted
from carrying on any business, venture or
other activities anywhere in the world.
(c) All Contractual Obligations (including
options) to sell, lease (as lessor),
exchange or otherwise dispose of or transfer
any of the properties or assets of Anawa or
the Subsidiaries except in the ordinary
course of business.
(d) All Contractual Obligations pursuant to
which Anawa or the Subsidiaries guarantees
or otherwise assumes any liability of or
gives financial assistance to any Person, or
pursuant to which any Person guarantees or
otherwise assumes any liability of Anawa or
the Subsidiaries.
(e) All Contractual Obligations constituting
license agreements, service agreements,
consulting agreements or other similar
arrangements, the termination of which,
individually or in the aggregate, would
result in a Material Adverse Effect.
(f) All Contractual Obligations under which
Anawa or any of the Subsidiaries leases
immovable property or is obligated to lease
or purchase immovable property or incur
capital expenditures in excess of SFr100,000
annually.
(g) All Contractual Obligations of Anawa or the
Subsidiaries relating to the borrowing of
money or to the creation of a Lien, other
than a Permitted Lien, on any property or
asset of Anawa, or the Subsidiaries.
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(h) All Contractual Obligations of Anawa or any
of the Subsidiaries requiring a notice
exceeding 6 (six) months for termination.
3.8.2 NATURE OF CONTRACTS. All of the Contractual
Obligations of Anawa and the Subsidiaries at the
Completion Date are enforceable against Anawa and the
Subsidiaries, the other parties thereto, in
accordance with their terms; except for Contractual
Obligations the failure of which to be so enforceable
does not and shall not, individually or in the
aggregate, result in a Material Adverse Effect.
Except for breaches, defaults and liabilities which
do not and shall not individually or in the aggregate
result in a Material Adverse Effect, neither Anawa
nor any of the Subsidiaries is now in default, and no
event has occurred which with notice or lapse of time
or both would constitute a default under, nor are
there any liabilities arising from any breach or
default by any of them or event which with notice or
lapse of time or both would constitute a default by
any of them prior to the Completion Date of, any
provision of any such Contractual Obligation.
3.8.3 ARTICLES. Neither Anawa nor any of the Subsidiaries
is in violation of, or in default under, any
provision of its articles or constituting documents
and Phoenix has been provided with complete and
correct copies of such articles or constituting
documents.
3.8.4 INSURANCE. Each of Anawa and the Subsidiaries carries
insurance policies with independent third party
insurers which, with respect to their amounts and
types of coverage, are adequate to insure against
risks to which each of Anawa and the Subsidiaries and
their respective property and assets are normally
exposed in the operation of their respective
businesses, including without limitation professional
liability. All policies, the absence of which,
individually or in the aggregate, would result in a
Material Adverse Effect, are in full force and
effect. There are no outstanding unpaid premiums
except in the ordinary course of business, and
neither Anawa nor any Subsidiary has received any
notice of cancellation or non-renewal of any such
policy. Neither Anawa nor any Subsidiary is aware of
any risks, situations, occurrences or other matters
which have been disclosed, or should have been
disclosed, to insurance carriers or brokers in
connection with any application for such insurance as
a result of which an insurance carrier would have a
right to cancel the corresponding insurance policy or
deny coverage with respect to any rights under any
such policies. There exists no event of default or
event, occurrence, condition or act (including the
transactions contemplated by this Agreement) which,
with the giving of notice, the lapse of time or the
happening of any further event or condition, would
become a default or occasion a material premium
increase under any such policy or give rise to, and
neither Anawa nor any Subsidiary has any anticipation
of, any termination or cancellation thereof or
material premium increase therefor.
3.8.5 DISPUTE. Neither Anawa nor any of the Subsidiaries
has received any notice from any supplier, vendor,
contractor, customer or client with which Anawa or
such Subsidiary has conducted business during the
one-year period ending on the date of this Agreement
confirming such Person's intention to reduce the
volume under, terminate or otherwise alter any
Contractual Obligation with Anawa or any Subsidiary,
the effect of which, individually or in the
aggregate, would result in a Material Adverse Effect.
<PAGE>
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3.9 OPERATIONS IN CONFORMITY WITH LAW, ETC.
The operations of Anawa and the Subsidiaries as now conducted,
and their properties, assets, equipments, buildings, immoveables and
leased or occupied properties, are not, and have not been, in violation
of, nor is Anawa or any of the Subsidiaries in default and no event has
occurred which with notice or lapse of time or both would constitute a
default under, any applicable Legal Requirements including, in
particular, any applicable Environmental Laws or Legal Requirements
regarding clinical research and experimentation on animals, except for
such violations and defaults as do not and shall not, in the aggregate,
have a Material Adverse Effect. Neither Anawa nor any of the
Subsidiaries has received notice of any such violation or default and
there are no basis on which the operations of Anawa or any of the
Subsidiaries, when conducted as currently proposed to be conducted
after the Completion Date, would be held so as to violate or to give
rise to any such violation or default. Anawa and the Subsidiaries have
all franchises, licenses, permits, certificates, authorizations,
registrations or other authority presently necessary for the conduct of
their business as now conducted, except for franchises, licences,
permits, certificates, authorizations, registrations or other
authority, the absence of which, individually or in the aggregate, does
not and shall not result in a Material Adverse Effect. Based on the
facts presently known to the Vendors and Management, all future
expenditures on the part of Anawa and the Subsidiaries required to meet
the provisions of any presently existing applicable Legal Requirements
(including Legal Requirements relating to employment practices or to
occupational or health standards or to environmental considerations)
shall not, in the aggregate, have a Material Adverse Effect. Anawa and
the Subsidiaries have complied and are in compliance with applicable
competition regulations and have never infringed fair competition in
the markets where they operate, either with or towards third companies
or between themselves. Anawa and the Subsidiaries do not hold
separately or together a dominant position on the markets involved and
their market share and net aggregate turnover do not meet the European
and Swiss thresholds which authorizes European or domestic competition
authorities to control the operation and impede the completion of the
transaction contemplated hereby.
3.10 INTELLECTUAL PROPERTY
Schedule 3.10 contains a list of all the trade-marks, trade
names and patents used by any of Anawa or the Subsidiaries
(collectively "Used Intellectual Property"). The entity indicated in
said Schedule as owner of Used Intellectual Property is the registered
and beneficial owner of such Used Intellectual Property or the
registration thereof, if applicable, (except as set forth in Schedule
3.10), with good and marketable title, unencumbered (except for
Permitted Liens), and with full right to sell, assign or otherwise
transfer or license to others and subject to no pending challenge,
refutation, expiry or termination other than as set forth in Schedule
3.10. To the best of Vendors' knowledge, other than as set forth in
Schedule 3.10, none of Anawa or the Subsidiaries uses any intellectual
property not owned by it, other than software purchased "off the
shelf", all of which each entity using said property has the right to
use (collectively "Licenced Intellectual Property"). (Used Intellectual
Property and Licensed Intellectual Property are sometimes hereinafter
referred to collectively as "Intellectual Property"). None of Anawa or
the Subsidiaries is required to pay royalties, fees or other
consideration to any other person with respect to the use of any of the
Intellectual Property or in connection with the conduct of its business
or otherwise. To the best of Vendors' knowledge, none of Anawa or the
Subsidiaries has infringed the intellectual or industrial property
rights of any other person, nor has any of them used any intellectual
or industrial property (including, without limitation, trade-marks,
trade names, patents, models, designs and copyrights) which it does not
own or have the right to use other than as set forth in Schedule 3.10.
There are no outstanding claims asserted against any of Anawa or the
Subsidiaries alleging the infringement or
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the misappropriation by any of them of any intellectual or industrial
property. None of Anawa or the Subsidiaries has granted any licences or
sub-licences to third parties with respect to any of the Intellectual
Property other than as set forth in Schedule 3.10 and neither the
Vendors nor Management has any knowledge of any infringement or
misappropriation by any other Person of any of the Intellectual
Property. Neither the execution nor delivery of this Agreement will
constitute a breach of or a default under any agreement relating to the
Intellectual Property.
3.11 ENVIRONMENTAL MATTERS
3.11.1 Anawa and the Subsidiaries, their employees, agents,
shareholders, directors and officers (acting in their
capacity of employees, agents, shareholders,
directors or officers of Anawa or of one of the
Subsidiaries) have never been declared guilty of
committing an offence for a violation of
Environmental Laws and have never been fined for such
an offence or have otherwise settled such a
prosecution in connection with the activities of
Anawa and the Subsidiaries;
3.11.2 There are no contaminants, waste or pollutants of any
kind whatsoever in, on or under the equipment,
buildings, immoveables or properties owned, leased or
occupied by Anawa or any of the Subsidiaries and
caused by Anawa, the Subsidiaries or their employees,
agents, shareholders, directors or officers (acting
in their capacity of employees, agents, shareholders,
directors or officers of Anawa or one of the
Subsidiaries), the presence of which constitutes a
violation of applicable Environmental Laws and the
presence of which, individually or in the aggregate,
constitutes a Material Adverse Effect;
3.11.3 Neither Anawa nor any of the Subsidiaries has
received any written notice or request for
information in the context of any national,
supra-national, provincial, regional, local or
municipal environmental investigation or inspection;
3.11.4 There are no PCBs, asbestos or urea formaldehyde
insolation in, on or under the equipment, buildings,
immoveables or properties owned, leased or occupied
by Anawa or the Subsidiaries;
3.11.5 There is no action, suit or proceeding pending in
relation to environmental matters against Anawa or
the Subsidiaries, its employees, agents,
shareholders, directors and officers (acting in their
capacity of employees, agents, shareholders,
directors or officers of Anawa or of one of the
Subsidiaries), or involving Anawa or the Subsidiaries
or its assets, before any judicial body, tribunal,
commission, agency or other governmental entity, and
to the Vendors' knowledge and to the knowledge of
Management, there is no threat of, or event or fact
based on which, such action, suit or proceeding may
be instituted;
3.11.6 To the knowledge of Management and the Vendors, Anawa
and the Subsidiaries are in compliance with all
applicable Environmental Laws.
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3.12 LABOUR AND EMPLOYMENT MATTERS
3.12.1 Without limiting the generality of Section 3.9, each
of Anawa and the Subsidiaries has complied with all
applicable laws relating to the employment of labour,
including provisions thereof relating to wages, hours
and collective bargaining rights.
3.12.2 There is no collective agreement by which Anawa or
any of the Subsidiaries is bound which relates to the
employees of Anawa or the Subsidiaries. To the best
knowledge of the Vendors and to the knowledge of
Management, there are no threatened or pending
attempts to organize or establish any labour union or
employee association in connection with the business
of Anawa or any of the Subsidiaries. To the best
knowledge of the Vendors and to the best knowledge of
Management, there is no pending or threatened labour
dispute, grievance, strike, or work stoppage
materially affecting the business of any of Anawa or
any of the Subsidiaries. Neither Anawa nor any of the
Subsidiaries is a party to any other written
employment agreement, contract, arrangement,
management contract or service contract affecting
employees other than as set forth in Schedule 3.8.1,
nor are any such contracts, agreements, arrangements,
management contracts or service contracts being
currently negotiated or proposed other than in the
ordinary course of business.
3.12.3 There exist no retirement plans, profit sharing,
option or incentive plans, or other employee benefit
plans for employees of Anawa or any of the
Subsidiaries other than as set forth in Schedule
3.8.1 for which adequate arrangements have been made
since January 1, 1998 to set aside the requisite
amounts in the prescribed fashion, and neither Anawa
nor any of the Subsidiaries has promised or intends
to implement other such plans.
3.12.4 Neither Anawa nor any of the Subsidiaries has any
employee who cannot be dismissed without further
liability upon such notice period not exceeding what
it is required by the applicable Legal Requirement.
3.12.5 None of Anawa's or any of the Subsidiary's employees
has signed non-compete covenants in favour of Anawa
or the Subsidiary.
3.13 TAXES
Other than as set forth in Schedule 3.13, all tax returns
required to be filed by Anawa and the Subsidiaries in any jurisdiction
have been filed and all taxes, assessments, levies and other
governmental charges upon Anawa and the Subsidiaries or upon any of
their properties or income, including any tax in respect of value
added, have been paid if and when due unless such payment is being
contested in good faith and by appropriate proceedings and adequate
reserves with respect thereto determined in accordance with applicable
policies have been established by Anawa and the Subsidiaries. There is
no tax revision threatened in writing against Anawa and any of the
Subsidiaries and there is no basis for such assessment.
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3.14 WITHHOLDINGS
Each of Anawa and the Subsidiaries has withheld from each
payment made to any of its shareholders, officers, directors,
non-resident creditors and employees the amount of all taxes and other
deductions required to be withheld and has remitted all such amounts to
the appropriate authorities within the prescribed times, and has
otherwise fulfilled all requirements of all Legal Requirements
governing such deductions and withholdings. Each of Anawa and the
Subsidiaries has remitted to the proper authorities all employer
contributions due and payable under all social security, occupational
health and safety and pension plans.
3.15 GOOD TITLE
Other than as set forth in Schedule 3.15 each of Anawa and the
Subsidiaries has good and marketable title to all assets in the balance
sheets as per December 31, 1997 free and clear of Liens and other
adverse claims.
3.16 LITIGATION
Other than as set forth in Schedule 3.16, no litigation or
proceeding before, or investigation by, any foreign, national,
supra-national or municipal, judicial, tax or customs tribunal or board
or other governmental or administrative agency or any arbitrator, is
pending or threatened (or does any basis exist therefor), against Anawa
or the Subsidiaries or, to the Vendors' best knowledge or to the best
knowledge of Management, any director or officer of Anawa or any of the
Subsidiaries, which individually or in the aggregate could result in a
Material Adverse Effect, or which seeks rescission of, seeks to enjoin
the consummation of, or which questions the validity of, this Agreement
or any of the transactions contemplated hereby. Neither Anawa nor the
Subsidiaries has been charged, nor to the Vendors' knowledge or to the
knowledge of Management, is it threatened to be charged, with
infringement of any trademark, trade name, service mark, copyright,
patent, patent right or other proprietary right of any Person.
3.17 PRESS COVERAGE
Neither Anawa nor any of the Subsidiaries has been the object
of any demonstrations, press campaigns or other attacks due to the
nature of its activities.
3.18 VIOLATION OF OTHER INSTRUMENTS
Neither the execution and delivery of this Agreement by the
Vendors, the consummation of any of the transactions contemplated
hereby or in Schedule 3.18, shall (a) constitute a breach of or a
default or an event which with notice or lapse of time or both would
constitute a default under any Contractual Obligation of Anawa or any
of the Subsidiaries, (b) result in acceleration in the time for
performance of any obligation of Anawa or the Subsidiaries under any
such Contractual Obligation, (c) result in the creation of any Lien
upon any property or asset of Anawa or the Subsidiaries, (d) require
any consent, waiver or amendment to any such Contractual Obligation
that has not been obtained and remains in full force and effect, (e)
give rise to any severance payment, right of termination, securities
purchase or redemption right or other right under any such Contractual
Obligation, or (f) violate or give rise to a default or an event which
with notice or lapse of time or both could constitute a default under
any Legal
<PAGE>
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Requirements, except for events or conditions described in clauses (a)
through (f) above which shall not, individually or in the aggregate,
have any Material Adverse Effect or (g) result in any state of facts
which could have a Material Adverse Effect.
3.19 APPROVALS, CONSENTS, ETC.
Other than as set forth in Schedule 3.19, no approval,
consent, authorization or other order of, and no declaration, filing,
registration, qualification or recording with, any governmental
authority or any other Person is required to be made by or on behalf of
the Vendors, Anawa or any of the Subsidiaries in connection with the
execution, delivery or performance of this Agreement or any of the
transactions contemplated hereby.
3.20 INVESTMENT OR DIVESTITURE
Schedule 3.20 contains a complete list of all investments and
divestitures in process which are not mentioned in the financial
statements of Anawa and the Subsidiaries (balance sheet, statement of
earnings and schedules) for the period ended December 31, 1997.
3.21 FULL DISCLOSURE
Disclosure made by the Vendors in respect of one of the
representations contained in this Section 3 is considered being made in
respect of all other representations. There is no fact that the
Vendors, to the best of their knowledge, have not disclosed to Phoenix
which could have a Material Adverse Effect on the properties, business,
prospects or condition (financial or otherwise) of Anawa or any of the
Subsidiaries. Neither the reports, financial statements and other
documents referred to in Section 3.4, nor any certificate, statement or
document delivered by the Vendors to Phoenix in connection with this
Agreement contains any untrue statement of a fact or omits to state any
fact necessary to keep the statements contained herein or therein from
being misleading in a manner that would constitute a Material Adverse
Effect.
4. REPRESENTATIONS AND WARRANTIES OF PHOENIX
Phoenix represents and warrants to the Vendors that:
4.1 DUE INCORPORATION, ETC.
Phoenix is duly incorporated, validly exists and is in good
standing under the Canada Business Corporations Act and has all
necessary corporate capacity and power to own and lease its property
and assets and to carry on the business now conducted by it.
4.2 SHARE CAPITAL OF PHOENIX
The authorized share capital of Phoenix is composed of an
unlimited number of common shares and an unlimited number of preferred
shares issuable in series of which, as at April 17, 1998, there were
24,291,208 common shares issued and outstanding.
<PAGE>
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4.3 OPTIONS
Other than the options to acquire common shares of Phoenix
granted pursuant to Phoenix's Key Employee Share Option Plan and shares
to be issued to Dorn Cook under an earn-out formula which has been
disclosed to the Vendors, Phoenix does not have any rights or options
to subscribe for, or any warrants or other agreements providing for or
requiring the issuance of common shares or preferred shares.
4.4 DUE AUTHORIZATION
All necessary corporate action has been taken by Phoenix to
authorize the execution of this Agreement and the consummation of the
transactions contemplated hereby, including the issuance of the Phoenix
Shares as fully paid and non-assessable in consideration for the
purchase of the Shares.
4.5 CONFORMITY WITH APPLICABLE SECURITIES LAWS
All documents have been filed, all requisite proceedings have
been taken and all approvals, exemptions, consents, orders and
authorizations required under applicable securities laws have been
obtained in order to validly and lawfully issue and deliver the Phoenix
Shares issued hereunder. The execution of this Agreement and the
issuance of the Phoenix Shares by Phoenix to the Vendors will be exempt
from the prospectus and registration requirements of the applicable
Canadian securities legislation.
4.6 STOCK EXCHANGE APPROVALS
The listing of the Phoenix Shares on The Montreal Exchange and
the Toronto Stock Exchange has been approved by such exchanges, subject
to Phoenix fulfilling all of the standard requirements of such
exchanges before April 30, 1998.
4.7 REPORTING ISSUER
Phoenix is a reporting issuer under the laws of the provinces
of Ontario and Quebec and is not in default of any requirements of the
securities legislation of such provinces.
4.8 PHOENIX SHARES
The Phoenix Shares will at the time of issuance be duly
authorized, validly issued, fully paid and non-assessable.
4.9 HOLD PERIOD
The Phoenix Shares shall not be subject to any hold period
(whether prescribed by applicable securities legislation or the
policies of The Toronto Stock Exchange or Montreal Exchange) during
which the Phoenix Shares may not be sold without a prospectus or
reliance on a statutory exemption from the prospectus requirements of
applicable securities legislation.
<PAGE>
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4.10 PUBLIC INFORMATION
No material change (as defined in the Securities Act (Quebec))
has occurred in the affairs of Phoenix which had not been generally
disclosed to the public, nor has Phoenix any knowledge of any other
material adverse information in regard to the current and prospective
operations of Phoenix which have not been generally disclosed to the
public.
5. POOLING OF INTERESTS
5.1 ACCOUNTING TREATMENT
Phoenix, Anawa and the Vendors intend and desire for the
transactions contemplated by this Agreement to qualify for "pooling of
interests" treatment for US GAAP purposes in accordance with Accounting
Principles Board Opinion No. 16.
5.2 SUCCESSFUL APPLICATION OF "POOLING OF INTERESTS"
The Vendors acknowledge that the successful application of
"pooling of interests" accounting is one of the principal
considerations in Phoenix purchasing the Shares. The Vendors represent
that they have not taken any action listed in the letter attached
hereto as Schedule 5.3 that would preclude the application of "pooling
of interests" accounting nor will they agree or participate to any such
action in the future.
5.3 POOLING LETTER
On or prior to the Completion Date, Anawa shall cause to be
executed and delivered to Phoenix a letter substantially in the form
attached hereto as Schedule 5.3 dated the Completion Date from Anawa's
management related to the compliance by Anawa with applicable "pooling
of interests" criteria in form and substance reasonably satisfactory to
Phoenix and its auditors.
5.4 PLACEMENT AND STOCK TRANSFER RESTRICTIONS AND RELATED MATTERS
Each party to this Agreement agrees that from and after the
date of this Agreement, such party shall not knowingly take any action,
or knowingly fail to take any action, which action or failure is
reasonably likely to disqualify the transactions contemplated by this
Agreement from pooling of interests accounting treatment by Phoenix,
and that such party shall take all reasonable actions necessary to
cause the transactions contemplated by this Agreement to qualify as a
pooling of interest, if such characterization shall be jeopardized by
action taken by such party. Without limiting the foregoing, each Vendor
who is a Pooling Affiliate of Anawa agrees that such Vendor shall not
sell, transfer, pledge, or otherwise dispose of such Vendor's interests
in or reduce such Vendor's risk relative to any of the Phoenix Shares
until Phoenix shall have published financial results (including
combined sales and net income) covering at least thirty (30) days of
combined operations of Phoenix and Anawa after the Completion Date. No
later than July 30, 1998, Phoenix shall prepare and publish such
financial results for the first full month of operations following the
Completion Date. Each of the Vendors and Anawa acknowledge and agree
with Phoenix that none of the Vendors or Anawa is a party to any
agreement or arrangement among themselves or with third parties
regarding the transactions contemplated by this Agreement or the
subject matter hereof.
<PAGE>
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Prior to the Completion Date, Phoenix shall deliver to Anawa a
list of names and addresses of those persons who are or may be, in
Phoenix's reasonable judgement, Affiliates of Phoenix within the
meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act or applicable SEC accounting releases with respect to
pooling of interests accounting treatment (each such persons, a
"Pooling Affiliate"). Phoenix also shall provide Anawa with such
information and documents as Anawa shall reasonably request for
purposes of reviewing such list. Prior to the Completion Date, Phoenix
shall deliver to Anawa an affiliate letter, in form and substance
reasonably satisfactory to Anawa, executed by each of the Pooling
Affiliates identified in the foregoing list.
Prior to the Completion Date, Anawa shall deliver to Phoenix a
list of names and addresses of those persons who are or may be, in
Anawa's reasonable judgment, Pooling Affiliates of Anawa. Anawa also
shall provide Phoenix with such information and documents as Phoenix
shall reasonably request for purposes of reviewing such list. Prior to
the Completion Date, Anawa shall deliver to Phoenix an affiliate
letter, in form and substance reasonably satisfactory to Phoenix,
executed by each of the Pooling Affiliate of Anawa identified in the
foregoing list.
6. EMPLOYMENT AGREEMENT
6.1 EMPLOYMENT AGREEMENT WITH WICKI
Wicki and Phoenix shall execute an employment agreement.
7. SURVIVAL OF REPRESENTATIONS; INDEMNITY
7.1 SURVIVAL OF REPRESENTATIONS
The respective representations and warranties of the Vendors
contained in this Agreement or in any schedule attached hereto shall
survive the consummation of the transactions contemplated hereby and
shall remain in full force and effect notwithstanding any investigation
or examination of, or knowledge with respect to, the subject matter
thereof by or on behalf of Phoenix until the earlier of November 30,
1998 or the date of completion of the audit of the combined financial
statements of Phoenix and Anawa (the period ending on such date being
referred to herein as the "Representations Period"), except that such
representations and warranties shall survive indefinitely in the event
of fraud with respect thereto. No claim for indemnification pursuant to
Section 7.2.1 below may be brought after the expiration of the
Representations Period, except for claims made in good faith in writing
prior to such expiration and setting forth in reasonable detail the
claim, regardless of whether any action or demand has been commenced
against Phoenix (it being understood without limitation, that any and
all Losses (as defined below) arising after the expiration of the
Representations Period shall be recoverable upon notice properly given
prior to the expiration of the Representations Period in accordance
with this Section 7.1). The representations and warranties of Phoenix
contained in this Agreement or in any schedule attached hereto shall
terminate upon and not survive the Completion Date, except in the event
of fraud by Phoenix with respect thereto, in which case they shall
survive indefinitely.
<PAGE>
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7.2 INDEMNIFICATION
7.2.1 From and after the Completion Date, Phoenix and its
Affiliates (including Anawa and the Subsidiaries) and
all of their respective officers, directors,
employees, agents and shareholders (each, an
"Indemnitee") shall be defended, indemnified and held
harmless by the Vendors pursuant to this Agreement
and the Escrow Agreement to the full extent permitted
by law, from and against any and all losses, claims,
actions, damages, liabilities, costs and expenses
(including attorneys' fees and expenses)
(collectively, "Losses") relating to or arising from
or in connection with (i) any misrepresentation or
any non-fulfilment of any representation, warranty,
covenant, obligation or agreement by any Vendor
contained in or made pursuant to this Agreement or
any other document, agreement, officer's certificate
or other certificate delivered to Phoenix in
connection with this Agreement, and (ii) the
enforcement by Phoenix of its rights pursuant to this
Section 7.2, or any litigation, proceeding or
investigation relating to any of the foregoing. The
indemnification obligations of the Vendors pursuant
hereto shall be joint and not solidary, i.e. prorata
to the number of Phoenix Shares received by each
Vendor in accordance with Section 2.2.
7.2.2 Notwithstanding the foregoing provisions of this
Section 7.2, but except with respect to any Losses
resulting from or arising out of fraud or other
intentional or knowing misconduct or
misrepresentation, (i) the maximum aggregate recourse
by the Indemnitees pursuant to Section 7.2.1 above
shall not exceed the aggregate value (calculated by
adding together the opening and closing prices of the
common shares of Phoenix on each of the Toronto Stock
Exchange and The Montreal Exchange for each of the
ten trading days preceding the Completion Date, and
dividing this sum by 40) of the Escrowed Securities
(the "Indemnity Cap"), and (ii) the sole recourse of
any Indemnitee in respect of Losses (but not in
respect of fraud or other intentional or knowing
misconduct or misrepresentation) shall be from, out
of, and to the extent of the Escrowed Securities. Any
indemnification shall be payable by the return of
Escrowed Securities to Phoenix in accordance with the
provisions of the Escrow Agreement. In particular,
the number of Escrowed Shares to be remitted to
Phoenix in payment of any indemnification obligation
shall be calculated on the basis of the average price
of the Escrowed Shares obtained by adding together
the opening and closing prices of the common shares
of Phoenix on each of the Toronto Stock Exchange and
The Montreal Exchange for each of the ten trading
days preceding the Completion Date, and dividing this
sum by 40. All dividends or other distributions
received by a Vendor in respect of common shares of
Phoenix which are remitted to Phoenix in satisfaction
of an indemnification obligation under this Section
7, shall also be repaid to Phoenix at the time of
payment of indemnification.
7.2.3 Notwithstanding any other provision of this
Agreement, as of and after the Completion Date, Anawa
shall not have any liability under this Agreement,
and no Vendor shall threaten or bring any claim or
action whatsoever against Anawa for contribution to
any amounts payable under this Section 7.2 by such
Vendor.
<PAGE>
- 23 -
8. SPECIFIC CONTINGENCIES
The Vendors hereby undertake to indemnify Phoenix in respect
of the occurrence, in whole or in part, of any of the specific
contingencies described below, each of which exists at the Completion
Date and will only be finally resolved or determined at some time in
the future. The provision for these contingencies is not made as an
attempt to anticipate future events, but merely to provide for a
reasonable period of time within which such contingencies may be
resolved. Any indemnification pursuant to this Section shall be payable
by all of the Vendors, pro rata to the number of common shares of
Phoenix issuable to each of them pursuant to this Agreement.
In the event of the realization of any of the specific
contingencies contemplated in this Section 8, the Vendors shall
indemnify Phoenix by remitting to Phoenix for cancellation such number
of Phoenix Shares as corresponds to the amount of indemnification owed
(calculated on the basis of the Escrowed Share Price). Any obligation
to remit common shares of Phoenix upon the occurrence of a specific
contingency shall be satisfied by return of Escrowed Shares in
accordance with the Escrow Agreement. In the event that there does not
remain a sufficient number of Escrowed Shares or Proceeds (as defined
in the Escrow Agreement) to satisfy an obligation under this Section,
such shortfall always to be calculated on the basis of the Escrowed
Share Price, the balance of such indemnification obligation shall be
paid in cash. All dividends or other distributions received by a Vendor
in respect of Phoenix Shares which are remitted to Phoenix in
satisfaction of an indemnification obligation under this Section 8,
shall also be repaid to Phoenix at the time of payment of
indemnification.
8.1 Any liability related to the cessation of employment of Fischer.
The maximum amount payable in respect of this contingency is SFr220,000
plus any interest due to the plaintiff(s) from the date of this
Agreement to the final settlement of this specific contingency.
Notwithstanding any other provision of this Agreement, the Vendors'
indemnification obligation with respect to this contingency shall
survive until any possible claims have been prescribed under applicable
law.
8.2 Any liability related to the alleged termination of a strategic
alliance (or similar matters) with Dr. Rondez AG. The maximum amount
payable in respect of this contingency is SFr1,100,000 plus any
interest due to the plaintiff(s) from the date of this Agreement to the
final settlement of this specific contingency. Notwithstanding any
other provision of this Agreement, the Vendors' indemnification
obligation with respect to this contingency shall survive until any
possible claims have been prescribed under applicable law.
8.3 Any liability related to the VAT treatment for the analysis of
samples sent to foreign customers. The maximum amount payable in
respect of this contingency is SFr100,000 plus any interest due to the
relevant taxation authorities from the date of this Agreement to the
final settlement of this specific contingency. Notwithstanding any
other provision of this Agreement, the Vendors' indemnification
obligation with respect to this contingency shall survive until any
possible claims have been prescribed under applicable law.
8.4 Any liability related to the payment guarantee issued by
Schweizerische Volksbank on behalf of Anawa for the benefit of Wybert
GmbH, Lorrach, Germany. The maximum amount payable in respect of this
contingency is SFr200,000 plus any commission due to the
Scheweizerische Volksbank. Notwithstanding any other provision of this
Agreement, the Vendors indemnification obligation with respect to this
contingency shall survive until any possible claims have prescribed
under applicable law.
<PAGE>
- 24 -
8.5 Any impairment in value of the account receivable in the amount of
SFr1,000,000 as set out in the financial statements of Anawa as at
December 31, 1997.
The maximum amount payable in respect of this contingency is
SFr1,000,000. Notwithstanding any other provision of this Agreement,
the Vendors' indemnification obligation with respect to this
contingency shall survive until payment.
9. NOTICES
Any demand, notice or other communication to be given in connection
with this Agreement shall be given in writing and shall be given by personal
delivery, by registered mail or by electronic means of communication addressed
to the recipient as follows:
9.1 To Phoenix:
Phoenix International Life Sciences Inc.
2350, Cohen Street
Saint-Laurent, Quebec
H4R 2N6 Canada
Telecopier No.: (514) 333-7306
ATTENTION: JEAN-YVES CALOZ
9.2 To Vollenweider:
Dr. Johann Jakob Vollenweider
Unterdorfstrasse 23
8602 Wangen, Switzerland
9.3 To Albers:
Albers & Co.
Schanzengasse 14
8000 Zurich, Switzerland
Postal address:
Schanzengasse 14
Postfach 4276
8022 Zurich, Switzerland
Telecopier No.: (411) 265-2902
<PAGE>
- 25 -
9.4 To Fischer:
Dr. Ernst Fischer
Heugatterstrasse 24
8600 Dubendorf, Switzerland
9.5 To Innovent:
Innovent Capital Ltd.
Midland Bank Trust Building
P.O. Box 1109, Fort Street
Grand Cayman, B.W.I.
Telecopier No.: (411) 211-4230
9.6 To Hassler:
Werner Hassler
Buchserstrasse 43
8157 Dielsdorf, Switzerland
9.7 To Joller:
Dr. Peter Joller
Spitzackerstrasse 8
8057 Zurich, Switzerland
9.8 To Karabelnik:
Dr. David Karabelnik
Untere Allmend 12
8702 Zollikon, Switzerland
9.9 To Wicki:
Dr. Andreas Wicki
Hohestrasse 39
8702 Zollikon, Switzerland
9.10 To Anawa:
ANAWA Holding AG
Industriestrasse 13c
6300 Zug, Switzerland
Telecopier No.: (411) 833-0575
<PAGE>
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10. MODIFICATION
All modifications or amendments of any provision of this Agreement
shall be effective only if the same shall be in writing and then shall be
effective only in the specific instance and for the purpose for which given.
11. WAIVER
No failure to exercise, and no delay in exercising, on the part of a
party hereto, any right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right. No waiver of any provision of this
Agreement shall be effective unless in writing. No notice or demand given in any
case shall constitute a waiver of the right to take other action in the same,
similar or other instances without such notice or demand.
12. CONFIDENTIALITY
The parties agree to treat this Agreement as confidential and not to
disclose its contents to third parties other than their advisers, except to the
extent necessary to enforce performance of obligations hereunder, or as is
required to comply with applicable laws or regulations, including regulations of
any stock exchange on which the securities of Phoenix are listed following
consultations with Vollenweider.
13. FURTHER ASSURANCES
The parties shall, with all reasonable diligence, do all such things
and provide all such reasonable assurances as may be required to consummate the
transactions contemplated hereby, and each party shall provide such further
documents or instruments required by another party as may be reasonably
necessary or desirable to give effect to the purpose of this Agreement and to
carry out its provisions.
14. GOVERNING LAWS
This Agreement shall be governed by the laws of the Province of Quebec
and the laws of Canada applicable therein.
15. ARBITRATION
All disputes arising out of or in connection with the present Agreement
shall be finally settled under the Rules of Arbitration of the International
Chamber of Commerce by one or more arbitrators appointed in accordance with the
said Rules.
The place of arbitration shall be Zurich.
The language of the arbitration shall be English.
16. GENERAL
The invalidity or unenforceability of any term or provision hereof
shall not affect the validity or enforceability of any other term or provision
hereof. The headings in this Agreement are for convenience of reference only and
shall not alter or otherwise affect the meaning hereof. This Agreement and the
other documents
<PAGE>
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and instruments referred to herein constitute the entire understanding of the
parties hereto with respect to the subject matter hereof and thereof and
supersede all present and prior agreements, whether written or oral. No
investigation made by or on behalf of a party hereto shall mitigate, diminish or
affect the representations and warranties made herein by the Vendors. This
Agreement may be executed in any number of counterparts which together shall
constitute one instrument and shall be governed by and construed in accordance
with the laws of the Province of Quebec and the laws of Canada applicable
therein, and shall bind and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, personal representatives,
successors and assigns. The parties hereto have expressly required that this
Agreement and all documents and notices related hereto be drafted in English.
LES PARTIES AUX PRESENTES ONT EXPRESSEMENT EXIGE QUE LE PRESENT CONTRAT ET TOUS
LES DOCUMENTS ET AVIS Y AFFERENTS SOIENT REDIGES EN ANGLAIS.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be duly
executed as of the Completion Date.
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
By: /s/ Suzanne Peeters
--------------------------------------
Suzanne Peeters
Title: Senior Vice-President Analytical Services
/s/ Johann Jakob Vollenweider
--------------------------------------
DR. JOHANN JAKOB VOLLENWEIDER
ALBERS & CO.
By: /s/ Johann Jakob Vollenweider
--------------------------------------
Dr. Johann Jakob Vollenweider
/s/ Ernst Fischer
--------------------------------------
DR. ERNST FISCHER
INNOVENT CAPITAL LTD.
By: /s/ Johann Jakob Vollenweider
--------------------------------------
Dr. Johann Jakob Vollenweider
/s/ Werner Hassler
--------------------------------------
WERNER HASSLER
<PAGE>
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/s/ Peter Joller
--------------------------------------
DR. PETER JOLLER
/s/ David Karabelnik
--------------------------------------
DR. DAVID KARABELNIK
/s/ Andreas Wicki
--------------------------------------
DR. ANDREAS WICKI
ANAWA HOLDING AG
By: /s/ Johann Jakob Vollenweider
--------------------------------------
Dr. Johann Jakob Vollenweider
<PAGE>
LIST OF SCHEDULES
<TABLE>
<S> <C>
Schedule A Outstanding shares and voting rights of Anawa
Schedule B The capital structure of Laboratories
Schedule C The capital structure of Trading
Schedule 1.10 Escrow Agreement
Schedule 1.21 Permitted Lien
Schedule 3.3.3 Capital Stock of the Subsidiaries
Schedule 3.3.4 Subsidiary Options
Schedule 3.3.5 Commitments affecting shares or voting rights of
Anawa or the Subsidiaries
Schedule 3.4A Financial Statements
Schedule 3.5 Material liabilities, contingent or otherwise of
Anawa or any of the Subsidiaries and off-balance
sheet obligations of Anawa and the Subsidiaries
Schedule 3.6.2 Extraordinary Transactions after January 1, 1998
Schedule 3.8.1 Contractual Obligations
Schedule 3.10 Intellectual Property
Schedule 3.13 Taxes
Schedule 3.15 Title to assets
Schedule 3.16 Litigation
Schedule 3.18 Violation of Other Instruments
Schedule 3.19 Approvals, Consents, etc.
Schedule 3.20 Investment or Divestiture
Schedule 5.3 Pooling Letter
</TABLE>
<PAGE>
Schedule 1.10
ESCROW AGREEMENT dated as of April 30, 1998.
AMONG: PHOENIX INTERNATIONAL LIFE SCIENCES INC., a corporation
incorporated under the Canada Business Corporations Act, having
its head office at 2350, Cohen Street, Saint-Laurent, Quebec,
Canada, H4R 2N6, herein acting and represented by Suzanne
Peeters, its duly authorized representative;
(hereinafter "Phoenix")
AND: DR. JOHANN JAKOB VOLLENWEIDER, residing at Unterdorfstrasse 23,
8602 Wangen, Switzerland;
(hereinafter "Vollenweider")
AND: ALBERS & CO., a Swiss partnership having its head office at
Schanzengasse 14, 8000 Zurich, Switzerland, herein acting and
represented by Dr. Johann Jakob Vollenweider, its duly
authorized representative;
(hereinafter "Albers")
AND: DR. ERNST FISCHER, residing at Heugatterstrasse 24, 8600
Dubendorf, Switzerland;
(hereinafter "Fischer")
AND: INNOVENT CAPITAL LTD., a company incorporated under the laws of
the Cayman Islands, with corporate seat at Midland Bank Trust
Building, P.O. Box 1109, Fort Street, Grand Cayman, B.W.I.,
herein acting and represented by Dr. Johann Jakob Vollenweider,
its duly authorized representative;
(hereinafter "Innovent")
AND: WERNER HASSLER, residing at Buchserstrasse 43, 8157, Dielsdorf,
Switzerland;
(hereinafter "Hassler")
AND: DR. PETER JOLLER, residing at Spitzackerstrasse 8, 8057 Zurich,
Switzerland;
<PAGE>
-2-
(hereinafter "Joller")
AND: DR. DAVID KARABELNIK, residing at Untere Allmend 12, 8702
Zollikon, Switzerland;
(hereinafter "Karabelnik")
AND: DR. ANDREAS WICKI, residing at Hohestrasse 39, 8702 Zollikon,
Switzerland;
(hereinafter "Wicki")
AND: MONTREAL TRUST COMPANY, 1800 McGill College Avenue, Montreal,
Quebec, H3A 3K9, as escrow agent, herein represented by its duly
authorized representatives Antonietta DeLuca and Francine
Beausejour;
(hereinafter the "Escrow Agent")
WHEREAS Phoenix and the Vendors are parties to a share purchase
agreement dated April 30, 1998 (the "Purchase Agreement");
WHEREAS the Purchase Agreement provides that certain shares of Phoenix
issued to the Vendors pursuant thereto are to be held in escrow for the purposes
described therein;
NOW THEREFORE the parties hereby agree as follows:
1. INTERPRETATION AND DEFINITIONS
1.1 Whenever used in this Agreement:
1.1.1 "AFFILIATE" means any of Vollenweider, Albers, Fischer,
Innovent, Karabelnik, and Wicki and "Affiliates" means
more than one of them;
1.1.2 "CLAIM" means any claim by Phoenix against and the
Vendors under Section 7.2 or a claim for a Specific
Contingency under Section 8 of the Purchase Agreement;
1.1.3 "DISTRIBUTIONS" has the meaning ascribed thereto in
Section 2.3 hereof;
1.1.4 "ESCROWED SHARES" has the meaning ascribed thereto in
Section 2.1 hereof;
1.1.5 "ESCROWED SHARE PRICE" means the amount obtained by
adding the opening and closing prices of the common
shares of Phoenix on each of the Montreal
<PAGE>
-3-
Exchange and The Toronto Stock Exchange for the ten
trading days preceding the date of execution of the
Purchase Agreement, divided by 40;
1.1.6 "NOTICE OF CLAIM" means a written notice of any Claim
given by Phoenix setting forth the details of each Claim
referred to therein including the amount thereof, if
known to Phoenix, or Phoenix's reasonable estimate
thereof, as well as the provisions of the Purchase
Agreement upon which such Claim is based;
1.1.7 "NON-AFFILIATE" means Hassler and Joller, and
"Non-Affiliates" means more than one of them;
1.1.8 "OBJECTION" means, in respect of any Claim, any
objection raised in the Response by any of the Vendors
to such Claim;
1.1.9 "PROCEEDS" has the meaning ascribed thereto in Section
3.2 hereof;
1.1.10 "PURCHASE AGREEMENT" has the meaning ascribed thereto in
the preamble to this Agreement;
1.1.11 "RELEASED SHARES" has the meaning ascribed thereto in
Section 3.5.1.1 hereof;
1.1.12 "RESPONSE" means, in respect of any Claim, the joint
written response of the representatives of the Vendors
duly appointed in the manner set forth in Section 3.1
hereof indicating whether they accept or dispute such
Claim;
1.1.13 "SPECIFIC CONTINGENCY" means any of the specific
contingencies referred to in Section 8 of the Purchase
Agreement; and
1.1.14 "VENDORS" means Vollenweider, Albers, Fischer, Innovent,
Hassler, Joller, Karabelnik and Wicki.
1.2 Each capitalized term used in this Agreement but not defined
herein as the meaning ascribed thereto in the Purchase
Agreement.
1.3 In the event of (i) any subdivision, consolidation or
reclassification of the class of shares comprising the Escrowed
Shares or (ii) any reorganization of the share capital of
Phoenix affecting the Escrowed Shares or (iii) the amalgamation
of Phoenix with any other company, the number of Escrowed Shares
and Escrowed Share Price shall be adjusted, if required, so that
none of the parties hereto shall be in a position less favorable
to it than as provided in this Agreement as a result of any of
the foregoing actions.
1.4 For all purposes of this Agreement, the amount of any Claim in a
currency other than Canadian dollars shall be converted to
Canadian dollars at the exchange rate between Canadian and such
currency shall be the "Spot Rate" of the alternate currency on
the business day preceding the day as of which the conversion
from one currency to the other is to be effected, as reported in
the Financial Post of Canada on that day.
1.5 In any calculation hereunder of the applicable number of
Escrowed Shares results in fractional shares, the result shall
be rounded up or down, as the case may be, to the nearest
<PAGE>
-4-
whole number and, if such result represents exactly one-half of
a whole number, then such fraction shall be rounded up to the
next whole number.
2. ESTABLISHMENT OF ESCROW
2.1 Phoenix hereby delivers in escrow to the Escrow Agent
certificates representing an aggregate of 176,507 common shares
of Phoenix registered in the name of the Escrow Agent, as escrow
agent (the "Escrowed Shares"). The Vendors' interests in the
Escrowed Shares are as set forth below:
<TABLE>
<CAPTION>
VENDOR ESCROWED SHARES
------ ---------------
<S> <C>
Vollenweider 29,559
Albers 27,653
Fischer 14,844
Innovent 30,595
Hassler 2,059
Joller 8,708
Karabelnik 29,553
Wicki 33,536
</TABLE>
2.2 The Escrow Agent hereby accepts delivery and acknowledges
receipt of the Escrowed Shares and agrees to act as escrow agent
and to hold, safeguard and release the Escrowed Shares in
accordance with the provisions of this Agreement. The Escrowed
Shares shall not be assigned, hypothecated, alienated, released
from escrow, transferred within escrow or dealt with in any
manner whatsoever except as provided in this Agreement.
2.3 Notwithstanding the registration of the Escrowed Shares in the
name of the Escrow Agent, the Vendors shall, subject to the
provisions hereof, remain the owners thereof in the proportion
contemplated by Section 2.1 hereof and be entitled to the
exercise of all voting rights related thereto and to receive all
dividends, income and other distributions in respect thereof
(collectively, "Distributions"). In the event that any Escrowed
Shares are remitted to Phoenix for cancellation pursuant to the
provisions of Section 3 hereof, the Vendors shall repay to
Phoenix any Distributions received in respect of such Escrowed
Shares.
3. INSTRUCTIONS TO ESCROW AGENT
3.1 All communications made by the Vendors, including instructions
to the Escrow Agent or Responses hereunder, shall be made by
Wicki and Vollenweider jointly on behalf of the Vendors. All of
the Vendors hereby authorize Wicki and Vollenweider jointly to
duly represent them in accordance with all communications under
this Agreement. Should the Vendors wish to withdraw this
authorization and to designate new representatives they have
<PAGE>
-5-
to do so jointly and by notifying Phoenix and the Escrow Agent
in accordance with Section 7 hereof.
3.2 At any time while the Escrowed Shares are held by the Escrow
Agent, a Non-Affiliate may instruct the Escrow Agent in writing
to sell all or part of such Non-Affiliate's portion of the
Escrowed Shares. Upon receipt of such written instruction, the
Escrow Agent shall sell such Escrowed Shares on the open market
and shall retain the proceeds of sale, less any expenses
incurred in realizing such sale (the "Proceeds") as escrowed
property for such Non-Affiliate. The Escrow Agent shall invest
such Proceeds according to the written instructions of such
Non-Affiliate for the duration of the escrow. The Escrow Agent
shall keep complete records of any such sales of Escrowed
Shares.
3.3 At any time after receipt by the Escrow Agent of written notice
by Phoenix of the release, in the format prescribed by the SEC,
of at least 30 days of post-combination financial results of
Phoenix and ANAWA Holding AG, and provided that the Escrowed
Shares are not then subject to any restrictions on transfer
imposed by any Regulatory Authority, an Affiliate may also
instruct the Escrow Agent to sell all or part of their portion
of the Escrowed Shares in the manner set forth in Section 3.2.
In such event, the Escrow Agent shall proceed as set forth in
Section 3.2.
3.4 Whenever Phoenix has a Claim it shall promptly give a Notice of
Claim in respect thereof to the Vendors and the Escrow Agent.
Upon receipt of a Notice of Claim, the Escrow Agent shall
immediately reserve for distribution in accordance with the
provisions of Section 3.5 hereof (but shall not release from
escrow except in accordance with the provisions hereof) that
number of the Escrowed Shares which is equal in value to the
amount provided for in the Notice of Claim, calculated on the
basis of the Escrowed Share Price for such Claim.
3.5 Within 15 days of receipt of a Notice of Claim, the Vendors (or
any of them) shall give to Phoenix and the Escrow Agent a
Response with respect to each Claim set forth therein. If:
3.5.1 the Response indicates that the Vendors accept a Claim
set forth in the Notice of Claim, or if the Escrow Agent
does not receive a Response with respect to a Claim
within said 15 day period, the Vendors shall be deemed
to have irrevocably consented to each Claim so accepted
or in respect of which no Response is so received, as
made, and the Escrow Agent shall forthwith give written
notice thereof to Phoenix:
3.5.1.1 setting forth the total amount of all Claims which have
been consented to and the number of shares from the
Escrowed Shares to be released from escrow for the
benefit of Phoenix (the "Released Shares"), being that
number of the Escrowed Shares which is equal in value to
the amount of the admitted Claims set forth in such
Notice of Claim, calculated on the basis of the Escrowed
Share Price for such Claim; and
3.5.1.2 surrender for cancellation to Phoenix the share
certificate(s) in its possession representing the
Released Shares, duly endorsed for transfer, and the
Escrow Agent shall retain in its possession the other
share certificate(s) representing the balance of the
Escrowed Shares, if any, to be held by it in escrow and
dealt with in accordance with the terms hereof; or
<PAGE>
-6-
3.5.2 the Response indicates that the Vendors (or any of them)
dispute a Claim set forth in the Notice of Claim
(whether or nor arbitration proceedings have been
instituted), the Escrow Agent shall retain in its
possession and continue to hold in escrow that number of
the Escrowed Shares which is equal in value to the
amount provided for in the disputed Claims, calculated
on the basis of the Escrowed Share Price for such Claim:
3.5.2.1 until the Escrow Agent receives a joint
written notice from Phoenix and the Vendors
directing the Escrow Agent as to the manner
in which such Escrowed Shares and the share
certificate(s) representing same are to be
dealt with, in which case the Escrow Agent
shall deal with same in accordance with such
joint written instructions; or
3.5.2.2 in the absence of such a joint written notice
within 10 business days of the Escrow Agent's
receipt of the Response, the Escrow Agent
shall deal with such Escrowed Shares and the
share certificate(s) representing same in
accordance with a final arbitration order in
respect of such disputed Claim(s) pursuant to
the arbitration contemplated by Section 12
hereof. Any arbitration order shall be
accompanied by a legal opinion by counsel for
the presenting party satisfactory to the
Escrow Agent to the effect that the said
order is final and non-appealable.
3.6 If, at the time of receipt by the Escrow Agent of any Notice of
Claim as provided for in Section 3.4 hereof, the Escrowed Shares
remaining in escrow for the account of any Vendor calculated on
the basis of the Escrowed Share Price is insufficient to meet
such Vendor's pro rata portion of the number of Released Shares
to be remitted to Phoenix, the balance of such Vendor's pro rata
portion of the admitted Claims shall be satisfied by payment in
cash from the Proceeds of those Escrowed Shares sold by the
Escrow Agent at the direction of such Vendor pursuant to Section
3.2 or 3.3 hereof.
3.7 On the earlier of (i) November 30, 1998, or (ii) the date at
which the Escrow Agent receives a notice from Phoenix confirming
that the audit of the combined financial statements of Phoenix
and ANAWA Holding AG has been completed, the Escrow Agent will
deliver the Escrowed Shares and all Distributions and Proceeds
to the Vendors, pro rata to their respective interests in the
Escrowed Shares, Distributions and Proceeds, if any, with the
exception of such number of Escrowed Shares calculated on the
basis of the Escrowed Share Price as may be necessary to satisfy
any obligation to indemnify for a Specific Contingency which has
not yet occurred. The notice from Phoenix referred to above
shall indicate the maximum amount of Specific Contingencies
which have not been prescribed or definitively settled and the
number of Escrowed Shares, calculated on the basis of the
Escrowed Share Price, which may not be released from the escrow
for such Specific Contingencies. In calculating the maximum
amount of Specific Contingencies which have not been prescribed
or definitively settled and the number of Escrowed Shares which
may be released, Phoenix and the Vendors acknowledge that the
number of Escrowed Shares relating to the Specific Contingency
referred to in Section 8.2 of the Purchase Agreement is
calculated using the Escrowed Share Price provided in Section
1.1.5 hereof and an amount of SFr220,000 as opposed to
Sfr1,100,000. The number of Escrowed Shares relating to any
other Specific Contingency is calculated using the amounts
mentioned in
<PAGE>
-7-
Section 8 of the Purchase Agreement and the Escrowed Share Price
provided in Section 1.1.5 hereof.
3.8 Upon receipt by the Escrow Agent from Phoenix of a written
notice instructing it to release, pro rata to the Vendors, such
further number of Escrowed Shares as is no longer necessary to
satisfy remaining indemnification obligations in respect of the
maximum amount of remaining Specific Contingencies which have
been prescribed or definitively settled, the Escrow Agent shall
so release such number of Escrowed Shares to the Vendors, pro
rata to their respective interests in the Escrowed Shares,
Distributions and Proceeds, if any. It is agreed between Phoenix
and the Vendors that the Specific Contingency referred to in
Section 8.2 of the Purchase Agreement will be considered
prescribed or definitively settled for the purposes hereof if on
the third anniversary hereof no legal proceedings have been
instituted against ANAWA Holding AG by Dr. Rondez AG. Phoenix
hereby undertakes to notify the Escrow Agent promptly when a
Specific Contingency becomes prescribed or definitively settled.
4. VOTING RIGHTS
4.1 The Escrow Agent shall provide to each of the Vendors a proxy
entitling such Vendor to vote those of the Escrowed Shares which
are owned by it, forthwith upon the Escrow Agent's receipt
thereof in its capacity as registered shareholder of Phoenix, in
order to allow each Vendor to vote its Escrowed Shares in the
same manner as if it were the registered owner thereof.
5. RIGHTS AND OBLIGATIONS OF THE ESCROW AGENT
5.1 The Escrow Agent is not a party to, and is not bound by, any
provisions which may be evidenced by, or arise out of, any
agreement other than as therein set forth under the express
provisions of this Agreement.
5.2 The Escrow Agent acts hereunder as a depositary only and is not
responsible or liable in any manner whatever for the
sufficiency, correctness, genuineness or validity of any
instrument deposited with it, or for the form of execution of
such instrument or for the identity or authority or right of any
person or party executing or depositing it.
5.3 The Escrow Agent shall not be under any duty to give the
Escrowed Shares, Distributions and Proceeds, if any, held by it
hereunder any greater degree of care than it gives its own
similar property and shall not be required to invest any funds
held hereunder except as directed in this Agreement. Uninvested
funds held hereunder shall not earn or accrue interest.
5.4 The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to
claims based upon such gross negligence or willful misconduct
that are successfully asserted against the Escrow Agent, the
other parties hereto shall solidarily indemnify and hold
harmless the Escrow Agent (and any successor Escrow Agent) from
and against any and all losses, liabilities, claims, actions,
damages and expenses, including reasonable attorney's fees and
disbursements, arising out of and in connection with this
Agreement. Without limiting the foregoing, the Escrow Agent
shall in no event be liable in connection with its investment or
reinvestment of any cash held by it hereunder in good faith, in
accordance with the terms hereof.
<PAGE>
-8-
5.5 The Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument or other
writing delivered to it hereunder without being required to
determine the authenticity or the correctness of any fact stated
therein or the propriety or validity of the service thereof. The
Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that the
person purporting to give receipt or advice or make any
statement or execute any document in connection with the
provisions hereof has been duly authorized to do so. The Escrow
Agent may conclusively presume that the undersigned
representative of any party hereto which is an entity other than
a natural person has full power and authority to instruct the
Escrow Agent on behalf of that party unless written notice to
the contrary is delivered to the Escrow Agent.
5.6 The Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Agreement and shall not
be liable for any action taken or omitted by it in good faith in
accordance with such advice.
5.7 The Escrow Agent makes no representation as to the validity,
value, genuineness or the collectability of any security or
other document or instrument held by or delivered to it.
5.8 The Escrow Agent shall not be called upon to advise any party as
to the wisdom in selling or retaining or taking or refraining
from any action with respect to any securities or other property
deposited hereunder.
5.9 The Escrow Agent (and any successor Escrow Agent) may at any
time resign as such by delivering the Escrowed Shares,
Distributions and Proceeds, if any, to any successor Escrow
Agent jointly designated by the other parties hereto in writing,
or to any court of competent jurisdiction, whereupon Escrow
Agent shall be discharged of and from any and all further
obligations arising in connection with this Agreement. The
resignation of Escrow Agent will take effect on the earlier of
(a) the appointment of a successor (including a court of
competent jurisdiction) or (b) the day which is 30 days after
the date of delivery of its written notice of resignation to the
other parties hereto. If at that time Escrow Agent has not
received a designation of a successor Escrow Agent, Escrow
Agent's sole responsibility after that time shall be to retain
and safeguard the Escrowed Shares and Proceeds, if any, until
receipt of a designation of successor Escrow Agent or a joint
written disposition instruction by the other parties hereto or a
final non-appealable order of a court of competent jurisdiction.
5.10 Phoenix and the Vendors shall pay Escrow Agent compensation (as
payment in full) for the services to be rendered by Escrow Agent
hereunder in the amount of $1,500 at the time of execution of
this Agreement and agree to reimburse Escrow Agent for all
reasonable expenses, disbursements and advances incurred or made
by Escrow Agent in performance of its duties hereunder
(including reasonable fees, expenses and disbursements of its
counsel).
<PAGE>
-9-
6. LIMITED RESPONSIBILITY
This Agreement expressly sets forth all the duties of Escrow Agent with
respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Agreement against the Escrow Agent.
The Escrow Agent shall not be bound by the provisions of any agreement
among the other parties hereto except this Agreement. No trust is
created by this Agreement and the Escrow Agent does not act in any
capacity as a trustee. In the event of any disagreement between any of
the parties to this Agreement, or between them or either of them and any
other person, resulting in demands or adverse claims being made in
connection with or for any asset involved herein or affected hereby, the
Escrow Agent shall be entitled, at its discretion, to refuse to comply
with any demands or claims on it, as long as such disagreement shall
continue, and in so refusing the Escrow Agent may make no delivery or
other disposition of any asset involved herein or affected hereby, and
in so doing the Escrow Agent shall not be or become liable in any way or
to any person or party for its failure or refusal to comply with such
conflicting demands or adverse claims, and it shall be entitled to
continue so to refrain from acting and so to refuse to act until the
right of person or party shall have been finally settled as provided in
Section 12 hereof, or all differences shall have been adjusted by
agreement and the Escrow Agent shall have been notified thereof in
writing signed by all persons and parties interested.
7. NOTICES
All notices, consents, waivers and other communications under this
Agreement must be in writing and will be deemed to have been duly given
when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt) provided that
a copy is mailed by registered mail, return receipt requested, or (c)
when received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case the
appropriate addresses and telecopier numbers set forth below (or to such
other addresses and telecopier numbers as a party may designate by
notice to the other parties):
7.1 To Phoenix:
Phoenix International Life Sciences Inc.
2350, Cohen Street
Saint-Laurent, Quebec
H4R 2N6 Canada
Telecopier No.: (514) 333-7306
ATTENTION: JEAN-YVES CALOZ
To the Vendors:
7.2 To Vollenweider:
Dr. Johann Jakob Vollenweider
Unterdorfstrasse 23
8602 Wangen, Switzerland
<PAGE>
-10-
7.3 To Albers:
Albers & Co.
Schanzengasse 14
8000 Zurich, Switzerland
Postal address:
Schanzengasse 14
Postfach 4276
8022 Zurich, Switzerland
Telecopier No.: (411) 265-2902
7.4 To Fischer:
Dr. Ernst Fischer
Heugatterstrasse 24
8600 Dubendorf, Switzerland
7.5 To Innovent:
Innovent Capital Ltd.
Midland Bank Trust Building
P.O. Box 1109, Fort Street
Grand Cayman, B.W.I.
Telecopier No.: (411) 211-4230
7.6 To Hassler:
Werner Hassler
Buchserstrasse 43
8157 Dielsdorf, Switzerland
7.7 To Joller:
Dr. Peter Joller
Spitzackerstrasse 8
8057 Zurich, Switzerland
7.8 To Karabelnik:
Dr. David Karabelnik
Untere Allmend 12
8702 Zollikon, Switzerland
<PAGE>
-11-
7.9 To Wicki:
Dr. Andreas Wicki
Hohestrasse 39
8702 Zollikon, Switzerland
7.10 To the Escrow Agent:
Montreal Trust Company
1800 McGill College Avenue
Montreal (Quebec)
H3A 3K9
Telecopier No.: (514) 982-7677
8. GOVERNING LAW
This Agreement shall be governed by the laws of the Province of Quebec
and the laws of Canada applicable therein.
9. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original and all of which, when taken
together, will be deemed to constitute one and the same.
10. SECTION HEADINGS
The headings of sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation.
11. WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such
right, power or privilege, and no single or partial exercise of any such
right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right,
power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement or the documents
referred to in this Agreement can be discharged by one party, in whole
or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other parties; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party
giving such notice or demand to take further action without notice or
demand as provided in this Agreement or the documents referred to in
this Agreement.
<PAGE>
-12-
12. ARBITRATION
All disputes arising out of or in connection with the present Agreement
shall be finally settled under the Rules of Arbitration of the
International Chamber of Commerce by one or more arbitrators appointed
in accordance with the said Rules. The place of arbitration shall be
Montreal. The language of the arbitration shall be English.
13. CONFIDENTIALITY
The parties agree to treat this Agreement as confidential and not to
disclose its contents to third parties other than their advisers, except
to the extent necessary to enforce performance of obligations hereunder,
or as is required to comply with applicable laws or regulations,
including regulations of any stock exchange on which the securities of
Phoenix are listed.
14. FURTHER ASSURANCES
The parties shall, with all reasonable diligence, do all such things and
provide all such reasonable assurances as may be required to consummate
the transactions contemplated hereby, and each party shall provide such
further documents or instruments required by another party as may be
reasonably necessary or desirable to give effect to the purpose of this
Agreement and to carry out its provisions.
15. GENERAL
The invalidity or unenforceability of any term or provision hereof shall
not affect the validity or enforceability of any other term or provision
hereof. This Agreement and the other documents and instruments referred
to herein constitute the entire understanding of the parties hereto with
respect to the subject matter hereof and thereof and supersede all
present and prior agreements, whether written or oral. This Agreement
shall bind and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, personal representatives,
successors and assigns.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
By: /s/ Suzanne Peeters
-------------------------------------
Suzanne Peeters
Title: Senior Vice-President Analytical
Services
/s/ Johann Jakob Vollenweider
-------------------------------------
DR. JOHANN JAKOB VOLLENWEIDER
<PAGE>
-13-
ALBERS & CO.
By: /s/ Johann Jakob Vollenweider
-------------------------------------
Dr. Johann Jakob Vollenweider
/s/ Ernst Fischer
-------------------------------------
DR. ERNST FISCHER
INNOVENT CAPITAL LTD.
By: /s/ Johann Jakob Vollenweider
-------------------------------------
Dr. Johann Jakob Vollenweider
/s/ Werner Hassler
-------------------------------------
WERNER HASSLER
/s/ Peter Joller
-------------------------------------
DR. PETER JOLLER
/s/ David Karabelnik
-------------------------------------
DR. DAVID KARABELNIK
/s/ Andreas Wicki
-------------------------------------
DR. ANDREAS WICKI
MONTREAL TRUST COMPANY
By: /s/ Antonietta Deluca
-------------------------------------
ANTONIETTA DELUCA
Title: Senior Trust Officer
By: /s/ Francine Beausejour
-------------------------------------
FRANCINE BEAUSEJOUR
Title: Account Manager
<PAGE>
AGREEMENT AND PLAN OF MERGER
between
APPLIED ANALYTICAL INDUSTRIES, INC.
KCAS ACQUISITION, INC.
and
KANSAS CITY ANALYTICAL SERVICES, INC.
Dated as of September 2, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I.
DEFINED TERMS.....................................................................1
1.1. Definitions............................................................1
ARTICLE II.
THE MERGER........................................................................6
2.1. The Merger.............................................................6
2.2. Articles of Incorporation..............................................6
2.3. Bylaws.................................................................6
2.4. Directors and Officers.................................................7
ARTICLE III.
CONVERSION AND EXCHANGE OF SHARES.................................................7
3.1. Shares.................................................................7
3.2. Exchange and Conversion of Shares......................................8
ARTICLE IV.
THE CLOSING.......................................................................9
4.1. Effective Time and Closing.............................................9
4.2. Deliveries by KCAS.....................................................9
4.3. Deliveries by Merger Sub and AAI.......................................9
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF KCAS...........................................10
5.1. Organization and Good Standing; Power and Authority; Qualifications...10
5.2. Authorization of the Merger Documents.................................10
5.3. Capitalization........................................................10
5.4. Financial Statements..................................................11
5.5. Absence of Undisclosed Liabilities....................................11
5.6. Absence of Material Changes...........................................11
5.7. No Conflicts..........................................................12
5.8. Agreements............................................................13
5.9. Intellectual Property Rights..........................................13
5.10. Equity Investments; Subsidiaries......................................15
5.11. Corporate Minute Books................................................15
5.12. Suitability...........................................................15
5.13. Assets................................................................15
5.14. Employee Benefit Plans................................................16
5.15. Labor Relations; Employees............................................17
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
5.16. Litigation; Orders....................................................18
5.17. Compliance with Laws; Permits.........................................18
5.18. Related Transactions..................................................18
5.19. Disclosure............................................................18
5.20. Taxes.................................................................19
5.21. Environmental Protection..............................................19
5.22. Consents..............................................................20
5.23. Insurance; Workers' Compensation......................................20
5.24. Brokers...............................................................21
5.25. Suppliers and Customers...............................................21
5.26. Previous Issuances Exempt.............................................21
5.27. Real Property.........................................................21
5.28. Accounts Receivable...................................................22
5.29. Food and Drug Administration Matters..................................22
5.30. Other Representations and Warranties..................................23
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES
OFAAI AND MERGER SUB.............................................................23
6.1. Organization and Good Standing; Power and Authority; Qualifications...23
6.2. Authorization of the Merger Documents.................................23
6.3. Authorization and Issuance of Shares..................................24
6.4. Public Documents......................................................24
6.5. No Conflicts..........................................................24
6.6. Disclosure............................................................25
6.7. Brokers...............................................................25
ARTICLE VII.
COVENANTS OF KCAS................................................................25
7.1. Ordinary Conduct......................................................25
7.2. No Solicitation.......................................................27
7.3. Access to Information.................................................28
7.4. Schedules to Agreement................................................28
7.5. Maintenance of Corporate Existence....................................28
7.6. Contributions to and Termination of 401(k) Plan.......................28
ARTICLE VIII.
MUTUAL COVENANT OF KCAS, MERGER SUB AND AAI......................................29
8.1. Confidentiality.......................................................29
8.2. Consummation of Agreement.............................................29
8.3. Publicity.............................................................30
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE IX.
CONDITIONS TO CLOSING............................................................30
9.1. Conditions to Each Party's Obligations to Effect the
Transactions Contemplated Hereby......................................30
9.2. Conditions to the Obligations of KCAS to Effect the
Transactions Contemplated Hereby......................................30
9.3. Conditions to the Obligations of AAI and Merger Sub to
Effect the Transactions Contemplated Hereby...........................31
ARTICLE X.
TERMINATION......................................................................33
10.1. Termination...........................................................33
10.2. Procedure and Effect of Termination or Failure to Close...............33
ARTICLE XI.
MISCELLANEOUS PROVISIONS.........................................................34
11.1. Survival of Representations; Indemnification..........................34
11.2. Expenses..............................................................34
11.3. Waiver of Compliance; Consents........................................35
11.4. Amendment and Modification............................................35
11.5. Notices...............................................................35
11.6. Assignment............................................................36
11.7. Governing Law; Jurisdiction...........................................36
11.8. Jurisdiction and Venue................................................36
11.9. Counterparts..........................................................37
11.10. Nouns and Pronouns....................................................37
11.11. Interpretation........................................................37
11.12. Parties in Interest...................................................37
11.13. Employee Length of Service............................................37
11.14. Entire Agreement......................................................37
11.15. Release of Phoenix (IBRD).............................................37
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A Form of Certificate of Merger
Exhibit B Form of Indemnification Agreement
Exhibit C Form Employee Nondisclosure Agreement
Exhibit D Form of Dr. Mason Employment Agreement
Exhibit E Form of Dr. Fu Employment Agreement
Exhibit F Form of Election of Merger Consideration
Exhibit G Form of Transmittal Letter
Exhibit H Form of Opinion of AAI's Counsel
Exhibit I Form of Opinion of KCAS's Counsel
</TABLE>
-iv-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as
of September 2, 1998, is by and between APPLIED ANALYTICAL INDUSTRIES, INC., a
Delaware corporation ("AAI"), KCAS ACQUISITION, INC., a Kansas corporation and a
wholly owned subsidiary of AAI ("Merger Sub"), and KANSAS CITY ANALYTICAL
SERVICES, INC., a Kansas corporation ("KCAS").
BACKGROUND STATEMENT
The parties hereto desire to effect a merger of Merger Sub and
KCAS pursuant to which KCAS will be the surviving corporation, and the
stockholders of KCAS as of the Effective Time will receive as consideration for
the Merger at their election (i) cash in the amount of $6,060.61 per outstanding
share of common stock, $1.00 par value, of KCAS ("Common Stock") or (ii) shares
of common stock, $.001 par value, of AAI ("AAI Common Stock") based on a formula
set forth herein or (iii) a combination of cash and shares of AAI Common Stock
as set forth herein. Such merger shall be consummated pursuant to the terms and
conditions of this Agreement.
STATEMENT OF AGREEMENT
In consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
ARTICLE I.
DEFINED TERMS
1.1. DEFINITIONS. As used in this Agreement, the
following terms have the following meanings:
"AAI Common Stock" shall mean the common stock, $.001 par
value, of AAI.
"Acquisition Transaction" has the meaning given to it in
Section 7.2.
"Action" has the meaning given to it in Section 11.2.
"Board of Directors" means the board of directors of a
corporation or any committee thereof legally authorized to act on its behalf.
"Benefit Plan" has the meaning given to it in Section 5.14.
"Certificate of Merger" means the Certificate of Merger
substantially in the form attached hereto as Exhibit A.
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"Closing" means the closing of the transactions contemplated
herein, as identified more specifically in Article IV.
"Closing Date" means September 16, 1998, or such other date
agreed to by the parties hereto.
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute of similar import, together with the regulations
thereunder, in each case as in effect from time to time. References to sections
of the Code shall be construed also to refer to any successor sections.
"Common Stock" shall mean the common stock, $1.00 par value,
of KCAS.
"Contract" means any indenture, mortgage, guaranty, lease,
license or other contract, agreement or understanding, written or oral.
"Dissenting Shares" shall mean shares of Common Stock as to
which a Stockholder has properly asserted rights of dissent and appraisal
pursuant to Section 17-6712 of the Kansas Law.
"Effective Time" has the meaning given to it in Section 4.1.
"Employee" has the meaning given to it in Section 5.15(a).
"Employee Nondisclosure Agreements" means those certain
Employee Nondisclosure Agreements substantially in the form of Exhibit C.
"Employment Agreements" shall mean the Employment Agreement
between AAI and Dr. William D. Mason of the form attached hereto as Exhibit D
and the Employment Agreement between AAI and Dr. Chauhwei J. Fu of the form
attached hereto as Exhibit E.
"Encumbrances" means any mortgages, claims, liens, security
interests, pledges, escrows, charges or other encumbrances of any kind or
character whatsoever.
"Environmental Costs" means, without limitation, any actual or
potential cleanup costs, remediation, removal, or other response costs (which,
without limitation, shall include costs to cause KCAS to come into compliance
with Environmental Laws), investigation costs (including, without limitation,
fees of consultants, counsel, and other experts in connection with any
environmental investigation, testing, audits or studies), losses, liabilities or
obligations (including, without limitation, liabilities or obligations under any
lease or other contract), payments, damages (including, without limitation, any
actual, punitive or consequential damages under any statutory laws, common law
cause of action or contractual obligations or otherwise, including, without
limitation, damages of third parties for personal injury or property damage or
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damages to natural resources), civil or criminal fines or penalties, judgments,
and amounts paid in settlement arising out of or relating to or resulting from
any Environmental Matter.
"Environmental Laws" means, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
ss.ss. 9601,ET SEQ.; the Emergency Planning and Community Right-to-Know Act of
1986, 42 U.S.C. ss.ss. 11001, ET SEQ.; the Resource Conservation and Recovery
Act, 42 U.S.C. ss.ss. 6901, ET SEQ.; the Toxic Substances Control Act, 15 U.S.C.
ss.ss. 26019 ET SEQ.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7
U.S.C. ss.ss. 136, ET SEQ.; the Clean Air Act, 42 U.S.C. ss.sS. 7401 ET SEQ.;
the Clean Water Act (Federal Water Pollution Control Act), 33 U.S.C. ss.ss. 1251
ET SEQ.; the Safe Drinking Water Act, 42 U.S.C. ss.ss. 300F, ET SEQ.; the
Occupational Safety and Health Act, 29 U.S.C. ss.sS. 641, ET SEQ.; the Hazardous
Materials Transportation Act, 49 U.S.C. ss.ss. 1801, ET SEQ.; as any of the
above statutes have been amended from time to time, all rules and regulations
promulgated pursuant to any of the above statutes, and any other foreign,
federal, state or local law, statute, ordinance, rule or regulation governing
Environmental Matters, as the same have been amended from time to time,
including any common law cause of action providing any right of remedy relating
to Environmental Matters, all indemnity agreements and other contractual
obligations (including leases, asset purchase and merger agreements) relating to
Environmental Matters, and all applicable judicial and administrative decisions,
orders, and decrees relating to Environmental Matters.
"Environmental Matter" means any matter arising out of,
relating to, or resulting from pollution, contamination, protection of the
environment, human health or safety, health or safety of employees, sanitation,
and any matters relating to emissions, discharges, disseminations, releases or
threatened releases, of Hazardous Substances into the air (indoor and outdoor),
surface water, groundwater, soil, land surface or subsurface, buildings,
facilities, real or personal property or fixtures or otherwise arising out of,
relating to, or resulting from the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, handling, release or threatened release
of Hazardous Substances.
"Environmental Permits" has the meaning given to it in Section
5.21.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and any successor statute of similar import in each case as in
effect from time to time. References to sections of ERISA shall be construed
also to refer to any successor sections.
"Financial Statements" means, with respect to KCAS and its
Subsidiaries, (a) the audited balance sheet at October 31, 1996 and 1997, (b)
the unaudited statements of income, stockholders' equity and cash flows for the
fiscal years ended October 31, 1996 and 1997, (c) the unaudited statements of
income, stockholders' equity and cash flows and the unaudited balance sheet for
and at the fiscal year ended October 31, 1995 and (d) the unaudited balance
sheet at March 31, 1998.
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"Generally Accepted Accounting Principles" means generally
accepted accounting principles as recognized by the American Institute of
Certified Public Accountants, as in effect from time to time, consistently
applied and maintained on a consistent basis for a Person on a consolidated
basis throughout the period indicated and consistent with such Person's prior
Financial practice.
"Hazardous Substance" means any substance or material meeting
any one or more of the following criteria: (i) it is or contains a substance
designated as a hazardous waste, hazardous substance, hazardous material,
pollutant, contaminant or toxic substance under any Environmental Law; (ii) its
presence at some quantity requires investigation, notification or remediation
under any Environmental Law; or (iii) it contains, without limiting the
foregoing, asbestos, polychlorinated biphenyls, petroleum hydrocarbons,
petroleum derived substances or waste, crude oil or any fraction thereof,
nuclear fuel, natural gas or synthetic gas.
"IRB Debt" means the debt of KCAS underlying or securing the
Industrial Revenue Bonds, Series 1985 (Mason Lanman Associates Project) in the
initial principal amount of $830,000 issued pursuant to that certain Trust
Indenture dated September 1, 1985, by and between the City of Shawnee, Kansas
and United Missouri Bank of Kansas City, N.A., as trustee.
"Indemnification Agreement" means that certain Indemnification
Agreement substantially in the form attached hereto as Exhibit B.
"Information" has the meaning given to it in Section 8.1.
"Intellectual Property" means (a) all world wide inventions
and discoveries (whether patentable or unpatentable and whether or not reduced
to practice), all improvements thereto, and all patents, patent applications and
patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof, (b) all
trademarks, service marks, trade dress, logos, trade names and corporate names,
together with all translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations and renewals in connection therewith, (c) all copyrightable works,
all copyrights and all applications, registrations and renewals in connection
therewith, (d) all mask works and all applications, registrations and renewals
in connection therewith, (e) all know-how, trade secrets and confidential
business information, whether patentable or unpatentable and whether or not
reduced to practice (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production process and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information and business and marketing plans and proposals),
(f) all computer software (including data and related documentation), (g) all
other proprietary rights, (h) all copies and tangible embodiments thereof (in
whatever form or medium) and (i) all licenses and agreements in connection
therewith.
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"Kansas Law" means the General Corporation Code of Kansas as
amended and any successor statute of similar import, in each case as in effect
from time to time. References to sections of Kansas Law shall be construed also
to refer to any successor sections.
"Knowledge of KCAS" means the actual knowledge of any of the
following: William D. Mason, Ph.D., Marilyn L. Mason, Chauhwei J. Fu, Ph.D. and
Robert Schroder.
"Leased Real Properties" has the meaning given to it in
Section 5.27.
"Material Adverse Effect" means a material adverse effect on
the condition (financial or otherwise), results of operations, business,
prospects or assets or liabilities of a Person.
"Merger" means the merger of KCAS with and into Merger Sub
pursuant to the terms and conditions of this Agreement.
"Merger Consideration" has the meaning given to it in Section
3.1(a).
"Merger Documents" means collectively this Agreement and the
other agreements and documents contemplated hereby, including any certificates
or filings required hereunder or thereunder.
"Permitted Encumbrances" means any of the following
Encumbrances: (i) Encumbrances in favor of carriers, warehousemen, mechanics,
landlords and materialmen and other similar persons incurred in the ordinary
course of business for sums not yet due and payable, and (ii) Encumbrances for
current taxes, assessments or other governmental charges incurred in the
ordinary course of business and that are not delinquent or remain payable
without any penalty.
"Person" means a corporation, a company, an association, a
joint venture, a partnership, an organization, a business, an individual, a
trust or a government or political subdivision thereof or any government agency
or any other legal entity.
"Real Properties" has the meaning given to it in Section 5.27.
"Securities Act" means the Securities Act of 1933, as amended,
and any successor statute of similar import, in each case as in effect from time
to time.
"Stockholder" or "Stockholders" means one or more of the
holders of capital stock of KCAS immediately prior to the Effective Time, as the
case may be.
"Subsidiary" of a Person means a corporation or other Person
of which more than fifty percent (50%) of the outstanding securities having
ordinary voting power to elect a majority
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of the board of directors, in the case of a corporation, or of the ownership or
beneficial interests having ordinary voting power, in the case of a Person not a
corporation, is, directly or indirectly, provided or controlled by such Person
or any of its subsidiaries or a combination thereof (irrespective of whether, at
the time, securities of any other class or classes of-any such corporation or
other Person shall have or might have voting power by reason of the happening of
any contingency).
"Surviving Corporation" has the meaning given to it in Section
2.1.
"Taxes" means any taxes, assessments, duties, fees, levies,
imposts, deductions, withholdings, including, without limitation, income, gross
receipts, ad valorem, value added, excise, real or personal property, asset,
sales, use, license, payroll, transaction, capital, net worth and franchise
taxes, estimated taxes, withholding, employment, social security, workers
compensation, utility, severance, production, unemployment compensation,
occupation, premium, windfall profits, transfer and gains taxes, or other
governmental charges of any nature whatsoever imposed by any government or
taxing authority of any country or political subdivision of any country and any
liabilities with respect thereto, including any penalties, additions to tax,
fines or interest thereon, and includes any liability of KCAS and its
Subsidiaries arising under any tax sharing agreement to which any of them is or
has been a party.
"Tax Return" means any report, return or other information
required to be supplied to a taxing authority in connection with Taxes.
"Transmittal Letter" has the meaning given to it in Section
3.2(a).
ARTICLE II.
THE MERGER
2.1. THE MERGER. On the terms and subject to the conditions of
this Agreement and Kansas Law, at the Effective Time, Merger Sub will merge with
and into KCAS, the separate existence of Merger Sub will cease and KCAS will be
the surviving corporation (the "Surviving Corporation").
2.2. ARTICLES OF INCORPORATION. The articles of incorporation
of KCAS in effect at the Effective Time shall be the articles of incorporation
of the Surviving Corporation which shall be amended and restated to be
substantially identical to the Articles of Incorporation of Merger Sub except
that Article I shall be amended to read as follows: "The name of the corporation
is Kansas City Analytical Services, Inc."
2.3. BYLAWS. The bylaws of Merger Sub in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
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2.4. DIRECTORS AND OFFICERS. From and after the Effective
Time, until successors are duly elected or appointed in accordance with
applicable law, the directors of Merger Sub at the Effective Time shall be the
directors of the Surviving Corporation and the officers of Merger Sub at the
Effective Time shall be the officers of the Surviving Corporation.
ARTICLE III.
CONVERSION AND EXCHANGE OF SHARES
3.1. SHARES. At the Effective Time, by virtue of the Merger
and without any action on the part of any Person:
(a) Each issued and outstanding share of Common
Stock, other than Dissenting Shares shall be converted into the right to
receive, at the option of each Stockholder, (i) an amount in cash, without
interest, equal to $6,060.61 (the "Cash Merger Consideration") or (ii) $6,888.89
worth of AAI Common Stock at the AAI Valuation Price (as defined below) (the
"Stock Merger Consideration"; the Stock Merger Consideration and Cash Merger
Consideration are generally referred to as the "Merger Consideration"). As used
herein, the "AAI Valuation Price" shall mean (i) the average of the average of
the high and low trading prices per share for AAI Common Stock as reported on
the Nasdaq National Stock Market (as published in The Wall Street Journal,
eastern edition) for each trading day during the ten consecutive trading days
during which shares are traded on the Nasdaq National Stock Market ending on the
fifth trading day prior to the Effective Time (the "Average Trading Price"). No
fractional shares of AAI Common Stock shall be issued. In lieu thereof, each
Stockholder who would otherwise be entitled to a fraction of a share of AAI
Common Stock shall be entitled to receive an amount of cash (rounded to the
nearest whole cent) equal to the product of such fraction of a share of AAI
Common Stock multiplied by the Average Trading Price. No interest will accrue or
be paid on the cash payable in lieu of fractional shares. A Stockholder may
elect to receive Cash Merger Consideration for a portion of such Stockholder's
shares of Common Stock and Stock Merger Consideration for such Stockholder's
remaining shares of Common Stock. Elections to receive Cash Merger
Consideration, Stock Merger Consideration or a combination of both must be made
by written notice of the form attached hereto as Exhibit F by each Stockholder
delivered to AAI contemporaneously with the execution by KCAS of this Agreement.
If a Stockholder does not timely make the election required by the immediately
preceding sentence, then the Stockholder shall be deemed to have elected to
receive Cash Merger Consideration for each share of Common Stock held by such
Stockholder. At the Effective Time, all shares of Common Stock shall no longer
be outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such shares of
Common Stock shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration, without interest or, with respect to
holders of Dissenting Shares, rights provided under Section 17-6712 of the
Kansas Law. In the event that at any time any holder of Dissenting Shares shall
cease to have the right to demand payment for the value of such Dissenting
Shares pursuant to Section
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17-6712 of the Kansas Law, each Dissenting Share shall be converted into the
right to receive the Cash Merger Consideration.
(b) Each issued and outstanding share of capital
stock of Merger Sub shall be converted into one fully paid and nonassessable
share of common stock, par value $0.01, of the Surviving Corporation.
3.2. EXCHANGE AND CONVERSION OF SHARES.
(a) At the Closing Date, each holder of shares
of Common Stock shall deliver to the Surviving Corporation a properly executed
letter of transmittal and instructions (together, a "Transmittal Letter"), the
form of which is attached hereto as Exhibit G, along with the certificate
evidencing such shares of Common Stock. Subject to any required backup
withholding obligations under the Code, at the Effective Time and upon surrender
to the Surviving Corporation of certificates representing shares of Common
Stock, together with a Transmittal Letter, the Stockholder of such certificates
shall receive in exchange therefor, and AAI shall issue and deliver to such
Stockholder, the Merger Consideration entitled to be received by such
Stockholder.
(b) From and after the Effective Time, there
shall be no transfers on the stock transfer books of KCAS in respect of
stockholders of record at the Effective Time. If after the Effective Time,
certificates representing shares of Common Stock are presented to the Surviving
Corporation, the Surviving Corporation shall cancel or exchange such
certificates, and any underlying shares of Common Stock represented thereby, as
provided by this Article HI. AAI shall be obligated to issue Merger
Consideration only to the record holders of Common Stock.
(c) The Surviving Corporation shall not be
liable to a holder of shares of Common Stock for any property delivered to a
public official pursuant to applicable abandoned property laws, or for any
interest thereon. If certificates representing shares of Common Stock are not
surrendered prior to the date on which the consideration payable in respect of
the underlying shares would otherwise escheat to or become the property of any
governmental unit or agency, any consideration payable in respect of such
certificates, shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims of interest
of any person previously entitled thereto.
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ARTICLE IV.
THE CLOSING
4.1. EFFECTIVE TIME AND CLOSING. On the Closing Date, assuming
satisfaction or, to the extent permitted hereunder, waiver, of all conditions to
the Merger set forth in Article IX, KCAS shall cause the Certificate of Merger
to be filed with the Secretary of State of the State of Kansas. Additionally,
KCAS and Merger Sub shall cause all other filings or recordings to be made as
required by applicable law in connection with the Merger. The Merger shall be
consummated and the Merger shall become effective upon the filing of the
Certificate of Merger with the Secretary of State of the State of Kansas (such
time, the "Effective Time"). The closing of the Merger shall take place at the
offices of Robinson, Bradshaw & Hinson, P.A. in Charlotte, North Carolina
commencing at 10:00 a.m. local time on the Closing Date.
4.2. DELIVERIES BY KCAS. At or by the Closing, KCAS shall have caused
the following documents to be executed as contemplated thereby and delivered to
Merger Sub or AAI, or both, as the case may be:
(a) The Employee Nondisclosure Agreements executed by each of the
employees of KCAS listed on Annex 2;
(b) The Indemnification Agreement executed by each Stockholder;
and
(c) All other documents, certificates, instruments and writings
required hereunder to be delivered by KCAS, or as reasonably may be requested by
Merger Sub or AAI to consummate the transactions contemplated by this Agreement
or any of the other Merger Documents.
4.3. DELIVERIES BY MERGER SUB AND AAI. At or by the Closing, Merger
Sub and AAI shall have caused to be executed and delivered to the Stockholders:
(a) the Indemnification Agreement;
(b) the Employment Agreements;
(c) all other documents, certificates, instruments and writings
required hereunder to be delivered by Merger Sub or AAI, or as reasonably may be
requested by KCAS to consummate the transactions contemplated by this Agreement
or any other of the Merger Documents; and
(d) the Merger Consideration.
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ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF KCAS
KCAS represents and warrants to Merger Sub and AAI as follows:
5.1. ORGANIZATION AND GOOD STANDING; POWER AND AUTHORITY;
QUALIFICATIONS. KCAS, (i) is a corporation duly incorporated, validly existing
and in good standing under the laws of Kansas, (ii) has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as presently conducted and as proposed to be conducted and (iii) is
qualified to transact business as a foreign corporation in, and is in good
standing under the laws of, those jurisdictions listed on Schedule 5.1, which
jurisdictions constitute all of the jurisdictions wherein the character of the
property owned or leased or the nature of the activities conducted by it makes
such qualification necessary, except where the failure to be so qualified and in
good standing would not have a Material Adverse Effect on KCAS. KCAS has all
requisite corporate power and authority to enter into and perform its
obligations under the Merger Documents.
5.2. AUTHORIZATION OF THE MERGER DOCUMENTS. The execution, delivery and
performance by KCAS of each of the Merger Documents to which it is party have
been duly authorized by all requisite corporate action on the part of KCAS, and
each of the Merger Documents constitutes a legal, valid and binding obligation
of KCAS enforceable against it in accordance with its terms except to the extent
(a)that enforceability may be limited by bankruptcy, insolvency or other similar
laws affecting creditors' rights generally and (b) that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
5.3. CAPITALIZATION.
(a) The authorized equity capitalization of KCAS as of the date
of this Agreement consists entirely of 900 shares of Common Stock, $1.00 par
value per share, all of which shares are issued and outstanding. All of such
shares have been validly issued and are fully paid and nonassessable. There are,
and immediately after the Closing there will be, no outstanding warrants,
options, agreements, convertible securities or other commitments or securities
convertible into, or exchangeable or exercisable for, shares of capital stock of
KCAS pursuant to which KCAS is or may become obligated to issue any shares of
the capital stock or other securities of KCAS. There are, and immediately after
the Closing there will be, no rights, including preemptive or similar rights, to
purchase or otherwise acquire shares or sell or otherwise transfer shares of the
capital stock of KCAS pursuant to any provision of law, KCAS's articles of
incorporation or its bylaws, any agreement to which KCAS is a party or
otherwise.
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(b) Schedule 5.3(b) hereto contains a list of (i) all holders of
record of capital stock of KCAS, including the number of shares of capital stock
held by each such holder. Except as set forth on Schedule 5.3(b), there are no
beneficial owners of shares of KCAS's capital stock or other securities who are
not otherwise holders of record. Except as set forth on Schedule 5.3(b), KCAS is
not a party to, and there is, and immediately after the Closing there will be,
no agreement, restriction or encumbrance (such as a right of first refusal,
right of first offer, proxy, voting agreement, voting trust, registration rights
agreement, stockholders' agreement, or any other similar agreement, whether or
not KCAS is a party thereto) with respect to the purchase, sale or voting of any
shares of capital stock of KCAS (whether outstanding or issuable upon
conversion, exchange or exercise of outstanding securities). Except as set forth
in Schedule 5.3(b) immediately prior to Closing, no Person has the right to
nominate or elect one or more directors of KCAS other than through the right to
vote its shares of Common Stock in an election of directors.
5.4. FINANCIAL STATEMENTS. KCAS has furnished to Merger Sub its
Financial Statements. Except as set forth in Schedule 5.4 all such Financial
Statements (i) which have been audited have been prepared in accordance with
Generally Accepted Accounting Principles (except that the unaudited financial
statements do not contain all of the footnotes required under Generally Accepted
Accounting Principles and the Financial Statements for any period other than for
a fiscal year or at a fiscal year end are subject to normal year-end
adjustments, none of which reasonably could be expected to result in a Material
Adverse Effect on KCAS) and (ii) fairly present the financial position of KCAS
as of the date thereof, and the results of their operations for the periods
indicated therein.
5.5. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed on
Schedule 5.5, KCAS does not have any liabilities or obligations (whether
accrued, absolute, contingent, unliquidated or otherwise, whether due or to
become due) other than (i) liabilities or obligations reserved against or
otherwise disclosed in KCAS's Financial Statements or the footnotes thereto,
(ii) intercompany liabilities among KCAS and its Subsidiaries, (iii) liabilities
or obligations under Contracts listed on the Schedules to this Agreement or
under Contracts that are not required to be disclosed thereon (but not
liabilities for breaches thereof), (iv) trade accounts payable for goods and
services and wages and salaries, in each case, incurred after October 3 1, 1997,
in the ordinary course of business consistent (in amount and kind) with past
practice, (v) other liabilities or obligations that were incurred after October
31, 1997, in the ordinary course of business consistent (in amount and kind)
with past practice -and that do not exceed $50,000 in the aggregate and (vi)
other liabilities disclosed or referred to elsewhere in this Agreement.
5.6. ABSENCE OF MATERIAL CHANGES. Except as set forth on Schedule 5.6
and except as otherwise expressly contemplated by this Agreement, since October
31, 1997, KCAS has conducted its business in the ordinary course, consistent
with past practice and there has not been (a) any event or condition having a
Material Adverse Effect on KCAS or any event or condition (other than publicly
reported events or conditions affecting KCAS's industry generally) that
reasonably could be expected to have a Material Adverse Effect, (b) any waiver
or
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cancellation of any right of KCAS to the extent such waiver or cancellation has
had or reasonably could be expected to have a Material Adverse Effect on KCAS,
or the cancellation of any material debt or claim held by KCAS, (c) any payment,
discharge or satisfaction of any claim, liability or obligation of KCAS, other
than trade payables paid in the ordinary course of business, (d) any Encumbrance
upon the assets of KCAS other than any Permitted Encumbrance or Encumbrance
disclosed on Schedule 5.13(a), (e) any payment of dividends on, or other
distribution with respect to, or any direct or indirect redemption or
acquisition by KCAS of, any securities of KCAS, (f) any issuance of stock, bonds
or other securities of KCAS or any options or warrants or other rights to
acquire any such securities or the exercise of outstanding options or warrants,
(g) any sale, assignment or transfer of any tangible or intangible assets of
KCAS except in the ordinary course of business, (h) any loan by KCAS to any
officer, director, employee, consultant or shareholder thereof of an amount in
excess of $25,000 (other than advances to such persons in the ordinary course of
business in connection with travel and travel related expenses), (i) any damage,
destruction or loss (whether or not covered by insurance) materially and
adversely affecting the assets, property, financial condition or results of
operations of KCAS, (j) any increase, direct or indirect, in the compensation
paid or payable to any officer or director of KCAS or, other than in the
ordinary course of business, to any other employee, consultant or agent of KCAS,
(k) any change in the accounting methods, practices or policies of KCAS, (1) any
indebtedness incurred, except in the ordinary course of business, for borrowed
money by KCAS, (m) any amendment to or termination of any material agreement to
which KCAS is a party other than the expiration of any such agreement in
accordance with its terms, (n) any change to the knowledge of KCAS with respect
to the regulation of KCAS or their respective activities by any administrative
agency or governmental body to the extent such change has had or reasonably
could be expected to have a Material Adverse Effect on KCAS, (o) any material
change in the manner of business or operations of KCAS or (p) any agreement or
commitment (contingent or otherwise) by KCAS to do any of the foregoing.
5.7. NO CONFLICTS. Except as set forth on Schedule 5.7, KCAS's
execution and delivery of, and performance of its obligations under, the Merger
Documents and the consummation by KCAS of the transactions contemplated thereby
will not (a) violate any provision of law, statute, rule or regulation, or any
ruling, writ, injunction order, judgment or decree of any court, administrative
agency or other governmental body applicable to it, or any of its properties or
assets, (b) conflict with or result in any material breach of any of the terms,
conditions or provisions of, or constitute (with due notice or lapse of time, or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any Encumbrance upon any of
its properties or assets under, any Contract to which it is a party or (c)
violate its articles of incorporation or bylaws.
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5.8. AGREEMENTS.
(a) Except as set forth on Schedule 5.8(a), KCAS is not a party to
any Contract other than any Contract that (i) pursuant to its terms, has
expired, been terminated or fully performed by the parties, and in each case,
under which KCAS does not have any liability, contingent or otherwise, (ii) is
cancelable by either KCAS on thirty (30) days' or less notice without any
penalty or other financial obligation and that involves payments to or from KCAS
of less than $2,000 in such 30-day period or (iii) involves annual aggregate
payments to or from KCAS of $25,000 or less, and in each case, is not material
to the business or financial condition of KCAS, individually or in the
aggregate.
(b) Complete copies (or, if oral, full written descriptions) of
all Contracts required to be listed hereby on Schedule 5.8(a), including all
amendments thereto, have been delivered to AAI. To KCAS's knowledge, each of
such Contracts is legal, valid, binding, enforceable, and in full force
and-effect against KCAS and against the other parties thereto. There is no
material breach, violation or default by KCAS, and no event that, with notice or
lapse of time or both, (A) would constitute a breach, violation or default by
such party under any such Contract or (B) would give rise to any lien or fight
of termination, modification, cancellation, prepayment, suspension, limitation,
revocation or acceleration against such party under any such Contract. Except as
set forth on Schedule 5.8(b), no other party to any of such Contracts is in
arrears in respect of the performance or satisfaction of the terms and
conditions on its part to be performed or satisfied under any of such Contracts,
no waiver or indulgence has been granted by any of the parties thereto and no
party to any of such Contracts has repudiated any provision thereof.
5.9. INTELLECTUAL PROPERTY RIGHTS.
(a) KCAS owns or has the fight to use pursuant to license,
sublicense, agreement or permission all Intellectual Property, individually or
in the aggregate, material to the operation of its business as currently
conducted; provided, however, KCAS's right to use such Intellectual Property
owned by third parties may be limited by nondisclosure obligations or other
restrictions. Each item of Intellectual Property owned or used by KCAS
immediately prior to the Closing will be owned or available for use by the
Surviving Corporation on identical terms and conditions immediately subsequent
to the Closing.
(b) Except as set forth on Schedule 5.9(b), (i) to best
knowledge of KCAS (A) KCAS has not interfered with, infringed upon or
misappropriated any Intellectual Property rights of third parties, and (B) the
business conducted by KCAS (which, in the case of the development, marketing and
licensing of proprietary products, shall be limited to the products set forth on
Schedule 5.9(b)) will not interfere with, infringe upon or misappropriate any
Intellectual Property rights of third parties, and (ii) KCAS has not received
any charge, complaint, claim, demand or notice alleging any such interference,
infringement or misappropriation (including any claim that it must license or
refrain from using any Intellectual
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Property rights of any third party). To KCAS's knowledge, no third party has
interfered with, infringed upon or misappropriated any Intellectual Property
rights of KCAS.
(c) Schedule 5.9(c) identifies each patent and each pending
patent application that KCAS has filed worldwide. With respect to each such
patent, to the best of KCAS's knowledge, there is no substantial suggestion or
assertion that any claim therein is invalid or unenforceable. The patent
applications identified on Schedule 5.9(c) hereto have been properly prepared
and filed, and such applications are presently being diligently pursued by the
Person making such application.
(d) Schedule 5.9(d) identifies (i) all registered or
unregistered trademarks of each KCAS and (ii) each license, agreement and other
permission that KCAS have granted to any third party with respect to any of
their respective Intellectual Property.
(e) KCAS has delivered to AAI correct and complete copies of all
registrations, patent applications, licenses, agreements and permissions (as
amended), identified in Schedules 5.9(c) and 5.9(d) hereto and has delivered to
AAI correct and complete copies of all other material written documentation
evidencing ownership and prosecution (including all papers filed with or
received from the United States Patent and Trademark Office of each such item.
With respect to each item of Intellectual Property required to be identified in
Schedule 5.9(c) and 5.9(d) and except as set forth in Schedule 5.9(e):
(i) KCAS possesses all right, title and interest in and to
the item, free and clear of any encumbrance, license or other restriction;
(ii) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling or charge; and
(iii) KCAS has not agreed to indemnify any Person for or
against any interference, infringement, misappropriation or other conflict with
respect to the item.
(f) Schedule 5.9(f) identifies each item of Intellectual Property
that any third party owns and that KCAS uses pursuant to license, sublicense,
agreement or permission except those products that are readily available at
retail market for $1,000 or less. KCAS has not granted any sublicense or similar
right with respect to any such agreements or Intellectual Property. Each such
item of Intellectual Property is not subject to any outstanding injunction,
judgment, order, decree, ruling or change, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand is pending or is
threatened that challenges the legality, validity, or enforceability of any such
item of Intellectual Property.
(g) KCAS has not disclosed any of its proprietary information
other than (i) in the regular and ordinary course of business, (ii) to
representatives, agents, consultants,
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accountants, attorneys, financial advisers of such Person, (iii) in connection
with entering into this Agreement, (iv) to governmental authorities as from time
to time requested or (v) to other persons subject to agreements regarding the
confidential treatment thereof.
(h) KCAS has delivered to AAI copies of (i) all written opinions
of legal counsel issued to KCAS relating to Intellectual Property and (ii) all
correspondence KCAS has received from, or sent to, any third party concerning or
relating to any interference with, infringement upon or misappropriation of
their respective or any third party's Intellectual Property.
5.10. EQUITY INVESTMENTS; SUBSIDIARIES. Except as disclosed on
Schedule 5.10, KCAS has never had, nor does it presently have, any Subsidiaries,
nor has it owned, nor does it presently own, whether directly or indirectly
owned, any capital stock or other proprietary interest, directly or indirectly,
in any corporation, company, association, trust, partnership, joint venture or
other entity.
5.11. CORPORATE MINUTE BOOKS. Except as disclosed on Schedule 5.11,
the corporate records of each of KCAS are correct and complete in all material
respects. True and correct copies of all minutes of meetings or other actions by
the directors, stockholders or incorporators of each such Person since their
respective inceptions have previously been provided to AAI.
5.12. SUITABILITY. To KCAS's knowledge, none of the events described in
Item 401(f) of Regulation S-K under the Securities Act, has occurred during the
last five years with respect to any director or officer of KCAS (other than
directors serving at the designation of Phoenix International Life Sciences
(IBRD) Inc. or its predecessor).
5.13 ASSETS.
(a) KCAS has good and marketable title to all of its assets
and properties, free and clear of any Encumbrances except (i) as disclosed in
Schedule 5.13(a), or (ii) Permitted Encumbrances.
(b) Except as set forth on Schedule 5.13(b), the buildings,
facilities, machinery, equipment, furniture, leasehold and other improvements,
fixtures, vehicles, structures, any related capitalized items and other tangible
property owned by, or leased to KCAS and material to their respective
operations, as of the date hereof, (i) are in all material respects in good
operating condition and repair (normal wear and tear excepted), (ii) are in all
material respects subject to continued repair and replacement in accordance with
past practice and all applicable regulations, and (iii) are suitable for their
current use in all material respects.
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(c) Except as set forth on Schedule 5.13(c), KCAS has not
received notice of, or has knowledge of, any pending, threatened or contemplated
condemnation proceeding or similar taking affecting their respective assets
(including the Real Properties).
(d) KCAS has repaid in full the principal and accrued
interest of the IRB Debt and has taken or will promptly take all action required
by it to acquire the approximately 1.2 acres of real property located at 12700
Johnson Drive, Shawnee, Kansas upon payment by it of $100.00 pursuant to the
terms of the Lease Agreement, dated as of September 1, 1985, by and between the
City of Shawnee, Kansas, and Mason Lanman Associates, a Kansas general
partnership, as assigned to KCAS pursuant to that certain Assignment of Lease
Agreement, dated December 31, 1992 (the "Lease Agreement"). Upon its acquisition
of such real property pursuant to the Lease Agreement, KCAS shall have good and
marketable title to such real property, free and clear of any Encumbrances
except as disclosed on Schedule 5.13(d) or Permitted Encumbrances.
5.14 EMPLOYEE BENEFIT PLANS.
(a) Schedule 5.14 hereto contains a true and complete list
of (i) each plan, program, policy, contract, agreement or other arrangement
providing for compensation, severance, termination pay, performance awards,
stock or stock-related awards, vacation, fringe benefits or other employee
benefits of any kind, whether funded or unfunded, written or oral, which is now
sponsored, maintained, contributed to or required to be contributed to by KCAS
or pursuant to which KCAS has any liability, contingent or otherwise, including,
but not limited to, any "`employee benefit plan" within the meaning of Section
3(3) of ERISA (each, a "Benefit Plan") and (ii) each management, employment,
bonus, option, equity (or equity related), severance, consulting, noncompete,
confidentiality or similar agreement or contract, pursuant to which KCAS has any
liability, contingent or otherwise, between, on the one hand, KCAS, and on the
other, any current, former or retired employee, officer, consultant, independent
contractor, agent or director of such Person (an "Employee") (each, an "Employee
Agreement"). Except as identified on Schedule 5.14, KCAS does not currently
sponsor, maintain, contribute to, and is not required to contribute to, nor has
KCAS ever sponsored, maintained, contributed to or been required to contribute
to, or incurred any liability to, (i) any "defined benefit plan" (as defined in
ERISA Section 3(35)), (ii) any "multiemployer plan" (as defined in ERISA Section
3(37)) or (iii) any Benefit Plan that provides, or has any liability to provide,
life insurance, medical, severance or other employee welfare benefits to any
Employee upon his or her retirement or termination of employment, except as
required by Section 4980B of the Code.
(b) KCAS is not (i) a member of a "controlled group of
corporations," under ("common control" or an "affiliated service group" within
the meaning of Sections 414(b), (c) or (m) of the Code, (ii) required to be
aggregated under Section 414(o) of the Code, or (iii) under "common control,"
within the meaning of Section 4001(a)(14) of ERISA, or any regulations
promulgated or proposed under any of the foregoing Sections, in each case with
any other entity.
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(c) KCAS has delivered to AAI current, accurate and complete
copies of all documents embodying or relating to each Benefit Plan and each
Employee Agreement, including all amendments thereto, trust or funding
agreements relating thereto (if any), the two most recent annual reports (Series
5500 and related schedules) required under ERISA (if any), the most recent
determination letter (if any) received from the Internal Revenue Service, the
most recent summary plan description (with all material modifications) (if any),
and all material communications to any Employee or Employees relating to any
Benefit Plan or Employee Agreement.
(d) Each Benefit Plan has been established and maintained in
accordance with its terms and in material compliance with all applicable, laws,
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code; and each Benefit Plan intended to qualify under Section 401 of the
Code is, and since its inception has been, so qualified.
(e) The execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the occurrence of
any additional or subsequent events) constitute an event under any Benefit Plan
or Employee Agreement that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligations to fund benefits with respect
to any Employee.
5.15. LABOR RELATIONS; EMPLOYEES.
(a) Schedule 5.15 hereto lists all employees (each, an
"Employee") of KCAS as of the date hereof and their current annual salaries or
hourly wage rate. Except as set forth on Schedule 5.15 hereto, (i) KCAS is not
delinquent in payments to any of its employees, for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
the date hereof or amounts required to be reimbursed by them to the date hereof,
(ii) KCAS is in material compliance with all applicable federal, state and local
laws, rules and regulations respecting employment, employment practices, labor,
terms and conditions of employment and wages and hours, (iii) KCAS is not bound
by or subject to (and none of its assets or properties is bound by or subject
to) any written or oral, express or implied, commitment or arrangement with any
labor union, and no labor union has requested or, to the best of their knowledge
has sought to represent any of the employees, representatives or agents of KCAS,
(iv) there is no labor strike, dispute, slowdown or stoppage actually pending,
or, to the best of KCAS's knowledge, threatened against or involving KCAS, (v)
to the best of KCAS's knowledge, no salaried key Employee has any plans to
terminate his or her employment with KCAS.
(b) Each Employee listed on Schedule 5.15(b) has executed an
Employee Nondisclosure Agreement.
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5.16. LITIGATION; ORDERS. Except as set forth on Schedule 5.16,
there is no civil, criminal or administrative action, suit, claim, notice,
hearing, inquiry, proceeding or investigation at law or in equity by or before
any court, arbitrator or similar panel, governmental instrumentality or other
agency now pending or, to the Knowledge of KCAS, threatened against KCAS or its
assets or business. Except as set forth on Schedule 5.16, KCAS is not subject to
any order, writ, injunction or decree of any court of any federal, state,
municipal or other domestic or foreign governmental department, commission,
board, bureau, agency or instrumentality.
5.17. COMPLIANCE WITH LAWS; PERMITS. Except as provided in
Schedule 5.17 and subject to the limitations of more specific representations
made in this Agreement, in particular those set forth in Sections 5.21 and 5.29
hereof, KCAS (a) has complied in all material respects with all federal, state,
local and foreign laws, rules, ordinances, codes, consents, authorizations,
registrations, regulations, decrees, directives, judgments and orders materially
applicable to it and its respective business and (b) has all federal, state,
local and foreign governmental licenses, permits and qualifications required to
conduct its business as currently conducted, such licenses, permits and
qualifications are in full force and effect, and no violations (other than
violations notice of which has not been received by KCAS) have been recorded in
respect of any such licenses, permits and qualifications, and no proceeding is
pending or, to the Knowledge of KCAS, threatened to revoke or limit any such
license, permit or qualification. Schedule 5.17 sets forth a list of all such
licenses, permits and qualifications, and the expiration dates thereof.
5.18. RELATED TRANSACTIONS. Except as set forth on Schedule
5.18(a), no current stockholder, director, officer or employee of KCAS, or any
"affiliate" or "associate" (as such terms are defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended) of any of the foregoing persons, or
KCAS, is presently, or during the past five years has been, directly or
indirectly, a party to any agreement, transaction or series of similar
transactions with KCAS other than in connection with any such Person's duties as
a director, officer or employee of KCAS.
5.19. DISCLOSURE.
(a) This Agreement and all certificates, instruments and
written materials furnished or made to AAI by or on behalf of KCAS in connection
with this Agreement do not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements contained herein
and therein not misleading.
(b) There is no fact peculiar to KCAS, or its respective
business, of which KCAS is aware that KCAS has not disclosed to AAI that could
reasonably be expected (i) to have a Material Adverse Effect on KCAS or (ii) to
materially adversely affect the ability of KCAS to perform its obligations under
the Merger Documents.
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5.20. TAXES.
(a) Except as set forth on Schedule 5.20(a), KCAS has filed
all. Tax Returns required by law to have been filed by it, and has paid all
Taxes required to be paid by it, prior to the date hereof, including, without
limitation, any Tax levied upon any of its properties, assets, income or
franchises. All Tax Returns filed by KCAS were complete and correct in all
material respects and, except as set forth in Schedule 5.20(a), each such Tax
Return was timely filed. All amounts required to be collected or withheld by
KCAS have been collected or withheld and any such amounts that are required to
be remitted to any taxing authority prior to the date hereof have been duly
remitted. The accruals and reserves for Taxes in each of such balance sheets
that are part of the Financial Statements are adequate in all material respects
to cover any liability of KCAS for Taxes for periods through the dates of such
balance sheets. The accruals and reserves for deferred tax liability in each of
such balance sheets were adequate as of the date thereof. If KCAS files its Tax
Returns for its current taxable year, in conformity with its past practices and
tax reporting, there will be no basis for any material adverse audit adjustments
with respect to KCAS under any of the provisions of the Code, or any provisions
of state, local or foreign tax law, with respect to operations and activities of
KCAS during the period beginning on November 1, 1997 and ending on the date
hereof.
(b) No taxing authority in a jurisdiction where KCAS does not
file Tax Returns has made a claim, assertion or, to the Knowledge of KCAS,
threat that such non-filing entity is or may be subject to taxation by such
jurisdiction. Schedule 5.20(c) contains a list of states, territories and
jurisdictions (whether foreign or domestic) in which KCAS has filed any income,
franchise, sales and use tax return for taxable periods ending on or after
October 3 1, 1994. All taxable years of KCAS for federal, state and foreign
local income tax purposes for periods ended on or before October 31, 1994 have
been closed by expiration of the applicable statute of limitations (taking into
account waivers and extensions).
5.21. ENVIRONMENTAL PROTECTION. Except as set forth on Schedule
5.21(a), KCAS has, at all times and in all material respects, operated, and in
all material respects is, in compliance with all Environmental Laws. Except as
set forth in Schedule 5.21(b), KCAS has obtained, and is in material compliance
with, all material permits, licenses, authorizations, registrations and other
governmental consents required by applicable Environmental Laws ("Environmental
Permits"), including, without limitation, those regulating emissions,
discharges, or releases of Hazardous Substances, or the use, storage, treatment,
transportation, release, emission and disposal of raw materials, byproducts,
wastes and other substances used or produced by or otherwise relating to its
business. Except as set forth in Schedule 5.21(c), there are no claims, notices,
civil, criminal or administrative actions, suits, hearings, investigations,
inquiries or proceedings pending or, to the Knowledge of KCAS, threatened
against KCAS that are based on or related to any Environmental Matters or the
failure to have any required Environmental Permits. Except as set forth in
Schedule 5.21(d), there are no past or present conditions, events or
circumstances (i) that may interfere with or prevent continued compliance by
KCAS with Environmental Laws and the requirements of Environmental Permits, (ii)
that
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may give rise to any liability or other obligation under any Environmental Laws
that may require KCAS to incur any actual or potential Environmental Costs, or
(iii) that may form the basis of any claim, action, suit, proceeding, hearing,
investigation or inquiry against or involving any KCAS based on or related to
any Environmental Matter or that could require KCAS to incur any Environmental
Costs. Except as set forth in Schedule 5.21(e), there are no underground or
aboveground storage tanks, incinerators or surface impoundments at, on, or about
under or within any real property or tangible assets owned, operated or
controlled in whole or in part by KCAS. Schedule 5.21(e) also lists all
underground or aboveground storage tanks, incinerators or surface impoundments
that were removed from any such properties. Except as set forth in Schedule
5.21(f), KCAS has not received any written notice or other communication that it
is or may be a potentially responsible person or otherwise liable in connection
with any waste disposal site allegedly containing any Hazardous Substances, or
other location used for the disposal of any Hazardous Substances, or notice of
any failure on its behalf to comply in any respect with any Environmental Law or
the requirements of any Environmental Permit. Except as set forth on Schedule
5.21(g), KCAS has not used any waste disposal site, or otherwise disposed of,
transported, or arranged for the transportation of, any Hazardous Substances to
any place or location, or in violation of any Environmental Laws. Except as set
forth in Schedule 5.21(h), no lien exists, and, to KCAS's knowledge, no
condition exists which could result in the filing of a lien, against any
property of KCAS under any Environmental Law or relating to any Environmental
Matte-r. Except as set forth in Schedule 5.21(i), there has been no release or
other dissemination at any time of any Hazardous Substances at, on, or about,
under or within any real property currently or formerly owned or leased by KCAS
or any predecessor thereof or any real properties operated or controlled by KCAS
(other than pursuant to and in accordance with permits held by KCAS or its
predecessor). Except as set forth in Schedule 5.21(j), KCAS has not been
requested or required by any governmental authority to perform any investigatory
or remedial activity or other action in connection with any Environmental
Matter.
5.22. CONSENTS. Except as set forth on Schedule 5.22, no permit,
authorization, consent or approval of or by, or any notification of or filing
with, any person (governmental or private) is required in connection with the
execution, delivery and performance by KCAS of the Merger Documents or the
consummation by KCAS of the transactions contemplated thereby (other than such
notifications or filings required under applicable federal or state securities
laws, if any, which shall be made on a timely basis and the filing of the
Certificate of Merger with the Secretary of State of the State of Kansas).
5.23. INSURANCE; WORKERS' COMPENSATION.
(a) Schedule 5.23(a) lists each currently effective
insurance policy issued in favor of KCAS, setting forth the identity of the
respective insurance carriers and a description of the policy. All premiums due
and payable in respect of such policies have been paid, such policies are in
full force and effect and free from any right granted by KCAS of termination on
the part of the insurance carriers, except as provided in the respective
policies. Schedule 5.23(b) sets forth a description, indicating dates and nature
of claims, of the workers'
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compensation experience through the date hereof of KCAS since November 1, 1996,
which description is true, complete and accurate in all material respects.
(b) Except as set forth on Schedule 5.23(b), KCAS has not
received any notice of cancellation with respect to any of its insurance
policies within the three years preceding the date hereof, and, within the three
years preceding the date hereof, KCAS has not been refused any insurance
coverage sought or applied for, in each case where such cancellation or refusal,
individually or in the aggregate, would have a Material Adverse Effect on KCAS.
5.24. BROKERS. Neither KCAS nor any of its officers, directors,
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Agreement.
5.25. SUPPLIERS AND CUSTOMERS. No supplier of materials or
services to KCAS in an amount in excess of $50,000 per year has during the last
twelve (12) months on such supplier's initiative decreased materially or, to the
Knowledge of KCAS, threatened to decrease or limit materially its provision of
services or supplies to KCAS, nor expressed to KCAS material dissatisfaction
with the business relationship between such Person and the supplier. KCAS has
provided to AAI a list of all customers which accounted for 5% or more of KCAS's
revenues for the fiscal year ended October 31, 1997, indicating the revenues
from each such customer. KCAS has no knowledge of any termination, cancellation
or threatened termination or cancellation or limitation of, or any material
modification or change in, or expressed material dissatisfaction with the
business relationship between KCAS, on one hand, and any supplier or customer
thereof, on the other hand, of materials or services in an amount in excess of
$50,000 per year received by KCAS since October 31, 1996.
5.26. PREVIOUS ISSUANCES EXEMPT. All shares of capital stock and
other securities issued by KCAS prior to Closing have been issued in
transactions exempt from registration under the Securities Act and all
applicable state securities or "blue sky" laws. KCAS has not violated the
Securities Act or any applicable state securities or "blue sky" laws in
connection with the issuance of any shares of capital stock or other securities
prior to the Closing. KCAS has not offered any of its capital stock, or any
other securities, for sale to, or solicited any offers to buy any of the
foregoing from KCAS, or otherwise approached or negotiated with any other person
in respect thereof, in such a manner as to require registration under the
Securities Act.
5.27. REAL PROPERTY. Schedule 5.27(a) lists all real property
owned by KCAS (the "Real Properties") and Schedule 5.27(b) lists all real
property leased by KCAS, each of which has leasehold title to its respectively
leased real properties (collectively, the "Leased Real Properties"), in each
case, free and clear of all imperfections of title and all Encumbrances, except
for (i) Permitted Encumbrances, and (ii) Encumbrances listed on Schedule
5.27(b). To KCAS's knowledge, other than as described on Schedule 5.27(b), there
are no intended public improvements that will result in any charge being levied
against, or in the creation of any
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Encumbrances upon, the Real Properties or Leased Real Properties or any portion
thereof To KCAS's knowledge, except as disclosed on Schedule 5.27(b), there are
no options, rights of first refusal, rights of first offer or other similar
rights with respect to the Real Properties or Leased Real Properties.
5.28. ACCOUNTS RECEIVABLE. The accounts receivable reflected
on the Financial Statements and those accounts receivable of KCAS acquired or
created after October 31, 1997 through the date hereof (a) were and are, except
to the extent collected, bona fide accounts receivable created in the ordinary
and usual course of business in connection with bona fide transactions and
consistent with past practice and (b) are recorded net of discounts, if any,
provided to customers. , To the Knowledge of KCAS, there are no matters that
would cause KCAS to believe that any outstanding account receivable is not
collectible in the ordinary course.
5.29. FOOD AND DRUG ADMINISTRATION MATTERS.
(a) Except as set forth on Schedule 5.29, KCAS has not
received any communication (including, any warning letter) or is otherwise aware
of any action or proceeding pending or, to the best of their knowledge,
threatened, including, without limitation, warning letter, prosecution,
injunction, seizure, civil fine or recall, alleging that such Person is not in
compliance with any and all applicable laws, regulations or orders implemented
by the Food and Drug Administration, or implemented by the relevant state, local
or international agency responsible for regulating the pharmaceutical industry,
including but not limited to, allegations related to (i) drug development
establishments operated by KCAS or (ii) drug or product license applications
submitted directly by such Person or by a customer of such Person that includes
data generated by KCAS other than non-material correspondence received from the
Food and Drug Administration in connection with the filing and review of
applications. To KCAS's knowledge, no employee of KCAS is or has been the
subject of any similar pending or threatened action or proceeding.
(b) To the best knowledge of KCAS after appropriate inquiry,
all consultants utilized by KCAS to generate information to be submitted to the
Food and Drug Administration, or any equivalent state, local or international
agency, including, but not limited to, contract research organizations,
pre-clinical testing laboratories, clinical investigators and institutional
review boards, are in compliance with all applicable Food and Drug
Administration requirements, as well as the applicable requirements of relevant
state, local and international agencies with regard to the development of data
to be utilized by KCAS as part of the relevant drug or product approval process.
(c) Neither KCAS, nor any employee of KCAS, has received any
correspondence from the Food and Drug Administration or is aware of any action
or proceeding, pending or, to the best of KCAS's knowledge, threatened, against
KCAS or any such employee regarding any debarment action or investigation
undertaken pursuant to the Generic Drug
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Enforcement Act of 1992, 21 U.S.C. ss. 335, or any other similar regulation of
the Food and Drug Administration.
(d) Neither KCAS, nor any employee of KCAS, has been the
subject, officially or otherwise, of any investigation by the Food and Drug
Administration pursuant to its Fraud, Untrue, Statements of Material Facts,
Bribery, and Illegal Gratuities Final Policy.
(e) To KCAS's knowledge, no data generated by KCAS that has
been provided to clients of such Person is the subject, either pending or
threatened, of any regulatory or other action by the Food and Drug
Administration or by any state, local or international regulatory entity
relating to the truthfulness or scientific adequacy of such data.
(f) All drug and product license applications and related
filings to the Food and Drug Administration by KCAS, and all statements
furnished by KCAS to Merger Sub or AAI applicable to the status of all drug and
product license applications, pending and anticipated, are current and do not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained therein not misleading. With regard
to all drug and product license applications pending before the Food and Drug
Administration, except as set forth on Schedule 5.29(f), there is no
correspondence or other communications from the Food and Drug Administration
questioning the approvability of such applications.
5.30. OTHER REPRESENTATIONS AND WARRANTIES. The representations
and warranties of KCAS set forth in any of the other Merger Documents other than
this Agreement are true and correct.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES
OF
AAI AND MERGER SUB
AAI and Merger Sub represent and warrant to KCAS as follows:
6.1. ORGANIZATION AND GOOD STANDING; POWER AND AUTHORITY;
QUALIFICATIONS. Each of AAI and Merger Sub (i) is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and (ii) has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as presently conducted and as proposed to be conducted. Each of Merger Sub and
AAI has all requisite corporate power and authority to enter into and perform
its obligations under the Merger Documents.
6.2. AUTHORIZATION OF THE MERGER DOCUMENTS. The execution,
delivery and performance by Merger Sub and AAI of each of the Merger Documents
to which it is party have
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been duly authorized by all requisite corporate action on the parts of Merger
Sub and AAI, and each of the Merger Documents constitutes a legal, valid and
binding obligation of Merger Sub and AAI, as appropriate, enforceable against it
in accordance with its terms, except to the extent (a) that enforceability may
be limited by bankruptcy, insolvency or other similar laws affecting creditors'
rights generally and (b) that the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to certain equitable defenses
and to the discretion of the court before which any proceeding therefor may be
brought.
6.3. AUTHORIZATION AND ISSUANCE OF SHARES. The authorization,
reservation, issuance, sale and delivery of the Stock Merger Consideration have
been duly authorized by all requisite corporate action on the part of AAI, and
when issued, sold and delivered in accordance with this Agreement, such Stock
Merger Consideration will be validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof,
free of all Encumbrances. Moreover, AAI has reserved a sufficient number of
shares of AAI Common Stock for issuance under this Agreement.
6.4. PUBLIC DOCUMENTS. AAI's Annual Report on Form 10-K for the,
fiscal year ended December 31, 1997, as amended, and Quarterly Report on
Form 10-Q for the period ended March 31, 1998, when filed with the Securities
and Exchange Commission did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading.
6.5. NO CONFLICTS. Merger Sub's and AAI's execution and
delivery of, and performance of their respective obligations under, the Merger
Documents and the consummation by each of them of the transactions contemplated
thereby (including, without limitation, the issuance, sale and delivery by AAI
of AAI Common Stock hereunder) will not (a) violate any provision of law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to AAI or any of its Subsidiaries, or any of such Person's properties or assets,
(b) conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute (with due notice or lapse of time, or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, or result in the creation of any Encumbrance upon any of the properties
or assets of AAI or any of its Subsidiaries under, any Contract to which any of
them is a party or (c) violate the certificate of incorporation or bylaws of any
such Persons.
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6.6. DISCLOSURE.
(a) This Agreement and all certificates, instruments and
written materials furnished or made to KCAS by or on behalf of AAI or any of its
Subsidiaries in connection with this Agreement, taken as a whole, and including
any corrective materials furnished or made available to KCAS prior to the date
hereof, do not contain any untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements contained herein and
therein not misleading.
(b) There is no fact peculiar to AAI or any of its
Subsidiaries, or their respective businesses, of which Merger Sub or AAI is
aware, that Merger Sub or AAI has not disclosed to KCAS that could reasonably be
expected (i) to have a Material Adverse Effect on AAI and its Subsidiaries taken
as a whole or (ii) to materially adversely affect the ability of Merger Sub or
AAI to perform its obligations under the Merger Documents.
6.7. BROKERS. Neither AAI nor any of its Subsidiaries, nor any
officer, director, employee or stockholder of any such Persons, has employed any
broker or finder in connection with the transactions contemplated by this
Agreement.
ARTICLE VII.
COVENANTS OF KCAS
KCAS covenants and agrees as follows:
7.1. ORDINARY CONDUCT. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Effective Time, KCAS
will cause its business to be conducted in the ordinary course in substantially
the same manner as presently conducted and will make all reasonable commercial
efforts consistent with past practices to preserve its relationships with its
customers, suppliers and others with whom KCAS deals and to keep available the
services of its officers and employees. Additionally, except as otherwise
contemplated by this Agreement or as set forth on Schedule 7.1, KCAS will not do
any of the following without the prior written consent of Merger Sub or AAI:
(a) Amend the articles of incorporation or bylaws of KCAS;
(b) Authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, fights to purchase or otherwise)
any stock of any class or any other securities or equity equivalents (including,
without limitation, any stock appreciation rights) of KCAS, or amend any of the
terms of any such securities or agreements outstanding as of the date hereof,
except as specifically contemplated by this Agreement;
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(c) (i) Split, combine or reclassify any shares of capital
stock of KCAS; (ii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
capital stock of KCAS or (iii) redeem or otherwise acquire any securities of
KCAS;
(d) (i) Incur or assume any long-term debt or issue any
debt securities or, except under existing lines of credit and in amounts not
material to KCAS, incur or assume any short-term debt other than in the ordinary
course of business, (ii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the obligations
of any other Person except in the ordinary course of business consistent with
past practice and in amounts not material to KCAS, (iii) make any loans,
advances or capital contributions to, or investments in, any other Person (other
than to entities listed on Schedule 7.1(d) pursuant to existing agreements or
customary loans or advances to employees in the ordinary course of business
consistent with past practice and in amounts not material to the maker of such
loan or advance), (iv) pledge or otherwise encumber shares of capital stock of
KCAS, or (v) except in the ordinary course of business consistent with past
practice, mortgage or pledge, any of its material assets, tangible or
intangible, or create or suffer to exist any material lien thereupon, except (A)
as may be required under existing agreements to which KCAS is a party, (B)
Permitted Encumbrances and (C) Encumbrances disclosed on Schedule 5.13(a);
(e) Except as may be required by law or as contemplated or
permitted by the Merger Documents, (i) enter into, adopt or amend or terminate
any bonus, profit sharing, compensation, severance, termination, stock option,
stock appreciation right, restricted stock, performance unit, stock equivalent,
stock purchase agreement, pension, retirement, deferred compensation, employment
or other employee benefit agreement, trust, plan, fund or other arrangement for
the benefit or welfare of any director, officer or employee of KCAS in any
manner, (ii) except for (A) normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits or compensation expense to KCAS and (B) as
required under existing agreements or in the ordinary course of business
generally consistent with past practice, increase in any manner the compensation
or fringe benefits of any director, officer or employee of KCAS, or pay any
benefit to any such Persons not required by any plan and arrangement as in
effect as of the date hereof (including, without limitation, the granting of
stock appreciation rights or performance units), or (iii) make any contributions
to the Kansas City Analytical Services, Inc. Profit Sharing 401(k) Plan, except
for so-called employee 401(k) contributions through withholding;
(f) (i) Acquire, sell, lease or dispose of any assets
outside the ordinary course of business or any other assets that in the
aggregate are material to KCAS, or (ii) enter into any commitment or transaction
outside the ordinary course of business consistent with past practice;
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(g) Except as may be required as result of a change in law
or in Generally Accepted Accounting Principles, change or modify any of the
accounting principles or practices used by KCAS;
(h) Except as may be required by applicable law or Generally
Accepted Accounting Principles, revalue in any material respect any of its
assets, including, without limitation, writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course of
business;
(i) (i) Acquire (by merger, consolidation, or acquisition
of stock or assets) any corporation, company, partnership or other business
organization or division thereof or any equity interest therein; (ii) enter into
any contract or agreement other than in the ordinary course of business
consistent with past practice; (iii) enter into any contract or agreement
involving an amount in excess of $20,000; (iv) authorize any new capital
expenditure or expenditures that, individually or in the aggregate, are in
excess of $20,000; or (v) enter into or amend any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(j) Pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in, or
contemplated by, the Financial Statements of KCAS or on Schedule 5.5 or incurred
in the ordinary course of business consistent with past practice, including the
payment of approximately $360,000 for purchase of two mass spectrometers
previously delivered to KCAS;
(k) Settle or compromise any pending or threatened suit,
action or claim relating to the transactions contemplated hereby;
(l) Take, or agree in writing or otherwise to take, any
action that would make any of the representations or warranties of KCAS
contained in this Agreement untrue or incorrect or would result in any of the
conditions set forth in this Agreement not being satisfied; or
(m) Agree, whether in writing or otherwise, to do any of the
foregoing.
7.2. NO SOLICITATION. KCAS agrees that, prior to the earlier
of the Effective Time and September 30, 1998, it shall not, and it shall use its
best efforts to cause its directors, officers, employees, agents or
representatives, not to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing non-public information) inquiries or proposals
concerning any merger, consolidation or acquisition or purchase with or by any
third party (other than the Merger Sub or AAI) of all or any substantial portion
of the assets or capital stock of KCAS (an "Acquisition Transaction") or
negotiate with any such third party with respect to any Acquisition Transaction;
provided that the foregoing shall not prevent KCAS or its board of
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directors from taking or permitting any action in connection with any such
proposal on a third party if, based on the written opinion of its outside
counsel, the failure to do so would violate its fiduciary duties to KCAS's
stockholders under applicable law. KCAS shall immediately advise Merger Sub of
any inquiries or proposals that it receives or attempts to negotiate relating to
an Acquisition Transaction, and any such notice shall include a description of
the terms and conditions of any such proposal, or the nature of any inquiry or
attempts to negotiate.
7.3. ACCESS TO INFORMATION. Between the date of this Agreement
and the Effective Time, KCAS will (a) give AAI and Merger Sub (and their
authorized representatives) reasonable access, during normal business hours and
upon reasonable notice, to the books, records, offices and other facilities and
properties of KCAS (including, without limitation, for the purpose of conducting
such inspections, tests and sampling work as Merger Sub or AAI deems advisable),
and (b) cause its officers, agents or other appropriate officials to furnish
Merger Sub or AAI with such financial and operating data (including accountants'
work papers) and other information with respect to the business operations of
KCAS including, but not limited to, information relating to taxes as Merger Sub
or AAI may from time to time reasonably request; PROVIDED, HOWEVER, that any
such investigation by Merger Sub or AAI shall be conducted in such a manner as
not to interfere unreasonably with the normal operations of KCAS.
7.4. SCHEDULES TO AGREEMENT. KCAS shall promptly notify Merger
Sub of any event, fact or other circumstance arising after the date hereof that
would have caused the disclosure schedules delivered under this Agreement to be
untrue or misleading had such event, fact or circumstance arisen prior to the
delivery of such schedules.
7.5. MAINTENANCE OF CORPORATE EXISTENCE. KCAS shall maintain in
full force and effect its corporate existence.
7.6. CONTRIBUTIONS TO AND TERMINATION OF 401(K) PLAN.
Notwithstanding Section 7.1, at least 14 days prior to the Closing Date, KCAS
shall take such action as may be necessary to irrevocably terminate the Kansas
City Analytical Services, Inc. Profit Sharing 401(k) Plan ("Profit-Sharing
Plan") effective at least 14 days prior to the Closing Date and shall provide
AAI with evidence that the Profit Sharing Plan has been so terminated.
Notwithstanding Section 7.1, at or prior to the time KCAS takes action to
terminate the Profit Sharing Plan, KCAS may take action to authorize profit
sharing contributions and matching contributions to the Profit Sharing Plan for
the current plan year in the aggregate not exceeding the lesser of (i) $175,000
or (ii) one-third of KCAS's income before taxes for the eight-month period
ending June 30, 1998. In connection with the termination of the Profit Sharing
Plan, KCAS may amend the Profit Sharing Plan as reasonably necessary to provide
for the allocation of profit sharing and matching contributions for the period
ending immediately prior to the termination date, and shall amend the Profit
Sharing Plan to provide that distributions in liquidation of the terminated
Profit Sharing Plan shall be made only in single sum distributions.
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ARTICLE VIII.
MUTUAL COVENANTS
OF
KCAS, MERGER SUB AND AAI
KCAS, Merger Sub and AAI covenant and agree as follows:
8.1. CONFIDENTIALITY. Each of the parties to this Agreement
(a) will hold, and will use its best efforts to cause each of its officers,
directors, employees, lenders, accountants, representatives, agents, consultants
and advisors to hold, in strict confidence all information (other than such
information as may be publicly available) furnished to it in connection with the
transactions contemplated by this Agreement, together with all information
concerning any of the parties hereto contained in any analyses, compilations,
studies or other documents prepared by or on behalf of any of the parties hereto
(collectively, the "Information") and (b) will not, without the prior written
consent of the party to whom any certain Information relates, except as required
by law, release or disclose that Information to any other person, except to the
officers, directors, employees, lenders, accountants, representatives, agents,
consultants and advisors of the parties hereto (i) who need to know the
Information in connection with the consummation of the transactions contemplated
by this Agreement, (ii) who have been informed by either KCAS, on one hand, or
AAI, on the other hand, of the confidential nature of the Information and (iii)
who are instructed to comply with the terms and conditions of this Section 8.1.
The parties hereto understand that all Information is proprietary and that
dissemination of any part thereof or the use thereof for purposes other than the
evaluation and consummation of the transactions contemplated by this Agreement
will cause irreparable harm to the party hereto to whom the Information relates.
In the event a party hereto or a Person to whom such party transmits the
Information in accordance with this Agreement becomes legally compelled to
disclose any of the Information, such party will provide the party to whom the
information relates with prompt notice so that it may seek a protective order or
other appropriate remedy or waive compliance with the provisions of this Section
8.1. In the event that such protective order or other remedy is not obtained, or
that the party to whom the Information relates waives compliance with the
provisions of this Section 8.1, such party will furnish only that portion of the
Information that it believes, after receiving advice from counsel reasonably
experienced in such matters, may be legally required. If the transactions
contemplated by this Agreement are not consummated, the Information, including
all analyses, compilations, studies or other documents prepared by or on behalf
of any of the parties hereto based on the Information, will be returned to the
party to whom it relates.
8.2. CONSUMMATION OF AGREEMENT. Each of the parties hereto
will use its reasonable efforts to perform or fulfill all conditions and
obligations to be performed or fulfilled by it under this Agreement so that the
transactions contemplated hereby shall be consummated. If any event should
occur, either within or outside the control of the parties hereto that would
materially delay or prevent fulfillment of the conditions of the parties hereto
to consummate the
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transactions contemplated by this Agreement, each party will notify the other of
any such event, and the parties hereto will use their respective reasonable,
diligent and good faith efforts to cure or minimize the same as expeditiously as
possible.
8.3. PUBLICITY. Any press release or other public announcement
of the transactions contemplated hereby must be jointly approved by AAI and
KCAS, except as may otherwise be required under applicable laws. In the event
AAI is required by law to make a disclosure, it agrees to use its best efforts
to notify KCAS of such impending disclosure and the content thereof Any
information contained in a required disclosure that is not mandated by law to be
included in such disclosure shall be included only with the consent of KCAS.
Phoenix International Life Sciences (IBRD), Inc. ("Phoenix (IBRD)"), or its
parent corporation, shall submit any press release or other publication to AAI
prior to releasing such document to the media, which release to the media shall
not be done prior to the Effective Time.
ARTICLE IX.
CONDITIONS TO CLOSING
9.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
TRANSACTIONS CONTEMPLATED HEREBY. The respective obligations of each party
hereto to effect the transactions contemplated hereby shall be subject to the
following condition, which may be waived upon mutual agreement of KCAS, AAI and
Merger Sub: Neither KCAS, AAI nor Merger Sub shall be subject on the Closing
Date to any order, decree or injunction of a court of competent jurisdiction
that enjoins or prohibits the consummation of this Agreement, nor shall there be
pending a suit or proceeding by any governmental authority that seeks injunctive
or other relief in connection with the transactions contemplated hereby.
9.2. CONDITIONS TO THE OBLIGATIONS OF KCAS TO EFFECT THE
TRANSACTIONS CONTEMPLATED HEREBY. The obligations of KCAS to effect the
transactions contemplated hereby shall be further subject to the fulfillment of
the following conditions, any one or more of which may be waived by KCAS:
(a) Payment of the Merger Consideration at the
Closing;
(b) All representations and warranties of Merger
Sub and AAI contained in this Agreement shall be true and correct as of the
Closing Date as though made as of such date (except as otherwise expressly
contemplated by this Agreement). Merger Sub and AAI shall have performed and
complied with all covenants and agreements contained in this Agreement required
to be performed and complied with by Closing. KCAS shall have received a
certificate to the matters set forth in this Section 9.2(a) in form reasonably
satisfactory to it signed and attested on behalf of Merger Sub and AAI by their
authorized officers.
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(c) KCAS shall have received all of the
documents, appropriately executed as may be necessary, referenced in Section
4.3;
(d) KCAS shall have received an opinion rendered
by Robinson, Bradshaw & Hinson, P.A., counsel for Merger Sub and AAI, dated as
of the Closing Date substantially in the form attached hereto as Exhibit H
hereto;
(e) KCAS shall have received a certificate
executed by the Secretary or Assistant Secretary of each of Merger Sub and AAI
and attested by the President or an Executive Vice President of each of Merger
Sub and AAI attaching and certifying the accuracy, truthfulness and completeness
of the following documents:
(i) A long-form certificate of good
standing of each of Merger Sub and AAI issued as of a recent date by the
Secretary of State, or similar official, of their respective states of
incorporation;
(ii) A copy of the certificate or
articles of incorporation of each of Merger Sub and AAI certified as of a recent
date by the Secretary of State, or similar official, of each of their respective
states of incorporation;
(iii) A copy of the bylaws of each of
Merger Sub and AAI; and
(iv) A copy of the resolutions of each of
Merger Sub's and AAI's Board of Directors authorizing the execution of each of
the Merger Documents to which it is a party and authorizing the consummation of
the transactions contemplated thereby; and
(f) All other documents, appropriately executed
as may be necessary, required by the Merger Documents or reasonably required by
KCAS to have been delivered to it at or prior to Closing in order to consummate
the transactions contemplated hereby.
9.3. CONDITIONS TO THE OBLIGATIONS OF AAI AND MERGER SUB TO
EFFECT THE TRANSACTIONS CONTEMPLATED HEREBY. The obligations of AAI and Merger
Sub to effect the transactions contemplated hereby shall be further subject to
the fulfillment of the following conditions, any one or more of which may be
waived by AAI:
(a) All representations and warranties of KCAS
contained in this Agreement and all Schedules attached hereto shall be true and
correct in all material respects as of the Closing Date as though made as of
such date. KCAS shall have performed and complied with all covenants and
agreements contained in this Agreement required to be performed and complied
with by it at or prior to Closing. AAI shall have received a certificate
certifying the matters set forth in this Section 9.3(a) signed and attested on
behalf of KCAS by its authorized officers;
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(b) AAI shall have received all of the
documents, appropriately executed as may be necessary, referenced in Section
4.2;
(c) AAI shall have received an opinion rendered
by Seigfreid, Bingham, Levy, Selzer & Gee, P.C., counsel to KCAS, dated the
Closing Date substantially in the form attached hereto as Exhibit 1;
(d) AAI shall have received a certificate
executed by the Secretary or Assistant Secretary of KCAS and attested by the
President or Chief Executive Officer of KCAS attaching and certifying the
accuracy, truthfulness and completeness of the following documents:
(i) A long-form certificate of good
standing of KCAS and each of its Subsidiaries issued as of a recent date by the
Secretary of State, or similar official, of their respective states of
incorporation;
(ii) A copy of the certificate or
articles of incorporation of KCAS and each of its Subsidiaries certified as of a
recent date by the Secretary of State, or similar official, of their respective
states of incorporation;
(iii) A copy of the bylaws of KCAS and
each of its Subsidiaries; and
(iv) A copy of the resolutions of KCAS's
Board of Directors authorizing the execution of each of the Merger Documents to
which it is a party and authorizing the consummation of the transactions
contemplated thereby;
(e) AAI shall have received all other documents,
appropriately executed as may be necessary, required by the Merger Documents or
reasonably required by Merger Sub or AAI to have been delivered to either of
them at or prior to Closing in order to consummate the transactions contemplated
hereby;
(f) AAI shall have received all consents
referred to in this Agreement; and
(g) KCAS shall not have received any notice from
any holder of Common Stock (who has not voted in favor of the Merger or
consented thereto in writing) of such holder's intent to demand appraisal for
such shares if the Merger is effective, in accordance with Kansas law.
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ARTICLE X.
TERMINATION
10.1. TERMINATION. The obligations of the parties hereunder
may be terminated and the transactions contemplated hereby abandoned at any time
prior to the Closing Date:
(a) by mutual written consent of Merger Sub and
KCAS;
(b) by any party hereto, if there shall be any
law or regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree permanently enjoining
any of the parties hereto from consummating the Merger is entered and such
judgment, injunction, order or decree shall become final and non-appealable; and
(c) by any of the parties hereto if any
condition to such party's obligation contained in any of the Merger Documents
(including all such conditions set forth in Article IX hereof) to effect the
Merger shall not have been fulfilled or waived by September 30, 1998 (or shall
have become incapable of fulfillment) and if such party seeking termination is
in material compliance with all of its obligations under this Agreement.
10.2. PROCEDURE AND EFFECT OF TERMINATION OR FAILURE TO CLOSE.
(a) In the event of a termination by any party pursuant to Section 10.1, such
terminating party shall give prompt written notice thereof to the other party,
and the transactions contemplated hereby shall be abandoned, without further
action by either of the parties hereto. In such event:
(a) Merger Sub and AAI shall return to KCAS all
Information regarding KCAS and its Subsidiaries received by Merger Sub or AAI,
whether obtained before or after the execution hereof, and KCAS shall return or
cause to be returned to Merger Sub and AAI all Information regarding Merger Sub
or AAI received by KCAS, whether obtained before or after the execution hereof;
(b) All filings, applications and other
submissions relating to the Merger shall, to the extent practicable, be
withdrawn from the agency or other Person to which made; and
(c) None of the parties hereto nor any of their
partners, directors, officers, shareholders, employees, agents, or affiliates
shall have any liability or further obligation to the other party or any of its
partners, directors, officers, shareholders, employees, agents, or affiliates
pursuant to this Agreement, except (i) as stated in Section 8.1 (relating to
confidentiality) and Section 11.2 (relating to expenses) hereof and (ii) any of
the parties hereto nevertheless shall be entitled to seek any remedy to which it
may be entitled at law or in equity
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for the violation or breach by any other party hereto of any agreement,
covenant, representation or warranty contained in this Agreement.
ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.1. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.
(a) Survival. All representations, warranties
and agreements made by the parties to this Agreement to one another pursuant to
any of the Merger Documents shall survive for twenty-four months following the
Closing Date. No representation or warranty shall be deemed to be waived or
otherwise diminished as a result of any due diligence investigation by the party
to whom such representation or warranty was made or as a result of any actual or
constructive knowledge by such party with respect to any facts, circumstances or
claims or by the actual or constructive knowledge of such Person that any
representation or warranty was false or misleading at Closing. All claims
(except for claims of actual intentional fraud) made by virtue of such
representations, warranties and agreements shall be made under, and subject to
the limitations set forth in, this Section 11.1.
(b) Indemnification Agreement. Pursuant to that
certain Indemnification Agreement, as more specifically set forth therein, (i)
the Stockholders have agreed to indemnify, defend and hold harmless AAI and its
Subsidiaries (including Merger Sub), and (ii) AAI has agreed to indemnify,
defend and hold harmless each Stockholder, from and against all demands, claims,
actions, loses, damages, liabilities, costs and expenses (including, without
limitation, settlement costs, arbitration costs and any reasonable legal and
other expenses for investigating or defending any action or threatened action)
asserted against or incurred thereby arising out of or in connection with or
resulting from a breach of any covenant, agreement, representation or warranty
of KCAS, on one hand, and Merger Sub and AAI, on the other, respectively, in the
Merger Agreement.
11.2. EXPENSES. Whether or not the transactions contemplated
hereby are consummated, except as otherwise provided herein or in the
Indemnification Agreement, Merger Sub or AAI, on one hand, or KCAS, on the
other, will pay all of its own costs and expenses incurred by it in connection
with this Agreement and the transactions contemplated hereby; PROVIDED, however'
that, in the event of any litigation, dispute, suit, action or other proceeding
between the parties relating in any way to this Agreement and the transactions
contemplated hereby (an "Action"), the "prevailing party" shall be entitled to
recover from the other party, upon demand, all of its reasonable out-of-pocket
costs and expenses (including, without limitation, attorneys' fees and expenses)
incurred in connection with such Action. For purposes of the foregoing, the
parties agree that the judge or other trier of law assigned to any Action shall
determine which party is the "prevailing party" in such Action, and that there
shall be only one "prevailing party" in any Action.
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11.3. WAIVER OF COMPLIANCE; CONSENTS. Except as otherwise
provided in this Agreement, any failure of any of the parties to comply with any
obligation, representation, warranty, covenant, agreement or condition herein
may be waived by the party entitled to the benefits thereof only by a written
instrument signed by the party granting such waiver, but such waiver or failure
to insist upon strict compliance with such obligation, representation, warranty,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. Whenever this Agreement
requires or permits consent by or on behalf of any party hereto, such consent
shall be given in writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section.
11.4. AMENDMENT AND MODIFICATION. This Agreement may be
amended, modified or supplemented only by written agreement of KCAS, AAI and
Merger Sub at any time prior to the Closing with respect to any of the terms
contained herein.
11.5. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given when delivered by hand or by
facsimile transmission or mailed by registered or certified mail (return receipt
requested), postage prepaid, to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice; provided
that notices of a change of address shall be effective only upon receipt
thereof):
(a) If to KCAS, to:
Kansas City Analytical Services, Inc.
12700 Johnson Drive Shawnee, Kansas 66216
Attn: Dr. William D. Mason
Telecopy: (913) 268-1497
Copies to:
Seigfreid, Bingham, Levy, Selzer & Gee
2800 Commerce Tower
911 Main Street
Kansas City, Missouri 64105
Attn: Mr. James C. Tilden
Telecopy: (816) 474-3447
And
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<PAGE>
Phoenix International Life Sciences (IBRD), Inc.
2350 Cohen Street
H4R2N6
Montreal, Quebec
Canada
Attention: John W. Hooper, Ph. D., Chairman and CEO
Telecopy: (514) 333-8861
(b) If to AAI or to Merger Sub, to:
Applied Analytical Industries, Inc.
1206 North 23rd Street
Wilmington, North Carolina 28405
Attn: Mr. R. Forrest Waldon
Telecopy: (910) 392-6557
Copies to:
Robinson, Bradshaw & Hinson, P.A.
1900 Independence Center
101 North Tryon Street
Charlotte North Carolina 28246
Attn: Mr. Stephen M. Lynch
Telecopy: (704) 373-3955
11.6. ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any party hereto without the prior written consent of the other party, nor is
this Agreement intended to confer upon any other person except the parties
hereto any rights or remedies hereunder.
11.7. GOVERNING LAW; JURISDICTION. The execution,
interpretation and performance of this Agreement shall be governed by the
internal laws and judicial decisions of the State of North Carolina except with
respect to the Merger which shall be governed by the internal laws and judicial
decisions of the State of Kansas.
11.8. JURISDICTION AND VENUE. In the event that KCAS commences
a lawsuit or other proceeding against either AAI or Merger Sub relating to or
arising from this Agreement, AAI and Merger Sub consent to and agree to submit
to the jurisdiction of the United States Court for the District of Kansas and
the District Court of Johnson County, Kansas and agree to accept service of
process to vest personal jurisdiction over them in any of these courts. In the
event that AAI or Merger Sub commences a lawsuit or other proceeding against
KCAS relating to or arising
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<PAGE>
from this Agreement, the parties to this Agreement agree that the United States
District Court for the District of Kansas shall have the sole and exclusive
jurisdiction over any such proceeding. If such court lacks federal subject
matter jurisdiction, the parties agree that the District Court of Johnson
County, Kansas shall have sole and exclusive jurisdiction. Any of these courts
shall be proper venue for any such lawsuit or judicial proceeding and the
parties hereto waive any objection to such venue. KCAS, consents to and agrees
to submit to the jurisdiction of any of the courts specified in the foregoing
two sentences and agrees to accept service of process to vest personal
jurisdiction over it in any of these courts.
11.9. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.10. NOUNS AND PRONOUNS. Whenever the context may require,
any pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa.
11.11. INTERPRETATION. The article and section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the meaning
or interpretation of this Agreement.
11.12. PARTIES IN INTEREST. Nothing in this Agreement, express
or implied, other than the right to receive the Merger Consideration pursuant to
Article III hereof, is intended to or shall confer upon any Person other than
the parties hereto any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
11.13. EMPLOYEE LENGTH OF SERVICE. AAI agrees that for the
purposes of determining an Employee's length of service for eligibility to
participate and resting under all AAI employee benefit plans, including vacation
policy, after the Merger, an Employee's prior service with KCAS shall be deemed
to constitute service with AAI.
11.14. ENTIRE AGREEMENT. This Agreement, including the
Annexes, Exhibits, Schedules and the other documents delivered pursuant hereto,
embody the entire agreement and understanding of the parties hereto in respect
of the subject matter hereof The Exhibits and Schedules hereto are an integral
part of this Agreement and are incorporated by reference herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to the transactions contemplated by this Agreement, except with respect
to the Confidential Disclosure Agreement dated January 27, 1998 between AAI and
KCAS, the terms of which shall continue in effect to the extent not directly in
conflict with the terms of this Agreement.
11.15. RELEASE OF PHOENIX (IBRD). At the Effective Time,
Phoenix (IBRD) shall be released of all obligations it has to KCAS, Merger Sub,
AAI and all other persons to provide
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<PAGE>
or guaranty any funding of capital improvements for KCAS, or its successors,
including the obligations set forth in Amendment No. 1, dated March 10, 1995, by
and among William D. Mason, Robert C. Lanman, Chauhwei J. Fu, Institute for
Biological Research and Development, Inc. and KCAS, and the Purchase Option
Agreement, dated March 10, 1995, by and among William D. Mason, Robert C.
Lanman, Chauhwei J. Fu, Institute for Biological Research and Development, Inc.
and KCAS.
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<PAGE>
IN WITNESS WHEREOF, KCAS, AAI and Merger Sub have caused this
Agreement to be signed and attested by their respective duly authorized officers
as of the date first above written.
<TABLE>
<CAPTION>
<S> <C>
Attest: APPLIED ANALYTICAL INDUSTRIES, INC.
/S/ R. FORREST WALDON By: /S/ EUGENE T. HALEY
- ------------------------------------- ---------------------------------------
R. Forrest Waldon, Secretary Eugene T. Haley, Vice President
Attest: KCAS ACQUISITION, INC.
/S/ R. FORREST WALDON By: /S/ EUGENE T. HALEY
- ------------------------------------- --------------------------------------
R. Forrest Waldon, Secretary Eugene T. Haley, President
Attest: KANSAS CITY ANALYTICAL SERVICES, INC.
/S/ MARILYN L. MASON By: /S/ WILLIAM D. MASON
- ------------------------------------- -------------------------------------
Marilyn L. Mason, Secretary William D. Mason, Ph.D., President
</TABLE>
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<PAGE>
EXHIBIT B
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement"), dated as of
September 14, 1998, is among APPLIED ANALYTICAL INDUSTRIES, INC., a Delaware
corporation ("AAI"), and the stockholders (the "Stockholders") of KANSAS CITY
ANALYTICAL SERVICES, INC., a Kansas corporation ("KCAS").
BACKGROUND STATEMENT
Pursuant to an Agreement and Plan of Merger between AAI, KCAS
and KCAS Acquisition, Inc., dated as of September 2, 1998 (the "Merger
Agreement"), AAI is acquiring by merger all of the outstanding common stock of
KCAS. At the effective time of the merger, all of the Stockholders will receive
either cash, shares of common stock of AAI or a combination of both. To induce
AAI to complete the acquisition of KCAS, the Stockholders have agreed to
indemnify AAI for breaches of KCAS's representations and warranties in the
Merger Agreement and to reimburse AAI for certain expenses of KCAS in the event
the acquisition is completed. This Agreement sets forth the agreement of the
parties with respect to the foregoing.
STATEMENT OF AGREEMENT
In consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
ARTICLE I.
DEFINED TERMS
1.1. DEFINITIONS. As used in this Agreement, the following
terms have the following meanings (terms not otherwise defined herein shall have
the meanings given to them in the Merger Agreement):
"Buyer's Damages" has the meaning given to it in
Section 2.2(a).
"Indemnified Buyer Parties" has the meaning given to it in
Section 2.2(a). "Indemnified-Stockholder Parties" has the meaning given to it in
Section 2.1(a). "Required Stockholders" means Stockholders holding at least a
majority of the shares of Common Stock outstanding immediately prior to the
Effective Time.
"Stockholders' Damages" has the meaning given to it in
Section 2.3(a).
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<PAGE>
ARTICLE II.
INDEMNIFICATION
2.1. SURVIVAL OF REPRESENTATIONS. All representations,
warranties and agreements made in the Merger Agreement shall survive the Closing
for twenty-four months following the Closing Date. No such representation or
warranty shall be deemed to be waived or otherwise diminished as a result of any
due diligence investigation by the party to whom the representation or warranty
was made or as a result of any actual or constructive knowledge by such party
with respect to any facts, circumstances or claims or by the actual or
constructive knowledge of such person that any representation or warranty is
false at the time of Closing. All claims made by virtue of such representations,
warranties, covenants and agreements shall be made under, and subject to the
limitations set forth in, this Agreement.
2.2. THE STOCKHOLDERS' AGREEMENT INDEMNITY.
(a) Subject to the limitations set forth in this
Section 2.2, each Stockholder hereby agrees to indemnify, defend and hold
harmless AAI and its subsidiaries (including KCAS after the Closing) and their
directors, officers, employees and agents (together, the "Indemnified Buyer
Parties") from and against all demands, claims, actions, losses, damages,
liabilities, penalties, taxes, costs and expenses (including, without
limitation, attorneys' fees, settlement costs, arbitration costs and any
reasonable legal and other expenses for investigating or defending any action or
threatened action) asserted against or incurred by any of the Indemnified Buyer
Parties arising out of or in connection with or resulting from (i) a
misrepresentation, breach, or nonfulfillment of any covenant, agreement,
representation or warranty of KCAS contained in the Merger Agreement or in any
agreement or instrument executed and delivered by KCAS on or prior to Closing
pursuant to the Merger Agreement, (ii) state sales or use taxes that may be owed
by KCAS for transactions occurring prior to November 1, 1997, (iii) the
employment discrimination claim identified in Schedules 5.5 and 5.16(a) to the
Merger Agreement, (iv) the potential environmental remediation identified in
Schedule 5.21(d) to the Merger Agreement and (v) the threatened litigation
identified in Schedule 5.16 to the Merger Agreement (collectively, "Buyer's
Damages"). For all purposes hereunder, the amount of Buyer's Damages shall be
computed net of the present value of any income tax benefit actually resulting
therefrom to AAI and the present value of any proceeds actually paid to KCAS or
AAI under any insurance coverage with respect thereto obtained by KCAS prior to
the date hereof that reduces Buyer's Damages that would otherwise be sustained.
(b) Each Stockholder shall be obligated to
indemnify the Indemnified Buyer Parties only for those Buyer's Damages as to
which such Stockholder has received notice within twenty-four months after the
Closing Date.
(c) The Indemnified Buyer Parties shall be
entitled to recover under this Section 2.2 for Buyer's Damages to the extent the
cumulative amount of all Buyer's
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<PAGE>
Damages exceeds the sum (such sum being referred to as the "Basket") of (i)
fifty thousand dollars ($ 50,000) plus (ii) the difference between the maximum
aggregate amount of profit sharing and matching contributions permitted to be
made after the date of the Merger Agreement by the Company to the Profit Sharing
Plan pursuant to Section 7.6 of the Merger Agreement minus the greater of (x)
$117,000 or (y) the actual aggregate amount of profit sharing and matching
contributions made by the Company to the Profit Sharing Plan after the date of
the Merger Agreement.
(d) In the event any Indemnified Buyer Party has
a claim for Buyer's Damages, resulting from the assertion of liability by a
third party, such Indemnified Buyer Party shall, within thirty days after
receiving notice thereof, give the Stockholders notice of any such third party
claim and, unless AAI reasonably determines that the sum of the amount of such
claim plus the amount of any other outstanding claims exceeds the remaining
aggregate amount of the Stockholders' liability under this Section 2.2, the
Stockholders may undertake the defense thereof by counsel of their own choosing
if the Required Stockholders provide written notice to the Indemnified Buyer
Party and AAI that the Stockholders intend to undertake such defense; provided
that no Stockholder shall settle any such third-party claim without the consent
of the Indemnified Buyer Party, which will not be unreasonably withheld. In such
case, the Indemnified Buyer Party may, by counsel, participate in such
proceedings, negotiations or defense, at its expense, and AAI shall advance to,
or on behalf of, the Stockholders payments of the expense of the Stockholders'
undertaking such defense to the extent that the sum of such advances plus all
Buyer's Damages and prior advances pursuant to this clause do not exceed the
Basket. In the event that (i) within ten days after notice of any such
third-party claim, the Stockholders have not notified the Indemnified Buyer
Party of their intention to defend the third party claim or (ii) AAI reasonably
determines that the sum of the amount of such claim plus the amount of any other
outstanding claims exceeds the remaining aggregate amount of the Stockholders'
liability under this Section 2.2, the Indemnified Buyer Party will (upon further
notice to the Stockholders) have the right to undertake the defense, compromise
or settlement of such claim; provided that the Indemnified Buyer Party shall not
settle any such third-party claim without the consent of the Required
Stockholders, which will not be unreasonably withheld. In such case, the
Stockholders may elect to participate in such proceedings, negotiations or
defense at any time at its own expense.
(e) The liability of each Stockholder shall be
several, and not joint, for its pro rata share of the recoverable portion of
Buyer's Damages, based upon the percentage of all outstanding shares held by
such Stockholder as of the date hereof No Stockholder shall have liability
hereunder for any amount in excess of the amount set forth opposite such
Stockholder's name below:
-3-
<PAGE>
<TABLE>
<CAPTION>
STOCKHOLDER MAXIMUM LIABILITY AMOUNT
------------- ------------------------
<S> <C>
William D. Mason, Ph.D. $1,020,000.00
Chauhwei.J. Fu, Ph.D. 100,000.00
Phoenix International Life Sciences (IBRD) Inc. 880,000.00
</TABLE>
2.3. AAI'S AGREEMENT TO INDEMNIFY.
(a) Subject to the limitations set forth in this
Section 2.3, AAI hereby agrees to indemnify, defend and hold harmless the
Stockholders, their directors, officers, employees and agents (together, the
"Indemnified Stockholder Parties") from and against all demands, claims,
actions, losses, damages, liabilities, penalties, taxes, costs and expenses
(including, without limitation, attorneys' fees, settlement costs, arbitration
costs and any reasonable legal and other expenses for investigating or defending
any action or threatened action) asserted against or incurred by the Indemnified
Stockholder Parties arising out of or in connection with or resulting from a
misrepresentation, breach or nonfulfillment of any covenant, agreement,
representation or warranty of AAI contained in the Merger Agreement or in any
agreement or instrument executed and delivered on or prior to Closing pursuant
to the Merger Agreement (collectively, "Stockholders' Damages"). For all
purposes hereunder, the amount of Stockholders' Damages shall be computed net of
the present value of any income tax benefit to such Stockholder actually
resulting therefrom.
(b) AAI shall be obligated to indemnify the
Indemnified Stockholder Parties only for those Stockholders' Damages as to which
the Indemnified Stockholder Parties have given AAI notice within twenty-four
months after the Closing Date.
(c) In the event the Indemnified Stockholder
Parties have a claim for Stockholders' Damages resulting from the assertion of
liability by a third party, the Indemnified Stockholder Parties will, within
thirty days after receiving notice thereof, give AAI notice of any such
thirdparty claim, and AAI may undertake the defense thereof by counsel of its
own choosing if AAI provides written notice to the Indemnified Stockholder
Parties that AAI intends to undertake such defense; provided that AAI shall not
settle any such third-party claim without the consent of the Required
Stockholders, which will not be unreasonably withheld. The Indemnified
Stockholder Parties may, by counsel, participate in such proceedings,
negotiations or defense, at their expense. In the event that within ten days
after notice of any such third-party claim, AAI has not notified the Indemnified
Stockholder Parties of its intention to defend the third-party claim, the
Indemnified Stockholder Parties will (upon further notice to AAI) have the right
to undertake the defense, compromise or settlement of such claim; provided that
the Indemnified Stockholder Parties shall not settle any such third-party claim
without the consent of AAI, which will not be unreasonably withheld. AAI may
elect to participate in such proceedings, negotiations or defense at any time at
its own expense.
-4-
<PAGE>
2.4. ADJUSTMENT TO MERGER CONSIDERATION. All amounts paid by
any Stockholder or AAI pursuant to Sections 2.2 and 2.3, respectively, shall be
deemed an adjustment in the Merger Consideration received or paid pursuant to
the Merger Agreement.
2.5. CONTRIBUTION AMONG STOCKHOLDERS. The Stockholders agree
among themselves that each Stockholder shall (a) contribute his or its pro rata
share of (i) all costs and expenses incurred by any other Stockholder in defense
of any claim for which the Stockholders have the obligation to indemnify the
Indemnified Buyer Parties under the terms of this Agreement and (ii) all amounts
owed to AAI hereunder and (b) indemnify each other Stockholder for all amounts
paid or incurred by each other Stockholder in excess of his or its pro rata
share thereof. Each Stockholder's pro rata shall be determined among them based
on the Maximum Liability Amount set forth in Section 2.2(e) for such Stockholder
compared to the total of the Maximum Liability Amounts for all Stockholders.
ARTICLE III.
REIMBURSEMENT FOR KCAS EXPENSES
3.1. REIMBURSEMENT OF EXPENSES. In the event that the Merger
is completed and KCAS's legal, accounting and other expenses incurred in
connection with the negotiation and execution of the Merger Agreement and other
Merger Documents, due diligence, the completion of the Merger and other related
matters exceeds the sum of (i) $36,000.00 plus (ii) the amount by which the fees
and expenses of Ernst & Young LLP for auditing KCAS's financial statements at
and for the year ended October 31, 1997 exceed $10,000, each Stockholder shall
pay to AAI such Stockholder's pro rata share of the amount by which such legal,
accounting and other expenses of KCAS exceed such sum (based upon the percentage
of all outstanding shares held by such Stockholder as of the date hereof)
promptly upon delivery of written notice thereof from AAI accompanied by
reasonable documentation substantiating such expenses.
ARTICLE IV.
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF STOCKHOLDERS
4.1. REPRESENTATIONS AND WARRANTIES. Each Stockholder,
severally and not jointly, represents and warrants to AAI the following:
(a) Such Stockholder has the legal right, power
and authority to execute and deliver this Agreement and to perform such
Stockholder's obligations hereunder and to consummate the transactions
contemplated hereby.
(b) This Agreement constitutes the legal, valid
and binding obligation of such Stockholder and is enforceable in accordance with
its terms (except as such
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<PAGE>
enforceability may e limited by applicable bankruptcy, insolvency or other laws
of general applicability affecting creditors' rights and by general principles
of equity that may limit the specific performance of articular provisions).
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF AAI
5.1. REPRESENTATIONS AND WARRANTIES. AAI represents and
warrants to each Stockholder as follows:
(a) AAI is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and all requisite corporate power and authority to enter into and
perform its obligations under this Agreement.
(b) The execution, delivery and performance by
AAI of the Agreement has been duly authorized by all requisite corporate action
on the part of AAI, and this Agreement constitutes a legal, valid and binding
obligation AAI, enforceable against it in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency or other
laws of general applicability affecting creditors' rights and by general
principles of equity that may limit the specific performance of particular
provisions).
ARTICLE VI.
MISCELLANEOUS PROVISIONS
6.1. AMENDMENT AND MODIFICATION. This Agreement may be
amended, modified or supplemented only by written agreement of the parties
hereto.
6.2. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given when delivered by hand, sent by an
overnight delivery service or mailed by registered or certified mail (return
receipt requested), postage prepaid, to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice;
provided that notices of a change of address shall be effective only upon
receipt thereof):
(a) If to AAI, to:
Applied Analytical Industries, Inc.
5051 New Centre Drive
Wilmington, North Carolina 28403
Attn: Mr. R. Forrest Waldon
Telecopy: (910) 392-6557
-6-
<PAGE>
Copies to:
Robinson, Bradshaw & Hinson, P.A.
1900 Independence Center
101 North Tryon Street
Charlotte, North Carolina 28246
Attn: Mr. Stephen M. Lynch
Telecopy: (704) 373-3955
(b) If to any of the Stockholders, to the address appearing under
the Stockholder's name on the signature pages hereto.
6.3. ASSIGNMENT. This Agreement and all, of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any party hereto without the prior written consent of the other party, nor is
this Agreement intended to confer upon any other Person, except the parties
hereto, any rights or remedies hereunder.
6.4. GOVERNING LAW; JURISDICTION. The execution,
interpretation and performance of this Agreement shall be governed by the
internal laws and judicial decisions of the State of North Carolina.
6.5. JURISDICTION AND VENUE. In the event that any Stockholder
commences a lawsuit or other proceeding against AAI relating to or arising from
this Agreement, AAI consents to and agrees to submit to the jurisdiction of the
United States District Court for the District of Kansas and the District Court
of Johnson County, Kansas and agrees to accept service of process to vest
personal jurisdiction over it in any of these courts. In the event that AAI
commences a lawsuit or other proceeding against any Stockholder relating to or
arising from this Agreement, the parties to this Agreement agree that the United
States District Court for the District of Kansas shall have the sole and
exclusive jurisdiction over any such proceeding. If such court lacks federal
subject matter jurisdiction, the parties agree that the District Court of
Johnson County, Kansas shall have sole and exclusive jurisdiction. Any of these
courts shall be proper venue for any such lawsuit or judicial proceeding and the
parties hereto waive any objection to such venue. Each of the Stockholders
consents to and agrees to submit to the jurisdiction of any of the courts
specified in the foregoing two sentences and agrees to accept service of process
to vest personal jurisdiction over it or him in any of these courts.
6.6. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
6.7. NOUNS AND PRONOUNS. Whenever the context may require,
any pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa.
6.8. INTERPRETATION. The article and section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the meaning
or interpretation of this Agreement.
6.9. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter hereof.
6.10. RECOVERY OF COSTS AND ATTORNEY'S FEES. In the event of
any litigation, dispute, suit, action or other proceeding between the parties
pursuant to or relating in any way to this Agreement (an "Action"), the
"prevailing party" shall be entitled to recover from the other party, upon
demand, all of its reasonable out-of-pocket costs and expenses (including,
without limitation, attorneys' fees and expenses) incurred in connection with
such Action. For purposes of the foregoing, the parties agree that the judge or
other trier of law assigned to any Action shall determine which party is the
"prevailing party" in such Action, and that there shall be only one "prevailing
party" in any Action.
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<PAGE>
IN WITNESS WHEREOF, AAI and the Stockholders have caused this
Agreement to be signed under seal as of the date first above written.
APPLIED ANALYTICAL INDUSTRIES, INC.
By: /S/ R. FORREST WALDON
--------------------------------
R. Forrest Waldon, Secretary
STOCKHOLDERS
/S/ WILLIAM D. MASON
-------------------------------------
Dr. William D. Mason
Adddress: 106 Terrace Trail South
Lake Quivira, Kansas 66106
/S/ CHAUHWEI J. FU
-------------------------------------
Dr. Chauhwei J. Fu
Address: 10714 West 130th Terrace
Overland Park, Kansas 66213
PHOENIX INTERNATIONAL LIFE SCIENCES
(IRBD), INC.
By: /S/ JEAN-YVES CALOZ
--------------------------------
Title: /S/ SECRETARY
------------------------------
Address: c/o Chief Executive Officer
Phoenix International Life Sciences Inc.
2350 Cohen Street
H4R 2N6
Montreal, Quebec
Canada
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<PAGE>
Exhibit 2.5
SHARE PURCHASE AGREEMENT
AMONG
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
AND
DR. ANDRE VON FROREICH
AND
DR. ANDREAS WICKI
AND
CLINSERVE A.G.
-------------------------
DATED AS OF NOVEMBER 5, 1998
-------------------------
<PAGE>
SHARE PURCHASE AGREEMENT dated as of November 5, 1998
AMONG: PHOENIX INTERNATIONAL LIFE SCIENCES INC., a
corporation incorporated under the Canada
Business Corporations Act, having its head
office at 2350, Cohen Street, Saint-Laurent,
Quebec, Canada, H4R 2N6, herein acting and
represented by John Hooper, its duly
authorized representative;
(hereinafter "Phoenix")
AND:
DR. ANDRE VON FROREICH, residing at
Forsthohe 33, 21149 Hamburg, Germany;
(hereinafter "Froreich")
AND: DR. ANDREAS WICKI, residing at Hohestrasse
39, 8702 Zollikon, Switzerland;
(hereinafter "Wicki")
(Froreich and Wicki are hereinafter
collectively referred to as the "Vendors")
AND:
CLINSERVE A.G., a Swiss corporation with
capital of SFr600,000, registered in the
Commercial Register of the Canton of
Fribourg under number EHRA-Id. 341 555 and
having its head office at rue St. Pierre 18,
1700 Fribourg, Switzerland, herein acting
and represented by Dr. Andreas Wicki, its
duly authorized representative;
(hereinafter "Clinserve")
WHEREAS, the Vendors hold, directly or indirectly, as more fully set
out in Schedule A, all of the outstanding shares and voting rights of Clinserve;
WHEREAS, Clinserve Clinical Trials Services GmbH ("Clinserve GmbH"), a
German corporation, with capital of DM50,000, registered in the Commercial
Register of Amtsgericht Hamburg under number 61 348 and having its head office
at Grossmooreogen 25, 21079 Hamburg, Germany, is a subsidiary of Clinserve, held
as to 100% by Clinserve. The capital structure of Clinserve GmbH is set forth in
Schedule B;
WHEREAS the Vendors have agreed to sell all of the outstanding shares
of Clinserve to Phoenix in consideration for the issuance to the Vendors of
common shares of Phoenix;
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
- 2 -
1. INTERPRETATION AND DEFINITIONS
Except as the context otherwise explicitly requires, (a) the
capitalized term "Section" refers to sections of this Agreement; (b) the
capitalized terms "Schedules" and "Exhibit" refer to schedules and exhibits to
this Agreement; (c) references to a particular Section include all subsections
thereof; (d) the word "including" shall be construed as "including without
limitation"; (e) accounting terms not otherwise defined herein have the meaning
provided under GAAP (as defined below); (f) references to a particular law,
statute or regulation include all rules and regulations thereunder and any
successor, law, statute, regulation or rules, in each case as from time to time
in effect; (g) references to a particular Person include such Person's
successors and assigns to the extent not prohibited by this Agreement; (h)
references to dollars or $ in this Agreement are to Canadian dollars. In this
Agreement, unless the context otherwise requires, the following terms shall have
the respective meanings assigned to them:
1.1 "AFFILIATE" means, with respect to any Person, any Person
which, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under
common control with such Person. For the purposes of this
Agreement, "Affiliate" also means an affiliate as such term
is defined by the SEC.
1.2 "ARTICLES" means the original or restated articles of
incorporation, articles of amendment, articles of
amalgamation, articles of continuance, articles of
reorganization and articles of arrangement, including
amendments thereto, as in effect from time to time, of
Clinserve.
1.3 "CLINSERVE AFFILIATE" means any of Froreich and Wicki.
1.4 "COMPENSATION" as applied to any Person means the aggregate of
all salaries, compensation, remuneration or bonuses of any
character, retirement or pension benefits of any kind, or
other payments of any kind whatsoever (other than health and
medical benefits made available to employees generally and
advances and reimbursements of business expenses) made
directly or indirectly by Clinserve, the Subsidiary or other
specified Persons to such Person and affiliates of such
Person.
1.5 "COMPLETION DATE" means the date of this Agreement, i.e.
November 5, 1998.
1.6 "Consolidated", when used with reference to any term, means
that term as applied to the accounts of Clinserve or other
indicated Person and each of its respective subsidiaries,
consolidated or combined in accordance with GAAP after
eliminating all inter-company operations and with appropriate
deductions for minority interests in subsidiaries.
1.7 "CONTRACTUAL OBLIGATION" means, with respect to any Person,
any contracts, agreements, deeds, hypothecs, mortgages,
indentures, leases, licenses, other instruments, commitments,
undertakings, arrangements or understandings, written or oral,
or other documents or instruments, including any provisions of
its articles of incorporation or other constituting documents
or by-laws and any document or instrument evidencing
Indebtedness, to which any such Person is a party or otherwise
subject to or bound by or to which any property or asset of
any such Person is subject.
1.8 "DISTRIBUTION" means (a) the declaration or payment of any
dividend on or in respect of the shares of any class or series
of shares of Clinserve, the Subsidiary or other specified
Person, other than dividends payable solely in common shares
of the share capital of the payor; (b) the purchase,
redemption or other retirement of any shares of any class of
Clinserve, the Subsidiary
<PAGE>
- 3 -
or other specified Person directly, or indirectly through a
Subsidiary or otherwise; or (c) any other distribution on or
in respect of any shares of any class or series of shares of
Clinserve, the Subsidiary or other specified Person.
1.9 "ESCROW AGENT" means Montreal Trust Company.
1.10 "ESCROW AGREEMENT" means the escrow agreement entered between
the parties hereto and the Escrow Agent a copy of which is
attached hereto as Schedule 1.10.
1.11 "ESCROWED SECURITIES" means the Phoenix Shares escrowed
pursuant to Section 2.4 together with all Proceeds (as defined
in the Escrow Agreement).
1.12 "ESCROWED SHARE PRICE" means the amount obtained by adding the
opening and closing prices of the common shares of Phoenix on
each of the Montreal Exchange and The Toronto Stock Exchange
for the ten trading days preceding the date of execution of
the present Agreement, divided by 40.
1.13 "ENVIRONMENTAL LAWS" means all Legal Requirements (including
consent decrees, administrative orders and contractual
obligations) relating to public health and safety, workers
health and safety and pollution or protection of the
environment.
1.14 "GAAP" means generally accepted accounting principles, as in
effect from time to time, consistently applied.
1.15 "GUARANTEE" means (a) any guarantee of the payment or
performance of, or any contingent obligation in respect of,
any indebtedness or other obligation of any other Person, (b)
any other arrangement whereby credit or financial assistance
is extended to one obligor on the basis of any promise or
undertaking of another Person (i) to pay the Indebtedness of
such obligor, (ii) to purchase any obligation owed by such
obligor, or (iii) to maintain the capital, working capital,
solvency or general financial condition of such obligor,
whether or not such arrangement is disclosed in the balance
sheet of such other Person or is referred to in a footnote
thereto or appears in a "keep well" agreement, "comfort
letter" or "take or pay" agreement, and (c) any liability of
Clinserve or the Subsidiary as general partner of a
partnership or as a venturer in a joint venture in respect of
Indebtedness or other obligations of such partnership or
venture; provided, however, that in no event shall Guarantees
include product warranties given or the endorsement of
negotiable instruments for deposit or collection in the
ordinary course of business.
1.16 "INDEBTEDNESS" means (a) all indebtedness, obligations and
liabilities for borrowed money and similar monetary
obligations evidenced by bonds, notes debentures, evidences of
indebtedness, capitalized lease obligations, deferred purchase
price of property (other than ordinary trade payables) or
otherwise, whether direct or indirect; and (b) all
indebtedness, obligations and liabilities secured by any Liens
existing on property owned or acquired, whether or not the
liability secured thereby shall have been assumed.
1.17 "LEGAL REQUIREMENT" means any national, provincial, regional,
municipal, local or foreign law, statute, standard, ordinance,
code, order, rule, regulation, resolution, promulgation,
by-law, policy, guideline, directive, standard and any other
provision having the force or effect of law or any final
order, judgment or decree of any court, arbitrator, tribunal
or governmental authority,
<PAGE>
- 4 -
or any license, franchise, permit, certificate, authorization,
registration or similar right granted under any of the
foregoing.
1.18 "LIEN" means (a) any hypothec, priority, mortgage, pledge,
lien, charge, security interest or other similar encumbrance
upon any property or assets of any character, or upon the
income or profits therefrom, whether arising by agreement or
under law, or otherwise (b) any conditional sale or other
title retention agreement or arrangement (including a
capitalized lease); (c) any sale, assignment, pledge or other
transfer for security of any accounts, general intangibles, or
chattel paper, with or without recourse, or (d) any
transaction (regardless of form) which is intended to create
any charge or encumbrance on property to secure the payment or
performance of an obligation.
1.19 "MANAGEMENT" means each of Froreich and Wicki.
1.20 "MATERIAL ADVERSE EFFECT" means any (a) material adverse
effect whatsoever upon the validity, performance or
enforceability of this Agreement, (b) material adverse effect
upon the business, assets, financial condition, income or
prospects of Clinserve and the Subsidiary on a Consolidated
basis, or (c) material adverse effect upon the ability of the
Vendors to perform their obligations under this Agreement.
1.21 "PERMITTED LIEN" means those Liens indicated on Schedule 1.21.
1.22 "PERSON" means an individual, partnership, corporation,
company, association, trust, joint venture, unincorporated
organization, business trust, limited liability company and
any governmental or administrative department or agency or
political subdivision.
1.23 "PHOENIX AFFILIATES" means John Hooper, Stephane Huguet,
Heather Baker, Judy Zilber, Jean-Yves Caloz, Diane Bouchard,
Carmen Discenza, Lucien Steru, Dominique Steru, Susan
Thornton, Greg Holmes, Claude E. Forget, Bertran Spilker,
Robert Raich, David Goldman, Suzanne Peeters, George
Engelberg, Wicki and Cornelius P. McCarthy III.
1.24 "SEC" means the United States Securities and Exchange
Commission.
1.25 "SECURITIES ACT" means the United States Securities Act of
1933, as amended, and all rules and regulations promulgated
thereunder.
1.26 "SHARES" means the 6,000 bearer shares with a nominal value of
SFr100 each of Clinserve being all of the issued and
outstanding shares of Clinserve.
1.27 "SUBSIDIARY" means Clinserve Clinical Trial Services GmbH.
2. SALE AND PURCHASE OF SHARES
2.1 AGREEMENT TO PURCHASE AND SELL SHARES
Upon the terms and subject to the conditions hereof and in
reliance on the representations and warranties of Phoenix set forth in
Section 4, Froreich and Wicki hereby sell to Phoenix and, upon the
terms and subject to the conditions hereof and in reliance on the
representations and warranties of the
<PAGE>
- 5 -
Vendors set forth in Section 3, Phoenix hereby purchases from Froreich
and Wicki, the Shares, as set forth below:
<TABLE>
<CAPTION>
VENDOR NUMBER OF SHARES
------ ----------------
<S> <C>
Froreich 4,800
Wicki 1,200
TOTAL 6,000
</TABLE>
2.2 PRICE OF SHARES
The purchase price of the Shares is payable by the issuance by
Phoenix to Froreich and Wicki of an aggregate of 316,805 common shares
of Phoenix. The aggregate purchase price for the Shares is to be
allocated among Froreich and Wicki as follows:
<TABLE>
<CAPTION>
VENDOR NUMBER OF COMMON SHARES OF PHOENIX
------ ----------------------------------
<S> <C>
Froreich 253,444
Wicki 63,361
TOTAL 316,805
</TABLE>
(The common shares of Phoenix issued to the Vendors pursuant to this
Section 2.2 are hereinafter collectively referred to as the "Phoenix
Shares".)
2.3 DELIVERY OF SHARES AND PAYMENT OF PURCHASE PRICE
2.3.1 Phoenix hereby acknowledges receipt from each of
Froreich and Wicki of certificates representing the
Shares duly endorsed in blank for transfer by
Froreich and Wicki.
2.3.2 Froreich and Wicki hereby acknowledge receipt from
Phoenix of certificates registered in the names of
Froreich and Wicki representing 90% of the purchase
price for the Shares.
2.4 ISSUANCE INTO ESCROW
Notwithstanding any provision of this Agreement, upon delivery
of the Phoenix Shares pursuant to Section 2.3, 10% of the aggregate
number of the Phoenix Shares shall be delivered immediately to the
Escrow Agent, on a pro rata basis among the Vendors, to be held and
released by the Escrow Agent pursuant to the terms of this Agreement
and the Escrow Agreement. All such Phoenix Shares shall be issued in
the name of the Escrow Agent, as escrow agent under the Escrow
Agreement. The Vendors hereby acknowledge receipt of such 10% of the
purchase price of the Shares on their behalf by the Escrow Agent.
3. REPRESENTATIONS AND WARRANTIES OF VENDORS
In order to induce Phoenix to enter into this Agreement and to purchase
the Shares hereunder, the Vendors hereby make the following representations and
warranties to Phoenix. The Vendors' liability for the following representations
and warranties shall be joint, and not solidary i.e. pro rata to the number of
Phoenix Shares received by each Vendor according to Section 2.2, except in the
event of fraud with respect thereto.
<PAGE>
- 6 -
3.1 SHARES
The Vendors own the Shares free and clear of all Liens and
there are no rights or other obstacles of any nature whatsoever to the
sale of the Shares to Phoenix.
3.2 ORGANIZATION
3.2.1 DUE INCORPORATION, ETC. Each of Clinserve and the
Subsidiary is duly incorporated or organized and
validly exists under the laws of its jurisdiction of
incorporation, and is in good standing under the laws
applicable to it and has all necessary corporate
capacity and power to own and lease its property and
assets and to carry on the businesses now conducted
or presently proposed to be conducted by it.
3.2.2 SUBSIDIARIES. Clinserve does not own or control,
directly or indirectly, or have an interest in, any
other corporation, partnership, association or
business entity other than the Subsidiary.
3.2.3 MANAGEMENT. The Management of Clinserve and the
Subsidiary is exclusively comprised of the Persons
referred to in Section 1.19.
3.2.4 AUTHORIZATIONS AND APPROVALS. All authorizations,
approvals, licences, permits, certificates,
registrations, consents, exemptions or declarations
required in order for each of Clinserve and the
Subsidiary to own or lease their property and assets
and to carry on their business in all jurisdictions
in which such property and assets are located or such
business is carried on have been duly obtained or
effected and are in full force and effect except for
authorizations, approvals, licences, permits,
certificates, registrations, consents, exemptions or
declarations, the absence of which, individually or
in the aggregate, does not and shall not result in a
Material Adverse Effect.
In particular:
(a) except for permits, certificates, licences,
registrations and other authorizations, the
absence of which, individually or in the
aggregate, does not and shall not result in
a Material Adverse Effect, each of Clinserve
and the Subsidiary hold all permits,
certificates, licenses, registrations and
other authorizations required under
applicable Environmental Laws for their
operations (the "Environmental Permits");
each such Environmental Permit is valid and
in force and the operations of Clinserve and
the Subsidiary are in compliance with the
conditions set out in such Environmental
Permits and their is no ground for
revocation, expiry or annulment of any such
Environmental Permits;
(b) except for permits, certificates, licences,
registrations and other authorizations, the
absence of which, individually or in the
aggregate, does not and shall not result in
a Material Adverse Effect, each of Clinserve
and the Subsidiary hold all permits,
certificates, licenses, registrations and
other authorizations required under
applicable Legal Requirement for clinical
research for the pharmaceutical industry and
pharmaceutical research (the "Research
Permits"); each such Research Permit is
valid and in force, the operations of
Clinserve and the Subsidiary are in
compliance with the conditions set out in
such Research
<PAGE>
- 7 -
Permits and there is no ground for
revocation, expiry or annulment of any such
Research Permits.
3.2.5 CORPORATE RECORDS. The Corporate records of Clinserve
and the Subsidiary are complete and up to date.
3.2.6 OFFICERS AND DIRECTORS. The officers and directors of
Clinserve and the Subsidiary have been properly
elected or appointed in accordance with applicable
laws and the relevant articles of incorporation or
other constituting documents.
3.2.7 CORPORATE ACTION. All necessary corporate action has
been taken by Clinserve, to authorize the execution
of this Agreement and the consummation of the
transactions contemplated hereby. The Board of
directors of Clinserve has agreed to register Phoenix
in the share ledger of Clinserve as the owner of the
Shares. The Vendors and Clinserve have fulfilled any
and all of their obligations under the preemptive
rights relating to the sale of the Shares.
3.3 CAPITALIZATION
3.3.1 SHARE CAPITAL OF CLINSERVE. The outstanding share
capital of Clinserve is exhaustively set forth in
Schedule A, all of which has been validly issued and
is fully paid and non-assessable and, subject to no
Lien, adverse claim or restriction on transfer,
except restrictions on transfer under this Agreement.
3.3.2 OPTIONS, ETC. Other than as set forth in Schedule A
and Schedule 3.3.5, Clinserve does not have
outstanding (a) any rights (either preemptive or
otherwise) or options to subscribe for or purchase,
or any warrants or other agreements providing for or
requiring the issuance of, any shares or any
securities convertible into or exchangeable for its
shares, (b) any obligation to redeem, purchase or
otherwise acquire or retire any of its shares, any
securities convertible into or exchangeable for its
shares or any rights, options or warrants with
respect thereto, (c) any rights to require Clinserve
to qualify for distribution for securities laws
purposes, or (d) any restrictions on voting.
3.3.3 CAPITAL STOCK OF THE SUBSIDIARY. The issued and
outstanding shares of the Subsidiary are as set forth
in Schedules B. The issued and outstanding shares of
the Subsidiary are validly issued, and paid and
non-assessable and subject to no Lien, adverse claim
or restriction on transfer, other than as set forth
in Schedule 3.3.3 and the shares of the Subsidiary
were purchased by Clinserve from Wicki and Froreich
on May 26, 1998 at their fair market value.
3.3.4 SUBSIDIARY OPTIONS, ETC. Other than as set forth in
Schedule 3.3.4, the Subsidiary does not have
outstanding (a) any rights (either preemptive or
otherwise) or options to subscribe for or purchase,
or any warrants or other agreements providing for or
requiring the issuance of, any shares or any
securities convertible into or exchangeable for its
shares, (b) any obligation to redeem, purchase or
otherwise acquire or retire any of its shares, any
securities convertible into or exchangeable for its
shares or any rights, options or warrants with
respect thereto, (c) any rights to require the
Subsidiary to qualify for distribution for securities
laws purposes, or (d) any restrictions on voting.
<PAGE>
- 8 -
3.3.5 NO COMMITMENTS AFFECTING SHARES, ETC. Other than as
set forth in Schedule 3.3.5, neither Clinserve nor
the Subsidiary is a party to or bound by any
agreement, commitment or understanding, whether
verbal or written, affecting its shares or the
participating or voting rights attached thereto.
3.4 REPORTS, FINANCIAL STATEMENTS AND OTHER DOCUMENTS
Phoenix has been provided with complete and correct copies of
audited financial statements of Clinserve for the years ended August
31, 1995, 1996 and 1997 and unaudited financial statements for the year
ended August 31, 1998 and consolidated financial statements of
Clinserve for the year ended August 31, 1998, and with complete and
correct copies of financial statements of the Subsidiary sealed by a
German auditor according to the German law on limited liability
companies for the years ended December 31, 1996 and 1997, copies of
which are attached hereto as Schedule 3.4A.
The financial statements of Clinserve and the Subsidiary
referred to above have been prepared in accordance with Swiss GAAP and
German GAAP, as applicable, and all such financial statements fairly
present the financial condition of Clinserve and the Subsidiary at the
dates thereof and the results of their operations for the periods
covered thereby. Other than as set forth in Schedule 3.5, neither
Clinserve nor the Subsidiary has material liabilities, contingent or
otherwise, which are not referred to in the financial statements.
The audited financial statements for the years ended August
31, 1995, 1996 and 1997, copies of which are attached hereto as
Schedule 3.4A have been properly approved by the annual general
meetings of shareholders of the relevant entities in due form without
reservation.
For purposes of financial presentation, Clinserve and the
Subsidiary recognize net revenue from their contracts on a percentage
of completion basis as work is performed. The percentage of completion,
and consequently the revenue to be recorded, of each individual
contract is determined through detailed analysis and discussion between
all appropriate operational and financial department management.
Although Clinserve and the Subsidiary do not require collateral for
unpaid balances, credit losses have consistently been within
Management's expectations. Certain contracts contain provisions for
price adjustment for cost overruns. Such adjusted amounts are included
in service revenue when realization is assured and the amounts can be
reasonably determined. In the period in which it is determined that a
loss will result from the performance of a contract, the entire amount
of the estimated ultimate loss is charged against income.
Since September 1, 1998, the business of Clinserve and the
Subsidiary has been operated in the customary fashion and no revenues
that would have been earned by Clinserve or the Subsidiary have been
earned by any Person who is an Affiliate of any of the Vendors.
Notwithstanding anything else in this Agreement, including,
without limitation, the provisions of this Section 3.4, the Vendors
make no representation or warranty of any kind whatsoever with respect
to future business, financial performance or future profitability of
Clinserve.
3.5 OFF BALANCE SHEET OBLIGATIONS
Schedule 3.5 contains a complete list of the off-balance sheet
obligations of Clinserve and the Subsidiary, including all guarantees
and obligations to the benefit of the Vendors, members of their
families or third parties.
<PAGE>
-9-
3.6 CHANGES IN CONDITION
Since September 1, 1998:
3.6.1 MATERIAL ADVERSE EFFECT. No event having a Material
Adverse Effect has occurred.
3.6.2 EXTRAORDINARY TRANSACTIONS, ETC. Other than as set
forth in Schedule 3.4A, neither Clinserve nor the
Subsidiary has (a) made any Distribution, (b) other
than as set forth in Schedule 3.6.2, made any payment
(other than Compensation of its directors, officers
and employees in amounts in effect prior to September
1, 1998 or for bonuses accrued in accordance with
normal practice prior to September 1, 1998) to any of
the Vendors, (c) other than as set forth in Schedule
3.6.2, increased the Compensation, including bonuses,
payable or to be payable to any of its directors,
officers or employees by more than 5%, or (d) entered
into any Contractual Obligation, or entered into or
performed any other transaction, not in the ordinary
and usual course of business and consistent with past
practice.
3.6.3 INVENTORY AND WORK-IN-PROGRESS. The value of
inventory and work-in-progress reflected in the
financial statements of Clinserve and the Subsidiary
has been established in accordance with Swiss and
German GAAP, respectively, and there has been no
material change in the period subsequent to August
31, 1998, other than in the ordinary and usual
courses of business.
3.6.4 REVENUES. The business of Clinserve and the
Subsidiary has been operated in the customary fashion
and no revenues that would have been earned by
Clinserve or the Subsidiary have been earned by any
Person which is an Affiliate of any of the Vendors.
3.7 CONTRACTUAL OBLIGATIONS, ETC.
3.7.1 CERTAIN CONTRACTS. Schedule 3.7.1 contains, together
with a reference to the subparagraph pursuant to
which each item is being disclosed, a correct and
complete list of all Contractual Obligations of
Clinserve and the Subsidiary of the types described
below:
(a) All collective bargaining agreements; all
employment agreements, all profit sharing,
profit participation, deferred compensation,
bonus, stock option, stock purchase,
pension, retainer, consulting, retirement,
welfare or incentive plans or agreements;
and all plans, agreements or practices which
constitute Compensation or "fringe benefits"
to any of the employees of Clinserve or the
Subsidiary, including vacation programs,
sick leave programs, group medical
insurance, group life insurance, disability
insurance and related benefits.
(b) All Contractual Obligations under which
Clinserve or the Subsidiary are restricted
from carrying on any business, venture or
other activities anywhere in the world.
(c) All Contractual Obligations (including
options) to sell, lease (as lessor),
exchange or otherwise dispose of or transfer
any of the properties or assets of Clinserve
or the Subsidiary except in the ordinary
course of business.
<PAGE>
-10-
(d) All Contractual Obligations pursuant to
which Clinserve or the Subsidiary guarantees
or otherwise assumes any liability of or
gives financial assistance to any Person, or
pursuant to which any Person guarantees or
otherwise assumes any liability of Clinserve
or the Subsidiary.
(e) All Contractual Obligations constituting
license agreements, service agreements,
consulting agreements or other similar
arrangements, the termination of which,
individually or in the aggregate, would
result in a Material Adverse Effect.
(f) All Contractual Obligations under which
Clinserve or the Subsidiary leases immovable
property or is obligated to lease or
purchase immovable property or incur capital
expenditures in excess of SFr50,000
annually.
(g) All Contractual Obligations of Clinserve or
the Subsidiary relating to the borrowing of
money or to the creation of a Lien, other
than a Permitted Lien, on any property or
asset of Clinserve, or the Subsidiary.
(h) All Contractual Obligations of Clinserve or
the Subsidiary requiring a notice exceeding
6 (six) months for termination.
3.7.2 NATURE OF CONTRACTS. All of the Contractual
Obligations of Clinserve and the Subsidiary at the
Completion Date are enforceable against Clinserve and
the Subsidiary, the other parties thereto, in
accordance with their terms; except for Contractual
Obligations the failure of which to be so enforceable
does not and shall not, individually or in the
aggregate, result in a Material Adverse Effect.
Except for breaches, defaults and liabilities which
do not and shall not individually or in the aggregate
result in a Material Adverse Effect, neither
Clinserve nor the Subsidiary is now in default, and
no event has occurred which with notice or lapse of
time or both would constitute a default under, nor
are there any liabilities arising from any breach or
default by any of them or event which with notice or
lapse of time or both would constitute a default by
any of them prior to the Completion Date of, any
provision of any such Contractual Obligation.
3.7.3 ARTICLES. Neither Clinserve nor the Subsidiary is in
violation of, or in default under, any provision of
its articles or constituting documents and Phoenix
has been provided with complete and correct copies of
such articles or constituting documents.
3.7.4 INSURANCE. Each of Clinserve and the Subsidiary
carries insurance policies with independent third
party insurers which, with respect to their amounts
and types of coverage, are adequate to insure against
risks to which each of Clinserve and the Subsidiary
and their respective property and assets are normally
exposed in the operation of their respective
businesses, including without limitation professional
liability. All policies, the absence of which,
individually or in the aggregate, would result in a
Material Adverse Effect, are in full force and effect
and free from any right of termination on the part of
the applicable insurance carriers. There are no
outstanding unpaid premiums except in the ordinary
course of business, and neither Clinserve nor any
Subsidiary has received any notice of cancellation or
non-renewal of any such policy. Neither Clinserve nor
any Subsidiary is aware of any risks, situations,
occurrences or other matters which have been
disclosed, or should have been disclosed, to
insurance carriers or brokers in connection with any
application for such insurance as a result of which
an insurance carrier would have a right to cancel the
corresponding
<PAGE>
-11-
insurance policy or deny coverage with respect to any
rights under any such policies. There exists no event
of default or event, occurrence, condition or act
(including the transactions contemplated by this
Agreement) which, with the giving of notice, the
lapse of time or the happening of any further event
or condition, would become a default or occasion a
material premium increase under any such policy or
give rise to, and neither Clinserve nor any
Subsidiary has any anticipation of, any termination
or cancellation thereof or material premium increase
therefor.
3.7.5 INSURANCE CLAIM. Each of the Vendors declares that
after thorough internal investigation, there is no
known fact, situation or circumstance involving
Clinserve or the Subsidiary or their directors or
officers, which would reasonably be expected to
result in any future claim being made against the
Company or the Subsidiary.
3.7.6 DISPUTE. Neither Clinserve nor the Subsidiary has
received any notice from any supplier, vendor,
contractor, customer or client with which Clinserve
or such Subsidiary has conducted business during the
one-year period ending on the date of this Agreement
confirming such Person's intention to reduce the
volume under, terminate or otherwise alter any
Contractual Obligation with Clinserve or any
Subsidiary, the effect of which, individually or in
the aggregate, would result in a Material Adverse
Effect.
3.8 OPERATIONS IN CONFORMITY WITH LAW, ETC.
The operations of Clinserve and the Subsidiary as now
conducted, and their properties, assets, equipments, buildings,
immoveables and leased or occupied properties, are not, and have not
been, in violation of, nor is Clinserve or the Subsidiary in default
and no event has occurred which with notice or lapse of time or both
would constitute a default under, any applicable Legal Requirements
including, in particular, any applicable Environmental Laws or Legal
Requirements regarding clinical research and experimentation on animals
[or humans], except for such violations and defaults as do not and
shall not, in the aggregate, have a Material Adverse Effect. Neither
Clinserve nor the Subsidiary has received notice of any such violation
or default and neither the Vendors nor the Management have knowledge of
any basis on which the operations of Clinserve or the Subsidiary, when
conducted as currently proposed to be conducted after the Completion
Date, would be held so as to violate or to give rise to any such
violation or default. Clinserve and the Subsidiary have all franchises,
licenses, permits, certificates, authorizations, registrations or other
authority presently necessary for the conduct of their business as now
conducted, except for franchises, licences, permits, certificates,
authorizations, registrations or other authority, the absence of which,
individually or in the aggregate, does not and shall not result in a
Material Adverse Effect. Based on the facts presently known to the
Vendors and Management, all future expenditures on the part of
Clinserve and the Subsidiary required to meet the provisions of any
presently existing applicable Legal Requirements (including Legal
Requirements relating to employment practices or to occupational or
health standards or to environmental considerations) shall not, in the
aggregate, have a Material Adverse Effect. Clinserve and the Subsidiary
have complied and are in compliance with applicable competition
regulations and have never infringed fair competition in the markets
where they operate, either with or towards third companies or between
themselves. Clinserve and the Subsidiary do not hold separately or
together a dominant position on the markets involved and their market
share and net aggregate turnover do not meet the European, Swiss or
German thresholds which authorizes European or domestic competition
authorities to control the operation and impede the completion of the
transaction contemplated hereby.
3.9 INTELLECTUAL PROPERTY
<PAGE>
-12-
Schedule 3.9 contains a list of all the trade-marks, trade
names and patents used by any of Clinserve or the Subsidiary
(collectively "Used Intellectual Property"). The entity indicated in
said Schedule as owner of Used Intellectual Property is the registered
and beneficial owner of such Used Intellectual Property or the
registration thereof, if applicable, (except as set forth in Schedule
3.9), with good and marketable title, unencumbered (except for
Permitted Liens), and with full right to sell, assign or otherwise
transfer or license to others and subject to no pending challenge,
refutation, expiry or termination other than as set forth in Schedule
3.9. To the Vendors' and Management's knowledge, other than as set
forth in Schedule 3.9, none of Clinserve or the Subsidiary uses any
intellectual property not owned by it, other than software purchased
"off the shelf", all of which each entity using said property has the
right to use (collectively "Licenced Intellectual Property"). (Used
Intellectual Property and Licensed Intellectual Property are sometimes
hereinafter referred to collectively as "Intellectual Property"). None
of Clinserve or the Subsidiary is required to pay royalties, fees or
other consideration to any other person with respect to the use of any
of the Intellectual Property or in connection with the conduct of its
business or otherwise. To the Vendors' and Management's knowledge, none
of Clinserve or the Subsidiary has infringed the intellectual or
industrial property rights of any other person, nor has any of them
used any intellectual or industrial property (including, without
limitation, trade-marks, trade names, patents, models, designs and
copyrights) which it does not own or have the right to use other than
as set forth in Schedule 3.9. There are no outstanding claims asserted
against any of Clinserve or the Subsidiary alleging the infringement or
the misappropriation by any of them of any intellectual or industrial
property. None of Clinserve or the Subsidiary has granted any licences
or sub-licences to third parties with respect to any of the
Intellectual Property other than as set forth in Schedule 3.9 and
neither the Vendors nor Management has any knowledge of any
infringement or misappropriation by any other Person of any of the
Intellectual Property. Neither the execution nor delivery of this
Agreement will constitute a breach of or a default under any agreement
relating to the Intellectual Property.
3.10 ENVIRONMENTAL MATTERS
3.10.1 Clinserve and the Subsidiary, their employees,
agents, shareholders, directors and officers (acting
in their capacity of employees, agents, shareholders,
directors or officers of Clinserve or of the
Subsidiary) have never been declared guilty of
committing an offence for a violation of
Environmental Laws and have never been fined for such
an offence or have otherwise settled such a
prosecution in connection with the activities of
Clinserve and the Subsidiary;
3.10.2 There are no contaminants, waste or pollutants of any
kind whatsoever in, on or under the equipment,
buildings, immoveables or properties owned, leased or
occupied by Clinserve or the Subsidiary and caused by
Clinserve, the Subsidiary or their employees, agents,
shareholders, directors or officers (acting in their
capacity of employees, agents, shareholders,
directors or officers of Clinserve or the
Subsidiary), the presence of which constitutes a
violation of applicable Environmental Laws and the
presence of which, individually or in the aggregate,
constitutes a Material Adverse Effect;
3.10.3 Neither Clinserve nor the Subsidiary has received any
written notice or request for information in the
context of any national, supra-national, provincial,
regional, local or municipal environmental
investigation or inspection;
3.10.4 There are no PCBs, asbestos or urea formaldehyde
insolation in, on or under the equipment, buildings,
immoveables or properties owned, leased or occupied
by Clinserve or the Subsidiary;
<PAGE>
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3.10.5 There is no action, suit or proceeding pending in
relation to environmental matters against Clinserve
or the Subsidiary, its employees, agents,
shareholders, directors and officers (acting in their
capacity of employees, agents, shareholders,
directors or officers of Clinserve or of the
Subsidiary), or involving Clinserve or the Subsidiary
or its assets, before any judicial body, tribunal,
commission, agency or other governmental entity, and
to the Vendors' knowledge and to the knowledge of
Management, there is no threat of, or event or fact
based on which, such action, suit or proceeding may
be instituted;
3.10.6 To the knowledge of Management and the Vendors,
Clinserve and the Subsidiary are in compliance with
all applicable Environmental Laws.
3.11 LABOUR AND EMPLOYMENT MATTERS
3.11.1 Without limiting the generality of Section 3.8, each
of Clinserve and the Subsidiary has complied with all
applicable laws relating to the employment of labour,
including provisions thereof relating to wages, hours
and collective bargaining rights.
3.11.2 There is no collective agreement by which Clinserve
or the Subsidiary is bound which relates to the
employees of Clinserve or the Subsidiary. To the
knowledge of the Vendors and to the knowledge of
Management, there are no threatened or pending
attempts to organize or establish any labour union or
employee association in connection with the business
of Clinserve or the Subsidiary. To the knowledge of
the Vendors and to the knowledge of Management, there
is no pending or threatened labour dispute,
grievance, strike, or work stoppage materially
affecting the business of any of Clinserve or the
Subsidiary. Neither Clinserve nor the Subsidiary is a
party to any other written employment agreement,
contract, arrangement, management contract or service
contract affecting employees other than as set forth
in Schedule 3.7.1, nor are any such contracts,
agreements, arrangements, management contracts or
service contracts being currently negotiated or
proposed other than in the ordinary course of
business.
3.11.3 There exist no retirement plans, profit sharing,
option or incentive plans, or other employee benefit
plans for employees of Clinserve or the Subsidiary
other than as set forth in Schedule 3.7.1 for which
adequate arrangements have been made since September
1, 1998 to set aside the requisite amounts in the
prescribed fashion, and neither Clinserve nor the
Subsidiary has promised or intends to implement other
such plans.
3.11.4 Neither Clinserve nor the Subsidiary has any employee
who cannot be dismissed without further liability
upon such notice period not exceeding what it is
required by the applicable Legal Requirement.
3.11.5 Each of Clinserve's or any of the Subsidiary's
employees who is practising as a physician, nurse or
pharmacist is identified in Schedule 3.11.5, and each
such employee is duly licensed and in good standing
to practice as a physician, nurse or pharmacist, as
the case may be, in each jurisdiction in which such
employee renders services for or on behalf of
Clinserve or any Subsidiary. None of the employees
listed on Schedule 3.11.5 is or has been subject to
any claim in connection with his or her practice as
physician, nurse or pharmacist while employed by
Clinserve or the Subsidiary, as the case may be, and
no fact or occurrence is known to the Management to
exist which is likely to give rise to the revocation
of any such licence.
<PAGE>
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3.11.6 None of Clinserve's or any of the Subsidiary's
employees has signed non-compete covenants in favour
of Clinserve or the Subsidiary.
3.12 TAXES
Other than as set forth in Schedule 3.12, all tax returns
required to be filed by Clinserve and the Subsidiary in any
jurisdiction have been filed and all taxes, assessments, levies and
other governmental charges upon Clinserve and the Subsidiary or upon
any of their properties or income, including any tax in respect of
value added, have been paid if and when due unless such payment is
being contested in good faith and by appropriate proceedings and
adequate reserves with respect thereto determined in accordance with
applicable policies have been established by Clinserve and the
Subsidiary. There is no tax revision threatened in writing against
Clinserve and the Subsidiary and there is no basis for such assessment.
3.13 WITHHOLDINGS
Each of Clinserve and the Subsidiary has withheld from each
payment made to any of its shareholders, officers, directors,
non-resident creditors and employees the amount of all taxes and other
deductions required to be withheld and has remitted all such amounts to
the appropriate authorities within the prescribed times, and has
otherwise fulfilled all requirements of all Legal Requirements
governing such deductions and withholdings. Each of Clinserve and the
Subsidiary has remitted to the proper authorities all employer
contributions due and payable under all social security, occupational
health and safety and pension plans.
3.14 GOOD TITLE
Other than as set forth in Schedule 3.14 each of Clinserve and
the Subsidiary has good and marketable title to all assets in the
balance sheets as per August 31, 1998 free and clear of Liens and other
adverse claims.
3.15 LITIGATION
Other than as set forth in Schedule 3.15, no litigation or
proceeding before, or investigation by, any foreign, national,
supra-national or municipal, judicial, tax or customs tribunal or board
or other governmental or administrative agency or any arbitrator, is
pending or threatened (or does any basis exist therefor), against
Clinserve or the Subsidiary or, to the Vendors' knowledge or to the
knowledge of Management, any director or officer of Clinserve or the
Subsidiary, which individually or in the aggregate could result in a
Material Adverse Effect, or which seeks rescission of, seeks to enjoin
the consummation of, or which questions the validity of, this Agreement
or any of the transactions contemplated hereby. Neither Clinserve nor
the Subsidiary has been charged, nor to the Vendors' knowledge or to
the knowledge of Management, is it threatened to be charged, with
infringement of any trademark, trade name, service mark, copyright,
patent, patent right or other proprietary right of any Person.
3.16 PRESS COVERAGE
Neither Clinserve nor the Subsidiary has been the object of
any demonstrations, press campaigns or other attacks due to the nature
of its activities.
<PAGE>
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3.17 VIOLATION OF OTHER INSTRUMENTS
Neither the execution and delivery of this Agreement by the
Vendors, the consummation of any of the transactions contemplated
hereby or in Schedule 3.17, shall (a) constitute a breach of or a
default or an event which with notice or lapse of time or both would
constitute a default under any Contractual Obligation of Clinserve or
the Subsidiary, (b) result in acceleration in the time for performance
of any obligation of Clinserve or the Subsidiary under any such
Contractual Obligation, (c) result in the creation of any Lien upon any
property or asset of Clinserve or the Subsidiary, (d) require any
consent, waiver or amendment to any such Contractual Obligation that
has not been obtained and remains in full force and effect, (e) give
rise to any severance payment, right of termination, securities
purchase or redemption right or other right under any such Contractual
Obligation, or (f) violate or give rise to a default or an event which
with notice or lapse of time or both could constitute a default under
any Legal Requirements, except for events or conditions described in
clauses (a) through (f) above which shall not, individually or in the
aggregate, have any Material Adverse Effect or (g) result in any state
of facts which could have a Material Adverse Effect.
3.18 APPROVALS, CONSENTS, ETC.
Other than as set forth in Schedule 3.18, no approval,
consent, authorization or other order of, and no declaration, filing,
registration, qualification or recording with, any governmental
authority or any other Person is required to be made by or on behalf of
the Vendors, Clinserve or the Subsidiary in connection with the
execution, delivery or performance of this Agreement or any of the
transactions contemplated hereby.
3.19 INVESTMENT OR DIVESTITURE
Schedule 3.19 contains a complete list of all investments and
divestitures in process which are not mentioned in the financial
statements of Clinserve and the Subsidiary (balance sheet, statement of
earnings and schedules) for the period ended August 31, 1998.
3.20 FULL DISCLOSURE
Disclosure made by the Vendors in respect of one of the
representations contained in this Section 3 is considered being made in
respect of all other representations. There is no fact that the
Vendors, to the best of their knowledge, have not disclosed to Phoenix
which could have a Material Adverse Effect on the properties, business,
prospects or condition (financial or otherwise) of Clinserve or the
Subsidiary. Neither the reports, financial statements and other
documents referred to in Section 3.4, nor any certificate, statement or
document delivered by the Vendors to Phoenix in connection with this
Agreement contains any untrue statement of a fact or omits to state any
fact necessary to keep the statements contained herein or therein from
being misleading in a manner that would constitute a Material Adverse
Effect.
4. REPRESENTATIONS AND WARRANTIES OF PHOENIX
Phoenix represents and warrants to the Vendors that:
4.1 DUE INCORPORATION, ETC.
<PAGE>
-16-
Phoenix is duly incorporated, validly exists and is in good
standing under the Canada Business Corporations Act and has all
necessary corporate capacity and power to own and lease its property
and assets and to carry on the business now conducted by it.
4.2 SHARE CAPITAL OF PHOENIX
The authorized share capital of Phoenix is composed of an
unlimited number of common shares and an unlimited number of preferred
shares issuable in series of which, as at November 4, 1998, there were
24,857,059 common shares issued and outstanding.
4.3 OPTIONS
Other than the options to acquire common shares of Phoenix
granted pursuant to Phoenix's Key Employee Share Option Plan, shares to
be issued to Dorn Cook under an earn-out formula which has been
disclosed to the Vendors, an approximate number of 2,405,000 common
shares of Phoenix to be issued in payment of the purchase prices for
certain proposed acquisitions, Phoenix does not have any rights or
options to subscribe for, or any warrants or other agreements providing
for or requiring the issuance of common shares or preferred shares.
4.4 DUE AUTHORIZATION
All necessary corporate action has been taken by Phoenix to
authorize the execution of this Agreement and the consummation of the
transactions contemplated hereby, including the issuance of the Phoenix
Shares as fully paid and non-assessable in consideration for the
purchase of the Shares.
4.5 CONFORMITY WITH APPLICABLE SECURITIES LAWS
All documents have been filed, all requisite proceedings have
been taken and all approvals, exemptions, consents, orders and
authorizations required under applicable securities laws have been
obtained in order to validly and lawfully issue and deliver the Phoenix
Shares issued hereunder. The execution of this Agreement and the
issuance of the Phoenix Shares by Phoenix to the Vendors will be exempt
from the prospectus and registration requirements of the applicable
Canadian securities legislation.
4.6 STOCK EXCHANGE APPROVALS
The listing of the Phoenix Shares on The Montreal Exchange and
the Toronto Stock Exchange has been approved by such exchanges, subject
to Phoenix fulfilling all of the standard requirements of such
exchanges.
4.7 REPORTING ISSUER
Phoenix is a reporting issuer under the laws of the provinces
of Ontario and Quebec and is not in default of any requirements of the
securities legislation of such provinces.
4.8 PHOENIX SHARES
The Phoenix Shares will at the time of issuance be duly
authorized, validly issued, fully paid and non-assessable.
<PAGE>
-17-
4.9 HOLD PERIOD
The Phoenix Shares are not subject to any statutory hold
period or any resale restrictions under the SECURITIES ACT (Quebec).
4.10 PUBLIC INFORMATION
No material change (as defined in the Securities Act (Quebec))
has occurred in the affairs of Phoenix which had not been generally
disclosed to the public, nor has Phoenix any knowledge of any other
material adverse information in regard to the current and prospective
operations of Phoenix which have not been generally disclosed to the
public.
4.11 UNDERTAKING
Phoenix undertakes to refer to Clinserve all clinical
laboratory tests derived from Phoenix's European Phase II-IV studies,
to the extent allowed by Phoenix's clients.
5. POOLING OF INTERESTS
5.1 ACCOUNTING TREATMENT
Phoenix, Clinserve and the Vendors intend and desire for the
transactions contemplated by this Agreement to qualify for "pooling of
interests" treatment for US GAAP purposes in accordance with Accounting
Principles Board Opinion No. 16.
5.2 POOLING LETTERS
On or prior to the Completion Date, Clinserve shall cause to
be executed and delivered to Ernst & Young, auditors to Phoenix, and to
Phoenix a letter or letters, dated the Completion Date, from
Clinserve's shareholders in form and substance reasonably satisfactory
to Phoenix and its auditors relating to "pooling of interests"
accounting (the "Clinserve Pooling Letter"). On or prior to the
Completion Date, Phoenix shall deliver to Ernst & Young, auditors to
Phoenix, a letter or letters, dated the Completion Date, from Phoenix's
management in form and substance reasonably satisfactory to its
auditors relating to "pooling of interests" accounting.
5.3 PLACEMENT AND STOCK TRANSFER RESTRICTIONS AND RELATED MATTERS
Each party to this Agreement agrees that from and after the
date of this Agreement, such party shall not knowingly take any action,
or knowingly fail to take any action, which action or failure is
reasonably likely to disqualify the transactions contemplated by this
Agreement from pooling of interests accounting treatment by Phoenix,
and that such party shall take all reasonable actions necessary to
cause the transactions contemplated by this Agreement to qualify as a
pooling of interest, if such characterization shall be jeopardized by
action taken by such party. Without limiting the foregoing, each Vendor
who is a Pooling Affiliate of Clinserve agrees that such Vendor shall
not sell, transfer, pledge, or otherwise dispose of such Vendor's
interests in or reduce such Vendor's risk relative to any of the
Phoenix Shares until Phoenix shall have published financial results
(including combined sales and net income) covering at least thirty (30)
days of combined operations of Phoenix and Clinserve after the
Completion Date. No later than April 30, 1999, Phoenix shall prepare
and publish such financial results for the first full month of
operations following the Completion Date. Each of the Vendors and
Clinserve acknowledge and agree with Phoenix that none of the Vendors
or Clinserve
<PAGE>
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is a party to any agreement or arrangement among themselves or with
third parties regarding the transactions contemplated by this Agreement
or the subject matter hereof.
Prior to the Completion Date, Phoenix shall deliver to
Clinserve a list of names and addresses of those persons who are or may
be, in Phoenix's reasonable judgement, Affiliates of Phoenix within the
meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act or applicable SEC accounting releases with respect to
pooling of interests accounting treatment (each such persons, a
"Pooling Affiliate"). Phoenix also shall provide Clinserve with such
information and documents as Clinserve shall reasonably request for
purposes of reviewing such list. Prior to the Completion Date, Phoenix
shall deliver to Clinserve an affiliate letter, in form and substance
reasonably satisfactory to Clinserve, executed by each of the Pooling
Affiliates identified in the foregoing list.
Prior to the Completion Date, Clinserve shall deliver to
Phoenix an affiliate letter, in form and substance reasonably
satisfactory to Phoenix, executed by each of the Pooling Affiliate of
Clinserve. Clinserve represents to Phoenix that Froreich and Wicki are
the only Pooling Affiliates of Clinserve.
6. EMPLOYMENT AGREEMENT AND COOPERATION AGREEMENT
6.1 EMPLOYMENT AGREEMENT WITH CEMAL KUYAS
Cemal Kuyas and Clinserve GmbH shall execute an employment
agreement satisfactory in form and content to Phoenix and Clinserve.
7. SURVIVAL OF REPRESENTATIONS; INDEMNITY
7.1 SURVIVAL OF REPRESENTATIONS
The respective representations and warranties of the Vendors
contained in this Agreement or in any schedule attached hereto shall
survive the consummation of the transactions contemplated hereby and
shall remain in full force and effect notwithstanding any investigation
or examination of, or knowledge with respect to, the subject matter
thereof by or on behalf of Phoenix until the earlier of November 5,
1999 or the date of completion of the audit of the combined financial
statements of Phoenix and Clinserve (the period ending on such date
being referred to herein as the "Representations Period"), except that
such representations and warranties shall survive indefinitely in the
event of fraud with respect thereto. No claim for indemnification
pursuant to Section 7.2.1 below may be brought after the expiration of
the Representations Period, except for claims made in good faith in
writing prior to such expiration and setting forth in reasonable detail
the claim, regardless of whether any action or demand has been
commenced against Phoenix (it being understood without limitation, that
any and all Losses (as defined below) arising after the expiration of
the Representations Period shall be recoverable upon notice properly
given prior to the expiration of the Representations Period in
accordance with this Section 7.1). The representations and warranties
of Phoenix contained in this Agreement or in any schedule attached
hereto shall terminate upon and not survive the Completion Date, except
in the event of fraud by Phoenix with respect thereto, in which case
they shall survive indefinitely.
<PAGE>
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7.2 INDEMNIFICATION
7.2.1 From and after the Completion Date, Phoenix and its
Affiliates (including Clinserve and the Subsidiary)
and all of their respective officers, directors,
employees, agents and shareholders (each, an
"Indemnitee") shall be defended, indemnified and held
harmless by the Vendors pursuant to this Agreement
and the Escrow Agreement to the full extent permitted
by law, from and against any and all losses, claims,
actions, damages, liabilities, costs and expenses
(including attorneys' fees and expenses)
(collectively, "Losses") relating to or arising from
or in connection with (i) any misrepresentation or
any non-fulfilment of any representation, warranty,
covenant, obligation or agreement by any Vendor
contained in or made pursuant to this Agreement or
any other document, agreement, officer's certificate
or other certificate delivered to Phoenix in
connection with this Agreement, and (ii) the
enforcement by Phoenix of its rights pursuant to this
Section 7.2, or any litigation, proceeding or
investigation relating to any of the foregoing. The
indemnification obligations of the Vendors pursuant
hereto shall be joint and not solidary, i.e. prorata
to the number of Phoenix Shares received by each
Vendor in accordance with Section 2.2.
7.2.2 Notwithstanding the foregoing provisions of this
Section 7.2, but except with respect to any Losses
resulting from or arising out of fraud or other
intentional or knowing misconduct or
misrepresentation, (i) the maximum aggregate recourse
by the Indemnitees pursuant to Section 7.2.1 above
shall not exceed the aggregate value (calculated by
adding together the opening and closing prices of the
common shares of Phoenix on each of the Toronto Stock
Exchange and The Montreal Exchange for each of the
ten trading days preceding the Completion Date, and
dividing this sum by 40) of the Escrowed Securities
(the "Indemnity Cap"), and (ii) the sole recourse of
any Indemnitee in respect of Losses (but not in
respect of fraud or other intentional or knowing
misconduct or misrepresentation) shall be from, out
of, and to the extent of the Escrowed Securities. Any
indemnification shall be payable by the return of
Escrowed Securities to Phoenix in accordance with the
provisions of the Escrow Agreement. In particular,
the number of Escrowed Shares to be remitted to
Phoenix in payment of any indemnification obligation
shall be calculated on the basis of the average price
of the Escrowed Shares obtained by adding together
the opening and closing prices of the common shares
of Phoenix on each of the Toronto Stock Exchange and
The Montreal Exchange for each of the ten trading
days preceding the Completion Date, and dividing this
sum by 40. All dividends or other distributions
received by a Vendor in respect of common shares of
Phoenix which are remitted to Phoenix in satisfaction
of an indemnification obligation under this Section
7, shall also be repaid to Phoenix at the time of
payment of indemnification.
7.2.3 Notwithstanding any other provision of this
Agreement, as of and after the Completion Date,
Clinserve shall not have any liability under this
Agreement, and no Vendor shall threaten or bring any
claim or action whatsoever against Clinserve for
contribution to any amounts payable under this
Section 7.2 by such Vendor.
<PAGE>
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8. NOTICES
Any demand, notice or other communication to be given in connection
with this Agreement shall be given in writing and shall be given by personal
delivery, by registered mail or by electronic means of communication addressed
to the recipient as follows:
8.1 To Phoenix:
Phoenix International Life Sciences Inc.
2350, Cohen Street
Saint-Laurent, Quebec
H4R 2N6 Canada
Telecopier No.: (514) 333-7306
ATTENTION: JEAN-YVES CALOZ
8.2 To Froreich:
Dr. Andre von Froreich
Forsthohe 33
21149 Hamburg, Germany
8.3 To Wicki:
Dr. Andreas Wicki
Hohestrasse 39
8702 Zollikon, Switzerland
8.4 To Clinserve:
Clinserve A.G.
Rue St. Pierre 18
1700 Fribourg, Switzerland
ATTENTION: DR. VON FROREICH
9. MODIFICATION
All modifications or amendments of any provision of this Agreement
shall be effective only if the same shall be in writing and then shall be
effective only in the specific instance and for the purpose for which given.
10. WAIVER
No failure to exercise, and no delay in exercising, on the part of a
party hereto, any right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right. No waiver of any provision of this
Agreement shall beeffective unless in writing. No notice or demand given in any
case shall constitute a waiver of the right to take other action in the same,
similar or other instances without such notice or demand.
<PAGE>
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11. CONFIDENTIALITY
The parties agree to treat this Agreement as confidential and not to
disclose its contents to third parties other than their advisers, except to the
extent necessary to enforce performance of obligations hereunder, or as is
required to comply with applicable laws or regulations, including regulations of
any stock exchange on which the securities of Phoenix are listed following
consultations with Froreich and Wicki.
12. FURTHER ASSURANCES
The parties shall, with all reasonable diligence, do all such things
and provide all such reasonable assurances as may be required to consummate the
transactions contemplated hereby, and each party shall provide such further
documents or instruments required by another party as may be reasonably
necessary or desirable to give effect to the purpose of this Agreement and to
carry out its provisions.
13. GOVERNING LAWS
This Agreement shall be governed by the laws of the Province of Quebec
and the laws of Canada applicable therein.
14. ARBITRATION
All disputes arising out of or in connection with the present Agreement
shall be finally settled under the Rules of Arbitration of the International
Chamber of Commerce by one or more arbitrators appointed in accordance with the
said Rules.
The place of arbitration shall be Montreal.
The language of the arbitration shall be English.
15. GENERAL
The invalidity or unenforceability of any term or provision hereof
shall not affect the validity or enforceability of any other term or provision
hereof. The headings in this Agreement are for convenience of reference only and
shall not alter or otherwise affect the meaning hereof. This Agreement and the
other documents and instruments referred to herein constitute the entire
understanding of the parties hereto with respect to the subject matter hereof
and thereof and supersede all present and prior agreements, whether written or
oral. No investigation made by or on behalf of a party hereto shall mitigate,
diminish or affect the representations and warranties made herein by the
Vendors. This Agreement may be executed in any number of counterparts which
together shall constitute one instrument and shall be governed by and construed
in accordance with the laws of the Province of Quebec and the laws of Canada
applicable therein, and shall bind and inure to the benefit of the parties
hereto and their respective heirs, executors, administrators, personal
representatives, successors and assigns. The parties hereto have expressly
required that this Agreement and all documents and notices related hereto be
drafted in English. LES PARTIES AUX PRESENTES ONT EXPRESSEMENT EXIGE QUE LE
PRESENT CONTRAT ET TOUS LES DOCUMENTS ET AVIS Y AFFERENTS SOIENT REDIGES EN
ANGLAIS.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be duly
executed as of the Completion Date.
<PAGE>
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PHOENIX INTERNATIONAL LIFE SCIENCES INC.
By: /s/ John W. Hooper
-------------------------------------
John Hooper, Ph.D.
Title: Chairman and Chief Executive Officer
/s/ Andre Von Froreich
-------------------------------------
DR. ANDRE VON FROREICH
/s/ Andreas Wicki
-------------------------------------
DR. ANDREAS WICKI
CLINSERVE A.G.
By: /s/ Andreas Wicki
-------------------------------------
Andreas Wicki
Title: Chairman of the board of directors
<PAGE>
LIST OF SCHEDULES
Schedule A Outstanding shares and voting rights of Clinserve
Schedule B The capital structure of Clinserve
Schedule C The capital structure of Clinserve GmbH
Schedule 1.10 Escrow Agreement
Schedule 1.21 Permitted Lien
Schedule 3.3.3 Capital Stock of the Subsidiary
Schedule 3.3.4 Subsidiary Options
Schedule 3.3.5 Commitments affecting shares or voting rights of Clinserve
or the Subsidiary
Schedule 3.4A Financial Statements
Schedule 3.5 Material liabilities, contingent or otherwise of Clinserve
or the Subsidiary
Schedule 3.6.2 Extraordinary Transactions after August 31, 1998
Schedule 3.7.1 Contractual Obligations
Schedule 3.9 Intellectual Property
Schedule 3.11.5 Physicians, nurses or pharmacists employed by Clinserve and
the Subsidiary
Schedule 3.12 Taxes
Schedule 3.14 Title to assets
Schedule 3.15 Litigation
Schedule 3.17 Violation of Other Instruments
Schedule 3.18 Approvals, Consents, etc.
Schedule 3.19 Investment or Divestiture
<PAGE>
Schedule 1.10
ESCROW AGREEMENT dated as of November 5, 1998.
AMONG: PHOENIX INTERNATIONAL LIFE SCIENCES INC., a
corporation incorporated under the Canada
Business Corporations Act, having its head
office at 2350, Cohen Street, Saint-Laurent,
Quebec, Canada, H4R 2N6, herein acting and
represented by John Hooper, Ph.D., its duly
authorized representative;
(hereinafter "Phoenix")
AND: DR. ANDRE VON FROREICH, residing at
Forsthohe 33, 21149 Hamburg, Germany;
(hereinafter "Froreich")
AND: DR. ANDREAS WICKI, residing at Hohestrasse
39, 8702 Zollikon, Switzerland;
(hereinafter "Wicki")
AND: MONTREAL TRUST COMPANY, 1800 McGill College
Avenue, Montreal, Quebec, H3A 3K9, as escrow
agent, herein represented by its duly
authorized representatives Rose Marie Labbe
and Guy L'Esperance;
(hereinafter the "Escrow Agent")
WHEREAS Phoenix and the Vendors are parties to a share purchase
agreement dated November 5, 1998 (the "Purchase Agreement");
WHEREAS the Purchase Agreement provides that certain shares of Phoenix
issued to the Vendors pursuant thereto are to be held in escrow for the purposes
described therein;
NOW THEREFORE the parties hereby agree as follows:
1. INTERPRETATION AND DEFINITIONS
1.1 Whenever used in this Agreement:
1.1.1 "AFFILIATE" means any of Froreich and Wicki and
"Affiliates" means more than one of them;
<PAGE>
-2-
1.1.2 "CLAIM" means any claim by Phoenix against and the
Vendors under Section 7.2 of the Purchase Agreement;
1.1.3 "DISTRIBUTIONS" has the meaning ascribed thereto in
Section 2.3 hereof;
1.1.4 "ESCROWED SHARES" has the meaning ascribed thereto in
Section 2.1 hereof;
1.1.5 "ESCROWED SHARE PRICE" means the amount obtained by
adding the opening and closing prices of the common
shares of Phoenix on each of the Montreal Exchange
and The Toronto Stock Exchange for the ten trading
days preceding the date of execution of the Purchase
Agreement, divided by 40;
1.1.6 "NOTICE OF CLAIM" means a written notice of any Claim
given by Phoenix setting forth the details of each
Claim referred to therein including the amount
thereof, if known to Phoenix, or Phoenix's reasonable
estimate thereof, as well as the provisions of the
Purchase Agreement upon which such Claim is based;
1.1.7 "OBJECTION" means, in respect of any Claim, any
objection raised in the Response by any of the
Vendors to such Claim;
1.1.8 "PROCEEDS" has the meaning ascribed thereto in
Section 3.1 hereof;
1.1.9 "PURCHASE AGREEMENT" has the meaning ascribed thereto
in the preamble to this Agreement;
1.1.10 "RELEASED SHARES" has the meaning ascribed thereto in
Section 3.3.1.1 hereof;
1.1.11 "RESPONSE" means, in respect of any Claim, the joint
written response of the representatives of the
Vendors duly appointed in the manner set forth in
Section 3.3 hereof indicating whether they accept or
dispute such Claim;
1.1.12 "VENDORS" means Froreich and Wicki.
1.2 Each capitalized term used in this Agreement but not defined
herein as the meaning ascribed thereto in the Purchase
Agreement.
1.3 In the event of (i) any subdivision, consolidation or
reclassification of the class of shares comprising the
Escrowed Shares or (ii) any reorganization of the share
capital of Phoenix affecting the Escrowed Shares or (iii) the
amalgamation of Phoenix with any other company, the number of
Escrowed Shares and Escrowed Share Price shall be adjusted, if
required, so that none of the parties hereto shall be in a
position less favorable to it than as provided in this
Agreement as a result of any of the foregoing actions.
1.4 For all purposes of this Agreement, the amount of any Claim in
a currency other than Canadian dollars shall be converted to
Canadian dollars at the exchange rate between Canadian and
such currency shall be the "Spot Rate" of the alternate
currency on the business day preceding the day as of which the
conversion from one currency to the other is to be effected,
as reported in the Financial Post of Canada on that day.
<PAGE>
-3-
1.5 In any calculation hereunder of the applicable number of
Escrowed Shares results in fractional shares, the result
shall be rounded up or down, as the case may be, to the
nearest whole number and, if such result represents exactly
one-half of a whole number, then such fraction shall be
rounded up to the next whole number.
2. ESTABLISHMENT OF ESCROW
2.1 Phoenix hereby delivers in escrow to the Escrow Agent
certificates representing an aggregate of 31,680 common shares
of Phoenix registered in the name of the Escrow Agent, as
escrow agent (the "Escrowed Shares"). The Vendors' interests
in the Escrowed Shares are as set forth below:
<TABLE>
<CAPTION>
VENDOR ESCROWED SHARES
------ ---------------
<S> <C>
Froreich 6,336
Wicki 25,344
</TABLE>
2.2 The Escrow Agent hereby accepts delivery and acknowledges
receipt of the Escrowed Shares and agrees to act as escrow
agent and to hold, safeguard and release the Escrowed Shares
in accordance with the provisions of this Agreement. The
Escrowed Shares shall not be assigned, hypothecated,
alienated, released from escrow, transferred within escrow or
dealt with in any manner whatsoever except as provided in this
Agreement.
2.3 Notwithstanding the registration of the Escrowed Shares in the
name of the Escrow Agent, the Vendors shall, subject to the
provisions hereof, remain the owners thereof in the proportion
contemplated by Section 2.1 hereof and be entitled to the
exercise of all voting rights related thereto and to receive
all dividends, income and other distributions in respect
thereof (collectively, "Distributions"). In the event that any
Escrowed Shares are remitted to Phoenix for cancellation
pursuant to the provisions of Section 3 hereof, the Vendors
shall repay to Phoenix any Distributions received in respect
of such Escrowed Shares.
3. INSTRUCTIONS TO ESCROW AGENT
3.1 At any time after receipt by the Escrow Agent of written
notice by Phoenix of the release, in the format prescribed by
the SEC, of at least 30 days of post-combination financial
results of Phoenix and Clinserve AG, and provided that the
Escrowed Shares are not then subject to any restrictions on
transfer imposed by any Regulatory Authority, an Affiliate may
instruct the Escrow Agent to sell all or part of their portion
of the Escrowed Shares. Upon receipt of such written
instruction, the Escrow Agent shall sell such Escrowed Shares
on the open market and shall retain the proceeds of sale, less
any expenses incurred in realizing such sale (the "Proceeds")
as escrowed property for such Affiliate. The Escrow Agent
shall invest such Proceeds according to the written
instructions of such Affiliate for the duration of the escrow.
The Escrow Agent shall keep complete records of any such sales
of Escrowed Shares.
<PAGE>
-4-
3.2 Whenever Phoenix has a Claim it shall promptly give a Notice
of Claim in respect thereof to the Vendors and the Escrow
Agent. Upon receipt of a Notice of Claim, the Escrow Agent
shall immediately reserve for distribution in accordance with
the provisions of Section 3.3 hereof (but shall not release
from escrow except in accordance with the provisions hereof)
that number of the Escrowed Shares which is equal in value to
the amount provided for in the Notice of Claim, calculated on
the basis of the Escrowed Share Price for such Claim.
3.3 Within 15 days of receipt of a Notice of Claim, the Vendors
(or any of them) shall give to Phoenix and the Escrow Agent a
response (the "Response") with respect to each Claim set forth
therein. If:
3.3.1 the Response indicates that the Vendors accept a
Claim set forth in the Notice of Claim, or if the
Escrow Agent does not receive a Response with respect
to a Claim within said 15 day period, the Vendors
shall be deemed to have irrevocably consented to each
Claim so accepted or in respect of which no Response
is so received, as made, and the Escrow Agent shall
forthwith give written notice thereof to Phoenix:
3.3.1.1 setting forth the total amount of all Claims
which have been consented to and the number
of shares from the Escrowed Shares to be
released from escrow for the benefit of
Phoenix (the "Released Shares"), being that
number of the Escrowed Shares which is equal
in value to the amount of the admitted
Claims set forth in such Notice of Claim,
calculated on the basis of the Escrowed
Share Price for such Claim; and
3.3.1.2 surrender for cancellation to Phoenix the
share certificate(s) in its possession
representing the Released Shares, duly
endorsed for transfer, and the Escrow Agent
shall retain in its possession the other
share certificate(s) representing the
balance of the Escrowed Shares, if any, to
be held by it in escrow and dealt with in
accordance with the terms hereof; or
3.3.2 the Response indicates that the Vendors (or any of
them) dispute a Claim set forth in the Notice of
Claim (whether or nor arbitration proceedings have
been instituted), the Escrow Agent shall retain in
its possession and continue to hold in escrow that
number of the Escrowed Shares which is equal in value
to the amount provided for in the disputed Claims,
calculated on the basis of the Escrowed Share Price
for such Claim:
3.3.2.1 until the Escrow Agent receives a joint
written notice from Phoenix and the Vendors
directing the Escrow Agent as to the manner
in which such Escrowed Shares and the share
certificate(s) representing same are to be
dealt with, in which case the Escrow Agent
shall deal with same in accordance with such
joint written instructions; or
3.3.2.2 in the absence of such a joint written
notice within 10 business days of the Escrow
Agent's receipt of the Response, the Escrow
Agent shall deal with such Escrowed Shares
and the share certificate(s) representing
same in accordance with a final arbitration
order in respect of such
<PAGE>
-5-
disputed Claim(s) pursuant to the
arbitration contemplated by Section 12
hereof. Any arbitration order shall be
accompanied by a legal opinion by counsel
for the presenting party satisfactory to the
Escrow Agent to the effect that the said
order is final and non-appealable.
3.4 If, at the time of receipt by the Escrow Agent of any Notice
of Claim as provided for in Section 3.2 hereof, the Escrowed
Shares remaining in escrow for the account of any Vendor
calculated on the basis of the Escrowed Share Price is
insufficient to meet such Vendor's pro rata portion of the
number of Released Shares to be remitted to Phoenix, the
balance of such Vendor's pro rata portion of the admitted
Claims shall be satisfied by payment in cash from the Proceeds
of those Escrowed Shares sold by the Escrow Agent at the
direction of such Vendor pursuant to Section 3.1 hereof.
3.5 On the earlier of (i) November 5, 1999, or (ii) the date at
which the Escrow Agent receives a notice from Phoenix
confirming that the audit of the combined financial statements
of Phoenix and Clinserve AG has been completed, the Escrow
Agent will deliver the Escrowed Shares and all Distributions
and Proceeds to the Vendors, pro rata to their respective
interests in the Escrowed Shares, Distributions and Proceeds,
if any.
4. VOTING RIGHTS
4.1 The Escrow Agent shall provide to each of the Vendors a proxy
entitling such Vendor to vote those of the Escrowed Shares
which are owned by it, forthwith upon the Escrow Agent's
receipt thereof in its capacity as registered shareholder of
Phoenix, in order to allow each Vendor to vote its Escrowed
Shares in the same manner as if it were the registered owner
thereof.
5. RIGHTS AND OBLIGATIONS OF THE ESCROW AGENT
5.1 The Escrow Agent is not a party to, and is not bound by, any
provisions which may be evidenced by, or arise out of, any
agreement other than as therein set forth under the express
provisions of this Agreement.
5.2 The Escrow Agent acts hereunder as a depositary only and is
not responsible or liable in any manner whatever for the
sufficiency, correctness, genuineness or validity of any
instrument deposited with it, or for the form of execution of
such instrument or for the identity or authority or right of
any person or party executing or depositing it.
5.3 The Escrow Agent shall not be under any duty to give the
Escrowed Shares, Distributions and Proceeds, if any, held by
it hereunder any greater degree of care than it gives its own
similar property and shall not be required to invest any funds
held hereunder except as directed in this Agreement.
Uninvested funds held hereunder shall not earn or accrue
interest.
5.4 The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to
claims based upon such gross negligence or willful misconduct
that are successfully asserted against the Escrow Agent, the
other parties hereto shall solidarily indemnify and hold
harmless the Escrow Agent (and any successor Escrow Agent)
from and against any and all losses, liabilities, claims,
actions, damages and
<PAGE>
-6-
expenses, including reasonable attorney's fees and
disbursements, arising out of and in connection with this
Agreement. Without limiting the foregoing, the Escrow Agent
shall in no event be liable in connection with its investment
or reinvestment of any cash held by it hereunder in good
faith, in accordance with the terms hereof.
5.5 The Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument or other
writing delivered to it hereunder without being required to
determine the authenticity or the correctness of any fact
stated therein or the propriety or validity of the service
thereof. The Escrow Agent may act in reliance upon any
instrument or signature believed by it to be genuine and may
assume that the person purporting to give receipt or advice or
make any statement or execute any document in connection with
the provisions hereof has been duly authorized to do so. The
Escrow Agent may conclusively presume that the undersigned
representative of any party hereto which is an entity other
than a natural person has full power and authority to instruct
the Escrow Agent on behalf of that party unless written notice
to the contrary is delivered to the Escrow Agent.
5.6 The Escrow Agent may act pursuant to the advice of counsel
with respect to any matter relating to this Agreement and
shall not be liable for any action taken or omitted by it in
good faith in accordance with such advice.
5.7 The Escrow Agent makes no representation as to the validity,
value, genuineness or the collectability of any security or
other document or instrument held by or delivered to it.
5.8 The Escrow Agent shall not be called upon to advise any party
as to the wisdom in selling or retaining or taking or
refraining from any action with respect to any securities or
other property deposited hereunder.
5.9 The Escrow Agent (and any successor Escrow Agent) may at any
time resign as such by delivering the Escrowed Shares,
Distributions and Proceeds, if any, to any successor Escrow
Agent jointly designated by the other parties hereto in
writing, or to any court of competent jurisdiction, whereupon
Escrow Agent shall be discharged of and from any and all
further obligations arising in connection with this Agreement.
The resignation of Escrow Agent will take effect on the
earlier of (a) the appointment of a successor (including a
court of competent jurisdiction) or (b) the day which is 30
days after the date of delivery of its written notice of
resignation to the other parties hereto. If at that time
Escrow Agent has not received a designation of a successor
Escrow Agent, Escrow Agent's sole responsibility after that
time shall be to retain and safeguard the Escrowed Shares and
Proceeds, if any, until receipt of a designation of successor
Escrow Agent or a joint written disposition instruction by the
other parties hereto or a final non-appealable order of a
court of competent jurisdiction.
5.10 Phoenix and the Vendors shall pay Escrow Agent compensation
(as payment in full) for the services to be rendered by Escrow
Agent hereunder in the amount of $1,500 at the time of
execution of this Agreement and agree to reimburse Escrow
Agent for all reasonable expenses, disbursements and advances
incurred or made by Escrow Agent in performance of its duties
hereunder (including reasonable fees, expenses and
disbursements of its counsel).
<PAGE>
-7-
6. LIMITED RESPONSIBILITY
This Agreement expressly sets forth all the duties of Escrow Agent with
respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Agreement against the Escrow Agent.
The Escrow Agent shall not be bound by the provisions of any agreement
among the other parties hereto except this Agreement. No trust is
created by this Agreement and the Escrow Agent does not act in any
capacity as a trustee. In the event of any disagreement between any of
the parties to this Agreement, or between them or either of them and
any other person, resulting in demands or adverse claims being made in
connection with or for any asset involved herein or affected hereby,
the Escrow Agent shall be entitled, at its discretion, to refuse to
comply with any demands or claims on it, as long as such disagreement
shall continue, and in so refusing the Escrow Agent may make no
delivery or other disposition of any asset involved herein or affected
hereby, and in so doing the Escrow Agent shall not be or become liable
in any way or to any person or party for its failure or refusal to
comply with such conflicting demands or adverse claims, and it shall be
entitled to continue so to refrain from acting and so to refuse to act
until the right of person or party shall have been finally settled as
provided in Section 12 hereof, or all differences shall have been
adjusted by agreement and the Escrow Agent shall have been notified
thereof in writing signed by all persons and parties interested.
7. NOTICES
All notices, consents, waivers and other communications under this
Agreement must be in writing and will be deemed to have been duly given
when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt) provided that
a copy is mailed by registered mail, return receipt requested, or (c)
when received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case the
appropriate addresses and telecopier numbers set forth below (or to
such other addresses and telecopier numbers as a party may designate by
notice to the other parties):
7.1 To Phoenix:
Phoenix International Life Sciences Inc.
2350, Cohen Street
Saint-Laurent, Quebec
H4R 2N6 Canada
Telecopier No.: (514) 333-7306
ATTENTION: JEAN-YVES CALOZ
7.2 To the Vendors:
TO FROREICH:
Dr. Andre von Froreich
Forsthohe 33
21149 Hamburg, Germany
<PAGE>
-8-
TO WICKI:
Dr. Andreas Wicki
Hohestrasse 39
8702 Zollikon, Switzerland
7.3 To the Escrow Agent:
Montreal Trust Company
1800 McGill College Avenue
Montreal (Quebec)
H3A 3K9
Telecopier No.: (514) 982-7677
8. GOVERNING LAW
This Agreement shall be governed by the laws of the Province of Quebec
and the laws of Canada applicable therein.
9. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original and all of which, when taken
together, will be deemed to constitute one and the same.
10. SECTION HEADINGS
The headings of sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation.
11. WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of
such right, power or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or further
exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement or
the documents referred to in this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other parties; (b) no waiver that
may be given by a party will be applicable except in the specific
instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or
of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement or the
documents referred to in this Agreement.
<PAGE>
-9-
12. ARBITRATION
All disputes arising out of or in connection with the present Agreement
shall be finally settled under the Rules of Arbitration of the
International Chamber of Commerce by one or more arbitrators appointed
in accordance with the said Rules. The place of arbitration shall be
Montreal. The language of the arbitration shall be English.
13. CONFIDENTIALITY
The parties agree to treat this Agreement as confidential and not to
disclose its contents to third parties other than their advisers,
except to the extent necessary to enforce performance of obligations
hereunder, or as is required to comply with applicable laws or
regulations, including regulations of any stock exchange on which the
securities of Phoenix are listed.
14. FURTHER ASSURANCES
The parties shall, with all reasonable diligence, do all such things
and provide all such reasonable assurances as may be required to
consummate the transactions contemplated hereby, and each party shall
provide such further documents or instruments required by another party
as may be reasonably necessary or desirable to give effect to the
purpose of this Agreement and to carry out its provisions.
15. GENERAL
The invalidity or unenforceability of any term or provision hereof
shall not affect the validity or enforceability of any other term or
provision hereof. This Agreement and the other documents and
instruments referred to herein constitute the entire understanding of
the parties hereto with respect to the subject matter hereof and
thereof and supersede all present and prior agreements, whether written
or oral. This Agreement shall bind and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators,
personal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
By: /s/ John W. Hooper
-------------------------------------
John Hooper, Ph.D.
Title: Chairman and Chief Executive Officer
/s/ Andre Von Froreich
-------------------------------------
DR. ANDRE VON FROREICH
<PAGE>
-10-
/s/ Andreas Wicki
-------------------------------------
DR. ANDREAS WICKI
MONTREAL TRUST COMPANY
By: /s/ Rose Marie Labbe
-------------------------------
ROSE MARIE LABBE
Title: Trust Officer
By: /s/ Guy L'Esperance
-------------------------------
GUY L'ESPERANCE
Title: Manager, Client Servicing
<PAGE>
Exhibit 2.6
SHARE PURCHASE AGREEMENT
AMONG
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
AND
PROF. DR. KLAUS-GEORG BUHRENS
AND
MARTIN GEIST
AND
DR. BERND BLOHM
AND
CHRISTIAN HILGENSTOCK
AND
CLAUS HEMKER
AND
DR. IVAN KOZAK
AND
DR. BERNHARD VENS-CAPPELL
AND
WOLFGANG TETZLOFF
AND
DR. JURGEN HENKE
AND
DR. LOTTE HENKE
AND
TREND FINANZANALYSEN GMBH
AND
MCKNIGHT LABORATORIES GMBH
----------------------
DATED AS OF NOVEMBER 6, 1998
----------------------
<PAGE>
<PAGE>
SHARE PURCHASE AGREEMENT dated as of November 6, 1998
AMONG: PHOENIX INTERNATIONAL LIFE SCIENCES INC., a corporation
incorporated under the Canada Business Corporations Act, having
its head office at 2350, Cohen Street, Saint-Laurent, Quebec,
Canada, H4R 2N6, herein acting and represented by John Hooper,
its duly authorized representative;
(hereinafter "Phoenix")
AND: PROF. DR. KLAUS-GEORG BUHRENS, residing at Buchtallee 4a, 21465
Reinbek, Germany;
(hereinafter "Buhrens")
AND: MARTIN GEIST, residing at Georgiweg 43, 22453 Hamburg, Germany;
(hereinafter "Geist")
AND: DR. BERND BLOHM, residing at Buchtallee 23, 21465 Reinbek,
Germany;
(hereinafter "Blohm")
AND: CHRISTIAN HILGENSTOCK, residing at Gronenweg 73, 22549 Hamburg,
Germany;
(hereinafter "Hilgenstock")
AND: CLAUS HEMKER, residing at Feldblick 2, 22397 Hamburg, Germany;
(hereinafter "Hemker")
AND: DR. IVAN KOZAK, residing at Kopeniker Str. 15, 22045 Hamburg,
Germany;
(hereinafter "Kozak")
AND: DR. BERNHARD VENS-CAPPELL, residing at Wurtkamp 12, 22527
Hamburg, Germany;
(hereinafter "Vens-Cappell")
<PAGE>
- 2 -
AND: WOLFGANG TETZLOFF, residing at Friedenstrasse 56, 82194
Grobenzell, Germany;
(hereinafter "Tetzloff")
AND: DR. JURGEN HENKE, residing at Hohenzollernring 57, 50672 Koln,
Germany, herein acting and represented by Ulrike Schafer, his
duly authorized representative;
(hereinafter "J. Henke")
AND: DR. LOTTE HENKE, residing at Hohenzollernring 57, 50672 Koln,
Germany, herein acting and represented by Ulrike Schafer, her
duly authorized representative;
(hereinafter "L. Henke")
AND: TREND FINANZANALYSEN GMBH, a German corporation with capital of
DM150,000, registered in the Commercial Register of the
Amtsgericht Dusseldorf under number HRB 18161 and having its
head office at Berliner Allee 21, 40212 Dusseldorf, Germany,
herein acting and represented by Ulrike Schafer, its duly
authorized representative;
(hereinafter "TREND")
(Buhrens, Geist, Blohm, Hilgenstock, Hemker, Kozak,
Vens-Cappell, Tetzloff, J. Henke, L. Henke and TREND are
hereinafter collectively referred to as the "Vendors")
AND: MCKNIGHT LABORATORIES GMBH, a German corporation with capital of
DM1,100,000, registered in the Commercial Register of the
Amtsgericht Hamburg under number HRB 28004 and having its head
office at Osterstrasse 86, 20259 Hamburg, Germany, herein acting
and represented by Prof. Dr. Klaus - Georg Buhrens, its duly
authorized representative;
(hereinafter "MKL")
WHEREAS, the Vendors hold, directly or indirectly, as more fully set out
in Schedule A, all of the outstanding shares and voting rights of MKL;
WHEREAS, IPHAR Institut fur Klinische Pharmakologie GmbH ("IPHAR"), a
German corporation, with capital of DM500,000, registered in the Commercial
Register of the Amtsgericht Munchen under number HRB 8768 and having its head
office at Arnikastrasse 4, 85631 Hohenkirchen -Siergertsbrunn, Germany, is a
subsidiary of MKL, held as to 100% by MKL. The capital structure of IPHAR is set
forth in Schedule B;
<PAGE>
- 3 -
WHEREAS, McKnight Laboratories (U.S.A.) inc. ("MKL-USA"), a corporation
and having its head office at 122 Main Street, Flemington, New Jersey, United
States, is a subsidiary of MKL, held as to 100% by MKL. The capital structure of
MKL-USA is set forth in Schedule C;
WHEREAS the Vendors have agreed to sell all of the outstanding shares of
MKL to Phoenix in consideration for the issuance to the Vendors of common shares
of Phoenix;
NOW, THEREFORE, the parties hereto agree as follows:
1. INTERPRETATION AND DEFINITIONS
Except as the context otherwise explicitly requires, (a) the capitalized
term "Section" refers to sections of this Agreement; (b) the capitalized terms
"Schedules" and "Exhibit" refer to schedules and exhibits to this Agreement; (c)
references to a particular Section include all subsections thereof; (d) the word
"including" shall be construed as "including without limitation"; (e) accounting
terms not otherwise defined herein have the meaning provided under GAAP (as
defined below); (f) references to a particular law, statute or regulation
include all rules and regulations thereunder and any successor, law, statute,
regulation or rules, in each case as from time to time in effect; (g) references
to a particular Person include such Person's successors and assigns to the
extent not prohibited by this Agreement; (h) references to dollars or $ in this
Agreement are to Canadian dollars. In this Agreement, unless the context
otherwise requires, the following terms shall have the respective meanings
assigned to them:
1.1 "AFFILIATE" means, with respect to any Person, any Person which,
directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with such
Person. For the purposes of this Agreement, "Affiliate" also
means an affiliate as such term is defined by the SEC.
1.2 "ARTICLES" means the original or restated articles of
incorporation, articles of amendment, articles of amalgamation,
articles of continuance, articles of reorganization and articles
of arrangement, including amendments thereto, as in effect from
time to time, of MKL.
1.3 "COMPENSATION" as applied to any Person means the aggregate of
all salaries, compensation, remuneration or bonuses of any
character, retirement or pension benefits of any kind, or other
payments of any kind whatsoever (other than health and medical
benefits made available to employees generally and advances and
reimbursements of business expenses) made directly or indirectly
by MKL, any of the Subsidiaries or other specified Persons to
such Person and affiliates of such Person.
1.4 "COMPLETION DATE" means the date of this Agreement, i.e.
November 6, 1998.
1.5 "CONSOLIDATED", when used with reference to any term, means that
term as applied to the accounts of MKL or other indicated Person
and each of its respective Subsidiaries, consolidated or
combined in accordance with GAAP after eliminating all
inter-company operations and with appropriate deductions for
minority interests in Subsidiaries.
1.6 "CONTRACTUAL OBLIGATION" means, with respect to any Person, any
contracts, agreements, deeds, hypothecs, mortgages, indentures,
leases, licenses, other instruments, commitments, undertakings,
arrangements or understandings, written or oral, or other
documents or instruments, including any provisions of its
articles of incorporation or other constituting documents or
by-laws and any document or instrument evidencing Indebtedness,
to which any
<PAGE>
- 4 -
such Person is a party or otherwise subject to or bound by or to
which any property or asset of any such Person is subject.
1.7 "DISTRIBUTION" means (a) the declaration or payment of any
dividend on or in respect of the shares of any class or series
of shares of MKL, any of the Subsidiaries or other specified
Person, other than dividends payable solely in common shares of
the share capital of the payor; (b) the purchase, redemption or
other retirement of any shares of any class of MKL, any of the
Subsidiaries or other specified Person directly, or indirectly
through a Subsidiary or otherwise; or (c) any other distribution
on or in respect of any shares of any class or series of shares
of MKL, any of the Subsidiaries or other specified Person.
1.8 "ESCROW AGENT" means Montreal Trust Company.
1.9 "ESCROW AGREEMENT" means the escrow agreement entered between
the parties hereto and the Escrow Agent a copy of which is
attached hereto as Schedule 1.9.
1.10 "ESCROWED SECURITIES" means the Phoenix Shares escrowed pursuant
to Section 2.4 together with all Proceeds (as defined in the
Escrow Agreement).
1.11 "ESCROWED SHARE PRICE" means the amount obtained by adding the
opening and closing prices of the common shares of Phoenix on
each of the Montreal Exchange and The Toronto Stock Exchange for
the ten trading days preceding the date of execution of the
present Agreement, divided by 40.
1.12 "ENVIRONMENTAL LAWS" means all Legal Requirements (including
consent decrees, administrative orders and contractual
obligations) relating to public health and safety, workers
health and safety and pollution or protection of the
environment.
1.13 "GAAP" means generally accepted accounting principles, as in
effect from time to time, consistently applied.
1.14 "GUARANTEE" means (a) any guarantee of the payment or
performance of, or any contingent obligation in respect of, any
indebtedness or other obligation of any other Person, (b) any
other arrangement whereby credit or financial assistance is
extended to one obligor on the basis of any promise or
undertaking of another Person (i) to pay the Indebtedness of
such obligor, (ii) to purchase any obligation owed by such
obligor, or (iii) to maintain the capital, working capital,
solvency or general financial condition of such obligor, whether
or not such arrangement is disclosed in the balance sheet of
such other Person or is referred to in a footnote thereto or
appears in a "keep well" agreement, "comfort letter" or "take or
pay" agreement, and (c) any liability of MKL or any of the
Subsidiaries as general partner of a partnership or as a
venturer in a joint venture in respect of Indebtedness or other
obligations of such partnership or venture; provided, however,
that in no event shall Guarantees include product warranties
given or the endorsement of negotiable instruments for deposit
or collection in the ordinary course of business.
1.15 "INDEBTEDNESS" means (a) all indebtedness, obligations and
liabilities for borrowed money and similar monetary obligations
evidenced by bonds, notes debentures, evidences of indebtedness,
capitalized lease obligations, deferred purchase price of
property (other than ordinary trade payables) or otherwise,
whether direct or indirect; and (b) all indebtedness,
<PAGE>
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obligations and liabilities secured by any Liens existing on
property owned or acquired, whether or not the liability secured
thereby shall have been assumed.
1.16 "LEGAL REQUIREMENT" means any national, provincial, regional,
municipal, local or foreign law, statute, standard, ordinance,
code, order, rule, regulation, resolution, promulgation, by-law,
policy, guideline, directive, standard and any other provision
having the force or effect of law or any final order, judgment
or decree of any court, arbitrator, tribunal or governmental
authority, or any license, franchise, permit, certificate,
authorization, registration or similar right granted under any
of the foregoing.
1.17 "LIEN" means (a) any hypothec, priority, mortgage, pledge, lien,
charge, security interest or other similar encumbrance upon any
property or assets of any character, or upon the income or
profits therefrom, whether arising by agreement or under law, or
otherwise (b) any conditional sale or other title retention
agreement or arrangement (including a capitalized lease); (c)
any sale, assignment, pledge or other transfer for security of
any accounts, general intangibles, or chattel paper, with or
without recourse, or (d) any transaction (regardless of form)
which is intended to create any charge or encumbrance on
property to secure the payment or performance of an obligation.
1.18 "MANAGEMENT" means each of Barkworth, Buhrens, Geist, Hemker,
Hilgenstock, Kozak, Dr. Mazur, Vens-Cappel, Schmieder and
Tetzloff.
1.19 "MATERIAL ADVERSE EFFECT" means any (a) material adverse effect
whatsoever upon the validity, performance or enforceability of
this Agreement, (b) material adverse effect upon the business,
assets, financial condition, income or prospects of MKL and the
Subsidiaries on a Consolidated basis, or (c) material adverse
effect upon the ability of the Vendors to perform their
obligations under this Agreement.
For the purposes of this Agreement and the Schedules hereto, the
expression "Material Adverse Effect" when used in reference to
obligations, debts, effects, liabilities or claims, shall mean
an obligation, debt, effect, liability or claim, as the case may
be which involves an amount in excess of DM60,000.
1.20 "MKL AFFILIATE" means any of Buhrens and TREND.
1.21 "PERMITTED LIEN" means those Liens indicated on Schedule 1.21.
1.22 "PERSON" means an individual, partnership, corporation, company,
association, trust, joint venture, unincorporated organization,
business trust, limited liability company and any governmental
or administrative department or agency or political subdivision.
1.23 "PHOENIX AFFILIATES" means John Hooper, Stephane Huguet, Heather
Baker, Judy Zilber, Jean-Yves Caloz, Diane Bouchard, Carmen
Discenza, Lucien Steru, Dominique Steru, Susan Thornton, Greg
Holmes, Claude E. Forget, Bertran Spilker, Robert Raich, David
Goldman, Suzanne Peeters, George Engelberg, Dr. Andreas Wicki
and Cornelius P. McCarthy III.
1.24 "SEC" means the United States Securities and Exchange
Commission.
1.25 "SECURITIES ACT" means the United States Securities Act of 1933,
as amended, and all rules and regulations promulgated
thereunder.
<PAGE>
- 6 -
1.26 "SHARES" means shares in the nominal value of DM1,100,000 of MKL
being all of the issued and outstanding shares of MKL.
1.27 "SUBSIDIARIES" means IPHAR and MKL-USA and "SUBSIDIARY" means
any of the Subsidiaries on an individual basis.
2. SALE AND PURCHASE OF SHARES
2.1 AGREEMENT TO PURCHASE AND SELL SHARES
Upon the terms and subject to the conditions hereof and in
reliance on the representations and warranties of Phoenix set forth in
Section 4, the Vendors hereby sell to Phoenix and, upon the terms and
subject to the conditions hereof and in reliance on the representations
and warranties of the Vendors set forth in Section 3, Phoenix hereby
purchases from the Vendors, the Shares, as set forth below:
<TABLE>
<CAPTION>
VENDOR NUMBER OF SHARES
------ ----------------
<S> <C>
Buhrens DM550,500
Geist DM21,000
Blohm DM21,000
Hilgenstock DM55,500
Hemker DM55,500
Kozak DM55,500
Vens-Cappell DM55,500
Tetzloff DM55,500
J. Henke DM45,000
L. Henke DM45,000
TREND DM140,000
TOTAL DM1,100,000
</TABLE>
2.2 PRICE OF SHARES
The purchase price of the Shares is payable by the issuance by
Phoenix to the Vendors of an aggregate of 873,325 common shares of
Phoenix. The aggregate purchase price for the Shares is to be allocated
among the Vendors as follows:
<TABLE>
<CAPTION>
VENDOR NUMBER OF COMMON SHARES OF PHOENIX
------ ----------------------------------
<S> <C>
Buhrens 437,059
Geist 16,673
Blohm 16,673
Hilgenstock 44,063
Hemker 44,063
Kozak 44,063
Vens-Cappell 44,063
Tetzloff 44,063
J. Henke 35,727
</TABLE>
<PAGE>
- 7 -
<TABLE>
<CAPTION>
VENDOR NUMBER OF COMMON SHARES OF PHOENIX
------ ----------------------------------
<S> <C>
L. Henke 35,727
TREND 111,151
TOTAL 873,325
</TABLE>
(The common shares of Phoenix issued to the Vendors pursuant to this
Section 2.2 are hereinafter collectively referred to as the "Phoenix
Shares".)
2.3 TRANSFER OF SHARES AND PAYMENT OF PURCHASE PRICE
2.3.1 Phoenix hereby acknowledges receipt from each of
Buhrens, Geist, Blohm, Hilgenstock, Hemker, Kozak,
Vens-Cappell, Tetzloff, J. Henke, L. Henke and TREND of
the Shares by notarial deed dated November 6, 1998 of
the Notary Dr. Werner Vogel duly signed, personally or
by his/her attorney with valid power of attorney, by
Buhrens, Geist, Blohm, Hilgenstock, Hemker, Kozak,
Vens-Cappell, Tetzloff, J. Henke, L. Henke and TREND.
2.3.2 Buhrens, Geist, Blohm, Hilgenstock, Hemker, Kozak,
Vens-Cappell, Tetzloff, J. Henke, L. Henke and TREND
hereby acknowledge receipt from Phoenix of certificates
registered in the names of Buhrens, Geist, Blohm,
Hilgenstock, Hemker, Kozak, Vens-Cappell, Tetzloff, J.
Henke, L. Henke and TREND representing 90% of the
purchase price for the Shares.
2.4 ISSUANCE INTO ESCROW
Notwithstanding any provision of this Agreement, upon delivery
of the Phoenix Shares pursuant to Section 2.3, 10% of the aggregate
number of the Phoenix Shares shall be delivered immediately to the
Escrow Agent, on a pro rata basis among the Vendors, to be held and
released by the Escrow Agent pursuant to the terms of this Agreement and
the Escrow Agreement. All such Phoenix Shares shall be issued in the
name of the Escrow Agent, as escrow agent under the Escrow Agreement.
The Vendors hereby acknowledge receipt of such 10% of the purchase price
of the Shares on their behalf by the Escrow Agent.
3. REPRESENTATIONS AND WARRANTIES OF VENDORS
In order to induce Phoenix to enter into this Agreement and to purchase
the Shares hereunder, the Vendors hereby make the following representations and
warranties to Phoenix. The Vendors' liability for the following representations
and warranties shall be joint, and not solidary i.e. pro rata to the number of
Phoenix Shares received by each Vendor according to Section 2.2, except in the
event of fraud with respect thereto.
3.1 SHARES
Each of the Vendors declares that he owns the Shares free and
clear of all Liens and there are no rights or other obstacles of any
nature whatsoever to the sale of the Shares to Phoenix.
3.2 ORGANIZATION
3.2.1 DUE INCORPORATION, ETC. Each of MKL and the Subsidiaries
is duly incorporated or organized and validly exists
under the laws of its jurisdiction of incorporation, and
<PAGE>
- 8 -
is in good standing under the laws applicable to it and
has all necessary corporate capacity and power to own
and lease its property and assets and to carry on the
businesses now conducted or presently proposed to be
conducted by it.
3.2.2 SUBSIDIARIES. MKL does not own or control, directly or
indirectly, or have an interest in, any other
corporation, partnership, association or business entity
other than the Subsidiaries.
3.2.3 MANAGEMENT. The Management of MKL and the Subsidiaries
is exclusively comprised of the Persons referred to in
Section 1.18.
3.2.4 AUTHORIZATIONS AND APPROVALS. All authorizations,
approvals, licences, permits, certificates,
registrations, consents, exemptions or declarations
required in order for each of MKL and the Subsidiaries
to own or lease their property and assets and to carry
on their business in all jurisdictions in which such
property and assets are located or such business is
carried on have been duly obtained or effected and are
in full force and effect except for authorizations,
approvals, licences, permits, certificates,
registrations, consents, exemptions or declarations, the
absence of which, individually or in the aggregate, does
not and shall not result in a Material Adverse Effect.
In particular:
(a) except for permits, certificates, licences,
registrations and other authorizations, the
absence of which, individually or in the
aggregate, does not and shall not result in a
Material Adverse Effect, each of MKL and the
Subsidiaries hold all permits, certificates,
licenses, registrations and other authorizations
required under applicable Environmental Laws for
their operations (the "Environmental Permits");
each such Environmental Permit is valid and in
force and the operations of MKL and the
Subsidiaries are in compliance with the
conditions set out in such Environmental Permits
and their is no ground for revocation, expiry or
annulment of any such Environmental Permits;
(b) except for permits, certificates, licences,
registrations and other authorizations, the
absence of which, individually or in the
aggregate, does not and shall not result in a
Material Adverse Effect, each of MKL and the
Subsidiaries hold all permits, certificates,
licenses, registrations and other authorizations
required under applicable Legal Requirement for
clinical research for the pharmaceutical
industry and pharmaceutical research (the
"Research Permits"); each such Research Permit
is valid and in force, the operations of MKL and
the Subsidiaries are in compliance with the
conditions set out in such Research Permits and
there is no ground for revocation, expiry or
annulment of any such Research Permits.
3.2.5 CORPORATE RECORDS. The Corporate records of MKL and each
of the Subsidiaries are complete and up to date.
<PAGE>
- 9 -
3.2.6 OFFICERS AND DIRECTORS. The officers and directors of
MKL and each of the Subsidiaries have been properly
elected or appointed in accordance with applicable laws
and the relevant articles of incorporation or other
constituting documents.
3.2.7 CORPORATE ACTION. All necessary action has been taken by
MKL, to authorize the execution of this Agreement and
the consummation of the transactions contemplated
hereby.
3.3 CAPITALIZATION
3.3.1 SHARE CAPITAL OF MKL. The outstanding share capital of
MKL is exhaustively set forth in Schedule A, all of
which has been validly issued and is fully paid and
non-assessable. Each of the Vendors declares that his
Shares are subject to no Lien, adverse claim or
restriction on transfer, except restrictions on transfer
under this Agreement.
3.3.2 OPTIONS, ETC. Other than as set forth in Schedule A and
Schedule 3.3.2, MKL does not have outstanding (a) any
rights (either preemptive or otherwise) or options to
subscribe for or purchase, or any warrants or other
agreements providing for or requiring the issuance of,
any shares or any securities convertible into or
exchangeable for its shares, (b) any obligation to
redeem, purchase or otherwise acquire or retire any of
its shares, any securities convertible into or
exchangeable for its shares or any rights, options or
warrants with respect thereto, (c) any rights to require
MKL to qualify for distribution for securities laws
purposes, or (d) any restrictions on voting.
3.3.3 CAPITAL STOCK OF THE SUBSIDIARIES. The issued and
outstanding shares of each Subsidiary are as set forth
in Schedules B and C. The issued and outstanding shares
of each Subsidiary are validly issued, and paid and
non-assessable and subject to no Lien, adverse claim or
restriction on transfer, other than as set forth in
Schedule 3.3.3.
3.3.4 SUBSIDIARY OPTIONS, ETC. Other than as set forth in
Schedule 3.3.4, none of the Subsidiaries has outstanding
(a) any rights (either preemptive or otherwise) or
options to subscribe for or purchase, or any warrants or
other agreements providing for or requiring the issuance
of, any shares or any securities convertible into or
exchangeable for its shares, (b) any obligation to
redeem, purchase or otherwise acquire or retire any of
its shares, any securities convertible into or
exchangeable for its shares or any rights, options or
warrants with respect thereto, (c) any rights to require
the Subsidiary to qualify for distribution for
securities laws purposes, or (d) any restrictions on
voting.
3.3.5 NO COMMITMENTS AFFECTING SHARES, ETC. Other than as set
forth in Schedule 3.3.5, neither MKL nor any of the
Subsidiaries is a party to or bound by any agreement,
commitment or understanding, whether verbal or written,
affecting its shares or the participating or voting
rights attached thereto.
<PAGE>
- 10 -
3.4 REPORTS, FINANCIAL STATEMENTS AND OTHER DOCUMENTS
Phoenix has been provided with complete and correct copies of
audited financial statements of MKL and IPHAR for the years ended
December 31, 1995, 1996 and 1997 and for the eight-month period ended
August 31, 1998, copies of which are attached hereto as Schedule 3.4A.
The financial statements of MKL and the Subsidiaries referred to
above have been prepared in accordance with German GAAP and all such
financial statements fairly present the financial condition of MKL and
the Subsidiaries at the dates thereof and the results of their
operations for the periods covered thereby. Other than as set forth in
Schedule 3.5, neither MKL nor any of the Subsidiaries has material
liabilities, contingent or otherwise, which are not referred to in the
financial statements.
The financial statements for the year ended December 31, 1995,
1996 and 1997, copies of which are attached hereto as Schedule 3.4A have
been properly approved by the annual general meetings of shareholders of
the relevant entities in due form without reservation. The last general
meeting of the shareholders of each of MKL and IPHAR were held on May
13, 1998 and May 13, 1998, respectively and there has been no meeting of
shareholders of MKL and IPHAR since then.
For purposes of financial presentation, MKL and the subsidiaries
recognize net revenue from their contracts on a percentage of completion
basis as work is performed. The percentage of completion, and
consequently the revenue to be recorded, of each individual contract is
determined through detailed analysis and discussion between all
appropriate operational and financial department management. Although
MKL and the subsidiaries do not require collateral for unpaid balances,
credit losses have consistently been within Management's expectations.
Certain contracts contain provisions for price adjustment for cost
overruns. Such adjusted amounts are included in service revenue when
realization is assured and the amounts can be reasonably determined. In
the period in which it is determined that a loss will result from the
performance of a contract, the entire amount of the estimated ultimate
loss is charged against income.
Since January 1, 1998, the business of MKL and the Subsidiaries
has been operated in the customary fashion and no revenues that would
have been earned by MKL or the Subsidiaries have been earned by any
Person who is an Affiliate of any of the Vendors.
Notwithstanding anything else in this Agreement, including,
without limitation, the provisions of this Section 3.4, the Vendors make
no representation or warranty of any kind whatsoever with respect to
future business, financial performance or future profitability of MKL.
3.5 OFF BALANCE SHEET OBLIGATIONS
Schedule 3.5 contains a complete list of the off-balance sheet
obligations of MKL and the Subsidiaries, including all guarantees and
obligations to the benefit of the Vendors, members of their families or
third parties.
3.6 CHANGES IN CONDITION
Since January 1, 1998:
3.6.1 MATERIAL ADVERSE EFFECT. No event having a Material
Adverse Effect has occurred.
<PAGE>
- 11 -
3.6.2 EXTRAORDINARY TRANSACTIONS, ETC. Other than as set forth
in Schedule 3.4A, neither MKL nor any of the
Subsidiaries has (a) made any Distribution, (b) other
than as set forth in Schedule 3.6.2, made any payment
(other than Compensation of its directors, officers and
employees in amounts in effect prior to January 1, 1998
or for bonuses accrued in accordance with normal
practice prior to January 1, 1998) to any of the
Vendors, (c) other than as set forth in Schedule 3.6.2,
increased the Compensation, including bonuses, payable
or to be payable to any of its directors, officers or
employees by more than 5%, or (d) entered into any
Contractual Obligation, or entered into or performed any
other transaction, not in the ordinary and usual course
of business and consistent with past practice.
3.6.3 INVENTORY AND WORK-IN-PROGRESS. The value of inventory
and work-in-progress reflected in the financial
statements of MKL and the Subsidiaries has been
established in accordance with German GAAP and there has
been no material change in the period subsequent to
December 31, 1997, other than in the ordinary and usual
courses of business.
3.6.4 REVENUES. The business of MKL and the Subsidiaries has
been operated in the customary fashion and no revenues
that would have been earned by MKL or the Subsidiaries
have been earned by any Person which is an Affiliate of
any of the Vendors.
3.7 SOLVENCY
Each of MKL and the Subsidiaries shall be able to pay its
liabilities existing at the time of the signing of this Agreement as
they become due.
3.8 CONTRACTUAL OBLIGATIONS, ETC.
3.8.1 CERTAIN CONTRACTS. Schedule 3.8.1 contains, together
with a reference to the subparagraph pursuant to which
each item is being disclosed, a correct and complete
list of all Contractual Obligations of MKL and the
Subsidiaries of the types described below:
(a) All collective bargaining agreements; all
agreements with any member of the Management, a
list of all employees, all profit sharing,
profit participation, deferred compensation,
bonus, stock option, stock purchase, pension,
retainer, consulting, retirement, welfare or
incentive plans or agreements; and all plans,
agreements or practices which constitute
Compensation or "fringe benefits" to any of the
employees of MKL or the Subsidiaries, including
vacation programs, sick leave programs, group
medical insurance, group life insurance,
disability insurance and related benefits.
(b) All Contractual Obligations under which MKL or
the Subsidiaries are restricted from carrying on
any business, venture or other activities
anywhere in the world.
(c) All Contractual Obligations (including options)
to sell, lease (as lessor), exchange or
otherwise dispose of or transfer any of the
properties or assets of MKL or the Subsidiaries
except in the ordinary course of business.
<PAGE>
- 12 -
(d) All Contractual Obligations pursuant to which
MKL or the Subsidiaries guarantees or otherwise
assumes any liability of or gives financial
assistance to any Person, or pursuant to which
any Person guarantees or otherwise assumes any
liability of MKL or the Subsidiaries.
(e) All Contractual Obligations constituting license
agreements, service agreements, consulting
agreements or other similar arrangements, the
termination of which, individually or in the
aggregate, would result in a Material Adverse
Effect.
(f) All Contractual Obligations under which MKL or
any of the Subsidiaries leases immovable
property or is obligated to lease or purchase
immovable property or incur capital expenditures
in excess of DM60,000 annually.
(g) All Contractual Obligations of MKL or the
Subsidiaries relating to the borrowing of money
or to the creation of a Lien, other than a
Permitted Lien, on any property or asset of MKL,
or the Subsidiaries.
(h) All Contractual Obligations of MKL or any of the
Subsidiaries requiring a notice exceeding six
months for termination and involving
expenditures in excess of DM60,000.
3.8.2 NATURE OF CONTRACTS. All of the Contractual Obligations
of MKL and the Subsidiaries at the Completion Date are
enforceable against MKL and the Subsidiaries, the other
parties thereto, in accordance with their terms, except
as such enforcement may be limited by bankruptcy,
insolvency or other laws of general application
affecting the rights of creditors and except that
specific performance is an equitable remedy which may
only be awarded in the discretion of the court; and
except for Contractual Obligations the failure of which
to be so enforceable does not and shall not,
individually or in the aggregate, result in a Material
Adverse Effect. Except for breaches, defaults and
liabilities which do not and shall not individually or
in the aggregate result in a Material Adverse Effect,
neither MKL nor any of the Subsidiaries is now in
default, and no event has occurred which with notice or
lapse of time or both would constitute a default under,
nor are there any liabilities arising from any breach or
default by any of them or event which with notice or
lapse of time or both would constitute a default by any
of them prior to the Completion Date of, any provision
of any such Contractual Obligation.
3.8.3 ARTICLES. Neither MKL nor any of the Subsidiaries is in
violation of, or in default under, any provision of its
articles or constituting documents and Phoenix has been
provided with complete and correct copies of such
articles or constituting documents.
3.8.4 INSURANCE. Each of MKL and IPHAR carries insurance
policies with independent third party insurers according
to Schedule 3.8.4. All such policies are in full force
and effect and free from any present right of
termination on the part of the applicable insurance
carriers. There are no outstanding unpaid premiums
except in the ordinary course of business, and neither
MKL nor any Subsidiary has received any notice of
cancellation or non-renewal of any such policy. Neither
MKL nor any Subsidiary is aware of any risks,
situations, occurrences or other matters which have been
disclosed, or should have been disclosed, to insurance
carriers or brokers in
<PAGE>
- 13 -
connection with any application for such insurance as a
result of which an insurance carrier would have a right
to cancel the corresponding insurance policy or deny
coverage with respect to any rights under any such
policies. There exists no event of default or event,
occurrence, condition or act (including the transactions
contemplated by this Agreement) which, with the giving
of notice, the lapse of time or the happening of any
further event or condition, would become a default or
occasion a material premium increase under any such
policy or give rise to, and neither MKL nor any
Subsidiary has any anticipation of, any termination or
cancellation thereof or material premium increase
therefor.
3.8.5 INSURANCE CLAIM. Each of the Vendors declares that after
thorough internal investigation, there is no known fact,
situation or circumstance involving the Company or one
of the Subsidiaries or their directors or officers,
which would reasonably be expected to result in any
future claim being made against the Company or any
Subsidiaries.
3.8.6 DISPUTE. Neither MKL nor any of the Subsidiaries has
received any notice from any supplier, vendor,
contractor, customer or client with which MKL or such
Subsidiary has conducted business during the one-year
period ending on the date of this Agreement confirming
such Person's intention to reduce the volume under,
terminate or otherwise alter any Contractual Obligation
with MKL or any Subsidiary, the effect of which,
individually or in the aggregate, would result in a
Material Adverse Effect.
3.9 OPERATIONS IN CONFORMITY WITH LAW, ETC.
The operations of MKL and the Subsidiaries as now conducted, and
their properties, assets, equipments, buildings, immoveables and leased
or occupied properties, are not, and have not been, in violation of, nor
is MKL or any of the Subsidiaries in default and no event has occurred
which with notice or lapse of time or both would constitute a default
under, any applicable Legal Requirements including, in particular, any
applicable Environmental Laws or applicable Legal Requirements regarding
clinical research and experimentation on humans, except for such
violations and defaults as do not and shall not, in the aggregate, have
a Material Adverse Effect. Neither MKL nor any of the Subsidiaries has
received notice of any such violation or default and neither the Vendors
nor the Management have knowledge of any basis on which the operations
of MKL or any of the Subsidiaries, when conducted as currently proposed
to be conducted after the Completion Date, would be held so as to
violate or to give rise to any such violation or default. MKL and the
Subsidiaries have all franchises, licenses, permits, certificates,
authorizations, registrations or other authority presently necessary for
the conduct of their business as now conducted, except for franchises,
licences, permits, certificates, authorizations, registrations or other
authority, the absence of which, individually or in the aggregate, does
not and shall not result in a Material Adverse Effect. Based on the
facts presently known to the Vendors and Management, all future
expenditures on the part of MKL and the Subsidiaries required to meet
the provisions of any presently existing applicable Legal Requirements
(including Legal Requirements relating to employment practices or to
occupational or health standards or to environmental considerations)
shall not, in the aggregate, have a Material Adverse Effect. MKL and the
Subsidiaries have complied and are in compliance with applicable
competition regulations and have, to the best of Vendors' and
Management's knowledge, never infringed fair competition in the markets
where they operate, either with or towards third companies or between
themselves. MKL and the Subsidiaries do not hold separately or together
a dominant position on the markets involved and their market share and
net aggregate turnover do not meet the European or German thresholds
which
<PAGE>
- 14 -
authorizes European or domestic competition authorities to control the
operation and impede the completion of the transaction contemplated
hereby.
3.10 INTELLECTUAL PROPERTY
Schedule 3.10 contains a list of all the trade-marks, trade
names and patents used by any of MKL or the Subsidiaries (collectively
"Used Intellectual Property"). The entity indicated in said Schedule as
owner of Used Intellectual Property is the registered and beneficial
owner of such Used Intellectual Property or the registration thereof, if
applicable, (except as set forth in Schedule 3.10), with good and
marketable title, unencumbered (except for Permitted Liens), and with
full right to sell, assign or otherwise transfer or license to others
and subject to no pending challenge, refutation, expiry or termination
other than as set forth in Schedule 3.10. To the Vendors' and
Management's knowledge, other than as set forth in Schedule 3.10, none
of MKL or the Subsidiaries uses any intellectual property not owned by
it, other than software purchased "off the shelf", all of which each
entity using said property has the right to use (collectively "Licenced
Intellectual Property"). (Used Intellectual Property and Licensed
Intellectual Property are sometimes hereinafter referred to collectively
as "Intellectual Property"). None of MKL or the Subsidiaries is required
to pay royalties, fees or other consideration to any other person with
respect to the use of any of the Intellectual Property or in connection
with the conduct of its business or otherwise. To the Vendors' and
Management's knowledge, none of MKL or the Subsidiaries has infringed
the intellectual or industrial property rights of any other person, nor
has any of them used any intellectual or industrial property (including,
without limitation, trademarks, trade names, patents, models, designs
and copyrights) which it does not own or have the right to use other
than as set forth in Schedule 3.10. There are no outstanding claims
asserted against any of MKL or the Subsidiaries alleging the
infringement or the misappropriation by any of them of any intellectual
or industrial property. None of MKL or the Subsidiaries has granted any
licences or sub-licences to third parties with respect to any of the
Intellectual Property other than as set forth in Schedule 3.10 and
neither the Vendors nor Management has any knowledge of any infringement
or misappropriation by any other Person of any of the Intellectual
Property. Neither the execution nor delivery of this Agreement will
constitute a breach of or a default under any agreement relating to the
Intellectual Property.
3.11 ENVIRONMENTAL MATTERS
3.11.1 MKL and the Subsidiaries, their employees, agents,
shareholders, directors and officers (acting in their
capacity of employees, agents, shareholders, directors
or officers of MKL or of one of the Subsidiaries) have
never been declared guilty of committing an offence for
a violation of Environmental Laws and have never been
fined for such an offence or have otherwise settled such
a prosecution in connection with the activities of MKL
and the Subsidiaries;
3.11.2 There are no contaminants, waste or pollutants of any
kind whatsoever in, on or under the equipment,
buildings, immoveables or properties owned, leased or
occupied by MKL or any of the Subsidiaries and caused by
MKL, the Subsidiaries or their employees, agents,
shareholders, directors or officers (acting in their
capacity of employees, agents, shareholders, directors
or officers of MKL or one of the Subsidiaries), the
presence of which constitutes a violation of applicable
Environmental Laws and the presence of which,
individually or in the aggregate, constitutes a Material
Adverse Effect;
<PAGE>
- 15 -
3.11.3 Neither MKL nor any of the Subsidiaries has received any
written notice or request for information in the context
of any national, supra-national, provincial, regional,
local or municipal environmental investigation or
inspection;
3.11.4 There are no PCBs, asbestos or urea formaldehyde
insolation in, on or under the equipment, buildings,
immoveables or properties owned, leased or occupied by
MKL or the Subsidiaries;
3.11.5 There is no action, suit or proceeding pending in
relation to environmental matters against MKL or the
Subsidiaries, its employees, agents, shareholders,
directors and officers (acting in their capacity of
employees, agents, shareholders, directors or officers
of MKL or of one of the Subsidiaries), or involving MKL
or the Subsidiaries or its assets, before any judicial
body, tribunal, commission, agency or other governmental
entity, and to the Vendors' knowledge and to the
knowledge of Management, there is no threat of, or event
or fact based on which, such action, suit or proceeding
may be instituted;
3.11.6 To the knowledge of Management and the Vendors, MKL and
the Subsidiaries are in compliance with all applicable
Environmental Laws.
3.12 LABOUR AND EMPLOYMENT MATTERS
3.12.1 Without limiting the generality of Section 3.9, each of
MKL and the Subsidiaries has complied with all
applicable laws relating to the employment of labour,
including provisions thereof relating to wages, hours
and collective bargaining rights.
3.12.2 Other than as disclosed under Section 3.8, there is no
collective agreement by which MKL or any of the
Subsidiaries is bound which relates to the employees of
MKL or the Subsidiaries. To the knowledge of the Vendors
and to the knowledge of Management, there are no
threatened or pending attempts to organize or establish
any labour union or employee association in connection
with the business of MKL or any of the Subsidiaries. To
the knowledge of the Vendors and to the knowledge of
Management, there is no pending or threatened labour
dispute, grievance, strike, or work stoppage materially
affecting the business of any of MKL or any of the
Subsidiaries. Neither MKL nor any of the Subsidiaries is
a party to any other written employment agreement,
contract, arrangement, management contract or service
contract affecting employees other than as set forth in
Schedule 3.8.1, nor are any such contracts, agreements,
arrangements, management contracts or service contracts
being currently negotiated or proposed other than in the
ordinary course of business.
3.12.3 There exist no retirement plans, profit sharing, option
or incentive plans, or other employee benefit plans for
employees of MKL or any of the Subsidiaries other than
as set forth in Schedule 3.8.1 for which adequate
arrangements have been made since January 1, 1998 to set
aside the requisite amounts in the prescribed fashion,
and neither MKL nor any of the Subsidiaries has promised
or intends to implement other such plans.
3.12.4 Other than as set forth in Schedule 3.12.4, neither MKL
nor any of the Subsidiaries has any employee who cannot
be dismissed without further liability upon such notice
period not exceeding what it is required by the
applicable Legal Requirement.
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3.12.5 Each of MKL's or any of the Subsidiary's employees who
is practising as a physician, nurse or pharmacist is
identified in Schedule 3.12.5, and each such employee is
duly licensed and in good standing to practice as a
physician, nurse or pharmacist, as the case may be, in
each jurisdiction in which such employee renders
services for or on behalf of MKL or any Subsidiary. None
of the employees listed on Schedule 3.12.5 is or has
been subject to any claim in connection with his or her
practice as physician, nurse or pharmacist while
employed by MKL or the Subsidiary, as the case may be,
and no fact or occurrence is known to the Management to
exist which is likely to give rise to the revocation of
any such licence.
3.12.6 None of MKL's or any of the Subsidiary's employees has
signed non-compete covenants in favour of MKL or the
Subsidiary.
3.13 TAXES
Other than as set forth in Schedule 3.13, all tax returns
required to be filed by MKL and the Subsidiaries in any jurisdiction
have been filed and all taxes, assessments, levies and other
governmental charges upon MKL and the Subsidiaries or upon any of their
properties or income, including any tax in respect of value added, have
been paid if and when due unless such payment is being contested in good
faith and by appropriate proceedings and adequate reserves with respect
thereto determined in accordance with applicable policies have been
established by MKL and the Subsidiaries. There is no tax revision
threatened in writing against MKL and any of the Subsidiaries and there
is no basis for such assessment.
3.14 WITHHOLDINGS
Each of MKL and the Subsidiaries has withheld from each payment
made to any of its shareholders, officers, directors, non-resident
creditors and employees the amount of all taxes and other deductions
required to be withheld and has remitted all such amounts to the
appropriate authorities within the prescribed times, and has otherwise
fulfilled all requirements of all Legal Requirements governing such
deductions and withholdings. Each of MKL and the Subsidiaries has
remitted to the proper authorities all employer contributions due and
payable under all social security, occupational health and safety and
pension plans.
3.15 GOOD TITLE
Other than as set forth in Schedule 3.15 and Schedule 1.21, each
of MKL and the Subsidiaries has good and marketable title to all assets
in the balance sheets as per December 31, 1998 and August 31, 1998 free
and clear of Liens and other adverse claims.
3.16 LITIGATION
Other than as set forth in Schedule 3.16, no litigation or
proceeding before, or investigation by, any foreign, national,
supra-national or municipal, judicial, tax or customs tribunal or board
or other governmental or administrative agency or any arbitrator, is
pending or threatened (or, according to Management's knowledge, does any
basis exist therefor), against MKL or the Subsidiaries or, to the
Vendors' knowledge or to the knowledge of Management, any director or
officer of MKL or any of the Subsidiaries, which individually or in the
aggregate could result in a Material Adverse Effect, or which seeks
rescission of, seeks to enjoin the consummation of, or which questions
the validity of, this Agreement or any of the transactions contemplated
hereby. Neither MKL nor the Subsidiaries has
<PAGE>
- 17 -
been charged, nor to the Vendors' knowledge or to the knowledge of
Management, is it threatened to be charged, with infringement of any
trademark, trade name, service mark, copyright, patent, patent right or
other proprietary right of any Person.
3.17 PRESS COVERAGE
Neither MKL nor any of the Subsidiaries has been the object of
any demonstrations, press campaigns or other attacks due to the nature
of its activities.
3.18 VIOLATION OF OTHER INSTRUMENTS
Neither the execution and delivery of this Agreement by the
Vendors, the consummation of any of the transactions contemplated hereby
or in Schedule 3.18, shall (a) constitute a breach of or a default or an
event which with notice or lapse of time or both would constitute a
default under any Contractual Obligation of MKL or any of the
Subsidiaries, (b) result in acceleration in the time for performance of
any obligation of MKL or the Subsidiaries under any such Contractual
Obligation, (c) result in the creation of any Lien upon any property or
asset of MKL or the Subsidiaries, (d) require any consent, waiver or
amendment to any such Contractual Obligation that has not been obtained
and remains in full force and effect, (e) give rise to any severance
payment, right of termination, securities purchase or redemption right
or other right under any such Contractual Obligation, or (f) violate or
give rise to a default or an event which with notice or lapse of time or
both could constitute a default under any Legal Requirements, except for
events or conditions described in clauses (a) through (f) above which
shall not, individually or in the aggregate, have any Material Adverse
Effect or (g) result in any state of facts which could have a Material
Adverse Effect, and except for events or conditions described in
Schedule 3.18.
3.19 APPROVALS, CONSENTS, ETC.
Other than as set forth in Schedule 3.19, no approval, consent,
authorization or other order of, and no declaration, filing,
registration, qualification or recording with, any governmental
authority or any other Person is required to be made by or on behalf of
the Vendors, MKL or any of the Subsidiaries in connection with the
execution, delivery or performance of this Agreement or any of the
transactions contemplated hereby.
3.20 INVESTMENT OR DIVESTITURE
Schedule 3.20 contains a complete list of all investments and
divestitures in process which are not mentioned in the financial
statements of MKL and the Subsidiaries (balance sheet, statement of
earnings and schedules) for the period ended August 31, 1998 and which
are not in the ordinary course of business.
3.21 FULL DISCLOSURE
Disclosure made by the Vendors in respect of one of the
representations contained in this Section 3 is considered being made in
respect of all other representations. There is no fact that the Vendors,
to the best of their knowledge, have not disclosed to Phoenix which
could have a Material Adverse Effect on the properties, business,
prospects or condition (financial or otherwise) of MKL or any of the
Subsidiaries. Neither the reports, financial statements and other
documents referred to in Section 3.4, nor any certificate, statement or
document forming part of this Agreement contains any
<PAGE>
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untrue statement of a fact or omits to state any fact necessary to keep
the statements contained herein or therein from being misleading in a
manner that would constitute a Material Adverse Effect.
4. REPRESENTATIONS AND WARRANTIES OF PHOENIX
Phoenix represents and warrants to the Vendors that:
4.1 DUE INCORPORATION, ETC.
Phoenix is duly incorporated, validly exists and is in good
standing under the Canada Business Corporations Act and has all
necessary corporate capacity and power to own and lease its property and
assets and to carry on the business now conducted by it.
4.2 SHARE CAPITAL OF PHOENIX
The authorized share capital of Phoenix is composed of an
unlimited number of common shares and an unlimited number of preferred
shares issuable in series of which, as at November 4, 1998, there were
24,857,059 common shares issued and outstanding.
4.3 OPTIONS
Other than the options to acquire common shares of Phoenix
granted pursuant to Phoenix's Key Employee Share Option Plan, shares to
be issued to Dorn Cook under an earn-out formula which has been
disclosed to the Vendors and an approximate number of 1,800,000 common
shares of Phoenix to be issued in connection with proposed acquisitions,
Phoenix does not have any rights or options to subscribe for, or any
warrants or other agreements providing for or requiring the issuance of
common shares or preferred shares.
4.4 DUE AUTHORIZATION
All necessary corporate action has been taken by Phoenix to
authorize the execution of this Agreement and the consummation of the
transactions contemplated hereby, including the issuance of the Phoenix
Shares as fully paid and non-assessable in consideration for the
purchase of the Shares.
4.5 STOCK EXCHANGE APPROVALS
The listing of the Phoenix Shares on The Montreal Exchange and
the Toronto Stock Exchange has been approved by such exchanges, subject
to Phoenix fulfilling all of the standard requirements of such exchanges
before November 27, 1998 and the Phoenix Shares are not subject to any
statutory hold period or resale restrictions under the SECURITIES ACT
(Quebec) or any other contractual resale restrictions other than as
mentioned in this Agreement. However, the sale of the Shares in the
province of Quebec will constitute a distribution requiring the
establishment of a prospectus or an exemption therefrom except if such
sale is effected on a stock exchange or on the over-the-counter-market.
Phoenix is a reporting issuer in good standing under the SECURITIES ACT
(Quebec).
<PAGE>
- 19 -
4.6 PHOENIX SHARES
The Phoenix Shares will at the time of issuance be duly
authorized, validly issued, fully paid and non-assessable common shares
in the share capital of Phoenix and registered in the names of the
Vendors or the Escrow Agent, as the case may be, on the share registers
of Phoenix.
4.7 UNDERTAKING
Phoenix undertakes, on a best effort basis, to obtain a release
of the guarantee provided by Buhrens to Hamburger Sparkasse in favour of
MKL.
5. POOLING OF INTERESTS
5.1 ACCOUNTING TREATMENT
Phoenix, MKL and the Vendors intend and desire for the
transactions contemplated by this Agreement to qualify for "pooling of
interests" treatment for US GAAP purposes in accordance with Accounting
Principles Board Opinion No. 16.
5.2 POOLING LETTERS
On or prior to the Completion Date, MKL shall cause to be
executed and delivered to Ernst & Young, auditors to Phoenix, and to
Phoenix a letter or letters, dated the Completion Date, from MKL's
shareholders in form and substance reasonably satisfactory to Phoenix
and its auditors relating to "pooling of interests" accounting (the "MKL
Pooling Letter"). On or prior to the Completion Date, Phoenix shall
deliver to Ernst & Young, auditors to Phoenix, a letter or letters,
dated the Completion Date, from Phoenix's management in form and
substance reasonably satisfactory to its auditors relating to "pooling
of interests" accounting.
5.3 OPINIONS OF ACCOUNTANTS AND AUDITORS OF PHOENIX
On or prior to the Completion Date, Phoenix shall have received
a letter, dated the Completion Date, from Ernst & Young, accountants and
auditors to Phoenix, in form and substance satisfactory to Phoenix,
regarding the appropriateness of pooling of interests treatment for the
transactions contemplated herein.
5.4 OPINIONS OF ACCOUNTANTS AND AUDITORS OF MKL
On or prior to the Completion Date, MKL and Phoenix shall have
received a letter, dated the Completion Date, from Bernd Rohrberg,
accountant and auditor of MKL, attesting to the validity of the MKL
Pooling Letter referred to in Section 5.2, in form and substance
satisfactory to MKL and Phoenix.
5.5 PLACEMENT AND STOCK TRANSFER RESTRICTIONS AND RELATED MATTERS
Each party to this Agreement agrees that from and after the date
of this Agreement, such party shall not knowingly take any action, or
knowingly fail to take any action, which action or failure is reasonably
likely to disqualify the transactions contemplated by this Agreement
from pooling of interests accounting treatment by Phoenix, and that such
party shall take all reasonable actions necessary to cause the
transactions contemplated by this Agreement to qualify as a pooling of
interest,
<PAGE>
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if such characterization shall be jeopardized by action taken by such
party. Without limiting the foregoing, each Vendor who is a Pooling
Affiliate of MKL agrees that such Vendor shall not sell, transfer,
pledge, or otherwise dispose of such Vendor's interests in or reduce
such Vendor's risk relative to any of the Phoenix Shares until Phoenix
shall have published financial results (including combined sales and net
income) covering at least thirty (30) days of combined operations of
Phoenix and MKL after the Completion Date. No later than April 30, 1999,
Phoenix shall prepare and publish such financial results for the first
full month of operations following the Completion Date. Each of the
Vendors and MKL acknowledge and agree with Phoenix that none of the
Vendors or MKL is a party to any agreement or arrangement among
themselves or with third parties regarding the transactions contemplated
by this Agreement or the subject matter hereof.
Prior to the Completion Date, Phoenix shall deliver to MKL a
list of names and addresses of those persons who are or may be, in
Phoenix's reasonable judgement, Affiliates of Phoenix within the meaning
of Rule 145 of the rules and regulations promulgated under the
Securities Act or applicable SEC accounting releases with respect to
pooling of interests accounting treatment (each such persons, a "Pooling
Affiliate"). Phoenix also shall provide MKL with such information and
documents as MKL shall reasonably request for purposes of reviewing such
list. Prior to the Completion Date, Phoenix shall deliver to MKL an
affiliate letter, in form and substance reasonably satisfactory to MKL,
executed by each of the Pooling Affiliates identified in the foregoing
list.
Prior to the Completion Date, MKL shall deliver to Phoenix a
list of names and addresses of those persons who are or may be, in MKL's
reasonable judgment, Pooling Affiliates of MKL. MKL also shall provide
Phoenix with such information and documents as Phoenix shall reasonably
request for purposes of reviewing such list. Prior to the Completion
Date, MKL shall deliver to Phoenix an affiliate letter, in form and
substance reasonably satisfactory to Phoenix, executed by each of the
Pooling Affiliate of MKL identified in the foregoing list.
6. EMPLOYMENT AGREEMENT
6.1 EMPLOYMENT AGREEMENTS WITH BUhrens and Tetzloff
Buhrens and MKL shall execute an employment agreement
satisfactory in form and content to Phoenix and MKL.
Tetzloff and MKL shall execute an employment agreement
satisfactory in form and content to Phoenix and IPHAR.
7. SURVIVAL OF REPRESENTATIONS; INDEMNITY
7.1 SURVIVAL OF REPRESENTATIONS
The respective representations and warranties of the Vendors
contained in this Agreement or in any schedule attached hereto shall
survive the consummation of the transactions contemplated hereby and
shall remain in full force and effect notwithstanding any investigation
or examination of, or knowledge with respect to, the subject matter
thereof by or on behalf of Phoenix until the earlier of November 6, 1999
or the date of completion of the audit of the combined financial
statements of Phoenix and MKL (the period ending on such date being
referred to herein as the "Representations Period"), except that such
representations and warranties shall survive indefinitely in the event
of fraud with respect thereto. No claim for indemnification pursuant to
Section 7.2.1 below may be brought after the expiration of the
Representations Period, except for claims made in good faith in
<PAGE>
- 21 -
writing prior to such expiration and setting forth in reasonable detail
the claim, regardless of whether any action or demand has been commenced
against Phoenix (it being understood without limitation, that any and
all Losses (as defined below) arising after the expiration of the
Representations Period shall be recoverable upon notice properly given
prior to the expiration of the Representations Period in accordance with
this Section 7.1). The representations and warranties of Phoenix
contained in this Agreement or in any schedule attached hereto shall
terminate upon and not survive the Completion Date, except in the event
of fraud by Phoenix with respect thereto, in which case they shall
survive indefinitely.
7.2 INDEMNIFICATION
7.2.1 From and after the Completion Date, Phoenix and its
Affiliates (including MKL and the Subsidiaries) and all
of their respective officers, directors, employees,
agents and shareholders (each, an "Indemnitee") shall be
defended, indemnified and held harmless by the Vendors
pursuant to this Agreement and the Escrow Agreement to
the full extent permitted by law, from and against any
and all losses, evictions, claims, actions, damages,
liabilities, costs and expenses (including attorneys'
fees and expenses) (collectively, "Losses") relating to
or arising from or in connection with (i) any
misrepresentation or any non-fulfilment of any
representation, warranty, covenant, obligation or
agreement by any Vendor contained in or made pursuant to
this Agreement or any other document, agreement,
officer's certificate or other certificate delivered to
Phoenix in connection with this Agreement, and (ii) the
enforcement by Phoenix of its rights pursuant to this
Section 7.2, or any litigation, proceeding or
investigation relating to any of the foregoing. The
indemnification obligations of the Vendors pursuant
hereto shall be joint and not solidary, i.e. prorata to
the number of Phoenix Shares received by each Vendor in
accordance with Section 2.2.
7.2.2 Notwithstanding the foregoing provisions of this Section
7.2, but except with respect to any Losses resulting
from or arising out of fraud or other intentional or
willful misconduct or misrepresentation, (i) the maximum
aggregate recourse by the Indemnitees pursuant to
Section 7.2.1 above shall not exceed the aggregate value
(calculated by adding together the opening and closing
prices of the common shares of Phoenix on each of the
Toronto Stock Exchange and The Montreal Exchange for
each of the ten trading days preceding the Completion
Date, and dividing this sum by 40) of the Escrowed
Securities (the "Indemnity Cap"), and (ii) the sole
recourse of any Indemnitee in respect of Losses (but not
in respect of fraud or other intentional or willful
misconduct or misrepresentation) shall be from, out of,
and to the extent of the Escrowed Securities. It being
understood that the Indemnitees shall in no
circumstances be entitled to recover the property of the
Phoenix Shares transferred under this Agreement. Any
indemnification shall be payable by the return of
Escrowed Securities to Phoenix in accordance with the
provisions of the Escrow Agreement. In particular, the
number of Escrowed Shares to be remitted to Phoenix in
payment of any indemnification obligation shall be
calculated on the basis of the average price of the
Escrowed Shares obtained by adding together the opening
and closing prices of the common shares of Phoenix on
each of the Toronto Stock Exchange and The Montreal
Exchange for each of the ten trading days preceding the
Completion Date, and dividing this sum by 40. All
dividends or other distributions received by a Vendor in
respect of common shares of Phoenix which are remitted
to
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Phoenix in satisfaction of an indemnification obligation
under this Section 7, shall also be repaid to Phoenix at
the time of payment of indemnification.
7.2.3 Notwithstanding any other provision of this Agreement,
as of and after the Completion Date, MKL shall not have
any liability under this Agreement, and no Vendor shall
threaten or bring any claim or action whatsoever against
MKL for contribution to any amounts payable under this
Section 7.2 by such Vendor.
8. NOTICES
Any demand, notice or other communication to be given in connection with
this Agreement shall be given in writing and shall be given by personal
delivery, by registered mail or by electronic means of communication addressed
to the recipient as follows:
8.1 To Phoenix:
Phoenix International Life Sciences Inc.
2350, Cohen Street
Saint-Laurent, Quebec
H4R 2N6 Canada
Telecopier No.: (514) 333-7306
ATTENTION: JEAN-YVES CALOZ
8.2 To Buhrens
Prof. Dr. Klaus-Georg Buhrens
Buchtallee 4a
21465 Reinbek, Germany
8.3 To Geist:
Dr. Martin Geist
Georgiweg 43
22453 Hamburg, Germany
8.4 To Blohm:
Dr. Bernk Blohm
Buchtallee 23
21465 Reinbek, Germany
8.5 To Hilgenstock:
Dr. Christian Hilgenstock
Gronenweg 73
22549 Hamburg, Germany
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8.6 To Hemker:
Dr. Claus Hemker
Feldblick 2
22397 Hamburg, Germany
8.7 To Kozak:
Dr. Ivan Kozak
Kopeniker Str. 15
22045 Hamburg, Germany
8.8 To Vens-Cappell:
Dr. Bernhard Vens-Cappell
Wurtkamp 12
22527 Hamburg, Germany
8.9 To Tetzloff:
Dr. Wolfgang Tetzloff
Friedenstrasse 56
82194 Grobenzell, Germany
8.10 To J. Henke:
Dr. Jurgen Henke
Hohenzollernring 57
50672 Koln, Germany
8.11 To L. Henke:
Dr. Lotte Henke
Hohenzollernring 57
50672 Koln, Germany
8.12 To TREND:
TREND Finanzanalysen GmbH
Berliner Allee 21
40212 Dusseldorf, Germany
<PAGE>
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8.13 To MKL:
McKnight Laboratories GmbH
Osterstrasse 86
20259 Hamburg, Germany
Telecopier No.: 011-49-40-490-5055
ATTENTION: PROF. DR. KLAUS-GEORG BUHRENS
9. MODIFICATION
All modifications or amendments of any provision of this Agreement shall
be effective only if the same shall be in writing and then shall be effective
only in the specific instance and for the purpose for which given.
10. WAIVER
No failure to exercise, and no delay in exercising, on the part of a
party hereto, any right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right. No waiver of any provision of this
Agreement shall be effective unless in writing. No notice or demand given in any
case shall constitute a waiver of the right to take other action in the same,
similar or other instances without such notice or demand.
11. CONFIDENTIALITY
The parties agree to treat this Agreement as confidential and not to
disclose its contents to third parties other than their advisers, except to the
extent necessary to enforce performance of obligations hereunder, or as is
required to comply with applicable laws or regulations, including regulations of
any stock exchange on which the securities of Phoenix are listed following
consultations with the Vendors.
12. FURTHER ASSURANCES
The parties shall, with all reasonable diligence, do all such things and
provide all such reasonable assurances as may be required to consummate the
transactions contemplated hereby, and each party shall provide such further
documents or instruments required by another party as may be reasonably
necessary or desirable to give effect to the purpose of this Agreement and to
carry out its provisions.
13. GOVERNING LAWS
This Agreement shall be governed by the laws of the Province of Quebec
and the laws of Canada applicable therein.
14. ARBITRATION
All disputes arising out of or in connection with the present Agreement
shall be finally settled under the Rules of Arbitration of the International
Chamber of Commerce by one or more arbitrators appointed in accordance with the
said Rules.
The place of arbitration shall be Montreal.
<PAGE>
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The language of the arbitration shall be English.
15. GENERAL
The invalidity or unenforceability of any term or provision hereof shall
not affect the validity or enforceability of any other term or provision hereof.
The headings in this Agreement are for convenience of reference only and shall
not alter or otherwise affect the meaning hereof. This Agreement and the other
documents and instruments referred to herein constitute the entire understanding
of the parties hereto with respect to the subject matter hereof and thereof and
supersede all present and prior agreements, whether written or oral. No
investigation made by or on behalf of a party hereto shall mitigate, diminish or
affect the representations and warranties made herein by the Vendors. This
Agreement may be executed in any number of counterparts which together shall
constitute one instrument and shall be governed by and construed in accordance
with the laws of the Province of Quebec and the laws of Canada applicable
therein, and shall bind and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, personal representatives,
successors and assigns. The parties hereto have expressly required that this
Agreement and all documents and notices related hereto be drafted in English.
LES PARTIES AUX PRESENTES ONT EXPRESSEMENT EXIGE QUE LE PRESENT CONTRAT ET TOUS
LES DOCUMENTS ET AVIS Y AFFERENTS SOIENT REDIGES EN ANGLAIS.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be duly
executed as of the Completion Date.
PHOENIX INTERNATIONAL LIFE
SCIENCES INC.
By: /s/ John Hooper /s/ Klaus-Georg Buhrens
------------------------------------- -------------------------------
John Hooper, Ph.D. PROF. DR. KLAUS-GEORG BUHRENS
Title: Chairman and Chief Executive Officer
/s/ Martin Geist /s/ Bernd Blohm
- ----------------------------------- -----------------------------------
DR. MARTIN GEIST DR. BERND BLOHM
/s/ Christian Hilgenstock /s/ Claus Hemker
- ----------------------------------- -----------------------------------
DR. CHRISTIAN HILGENSTOCK DR. CLAUS HEMKER
/s/ Ivan Kozak /s/ Bernard Vens-Cappell
- ----------------------------------- -----------------------------------
DR. IVAN KOZAK DR. BERNHARD VENS-CAPPELL
/s/ Wolfgang Tetzloff /s/ Ulrike Schafer
- ----------------------------------- -----------------------------------
DR. WOLFGANG TETZLOFF DR. JURGEN HENKE, by Ulrike Schafer
<PAGE>
- 26 -
/s/ Ulrike Schafer
- ----------------------------------- TREND FINANZANALYSEN GMBH
DR. LOTTE HENKE, by Ulrike Schafer
By: /s/ Ulrike Schafer
-----------------------------------
Ulrike Schafer
MCKNIGHT LABORATORIES GMBH
By: /s/ Klaus-Georg Buhrens
-------------------------------
Prof. Dr. Klaus-Georg Buhrens
<PAGE>
LIST OF SCHEDULES
<TABLE>
<S> <C>
Schedule A Outstanding shares and voting rights of MKL
Schedule B The capital structure of IPHAR
Schedule C The capital structure of MKL/USA
Schedule 1.9 Escrow Agreement
Schedule 1.21 Permitted Lien
Schedule 3.3.2 Options
Schedule 3.3.3 Capital Stock of the Subsidiaries
Schedule 3.3.4 Subsidiary Options
Schedule 3.3.5 Commitments affecting shares or voting rights of MKL or the Subsidiaries
Schedule 3.4A Financial Statements
Schedule 3.5 Material liabilities, contingent or otherwise of MKL or any of the Subsidiaries
and off-balance sheet obligations of MKL and the Subsidiaries
Schedule 3.6.2 Extraordinary Transactions after January 1, 1998
Schedule 3.8.1 Contractual Obligations
Schedule 3.8.4 Insurance
Schedule 3.10 Intellectual Property
Schedule 3.12.4 Liability for employee dismissal
Schedule 3.12.5 Physicians, nurses or pharmacists employed by MKL and the Subsidiaries
Schedule 3.13 Taxes
Schedule 3.15 Title to assets
Schedule 3.16 Litigation
Schedule 3.18 Violation of Other Instruments
Schedule 3.19 Approvals, Consents, etc.
Schedule 3.20 Investment or Divestiture
</TABLE>
<PAGE>
Schedule 1.09
ESCROW AGREEMENT dated as of November 6, 1998.
AMONG: PHOENIX INTERNATIONAL LIFE SCIENCES INC., a corporation
incorporated under the Canada Business Corporations Act, having
its head office at 2350, Cohen Street, Saint-Laurent, Quebec,
Canada, H4R 2N6, herein acting and represented by John Hooper,
its duly authorized representative;
(hereinafter "Phoenix")
AND: PROF. DR. KLAUS-GEORG BUHRENS, residing at Buchtallee 4a, 21465
Reinbek, Germany;
(hereinafter "Buhrens")
AND: MARTIN GEIST, residing at Georgiweg 43, 22453 Hamburg, Germany;
(hereinafter "Geist")
AND: DR. BERND BLOHM, residing at Buchtallee 23, 21465 Reinbek,
Germany;
(hereinafter "Blohm")
AND: CHRISTIAN HILGENSTOCK, residing at Gronenweg 73, 22549 Hamburg,
Germany;
(hereinafter "Hilgenstock")
AND: CLAUS HEMKER, residing at Feldblick 2, 22397 Hamburg, Germany;
(hereinafter "Hemker")
AND: DR. IVAN KOZAK, residing at Kopeniker Str. 15, 22045 Hamburg,
Germany;
(hereinafter "Kozak")
<PAGE>
- 2 -
AND: DR. BERNHARD VENS-CAPPELL, residing at Wurtkamp 12, 22527
Hamburg, Germany;
(hereinafter "Vens-Cappell")
AND: WOLFGANG TETZLOFF, residing at Friedenstrasse 56, 82194
Grobenzell, Germany;
(hereinafter "Tetzloff")
AND: DR. JURGEN HENKE, residing at Hohenzollernring 57, 50672 Koln,
Germany;
(hereinafter "J. Henke")
AND: DR. LOTTE HENKE, residing at Hohenzollernring 57, 50672 Koln,
Germany;
(hereinafter "L. Henke")
AND: TREND FINANZANALYSEN GMBH, a German corporation with capital of
DM150,000, registered in the Commercial Register of the
Amtsgericht Dusseldorf under number HRB 18161 and having its
head office at Berliner Allee 21, 40212 Dusseldorf, Germany,
herein acting and represented by Peter Martin, its duly
authorized representative;
(hereinafter "TREND")
AND: MONTREAL TRUST COMPANY, 1800 McGill College Avenue, Montreal,
Quebec, H3A 3K9, as escrow agent, herein represented by its duly
authorized representatives Rose Marie Labbe and Guy L'Esperance;
(hereinafter the "Escrow Agent")
WHEREAS Phoenix and the Vendors are parties to a share purchase
agreement dated November 6, 1998 (the "Purchase Agreement");
WHEREAS the Purchase Agreement provides that certain shares of Phoenix
issued to the Vendors pursuant thereto are to be held in escrow for the purposes
described therein;
NOW THEREFORE the parties hereby agree as follows:
<PAGE>
- 3 -
1. INTERPRETATION AND DEFINITIONS
1.1 Whenever used in this Agreement:
1.1.1 "AFFILIATE" means any of Buhrens and TREND and
"Affiliates" means more than one of them;
1.1.2 "CLAIM" means any claim by Phoenix against and the
Vendors under Section 7.2 of the Purchase Agreement;
1.1.3 "DISTRIBUTIONS" has the meaning ascribed thereto in
Section 2.3 hereof;
1.1.4 "ESCROWED SHARES" has the meaning ascribed thereto in
Section 2.1 hereof;
1.1.5 "ESCROWED SHARE PRICE" means the amount obtained by
adding the opening and closing prices of the common
shares of Phoenix on each of the Montreal Exchange and
The Toronto Stock Exchange for the ten trading days
preceding the date of execution of the Purchase
Agreement, divided by 40;
1.1.6 "NON-AFFILIATE" means Geist, Blohm, Hilgenstock, Hemker,
Kozak, Vens- Cappell, Tetzloff, J. Henke and L. Henke;
1.1.7 "NOTICE OF CLAIM" means a written notice of any Claim
given by Phoenix setting forth the details of each Claim
referred to therein including the amount thereof, if
known to Phoenix, or Phoenix's reasonable estimate
thereof, as well as the provisions of the Purchase
Agreement upon which such Claim is based;
1.1.8 "OBJECTION" means, in respect of any Claim, any
objection raised in the Response by any of the Vendors
to such Claim;
1.1.9 "PROCEEDS" has the meaning ascribed thereto in Section
3.2 hereof;
1.1.10 "PURCHASE AGREEMENT" has the meaning ascribed thereto in
the preamble to this Agreement;
1.1.11 "RELEASED SHARES" has the meaning ascribed thereto in
Section 3.5.1.1 hereof;
1.1.12 "RESPONSE" means, in respect of any Claim, the joint
written response of the representatives of the Vendors
duly appointed in the manner set forth in Section 3.1
hereof indicating whether they accept or dispute such
Claim; and
1.1.13 "VENDORS" means Buhrens, Geist, Blohm, Hilgenstock,
Hemker, Kozak, Vens-Cappell, Tetzloff, J. Henke, L.
Henke and TREND.
1.2 Each capitalized term used in this Agreement but not defined
herein as the meaning ascribed thereto in the Purchase
Agreement.
<PAGE>
- 4 -
1.3 In the event of (i) any subdivision, consolidation or
reclassification of the class of shares comprising the Escrowed
Shares or (ii) any reorganization of the share capital of
Phoenix affecting the Escrowed Shares or (iii) the amalgamation
of Phoenix with any other company, the number of Escrowed Shares
and Escrowed Share Price shall be adjusted, if required, so that
none of the parties hereto shall be in a position less favorable
to it than as provided in this Agreement as a result of any of
the foregoing actions.
1.4 For all purposes of this Agreement, the amount of any Claim in a
currency other than Canadian dollars shall be converted to
Canadian dollars at the exchange rate between Canadian and such
currency shall be the "Spot Rate" of the alternate currency on
the business day preceding the day as of which the conversion
from one currency to the other is to be effected, as reported in
the Financial Post of Canada on that day.
1.5 In any calculation hereunder of the applicable number of
Escrowed Shares results in fractional shares, the result shall
be rounded up or down, as the case may be, to the nearest whole
number and, if such result represents exactly one-half of a
whole number, then such fraction shall be rounded up to the next
whole number.
2. ESTABLISHMENT OF ESCROW
2.1 Phoenix hereby delivers in escrow to the Escrow Agent
certificates representing an aggregate of 87,332 common shares
of Phoenix registered in the name of the Escrow Agent, as escrow
agent (the "Escrowed Shares"). The Vendors' interests in the
Escrowed Shares are as set forth below:
<TABLE>
<CAPTION>
VENDOR ESCROWED SHARES
------ ---------------
<S> <C>
Buhrens 47,707
Geist 1,667
Blohm 1,667
Hilgenstock 4,406
Hemker 4,406
Kozak 4,406
Vens-Cappell 4,406
Tetzloff 4,406
J. Henke 3,573
L. Henke 3,573
TREND 11,115
</TABLE>
<PAGE>
- 5 -
2.2 The Escrow Agent hereby accepts delivery and acknowledges
receipt of the Escrowed Shares and agrees to act as escrow agent
and to hold, safeguard and release the Escrowed Shares in
accordance with the provisions of this Agreement. The Escrowed
Shares shall not be assigned, hypothecated, alienated, released
from escrow, transferred within escrow or dealt with in any
manner whatsoever except as provided in this Agreement.
2.3 Notwithstanding the registration of the Escrowed Shares in the
name of the Escrow Agent, the Vendors shall, subject to the
provisions hereof, remain the owners thereof in the proportion
contemplated by Section 2.1 hereof and be entitled to the
exercise of all voting rights related thereto and to receive all
dividends, income and other distributions in respect thereof
(collectively, "Distributions"). In the event that any Escrowed
Shares are remitted to Phoenix for cancellation pursuant to the
provisions of Section 3 hereof, the Vendors shall repay to
Phoenix any Distributions received in respect of such Escrowed
Shares.
3. INSTRUCTIONS TO ESCROW AGENT
3.1 All communications made by the Vendors, including instructions
to the Escrow Agent or Responses hereunder, shall be made by
Buhrens and Dr. Ulrike Schafer jointly on behalf of the Vendors.
All of the Vendors hereby authorize Buhrens and Dr. Ulrike
Schafer to duly represent them in accordance with all
communications under this Agreement. Should the Vendors wish to
withdraw this authorization and to designate new
representatives, they have to do so jointly by notifying Phoenix
and the Escrow Agent in accordance with Section 7 hereof.
3.2 At any time while the Escrowed Shares are held by the Escrow
Agent, a Non-Affiliate may instruct the Escrow Agent in writing
to sell all or part of such Non-Affiliate's portion of the
Escrowed Shares. Upon receipt of such written instruction, the
Escrow Agent shall sell such Escrowed Shares on the open market
and shall retain the proceeds of sale, less any expenses
incurred in realizing such sale (the "Proceeds") as escrowed
property for such Non-Affiliate. The Escrow Agent shall invest
such Proceeds according to the written instructions of such
Non-Affiliate for the duration of the escrow. The Escrow Agent
shall keep complete records of any such sales of Escrowed
Shares.
3.3 At any time after receipt by the Escrow Agent of written notice
by Phoenix of the release, in the format prescribed by the SEC,
of at least 30 days of post-combination financial results of
Phoenix and McKnight Laboratories GmbH, and provided that the
Escrowed Shares are not then subject to any restrictions on
transfer imposed by any Regulatory Authority, an Affiliate may
also instruct the Escrow Agent to sell all or part of their
portion of the Escrowed Shares in the manner set forth in
Section 3.2. In such event, the Escrow Agent shall proceed as
set forth in Section 3.2.
3.4 Whenever Phoenix has a Claim it shall promptly give a Notice of
Claim in respect thereof to the Vendors and the Escrow Agent.
Upon receipt of a Notice of Claim, the Escrow Agent shall
immediately reserve for distribution in accordance with the
provisions of Section 3.5 hereof (but shall not release from
escrow except in accordance with the provisions hereof)
<PAGE>
- 6 -
that number of the Escrowed Shares which is equal in value to
the amount provided for in the Notice of Claim, calculated on
the basis of the Escrowed Share Price for such Claim.
3.5 Within 15 days of receipt of a Notice of Claim, the Vendors (or
any of them) shall give to Phoenix and the Escrow Agent a
Response with respect to each Claim set forth therein. If:
3.5.1 the Response indicates that the Vendors accept a Claim
set forth in the Notice of Claim, or if the Escrow Agent
does not receive a Response with respect to a Claim
within said 15 day period, the Vendors shall be deemed
to have irrevocably consented to each Claim so accepted
or in respect of which no Response is so received, as
made, and the Escrow Agent shall forthwith give written
notice thereof to Phoenix:
3.5.1.1 setting forth the total amount of all Claims
which have been consented to and the number of
shares from the Escrowed Shares to be released
from escrow for the benefit of Phoenix (the
"Released Shares"), being that number of the
Escrowed Shares which is equal in value to the
amount of the admitted Claims set forth in such
Notice of Claim, calculated on the basis of the
Escrowed Share Price for such Claim; and
3.5.1.2 surrender for cancellation to Phoenix the share
certificate(s) in its possession representing
the Released Shares, duly endorsed for transfer,
and the Escrow Agent shall retain in its
possession the other share certificate(s)
representing the balance of the Escrowed Shares,
if any, to be held by it in escrow and dealt
with in accordance with the terms hereof; or
3.5.2 the Response indicates that the Vendors (or any of them)
dispute a Claim set forth in the Notice of Claim
(whether or nor arbitration proceedings have been
instituted), the Escrow Agent shall retain in its
possession and continue to hold in escrow that number of
the Escrowed Shares which is equal in value to the
amount provided for in the disputed Claims, calculated
on the basis of the Escrowed Share Price for such Claim:
3.5.2.1 until the Escrow Agent receives a joint written
notice from Phoenix and the Vendors directing
the Escrow Agent as to the manner in which such
Escrowed Shares and the share certificate(s)
representing same are to be dealt with, in which
case the Escrow Agent shall deal with same in
accordance with such joint written instructions;
or
3.5.2.2 in the absence of such a joint written notice
within 10 business days of the Escrow Agent's
receipt of the Response, the Escrow Agent shall
deal with such Escrowed Shares and the share
certificate(s) representing same in accordance
with a final arbitration order in respect of
such disputed Claim(s) pursuant to the
arbitration contemplated by Section 12 hereof.
Any arbitration order shall be accompanied by a
legal opinion by counsel for the presenting
party satisfactory to the Escrow Agent to the
effect that the said order is final and
non-appealable.
<PAGE>
- 7 -
3.6 If, at the time of receipt by the Escrow Agent of any Notice of
Claim as provided for in Section 3.4 hereof, the Escrowed Shares
remaining in escrow for the account of any Vendor calculated on
the basis of the Escrowed Share Price is insufficient to meet
such Vendor's pro rata portion of the number of Released Shares
to be remitted to Phoenix, the balance of such Vendor's pro rata
portion of the admitted Claims shall be satisfied by payment in
cash from the Proceeds of those Escrowed Shares sold by the
Escrow Agent at the direction of such Vendor pursuant to Section
3.2 or 3.3 hereof.
3.7 On the earlier of (i) November 6, 1999, or (ii) the date at
which the Escrow Agent receives a notice from Phoenix confirming
that the audit of the combined financial statements of Phoenix
and McKnight Laboratories GmbH has been completed, the Escrow
Agent will deliver the Escrowed Shares and all Distributions and
Proceeds to the Vendors, pro rata to their respective interests
in the Escrowed Shares, Distributions and Proceeds if any.
4. VOTING RIGHTS
4.1 The Escrow Agent shall provide to each of the Vendors a proxy
entitling such Vendor to vote those of the Escrowed Shares which
are owned by it, forthwith upon the Escrow Agent's receipt
thereof in its capacity as registered shareholder of Phoenix, in
order to allow each Vendor to vote its Escrowed Shares in the
same manner as if it were the registered owner thereof.
5. RIGHTS AND OBLIGATIONS OF THE ESCROW AGENT
5.1 The Escrow Agent is not a party to, and is not bound by, any
provisions which may be evidenced by, or arise out of, any
agreement other than as therein set forth under the express
provisions of this Agreement.
5.2 The Escrow Agent acts hereunder as a depositary only and is not
responsible or liable in any manner whatever for the
sufficiency, correctness, genuineness or validity of any
instrument deposited with it, or for the form of execution of
such instrument or for the identity or authority or right of any
person or party executing or depositing it.
5.3 The Escrow Agent shall not be under any duty to give the
Escrowed Shares, Distributions and Proceeds, if any, held by it
hereunder any greater degree of care than it gives its own
similar property and shall not be required to invest any funds
held hereunder except as directed in this Agreement. Uninvested
funds held hereunder shall not earn or accrue interest.
5.4 The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to
claims based upon such gross negligence or willful misconduct
that are successfully asserted against the Escrow Agent, the
other parties hereto shall solidarily indemnify and hold
harmless the Escrow Agent (and any successor Escrow Agent) from
and against any and all losses, liabilities, claims, actions,
damages and expenses, including reasonable attorney's fees and
disbursements, arising out of and in connection with this
Agreement. Without limiting the foregoing, the Escrow Agent
shall
<PAGE>
- 8 -
in no event be liable in connection with its investment or
reinvestment of any cash held by it hereunder in good faith, in
accordance with the terms hereof.
5.5 The Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument or other
writing delivered to it hereunder without being required to
determine the authenticity or the correctness of any fact stated
therein or the propriety or validity of the service thereof. The
Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that the
person purporting to give receipt or advice or make any
statement or execute any document in connection with the
provisions hereof has been duly authorized to do so. The Escrow
Agent may conclusively presume that the undersigned
representative of any party hereto which is an entity other than
a natural person has full power and authority to instruct the
Escrow Agent on behalf of that party unless written notice to
the contrary is delivered to the Escrow Agent.
5.6 The Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Agreement and shall not
be liable for any action taken or omitted by it in good faith in
accordance with such advice.
5.7 The Escrow Agent makes no representation as to the validity,
value, genuineness or the collectability of any security or
other document or instrument held by or delivered to it.
5.8 The Escrow Agent shall not be called upon to advise any party as
to the wisdom in selling or retaining or taking or refraining
from any action with respect to any securities or other property
deposited hereunder.
5.9 The Escrow Agent (and any successor Escrow Agent) may at any
time resign as such by delivering the Escrowed Shares,
Distributions and Proceeds, if any, to any successor Escrow
Agent jointly designated by the other parties hereto in writing,
or to any court of competent jurisdiction, whereupon Escrow
Agent shall be discharged of and from any and all further
obligations arising in connection with this Agreement. The
resignation of Escrow Agent will take effect on the earlier of
(a) the appointment of a successor (including a court of
competent jurisdiction) or (b) the day which is 30 days after
the date of delivery of its written notice of resignation to the
other parties hereto. If at that time Escrow Agent has not
received a designation of a successor Escrow Agent, Escrow
Agent's sole responsibility after that time shall be to retain
and safeguard the Escrowed Shares and Proceeds, if any, until
receipt of a designation of successor Escrow Agent or a joint
written disposition instruction by the other parties hereto or a
final non-appealable order of a court of competent jurisdiction.
5.10 Phoenix and the Vendors shall pay Escrow Agent compensation (as
payment in full) for the services to be rendered by Escrow Agent
hereunder in the amount of $1,500 at the time of execution of
this Agreement and agree to reimburse Escrow Agent for all
reasonable expenses, disbursements and advances incurred or made
by Escrow Agent in performance of its duties hereunder
(including reasonable fees, expenses and disbursements of its
counsel).
<PAGE>
- 9 -
6. LIMITED RESPONSIBILITY
This Agreement expressly sets forth all the duties of Escrow Agent with
respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Agreement against the Escrow Agent.
The Escrow Agent shall not be bound by the provisions of any agreement
among the other parties hereto except this Agreement. No trust is
created by this Agreement and the Escrow Agent does not act in any
capacity as a trustee. In the event of any disagreement between any of
the parties to this Agreement, or between them or either of them and any
other person, resulting in demands or adverse claims being made in
connection with or for any asset involved herein or affected hereby, the
Escrow Agent shall be entitled, at its discretion, to refuse to comply
with any demands or claims on it, as long as such disagreement shall
continue, and in so refusing the Escrow Agent may make no delivery or
other disposition of any asset involved herein or affected hereby, and
in so doing the Escrow Agent shall not be or become liable in any way or
to any person or party for its failure or refusal to comply with such
conflicting demands or adverse claims, and it shall be entitled to
continue so to refrain from acting and so to refuse to act until the
right of person or party shall have been finally settled as provided in
Section 12 hereof, or all differences shall have been adjusted by
agreement and the Escrow Agent shall have been notified thereof in
writing signed by all persons and parties interested.
7. NOTICES
All notices, consents, waivers and other communications under this
Agreement must be in writing and will be deemed to have been duly given
when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt) provided that
a copy is mailed by registered mail, return receipt requested, or (c)
when received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case the
appropriate addresses and telecopier numbers set forth below (or to such
other addresses and telecopier numbers as a party may designate by
notice to the other parties):
7.1 To Phoenix:
Phoenix International Life Sciences Inc.
2350, Cohen Street
Saint-Laurent, Quebec
H4R 2N6 Canada
Telecopier No.: (514) 333-7306
ATTENTION: JEAN-YVES CALOZ
7.2 To the Vendors:
TO BUHRENS
Prof. Dr. Klaus-Georg Buhrens
Buchtallee 4a
21465 Reinbek, Germany
<PAGE>
- 10 -
TO GEIST:
Dr. Martin Geist
Georgiweg 43
22453 Hamburg, Germany
TO BLOHM:
Dr. Bernk Blohm
Buchtallee 23
21465 Reinbek, Germany
TO HILGENSTOCK:
Dr. Christian Hilgenstock
Gronenweg 73
22549 Hamburg, Germany
TO HEMKER:
Dr. Claus Hemker
Feldblick 2
22397 Hamburg, Germany
TO KOZAK:
Dr. Ivan Kozak
Kopeniker Str. 15
22045 Hamburg, Germany
TO VENS-CAPPELL:
Dr. Bernhard Vens-Cappell
Wurtkamp 12
22527 Hamburg, Germany
TO TETZLOFF:
Dr. Wolfgang Tetzloff
Friedenstrasse 56
82194 Grobenzell, Germany
TO J. HENKE:
Dr. Jurgen J. Henke
Hohenzollernring 57
50672 Koln, Germany
<PAGE>
- 11 -
TO L. HENKE:
Dr. L. Henke J. Henke
Hohenzollernring 57
50672 Koln, Germany
TO TREND:
TREND Finanzanalysen GmbH
Berliner Allee 21
40212 Dusseldorf, Germany
ATTENTION: PETER MARTIN
7.3 To the Escrow Agent:
Montreal Trust Company
1800 McGill College Avenue
Montreal (Quebec)
H3A 3K9
Telecopier No.: (514) 982-7677
7.4 To Dr. Ulrike Schafer:
Schafer Pott
Berlinerallee 26
40212 Dusseldorf, Germany
8. GOVERNING LAW
This Agreement shall be governed by the laws of the Province of Quebec
and the laws of Canada applicable therein.
9. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original and all of which, when taken
together, will be deemed to constitute one and the same.
10. SECTION HEADINGS
The headings of sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation.
11. WAIVER
<PAGE>
- 12 -
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such
right, power or privilege, and no single or partial exercise of any such
right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right,
power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement or the documents
referred to in this Agreement can be discharged by one party, in whole
or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other parties; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party
giving such notice or demand to take further action without notice or
demand as provided in this Agreement or the documents referred to in
this Agreement.
12. ARBITRATION
All disputes arising out of or in connection with the present Agreement
shall be finally settled under the Rules of Arbitration of the
International Chamber of Commerce by one or more arbitrators appointed
in accordance with the said Rules. The place of arbitration shall be
Montreal. The language of the arbitration shall be English.
13. CONFIDENTIALITY
The parties agree to treat this Agreement as confidential and not to
disclose its contents to third parties other than their advisers, except
to the extent necessary to enforce performance of obligations hereunder,
or as is required to comply with applicable laws or regulations,
including regulations of any stock exchange on which the securities of
Phoenix are listed.
14. FURTHER ASSURANCES
The parties shall, with all reasonable diligence, do all such things and
provide all such reasonable assurances as may be required to consummate
the transactions contemplated hereby, and each party shall provide such
further documents or instruments required by another party as may be
reasonably necessary or desirable to give effect to the purpose of this
Agreement and to carry out its provisions.
15. GENERAL
The invalidity or unenforceability of any term or provision hereof shall
not affect the validity or enforceability of any other term or provision
hereof. This Agreement and the other documents and instruments referred
to herein constitute the entire understanding of the parties hereto with
respect to the subject matter hereof and thereof and supersede all
present and prior agreements, whether written or oral. This Agreement
shall bind and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, personal representatives,
successors and assigns.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
<PAGE>
- 13 -
PHOENIX INTERNATIONAL LIFE
SCIENCES INC.
By: /s/ John Hooper /s/ Klaus-Georg Buhrens
--------------------------------------------- -----------------------------
John Hooper, Ph.D. PROF. DR. KLAUS-GEORG BUHRENS
Title: Chairman and Chief Executive Officer
/s/ Martin Geist /s/ Bernd Blohm
- ------------------------------------ ---------------------------------------
DR. MARTIN GEIST DR. BERND BLOHM
/s/ Christian Hilgenstock /s/ Claus Hemker
- ------------------------------------ ---------------------------------------
DR. CHRISTIAN HILGENSTOCK DR. CLAUS HEMKER
/s/ Ivan Kozak /s/ Bernhard Vens-Cappell
- ------------------------------------ ---------------------------------------
DR. IVAN KOZAK DR. BERNHARD VENS-CAPPELL
/s/ Wolfgang Tetzloff /s/ Ulrike Schafer
- ------------------------------------ ---------------------------------------
DR. WOLFGANG TETZLOFF DR. JURGEN HENKE, by Ulrike Schafer
TREND FINANZANALYSEN GMBH
/s/ Ulrike Schafer By: /s/ Ulrike Schafer
- ------------------------------------ -----------------------------------
DR. L. HENKE, by Ulrike Schafer Ulrike Schafer
MONTREAL TRUST COMPANY
By: /s/ Rose Marie Labbe
-----------------------------------
Rose Marie Labbe
Title: Trust Officer
By: /s/ Guy L'Esperance
-----------------------------------
Guy L'Esperance
Title: Manager, Client Servicing
<PAGE>
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER, dated as of March 24,
1999, among Phoenix International Life Sciences Inc., a corporation
constituted under the laws of Canada ("Buyer"), Chrysalis International
Corporation, a Delaware corporation (the "Company"), and Phoenix Merger Sub
Corp., a Delaware corporation and a wholly-owned subsidiary of Buyer ("Merger
Sub").
WHEREAS, the parties have entered into an Agreement and Plan of Merger,
dated as of November 18, 1998 (the "Merger Agreement"); and
WHEREAS, neither the stockholders of the Company nor the shareholders of
Buyer have adopted the Merger Agreement; and
WHEREAS, the parties wish to amend certain provisions of the Merger
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged:
1. AMENDMENT TO MERGER AGREEMENT. Pursuant to Section 10.03 of the Merger
Agreement, the parties hereby amend the Merger Agreement to replace each
reference to "March 31, 1999" with "April 30, 1999" in each of the following
sections of the Merger Agreement:
Section 9.01(f)
Section 9.01(g)
Section 9.03(b)
2. COUNTERPARTS; EFFECTIVENESS. This Amendment No. 1 may be signed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Amendment No. 1 shall become effective when each party hereto shall have
received counterparts hereof signed by all of the other parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be duly executed by their respective authorized officers as of the day and
year first above written.
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
By: /s/ Jean-Yves Caloz
--------------------
Name: Jean-Yves Caloz
Title: Senior Vice President International
Finance and Acquisitions
CHRYSALIS INTERNATIONAL CORPORATION
By: /s/ Paul J. Schmitt
-------------------
Name: Paul J. Schmitt
Title: President
PHOENIX MERGER SUB CORP.
By: /s/ Jean-Yves Caloz
--------------------
Name: Jean-Yves Caloz
Title: Treasurer and Secretary
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of
November 18, 1998
among
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
CHRYSALIS INTERNATIONAL CORPORATION
and
PHOENIX MERGER SUB CORP.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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TABLE OF CONTENTS
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ARTICLE 1
THE MERGER...............................................................................................1
Section 1.01 MERGER.................................................................................1
Section 1.02 SURRENDER AND PAYMENT..................................................................2
Section 1.03 THE MERGER DATE........................................................................4
Section 1.04 STOCK OPTIONS AND WARRANTS OF THE COMPANY..............................................4
Section 1.05 ADJUSTMENTS............................................................................6
Section 1.06 FRACTIONAL SHARES......................................................................6
Section 1.07 FAILURE TO OBTAIN APPROVAL FOR LISTING; CASH MERGER CONSIDERATION......................7
Section 1.08 DISSENTING SHARES......................................................................8
Section 1.09 PURCHASE PRICE; EXCHANGE RATIO; VALUATION OF BUYER COMMON STOCK........................8
ARTICLE 2
THE SURVIVING CORPORATION................................................................................9
Section 2.01 CERTIFICATE OF INCORPORATION; BYLAWS...................................................9
Section 2.02 DIRECTORS AND OFFICERS.................................................................9
Section 2.03 SUBSCRIPTION..........................................................................10
ARTICLE 3........................................................................................................10
REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................................10
Section 3.01 CORPORATE EXISTENCE AND POWER.........................................................10
Section 3.02 CORPORATE AUTHORIZATION...............................................................10
Section 3.03 GOVERNMENTAL AUTHORIZATION............................................................11
Section 3.04 NON-CONTRAVENTION.....................................................................12
Section 3.05 CAPITALIZATION........................................................................12
Section 3.06 SUBSIDIARIES..........................................................................13
Section 3.07 SEC FILINGS...........................................................................14
Section 3.08 FINANCIAL STATEMENTS..................................................................14
Section 3.09 DISCLOSURE DOCUMENTS..................................................................15
Section 3.10 INFORMATION SUPPLIED..................................................................15
Section 3.11 ABSENCE OF CERTAIN CHANGES............................................................16
Section 3.12 NO UNDISCLOSED MATERIAL LIABILITIES...................................................17
Section 3.13 LITIGATION; INVESTIGATIONS; ORDERS AND DECREES........................................17
Section 3.14 TAXES.................................................................................18
Section 3.15 ERISA AND LABOR MATTERS...............................................................19
Section 3.16 COMPLIANCE WITH LAWS..................................................................21
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Section 3.17 INTELLECTUAL PROPERTY RIGHTS..........................................................22
Section 3.18 ENVIRONMENTAL MATTERS.................................................................24
Section 3.19 OPINION OF FINANCIAL ADVISOR..........................................................26
Section 3.20 ANTITAKEOVER STATUTES AND CERTIFICATE OF INCORPORATION PROVISIONS.....................26
Section 3.21 RIGHTS AGREEMENT......................................................................26
Section 3.22 FINDERS FEES..........................................................................26
Section 3.23 TITLE TO AND CONDITION OF PROPERTIES..................................................27
Section 3.24 CONTRACTS.............................................................................27
Section 3.25 ACCOUNTS RECEIVABLE...................................................................28
Section 3.26 RELATIONSHIPS.........................................................................28
Section 3.27 PRODUCT WARRANTIES AND LIABILITIES....................................................28
Section 3.28 AFFILIATE TRANSACTIONS. ..............................................................28
Section 3.29 INSURANCE.............................................................................29
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER.................................................................29
Section 4.01 CORPORATE EXISTENCE AND POWER. .......................................................29
Section 4.02 CORPORATE AUTHORIZATION...............................................................30
Section 4.03 GOVERNMENTAL AUTHORIZATION............................................................30
Section 4.04 NON-CONTRAVENTION.....................................................................30
Section 4.05 CAPITALIZATION........................................................................30
Section 4.06 PUBLIC FILINGS........................................................................31
Section 4.07 FINANCIAL STATEMENTS..................................................................31
Section 4.08 DISCLOSURE DOCUMENTS..................................................................31
Section 4.09 INFORMATION SUPPLIED..................................................................32
Section 4.10 ABSENCE OF CERTAIN CHANGES............................................................32
Section 4.11 NO UNDISCLOSED MATERIAL LIABILITIES...................................................33
Section 4.12 OWNERSHIP OF COMPANY STOCK............................................................33
Section 4.13 FINDERS FEES..........................................................................33
Section 4.14 SUFFICIENT CASH TO REPAY CERTAIN DEBT.................................................34
ARTICLE 5
COVENANTS OF THE COMPANY................................................................................34
Section 5.01 CONDUCT OF THE COMPANY................................................................34
Section 5.02 STOCKHOLDER MEETING; PROXY MATERIALS..................................................38
Section 5.03 OTHER OFFERS..........................................................................38
Section 5.04 SHUT-DOWNS............................................................................39
Section 5.05 INTELLECTUAL PROPERTY MATTERS.........................................................40
Section 5.06 NOTICE OF PREPAYMENT..................................................................40
Section 5.07 SHARED SERVICES.......................................................................40
Section 5.08 HACKEL AFFILIATE LETTER AND SUPPORT/VOTING AGREEMENT..................................40
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ARTICLE 6
COVENANTS OF BUYER......................................................................................40
Section 6.01 CONDUCT OF BUYER......................................................................40
Section 6.02 LISTING OF STOCK......................................................................41
Section 6.03 REPAYMENT OF CERTAIN DEBT.............................................................41
Section 6.04 FINANCING.............................................................................41
ARTICLE 7
COVENANTS OF BUYER AND THE COMPANY......................................................................41
Section 7.01 COMMERCIALLY REASONABLE EFFORTS.......................................................41
Section 7.02 COOPERATION...........................................................................41
Section 7.03 PUBLIC ANNOUNCEMENTS..................................................................42
Section 7.04 ACCESS TO INFORMATION.................................................................42
Section 7.05 FURTHER ASSURANCES....................................................................43
Section 7.06 NOTICES OF CERTAIN EVENTS.............................................................43
Section 7.07 DIRECTOR AND OFFICER LIABILITY........................................................44
Section 7.08 REGISTRATION STATEMENT................................................................45
Section 7.09 GOVERNMENTAL AUTHORIZATION............................................................45
Section 7.10 CERTAIN CORPORATE MATTERS.............................................................45
Section 7.11 EMPLOYMENT............................................................................45
ARTICLE 8
CONDITIONS TO THE MERGER................................................................................45
Section 8.01 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY...........................................45
Section 8.02 CONDITIONS TO THE OBLIGATIONS OF BUYER................................................46
Section 8.03 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY..........................................47
ARTICLE 9
TERMINATION.............................................................................................48
Section 9.01 TERMINATION...........................................................................48
Section 9.02 EFFECT OF TERMINATION.................................................................49
Section 9.03 TERMINATION UPON BANKRUPTCY...........................................................49
ARTICLE 10
MISCELLANEOUS...........................................................................................50
Section 10.01 NOTICES...............................................................................50
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Section 10.02 ENTIRE AGREEMENT; NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES; NO
THIRD PARTY BENEFICIARIES.............................................................52
Section 10.03 AMENDMENTS; NO WAIVERS................................................................52
Section 10.04 EXPENSES..............................................................................52
Section 10.05 DOLLAR AMOUNTS........................................................................53
Section 10.06 SUCCESSORS AND ASSIGNS................................................................53
Section 10.07 GOVERNING LAW.........................................................................53
Section 10.08 JURISDICTION..........................................................................53
Section 10.09 COUNTERPARTS; EFFECTIVENESS...........................................................53
Section 10.10 RELIEF FROM AUTOMATIC STAY. .........................................................54
EXHIBITS
EXHIBIT A - Form of Support/Voting Agreement
EXHIBIT B - Form of Affiliate Letter
EXHIBIT C - Form of Representation Related to D&O Insurance
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 18, 1998, among
Phoenix International Life Sciences Inc., a corporation constituted under the
laws of Canada ("BUYER"), Chrysalis International Corporation, a Delaware
corporation (the "COMPANY"), and Phoenix Merger Sub Corp., a Delaware
corporation and a wholly-owned subsidiary of Buyer ("MERGER SUB"). The parties
intend that the Merger (as defined herein) be the adoption of a plan of
reorganization qualifying under Section 368(a) of the Code (as defined herein).
The parties hereto agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.01. MERGER. (a) Upon the terms and subject to the conditions
set forth herein, on the Merger Date, Merger Sub shall merge into the Company
(the "MERGER") and the separate existence of Merger Sub shall cease. The Company
shall be the surviving corporation in the Merger (hereinafter sometimes referred
to as the "SURVIVING CORPORATION") and its separate corporate existence, with
all its purposes, objects, rights, privileges, powers and franchises, shall
continue unaffected and unimpaired by the Merger.
(b) Pursuant to the Merger:
(i) Each share of common stock, $.01 par value, of
the Company (the "COMPANY STOCK") held by the Company or any
Subsidiary of the Company as treasury stock or by Buyer, in
each case immediately prior to the Merger Date, shall be
canceled and no payment shall be made with respect thereto;
(ii) Subject to Section 1.07, each share of Company
Stock outstanding immediately prior to the Merger Date shall,
except as otherwise provided in Section 1.01(b)(i), be
converted into the right to receive a number of common shares
of Buyer ("BUYER COMMON STOCK") equal to the Exchange Ratio
(the "MERGER CONSIDERATION") (determined in accordance with
Section 1.09(b)); and
(iii) At the Merger Date, each share of common stock,
par value $0.01 per share, of Merger Sub ("MERGER SUB COMMON
STOCK") outstanding immediately prior to the Merger Date shall
be converted into an equal number of shares of common stock,
par value $.01 per share, of the Surviving Corporation
("SURVIVING CORPORATION COMMON STOCK").
From and after the Merger Date, all shares of Company Stock converted in
accordance with Section 1.01(b)(ii) shall no longer be outstanding and shall
automatically be canceled and retired
<PAGE>
and shall cease to exist, and each holder of such shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration, the right to exercise appraisal rights in accordance with and
subject to the provisions of the Delaware Law if Section 1.08 is applicable and
the other rights specified in this Agreement. From and after the Merger Date,
all certificates representing Merger Sub Common Stock shall be deemed for all
purposes to represent the number of shares of Surviving Corporation Common Stock
into which they were converted in accordance with Section 1.01(b)(iii). For
purposes of this Agreement, "SUBSIDIARY", when used with respect to any Person,
means any other Person, whether incorporated or unincorporated, of which
securities or other ownership interests having ordinary power to elect a
majority of the board of directors or other persons performing similar functions
are directly or indirectly owned or controlled by such Person or by any one or
more of its Subsidiaries. For purposes of this Agreement, "PERSON" means an
individual, a corporation, a limited liability company, a partnership (general
or limited), an association, a trust or any other entity or organization,
including, without limitation, a government or political subdivision or any
agency or instrumentality thereof. For purposes of this Agreement, an
"AFFILIATE", when used with respect to any Person, means any other Person who
is, or is deemed to be, an affiliate of such Person within the meaning of the
1933 Act.
SECTION 1.02. SURRENDER AND PAYMENT. (a) Prior to the Merger Date,
Buyer shall appoint an agent reasonably satisfactory to the Company (the
"EXCHANGE AGENT") for the purpose of exchanging certificates representing shares
of Company Stock for the Merger Consideration. Buyer will make available to the
Exchange Agent, as needed, certificates representing the Buyer Common Stock (or,
if a Listing Failure occurs, United States Dollars) in respect of the Merger
Consideration to be paid in respect of shares of Company Stock, in accordance
with the terms of Section 1.01(b), together with any Excess Shares (as defined
below). The Exchange Agent shall invest any cash amounts delivered by Buyer to
the Exchange Agent as directed by Buyer. Any interest and other income resulting
from such investments shall be paid to Buyer pursuant to Section 1.02(e).
Promptly after the Merger Date, Buyer shall send, or shall cause the Exchange
Agent to send, to each holder of shares of Company Stock whose shares were
converted into a right to receive the Merger Consideration in accordance with
Section 1.01(b)(ii) at the Merger Date a letter of transmittal for use in such
exchange (which shall specify that delivery of the Merger Consideration shall be
effected, and risk of loss and title shall pass, only upon proper delivery of
the certificates representing shares of Company Stock, to the Exchange Agent).
(b) Each holder of shares of Company Stock that have been converted
into a right to receive the Merger Consideration, upon surrender to the Exchange
Agent of a certificate or certificates representing such shares of Company
Stock, together with a properly completed letter of transmittal covering such
shares of Company Stock, will be entitled to receive (i) the Merger
Consideration payable in respect of such shares of Company Stock, (ii) subject
to Section 1.07, cash in lieu of any fractional shares pursuant to Section 1.06
and (iii) subject to Section 1.07, certain dividends or other distributions in
accordance with Section 1.02(g). Until so surrendered, each such certificate
shall, after the Merger Date, represent for all purposes only the right to
receive (i) the Merger Consideration, (ii) subject to Section 1.07, cash in lieu
of any fractional
2
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shares pursuant to Section 1.06 and (iii) subject to Section 1.07, certain
dividends or other distributions in accordance with Section 1.02(g). All Buyer
Common Stock issued and/or cash paid pursuant to this Article 1 upon surrender
of certificates representing shares of Company Stock shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Company Stock represented thereby.
(c) If any portion of the Merger Consideration is to be paid to a
Person other than the registered holder of the shares of Company Stock
represented by the certificate or certificates surrendered in exchange therefor,
it shall be a condition to such payment that the certificate or certificates so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the Person requesting such payment shall pay to the Exchange
Agent any transfer or other taxes required as a result of such payment to a
Person other than the registered holder of such shares of Company Stock or
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
(d) After the Merger Date, there shall be no further registration of
transfers of shares of Company Stock. If, after the Merger Date, certificates
representing shares of Company Stock are presented to the Surviving Corporation,
they shall be canceled and exchanged for the consideration provided for, and in
accordance with the procedures set forth, in this Article 1.
(e) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 1.02(a) that remains unclaimed by the holders
of shares of Company Stock twelve months after the Merger Date shall be returned
to Buyer, upon demand, and any such holder who has not exchanged his shares of
Company Stock for the Merger Consideration in accordance with this Section 1.02
prior to that time shall thereafter look only to Buyer for his claim for (i)
Merger Consideration, (ii) subject to Section 1.07, any cash in lieu of any
fractional shares pursuant to Section 1.06 and (iii) subject to Section 1.07,
certain dividends or other distributions in accordance with Section 1.02(g).
Notwithstanding the foregoing, Buyer shall not be liable to any holder of shares
of Company Stock for any amount paid to a public official pursuant to applicable
escheat or abandoned property laws. Any amounts remaining unclaimed by holders
of shares of Company Stock two years after the Merger Date (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become property of any governmental entity) shall, to the extent permitted by
applicable law, become the property of Buyer free and clear of any claim or
interest of any Person previously entitled thereto.
(f) If a Listing Failure occurs, any portion of the Merger
Consideration made available to the Exchange Agent pursuant to Section 1.02(a)
to pay for shares of Company Stock in respect of which appraisal rights have
been perfected shall be returned to Buyer, upon demand.
(g) No dividends or other distributions with respect to the Buyer
Common Stock constituting all or a portion of the Merger Consideration shall be
paid to the holder of any unsurrendered certificate representing Company Stock
until such certificates are surrendered as provided in this Section 1.02.
Subject to the effect of applicable laws and Section 1.07, following
3
<PAGE>
such surrender, there shall be paid, without interest, to the record holder of
the certificates representing the Buyer Common Stock (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Merger Date payable prior to or on the date of such surrender with
respect to such whole shares of Buyer Common Stock, and not paid, and the amount
of cash payable in lieu of any fractional shares pursuant to Section 1.06, less
the amount of any withholding taxes which may be required thereon under any
provision of federal, state, local or foreign tax law, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Merger Date but prior to the date of surrender and a
payment date subsequent to the date of surrender payable with respect to such
whole shares of Buyer Common Stock, less the amount of any withholding taxes
which may be required thereon under any provision of federal, state, local or
foreign tax law. Buyer shall make available to the Exchange Agent cash for these
purposes.
(h) If any certificate representing Company Stock that was converted
into a right to receive the Merger Consideration in accordance with Section
1.01(b)(ii) shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such certificate to be lost,
stolen or destroyed and, if required by Buyer, the posting by such Person of a
bond in such reasonable amount as Buyer may direct as indemnity against any
claim that may be made against it with respect to such certificate, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed certificate (i)
the Merger Consideration, (ii) subject to Section 1.07, cash in lieu of any
fractional shares pursuant to Section 1.06, and (iii) subject to Section 1.07
and if applicable, any unpaid dividends and distributions on shares of Buyer
Common Stock deliverable in respect thereof in accordance with Section 1.02(g).
SECTION 1.03. THE MERGER DATE. As soon as practicable (but in no event
more than two business days) after the satisfaction or, to the extent permitted
hereunder or under applicable law, waiver of all conditions to the Merger, (a)
Merger Sub and the Company shall file a copy of this Agreement (or, to the
extent permitted by the Delaware General Corporation Law ("DELAWARE LAW"), a
Certificate of Merger) (the "CERTIFICATE OF MERGER") with the Delaware Secretary
of State and make all other filings or recordings required by the Delaware Law
in connection with the Merger, and (b) the Merger shall become effective at such
time as the Certificate of Merger is duly filed with the Secretary of State, or
at such later date or time as Buyer and the Company shall agree and shall be
specified in the Certificate of Merger (such time and date are referred to as
the "MERGER DATE").
SECTION 1.04. STOCK OPTIONS AND WARRANTS OF THE COMPANY. (a) As soon as
practicable following the date of this Agreement, the Board of Directors of the
Company (or, if appropriate, any committee of the Board of Directors
administering the Company Stock Plans, as defined below) shall adopt such
resolutions or take such other actions as may be required to effect the
following:
(i) adjust the terms of all outstanding options to purchase
shares of Company Stock (the "COMPANY STOCK OPTIONS") granted under any
plan or arrangement providing
4
<PAGE>
for the grant of options to purchase shares of Company Stock to current
or former officers, directors, employees or consultants of the Company
(the "COMPANY STOCK PLANS"), whether vested or unvested, and all
outstanding warrants to purchase shares of Company Stock (the "COMPANY
WARRANTS"), whether vested or unvested, as necessary to provide that,
at the Merger Date, each Company Stock Option and Company Warrants
outstanding immediately prior to the Merger Date shall be amended and
converted into an option or warrant, as the case may be, to acquire, on
the same terms and conditions as were applicable under the Company
Stock Option or Company Warrant, as the case may be, the number of
shares of Buyer Common Stock (rounded down to the nearest whole share)
determined by multiplying the number of shares of Company Stock subject
to such Company Stock Option or Company Warrant by the Exchange Ratio,
at a price per share of Buyer Common Stock equal to (A) the aggregate
exercise price for the shares of Company Stock otherwise purchasable
pursuant to such Company Stock Option or Company Warrant divided by (B)
the aggregate number of shares of Buyer Common Stock deemed purchasable
pursuant to such Company Stock Option (each, as so adjusted, an
"ADJUSTED OPTION") or Company Warrant (each as so adjusted, an
"ADJUSTED WARRANT"); PROVIDED that such exercise price shall be rounded
up to the nearest whole cent; and
(ii) make such other changes to the Company Stock Plans,
Company Stock Options and Company Warrants as Buyer and the Company may
agree are appropriate solely to give effect to the Merger.
(b) Notwithstanding Section 1.04(a), the adjustments provided in
Section 1.04(a) with respect to any Company Stock Options that are "incentive
stock options" as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "CODE") shall be and are intended to be effected in a manner
which is consistent, to the extent permitted by applicable law, with Section
424(a) of the Code.
(c) Prior to the Merger Date, Buyer shall amend its option plan to
provide, or shall adopt an option plan which shall provide (in each case, the
"BUYER OPTION PLAN"), for the issuance of the Adjusted Options at the Merger
Date and by virtue of the Merger and without the need of any further corporate
action, Buyer shall assume all obligations of the Company under the Company
Stock Plans, including with respect to the Company Stock Options outstanding at
the Merger Date.
(d) Within two (2) business days after the Merger Date, Buyer shall
prepare and file with the SEC a registration statement on Form S-8 (or another
appropriate form) registering a number of shares of Buyer Common Stock equal to
the number of shares subject to the Adjusted Options. Such registration
statement shall be kept effective (and the current status of the initial
offering prospectus or prospectuses required thereby shall be maintained) at
least for so long as any Adjusted Options may remain outstanding.
5
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(e) As soon as practicable after the Merger Date, Buyer shall deliver
to the holders of Company Stock Options appropriate notices setting forth such
holders' rights pursuant to the respective Company Stock Plans and the
agreements evidencing the grants of such Company Stock Options and that such
Company Stock Options and agreements shall be assumed by Buyer and shall
continue in effect on the same terms and conditions (subject to the adjustments
required by this Section 1.04 after giving effect to the Merger).
(f) A holder of an Adjusted Option may exercise such Adjusted Option in
accordance with its terms.
(g) Buyer shall issue the Adjusted Warrants, if any, at the Merger Date
and by virtue of the Merger and without the need for any further corporate
action, Buyer shall assume all obligations of the Company under any Company
Warrant outstanding at the Merger Date.
(h) As soon as practicable after the Merger Date, Buyer shall deliver
to any holders of Company Warrants, upon due surrender of the Company Warrants,
warrants evidencing the Assumed Warrants.
(i) Except to the extent required under the respective terms of the
Company Stock Options or Company Warrants or other applicable agreements, all
restrictions or limitations on transfer and vesting with respect to Company
Stock Options awarded under the Company Stock Plans or any other plan, program
or arrangement of the Company, and with respect to Company Warrants, to the
extent that such restrictions or limitations shall not have already lapsed,
shall remain in full force and effect with respect to such options or warrants
after giving effect to the Merger and the assumption by Buyer as set forth
above.
SECTION 1.05. ADJUSTMENTS. If at any time during the period between the
date of this Agreement and the Merger Date, any change in the outstanding shares
of Buyer Common Stock shall occur by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any stock dividend thereon with a record date during such period or
any similar transaction or event, the Merger Consideration shall be
appropriately adjusted to provide to the holders of Company Stock the same
economic effect as contemplated prior to such change or dividend. If at any time
during the period between the date of this Agreement and the Merger Date, any
change in the outstanding shares of Company Stock shall occur by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period or any similar transaction or event, the Merger Consideration shall
be appropriately adjusted to provide to the Buyer the same economic effect as
contemplated prior to such change or dividend.
SECTION 1.06. FRACTIONAL SHARES. No fractional shares of Buyer Common
Stock shall be issued in the Merger, but in lieu thereof each holder of Company
Stock otherwise entitled to a fractional share of Buyer Common Stock will be
entitled, subject to Section 1.07, to receive, from the Exchange Agent in
accordance with the provisions of this Section 1.06, a cash payment
6
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in lieu of such fractional shares of Buyer Common Stock representing such
holder's proportionate interest, if any, in the net proceeds from the sale by
the Exchange Agent in one or more transactions (which sale transactions shall be
made at such times, in such manner and on such terms as the Exchange Agent shall
determine in its reasonable discretion) on behalf of all such holders of the
aggregate of the fractional shares of Buyer Common Stock which would otherwise
have been issued (the "EXCESS SHARES"). The sale of the Excess Shares by the
Exchange Agent shall be executed on The Nasdaq Stock Market ("NASDAQ") through
one or more member firms of the National Association of Securities Dealers, Inc.
and shall be executed in round lots to the extent practicable. Until the net
proceeds of such sale or sales have been distributed to the appropriate holders
of shares of Company Stock, the Exchange Agent will hold such proceeds in trust
for the appropriate holders of Company Stock. Buyer shall pay all commissions,
transfer taxes and other out-of-pocket transaction costs, including, without
limitation, the expenses and compensation of the Exchange Agent, incurred in
connection with such sale of the Excess Shares. As soon as practicable after the
determination of the amount of cash, if any, to be paid to holders of Company
Stock in lieu of any fractional shares of Buyer Common Stock the Exchange Agent
shall make available such amounts to such holders of shares of Company Stock
without interest.
SECTION 1.07 FAILURE TO OBTAIN APPROVAL FOR LISTING; CASH MERGER
CONSIDERATION. If Buyer is unable to obtain, within sixty (60) days after the
filing of the applications and forms referred to in Section 6.02 ("LISTING
PERIOD"), a letter from Nasdaq ("NASDAQ LETTER") indicating that the Buyer
Common Stock has been approved for listing on the Nasdaq NMS subject to
customary conditions to be contained in such approval letter for a transaction
of this type (a "LISTING FAILURE"), then:
(a) Section 1.01(b)(ii) shall be deemed to be amended and restated in
its entirety as follows without any action by the parties hereto:
"(ii) Each share of Company Stock outstanding immediately
prior to the Merger Date shall, except as otherwise provided
in Section 1.01(b)(i) or in Section 1.08 with respect to
shares of Company Stock as to which appraisal rights have been
exercised (which shares shall be treated in accordance with
Section 262 of the Delaware Law), be converted into the right
to receive an amount of cash (in United States dollars and
rounded to the nearest cent) equal to (A) the Purchase Price
(as determined in accordance with Section 1.09) divided by (B)
(x) the number of shares of Company Stock outstanding on the
date immediately prior to the Merger Date PLUS (y) the number
of shares of Company Stock subject to Company Options and
Company Warrants that have an exercise or conversion price
less than $.71 MINUS (z) the number of shares of Company Stock
owned by Buyer. As of the date of this Agreement, (B) in the
immediately preceding sentence would be 11,695,549 (the
"MERGER CONSIDERATION").
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(b) Section 1.02(g) shall be deemed to be deleted in its entirety
without any action by the parties hereto;
(c) Section 1.06 shall be deemed to be deleted in its entirety without
any action by the parties hereto; and
(d) (i) The (A) representations and warranties of the Company contained
in Section 3.10(i), (B) representations and warranties of Buyer contained in
Sections 4.05 through 4.08 and Sections 4.10 through 4.11, (C) covenants
contained in Sections 6.01, 6.02, the last sentence of Section 7.02 and Section
7.08 and (D) the closing conditions set forth in Sections 8.01(e) and 8.01(f)
shall cease to be applicable, and (ii) the accuracy of any such representation
and warranty or failure to comply with any such covenant will not be a condition
to the closing of the Merger and the breach of any such representation and
warranty or failure to perform any such covenant shall not serve as the basis
for any termination right set forth in Section 9.01.
SECTION 1.08 DISSENTING SHARES. Notwithstanding Section 1.01, in the
event of a Listing Failure, shares of Company Stock outstanding immediately
prior to the Merger Date and held by a holder who has not voted in favor of the
Merger and who has exercised appraisal rights in respect of such shares of
Company Stock in accordance with the Delaware Law shall not be converted into a
right to receive the Merger Consideration unless such holder fails to perfect or
withdraws or otherwise loses his appraisal or objecting stockholders' rights.
Shares of Company Stock in respect of which appraisal rights have been exercised
shall be treated in accordance with Section 262 of the Delaware Law. If after
the Merger Date such holder fails to perfect or withdraws or otherwise loses his
right to demand the payment of fair value for shares of Company Stock under
Delaware Law, such shares of Company Stock shall be treated as if they had been
converted as of the Merger Date into a right to receive the Merger
Consideration. The Company shall give Buyer prompt notice of any demands
received by the Company for the exercise of appraisal rights with respect to
shares of Company Stock and Buyer shall have the right to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Buyer, make any payment with
respect to, or settle or offer to settle, any such demands. In the event any
amounts shall become due and payable in respect of any such demands, such
amounts shall be paid by the Surviving Corporation.
SECTION 1.09 PURCHASE PRICE; EXCHANGE RATIO; VALUATION OF BUYER COMMON
STOCK. (a) For purposes of this Agreement, the term "PURCHASE PRICE" shall mean
Eight Million Two Hundred Ninety Thousand United States Dollars
(U.S.$8,290,000). On or before the date immediately prior to the Merger Date,
Buyer and the Company shall agree on the appropriate calculation of the Merger
Consideration (pursuant to Section 1.01(b)(ii)) and the Exchange Ratio (pursuant
to Sections 1.09(b) and (c)) and will cause the Merger Consideration (as so
calculated) to be reflected correctly in the Certificate of Merger to be
effective on the Merger Date.
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(b) For purposes of this Agreement, the term "EXCHANGE RATIO" shall
mean a fraction of which (i) the numerator shall be (x) the Purchase Price
divided by (y) (A) the number of shares of Company Stock outstanding on the date
immediately prior to the Merger Date PLUS (B) the number of shares of Company
Stock subject to Company Options and Company Warrants that have an exercise or
conversion price less than $.71 MINUS (C) the number of shares of Company Stock
owned beneficially by Buyer other than beneficial ownership arising from the
execution of the Support/Voting Agreements, and (ii) the denominator shall be
the value of Buyer Common Stock (determined in accordance with Section 1.09(c)).
As of the date of this Agreement, (y) in the immediately preceding sentence is
11,695,549.
(c) For purposes of Section 1.09(b), the value of Buyer Common Stock
shall be determined by dividing by two the following sum: (I) the average of the
closing prices for the Buyer Common Stock on the Toronto Stock Exchange for each
business day commencing on the 30th day prior to the public announcement of the
transactions contemplated by this Agreement and (II) the average of the closing
prices for the Buyer Common Stock on the Toronto Stock Exchange for each
business day commencing on the day immediately following such announcement and
ending on the 30th day following such public announcement. Such value shall then
be converted from Canadian dollars into U.S. dollars based upon the average
applicable exchange rate for such calculation period as published in THE WALL
STREET JOURNAL (Exchange Rate table in Currency Trading section).
ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.01. CERTIFICATE OF INCORPORATION; BYLAWS. The certificate of
incorporation and bylaws of the Merger Sub in effect at the Merger Date shall be
the certificate of incorporation and bylaws, respectively, of the Surviving
Corporation until amended in accordance with applicable law, except for Article
I thereof which shall include the name of the Surviving Corporation designated
by Buyer. The Surviving Corporation shall succeed to all of the rights,
privileges, powers and franchises, of a public as well as of a private nature,
of the Company and Merger Sub, all of the properties and assets and all of the
debts of the Company and Merger Sub, choses in action and other interests due or
belonging to the Company and Merger Sub and shall be subject to, and responsible
for, all of the debts, liabilities and duties of the Company and Merger Sub with
the effect set forth in the Delaware Law.
SECTION 2.02. DIRECTORS AND OFFICERS. From and after the Merger Date,
until successors are duly elected or appointed and qualified in accordance with
applicable law, (a) the directors of Merger Sub immediately prior to the Merger
Date shall be the directors of the Surviving Corporation, and (b) the officers
of Merger Sub immediately prior to the Merger Date shall be the officers of the
Surviving Corporation. On or prior to the Merger Date, the Company shall deliver
to Buyer evidence satisfactory to Buyer of the resignations (to be effective as
of the Merger Date) of each of the directors of the Company and/or its
Subsidiaries, and, without
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affecting their employment status or any rights they may have under any
severance agreement, employment agreement or similar arrangement disclosed in
the Company Disclosure Schedule, each of the officers of the Company and/or its
Subsidiaries.
SECTION 2.03. SUBSCRIPTION. As part of the overall transactions
described in this Agreement, in consideration of Buyer agreeing to issue and
deliver Buyer Common Stock in accordance with Section 1.02 of this Agreement,
Buyer will be entitled to subscribe and agrees to subscribe, at the Merger Date,
for a number of shares of common stock ( par value $.01 per share), of the
Surviving Corporation equivalent to the number of shares of Company Stock
outstanding immediately prior to the Merger Date (the "SUBSCRIPTION STOCK"). The
acquisition of the Subscription Stock shall occur simultaneously with the
conversions provided for under Sections 1.01(b)(ii) and 1.01(b)(iii) of this
Agreement. The Subscription Stock will, at the Merger Date, have been duly
authorized and, when issued to Buyer pursuant to this Agreement, will be validly
issued and outstanding, fully paid and non-assessable.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule (each section of which
qualifies the correspondingly numbered representation and warranty only, except
where the information in any such section is disclosed in such a way to make its
relevance to any other representation or warranty readily apparent, in which
case, such section shall be deemed to also qualify such other representation and
warranty) of the Company attached hereto (the "COMPANY DISCLOSURE SCHEDULE")
(and except as to any matter set forth in or contemplated by Section 2.03 hereof
as to which the representations and warranties in this Article 3 do not apply)
or as otherwise provided herein, the Company represents and warrants to Buyer
that:
SECTION 3.01. CORPORATE EXISTENCE AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and has all corporate powers required to carry on
its business as now conducted and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified or in good standing is not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect on the Company. For purposes
of this Agreement, a "MATERIAL ADVERSE EFFECT" means, with respect to any
Person, a material adverse effect on the financial condition, business,
operations, assets or results of operations of such Person and its Subsidiaries
taken as a whole or on the ability of such Person to perform its obligations
under this Agreement in all material respects. Section 3.01(a) of the Company
Disclosure Schedule includes true and complete copies of the Company's
certificate of incorporation and bylaws as currently in effect. Section 3.01(b)
of the Company Disclosure Schedule includes a list of all jurisdictions in which
the Company or any Subsidiary of the Company is duly qualified to conduct
business.
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SECTION 3.02. CORPORATE AUTHORIZATION. (a) The execution, delivery and
performance by the Company of each of (I) this Agreement, (ii) the letter
agreement dated October 29, 1998 between the Company and Dr. Jack Barbut (the
"BARBUT AGREEMENT"), (iii) the Agreement dated November 16, 1998 among the
Company, Panlabs International, Inc. and MDS, Inc. (the "MDS AMENDMENT") and
(iv) the Forbearance Agreement dated the date hereof among the Company, its
Subsidiaries named therein and First Union National Bank (the "FORBEARANCE
AGREEMENT") and the consummation by the Company of the transactions contemplated
by this Agreement, the Barbut Agreement, the MDS Amendment and the Forbearance
Agreement are within the Company's corporate powers and, except for the required
approval of the stockholders of the Company in connection with the consummation
of the Merger, have been duly authorized by all necessary corporate action. The
affirmative vote of a majority of the shares of Company Stock outstanding as of
the record date for the Company Stockholder Meeting (the "REQUIRED STOCKHOLDER
VOTE") is the only vote of any class or series of the Company's capital stock
necessary to approve and adopt this Agreement and the transactions contemplated
by this Agreement. This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding agreement of the Company enforceable
against the Company in accordance with its terms.
(b) The Board of Directors of the Company, at a meeting duly called and
held, has (i) determined that this Agreement and the transactions contemplated
by this Agreement (including the Merger) are fair to and in the best interests
of the stockholders of the Company, (ii) approved this Agreement and the
transactions contemplated by this Agreement (including the Merger), and (iii)
resolved to recommend adoption of this Agreement and the transactions
contemplated hereby by the stockholders of the Company, subject to the terms
hereof.
(c) Each of the persons identified in Section 3.02(c) of the Company
Disclosure Schedule has (i) entered into a Support/Voting Agreement in the form
attached hereto as Exhibit A (each a "SUPPORT/VOTING AGREEMENT"), whereby each
such individual has agreed, among other things, to vote all shares of Company
Stock beneficially owned by them in favor of adoption of this Agreement and (ii)
a written undertaking in the form attached hereto as Exhibit B (each an
"AFFILIATE LETTER"), whereby each such individual has agreed, among other
things, to comply with the requirements of Rule 145 under the 1933 Act with
respect to public sales of Buyer Common Stock received by them in the Merger.
The persons identified in Section 3.02(c) are the only persons which the Company
believes may be Affiliates of the Company.
SECTION 3.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated by this Agreement require no action, by or in
respect of, or filing with, any federal, state, local or foreign governmental
body, agency, official or authority ("GOVERNMENTAL AUTHORITY") other than (a)
the filing of the Certificate of Merger in accordance with the Delaware Law; (b)
compliance with any applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"); (c) compliance with any
applicable requirements of the Securities and Exchange Act of 1934, as amended,
and the rules
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and regulations promulgated thereunder (the "1934 ACT"); (d) compliance with any
applicable requirements of the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder (the "1933 ACT"); (e) compliance with any
applicable foreign or state securities or Blue Sky laws; and (f) immaterial
actions or filings relating to ordinary operational matters.
SECTION 3.04. NON-CONTRAVENTION. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated by this Agreement do not and will not, assuming
receipt of the Required Stockholder Vote, (a) contravene or conflict with the
certificate of incorporation or bylaws of the Company or any Subsidiary of the
Company, (b) assuming compliance with the matters referred to in Section 3.03
and Section 3.03 of the Company Disclosure Schedule, contravene or conflict with
or constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Company or any
Subsidiary of the Company, (c) constitute a default (or an event which with
notice, the lapse of time or both would become a default) under or give rise to
a right of termination, cancellation or acceleration of any right or obligation
of the Company or any Subsidiary of the Company or to a loss of any benefit to
which the Company or any Subsidiary of the Company is entitled under any
provision of any agreement, contract or other instrument binding upon the
Company or any Subsidiary of the Company or any license, franchise, permit or
other similar authorization held by the Company or any Subsidiary of the
Company, (d) require any action or consent or approval of any Person other than
a Governmental Authority or (e) result in the creation or imposition of any Lien
on any asset of the Company or any Subsidiary of the Company, other than, (i) in
the case of the events specified in clauses (b), (c), and (e) (other than
indebtedness of the Company or any Subsidiary of the Company) and (ii) in the
case of the events specified in clause (d) (other than indebtedness of the
Company and licenses and sublicenses related to the 191 patent to which the
Company or any Subsidiary is a party on the date hereof), any such event which,
individually or in the aggregate, has not had, and is not reasonably likely to
have, a Material Adverse Effect on the Company. For purposes of this Agreement,
"LIEN" means, with respect to any asset, any mortgage, claim, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
SECTION 3.05. CAPITALIZATION. The authorized capital stock of the
Company consists of 20,000,000 shares of Company Stock and 5,000,000 shares of
serial preferred stock. As of September 30, 1998, there were (i)11,523,257
shares of Company Stock (together with associated Rights as described in Section
3.21) outstanding and (ii) no shares of serial preferred stock outstanding. As
of September 30, 1998, there were (i) employee and director stock options to
purchase an aggregate of 1,962,851 shares of Company Stock outstanding (none of
which options were exercisable, other than options in respect of 1,367,241
shares of Company Stock) and (ii) warrants to purchase 2,110,000 shares of
Company Stock outstanding (all of which were exercisable). All outstanding
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable and, as to shares issued and sold by
the Company within the three years prior to the date of this Agreement, to the
Company's knowledge, have been issued in compliance with all federal and state
securities laws. Except (i)
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as set forth in this Section 3.05, (ii) for changes since September 30, 1998
resulting from the expiration, vesting, termination or exercise in accordance
with their respective terms of stock options or warrants outstanding on such
date, (iii) modifications of the Rights as described in Section 3.21, (iv)
acceleration of vesting of stock options resulting from the execution of this
Agreement as set forth in Section 3.04 of the Company Disclosure Schedule, and
(v) issuances after September 30, 1998 in the ordinary course of business
consistent with past practice of shares of Company Stock to the Company's 401(k)
plan, there are outstanding (a) no shares of capital stock or other voting
securities of the Company, (b) no securities of the Company convertible into or
exchangeable for shares of capital stock or voting securities of the Company,
and (c) no options, warrants, calls, subscriptions or other rights to acquire
from the Company, and no obligation of the Company to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company (the items in clauses (a), (b) and (c)
being referred to collectively as the "COMPANY SECURITIES"). There are no
outstanding obligations of the Company or any Subsidiary of the Company to
repurchase, redeem or otherwise acquire any Company Securities. Section 3.05 of
the Company Disclosure Schedule sets forth, with respect to each stock option
and warrant for Company Stock outstanding at September 30, 1998, the name of the
optionee or warrant holder, as the case may be, the number of shares of Company
Stock subject thereto, the per share exercise price thereof and the initial
vesting date thereof. Section 3.05 of the Company Disclosure Schedule sets forth
(i) every agreement pursuant to which the Company has granted to any Person
registration rights related to shares of Company Stock and (ii) every agreement
of which the Company has knowledge relating to the voting of any shares of
Company Stock.
SECTION 3.06. SUBSIDIARIES. (a) Each Subsidiary of the Company is duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all corporate powers to carry on its business
as now conducted and is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where failure to be so qualified or
licensed is not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on the Company.
(b) The Company does not own, directly or indirectly, any equity or
other ownership interest in any corporation, partnership, joint venture or other
entity or enterprise, except for the Subsidiaries of the Company set forth in
Section 3.06 of the Company Disclosure Schedule. Except as set forth in Section
3.06 of the Company Disclosure Schedule, the Company is not subject to any
obligation or requirement to provide funds to or make any investment (in the
form of a loan, capital contribution or otherwise) in any such entity. The
ownership interests having by their terms ordinary voting power to elect a
majority of directors (or others performing similar functions with respect to
such Subsidiary) of each of the Company's Subsidiaries is held of record by the
Company or one of its other Subsidiaries, free and clear of any Liens. Each of
the outstanding shares of capital stock of each of the Company's Subsidiaries is
duly authorized, validly issued, fully paid and nonassessable. The following
information for each Subsidiary of the Company is set forth in Section 3.06 of
the Company Disclosure Schedule, as applicable: (i)
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its name and jurisdiction of incorporation or organization; (ii) its authorized
capital stock or share capital; and (iii) the number of issued and outstanding
shares of capital stock or share capital and the record owner(s) thereof. There
are no outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, claims or other commitments or rights of any type relating to
the issuance, sale or transfer of any securities of any Subsidiary of the
Company (collectively, the "COMPANY SUBSIDIARY SECURITIES"), nor are there
outstanding any securities which are convertible into or exchangeable for any
Company Subsidiary Securities; and no Subsidiary of the Company has any
obligation of any kind to issue any additional Company Subsidiary Securities or
to pay for any Company Subsidiary Securities.
SECTION 3.07. SEC FILINGS. The Company has delivered to Buyer (i) the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997
(the "COMPANY 10-K"), (ii) its Quarterly Reports on Form 10-Q for its fiscal
quarters ended after December 31, 1997 and filed with the Securities and
Exchange Commission (the "SEC") prior to the date of this Agreement (the
"COMPANY 10-QS"), and (iii) its proxy or information statements relating to
meetings of, or actions taken without a meeting by, the stockholders of the
Company held since December 31, 1997, and (iv) all of its other reports,
statements, schedules and registration statements filed with the SEC since
January 1, 1998 and through the date of this Agreement. The Company has timely
filed all required reports, schedules, forms, statements and other documents
with the SEC since January 1, 1998 (collectively, the "COMPANY SEC DOCUMENTS").
As of their respective dates, or if amended, as of the date of the last such
amendment, the Company SEC Documents complied, and all documents required to be
filed by the Company with the SEC after the date hereof and prior to the Merger
Date (the "SUBSEQUENT COMPANY SEC DOCUMENTS") will comply, in all material
respects with the requirements of the 1933 Act or the 1934 Act, as the case may
be, and the applicable rules and regulations promulgated thereunder, and none of
the Company SEC Documents contained, and the Subsequent Company SEC Documents
when filed will not contain, any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
SECTION 3.08. FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the Company SEC Documents at the time such Company SEC
Documents were filed with the SEC complied as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
generally accepted accounting principles applied in the United States ("U.S.
GAAP") applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto or, in the case of the unaudited statements,
as permitted by Form 10-Q of the SEC), and fairly present (subject in the case
of unaudited statements to normal, recurring audit adjustments) the consolidated
financial position of the Company as at the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended. For
purposes of this Agreement, "COMPANY BALANCE SHEET" means the consolidated
balance sheet of the Company
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as of December 31, 1997 set forth in the Company 10-K and "COMPANY BALANCE SHEET
DATE" means December 31, 1997.
For purposes of financial presentation, the Company and its
Subsidiaries recognize net revenue from their contracts on a percentage of
completion basis as work is performed. The percentage of completion, and
consequently the revenue to be recorded, of each individual contract is
determined through detailed analysis and discussion between all appropriate
operational and financial department management. Although the Company and its
Subsidiaries do not require collateral for unpaid balances, credit losses have
consistently been within management's expectations. Certain contracts contain
provisions for price adjustment for cost overruns. Such adjusted amounts are
included in service revenue when realization is assured and the amounts can be
reasonably determined. In the period in which it is determined that a loss will
result from the performance of a contract, the entire amount of the estimated
ultimate loss is charged against income.
SECTION 3.09. DISCLOSURE DOCUMENTS. (a) Each document required to be
filed by the Company with the SEC in connection with the transactions
contemplated by this Agreement (the "COMPANY DISCLOSURE DOCUMENTS"), including,
without limitation, the proxy or information statement of the Company (the
"COMPANY PROXY STATEMENT") to be filed with the SEC in connection with the
adoption of this Agreement by the holders of Company Stock, and any amendments
or supplements thereto, will, when filed, comply as to form in all material
respects with the applicable requirements of the 1934 Act.
(b) At the time the Company Proxy Statement or any amendment or
supplement thereto is first mailed to stockholders of the Company, and at the
time such stockholders vote on the adoption of this Agreement, the Company Proxy
Statement, as supplemented or amended, if applicable, will not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. At the time of the filing of any
Company Disclosure Document other than the Company Proxy Statement and at the
time of any distribution thereof, such Company Disclosure Document will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The representations
and warranties contained in this Section 3.09(b) will not apply to statements
included in or omissions from the Company Disclosure Documents based upon
information furnished to the Company by Buyer specifically for use therein.
SECTION 3.10. INFORMATION SUPPLIED. The information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) the
Buyer's Form F-4 or any amendment or supplement thereto will not, at the time
the Form F-4 or any amendment or supplement thereto becomes effective under the
1933 Act and on the Merger Date, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (ii) any Buyer Disclosure
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Documents (other than the Form F-4 and any amendments or supplements to either)
will not, at the time of effectiveness of such Buyer Disclosure Document and at
the time of any distribution thereof, contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
SECTION 3.11. ABSENCE OF CERTAIN CHANGES. From the Company Balance
Sheet Date, except (i) as set forth in the Company SEC Documents, (ii) as
contemplated by this Agreement (including, without limitation, Sections 1.04 and
3.21 hereof) or (iii) related to the Shut-Downs, the Company and its
Subsidiaries have conducted their business in the ordinary course consistent
with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on the Company other than any of the
foregoing (i) relating to the economy or securities markets in general, (ii)
relating to the Company's industry in general or (iii) arising from the
announcement or thereafter the pendency of this Agreement or the transactions
contemplated by this Agreement;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any Subsidiary of
the Company of any amount of outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any of its
Subsidiaries;
(c) any amendment of any material term of any outstanding security of
the Company or any Subsidiary of the Company;
(d) any incurrence, assumption or guarantee by the Company or any
Subsidiary of the Company of any indebtedness from any third party for borrowed
money;
(e) any creation or assumption by the Company or any Subsidiary of the
Company of any Lien on any material asset other than Liens arising solely by
operation of applicable law;
(f) any making of any loan, advance or capital contribution to or
investment in any Person other than (i) loans and advances to any employees of
the Company in an amount not in excess of $5,000 per employee and (ii) loans,
advances or capital contributions to or investments in wholly-owned Subsidiaries
of the Company;
(g) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company or any
Subsidiary of the Company which, individually or in the aggregate, has had or is
reasonably likely to have a Material Adverse Effect on the Company;
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(h) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any Subsidiary of the Company relating to its
assets or business (including, without limitation, the acquisition or
disposition of any assets) (other than transactions and commitments contemplated
by this Agreement) inconsistent with the Company's budget and/or spending plans
disclosed to Buyer prior to the date of this Agreement or any relinquishment by
the Company or any Subsidiary of the Company of any material contract, license
or right;
(i) any change in any method of accounting or accounting principle or
practice by the Company or any Subsidiary of the Company, except for any such
change required by U.S. GAAP or SEC Regulation S-X promulgated under the 1934
Act and, as to changes occurring prior to the date of this Agreement, as set
forth in Section 3.11 of the Company Disclosure Schedule ("REGULATION S-X");
(j) any (i) grant by the Company or any of its Subsidiaries of any
severance or termination pay to, or entry into any employment, termination or
severance arrangement with, any director, officer or employee of the Company or
any Subsidiary of the Company; (ii) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) with any director, officer or employee of the Company or any
Subsidiary, (iii) increase in benefits payable under any existing severance or
termination pay policies or employment agreements or (iv) increase in
compensation, bonus or other benefits payable to directors, officers or
employees of the Company or any Subsidiary of the Company, other than in the
ordinary course of business and consistent with past practice.
SECTION 3.12. NO UNDISCLOSED MATERIAL LIABILITIES. There are no
liabilities, commitments or obligations (whether pursuant to contracts or
otherwise) of the Company or any Subsidiary of the Company of any kind
whatsoever which, individually or in the aggregate, have had or are reasonably
likely to have a Material Adverse Effect on the Company, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which is reasonably likely
to result in such a liability, commitment or obligation, including, without
limitation, any fines, disciplinary actions or other adverse actions that may be
taken or reported concerning the conduct of the Company or any of its
Subsidiaries, other than:
(a) liabilities, commitments or obligations disclosed or provided for
in the Company Balance Sheet (including the notes thereto) or disclosed in the
Company SEC Documents;
(b) liabilities, commitments or obligations incurred in the ordinary
course of business consistent with past practice since the Company Balance Sheet
Date;
(c) liabilities, commitments or obligations arising from the Shut-Downs
and disclosed to Buyer; and
(d) liabilities, commitments or obligations under this Agreement.
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SECTION 3.13. LITIGATION; INVESTIGATIONS; ORDERS AND DECREES. There is
no action, claim, suit, investigation, proceeding or examination ("ACTION")
pending against or affecting, or to the knowledge of the Company, threatened or
reasonably likely to be brought against or affecting, the Company or any
Subsidiary of the Company or any of their respective properties before any
arbitrator or any Governmental Authority which, individually or in the
aggregate, has had or is reasonably likely to have a Material Adverse Effect on
the Company or on Chrysalis DNX Transgenic Sciences Corporation ("CHRYSALIS
DNX"). The foregoing representation and warranty does not include or relate to
any Action, pending or threatened, challenging or seeking to prevent, enjoin,
alter or delay the Merger or any of the transactions contemplated by this
Agreement. Neither the Company nor any Subsidiary is subject to any outstanding
order, writ, injunction or decree which, individually or in the aggregate, would
have a Material Adverse Effect on the Company or Chrysalis DNX. Since December
31, 1993, (i) there has not been any Action asserted or, to the knowledge of the
Company, threatened before any Governmental Authority against the Company or any
Subsidiary of the Company relating to the Company or any of its Subsidiary's
method of doing business or its relationship with past, existing or future users
or purchasers of any goods or services of the Company or any Subsidiary of the
Company which has had, individually or in the aggregate, a Material Adverse
Effect on the Company and (ii) neither the Company nor any Subsidiary of the
Company has been subject to any outstanding order, writ, injunction or decree
relating to the Company's or any of its Subsidiary's method of doing business or
its relationship with past, existing or future lessees, users, purchasers,
licensees or sublicensees of any Intellectual Property, goods or services of the
Company or any Subsidiary of the Company which has had, individually or in the
aggregate, a Material Adverse Effect on the Company.
SECTION 3.14. TAXES. (a) Except as set forth in the Company Balance
Sheet (including the notes thereto), (i) all Tax Returns for the Company or any
Subsidiary of the Company required to be filed with any taxing authority by, or
with respect to, the Company and its Subsidiaries have been filed in accordance
with all applicable laws and are true, correct and complete in all material
respects; (ii) the Company and its Subsidiaries have timely paid all Taxes shown
as due and payable on the Tax Returns for the Company or any Subsidiary of the
Company that have been so filed; (iii) the Company and its Subsidiaries have
made provision for all Taxes payable by the Company and its Subsidiaries for
which no Tax Return for the Company or any Subsidiary of the Company has yet
been filed; (iv) there is no action, suit, proceeding, audit or claim now
proposed or pending against or with respect to the Company or any of its
Subsidiaries in respect of any Tax where there is a reasonable possibility of an
adverse determination; (v) neither the Company nor any of its Subsidiaries has
been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code; (vi) neither the Company nor any of its
Subsidiaries has been a member of an affiliated, consolidated, combined or
unitary group other than one of which the Company was the common parent and no
members of that group have left the group; (vii) all Tax Returns filed with
respect to tax years of the Company and its Subsidiaries through the tax year
ended December 31, 1994, have been examined and closed or are returns with
respect to which the applicable period for assessment under applicable
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law, after giving effect to extensions or waivers, has expired; (viii) neither
the Company nor any Subsidiary (or any member of any affiliated, consolidated,
combined or unitary group of the Company or any Subsidiary of the Company is or
has been a member) has been granted any extension or waiver of the statute of
limitations period applicable to any Tax Return, which period (after giving
effect to such extension or waiver) has not yet expired; and (ix) neither the
Company nor any Subsidiary of the Company is a party to a tax sharing agreement,
including, without limitation, any agreement with respect to the shifting of
losses or income among parties or has been a party to a tax sharing agreement
that imposes obligations of the Company or any Subsidiary of the Company as of
the date of this Agreement. For purposes of the representations contained in
this Section 3.14, none of these representations shall be deemed to have been
breached unless such breach would have, individually or in the aggregate, a
Material Adverse Effect on the Company.
(b) For purposes of this Agreement, "TAXES" means all United States
Federal, state, local and foreign taxes, levies and other assessments,
including, without limitation, all income, sales, use, goods and services, value
added, capital, capital gains, net worth, transfer, profits, withholding,
payroll, PAYE, employer health, unemployment insurance payments, excise, real
property and personal property taxes, and any other taxes, assessments or
similar charges in the nature of a tax, including, without limitation, interest,
additions to tax, fines and penalties, imposed by a governmental or public body,
agency, official or authority (the "TAXING AUTHORITIES"). "TAX RETURN" means any
return, report, information return or other document (including any related or
supporting information) required to be filed with any Taxing Authority in
connection with the determination, assessment, collection, administration or
imposition of any Taxes.
SECTION 3.15. ERISA AND LABOR MATTERS. (a) Section 3.15(a) of the
Company Disclosure Schedule contains a list identifying each "EMPLOYEE BENEFIT
PLAN", as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974 ("ERISA"), which is subject to any provision of ERISA and is maintained,
administered or contributed to by the Company or any ERISA Affiliate of the
Company and covers any employee or former employee of the Company or any
Subsidiary of the Company or in connection with which the Company or any
Subsidiary of the Company has any liability. Copies of such plans (and, if
applicable, related trust agreements) and all amendments thereto and written
interpretations thereof, if any, have been furnished to Buyer together with the
three most recent annual reports (Form 5500 including, if applicable, Schedule B
thereto) prepared in connection with, and any favorable determination letter
issued in connection with, any such plan. Such plans are referred to
collectively herein as the "EMPLOYEE PLANS". For purposes of this Section,
"ERISA AFFILIATE" of the Company means any other Person which, together with the
Company, would be treated as a single employer under Section 414 of the Code.
The only Employee Plans which individually or collectively would constitute an
"EMPLOYEE PENSION BENEFIT PLAN" as defined in Section 3(2) of ERISA (the
"PENSION PLANS") are identified as such in the list referred to above.
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(b) Neither the Company nor any ERISA Affiliate has ever maintained or
been obligated to contribute to or had any liability in connection with any
"MULTIEMPLOYER PLAN", as defined in Section 3(37) of ERISA, or any "DEFINED
BENEFIT PLAN", as defined in Section 3(35) of ERISA. Nothing done or omitted to
be done and no transaction or holding of any asset under or in connection with
any Employee Plan has or will make the Company or any Subsidiary of the Company,
any officer or director of the Company or any Subsidiary of the Company subject
to any liability under Title I of ERISA or liable for any tax pursuant to
Section 4975 of the Code that is reasonably likely to have a Material Adverse
Effect on the Company.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the IRS
that it is so qualified. The Company has furnished to Buyer copies of the most
recent IRS determination letters with respect to each such Employee Plan. Each
Employee Plan has been maintained in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are applicable to the
Employee Plan, excluding any instances of non-compliance that would not
individually or in the aggregate be reasonably likely to have a Material Adverse
Effect on the Company.
(d) Section 3.15(d) of the Company Disclosure Schedule contains a list
of each employment, severance (including the duration of severance periods or,
in the case of stay bonuses, the amount) or other similar contract, arrangement
or policy and each plan or arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits or for deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which is not an Employee
Plan, is entered into, maintained or contributed to, as the case may be, by the
Company or any Subsidiary of the Company and covers any employee or former
employee of the Company or any of its Subsidiaries or in connection with which
the Company or any Subsidiary of the Company could have liability. Such
contracts, plans and arrangements as are described above, copies or descriptions
of all of which have been furnished previously to Buyer, are referred to
collectively herein as the "BENEFIT ARRANGEMENTS". Each Benefit Arrangement has
been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
that are applicable to such Benefit Arrangement, excluding any instances of
non-compliance that would not individually or in the aggregate be reasonably
likely to have a Material Adverse Effect on the Company.
(e) Except as would not be reasonably likely to have a Material Adverse
Effect on the Company, no Employee Plan, Benefit Arrangement or related document
contains any provision that would prevent the Company or any Subsidiary of the
Company from amending or terminating any post-retirement health, medical or life
insurance benefits and no agent or representative of the Company or of any
Subsidiary of the Company has made any statements
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that would limit the ability of the Company or any of its Subsidiaries to amend
or terminate any such benefits.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company or any Subsidiary of the
Company relating to, or change in employee participation or coverage under, any
Employee Plan or Benefit Arrangement which would increase materially the expense
of maintaining such Employee Plan or Benefit Arrangement above the level of the
expense incurred in respect thereof for the fiscal year ended on the Company
Balance Sheet Date.
(g) The execution of, and performance of the transactions contemplated
in, this Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Employee Plan,
Benefit Arrangement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any employee or former employee of the Company or any
of its Subsidiaries, or result in the triggering or imposition of any
restrictions or limitations on the right of Buyer, the Company or any Subsidiary
of the Company to amend or terminate any Employee Plan and receive the full
amount of any excess assets remaining or resulting from such amendment or
termination, subject to applicable taxes. Except as otherwise identified in
Section 3.15(d) of the Company Disclosure Schedule, there is no contract,
agreement, plan or arrangement covering any employee or former employee of the
Company or any Subsidiary that, individually or collectively, could give rise to
the payment of any amount that would not be deductible pursuant to the terms of
Sections 162(a)(1), 162(a)(2) or 280G of the Code.
(h) Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement. There are no labor unions voluntarily
recognized or certified to represent any bargaining unit of employees at the
Company or any of its Subsidiaries. No work stoppage, labor strike or slowdown
against the Company or any of its Subsidiaries is pending or threatened nor has
any of the foregoing occurred since December 18, 1996. Neither the Company nor
any of its Subsidiaries is involved in or threatened with any labor dispute or
grievance which individually or in the aggregate has had or is reasonably likely
to have a Material Adverse Effect on the Company. To the knowledge of the
Company, there is no organizing effort or representation question at issue with
respect to any employee of the Company or any of its Subsidiaries. No collective
bargaining agreement to which the Company or any of its Subsidiaries is or may
be a party is currently under negotiation or renegotiation and no existing
collective bargaining agreement is due for expiration, renewal or renegotiation
within the one year period after the date hereof.
SECTION 3.16. COMPLIANCE WITH LAWS. (a) Each of the Company and its
Subsidiaries has all permits, licenses, authorizations, consents, approvals and
franchises necessary to own, lease and operate its respective properties and to
carry on its respective business as it is now being conducted except for any of
the foregoing, the absence of which would not, individually or in the
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aggregate, have a Material Adverse Effect on the Company or Chrysalis DNX. The
Company and each Subsidiary is in compliance in all material respects with the
terms and conditions of all such permits, licenses, authorizations, consents,
approvals and franchises. Section 3.16 of the Company Disclosure Schedule sets
forth, as of the date of this Agreement, a list of all material permits,
licenses, authorizations, consents, approvals and franchises of the Company and
each Subsidiary of the Company along with their expiration dates, each one of
which is currently valid and in full force. The Company and each Subsidiary has
filed such timely and complete renewal applications as may be required with
respect to its material permits, licenses, authorizations, consents, approvals
and franchises. No suspension, revocation, cancellation or withdrawal of, or any
Action related to, any material permits, licenses, authorizations, consents,
approvals or franchises of the Company and any Subsidiary of the Company has
been filed or, to the knowledge of the Company or its Subsidiaries, has been
commenced or is threatened. The Company and each Subsidiary is currently in
compliance with, and at all times since December 31, 1993, has been in
compliance with, all applicable federal, state, local or foreign laws, statutes,
orders, judgments, decisions, rules, regulations, policies or guidelines
(collectively "APPLICABLE LAWS"), including those promulgated or entered by the
United States Food and Drug Administration ("FDA"), United States Department of
Agriculture ("USDA"), United States Drug Enforcement Agency ("DEA"), European
Medicines Evaluation Agency ("EMEA"), relating to the Company, any Subsidiary of
the Company or its respective businesses or properties, except for any
non-compliance which has not had, and is not reasonably likely to have, a
Material Adverse Effect on the Company.
(b) As to each product or service (including preclinical and clinical
trials) subject to the jurisdiction of any Governmental Authority that is
manufactured, tested, distributed, held, performed, offered and/or marketed by
the Company or its Subsidiaries, such product or service is being, and since
December 31, 1993 has been, manufactured, tested, distributed, held, performed,
offered and/or marketed in compliance, to the extent required, with all
Applicable Laws including, but not limited to, those provisions of the Federal
Food, Drug and Cosmetic Act ("FDCA") relating to investigational use, informed
consent, premarket clearance, good manufacturing practices, good laboratory
practices, good clinical practices, labeling, advertising, record keeping,
filing of report and security, except for any non-compliance which has not had,
and is not reasonably likely to have, a Material Adverse Effect on the Company,
and during the past five years there have been no deaths or serious adverse
events, as defined in Title 21 of CFR, related or alleged to have been related
to any drug, device or biologic product being studied in any such clinical
trials or to the negligence of the Company or any of its Subsidiaries or agents.
(c) Section 3.16(c) of the Company Disclosure Schedule lists (i) all
notices of violation issued by the FDA, USDA, DEA or EMEA during the five years
prior to the date of this Agreement to the Company or any of its Subsidiaries;
(ii) all audit reports performed during the five years prior to the date of this
Agreement by the Company, any Subsidiary, or any outside consultant retained by
the Company or one of its Subsidiaries with respect to matters over which the
FDA, USDA, DEA or EMEA has jurisdiction; and (iii) any document concerning any
oral or
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written communication received from the FDA, the USDA, the DEA or the Department
of Justice during the five years prior to the date of this Agreement.
SECTION 3.17. INTELLECTUAL PROPERTY RIGHTS. (a) Set forth in Section
3.17 of the Company Disclosure Schedule is a true and complete list, as of the
date of this Agreement, of (i) all of the Company's and each of its Subsidiary's
foreign and domestic material patents, patent applications, invention
disclosures, trademarks, service marks, trade names (and any registrations or
applications for registration for any of the foregoing) and all material design
right and copyright applications and registrations, including all patents,
trademarks, copyrights and applications under which the Company or any
Subsidiary has obtained rights from others, and (ii) all material agreements to
which the Company or any Subsidiary of the Company is a party which may concern
any of the Intellectual Property. "INTELLECTUAL PROPERTY" shall mean all
intellectual property or other proprietary rights of every kind, including,
without limitation, all domestic or foreign patents, patent applications,
inventions (whether or not patentable) processes, products, technologies,
discoveries, copyrightable and copyrighted works, apparatus, trade secrets,
trademarks and trademark applications and registrations, service marks and
service mark applications and registrations, trade names, trade dress, copyright
regulations, design rights, customer list, marketing and customer information,
mask works rights, know-how, licenses, technical information (whether
confidential or otherwise), software, and all documentation thereof). Other than
the Intellectual Property set forth in Section 3.17 of the Company Disclosure
Schedule, no name, patent invention, trade secret, proprietary right, computer
software, trademark, trade name, service mark, logo, copyright, franchise,
license, sublicense, or other such right is necessary for the operation of the
business of the Company or any Subsidiary in substantially the same manner as
such business is presently or proposed to be conducted. Except as set forth in
Section 3.17 of the Company Disclosure Schedule, (i) the Company or its
Subsidiaries, as applicable, owns, free and clear of any Liens the Intellectual
Property set forth in Section 3.17 of the Disclosure Schedule and has the
exclusive right to bring actions for the infringement thereof; (ii) no person or
entity has asserted to the Company or any Subsidiary of the Company (and the
Company or any Subsidiary is not otherwise aware) that, with respect to the
Intellectual Property and the research, development and commercial activities of
the Company or any Subsidiary, the Company or any Subsidiary of the Company is
infringing or has infringed any domestic or foreign patent, trademark, service
mark, trade name, or copyright or design right or misappropriated or improperly
used or disclosed any trade secret, or know-how, (iii) all working requirements
and all maintenance fees, annuities, and other payments which are due from or
controlled by the Company or any Subsidiary of the Company on or before the date
of this Agreement for any of the Intellectual Property, including, without
limitation, all material foreign or domestic patents, patent applications,
trademarks registrations service mark registrations, copyright registrations and
any applications for any of the preceding, have been met or paid; (iv) the
Company is not aware of any part of the Intellectual Property having been
obtained through inequitable conduct or fraud in the United States Patent and
Trademark Office or any foreign Governmental Authority; (v) neither the Company
nor any Subsidiary of the Company is aware of any conduct or use by the Company
or any Subsidiary of the Company that would, to the Company's knowledge, void or
invalidate or constitute misuse of, any of the
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Intellectual Property (vi) the execution, delivery and performance of this
Agreement by the Company, and the consummation of the transactions contemplated
by this Agreement will not materially impair the right of Buyer or the Surviving
Corporation, after the Merger Date, to use, sell, license or dispose of, or to
bring any action for the infringement of, any Intellectual Property; (vii) the
Company or any Subsidiary of the Company is not aware of any prior art that has
been identified to the Company or any Subsidiary of the Company as invalidating
or potentially invalidating prior art with respect to U.S. Patent No. 4,873,191
(the "191 PATENT"); (viii) the Company or any Subsidiary of the Company is not
aware of any Person who has made or asserted a claim of ownership, inventorship,
license or material interest in the 191 patent; and (ix) there are no material
royalties, honoraria, fees or other payments payable to any Person by reason of
the ownership, use, license, sublicense, sale or disposition of the Intellectual
Property.
SECTION 3.18. ENVIRONMENTAL MATTERS. (a) (i) No notice, notification,
demand, request for information, citation, summons or order has been received by
the Company, no complaint has been filed, no penalty has been assessed, no
Action or review is pending before any Governmental Authority or, to the
knowledge of the Company or any Subsidiary of the Company, threatened by any
Governmental Authority or other Person with respect to any matters relating to
the Company or any Subsidiary of the Company and arising out of any
Environmental Law or Environmental Permit which, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on the
Company; and
(ii) the Company and each Subsidiary of the Company are in
compliance with all Environmental Laws and have, and are in compliance
with, all Environmental Permits, except where any noncompliance or
failure to obtain or comply with Environmental Permits is not,
individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on the Company; and
(iii) there are no liabilities of, or relating to, the Company
or any Subsidiary of the Company of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise,
arising under or relating to any Environmental Law or Environmental
Permit which, individually or in the aggregate, is reasonably likely to
have a Material Adverse Effect on the Company.
(b) There are no liabilities disclosed in any environmental assessment,
investigation, study, audit, test, review or other analysis conducted at the
request of the Company or any Subsidiary of the Company in relation to the
current or prior business of the Company or any Subsidiary of the Company or any
property or facility now or previously owned, leased or operated by the Company
or any Subsidiary of the Company and of which the Company has knowledge which
individually or in the aggregate are reasonably likely to exceed $25,000 which
have not been disclosed to Buyer in writing as of the date hereof.
(c) Neither the Company nor any Subsidiary of the Company has knowledge
in relation to the current or prior business of the Company or any Subsidiary of
the Company
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owning or operating or having owned or operated any underground storage tank
which has been closed or abandoned in place, other than in compliance with
Environmental Laws and Environmental Permits, as in effect on the date of such
closure or abandonment, and each underground storage tank presently owned,
leased or operated by the Company or any Subsidiary of the Company is in
compliance with Environmental Laws and Environmental Permits and, as of the date
hereof, meets applicable local, state, federal and foreign standards, including
new system performance standards and upgrading requirements contained in
Subtitle I of the Resource Conservation and Recovery Act, 42 U.S. C. 6991, ET
SEQ., as amended, and any rules or regulations promulgated thereunder, including
40 C.F.R. Section 280.20, ET SEQ., except to the extent that any non-compliance,
assessment or remediation costs arising from or relating to underground storage
tanks would not, individually or in the aggregate, be reasonably likely to
result in liabilities in excess of $10,000.
(d) Neither the Company nor any Subsidiary of the Company has knowledge
of any releases of Hazardous Substances at, to or from a facility or property
while owned or operated by the Company or any Subsidiary that either (i)
required reporting to a Governmental Authority under Environmental Laws or
Environmental Permits, or (ii) are reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on the Company.
(e) To the knowledge of the Company or any Subsidiary of the Company,
no Hazardous Substances (exclusive of inventory and finished products) have been
transferred from any facility or property while owned or operated by the Company
or any Subsidiary of the Company to any off-site location for treatment,
storage, disposal, recycling or other waste management activity.
(f) For purposes of this Section 3.18, the following terms shall have
the meanings set forth below:
(i) "ENVIRONMENTAL LAWS" means any federal, state, local and
foreign law (including, without limitation, common law), treaty,
judicial decision, regulation, rule, judgment, order, decree,
injunction, agreement or contract with any Governmental Authority
relating to protection of human health and safety, the environment or
to the regulation or remediation of pollutants, contaminants, wastes or
chemicals or toxic, radioactive, ignitable, corrosive, reactive or
otherwise hazardous substances, wastes or materials;
(ii) "ENVIRONMENTAL PERMITS" means all permits, licenses,
franchises, certificates, approvals and other similar authorizations of
Governmental Authorities relating to or required by Environmental Laws
for operation of the business of the Company or any Subsidiary of the
Company as currently conducted;
(iii) "HAZARDOUS SUBSTANCE" means any material, substance,
chemical, raw material, product, byproduct or waste whose release to
the environment, including
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remediation of such releases, is regulated under any Environmental law
or Environmental Permit; and
(iv) "COMPANY" AND "SUBSIDIARY OF THE COMPANY" shall include
any entity which is, in whole or in part, a predecessor of the Company
or any Subsidiary of the Company.
SECTION 3.19. OPINION OF FINANCIAL ADVISOR. The Board of Directors of
the Company has received the opinion of Vector Securities International, Inc.,
financial advisor to the Company, to the effect that, as of the date of this
Agreement, the Merger Consideration (whether in the form of Buyer Common Stock
or United States dollars) is fair to the stockholders of the Company from a
financial point of view, and such opinion has not been withdrawn.
SECTION 3.20. ANTITAKEOVER STATUTES AND CERTIFICATE OF INCORPORATION
PROVISIONS. The Board of Directors of the Company have taken all appropriate and
necessary actions such that, assuming the truth and accuracy of the
representations and warranties contained in Section 4.12, Section 203 of the
Delaware Law and Article Eighth of the Company's Third Amended and Restated
Certificate of Incorporation will not have any effect (including, without
limitation, a required vote of the stockholders of the Company owning more than
a majority of the outstanding shares of Company Stock as of the record date for
the Company Stockholder Meeting) on the Merger or the other transactions
contemplated by this Agreement. No other "fair price," "moratorium," "control
share acquisition," or other similar antitakeover statute or regulation of the
Delaware Law or, to the knowledge of the Company, any other jurisdiction is
applicable to the Merger or the other transactions contemplated by this
Agreement.
SECTION 3.21. RIGHTS AGREEMENT. (a) The Company has adopted an
amendment to the Rights Agreement, dated July 1, 1998, between the Company and
American Stock Transfer & Trust Company (the "RIGHTS AGREEMENT") with the effect
that as a result of entering into this Agreement or consummating the Merger
and/or the other transactions contemplated by this Agreement in accordance with
the terms of this Agreement (i) neither Buyer nor Merger Sub shall be deemed to
be an Acquiring Person (as defined in the Rights Agreement), (ii) neither the
Distribution Date (as defined in the Rights Agreement) nor a Flip-In Event or
Flip-Over Event (each as defined in the Rights Agreement) shall be deemed to
occur, (iii) the Rights (as defined in the Rights Agreement) will not separate
from the Company Stock, and (iv) the Rights will expire immediately prior to the
Merger Date.
(b) The Company has taken or will take all necessary action with
respect to all of the outstanding Rights (as defined in the Rights Agreement) so
that, as of immediately prior to the Merger Date, as a result of entering into
this Agreement and/or consummating in accordance with the terms of this
Agreement the Merger and/or the other transactions contemplated by this
Agreement, (i) neither the Company nor Buyer will have any obligations under the
Rights or the Rights Agreement as a result of the Merger and (ii) the holders of
the Rights will have no rights under the Rights or the Rights Agreement as a
result of the Merger.
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SECTION 3.22. FINDERS FEES. Except for Vector Securities International,
Inc., a copy of whose engagement agreement has been provided to Buyer, there is
no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of the Company or any of its
Subsidiaries who might be entitled to any fee or commission in connection with
the transactions contemplated by this Agreement.
SECTION 3.23. TITLE TO AND CONDITION OF PROPERTIES. The Company and
each Subsidiary owns or holds under valid leases all real property, plants,
machinery and equipment necessary for the conduct of the business of the Company
and such Subsidiary as presently conducted, except where the failure to own or
hold such property, plants, machinery and equipment would not have a Material
Adverse Effect on the Company. Section 3.23 of the Company Disclosure Schedule
lists, and the Company has furnished to Buyer copies of, all appraisals and
valuations prepared by or on behalf of the Company during the two years
preceding the date of this Agreement with respect to the real property owned,
leased or used by the Company or any Subsidiary. There are no Liens on any
assets, rights or properties of the Company or any Subsidiary other than Liens
arising solely by operation of law.
SECTION 3.24. CONTRACTS. Schedule 3.24 lists all written or oral
contracts, agreements, guarantees, leases and executory commitments (each a
"CONTRACT") to which the Company or any Subsidiary is a party as of the date of
this Agreement and which fall within any of the following categories: (a)
contracts not entered into in the ordinary course of the Company's or any of its
Subsidiary's business; (b) joint venture, partnership and like agreements; (c)
Contracts which are service contracts (excluding contracts for delivery services
entered into in the ordinary course of business) or equipment leases involving
payments by the Company or any Subsidiary of more than $250,000 per year, (d)
Contracts containing covenants purporting to limit the freedom of the Company or
any Subsidiary of the Company to compete in any line of business in any
geographic area or to hire any individual or group of individuals, (e) Contracts
which contain minimum purchase conditions or requirements or other terms that
restrict or limit the purchasing relationships of the Company or any Subsidiary
of the Company, (f) Contracts relating to any outstanding commitment for capital
expenditures of the Company or any Subsidiary of the Company in excess of
$50,000, (g) indentures, mortgages, promissory notes, loan agreements,
guarantees, in each case involving amounts in excess of $50,000, letters of
credit or other agreements or instruments of the Company or any Subsidiary of
the Company or commitments for the borrowing or the lending of amounts, in each
case in excess of $50,000, by the Company or any Subsidiary of the Company or
providing for the creation of any charge, security interest, encumbrance or lien
upon any of the assets of the Company or any Subsidiary of the Company, (h)
Contracts relating to the lease or sublease of or sale or purchase of real or
personal property involving any annual expense or price in excess of $50,000 and
not cancelable by the Company or any Subsidiary (without premium or penalty)
within one month, (i) Contracts involving annual revenues or expenditures to the
business of the Company or any Subsidiary of the Company in excess of 1.0% of
the Company's consolidated annual revenues, and (j) Contracts providing for
"earn-outs" or other contingent payments involving more than $20,000 over the
term of the Contract. All such Contracts are valid and binding obligations of
the Company and
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its Subsidiaries, as applicable, and, to the knowledge of the Company, the valid
and binding obligation of each other party thereto except such Contracts which
if not so valid and binding would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. None of the Company, any Subsidiary of
the Company nor, to the knowledge of the Company, any other party thereto is in
violation of or in default in respect of, nor has there occurred any event or
condition which with the passage of time or giving of notice (or both) would
constitute a default under, any such Contract except such violations or defaults
under such Contracts which, individually or in the aggregate, would not have a
Material Adverse Effect on the Company.
SECTION 3.25 ACCOUNTS RECEIVABLE. All accounts receivable and accrued
interest receivable of the Company and its Subsidiaries have arisen out of the
ordinary course of business and the accounts receivable reserves reflected on
the consolidated balance sheet of the Company as of September 30, 1998 are as of
such date established in accordance with U.S. GAAP and to the knowledge of the
Company will be collectible in the aggregate, in an amount not less than the
amounts carried on the balance sheet of the Company as of such date, net of any
reserves included therein, except for any uncollectible amounts which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
SECTION 3.26 RELATIONSHIPS. As of the date of this Agreement, (i) to
the Company's knowledge, the relationship of the Company and its Subsidiaries
with its respective customers and suppliers are satisfactory and, (ii) to the
Company's knowledge, the execution of this Agreement and consummation of the
transactions contemplated by this Agreement to be undertaken by the Company will
not have a Material Adverse Effect on the relationships of the Company or any
Subsidiary with such customers or suppliers, the effect of which, individually
or in the aggregate, would have a Material Adverse Effect on the Company or
Chrysalis DNX.
SECTION 3.27 PRODUCT WARRANTIES AND LIABILITIES. Neither the Company
nor any Subsidiary of the Company has any forms of warranties or guarantees of
its products and services that are in effect or proposed to be used by it. There
are no pending or, to the knowledge of the Company, threatened Actions under any
warranty or guaranty against the Company or any Subsidiary of the Company.
Neither the Company nor any Subsidiary of the Company has incurred, nor does the
Company know or have any reason to believe that there is any basis for alleging,
any material liability, damage, loss, cost or expense as a result of any
material defect or other deficiency (whether of design, materials, workmanship,
labeling instructions or otherwise) ("PRODUCT LIABILITY") with respect to any
product sold or services rendered by or on behalf of the Company or any
Subsidiary of the Company whether such Product Liability is incurred by reason
of any express or implied warranty (including, without limitation, any warranty
of merchantability or fitness), any doctrine of common law (tort, contract or
other), any statutory provision or otherwise and irrespective of whether such
Product Liability is covered by insurance, except for any Product Liability
which would not have a Material Adverse Effect on the Company.
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SECTION 3.28 AFFILIATE TRANSACTIONS. Except as contemplated by the
transactions contemplated by this Agreement, there are no Contracts or other
transactions between the Company or any Subsidiary of the Company, on the one
hand, and any (i) officer or director of the Company or any Subsidiary of the
Company, (ii) record or beneficial owner of five percent (5%) or more of the
voting securities of the Company or (iii) affiliate (as such term is defined in
Regulation 12b-2 promulgated under the Exchange Act) of any such officer,
director or beneficial owner, on the other hand.
SECTION 3.29 INSURANCE. The Company and its Subsidiaries are presently
insured, and during each of the past five calendar years have been insured
against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured. The policies of
fire, theft, errors and omission, liability and other insurance maintained with
respect to the assets or businesses of the Company and its Subsidiaries provide
adequate coverage against loss and may be continued by the Company or any
Subsidiary of the Company without modification or premium increase after the
Merger Date and for the duration of their current terms.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Except as set forth in the disclosure schedule (each section of which
qualifies the correspondingly numbered representation and warrant only, except
where the information in any such section is disclosed in such a way to make its
relevance to any other representation or warranty readily apparent, in which
case, such section shall be deemed to also qualify such other representation and
warranty) of Buyer attached hereto (the "BUYER DISCLOSURE SCHEDULE"), Buyer
represents and warrants to the Company that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. (a) Buyer is a corporation
duly incorporated, validly existing and in good standing under the Canada
Business Corporations Act, and has all corporate powers and has or has applied
for all permits, licenses, authorizations, consents, approvals and franchises
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except (i) where the failure to have such permits,
licenses, authorizations, consents, approvals and franchises and (ii) for those
jurisdictions where the failure to be so qualified or in good standing is not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on Buyer. Buyer has heretofore delivered to the Company true and complete
copies of Buyer's Articles of Amalgamation and Certificate of Amalgamation
("ORGANIZATIONAL DOCUMENTS") as currently in effect.
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(b) Merger Sub is a corporation duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation, and has
all corporate powers and all permits, licenses, authorizations, consents,
approvals and franchises required to carry on its business as it is now being
conducted except where the failure to have such permits, licenses,
authorizations, consents, approvals and franchises is not individually, or in
the aggregate, reasonably likely to have a Material Adverse Effect on Merger
Sub. Since its date of incorporation, Merger Sub has not engaged in any
activities other than in connection with the transactions contemplated by this
Agreement.
SECTION 4.02. CORPORATE AUTHORIZATION. The execution, delivery and
performance by each of Buyer and Merger Sub (each, a "BUYER PARTY") of this
Agreement and the consummation by each Buyer Party of the transactions
contemplated by this Agreement are within the corporate powers of such Buyer
Party and have been duly authorized by all necessary corporate action. This
Agreement has been duly executed and delivered by each Buyer Party and
constitutes a valid and binding agreement of such Buyer Party enforceable
against such Buyer Party in accordance with its terms.
SECTION 4.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by each Buyer Party of this Agreement and the consummation by such
Buyer Party of the transactions contemplated by this Agreement require no
action, by or in respect of, or filing with, any Governmental Authority other
than (a) the filing of the Certificate of Merger in accordance with the Delaware
Law; (b) compliance with any applicable requirements of the HSR Act; (c)
compliance with any applicable requirements of the 1934 Act; (d) compliance with
any applicable requirements of the 1933 Act; (e) compliance with any applicable
foreign or state securities or Blue Sky laws; (f) filings and notices not
required to be made or given until on or after the Merger Date; and (g)
immaterial actions or filings relating to ordinary operational matters.
SECTION 4.04. NON-CONTRAVENTION. The execution, delivery and
performance by each Buyer Party of this Agreement and the consummation by such
Buyer Party of the transactions contemplated by this Agreement do not and will
not (a) contravene or conflict with the Organizational Documents or certificate
of incorporation or bylaws, as the case may be, of such Buyer Party, (b)
assuming compliance with the matters referred to in Section 4.03 and Section
4.03 of the Buyer Disclosure Schedule, contravene or conflict with or constitute
a violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to Buyer or any Subsidiary of Buyer, (c)
constitute a default (or an event which with notice, the lapse of time or both
would become a default) under or give rise to a right of termination,
cancellation or acceleration of any right or obligation of Buyer or any
Subsidiary of Buyer or to a loss of any benefit to which Buyer or any Subsidiary
of Buyer is entitled under any provision of any agreement, contract or other
instrument binding upon Buyer or any Subsidiary of Buyer or any license,
franchise, permit or other similar authorization held by Buyer or any Subsidiary
of Buyer, (d) require any action or consent or approval of any Person other than
a Governmental Authority, or (e) result in the creation or imposition of any
Lien on any asset of
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Buyer or any Subsidiary of Buyer, other than, in the case of the events
specified in clauses (b), (c), (d) and (e) (other than indebtedness of Buyer or
any subsidiary of Buyer), any such event which, individually or in the
aggregate, has not had, and is not reasonably likely to have, a Material Adverse
Effect on Buyer.
SECTION 4.05. CAPITALIZATION. The authorized capital stock of (a) Buyer
consisted of (i) an unlimited number of shares of Buyer Common Stock and (ii) an
unlimited number of preferred shares issuable in series ("BUYER PREFERRED
STOCK"), and (b) on the date hereof, Merger Sub consisted of 3,000 shares of
Merger Sub Common Stock. As of August 31, 1998, there were 24,857,059 shares of
Buyer Common Stock outstanding and no shares of Buyer Preferred Stock
outstanding. As of August 31, 1998, an aggregate of 2,428,920 shares of Buyer
Common Stock were reserved for issuance or issuable under employee benefit or
other compensation plans or programs of Buyer. All outstanding shares of capital
stock of each Buyer Party have been duly authorized and validly issued and are
fully paid and nonassessable. All shares of Buyer Common Stock, when issued in
the Merger, will be duly authorized and validly issued and will be fully paid
and non-assessable.
SECTION 4.06. PUBLIC FILINGS. Buyer has delivered to the Company all
documents, reports, schedules, registration statements and proxy statements
filed by Buyer with the Ontario Securities Commission or the Quebec Securities
Commission (each, a "CANADIAN SECURITIES COMMISSION") on or after August 1,
1997. Buyer has filed all required documents, reports, schedules, forms and
statements with either Canadian Securities Commission since August 1, 1997
(collectively, the "BUYER PUBLIC DOCUMENTS"). As of their respective dates, or
if amended, as of the date of the last such amendment, the Buyer Public
Documents complied, and all documents required to be filed by Buyer with the
either Canadian Securities Commission after the date hereof and prior to the
Merger Date (the "SUBSEQUENT BUYER PUBLIC DOCUMENTS") will comply, in all
material respects with the requirements of the Ontario or Quebec securities
laws, as the case may be, and none of the Buyer Public Documents contained, and
the Subsequent Buyer Public Documents will not 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 made therein, in the light of the
circumstances under which they were made, not misleading.
SECTION 4.07. FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial statements of Buyer
included in the Buyer Public Documents at the time filed (and, in the case of
registration statements and proxy statements, on the date of effectiveness and
the date of mailing, respectively) complied as to form in all material respects
with applicable accounting requirements of the Ontario or Quebec securities
laws, as the case may be, were prepared in accordance with generally accepted
accounting principles applied in Canada ("CANADIAN GAAP") applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present (subject in the case of unaudited statements
to normal, recurring audit adjustments) the consolidated financial position of
Buyer as at the dates thereof and the consolidated results of its operations and
cash flows for the periods then ended. For purposes of this Agreement, "BUYER
BALANCE SHEET" means the
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consolidated balance sheet of Buyer as of August 31, 1998 set forth in the Buyer
Annual Report filed with the Canadian Securities Commissions and "BUYER BALANCE
SHEET DATE" means August 31, 1998.
SECTION 4.08. DISCLOSURE DOCUMENTS. (a) Each document required to be
filed by Buyer with the SEC in connection with the transactions contemplated by
this Agreement (the "BUYER SEC DISCLOSURE DOCUMENTS"), including, without
limitation, the registration statement of Buyer to be filed with the SEC on Form
F-4 (or other appropriate form) in connection with the issuance of Buyer Common
Stock pursuant to this Agreement (the "FORM F-4") and any amendments or
supplements thereto, will, when filed, comply as to form in all material
respects with the applicable requirements of the 1933 Act. Buyer is eligible to
use Form F-4 for the registration of the Buyer Common Stock to be issued
pursuant to the Merger. Each document required to be filed by Buyer under the
Ontario or Quebec Securities laws in connection with the transactions
contemplated by this Agreement (together with the Buyer SEC Disclosure
Documents, the "BUYER DISCLOSURE DOCUMENTS"), will, when filed, comply as to
form in all material respects with the applicable requirements of the Ontario or
Quebec securities laws, as applicable.
(b) At the time the prospectus which forms a part of the Form F-4 (the
"BUYER PROSPECTUS") or any amendment or supplement thereto is first mailed to
stockholders of the Company, and at the time such stockholders vote on the
Merger, and at the Merger Date the Buyer Prospectus, as supplemented or amended,
if applicable, will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. At the time of the filing of any Buyer Disclosure Document and at
the time of any distribution thereof, such Buyer Disclosure Document will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The representations
and warranties contained in this Section 4.08 will not apply to statements
included in or omissions from the Buyer Disclosure Documents based upon
information furnished to Buyer by the Company specifically for use therein.
SECTION 4.09. INFORMATION SUPPLIED. The information supplied or to be
supplied by Buyer for inclusion or incorporation by reference in (i) the Company
Proxy Statement or any amendment or supplement thereto will not, at the time the
Company Proxy Statement is first mailed to stockholders of the Company and at
the time such stockholders vote on the adoption of this Agreement, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading, and (ii) any Company Disclosure
Document (other than the Company Proxy Statement, and any amendments or
supplements thereto) will not, at the time of effectiveness of such Company
Disclosure Document and at the time of any distribution by the Company thereof,
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
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SECTION 4.10. ABSENCE OF CERTAIN CHANGES. Since the Buyer Balance Sheet
Date and except as set forth in the Buyer Public Documents, Buyer and its
Subsidiaries have conducted their business in the ordinary course consistent
with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Buyer other than any of the foregoing
(i) relating to the economy or securities markets in general, (ii) relating to
Buyer's industry in general or (iii) arising from the announcement or thereafter
the pendency of this Agreement or the transactions contemplated by the
Transaction Document;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Buyer, or any
repurchase, redemption or other acquisition by Buyer or any Subsidiary of Buyer
of any amount of outstanding shares of capital stock or other securities of, or
other ownership interests in, Buyer or any of its Subsidiaries;
(c) any amendment of any material term of any outstanding security of
Buyer or any Subsidiary of Buyer; or
(d) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of Buyer or any
Subsidiary of Buyer which, individually or in the aggregate, has had or is
reasonably likely to have a Material Adverse Effect on Buyer.
SECTION 4.11. NO UNDISCLOSED MATERIAL LIABILITIES. There are no
liabilities, commitments or obligations (whether pursuant to contracts or
otherwise) of Buyer or any Subsidiary of Buyer of any kind whatsoever which,
individually or in the aggregate, have had or are reasonably likely to have a
Material Adverse Effect on Buyer, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances which is reasonably likely to result in such a
liability, commitment or obligation, including, without limitation, any fines,
disciplinary actions or other adverse actions that may be taken or reported
concerning the conduct of Buyer or any of its Subsidiaries, other than:
(a) liabilities, commitments or obligations disclosed or provided for
in the Buyer Balance Sheet (including the notes thereto) or in the Buyer Public
Documents;
(b) liabilities, commitments or obligations incurred in the ordinary
course of business consistent with past practice since the Buyer Balance Sheet
Date; and
(c) liabilities, commitments or obligations under this Agreement.
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SECTION 4.12. OWNERSHIP OF COMPANY STOCK. None of Buyer nor its
associates or affiliates (as such terms are defined in Section 203(c) of the
Delaware Law) owns, or has owned (within the meaning of Section 203(c)(9) of the
Delaware Law) at any time during the three years immediately prior to the date
of this Agreement, any shares of Company Common Stock.
SECTION 4.13. FINDERS FEES. Except for Pennsylvania Merchant Group, a
copy of whose engagement agreement has been provided to the Company, there is no
investment banker, broker, finder or other intermediary which has been retained
by or is authorized to act on behalf of the Buyer or any of its Subsidiaries who
might be entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.
SECTION 4.14. SUFFICIENT CASH TO REPAY CERTAIN DEBT. Buyer will have
sufficient cash on hand (or amounts available for borrowing under loan
facilities which would permit the borrowings to be used for such purpose) to pay
immediately after the Merger Date the amounts referred to in Section 6.03.
ARTICLE 5
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 5.01. CONDUCT OF THE COMPANY. From the date hereof until the
Merger Date, except (i) as provided in the Company Disclosure Schedule, (ii)
actions related to the Shut-Downs contemplated by Section 5.04, or (iii) as
otherwise consented to by Buyer (which consent shall not be unreasonably
withheld or delayed), the Company shall, and shall cause its Subsidiaries to,
conduct their business in the ordinary course consistent with past practice and
use their commercially reasonable efforts to preserve intact their business
organizations and relationships with third parties and to keep available the
services of their present officers and employees. Without limiting the
generality of the foregoing, except as expressly permitted in this Agreement
(including, without limitation, the preceding sentence), from the date hereof
until the Merger Date without prior consent of Buyer (which consent shall not be
unreasonably withheld or delayed):
(a) Neither the Company, nor any Subsidiary of the Company, will adopt
or propose any change in its respective certificate of incorporation or bylaws;
(b) The Company will not, and will not permit any Subsidiary of the
Company to, merge or consolidate with any other Person or, other than as
provided in the Company's capital expenditure budget (included as Section
5.01(b) of the Company Disclosure Schedule) in the ordinary course of business,
acquire a material amount of assets of any other Person;
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(c) The Company will not, and will not permit any Subsidiary of the
Company to, sell, lease, license or otherwise dispose of any material assets or
property except pursuant to (i) existing contracts or commitments and (ii) any
sale of operating procedures, computerized project tracking systems and training
manuals to BML Japan (provided, however, that any such sale to BML Japan shall
not obligate the Company to provide any services or training beyond January 31,
1999); PROVIDED, however, that the Company and its Subsidiaries may continue to
grant non-exclusive sublicenses related to the 191 patent in the ordinary course
of business consistent with past practice.
(d) The Company will not, and will not permit any Subsidiary of the
Company to, declare, set aside or pay any dividend or make any other
distribution with respect to any shares of the capital stock of the Company or
any Subsidiary of the Company or in respect of any securities convertible or
exchangeable for, or any rights, options or warrants to acquire, any capital
stock of the Company or any Subsidiary of the Company;
(e) The Company will not, and will not permit any Subsidiary of the
Company to, create or assume any Lien on any material asset other than Liens
arising solely by operation of law;
(f) The Company will not, and will not permit any Subsidiary of the
Company to, issue, grant, deliver or sell, or authorize or propose the issuance,
grant, delivery or sale of, any Company Securities, any Company Subsidiary
Securities or any securities convertible into or exchangeable for, or any
rights, warrants or options to acquire, any Company Securities or Company
Subsidiary Securities other than (i) pursuant to the exercise of a stock option
or warrant to purchase shares of Company Stock outstanding on the date of this
Agreement, or (ii) the issuance in the ordinary course of business consistent
with past practice of shares of Company Stock to the Company's 401(k) plan.
(g) The Company (i) will not adjust, split, combine or reclassify, or
take any other similar action with respect to, any capital stock of the Company,
and (ii) the Company will not, and will not permit any Subsidiary of the Company
to, directly or indirectly, repurchase, redeem or otherwise acquire an amount of
shares of capital stock of, or in respect of any securities convertible or
exchangeable for, or any rights, options or warrants to acquire, any capital
stock of, or other ownership interests in, the Company or any Subsidiary of the
Company, or (iii) enter into any agreement, understanding or arrangement with
respect to the sale or voting of any capital stock of the Company or any
Subsidiary;
(h) The Company will not, and will not permit any Subsidiary of the
Company to, incur or assume any indebtedness from any Person (other than, in the
case of a Subsidiary of the Company, the Company or any other subsidiary of the
Company) for borrowed money or guarantee any such indebtedness;
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(i) Except for (i) loans, advances or capital contributions to or
investments in Subsidiaries of the Company, (ii) loans or advances to employees
in the ordinary course of business consistent with past practice and in amounts
not exceeding $5,000 per employee or (iii) investments in securities in the
ordinary course of business consistent with past practices, the Company will
not, and will not permit any Subsidiary of the Company to, make any material
loans, advances or capital contributions to, or investments in, any other
Person;
(j) The Company will not, and will not permit any of its Subsidiaries
to, (i) grant any severance or termination pay to, or enter into any employment,
termination or severance arrangement with, any director, officer, consultant or
employee of the Company or any Subsidiary of the Company, (ii) enter into any
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) with any director, officer or employee of the
Company or any Subsidiary, (iii) increase or decrease benefits payable under any
existing severance or termination pay policies or employment agreements, (iv)
increase compensation, bonus or other benefits payable to directors, officers,
consultant or employees of the Company or any Subsidiary of the Company, other
than in the ordinary course of business consistent with past practice; (v) adopt
any new Employee Plan or Benefit Arrangement; or (vi) otherwise amend or modify,
any existing Employee Plan or Benefit Arrangement except to the extent required
by applicable law;
(k) The Company will not, and will not permit any of its Subsidiaries
to, authorize, recommend, propose or announce an intention to adopt a plan of
complete or partial liquidation or dissolution of the Company or any Subsidiary
of the Company, or any plan of division or share exchange involving the Company
or any of its Subsidiaries;
(l) The Company will not, and will not permit any Subsidiary of the
Company to, change any method of accounting or any accounting principle or
practice used by the Company or any Subsidiary of the Company, except for any
such change required by reason of a change in U.S. GAAP or Regulation S-X;
(m) Neither the Company nor any Subsidiary shall, to the extent it may
affect or relate to the Company or any Subsidiary, make or change any tax
election, change any annual tax accounting period, adopt or change any method of
tax accounting, file any amended Tax Return, enter into any closing agreement,
settle any Tax claim or assessment, surrender any right to claim a Tax refund,
consent to any extension or waiver of the limitations period applicable to any
Tax claim or assessment or take or omit to take any other action, if any such
action or omission would have the effect of, in the aggregate, increasing the
Tax liability, or in the aggregate, reducing any Tax asset of the Company or any
Subsidiary of the Company except to the extent such increase or reduction is
adequately provided for, under U.S. GAAP, on the Company Balance Sheet;
(n) All Tax Returns not required to be filed on or before the date
hereof (i) shall be filed when due in accordance with all applicable laws and
(ii) as of the time of filing, shall correctly reflect in all material respects
the facts regarding the income, business, assets,
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operations, activities and status of the Company, its Subsidiaries and any other
information required to be shown therein;
(o) Neither the Company nor any Subsidiary of the Company shall reserve
any amount for or make any payment of Taxes to any Person or any Taxing
Authority, except for such Taxes as are due or payable or have been properly
estimated in accordance with applicable law as applied in a manner consistent
with past practice of the Company or any such Subsidiary, as the case may be;
(p) Neither the Company nor any of its Subsidiaries will:
(i) settle any Actions, whether now pending or hereafter made
or brought, for an amount in excess of $25,000;
(ii) modify, amend or terminate, or waive, release or assign
any material rights or claims with respect to, any Contract set forth
in Section 3.24 of the Company Disclosure Schedule, or, except to the
extent required by Applicable Law and advised by outside counsel, any
confidentiality agreement to which the Company or any Subsidiary of the
Company is a party;
(iii) incur or commit to any capital expenditures, obligations
or liabilities in respect thereof which exceed or would exceed $10,000,
individually, or $50,000 in the aggregate, other than capital
expenditures related to the Company's on-going construction of
facilities which do not exceed amounts previously disclosed by the
Company to Buyer;
(iv) make any material changes or modifications to any pricing
policy or investment policy;
(v) take any action that would result in the representations
and warranties set forth in Article III being false or incorrect in any
material respect, other than inadvertent actions that do not result in
the representations and warranties being unable to be true and correct
in all material respects by the Merger Date;
(vi) enter into any customer contract or agreement, or any
other contract, lease, agreement or commitment not otherwise specified
in this Section 5.01, for an amount in excess of $100,000 individually;
(vii) enter into, amend or terminate any real property lease
or any commitment in respect thereof;
(viii) terminate the employment or engagement of any employee
or consultant or agent of the Company or any Subsidiary; or
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(ix) pay or approve any other expense or disbursement in
excess of $25,000 individually (except for payroll and related tax
withholding and other expenses (including insurance and 401(k)
contributions), Tax liabilities, utilities, lease payments, principal
and interest payments on outstanding indebtedness of the Company and/or
any of its Subsidiaries, payments to suppliers, Shut-Down expenses,
legal fees and expenses and, upon closing of the Merger, investment
banking fees and expenses).
(q) The Company will not, and will not permit any Subsidiary of the
Company to, agree to do any of the foregoing.
The Company and its Subsidiaries will consult regularly with the Buyer in
respect of the operation of its business prior to the Merger Date; provided,
however, that the provisions of this sentence will not be deemed to have been
breached unless and until Buyer has notified the Company in writing of such
breach and the Company and its Subsidiaries have failed to comply with the
specific terms of such notice.
SECTION 5.02. STOCKHOLDER MEETING; PROXY MATERIALS. (a) Subject to
Section 5.03, the Company shall cause a meeting of its stockholders (the
"COMPANY STOCKHOLDER MEETING") to be duly called and held as soon as reasonably
practicable for the purpose of voting on the adoption of this Agreement and, to
the extent submitted to the Company's stockholders for approval, the,
transactions contemplated by this Agreement, and the Board of Directors of the
Company shall recommend adoption of this Agreement by the Company's
stockholders; PROVIDED that such mailing shall not in any event be mailed during
the Listing Period unless Buyer has received the Nasdaq Letter; PROVIDED further
that such meeting need not be called and held and, prior to the Company
Stockholder Meeting, such recommendation may be withdrawn, modified or amended
to the extent that, as a result of the commencement or receipt of an Acquisition
Proposal with respect to the Company, the Board of Directors of the Company
determines in good faith, in accordance with Section 5.03, that such Acquisition
Proposal constitutes a Superior Proposal.
(b) Subject to Section 5.03, in connection with the Company Stockholder
Meeting, the Company will (i) promptly prepare and file with the SEC, will use
commercially reasonable efforts to have cleared by the SEC and will thereafter
mail to its stockholders as promptly as practicable after the time period
referred to in Section 1.07 for determination of whether a Listing Failure has
occurred the Company Proxy Statement and all other proxy materials for such
meeting, (ii) use commercially reasonable efforts to obtain the necessary
adoption by its stockholders of this Agreement and the approval of the
transactions contemplated by this Agreement, and (iii) otherwise comply with all
legal requirements applicable to such meeting.
SECTION 5.03. OTHER OFFERS. From the date hereof until the termination
of this Agreement, the Company will not, and will cause its Subsidiaries and the
directors, officers, employees, financial advisors and other agents or
representatives of the Company or any of its Subsidiaries not to, directly or
indirectly, take any action to solicit, initiate or encourage any
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Acquisition Proposal with respect to the Company or engage in negotiations with,
or disclose any non-public information relating to the Company or any Subsidiary
of the Company or afford access to the properties, books or records of the
Company or any Subsidiary of the Company to, any Person that has informed the
Company that it is considering making, or has made, an Acquisition Proposal with
respect to the Company, or any Person that the Company after reasonable inquiry
believes is a potential purchaser of the Company, PROVIDED, however, that the
Company may, in response to an unsolicited bona fide written proposal regarding
an Acquisition Proposal by any Person, disclose such non-public information to
or engage in negotiations with such Person, if the Board of Directors of the
Company determines in good faith that such Acquisition Proposal is reasonably
likely to be a Superior Proposal, and, PROVIDED further, that prior to
furnishing non-public information to, or entering into discussions or
negotiations with, such Person, the Company receives from such Person an
executed confidentiality agreement with terms no less favorable to the Company
than those contained in the Letter Agreement dated as of July 21, 1998 between
Buyer and the Company ("CONFIDENTIALITY AGREEMENT"). The Company will promptly
(and in no event later than 24 hours after receipt of the relevant Acquisition
Proposal with respect to the Company), notify (which notice shall be provided
orally and in writing and shall identify the Person making the relevant
Acquisition Proposal with respect to the Company) Buyer after receipt of any
Acquisition Proposal or any indication from any Person that such Person is
considering making an Acquisition Proposal with respect to the Company or any
request for non-public information relating to the Company or any Subsidiary of
the Company or for access to any properties, books or records of the Company or
any Subsidiary of the Company by any Person that may be considering making, or
has made, an Acquisition Proposal with respect to the Company and will keep
Buyer fully informed of the status of any such Acquisition Proposal with respect
to the Company. The Company shall give Buyer at least one business day's advance
notice of any information to be supplied to, and at least two days' advance
notice of any agreement to be entered into with, any Person making such
Acquisition Proposal with respect to the Company. Except as provided herein, the
Company shall, and shall cause its Subsidiaries and the directors, officers,
employees, financial advisors and other agents or representatives of the Company
or any of its Subsidiaries to, cease immediately and cause to be terminated all
activities, discussions or negotiations, if any, with any Persons conducted
heretofore with respect to any Acquisition Proposal with respect to the Company.
For purposes of this Agreement, "ACQUISITION PROPOSAL" means any offer or
proposal for, or any indication of interest in, (i) a merger or other business
combination in any manner of an equity interest in an amount equal to or greater
than 20% of the class of such equity security then outstanding or a substantial
portion of the assets of, the Company or any Subsidiary of the Company, in each
case other than the transactions contemplated by this Agreement. For purposes of
this Agreement, "SUPERIOR PROPOSAL" means an Acquisition Proposal with respect
to the Company which the Board of Directors of the Company determines in good
faith (based on the written advice of an investment banking firm of national
reputation taking into account all of the terms and conditions of the
Acquisition Proposal, including any conditions to consummation) to be more
favorable and provide greater value to the Company's stockholders than the
Merger.
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SECTION 5.04. SHUT-DOWNS. After execution of this Agreement, the
Company shall commence the process of shutting down its facilities located in
Austin, Texas, Cham, Switzerland and Dusseldorf, Germany, and reducing expenses
in respect of its operations in Mannheim, Germany, and Israel (collectively, the
"SHUT-DOWNS") with the goal of completing each of the Shut-Downs as soon as
practicable (consistent with maintaining good client relationships). The Company
shall accrue, in accordance with U.S. GAAP, all costs and expenses related to
the ShutDowns. Notwithstanding the foregoing, Buyer acknowledges that the
Shut-Downs in the time and in the manner agreed to by Buyer and the Company may
not be completed prior to the Merger Date and that a significant portion of the
activities, costs and expenses related to the Shut-Downs will occur after the
Merger Date. The Company agrees to update Buyer on a regular basis (no less than
every two (2) weeks and within one (1) business day of request by Buyer) prior
to the Merger Date regarding the status, activities and costs and expenses (and
related accounting therefor) of the Shut-Downs. Schedule 5.04 sets forth a good
faith estimate of all costs and expenses (including reserves and accruals) the
Company and its Subsidiaries expect to incur after the date hereof until the
Merger Date in connection with the Shut-Downs, on a location-by- location and
item-by-item basis.
SECTION 5.05. INTELLECTUAL PROPERTY MATTERS. The Company and its
Subsidiaries shall use its respective commercially reasonable efforts to
preserve its ownership rights to the Intellectual Property free and clear of any
Liens and shall use its commercially reasonable efforts to assert, contest and
prosecute any infringement of any issued foreign or domestic patent, trademark,
service mark, or copyright that forms a part of the Intellectual Property or any
misappropriation or disclosure of any trade secret, confidential information or
know-how that forms the Intellectual Property; provided, however, that the
Company and its Subsidiaries need not preserve or prosecute any foreign
trademark if the failure to preserve or prosecute such trademark would not have
a Material Adverse Effect on the Company.
SECTION 5.06. NOTICE OF PREPAYMENT. The Company will provide written
notice of its intent to prepay immediately after the Merger Date all amounts
outstanding under the Term Loan and Security Agreement dated as of August 29,
1997, as amended, among the Company, its Subsidiaries listed therein and First
Union National Bank, as successor to CoreStates Bank, N.A. ("FIRST UNION"), and
the ancillary documents, as amended, related thereto (the "FIRST UNION
AGREEMENTS").
SECTION 5.07. SHARED SERVICES. The Company shall use commercially
reasonably efforts to obtain written confirmation from Iffa Credo SA ("IFFA")
reasonably satisfactory to Buyer that Iffa will continue to provide after the
Merger Date to Buyer, the Surviving Corporation and/or its Subsidiaries services
of the same nature, type, quantity and on the same terms as have been provided
by Iffa to the Company and/or its Subsidiaries prior to the date of this
Agreement and consistent with past practice.
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SECTION 5.08. HACKEL AFFILIATE LETTER AND SUPPORT/VOTING AGREEMENT. The
Company shall use commercially reasonable efforts to cause Alec Hackel to
execute an Affiliate Letter and Support/Voting Agreement prior to the mailing of
the Company Proxy Statement.
ARTICLE 6
COVENANTS OF BUYER
Buyer agrees that:
SECTION 6.01. CONDUCT OF BUYER. From the date hereof until the Merger
Date, Buyer shall, and shall cause its Subsidiaries to, conduct their business
in all material respects in the ordinary course consistent with past practice
and use their commercially reasonable efforts to preserve intact their business
organizations and relationships with third parties and to keep available the
services of their present officers and employees. Without limiting the
generality of the foregoing, except as expressly permitted in this Agreement,
from the date hereof until the Merger Date:
(a) Buyer will not adopt or propose any change in its Organizational
Documents that would materially and adversely affect the rights of holders of
Company Stock as anticipated holders of Buyer Common Stock;
(b) Buyer will not declare, set aside or pay any dividend or make any
other distribution with respect to any shares of Buyer's capital stock.
SECTION 6.02. LISTING OF STOCK. Within five (5) business days of the
date of this Agreement, Buyer shall make application to Nasdaq and to all
applicable regulatory authorities, including, without limitation, the filing of
a Form 40-F with the SEC, for the listing on Nasdaq's National Market System
("NMS") of the Buyer Common Stock and to use its commercially reasonable efforts
to cause such Buyer Common Stock to be approved for listing on Nasdaq's NMS
effective on or prior to the Merger Date.
SECTION 6.03. REPAYMENT OF CERTAIN DEBT. Immediately after the Merger
Date, Buyer shall (or shall cause Merger Sub to) repay or refinance all amounts
outstanding under (i) the First Union Agreements and (ii) the 6% Subordinated
Note due March 16, 2001 issued by the Company to Panlabs International, Inc., as
amended (the "MDS NOTE").
SECTION 6.04. FINANCING. If a Listing Failure occurs, Buyer shall use
its best efforts to secure any financing required to permit it to pay on the
Merger Date the Merger Consideration.
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ARTICLE 7
COVENANTS OF BUYER AND THE COMPANY
SECTION 7.01. COMMERCIALLY REASONABLE EFFORTS. (a) Subject to the terms
and conditions of this Agreement, each party will use its commercially
reasonable 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 the Merger and the other transactions
contemplated by this Agreement.
(b) Neither Buyer nor the Company shall take any action, or omit to
take any action, that would cause its representations and warranties contained
herein to be inaccurate such that the conditions in Article 8 would not be
satisfied.
SECTION 7.02. COOPERATION. Without limiting the generality of Section
7.01(a), Buyer and the Company shall together, or pursuant to an allocation of
responsibility to be agreed between them, coordinate and cooperate (i) in
connection with the preparation of the Company Disclosure Documents and the
Buyer Disclosure Documents, (ii) in determining whether any action by or in
respect of, or filing with, any Governmental Authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the Merger or
the other transactions contemplated by this Agreement, and (iii) in seeking any
such actions, consents, approvals or waivers or making any such filings,
furnishing information required in connection therewith or with the Company
Disclosure Documents and the Buyer Disclosure Documents, and timely seeking to
obtain any such actions, consents, approvals or waivers. Subject to the terms
and conditions of this Agreement, Buyer and the Company will each use its
reasonable best efforts to have the Form F-4 declared effective by the SEC under
the 1933 Act as promptly as practicable after the Form F-4 is filed with the
SEC.
SECTION 7.03. PUBLIC ANNOUNCEMENTS. Upon execution of this Agreement,
Buyer and the Company will each issue a press release, each in form satisfactory
to the other party, announcing the transactions contemplated by this Agreement.
Buyer and the Company will consult with each other before issuing any other
press release or making any public statement with respect to this Agreement and
the transactions contemplated by this Agreement and, except, as may be required
by applicable law or any listing or similar agreement with any securities
exchange on which the Buyer Common Stock is listed or Nasdaq, will not issue any
such press release or make any such public statement prior to such consultation.
SECTION 7.04. ACCESS TO INFORMATION. From the date hereof until the
Merger Date, the Company and Buyer (each, in such capacity, a "PROVIDING PARTY")
will give (or cause to be given) to the other party (the "RECEIVING PARTY"), its
counsel, financial advisors, auditors and other authorized representatives full
access, during regular business hours, to the offices,
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properties, employees and consultants, books and records of the Providing Party,
will furnish (or cause to be furnished) to the Receiving Party, its counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and other information as such Receiving Party may reasonably
request and will instruct the employees, counsel and financial advisors of the
Providing Party and its Subsidiaries to cooperate with the Receiving Party in
its investigation of the business of the Providing Party and its Subsidiaries;
PROVIDED that no investigation pursuant to this Section shall affect any
representation or warranty given by the Providing Party to the Receiving Party
hereunder. Unless otherwise required by applicable law, each party hereto agrees
that it shall, and it shall cause its Subsidiaries and its and their respective
officers, directors, employees, auditors and agents to, hold, in confidence all
non-public information so acquired and to use such information solely for
purposes of effecting the transactions contemplated by this Agreement. From the
date hereof until the Merger Date, each Providing Party will cooperate with the
efforts of the Receiving Party, its counsel, financial advisors, auditors and
other authorized representatives to have reasonable access to the Providing
Party's customers and suppliers. The information obtained pursuant to this
Section shall be subject to any confidentiality agreements or other
confidentiality obligations currently binding upon the Providing Party or any of
its Subsidiaries; PROVIDED that the Providing Party shall use commercially
reasonable efforts to obtain any waivers under such agreements or obligations to
permit the Providing Party to comply with its obligations hereunder.
SECTION 7.05. FURTHER ASSURANCES. At and after the Merger Date, the
directors and officers of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of (x) the Company or Merger Sub,
and (y) Buyer, any deeds, bills of sale, assignments or assurances and to take
and do, in the name and on behalf of (x) the Company or Merger Sub, and (y)
Buyer, any other actions and things to vest, perfect or confirm of record or
otherwise in the Surviving Corporation any and all right, title and interest in,
to and under any of the rights, properties or assets of the Company acquired or
to be acquired by the Surviving Corporation as a result of the Merger or
otherwise carry out the provisions of the Agreement, and the Company and its
officers and directors shall be deemed to have granted to the Surviving
Corporation an irrevocable power of attorney in respect of the foregoing.
SECTION 7.06. NOTICES OF CERTAIN EVENTS. Each of the Company and Buyer
shall promptly notify the other party of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement;
(b) any notice or other communication from any Governmental Authority
in connection with the transactions contemplated by this Agreement;
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(c) any notice or any communication from any customer or supplier
indicating that such customer or supplier intends to terminate or restrict its
existing relationship as a result of the public announcement or the pendency of
the transactions contemplated by this Agreement;
(d) any Actions commenced or, to its knowledge threatened against,
relating to or involving or otherwise affecting such party that, if pending on
the date of this Agreement, would have been required to have been disclosed
pursuant to Section 3.13 only or that relate to the consummation of the
transactions contemplated by this Agreement; and
(e)(i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would cause any representation or warranty of such party
contained in this Agreement to be untrue or inaccurate at or prior to the Merger
Date, and (ii) any material failure of such party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by its
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 7.06(e) shall not limit or otherwise affect the remedies available
hereunder to either Buyer or the Company, as applicable.
SECTION 7.07. DIRECTOR AND OFFICER LIABILITY. (a) From and after the
Merger Date, Buyer shall cause the Surviving Corporation to indemnify, defend
and hold harmless any Person who is on the date hereof, or has been at any time
prior to the date hereof, or who becomes prior to the Merger Date, an officer,
director, or employee or agent (the "INDEMNIFIED PARTY") of the Company or any
of its Subsidiaries against all losses, claims, damages, liabilities, costs and
expenses (including attorney's fees and expenses), judgments, fines, losses, and
amounts paid in settlement in connection with any actual or threatened action,
suit, claim, proceeding or investigation (each a "CLAIM") to the extent that any
such Claim is based on, or arises out of, (i) the fact that such Person is or
was a director, officer, employee or agent of the Company or any of its
Subsidiaries at any time prior to the Merger Date or is or was serving at the
request of the Company or any of its Subsidiaries as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise at any time prior to the Merger Date, or (ii) this Agreement or
any of the transactions contemplated hereby or thereby in each case to the
extent that any such Claim pertains to any matter or fact arising, existing, or
occurring prior to or at the Merger Date, regardless of whether such Claim is
asserted or claimed prior to, at or after the Merger Date (the matters described
in clauses (i) and (ii) the "PRE-MERGER MATTERS") to the fullest extent
indemnified under the Company's certificate of incorporation, bylaws in effect
as of the date hereof or indemnification agreements in effect at the date
hereof, including provisions relating to advancement of expenses incurred in the
defense of any action or suit; PROVIDED that such indemnification shall be
subject to any limitation imposed from time to time under applicable laws. Buyer
and the Surviving Corporation shall also honor the indemnification agreements
between the Company or any of its Subsidiaries, as the case may be, and any
current or former officer or director of the Company or any such Subsidiary, as
the case may be, existing on the date of this Agreement and which are listed in
the Company Disclosure Schedule (and a form of which has been provided to
Buyer).
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(b) Buyer and the Surviving Corporation agree that all rights to
indemnification and all limitations or exculpation of liabilities existing in
favor of the Indemnified Party as provided in the Company's certificate of
incorporation and bylaws as in effect as of the date hereof shall continue in
full force and effect with respect to Pre-Merger Matters, without any amendment
thereto, for a period of six years from the Merger Date to the extent such
rights are consistent with Delaware Law; PROVIDED THAT, in the event any Claim
or Claims with respect to any such Pre-Merger Matters are asserted or made
within such six year period, all rights to indemnification in respect of any
such Claim or Claims shall continue until disposition of any and all such
Claims; PROVIDED HOWEVER, that any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the standards
set forth under Delaware Law, the Company's certificate of incorporation or
bylaws or such agreements, as the case may be, shall be made by independent
legal counsel selected by the Indemnified Party and reasonably acceptable to
Buyer, retained at Buyer's expense; and PROVIDED FURTHER, that nothing in this
Section 7.07 shall impair any rights or obligations of any present or former
directors or officers of the Company.
(c) Buyer or the Surviving Corporation shall provide directors and
officers of the Company officers' and directors' liability insurance coverage as
of the Merger Date ("D&O INSURANCE") with respect to Pre-Merger Matters for a
period of not less than six years after the Merger Date which coverage will be
substantially similar to the Company's existing D&O Insurance including, without
limitation, (i) an overall coverage amount not less than the overall coverage
amount under the Company's existing D&O Insurance and (ii) coverage for
liability under the 1933 and 1934 Acts in an amount not less than the coverage
amounts for such liabilities under the Company's existing D&O Insurance. Buyer's
obligations hereunder shall be expressly conditioned on all directors and
officers of the Company or any Subsidiary having executed representation letter
agreements at Buyer's request in respect of such insurance in the form attached
hereto as Exhibit C.
SECTION 7.08. REGISTRATION STATEMENT. Buyer shall (i) promptly prepare
and file with the SEC the Form F-4 with respect to the Buyer Common Stock
issuable in connection with the Merger and shall use its reasonable best efforts
to cause the Form F-4 to be declared effective by the SEC as soon as practicable
and (ii) take any action required to be taken under applicable Blue Sky law in
connection with such issuance of Buyer Common Stock or pursuant to any Adjusted
Option or Adjusted Warrant.
SECTION 7.09. GOVERNMENTAL AUTHORIZATION. Each of Buyer and the Company
shall take all actions by or in respect of, or filing with, any Governmental
Authority required for the execution, delivery and performance by Buyer and the
Company of this Agreement and the consummation by Buyer and the Company of the
transactions contemplated by this Agreement, including compliance with any
requirements referred to in Section 3.03 or Section 3.03 of the Company
Disclosure Schedule or Section 4.03 or Section 4.03 of the Buyer Disclosure
Schedule
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SECTION 7.10. CERTAIN CORPORATE MATTERS. Buyer shall take all necessary
corporate action for the amendment to or establishment of the Buyer Stock Option
Plan contemplated by Section 1.04 hereof.
SECTION 7.11. EMPLOYMENT. As of the Merger Date, Buyer shall assume the
obligation of the Company to perform any and all employment and severance
agreements identified in the Company Disclosure Schedules.
ARTICLE 8
CONDITIONS TO THE MERGER
SECTION 8.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
obligations of Buyer and the Company to consummate the Merger are subject to the
satisfaction of the following conditions:
(a) this Agreement and the transactions contemplated by this Agreement
shall have been adopted by the stockholders of the Company in accordance with
the Delaware Law;
(b) any applicable waiting period under the HSR Act and any applicable
pre-merger notification or similar statutes and rules listed in Section 3.03 of
the Company Disclosure Schedule or Section 4.03 of the Buyer Disclosure Schedule
shall have expired;
(c) no provision of any applicable law or regulation and no judgment,
injunction, order or decree of a court of competent jurisdiction shall prohibit
the consummation of the Merger;
(d) no Action shall be instituted by any Governmental Authority which
seeks to prevent consummation of the Merger or seeking material damages in
connection with the transactions contemplated hereby which continues to be
outstanding.
(e) the Form F-4 shall have been declared effective under the 1933 Act
and no stop order suspending the effectiveness of the Form F-4 shall be in
effect and no proceedings for such purpose shall be pending before or threatened
by the SEC;
(f) (i) the Buyer Common Stock shall have been approved for listing,
effective on or before the Merger Date, on Nasdaq's NMS, (ii) Buyer shall have
received the approval of all applicable regulatory authorities related to such
listing; and (iii) Buyer's Common Stock shall have been registered with the SEC
under the Exchange Act; and
(g) all actions by or in respect of or filings with any Governmental
Authority required to permit the consummation of the Merger shall have been made
or obtained other than any such
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actions or filings, the failure of which to make or obtain shall not be
reasonably likely to have a Material Adverse Effect on Buyer or the Company.
SECTION 8.02. CONDITIONS TO THE OBLIGATIONS OF BUYER. The obligations
of Buyer to consummate the Merger are subject to the satisfaction of the
following further conditions:
(a) (i) The Company shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or prior to the
Merger Date, (ii) the representations and warranties of the Company contained in
this Agreement shall be true and correct at and as of the Merger Date, as if
made at and as of the Merger Date (except to the extent expressly made as of an
earlier date, in which case as of such date), except where the failure of such
representations and warranties to be so true and correct (without giving effect
to any limitation as to "materiality" or "Material Adverse Effect" set forth
therein) is not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on the Company (or to the extent expressly set forth in
any specific representation or warranty, Chrysalis DNX) and (iii) Buyer shall
have received a certificate signed by an executive officer of the Company to the
foregoing effect.
(b) There shall not have been a breach of any obligation by any
stockholder which has entered into a Support/Voting Agreement other than any
breach which (i) does not result in the failure of the Company to obtain the
Required Stockholder Vote in favor of adoption of this Agreement and (ii) does
not result in the exercise of appraisal rights by any such stockholder.
(c) In the event of a Listing Failure, holders of no more than 10% in
the aggregate of outstanding shares of Company Stock shall be eligible to
exercise their appraisal rights.
(d) The Liens on (i) 7,989 shares of Chrysalis International in favor
of Institut Merieux and (ii) 11,995 shares of Chrysalis International in favor
of International Laboratories Holdings shall have been released.
(e) All consents and approvals of third parties (including, but not
limited to PIDA) to the transactions contemplated by this Agreement shall have
been obtained, and all notices with respect to the transactions contemplated by
this Agreement and required to be delivered prior to the Merger Date shall have
been delivered.
(f) The Barbut Agreement shall be in full force and effect and shall
not have been revoked by Dr. Barbut. All loans (other than the loan to the
Company from Dr. Jules Barbut) by the Company or any Subsidiary to any
shareholder or affiliate shall have been repaid in full and there shall be no
outstanding debts (other than the debt of Dr. Jack Barbut which reduces amounts
payable under the loan to the Company from Dr. Jules Barbut) due from any
directors, shareholders or affiliates to the Company or any Subsidiary of the
Company. All directors, shareholders and affiliates of the Subsidiaries shall
have assigned their ownership interests
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(including but not limited to director qualifying shares) in any Subsidiary of
the Company to Buyer or a Person designated by Buyer.
(g) The losses of the Company and its Subsidiaries for the fiscal
quarter ending December 31, 1998 shall not exceed $2,000,000 (excluding for
purposes of this calculation any losses attributable to non-cash expenses
required by U.S. GAAP or Regulation S-X to be expensed).
(h) Buyer shall have received written confirmation from Iffa in respect
of the matters set forth in Section 5.07 in form and substance reasonably
satisfactory to Buyer.
(i) Hackel shall have executed an Affiliate Letter.
(j) The Company shall have satisfied all of its obligations to BML
Japan.
SECTION 8.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) (i) Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the Merger
Date, (ii) the representations and warranties of Buyer and Merger Sub contained
in this Agreement shall be true and correct at and as of the Merger Date, as if
made at and as of the Merger Date (except to the extent expressly made as of an
earlier date, in which case as of such date), except where the failure of such
representations and warranties to be so true and correct (without giving effect
to any limitation as to "materiality" or "Material Adverse Effect" set forth
therein) is not reasonably like to have, individually or in the aggregate, a
Material Adverse Effect on Buyer or Merger Sub and (iii) the Company shall have
received a certificate signed by an executive officer of Buyer to the foregoing
effect.
(b) If a Listing Failure occurs, Buyer shall have secured any financing
required to permit it to pay on the Merger Date the aggregate Merger
Consideration.
ARTICLE 9
TERMINATION
SECTION 9.01. TERMINATION. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Merger Date (notwithstanding
any approval or adoption of this Agreement by the stockholders of the Company or
the shareholders of Buyer):
(a) by mutual written consent of the Company and Buyer;
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(b) by either the Company or Buyer, if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise prohibited
or if any judgment, injunction, order or decree enjoining Buyer or the Company
from consummating the Merger is entered and such judgment, injunction, order or
decree shall have become final and non-appealable; (PROVIDED that any judgment,
injunction, order or decree other than a temporary restraining order shall be
deemed to have become final and non-appealable thirty days following the entry
thereof);
(c) (i) by Buyer or, in connection with a Superior Proposal and upon
satisfaction of its obligations under Section 10.04(c), by the Company, if the
Board of Directors of the Company determines not to call or hold the Company
Stockholders' Meeting as provided in Section 5.02 or (ii) by either the Company
or Buyer if the adoption by the stockholders of the Company contemplated by this
Agreement shall not have been obtained by reason of the failure to obtain the
Required Stockholder Vote at a duly held meeting of stockholders of the Company
or any adjournment thereof;
(d) by the Company, if a Listing Failure occurs and, within two (2)
business days of the satisfaction of all closing conditions other than the
conditions set forth in Section 8.03, the condition set forth in Section 8.03(b)
has not been satisfied;
(e) by Buyer or, in connection with a Superior Proposal and upon
satisfaction of its obligations under Section 10.04(c), by the Company, if prior
to the Company Stockholder Meeting, the Board of Directors of the Company shall
have withdrawn, modified or changed in a manner adverse to Buyer their approval
or recommendation of this Agreement;
(f) by Buyer, upon a breach of any representation, warranty, covenant
or agreement of the Company, or if any representation or warranty of the Company
shall become untrue, the effect of which is a Material Adverse Effect on the
Company, in either case such that any of the conditions set forth in Section
8.02(a) would be incapable of being satisfied by March 31, 1999; and
(g) by the Company, upon a breach of any representation, warranty,
covenant or agreement of Buyer, or if any representation or warranty of Buyer
shall become untrue, the effect of which is a Material Adverse Effect on Buyer,
in either case such that any of the conditions set forth in Section 8.03(a)
would be incapable of being satisfied by March 31, 1999.
The party desiring to terminate this Agreement pursuant to this Section
9.01 shall give written notice of such termination to the other party in
accordance with Section 10.01.
SECTION 9.02. EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 9.01, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except that the agreements
contained in the second sentence of Section 7.04, this Section 9.02 and Article
10 shall survive the termination hereof. Notwithstanding the
49
<PAGE>
foregoing, nothing in this Section 9.02 shall relieve any party to this
Agreement of liability for a willful breach of any provision of this Agreement
and provided further that if it shall be judicially determined that the
termination of this Agreement was caused by a willful breach of this Agreement,
then, in addition to other remedies at law or equity for breach of this
Agreement, the party found to have willfully breached this Agreement shall be
responsible for payment or reimbursement of the other parties' costs, fees and
expenses related to the negotiation, preparation and execution of this Agreement
and related consents and related to the calling, holding and preparing, printing
and distributing of any documents related to a meeting of the other parties'
stockholders ("COSTS").
SECTION 9.03. TERMINATION UPON BANKRUPTCY. (a) The affirmative vote
upon, consent to or adoption of a resolution or similar act by the Board of
Directors of the Company or any Subsidiary authorizing the filing or
commencement by the Company or any Subsidiary of the Company of a voluntary
petition for relief under title 11 of the United States Code or any other law
providing for relief to or liquidation of debtors, and to which Buyer shall not
have consented, shall cause this Agreement to be terminated immediately and
without notice.
(b) Upon the occurrence of a Material Insolvency Event, Buyer may
immediately seek relief from any court, if required, to effectuate termination
of this Agreement, provided, however, that termination of this Agreement due to
a Material Insolvency Event shall not be effective until the earlier of (i)
sixty (60) days after the occurrence of a Material Insolvency Event or (ii)
March 31, 1999. A "MATERIAL INSOLVENCY EVENT" shall mean any of the following:
(i) the Company or any Subsidiary shall (A) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian or the like of
itself or its property, (B) admit in writing its inability to pay its debts
generally as they become due, (C) make a general assignment for the benefit of
creditors, or (D) if, without the application, approval or consent of the
Company or any Subsidiary, a proceeding shall be instituted by any Person other
than Buyer or any of its Affiliates in any court seeking in respect of the
Company or any Subsidiary an order for relief under Title 11 of the United
States Code, or an adjudication in bankruptcy, reorganization, dissolution,
winding up, liquidation, a composition or arrangement with creditors, the
appointment of a trustee, receiver, liquidator, custodian, fiscal agent or the
like of the Company or any Subsidiary or all or any material part of the
Company's or any Subsidiary's assets, and, if such proceeding is being contested
by the Company, in good faith, the same shall (i) result in the entry of an
order for relief or any such adjudication or appointment, or (ii) continue
undismissed or pending for any period of sixty (60) consecutive days.
50
<PAGE>
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including telecopy or similar
writing) and shall be given,
if to either Buyer Party, to:
Phoenix International Life Sciences Inc.
2350 Cohen Street
Saint-Laurent, Montreal, Quebec
Canada H4R 2N6
Fax: (514) 333-8861
Attention: Jean-Yves Caloz
Senior Vice President,
Chief Financial Officer and Secretary
with a copy to:
Pepper Hamilton LLP
Suite 400
1235 Westlakes Drive
Berwyn, PA 19312-2401
Fax: (610) 640-7835
Attention: Michael P. Gallagher, Esq.
and
McCarthy Tetrault
1170 Peel Street
Montreal, Quebec
Canada H38 4S8
Fax: (514) 397-4170
Attention: Hubert T. Lacroix
if to the Company, to:
Chrysalis International Corporation
575 Route 28
Raritan, New Jersey 08869
Fax: (908) 722-6677
51
<PAGE>
Attention: President
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Fax: (216) 579-0212
Attention: Thomas C. Daniels
or to such other address or telecopy number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice, request
or other communication shall be effective (a) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section and the
appropriate telecopy confirmation is received (b) if by overnight delivery
service, with proof of delivery, the next business day or (c) if given by any
other means, when delivered at the address specified in this Section.
SECTION 10.02. ENTIRE AGREEMENT; NON-SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; NO THIRD PARTY BENEFICIARIES. (a) This Agreement and the
Confidentiality Agreement constitute the entire agreement among the parties with
respect to the subject matter hereof and thereof and supersede all prior
agreements, understandings and negotiations, both written and oral, between the
parties with respect to such subject matter. None of this Agreement or any other
agreement contemplated hereby or thereby (or any provision hereof or thereof) is
intended to confer on or give any Person other than the parties hereto or
thereto any rights or remedies (except that Sections 7.07 and 7.11 are intended
to confer rights and remedies on the respective Persons specified therein).
(b) The representations and warranties contained herein shall not
survive the Merger Date.
SECTION 10.03. AMENDMENTS; NO WAIVERS. (a) Any provision of this
Agreement may be amended or waived prior to the Merger Date if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by the Company and Buyer or, in the case of a waiver, by the party against whom
the waiver is to be effective; PROVIDED that after the adoption of this
Agreement by (i) the stockholders of the Company, no such amendment or waiver
shall, without the further approval of such stockholders, alter or change (A)
the amount or kind of consideration to be received in exchange for any shares of
capital stock of the Company, or (B) any of the terms or conditions of this
Agreement if such alteration or change would adversely affect the holders of any
shares of capital stock of the Company and (ii) the shareholders of Buyer, no
such amendment or waiver shall, without the further approval of such
shareholders,
52
<PAGE>
alter or change any of the terms or conditions of this Agreement if such
alteration or change would adversely affect the holders of any shares of capital
stock of Buyer. Notwithstanding the foregoing, the provisions of Section 8.01(b)
may not be amended or waived.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 10.04. EXPENSES. (a) Except as otherwise provided in this
Section, all costs and expenses incurred in connection with this Agreement shall
be paid by the party incurring such cost or expense.
(b) Buyer agrees to pay to the Company, within three (3) business days
of the date of any termination of this Agreement by the Company pursuant to
Section 9.01(d) or 9.01(g), U.S. $1,500,000 (inclusive of the Company's Costs).
(c) The Company agrees to pay to Buyer, within three (3) business days
of the date of any termination of this Agreement by Buyer or the Company
pursuant to Sections 9.01(c) or 9.01(e), or a termination of this Agreement
pursuant to Section 9.03, U.S. $1,500,000 (inclusive of Buyer's Costs).
(d) Buyer's right to receive any amounts contemplated by this Section
10.04, and its ability to enforce the provisions of Section 10.04 shall not be
subject to approval by the stockholders of the Company.
(e) Each of Buyer and the Company shall bear and pay one-half of the
costs and expenses incurred in connection with the filing, printing and mailing
of the Form F-4 and the Company Proxy Statement (including SEC filing fees but
excluding legal and accounting fees related thereto).
SECTION 10.05. DOLLAR AMOUNTS. All dollar amounts in this Agreement
refer to United States Dollars.
SECTION 10.06. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; PROVIDED that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto; PROVIDED FURTHER that Buyer may
assign its rights, but not its obligations, under this Agreement to a
wholly-owned subsidiary of Buyer.
53
<PAGE>
SECTION 10.07. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware (without regard
to principles of conflict of laws).
SECTION 10.08. JURISDICTION. Any Action seeking to enforce any
provision of, or based on any matter arising out of or in connection with, this
Agreement or the transactions contemplated by this Agreement may be brought
against any of the parties in the United States District Court for the District
of Delaware or any state court sitting in the City of Wilmington, Delaware and
each of the parties hereto hereby consents to the exclusive jurisdiction of such
courts (and of the appropriate appellate courts) in any such Action or waives
any objection to venue laid therein. Process in any such Action proceeding may
be served on any party anywhere in the world, whether within or without the
State of Delaware. Without limiting the generality of the foregoing, each party
hereto agrees that service of process upon such party at the address referred to
in Section 10.01, together with written notice of such service to such party,
shall be deemed effective service of process upon such party.
SECTION 10.09. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
SECTION 10.10. RELIEF FROM AUTOMATIC STAY. In the event the Company or
any Subsidiary is the subject of an involuntary petition in bankruptcy,
insolvency, receivership or similar law, and the transactions contemplated by
this Agreement are subject to bankruptcy court approval, the Company or such
Subsidiary shall seek to obtain bankruptcy court approval of the transactions
contemplated by this Agreement, as soon as reasonably practicable, in accordance
with and subject to its terms.
[SIGNATURE PAGE FOLLOWS]
54
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
PHOENIX INTERNATIONAL LIFE
SCIENCES INC.
By:/S/ JEAN-YVES CALOZ
--------------------------------------
Name: Jean-Yves Caloz
Title: Senior Vice President and
Secretary
CHRYSALIS INTERNATIONAL
CORPORATION
By:/S/ PAUL J. SCHMITT
--------------------------------------
Name: Paul J. Schmitt
Title: Chairman, President and
Chief Executive Officer
PHOENIX MERGER SUB CORP.
By:/S/ JEAN-YVES CALOZ
--------------------------------------
Name: Jean-Yves Caloz
Title: Treasurer and Secretary
55
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TABLE OF DEFINITIONS
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
191 Patent.............................................................................................3.17
1933 Act...............................................................................................3.03
1934 Act...............................................................................................3.03
Acquisition Proposal...................................................................................5.03
Action.................................................................................................3.13
Adjusted Option........................................................................................1.04(a)(i)
Adjusted Warrant.......................................................................................1.04(a)(i)
Affiliate..............................................................................................1.01(b)
Affiliate Letter.......................................................................................3.02(c)
Applicable Laws........................................................................................3.16(a)
Barbut Agreement.......................................................................................3.02(a)
Benefit Arrangements...................................................................................3.15(d)
Buyer...............................................................................................Preamble
Buyer Balance Sheet....................................................................................4.07
Buyer Balance Sheet Date...............................................................................4.07
Buyer Common Stock ....................................................................................1.01(b)(ii)
Buyer Disclosure Documents.............................................................................4.08(a)
Buyer Disclosure Schedule...........................................................................Article 4
Buyer Option Plan......................................................................................1.04(c)
Buyer Party............................................................................................4.02
Buyer Preferred Stock..................................................................................4.05
Buyer Prospectus.......................................................................................4.08(b)
Buyer Public Documents.................................................................................4.06
Buyer SEC Disclosure Documents.........................................................................4.08(a)
Buyer Common Stock.....................................................................................1.01(b)(ii)
Canadian GAAP......................................................................................... 4.07
Canadian Securities Commission.........................................................................4.06
Certificate of Merger..................................................................................1.03
Chrysalis DNX..........................................................................................3.13
Claim..................................................................................................7.07(a)
Code...................................................................................................1.04(b)
Company.............................................................................................Preamble
Company 10-K...........................................................................................3.07
Company 10-Qs..........................................................................................3.07
Company Balance Sheet..................................................................................3.08
Company Balance Sheet Date.............................................................................3.08
Company Disclosure Documents...........................................................................3.09(a)
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Company Disclosure Schedule...........................................................................Article 3
Company Proxy Statement................................................................................3.09(a)
Company SEC Documents..................................................................................3.07
Company Securities.....................................................................................3.05
Company Stockholder Meeting............................................................................5.02(a)
Company Stock..........................................................................................1.01(b)(i)
Company Stock Options..................................................................................1.04(a)(i)
Company Stock Plans....................................................................................1.04(a)(i)
Company Subsidiary Securities..........................................................................3.06(b)
Company Warrants.......................................................................................1.04(a)(i)
Confidentiality Agreement............................................................................. 5.03
Contract...............................................................................................3.24
Costs..................................................................................................9.02
DEA....................................................................................................3.16(a)
D&O Insurance..........................................................................................7.08(c)
Delaware Law...........................................................................................1.03
EMEA...................................................................................................3.16(a)
Employee Plans.........................................................................................3.15(a)
Environmental Laws.....................................................................................3.18(f)(i)
Environmental Permits..................................................................................3.18(f)(ii)
ERISA..................................................................................................3.15(a)
ERISA Affiliate........................................................................................3.15(a)
Excess Shares..........................................................................................1.06
Exchange Agent.........................................................................................1.02(a)
Exchange Ratio.........................................................................................1.09(b)
FDA....................................................................................................3.16(a)
FDCA...................................................................................................3.16(b)
First Union............................................................................................5.06
First Union Agreements.................................................................................5.06
Forbearance Agreement..................................................................................3.02(a)
Form F-4...............................................................................................4.08(a)
Governmental Authority.................................................................................3.03
Hazardous Substance....................................................................................3.18(f)(iii)
HSR Act................................................................................................3.03
Iffa...................................................................................................5.07
Indemnified Party......................................................................................7.07(a)
Intellectual Property..................................................................................3.17(a)
Lien...................................................................................................3.04
Listing Failure........................................................................................1.07
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Listing Period.........................................................................................1.07
MDS Amendment..........................................................................................3.02(a)
MDS Note...............................................................................................6.03
Material Adverse Effect................................................................................3.01
Material Insolvency Event..............................................................................9.03(b)
Merger.................................................................................................1.01(a)
Merger Consideration...................................................................................1.01(b)(ii)
or 1.07(a)
Merger Date............................................................................................1.03
Merger Sub...........................................................................................Preamble
Merger Sub Common Stock................................................................................1.02(b)(iii)
NMS....................................................................................................6.02
Nasdaq.................................................................................................1.06
Nasdaq Letter..........................................................................................1.07
Organizational Documents...............................................................................4.01
Pension Plans..........................................................................................3.15(a)
Person.................................................................................................1.01(b)
Pre-Merger Matters.....................................................................................7.08(a)
Product Liability......................................................................................3.27
Providing Party........................................................................................7.04
Purchase Price.........................................................................................1.09(a)
Receiving Party........................................................................................7.04
Regulation S-X.........................................................................................3.11(i)
Required Stockholder Vote..............................................................................3.02(a)
Rights Agreement.......................................................................................3.21(a)
SEC....................................................................................................3.07
Shut-Downs............................................................................................ 5.04
Subscription Stock.....................................................................................2.03
Subsequent Buyer Public Documents......................................................................4.06
Subsequent Company SEC Documents.......................................................................3.07
Subsidiary.............................................................................................1.01(b)
Superior Proposal......................................................................................5.03
Support/Voting Agreement...............................................................................3.02(c)
Surviving Corporation..................................................................................1.01(a)
Surviving Corporation Common Stock.....................................................................1.01(b)(iii)
Tax Return.............................................................................................3.14(b)
Taxes..................................................................................................3.14(b)
Taxing Authorities.....................................................................................3.14(b)
USDA...................................................................................................3.16(a)
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
US GAAP..............................................................................................3.08
</TABLE>
iv
<PAGE>
PURCHASE OF BUSINESS ASSETS
between
Dr. Klaus Schaffler
(hereinafter also "Seller")
and
Institute for Pharmcodynamic Research Phoenix International GmbH i.G.
(hereinafter also "Buyer")
relating to a clinical research business
-----
PRELIMINARY REMARKS
(1) The Seller is the owner of a business activity and the related assets for
clinical research and testing of medicines, hereinafter "Assets.@
(2) The Seller intends to sell these Assets to the Buyer, a limited liability
company in foundation with its seat in Munich, represented by its managing
director with sole power of representation. A copy of the notarial deed of
the foundation of the company is attached to this Agreement as ANNEX TO
PARA. (2) OF THE PRELIMINARY REMARKS. The Buyer intends to purchase the
Assets.
(3) With this in mind, the Seller and the Buyer enter into the following
<PAGE>
AGREEMENT FOR THE SALE OF BUSINESS ASSETS
Section
OBJECTIVE OF THE AGREEMENT, CURRENT AGREEMENTS,
LABOR RELATIONS
(1) The Seller sells to the Buyer the Assets used for the business activity
under the name INSTITU FIR PHARMAKADYNAMISCHE FORSCHUNG - DR. KLAUS
SCHAFFLER in Munich. The Seller sells the Assets as listed in ANNEX TO
SECTION 1 PARA. (1) whether or not reflected in the balance sheet of the
business activity. This includes in particular but is not limited to rights
to further benefits, guarantees, intellectual property rights, licenses,
permits, designs, processes, formulas, drawings, draftings, samples, books
and business documents as well as written or in any other way collected and
stored information of any kind.
(2) The Buyer shall become a party to the following agreements on the Takeover
Date:
1) insurance agreements
2) agreements for the supply of utilities and disposal services (water,
gas, electricity, heating, waste disposal, sewage, etc.).
3) rental agreement regarding the premises in Munich (including the
deposit)
4) project contracts, especially the BERLIN CHEMIE Project, the OLD
MADAUS Project and the NEW MADAUS Project Cost and proceeds of these
three projects are allocated with the parties as stipulated in ANNEX
TO SECTION I PARA. (2)(d).
(3) The Buyer shall not enter into any other contractual agreements or assume
any liability (including tax liability, whether or not relevant to the sold
Assets) from the Seller.
(4) The Buyer shall continue to employ Mr. Haase. The Buyer enters into the
service agreement with Mr. Haase with all rights and obligations arising
there from. The service agreement is attached as ANNEX TO SECTION L PARA.
(4).
Section 2
PURCHASE PRICE
(5) The purchase price for the Assets shall be DM 420.000,--.
(6) The Buyer disbursed the amount of DM 400.000,-- to the Seller on the basis
of a loan agreement dated January 9, 1998. The purchase price shall be set
off against this amount, consequently, the Buyer owes a payments of DM
20.000,--
(7) Payment is due on the date of Handover of Possession.
Section 3
TAKEOVER DATE, INCOME
<PAGE>
Takeover Date is April 01, 1998, 0:00. From this day on the business
activity sold shall be run on account of the Buyer.
Section 4
CONTINUANCE OF BUSINESS, MANAGEMENT
(8) The Buyer and, should occasion wise, his legal successor are entitled, but
not required, to continue to use the business name of the Seller with or
without the use of supplementary names or to partially use the business
name, regardless of the business form. Seller and Buyer are required to
cooperate in the renaming of the Buyer. (9) The Seller will act as the
managing director for the Buyer for at least 3 years upon execution of this
Agreement, based on the managing director employment agreement contained in
ANNEX TO SECTION 4 PARA. (2). If the managing director resigns without the
Buyer having given good cause (WICHUGER GRUND), or if the managing director
is terminated because of the presence of good cause, then the purchase
price shall be reduced by DM 100.000,--.
Section 5
REPRESENTATIONS AND WARRANTIES
(10) The Seller makes on the Takeover Date and at the moment of the handover
of possession (Section 10) in so far as not otherwise provided for in
this Agreement the following representations and warranties in the form
of an independent warranty agreement
1) Financial Position
1. The Seller's annual financial statements given to the Buyer for
the fiscal years 1996 end 1997 comply with statutory provisions
and proper accounting principles, and accurately state the
capital, financial and earnings situation of the business
activity.
2. The Buyer has been completely and comprehensively informed -
verbally or in writing- to the best of the Sellers knowledge of
all facts known to the Seller, which are not insignificant for
the evaluation of the current and future capital, financial and
profit situation of the business activity. The information and
documents provided are correct in so far as they contain most
recent personal declarations of the Seller.
3. The sold Assets, are the property of the Seller and are not
subject to any third party rights. They encompass all economic
assets, which shall be used in or are necessary for the business
activity.
4. The receivables stated in the balance sheet exist, are not
subject to defenses and no greater losses have occurred than the
amount of allowances in the balance sheet.
5. The sale of the Assets shall not make the Buyer liable for third
party liabilities, in particular on the basis of negotiable
instruments, guarantees, and letters of comfort.
<PAGE>
6. The fixed assets (ANLAGEVERMOGEN) are in a proper condition and
all necessary repairs and the procurement of replacements have
been undertaken.
7. The quality and quantity of the inventory is reasonably in accord
with business principles. The inventory is in good condition and
is salable in the ordinary course of business.
8. ANNEX TO SECTION 5 PARA (1) a) 8. contains a complete list of the
most recent completed field tax audit (as of 1994) concerning the
business activities for every type of tax rating the time of the
issuance of the respective notice of tax assessment or pending
proceeding
1) Employment and Service Relationships
1. ANNEX TO SECTION 5 PARA (1) b) 1. contains a Complete list
of all commercial agents and consultants of the sold
business activity on the Takeover Date, including name,
field of activity, date of first employment, termination
notice periods, annual remuneration in the calendar year
1997, including all fringe payments.
2. Since 1996 there have been no increases or promises of
increase of payments (salary, pension, profit-sharing
bonus, bonuses, commission, other payments) to employees,
consultants, commercial agents or other persons rendering
services. No modifications of such agreements (duration,
notice periods, etc.) occurred since.
3. If Mr. Haase objects to the takeover by the Buyer or
employment was terminated on the Takeover Date, the Seller
shall bear all claims to current compensation and
settlements.
1) Period between the Takeover Date and the Handover of Possession
(Section 10) (Transition Period)
1. The business activity has been conducted in accordance with
the principles of reasonable and conscientious business
management during the Transition Period. In particular, the
prices agreed upon for deliveries and services have been
calculated so as not to incur losses and so as to receive
equal and valuable consideration for all obligations
incurred.
2. During the Transition Period none of the fixed assets of the
sold business activity have been sold or otherwise disposed
of, except for those listed in the ANNEX TO SECTION 5 PARA.
(1) c) 2.
3. During the Transition Period no extraordinary transactions
have been conducted nor extraordinary measures taken.
1) Miscellaneous
1. There have never been, nor are there currently pending, any
product or medical liability claims against the Seller in
connection with the business activity. 1.
2. All know-how and intellectual property rights included in
the sale are permanently at the disposal of the Buyer with
full legal title, and no payments or performances in respect
of those rights are due to third parties.
<PAGE>
3. The Seller is not in substantial violation of any statutory
provisions, and in particular, the Seller has fulfilled all
of his tax- and social security-law obligations. The Seller
is not infringing on the contractual rights of third parties
and has not assumed any contractual liabilities through his
business operations, and especially, the Seller has not
defaulted on his delivery, performance or payment
obligations.
4. The business activity complies with current and, to the best
of the Seller's knowledge, future public administrative law
(OFFENTLICHRECHTLICH) statutory provisions as well as with
labor law provisions.
5. The fundamental operational bases of the sold business
activity (e.g., concessions, operational permits, waste
disposal agreements, rental and leasing (Pacht- und
Leasing-), license, cooperation, credit, supply agreements)
are not terminated, limited or impeded by the conclusion of
this Agreement.
6. The sold business activity has sufficient insurance
coverage. The ANNEX TO SECTION 5 PARA (1) d) 6. contains a
complete list of all insurance Policies, stating the insured
risks, the remaining term, and the yearly premium.
7. ANNEX TO SECTION 1 PARA. (1) contains a complete list of all
assumed agreements. The agreements we effective, have been
performed by the parties in accord with the agreement until
now and shall remain effective prospectively as long as the
parties continue to perform in accord with the agreement.
They are the only agreements necessary to carry out the
business activity in the ordinary course. The parties to the
agreement shall consent to the entry of the Buyer in the
assumed agreements with, the previous conditions with the
exception of those specially identified agreements in ANNEX
TO SECTION 5 PARA. (1) d) 7.
8. Except for those legal proceedings listed in ANNEX TO
SECTION 5 PARA. (1) a) 8., there neither exist nor are
threatened any lawsuits, legal remedies or other
proceedings.
9. The acquisition of the Assets by the Buyer does not
constitute an acquisition of assets within the meaning of
Section 419 German Civil Code (BGD) or a transaction within
the meaning of Section 1365 BGD.
10. The sold Assets are technically without fault and will not
give raise to any claims, in particular as regards technical
issues in connection with the turn of the century.
1) The statutory warranty against defects of quality and title with regard to
the Assets shall apply in addition.
2) If the representations and warranties of the Seller are dependent on the
knowledge and awareness of certain facts or circumstances, such knowledge
awareness shall be attributed to the Seller also in case of facts and
circumstances of which the Seller would have been aware had the Seller
exercised due care.
Section 6
CONSEQUENCES OF BREACH OF REPRESENTATIONS AND/OR WARRANTIES
<PAGE>
1) Any noncompliance with a representation and/or warranty under '5 shall
commit the Seller to the payment of compensatory damages only. The measure
of said damages shall be that amount which would have to be paid in order
to place the Buyer in the same position as if the representation and/or
warranty had been fulfilled.
2) Claims to compensation for damages shall bear interest of 3% over the
discount rate of the BUNDESBANK (Contractual Interest Rate) calculated from
the time of loss, or at the earliest, from the Takeover Date.
3) If damage has not yet been incurred, the Buyer may demand that the Seller
indemnify the Buyer.
4) All claims to compensation for damages shall lapse if they are not raised
in writing within two years of the Takeover Date stating the bases for the
claims against the Seller. Timely made claims are barred after three years
from the Takeover Date.
5) If the Seller has Fraudulently concealed material defects of the Assets or,
if the liability of the Seller is based on such material deviations from
the above representations and/or warranties that the Buyer can no longer be
reasonably expected to comply with this Agreement, then the Buyer is
entitled, notwithstanding para. (1), to rescission of this Agreement in
addition to the enforcement of claims to compensation for damages.
Rescission shall be precluded if not exercised within six months of the
execution of this agreement.
Section 7
TAXES AND COSTS
1) Taxes payable by the Seller on any profit incurred incident to this
Agreement shall be borne by the Seller.
2) The costs of this Agreement and its execution shall be borne by the Buyer.
The Buyer and Seller shall each bear the costs of their own consultants.
Section 8
NON-COMPETITION CLAUSE
1) The Seller shall in no way undertake the operation of or participate in or
serve as an employee or independent contractor in any manner with an
enterprise which competes with the business activity for a period of five
years from the Takeover Date. This non-competition clause shall not be
valid if the competition does not take effect in Germany. This
non-competition clause shall not be effective in respect of the acquisition
of ownership interests listed on a stock exchange in up to 5% of the stated
capital (GRUNDKAPITAL).
2) For every breach by the Seller of the non-competition clause, liquidated
contractual damages (VERTRAGSSTRAFE) in the amount of DM 50,000,-- shall be
paid to the Buyer. In
<PAGE>
the case of a continuous violation, a separate violation shall be deemed to
have occurred at the beginning of each calendar month. The Buyer shall not
be barred from asserting higher damages. However, the amount of any
liquidated contractual damages paid shall be subtracted from any actual
damages.
Section 9
PERFORMANCE PROVISIONS
1) The transfer of fixed assets and any other matter concerning the
performance of this Agreement shall be governed by the following:
1) The parties to the Agreement are in agreement concerning the transfer
of ownership in movables at the time of the execution of this
Agreement. If any sold movables, are not in the possession of the
Seller, transfer shall be effected by the assignment of claims to
possession against the immediate holder of the movables by the Seller
to the Buyer.
2) The sold claims are hereby assigned to the Buyer. The Buyer is
entitled to notify the debtors of the transfer directly and, so far as
necessary, to obtain their consents to the assignments.
3) The sold rights, licenses and permits are hereby assigned to the
Buyer. If the assignment requires any further measures (entry into a
register, notification of public authorities, etc.) to be legally
binding or effective, the Seller will undertake all necessary steps to
bring about the transfer.
4) In as far as non-transferable objects are included in the sale, the
Seller is obligated to put the Buyer into a position as if the objects
had been effectively transferred.
5) The Seller shall obtain the consent of third parties to the entry of
the Buyer into running contracts in so far as the Buyer receives the
economic benefit of the contracts.
6) Insofar as a change in the inventory in the Assets occurs between the
Takeover Date and the transfer, the changed inventory is controlling
for the transfer. A current inventory, including the significant items
of property hereby being transferred, is attached as ANNEX TO SECTION
9 PARA. (2).
Section 10
HANDOVER OF POSSESSION
The handover of possession of the Assets shall take place on the date of
closing.
Section 11
FINAL PROVISIONS
<PAGE>
1) This Agreement shall be governed by the laws of Germany under the exclusion
of its principles of conflict of laws.
2) There are no collateral agreements to this Agreement.
3) Modifications and supplementations not requiring notarial authentication
require the written form (SCHRIFTFORM) in order to be effective.
4) The place of performance of the Agreement and the jurisdictional venue
shall be the seat of the Buyer, to the extent legally permitted.
5) The Seller and Buyer shall agree upon the time, manner and content of
external and internal publication of the sale of the Assets.
6) This Agreement replaces all previous agreements and statements of the
Seller and Buyer with regard to its subject matter.
7) The Parties to this Agreement shall take all actions necessary for the
seamless implementation of this sale of the Assets.
8) If individual provisions of this Agreement should be or become invalid, the
validity of the other provisions shall not be affected thereby. The invalid
provision shall be replaced by a valid provision which comes as close as
possible to the original economic intention of the invalid provision.
Munich, this 1st day of April 1998,
/s/ Klaus Schaffler
- -------------------
Dr. Klaus Schaffler
Institute for Pharmacodynamic
Research Phoenix International GmbH i. G.
/s/ Klaus Schaffler
- -------------------
Dr. Klaus Schaffler
I.T.E.M. S.A. being the founder and sole shareholder of Institute for
Pharmacodynamic Research Phoenix International GmbH i. G. herewith authorizes
Dr. Klaus Schaffler, as the managing director of said GmbH i.G. to execute the
above agreement.
Munich, this 1st day of April 1998,
/s/ Lucien Steru
- -------------------
Lucien Steru
<PAGE>
Exhibit 3.1
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Incorporation
162518 CANADA INC.
Name of Corporation
234202-2
Number
I hereby certify that the above-mentioned Corporation, the Articles of
Incorporation of which are attached, was incorporated under the Canada Business
Corporations Act.
/s/ Director
------------------------------
Director
June 7, 1988
------------------------------
Date of Incorporation
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 1
Articles of Incorporation
(Section 6)
1. Name of Corporation: 162518 CANADA INC.
2. The place in Canada where the registered office is to be situated: THE
MONTREAL URBAN COMMUNITY, PROVINCE OF QUEBEC
3. The classes and any maximum number of shares that the corporation is
authorized to issue: THE ANNEXED SCHEDULE 1 IS INCORPORATED IN THIS
FORM.
4. Restrictions if any on share transfers: THE ANNEXED SCHEDULE 2 IS
INCORPORATED IN THIS FORM.
5. Number (or minimum and maximum number) of directors: A MINIMUM OF ONE
(1) AND A MAXIMUM OF FIFTEEN (15) DIRECTORS.
6. Restrictions if any on business the corporation may carry on: N/A.
7. Other provisions if any: THE ANNEXED SCHEDULE 3 IS INCORPORATED IN THIS
FORM.
8. Incorporators:
Names: ANNA MASCOLO
Signature: /s/ ANNA MASCOLO
----------------
Address: 5 PLACE VILLE MARIE, SUITE 1203,
MONTREAL, QUEBEC H3B 2G2
Filed: June 7, 1988
-2-
<PAGE>
SCHEDULE 1
ARTICLES OF INCORPORATION
THE CLASSES OF SHARES THAT THE CORPORATION IS AUTHORIZED TO ISSUE
The corporation is authorized to issue Class "A" shares, Class "B" shares, Class
"C" shares, Class "D" shares, Class "E" shares and Class "F" shares.
The rights, privileges, restrictions and conditions attaching to the said Class
"A" shares, Class "B" shares, Class "C" shares, Class "D" shares; Class "E"
shares and Class "F" shares are as follows:
1. The holders of the Class "A" shares shall be entitled to one
(1) vote for each share held by them at all meetings of
shareholders except meetings at which only holders of a
specified class of shares, other than the Class "A" shares,
are entitled to vote, and they shall be entitled to notice of
all meetings of shareholders of the corporation.
2. Except as otherwise specifically provided in the Canada
Business Corporations Act, the Class "B" shares shall not
carry any right to vote nor shall the holders thereof be
entitled to notice of or to attend shareholders' meetings.
3. The Class "A" shares and the Class "B" shares shall rank PARI
PASSU in every other respect, and the holders of such Class
"A" shares and Class "B" shares, shall, subject to the rights
of the holders of the Class "C" shares, Class "D" shares,
Class "E" shares and Class "F" shares, be entitled to receive
the remaining property of the corporation upon a dissolution.
4. The Class "C" shares, Class "D" shares, Class "E" shares and
Class "F" shares shall carry the right, in the discretion of
the directors, to a fixed monthly non-cumulative preferential
dividend in an amount equal to 1% of the amount of the
consideration for which such shares have been issued or in the
event such shares have been issued in consideration of
property or past services, in an amount equal to 1% of the
amount of the fair equivalent of money that the Corporation
would have received if the shares had been issued for money.
5. Each Class "C" share, Class "D" share, Class "E" share and
Class "F" share shall carry the right, in the event of the
liquidation or winding-up of the corporation, to repayment of
the consideration for which such share has been issued, and in
the event that such share has been issued in consideration of
property or past services, the repayment shall be the fair
equivalent of the money that the corporation would have
received if the share had been issued for money.
-3-
<PAGE>
6. In the event that only part of the amount of the consideration
received by the Corporation for any share issued by the
Corporation is added to the stated capital account for the
class or series of shares of which such share forms part, such
share shall be deemed to have been issued for the full amount
of the consideration received therefor for all purposes other
than stated capital, including dividend, redemption, purchase,
cancellation, liquidation and dissolution.
7. The Class "C" shares, Class "D" shares, Class "E" shares and
Class "F" shares shall not carry the right to any further
participation in profits or assets.
S. The holders of the Class "C" shares and Class "E" shares shall
be entitled to one (1) vote for each share held by them at all
meetings of shareholders except meetings at which only holders
of a specified class of shares, other than the Class "C"
shares and Class "E" shares are entitled to vote, and they
shall be entitled to notice of all meetings of shareholders of
the corporation.
9. Except as otherwise specifically provided in the Canada
Business Corporations Act, the Class "D" shares and the Class
"F" shares shall not carry any right to vote nor shall the
holders thereof be entitled to notice of or to attend
shareholders' meetings.
10. Each Class "C" and Class "D" share shall be redeemable at a
price equal to the consideration for which such share has been
issued and in the event that such share has been issued in
consideration of property or past services, at a price equal
to the fair equivalent of the money that the corporation would
have received if the share had been issued for money. The
corporation may redeem all or any part of the Class "C" or
Class "D" shares, at any time at the option of the directors
of the corporation upon a notice of seven (7) days without the
consent of the holders thereof, and if less than the whole
amount of the outstanding Class "C" or Class "D" shares shall
be so redeemed, the shares to be redeemed shall be selected
pro rata or by lot in such manner as the directors may
determine.
11. Each Class "E" and Class "F" share shall be redeemable at the
option of the holder of such share at a price equal to the
consideration for which such share has been issued and in the
event that such share has been issued in consideration of
property or past services, at a price equal to the fair
equivalent of the money that the corporation would have
received if the share had been issued for money. The
corporation may also redeem all or any part of the Class "E"
or Class "F" shares at any time at the option of the directors
of the corporation upon a notice of seven (7) days, without
the consent of the holders thereof, and if less than the whole
amount of the outstanding Class "E" or Class "F" shares shall
be so redeemed, the shares to be redeemed shall be selected
pro rata or by lot in such manner as the directors may
determine.
-4-
<PAGE>
12. The Class "C" shares, the Class "D" shares, the Class "E"
shares and the Class "F" shares shall rank PARI PASSU in every
other respect.
-5-
<PAGE>
SCHEDULE 2
ARTICLES OF INCORPORATION
RESTRICTIONS ON SHARE TRANSFERS
No shareholder shall be entitled to sell, transfer or otherwise dispose of any
share or shares in the capital stock of the corporation, or any securities
thereof, without either:
(a) The previous express sanction of the holders of a majority of
the Class "A", Class "C" and Class "E" shares in the capital
stock of the corporation for the time being outstanding
expressed by a resolution passed at a meeting of the Class
"A", Class "C" and Class "E" shareholders or by an instrument
or instruments in writing signed by the holders of a majority
of the Class "A", Class "C" and Class "E" shares in the
capital stock of the corporation for the time being
outstanding; or
(b) The previous express lawful sanction of the board of directors
of the corporation at a duly constituted meeting of the board
or in lieu thereof the previous express sanction of the
directors of the corporation as evidenced by the lawful
adoption of a resolution to that effect.
-6-
<PAGE>
SCHEDULE 3
ARTICLES OF INCORPORATION
OTHER PROVISIONS
1. The number of shareholders of the corporation is limited to fifty (50), not
including persons who are in the employment of the corporation and persons, who,
having been formerly in the employment of the corporation were, while in that
employment and have continued after the termination of that employment to be
shareholders of the corporation, two or more persons holding one or more shares
jointly being counted as a single shareholder.
2. Any invitation to the public to subscribe for any shares, debentures or any
other securities of the corporation is prohibited.
3. The directors of the corporation may, without authorization of the
shareholders:
(a) borrow money upon the credit of the corporation;
(b) issue, reissue sell or pledge debt obligations of the corporation; and
(c) mortgage, hypothecate, pledge or otherwise create a security interest
in all or any property of the corporation, owned or subsequently
acquired, to secure any debt obligation of the corporation.
Nothing herein limits or restricts the borrowing of money by the
corporation on bills of exchange or promissory notes made, drawn,
accepted or endorsed by or on behalf of the corporation.
4. Subject to the provisions of the Canada Business Corporations Act, the
corporation may purchase or otherwise acquire any shares issued by it.
5. The corporation shall have a lien on the shares registered in the name of a
shareholder or his legal representative for any indebtedness owed by him to the
corporation, and such lien shall be enforceable in accordance with the by-laws
of the Corporation or otherwise.
6. Subject to Schedule 1 of the Articles of Incorporation and the Canada
Business Corporations Act, the holder of a fractional share shall be entitled to
that number of votes equal to one multiplied by the fraction represented by such
share and to notice of all meetings of shareholders of the Corporation.
-7-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Incorporation
163641 CANADA INC.
Name of Corporation
237200-2
Number
I hereby certify that the above-mentioned Corporation, the Articles of
Incorporation of which are attached, was incorporated under the Canada Business
Corporations Act.
/s/ Director
-----------------------------
Director
August 30, 1988
-----------------------------
Date of Incorporation
-8-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 1
Articles of Incorporation
(Section 6)
1. Name of Corporation: 163641 CANADA INC.
2. The place in Canada where the registered office is to be situated: THE
METROPOLITAN REGION OF MONTREAL, PROVINCE OF QUEBEC
3. The classes and any maximum number of shares that the corporation is
authorized to issue: THE ANNEXED SCHEDULE 1 IS INCORPORATED IN THIS
FORM.
4. Restrictions if any on share transfers: THE ANNEXED SCHEDULE 2 IS
INCORPORATED IN THIS FORM.
5. Number (or minimum and maximum number) of directors: A MINIMUM OF ONE
(1) AND A MAXIMUM OF FIFTEEN (15) DIRECTORS.
6. Restrictions if any on business the corporation may carry on: N/A.
7. Other provisions if any: THE ANNEXED SCHEDULE 3 IS INCORPORATED IN THIS
FORM.
8. Incorporators:
Names: ANNA MASCOLO
Signature: /s/ ANNA MASCOLO
----------------
Address: 5 PLACE VILLE MARIE, SUITE 1203,
MONTREAL, QUEBEC H3B 2G2
Filed: August 30, 1988
-9-
<PAGE>
SCHEDULE 1
ARTICLES OF INCORPORATION
THE CLASSES OF SHARES THAT THE CORPORATION IS AUTHORIZED TO ISSUE
The corporation is authorized to issue Class "A" shares, Class "B" shares, Class
"C" shares, Class "D" shares, Class "E" shares and Class "F" shares.
The rights, privileges, restrictions and conditions attaching to the said Class
"A" shares, Class "B" shares, Class "C" shares, Class "D" shares, Class "E"
shares and Class "F" shares are as follows:
1. The holders of the Class "A" shares shall be entitled to one
(1) vote for each share held by them at all meetings of
shareholders except meetings at which only holders of a
specified class of shares, other than the Class "A" shares,
are entitled to vote, and they shall be entitled to notice of
all meetings of shareholders of the corporation.
2. Except as otherwise specifically provided in the Canada
Business Corporations Act, the Class "B" shares shall not
carry any right to vote nor shall the holders thereof be
entitled to notice of or to attend shareholders' meetings.
3. The Class "A" shares and the Class "B" shares shall rank PARI
PASSU in every other respect, and the holders of such Class
"A" shares and Class "B" shares, shall, subject to the rights
of the holders of the Class "C" shares, Class "D" shares,
Class "E" shares and Class "F" shares, be entitled to receive
the remaining property of the corporation upon a dissolution.
4. The Class "C" shares, Class "D" shares, Class "E" shares and
Class "F" shares shall carry the right, in the discretion of
the directors, to a fixed monthly non-cumulative preferential
dividend in an amount equal to 1% of the amount of the
consideration for which such shares have been issued or in the
event such shares have been issued in consideration of
property or past services, in an amount equal to 1% of the
amount of the fair equivalent of money that the Corporation
would have received if the shares had been issued for money.
5. Each Class "C" share, Class "D" share, Class "E" share and
Class "F" share shall carry the right, in the event of the
liquidation or winding-up of the corporation, to repayment of
the consideration for which such share has been issued, and in
the event that such share has been issued in consideration of
property or past services, the repayment shall be the fair
equivalent of the money that the corporation would have
received if the share had been issued for money.
-10-
<PAGE>
6. In the event that only part of the amount of the consideration
received by the Corporation for any share issued by the
Corporation is added to the stated capital account for the
class or series of shares of which such share forms part, such
share shall be deemed to have been issued for the full amount
of the consideration received therefor for all purposes other
than stated capital, including dividend, redemption, purchase,
cancellation, liquidation and dissolution.
7. The Class "C" shares, Class "D" shares, Class "E" shares and
Class "F" shares shall not carry the right to any further
participation in profits or assets.
8. The holders of the Class "C" shares and Class "E" shares shall
be entitled to one (1) vote for each share held by them at all
meetings of shareholders except meetings at which only holders
of a specified class of shares, other than the Class "C"
shares and Class "E" shares are entitled to vote, and they
shall be entitled to notice of all meetings of shareholders of
the corporation.
9. Except as otherwise specifically provided in the Canada
Business Corporations Act, the Class "D" shares and the Class
"F" shares shall not carry any right to vote nor shall the
holders thereof be entitled to notice of or to attend
shareholders' meetings.
10. Each Class "C" and Class "D" share shall be redeemable at a
price equal to the consideration for which such share has been
issued and in the event that such share has been issued in
consideration of property or past services, at a price equal
to the fair equivalent of the money that the corporation would
have received if the share had been issued for money. The
corporation may redeem all or any part of the Class "C" or
Class "D" shares, at any time at the option of the directors
of the corporation upon a notice of seven (7) days without the
consent of the holders thereof, and if less than the whole
amount of the outstanding Class "C" or class "D" shares shall
be so redeemed, the shares to be redeemed shall be selected
pro rata or by lot in such manner as the directors may
determine.
11. Each Class "E" and Class "F" share shall be redeemable at the
option of the holder of such share at a price equal to the
consideration for which such share has been issued and in the
event that such share has been issued in consideration of
property or past services, at a price equal to the fair
equivalent of the money that the corporation would have
received if the share had been issued for money. The
corporation may also redeem all or any part of the Class "E"
or Class "F" shares at any time at the option of the directors
of the corporation upon a notice of seven (7) days, without
the consent of the holders thereof, and if less than the whole
amount of the outstanding Class "E" or Class "F" shares shall
be so redeemed, the shares to be redeemed shall be selected
pro rata or by lot in such manner as the directors may
determine.
-11-
<PAGE>
12. The Class "C" shares, the Class "D" shares, the Class "E"
shares and the Class "F" shares shall rank PARI PASSU in every
other respect.
-12-
<PAGE>
SCHEDULE 2
ARTICLES OF INCORPORATION
RESTRICTIONS ON SHARE TRANSFERS
No shareholder shall be entitled to sell, transfer or otherwise dispose of any
share or shares in the capital stock of the corporation, or any securities
thereof, without either:
(a) The previous express sanction of the holders of a majority of
the Class "A", Class "C" and Class "E" shares in the capital
stock of the corporation for the time being outstanding
expressed by a resolution passed at a meeting of the Class
"A", Class "C" and Class "E" shareholders or by an instrument
or instruments in writing signed by the holders of a majority
of the Class "A", Class "C" and Class "E" shares in the
capital stock of the corporation for the time being
outstanding; or
(b) The previous express lawful sanction of the board of directors
of the corporation at a duly constituted meeting of the board
or in lieu thereof the previous express sanction of the
directors of the corporation as evidenced by the lawful
adoption of a resolution to that effect.
-13-
<PAGE>
SCHEDULE 3
ARTICLES OF INCORPORATION
OTHER PROVISIONS
1. The number of shareholders of the corporation is limited to fifty (50), not
including persons who are in the employment of the corporation and persons, who,
having been formerly in the employment of the corporation were, while in that
employment and have continued after the termination of that employment to be
shareholders of the corporation, two or more persons holding one or more shares
jointly being counted as a single shareholder.
2. Any invitation to the public to subscribe for any shares, debentures or any
other securities of the corporation is prohibited.
3. The directors of the corporation may, without authorization of the
shareholders:
(a) borrow money upon the credit of the corporation;
(b) issue, reissue sell or pledge debt obligations of the corporation; and
(c) mortgage, hypothecate, pledge or otherwise create a security interest
in all or any property of the corporation, owned or subsequently
acquired, to secure any debt obligation of the corporation.
Nothing herein limits or restricts the borrowing of money by the
corporation on bills of exchange or promissory notes made, drawn,
accepted or endorsed by or on behalf of the corporation.
4. Subject to the provisions of the Canada Business Corporations Act, the
corporation may purchase or otherwise acquire any shares issued by it.
5. The corporation shall have a lien on the shares registered in the name of a
shareholder or his legal representative for any indebtedness owed by him to the
corporation, and such lien shall be enforceable in accordance with the by-laws
of the Corporation or otherwise.
6. Subject to Schedule 1 of the Articles of Incorporation and the Canada
Business Corporations Act, the holder of a fractional share shall be entitled to
that number of votes equal to one multiplied by the fraction represented by such
share and to notice of all meetings of shareholders of the Corporation.
-14-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Amendment
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Name of Corporation
234202-2
Number
I hereby certify that the Articles of the above-mentioned Corporation were
amended
(a) under Section 13 of the Canada Business Corporations Act in accordance
with the attached notice; |_|
(b) under Section 27 of the Canada Business Corporations Act as set out in
the attached Articles of Amendment designating a series of shares; |_|
(c) under Section 171 of the Canada Business Corporations Act as set in the
attached Articles of Amendment; |X|
(d) under Section 185 of the Canada Business Corporations Act as set out in
the attached Articles of Reorganization; |_|
(e) under Section 185.1 of the Canada Business Corporations Act as set out
in the attached Articles of Arrangement. |_|
/s/ Director
----------------------------
Director
January 27, 1989
----------------------------
Date of Amendment
-15-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 4
Articles of Amendment
(Section 27 or 171)
1. Name of Corporation: 162518 CANADA INC.
2. Corporation No.: 234202-2
3. The articles of the above-named corporation are amended as follows:
SECTION 1 OF THE ARTICLES OF INCORPORATION BE AND IT IS HEREBY DELETED
AND SUBSTITUTED BY THE FOLLOWING:
1. NAME OF CORPORATION
PHOENIX INTERNATIONAL LIFE SCIENCES, INC.
Signature:
/s/ John Hooper
--------------------------------
Description of Office: Director
Date: January 25, 1989
-16-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Amendment
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Name of Corporation
234202-2
Number
I hereby certify that the Articles of the above-mentioned Corporation were
amended
(a) under Section 13 of the Canada Business Corporations Act in accordance
with the attached notice; |_|
(b) under Section 27 of the Canada Business Corporations Act as set out in
the attached Articles of Amendment designating a series of shares; |_|
(c) under Section 177 of the Canada Business Corporations Act as set in the
attached Articles of Amendment; |X|
(d) under Section 191 of the Canada Business Corporations Act as set out in
the attached Articles of Reorganization; |_|
(e) under Section 192 of the Canada Business Corporations Act as set out in
the attached Articles of Arrangement. |_|
/s/ Director
----------------------------
Director
August 29, 1989
----------------------------
Date of Amendment
-17-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 4
Articles of Amendment
(Section 27 or 171)
1. Name of Corporation: PHOENIX INTERNATIONAL LIFE SCIENCES INC.
2. Corporation No.: 234202-2
3. The articles of the above-named corporation are amended as follows:
THAT THE ONE HUNDRED (100) ISSUED AND OUTSTANDING CLASS "A" SHARES OF
THE CORPORATION BE SPLIT, ON A ONE (1) FOR ONE THOUSAND (1,000) BASIS,
SO THAT THERE WILL BE A TOTAL OF ONE HUNDRED THOUSAND (100,000) CLASS
"A" SHARES ISSUED AND OUTSTANDING.
THE AGGREGATE STATED CAPITAL OF THE ISSUED AND OUTSTANDING
CLASS "A" SHARES SHALL REMAIN THE SAME PRIOR TO AND AFTER THE
SAID STOCK SPLIT.
Signature:
/s/ John Hooper
--------------------------------
Description of Office: Director
Date: August 23, 1989.
-18-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Amendment
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Name of Corporation
234202-2
Number
I hereby certify that the Articles of the above-mentioned Corporation were
amended
(a) under Section 13 of the Canada Business Corporations Act in accordance
with the attached notice; |_|
(b) under Section 27 of the Canada Business Corporations Act as set out in
the attached Articles of Amendment designating a series of shares; |_|
(c) under Section 177 of the Canada Business Corporations Act as set in the
attached Articles of Amendment; |X|
(d) under Section 191 of the Canada Business Corporations Act as set out in
the attached Articles of Reorganization; |_|
(e) under Section 192 of the Canada Business Corporations Act as set out in
the attached Articles of Arrangement. |_|
/s/ Elaine M. Collins
---------------------------
Director
May 8, 1992
---------------------------
Date of Amendment
-19-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 4
Articles of Amendment
(Section 27 or 171)
1. Name of Corporation: PHOENIX INTERNATIONAL LIFE SCIENCES INC.
2. Corporation No.: 234202-2
3. The articles of the above-named corporation are amended as follows:
THE ARTICLES OF INCORPORATION OF THE CORPORATION ARE HEREBY FURTHER
AMENDED BY ADDING THE FOLLOWING:
3. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE
CORPORATION IS AUTHORIZED TO ISSUE:
THE ANNEXED SCHEDULE 1 IS INCORPORATED IN THIS FORM.
Signature:
/s/ Heather Savage
--------------------------------
Description of Office: Director
Date: May 5, 1992
-20-
<PAGE>
SCHEDULE 1
ARTICLES OF AMENDMENT
Section 3 of the Articles of Incorporation dated June 7, 1988 (as amended on
January 27, 1989 and August 29, 1989) is hereby amended by adding thereto the
following provisions:
1. In addition to the Class "A" shares, Class "B" shares, Class "C"
shares, Class "D" shares, Class "E" shares and Class "F" shares, the
Corporation is authorized to issue an unlimited number of Class "G"
shares (without par value) and Class "H" shares (without par value)
provided, however, that all outstanding Class "A" shares be split as
described below.
2. The rights, privileges, restrictions and conditions attaching to the
Class "G" shares and the Class "H" shares are as follows:
(a) The holders of the Class "G" shares shall be entitled to one (1) vote
for each share held by them at all meetings of shareholders except
meetings at which only holders of a specified class of shares, other
than the Class "G" shares, are entitled to vote, and they shall be
entitled to notice of all meetings of shareholders of the Corporation.
(b) Each Class "G" share, shall, in priority to all other classes of
shares, carry the right, in the discretion of the directors, to a
preferential dividend, in favour only of the first holder thereof,
declarable at any time or from time to time, in an amount not to exceed
the amount of the consideration for which each such Class "G" share had
been issued.
(c) Each Class "G" share shall, in priority to all other classes of shares,
carry the right, in favour only of the first holder thereof, in the
event of the liquidation or winding-up of the Corporation, to repayment
of an amount equal to the difference between the consideration for
which such share was issued and the amount of any dividends paid
thereon prior to the date of liquidation or winding-up.
(d) The holders of the Class "H" shares shall be entitled to one (1) vote
for each share held by them at all meetings of shareholders except
meetings at which only holders of a specified class of shares, other
than the Class "H" shares, are entitled to vote, and they shall be
entitled to notice of all meetings of shareholders of the Corporation.
(e) Each Class "H" share, shall, in priority to all other classes of
shares, carry the right, in the discretion of the directors, to a
preferential dividend, in favour only of the first holder thereof,
declarable at any time or from time to time, in an amount not to exceed
that percentage of the consideration for which each such share had been
issued, as shall be determined by resolution of the directors of the
Corporation (the "Class "H" Percentage").
-21-
<PAGE>
(f) Each Class "H" share shall, in priority to all other classes of shares,
carry the right, in favour only of the first holder thereof, in the
event of the liquidation or winding-up of the Corporation, to repayment
of an amount equal to the difference between the result obtained when
the Class "H" Percentage is multiplied by the consideration for which
such share was issued, and the amount of any dividends paid thereon
prior to the date of liquidation or winding-up.
(g) The Class "G" shares and the Class "H" shares shall rank PARI PASSU in
all of the foregoing respects.
(h) The Class "A" shares, Class "B", Class "G" shares and the Class "H"
shares shall rank PARI PASSU in all other respects.
3. The 100,000 Class "A" shares held prior to the coming into force of
these Articles of Amendment are hereby split, on a basis of 264 Class
"A" shares following the coming into force of these Articles of
Amendment for each Class "A" share issued and outstanding prior to the
coming into force of these Articles of Amendment, so that there shall
be a total of 26,400,000 Class "A" shares issued and outstanding
following the coming into force of these Articles of Amendment.
4. The aggregate stated capital of the Class "A" shares so split shall be
an amount equal to the aggregate stated capital of the Class "A" shares
prior to the coming into force of these Articles of Amendment.
-22-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Amendment
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Name of Corporation
234202-2
Number
I hereby certify that the Articles of the above-mentioned Corporation were
amended
(a) under Section 13 of the Canada Business Corporations Act in accordance
with the attached notice; |_|
(b) under Section 27 of the Canada Business Corporations Act as set out in
the attached Articles of Amendment designating a series of shares; |_|
(c) under Section 177 of the Canada Business Corporations Act as set in the
attached Articles of Amendment; |X|
(d) under Section 191 of the Canada Business Corporations Act as set out in
the attached Articles of Reorganization; |_|
(e) under Section 192 of the Canada Business Corporations Act as set out in
the attached Articles of Arrangement. |_|
/s/ Elaine M. Collins
----------------------------------
Director
May 8, 1992
----------------------------------
Date of Amendment
-23-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 4
Articles of Amendment
(Section 27 or 171)
1. Name of Corporation: PHOENIX INTERNATIONAL LIFE SCIENCES INC.
2. Corporation No.: 234202-2
3. The articles of the above-named corporation are amended as follows:
THE ARTICLES OF INCORPORATION OF THE CORPORATION ARE HEREBY FURTHER
AMENDED BY ADDING THE FOLLOWING:
3. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE
CORPORATION IS AUTHORIZED TO ISSUE:
THE ANNEXED SCHEDULE 1 IS INCORPORATED IN THIS FORM.
Signature:
/s/ Heather Savage
-------------------------------
Description of Office: Director
Date: May 5, 1992
-24-
<PAGE>
SCHEDULE 1
ARTICLES OF AMENDMENT
Section 3 of the Articles of Incorporation dated June 7, 1988 (as amended on
January 27, 1989 and August 29, 1989) is hereby amended by adding thereto the
following provisions:
1. In addition to the Class "A" shares, Class "B" shares, Class "C"
shares, Class "D" shares, Class "E" shares and Class "F" shares, the
Corporation is authorized to issue an unlimited number of Class "G"
shares (without par value) and Class "H" shares (without par value)
provided, however, that all outstanding Class "A" shares be split as
described below.
2. The rights, privileges, restrictions and conditions attaching to the
Class "G" shares and the Class "H" shares are as follows:
(a) The holders of the Class "G" shares shall be entitled to one (1) vote
for each share held by them at all meetings of shareholders except
meetings at which only holders of a specified class of shares, other
than the Class "G" shares, are entitled to vote, and they shall be
entitled to notice of all meetings of shareholders of the Corporation.
(b) Each Class "G" share, shall, in priority to all other classes of
shares, carry the right, in the discretion of the directors, to a
preferential dividend, in favour only of the first holder thereof,
declarable at any time or from time to time, in an amount not to exceed
the amount of the consideration for which each such Class "G" share had
been issued.
(c) Each Class "G" share shall, in priority to all other classes of shares,
carry the right, in favour only of the first holder thereof, in the
event of the liquidation or winding-up of the Corporation, to repayment
of an amount equal to the difference between the consideration for
which such share was issued and the amount of any dividends paid
thereon prior to the date of liquidation or winding-up.
(d) The holders of the Class "H" shares shall be entitled to one (1) vote
for each share held by them at all meetings of shareholders except
meetings at which only holders of a specified class of shares, other
than the Class "H" shares, are entitled to vote, and they shall be
entitled to notice of all meetings of shareholders of the Corporation.
(e) Each Class "H" share, shall, in priority to all other classes of
shares, carry the right, in the discretion of the directors, to a
preferential dividend, in favour only of the first holder thereof,
declarable at any time or from time to time, in an amount not to exceed
that percentage of the consideration for which each such share had been
issued, as shall be determined by resolution of the directors of the
Corporation (the "Class "H" Percentage").
-25-
<PAGE>
(f) Each Class "H" share shall, in priority to all other classes of shares,
carry the right, in favour only of the first holder thereof, in the
event of the liquidation or winding-up of the Corporation, to repayment
of an amount equal to the difference between the result obtained when
the Class "H" Percentage is multiplied by the consideration for which
such share was issued, and the amount of any dividends paid thereon
prior to the date of liquidation or winding-up.
(g) The Class "G" shares and the Class "H" shares shall rank PARI PASSU in
all of the foregoing respects.
(h) The Class "A" shares, Class "B", Class "G" shares and the Class "H"
shares shall rank PARI PASSU in all other respects.
3. The 100,000 Class "A" shares held prior to the coming into force of
these Articles of Amendment are hereby split, on a basis of 264 Class
"A" shares following the coming into force of these Articles of
Amendment for each Class "A" share issued and outstanding prior to the
coming into force of these Articles of Amendment, so that there shall
be a total of 26,400,000 Class "A" shares issued and outstanding
following the coming into force of these Articles of Amendment.
4. The aggregate stated capital of the Class "A" shares so split shall be
an amount equal to the aggregate stated capital of the Class "A" shares
prior to the coming into force of these Articles of Amendment.
-26-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Amendment
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Name of Corporation
234202-2
Number
I hereby certify that the Articles of the above-mentioned Corporation were
amended
(a) under Section 13 of the Canada Business Corporations Act in accordance
with the attached notice; |_|
(b) under Section 27 of the Canada Business Corporations Act as set out in
the attached Articles of Amendment designating a series of shares; |_|
(c) under Section 177 of the Canada Business Corporations Act as set in the
attached Articles of Amendment; |X|
(d) under Section 191 of the Canada Business Corporations Act as set out in
the attached Articles of Reorganization; |_|
(e) under Section 192 of the Canada Business Corporations Act as set out in
the attached Articles of Arrangement. |_|
/s/ Director
--------------------------
Director
May 26, 1993
--------------------------
Date of Amendment
-27-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 4
Articles of Amendment
(Section 27 or 171)
1. Name of Corporation: PHOENIX INTERNATIONAL LIFE SCIENCES INC.
2. Corporation No.: 234202-2
3. The articles of the above-named corporation are amended as follows:
THE ARTICLES OF INCORPORATION, AS AMENDED FROM TIME TO TIME, BE AND ARE
HEREBY FURTHER AMENDED AS FOLLOWS:
3. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE
CORPORATION IS AUTHORIZED TO ISSUE:
THE ANNEXED SCHEDULE 1 IS INCORPORATED IN THIS FORM.
Signature:
/s/ John Hooper
--------------------------------
Description of Office: Director
Date: May 19, 1993
-28-
<PAGE>
SCHEDULE 1
ARTICLES OF AMENDMENT
PHOENIX INTERNATIONAL LIFE SCIENCES INC./
PHOENIX INTERNATIONALE SCIENCES DE LA VIE INC.
Section 3 of the Articles of the corporation (as amended on January 27, 1989,
August 29, 1989 and May 8, 1992) is hereby further amended by adding thereto the
following provisions:
1. In addition to the Class "A" shares, Class "B" shares, Class "C"
shares, Class "D" shares, Class "E" shares, Class "F" shares, Class "G"
shares and Class "H" shares, the corporation shall also be authorized
to issue an unlimited number of Class "I" shares (without par value)
and Class "J" shares (without par value).
2. The rights, privileges, restrictions and conditions attaching to the
Class "I" shares and Class "J" shares shall be as follows:
(a) The holders of the Class "G" shares shall be entitled to one (1) vote
for each share held by them at all meetings of shareholders except
meetings at which only holders of a specified class of shares, other
than the Class "G" shares, are entitled to vote, and they shall be
entitled to notice of all meetings of shareholders of the corporation.
(b) Each Class "G" share, shall, in priority to all other classes of shares
including the Class "G" shares and Class "H" shares, carry the right,
in the discretion of the directors, to a preferential dividend, in
favour only of the first holder thereof, declarable at any time or from
time to time, in an amount not to exceed the amount of the
consideration for which each such Class "I" share had been issued.
(c) Each Class "I" share shall, in priority to all other classes of shares
including the Class "G" shares and Class "H" shares, carry the right,
in favour only of the first holder thereof, in the event of the
liquidation or winding-up of the corporation, to repayment of an amount
equal to the difference between the consideration for which such share
was issued and the amount of any dividends paid thereon prior to the
date of the liquidation or winding-up.
(d) The Class "I" shares may only be issued by the corporation during 1993.
(e) The holders of the Class "J" shares shall be entitled to one (1) vote
for each share held by them at all meetings of shareholders except
meetings at which only holders of a specified class of shares, other
than the Class "J" shares, are entitled to vote, and they shall be
entitled to notice of all meetings of shareholders of the corporation.
-29-
<PAGE>
(f) Each Class "J" share, shall, in priority to all other classes of shares
including the Class "G" shares and Class "H" shares, carry the right,
in the discretion of the directors, to a preferential dividend, in
favour only of the first holder thereof, declarable at any time or from
time to time, in an amount not to exceed that percentage of the
consideration for which each such share had been issued, as shall be
determined by resolution of the directors of the corporation (the
"Class "J" Percentage").
(g) Each Class "G" share shall, in priority to all other classes of shares
including the Class "G" shares and Class "H" shares, carry the right,
in favour only of the first holder thereof, in the event of the
liquidation or winding-up of the corporation, to repayment of an amount
equal to the difference between the result obtained when the Class "J"
Percentage is multiplied by the consideration for which such share was
issued, and the amount of any dividends paid thereon prior to the date
of liquidation or winding-up.
(h) The Class "J" shares may not be issued by the corporation prior to
December 1, 1993.
(i) The Class "I" shares and the Class "J" shares shall rank PARI PASSU in
all of the foregoing respects.
(j) The Class "A" shares, Class "B" shares, Class "G" shares, Class "H"
shares, Class "I" shares and the Class "J" shares shall rank PARI PASSU
in all other respects.
-30-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Amendment
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Name of Corporation
234202-2
Number
I hereby certify that the Articles of the above-mentioned Corporation were
amended
(a) under Section 13 of the Canada Business Corporations Act in accordance
with the attached notice; |_|
(b) under Section 27 of the Canada Business Corporations Act as set out in
the attached articles of amendment designating a series of shares; |_|
(c) under Section 179 of the Canada Business Corporations Act as set out in
the attached articles of amendment; |X|
(d) under Section 191 of the Canada Business Corporations Act as set out in
the attached articles of reorganization; |_|
(e) under Section 192 of the Canada Business Corporations Act as set out in
the attached articles of arrangement. |_|
/s/ Director
-----------------------
Director
August 19, 1993
-----------------------
Date of Amendment
-31-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 4
Articles of Amendment
(Section 27 or 171)
1. Name of Corporation: PHOENIX INTERNATIONAL LIFE SCIENCES INC.
2. Corporation No.: 234202-2
3. The articles of the above-named corporation are amended as follows:
THE ARTICLES OF INCORPORATION, AS AMENDED FROM TIME TO TIME, BE AND ARE
HEREBY FURTHER AMENDED AS FOLLOWS:
A) EACH CLASS "A" SHARE IN THE CAPITAL STOCK OF THE
CORPORATION ISSUED AND OUTSTANDING IMMEDIATELY PRIOR TO
THE ISSUANCE OF THE CERTIFICATE OF AMENDMENT (THE
"CERTIFICATE OF AMENDMENT") IN RESPECT OF THESE ARTICLES
OF AMENDMENT (SUCH TIME HEREINAFTER CALLED THE
"VALUATION TIME"), SHALL, UPON THE ISSUANCE TO THE
CORPORATION OF THE CERTIFICATE OF AMENDMENT, BE DIVIDED
INTO THAT NUMBER OF CLASS "A" SHARES AS IS EQUAL TO THE
QUOTIENT OBTAINED WHEN THE AGGREGATE FAIR MARKET VALUE
OF ALL SUCH CLASS "A" SHARES AT THE VALUATION TIME, AS
SHALL BE DETERMINED BY THE BOARD OF DIRECTORS, IS DIVIDED
BY THE NUMBER OF SUCH CLASS "A" SHARES ISSUED AND
OUTSTANDING AT THE VALUATION TIME.
Signature:
/s/ John Hooper
---------------------------
Title: Director
Date: August 11, 1993
-32-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Amendment
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Name of Corporation
234202-2
Number
I hereby certify that the Articles of the above-mentioned Corporation were
amended
(a) under Section 13 of the Canada Business Corporations Act in accordance
with the attached notice; |_|
(b) under Section 27 of the Canada Business Corporations Act as set out in
the attached articles of amendment designating a series of shares; |_|
(c) under Section 179 of the Canada Business Corporations Act as set out in
the attached articles of amendment; |X|
(d) under Section 191 of the Canada Business Corporations Act as set out in
the attached articles of reorganization; |_|
(e) under Section 192 of the Canada Business Corporations Act as set out in
the attached articles of arrangement. |_|
/s/ Director
-----------------------
Director
August 19, 1993
-----------------------
Date of Amendment
-33-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 4
Articles of Amendment
(Section 27 or 171)
1. Name of Corporation: PHOENIX INTERNATIONAL LIFE SCIENCES INC.
2. Corporation No.: 234202-2
3. The articles of the above-named corporation are amended as follows:
THE ARTICLES OF INCORPORATION, AS AMENDED FROM TIME TO TIME, BE AND ARE
HEREBY FURTHER AMENDED AS FOLLOWS:
A) EACH CLASS "A" SHARE IN THE CAPITAL STOCK OF THE
CORPORATION ISSUED AND OUTSTANDING IMMEDIATELY PRIOR TO
THE ISSUANCE OF THE CERTIFICATE OF AMENDMENT (THE
"CERTIFICATE OF AMENDMENT") IN RESPECT OF THESE ARTICLES
OF AMENDMENT (SUCH TIME HEREINAFTER CALLED THE
"VALUATION TIME"), SHALL, UPON THE ISSUANCE TO THE
CORPORATION OF THE CERTIFICATE OF AMENDMENT, BE DIVIDED
INTO THAT NUMBER OF CLASS "A" SHARES AS IS EQUAL TO THE
QUOTIENT OBTAINED WHEN THE AGGREGATE FAIR MARKET VALUE
OF ALL SUCH CLASS "A" SHARES AT THE VALUATION TIME, AS
SHALL BE DETERMINED BY THE BOARD OF DIRECTORS, IS DIVIDED
BY THE NUMBER OF SUCH CLASS "A" SHARES ISSUED AND
OUTSTANDING AT THE VALUATION TIME.
Signature:
/s/ John Hooper
-------------------------
Title: Director
Date: August 11, 1993
-34-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Amendment
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Name of Corporation
234202-2
Number
I hereby certify that the Articles of the above-mentioned Corporation were
amended
(a) under Section 13 of the Canada Business Corporations Act in accordance
with the attached notice; |_|
(b) under Section 27 of the Canada Business Corporations Act as set out in
the attached articles of amendment designating a series of shares; |_|
(c) under Section 179 of the Canada Business Corporations Act as set out in
the attached articles of amendment; |X|
(d) under Section 191 of the Canada Business Corporations Act as set out in
the attached articles of reorganization; |_|
(e) under Section 192 of the Canada Business Corporations Act as set out in
the attached articles of arrangement. |_|
/s/ Director
-------------------------
Director
June 27, 1994
-------------------------
Date of Amendment
-35-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 4
Articles of Amendment
(Section 27 or 171)
1. Name of Corporation: PHOENIX INTERNATIONAL LIFE SCIENCES INC.
2. Corporation No.: 234202-2
3. The articles of the above-named corporation are amended as follows:
THE ARTICLES OF INCORPORATION, AS AMENDED FROM TIME TO TIME, BE AND ARE
HEREBY FURTHER AMENDED AS FOLLOWS:
4. RESTRICTIONS IF ANY ON SHARE TRANSFERS
SCHEDULE 2 TO THE ARTICLES OF THE CORPORATION IS HEREBY DELETED
5. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS
MINIMUM: 3 MAXIMUM: 15
7. OTHER PROVISIONS IF ANY
THE FOLLOWING PARAGRAPHS ARE HEREBY DELETED FROM SCHEDULE 3 TO
THE ARTICLES OF THE CORPORATION:
1. THE NUMBER OF SHAREHOLDERS OF THE CORPORATION IS
LIMITED TO FIFTY (50), NOT INCLUDING PERSONS WHO ARE
IN THE EMPLOYMENT OF THE CORPORATION AND PERSONS,
WHO, HAVING BEEN FORMERLY IN THE EMPLOYMENT OF THE
CORPORATION WERE, WHILE IN THAT EMPLOYMENT AND
HAVE CONTINUED AFTER THE TERMINATION OF THAT
EMPLOYMENT TO BE SHAREHOLDERS OF THE CORPORATION,
TWO OR MORE PERSONS HOLDING ONE OR MORE SHARES
JOINTLY BEING COUNTED AS A SINGLE SHAREHOLDER.
-36-
<PAGE>
2. ANY INVITATION TO THE PUBLIC TO SUBSCRIBE FOR ANY
SHARES, DEBENTURES OR ANY OTHER SECURITIES OF THE
CORPORATION IS PROHIBITED.
Signature:
/s/ Jean-yves Caloz
-----------------------------
Title: Director
Date: June 22, 1994
-37-
<PAGE>
-38-
<PAGE>
AMALGAMATION AGREEMENT
MEMORANDUM OF AGREEMENT ENTERED INTO IN THE CITY OF MONTREAL,
PROVINCE OF QUEBEC, ON THE 4TH DAY OF OCTOBER, 1994
BETWEEN: PHOENIX INTERNATIONAL LIFE SCIENCES INC./PHOENIX INTERNATIONALE
SCIENCES DE LA VIE INC., a body politic and corporate, duly
incorporated according to the laws of Canada, having its
registered office in the City of St. Laurent, (hereinafter
referred to as "PHOENIX") and herein represented by Jean-Yves
Caloz, its duly authorized representative as he so declares;
PARTY OF THE FIRST PART
AND: PILS INVESTMENTS INC./GESTION PILS INC., a body politic
and corporate, duly incorporated according to the laws of
Canada, having its registered office in the City of St.
Laurent, (hereinafter referred to as "PILS") and herein
represented by Dr. John W. Hooper, its duly authorized
representative as he so declares;
PARTY OF THE SECOND PART
(PHOENIX and PILS may hereinafter collectively be referred to
as the "COMPANIES" as the context dictates.)
WHEREAS PHOENIX is incorporated under the Canada Business Corporations Act
(hereinafter referred to an the "Act");
WHEREAS, PILS is incorporated under the Act;
WHEREAS, upon the amalgamation, the shareholders' agreement entered into by the
shareholders of PHOENIX on October 28th, 1988, as amended February 24th, 1989,
May 26th, 1989, August 15th, 1989, July 6th, 1992, May 23rd, 1993, July 22nd,
1994 and September 7th, 1994 and the shareholders agreement entered into by the
shareholders of PILS on May 16th, 1990, as amended on August 11th, 1993 shall be
terminated;
WHEREAS the authorized capital of PHOENIX presently consists of an unlimited
number of Class "A" shares, Class "B" shares, Class "C" shares, Class "D"
shares, Class "E" shares, Class "F" shares, Class "G" shares, Class "H" shares,
Class "I" shares and Class "J" shares of which only 45,000,000 Class "A" shares
are presently issued and outstanding as fully paid;
-39-
<PAGE>
WHEREAS the authorized capital of PILS presently consists of an unlimited number
of Class "A" shares, Class "B" shares, Class "C" shares, Class "D" shares, Class
"E" shares, Class "F" shares and a maximum number of 100 shares of each of Class
1993 through Class 2005 shares, of which only 4,590.2222 Class "A" shares,
4,355.9997 Class "B" shares, 15,000 Class "C" shares, 24 Class 1993 shares and
56 Class 1994 are presently issued and outstanding as fully paid;
WHEREAS the shareholdings of all shareholders of the COMPANIES and the stated
capital of the said shares are set out in Schedule "A" annexed hereto and form
an integral part hereof;
WHEREAS the COMPANIES acting under the authority of the Act wish to amalgamate
and continue as one corporation upon the terms and conditions hereinafter set
forth;
WHEREAS PILS in not an operating company and its assets, liabilities and
revenues as an individual corporate entity have no material impact on the
financial position, results of operations or activities of PHOENIX;
WHEREAS each one of the COMPANIES has made full disclosure to the other of all
of its assets and liabilities;
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. THAT the preamble shall form an integral part hereof.
2. THAT the COMPANIES hereby agree to amalgamate under Sections 181,
182 and 183 of the Act and to continue as one corporation (hereinafter referred
to as the "AMALGAMATED CORPORATION") under the terms and conditions hereinafter
set forth.
3. THAT the name of the AMALGAMATED CORPORATION shall be:
"PHOENIX INTERNATIONAL LIFE SCIENCES INC./PHOENIX INTERNATIONALE
SCIENCES DE LA VIE INC."
4. THAT the purposes and objects of the AMALGAMATED CORPORATION shall be
unlimited.
5. THAT the authorized capital of the AMALGAMATED CORPORATION shall
consist of an unlimited number of common shares without nominal or par value and
of an unlimited number of preferred shares, issuable in series, without nominal
or par value.
6. THAT the issued and outstanding shares in the share capital of PHOENIX
and PILS prior to amalgamation shall be exchanged for issued, outstanding and
fully paid shares of the AMALGAMATED CORPORATION, upon the issuance of the
Certificate of Amalgamation, in the following manner:
-40-
<PAGE>
(a) the 4,598.2222 Class "A" shares of PILS shall be exchanged for
2,952,770 common shares of the AMALGAMATED CORPORATION on the basis of
approximately 642.155 common shares of the AMALGAMATED CORPORATION for
every one (1) Class "A" share held in PILS;
(b) the 4,355.9997 Class "B" shares of PILS shall be exchanged for
2,797,230 common shares of the AMALGAMATED CORPORATION on the basis of
approximately 642.155 common shares of the AMALGAMATED CORPORATION for
every one (1) Class "B" share held in PILS;
(c) the 15,000 Class "C" shares of PILS and registered in the name of
PHOENIX shall be cancelled upon the amalgamation without any repayment
of capital in respect thereof;
(d) the 24 Class 1993 shares of PILS shall be exchanged for 150,000 common
shares of the AMALGAMATED CORPORATION on the basis of approximately
6,250 common shares of the AMALGAMATED CORPORATION for every one (1)
Class 1993 share held in PILS;
(e) the 56 Class 1994 shares of PILS shall be exchanged for 350,000 common
shares of the AMALGAMATED CORPORATION on the basis of approximately
6,250 common shares of the AMALGAMATED CORPORATION for every one (1)
Class 1994 share held in PILS;
(f) the 22,500,000 Class "A" shares of PHOENIX registered in the name of
Associes de Recherche Medicale Canadienne (ARMC) Inc. shall be
exchanged for 6,250,000 common shares of the AMALGAMATED CORPORATION on
the basis of 1 common share of the AMALGAMATED CORPORATION for 3.6
Class "A" shares held in PHOENIX;
(g) the 22,500,000 Class "A" shares of PHOENIX registered in the name of
PILS shall be cancelled upon amalgamation without any repayment of
capital in respect thereof;
(h) the Class "A" shares, Class "B" shares, Class "C" shares, Class "D"
shares, Class "E" shares, Class "F" shares, Class "G" shares, Class "H"
shares, Class "I" shares and Class "J" shares presently authorized in
the articles of PHOENIX shall be cancelled immediately prior to the
amalgamation; and
(i) the Class "A" shares, Class "B" shares, Class "C" shares, Class "D"
shares, Class "E" shares, Class "F" shares and the Class 1993 through
Class 2005 shares presently authorized in the articles of PILS shall be
cancelled immediately prior to the amalgamation.
7. THAT amounts equal to the stated capital accounts maintained in respect
of the issued shares of the COMPANIES immediately prior to the issuance of the
Certificate of
-41-
<PAGE>
Amalgamation, shall be deducted from such stated capital accounts respectively
and such amounts shall be added to the stated capital account maintained for the
common shares which shall be issued by the AMALGAMATED CORPORATION, in
accordance with Section 6, in the following manner:
(a) an amount equal to the stated capital of the Class "A" shares of PILS
(being $119.66) shall be added to the stated capital account maintained
for the common shares of the AMALGAMATED CORPORATION;
(b) an amount equal to the stated capital of the Class "B" shares of PILS
(being $1,088.94) shall be added to the stated capital account
maintained for the common shares of the AMALGAMATED CORPORATION;
(c) an amount equal to the stated capital of the Class 1993 shares of PILS
(being $24.00) shall be added to the stated capital account maintained
for the common shares of the AMALGAMATED CORPORATION;
(d) an amount equal to the stated capital of the Class 1994 shares of PILS
(being $56.00) shall be added to the stated capital account maintained
for the common shares of the AMALGAMATED CORPORATION; and
(e) an amount equal to the stated capital of the Class "A" shares of
PHOENIX (being $1,000.00) shall be added to the stated capital account
maintained for the common shares of the AMALGAMATED CORPORATION.
8. THAT subsequent to the issuance of the Certificate of Amalgamation, the
shareholders of the COMPANIES when so requested by the AMALGAMATED CORPORATION,
shall surrender the share certificates representing shares held by them in the
COMPANIES and in return shall be entitled to receive certificates representing
shares in the share capital of the AMALGAMATED CORPORATION in accordance with
Section 6 of this Agreement. Any share certificate not surrendered in accordance
herewith shall be deemed void.
9. THAT the rights, privileges, restrictions and conditions attaching to the
common shares and preferred shares (as a class) of the AMALGAMATED CORPORATION
shall be as follows:
(a) The holders of the common shares shall be entitled to vote at all
meetings of shareholders, except meetings at which only holders of a
specified class or series of shares are entitled to vote.
(b) The holders of the common shares shall, subject to the rights,
privileges, restrictions and conditions attaching to any other class or
series of shares of the corporation, be entitled to receive any
dividends declared and payable by the corporation on the common shares.
-42-
<PAGE>
(c) The holders of the common shares shall, subject to the rights,
privileges, restrictions and conditions attaching to any other class or
series of shares of the corporation, be entitled to receive the
remaining property of the corporation upon liquidation, dissolution or
winding-up of the corporation, whether voluntary or involuntary, or any
other return of capital or distribution of the assets of the
corporation among its shareholders for the purpose of winding-up its
affairs.
(d) The preferred shares may from time to time be issued in one or more
series and. subject to:
(i) the following provisions.
(ii) the filing of articles of amendment in prescribed form, and
(iii) the issuance of a certificate of amendment in respect thereof,
the directors may fix by resolution, from time to time before such issue, the
number of shares which is to comprise each series and the designation, rights,
privileges, restrictions and conditions attaching to each series of preferred
shares including, without limiting the generality of the foregoing. the rate or
amount of dividends or the method of calculating dividends, the date of payment
thereof, the redemption, the retraction, purchase and/or conversion prices and
term and conditions of redemption, retraction, purchase and/or conversion, and
any sinking fund or other provisions.
(e) The preferred shares of each series shall, with respect to the payment
of dividends and the distribution of assets or return of capital in the
event of liquidation, dissolution or winding-up of the corporation,
whether voluntary or involuntary, or any other return of capital or
distribution of the assets of the corporation among its shareholders
for the purpose of winding-up its affairs, rank an a parity with the
preferred shares of every other series and be entitled to preference
over the common shares and over any other shares of the corporation
ranking junior to the preferred shares.
(f) If any cumulative dividends or amounts payable on the return of capital
in respect of a series of preferred shares are not paid in full, all
series of preferred shares shall participate ratably in respect of
accumulated dividends and return of capital.
(g) After payment to the holders of preferred shares of the amounts
provided in the articles of the corporation to be payable to them, they
shall not be entitled to share in any further distribution of the
assets of the corporation.
(h) The holders of preferred shares of any series shall not, as such, be
entitled to receive notice of, or to attend, any meeting of
shareholders of the corporation, nor shall they have any voting rights
for the election of directors or for any other purpose, except when the
-43-
<PAGE>
holders of preferred shares or of any series of preferred shares are
entitled to vote separately as a class or series as provided in the Act
and any statute that may be substituted therefor, as from time to time
amended.
(i) The provisions attaching to preferred shares as a class may be
repealed. altered, modified or amended from time to time with such
approval as may then he required by the Act to be given by the holders
of preferred shares as a class.
(j) The formalities to be observed with respect to the calling and conduct
of any meeting of holders of preferred, shares as a class, or any joint
meeting of holders of two (2) or more series of preferred shares,
including, without limiting the generality of the foregoing, the giving
of notice and the record dates therefor, the quorum therefor, the
procedure and voting thereof, shall mutatis mutandis be those from time
to time proscribed by the by-laws of the corporation with respect to a
meeting of shareholders.
10. THAT the registered office of the AMALGAMATED CORPORATION shall be located
in the Montreal Urban Community, Province of Quebec bearing civic number 4625
Dobrin Street, Saint-Laurent (Qc) H4R 2P7.
11. THAT the board of directors of the AMALGAMATED CORPORATION shall consist of
not less than three (3) and not more than fifteen (15) directors and the names.
professions and place of residence of the initial directors of the AMALGAMATED
CORPORATION shall be as follows:
<TABLE>
<CAPTION>
NAMES OCCUPATION RESIDENCE
- ----- ---------- ---------
<S> <C> <C>
DR. JOHN W. HOOPER EXECUTIVE 64A BIRCH HILL,
HUDSON (QC) J0P 1J0
HEATHER SAVAGE EXECUTIVE 7 CEDAR AVE., PTE-
CLAIRE (QC) H9S 4X9
JEAN-YVES CALOZ EXECUTIVE 47 CALAIS CIRCLE,
KIRKLAND (QC) H9H 3R7
JUDY ZILBER EXECUTIVE 98 AUTUMN RIDGE RD.,
BEDMINSTER, NJ USA
07921
CLAUDE FORGET EXECUTIVE 1227 SHERBROOKE ST.
W. #82, MONTREAL (QC)
H3G 1G1
</TABLE>
-44-
<PAGE>
<TABLE>
<S> <C> <C>
RAYMOND H. FARMEN EXECUTIVE 386 LAKESHORE RD.,
BEACONSFIELD, (QC)
H9W 4B9
SERGE CARRIERE EXECUTIVE 40, DU CHENE VAUDEUIL
(QC) J7V 8P3
JEAN S. DOUVILLE EXECUTIVE 186, CHEMIN
STRATHCONA VILLE
MONT-ROYAL (QC) H3R
1E6
JEAN-RENE HALDE EXECUTIVE 1160, MISTRAL
MONTREAL (QC) H2P 2X1
CORNELIUS P. McCARTHY III EXECUTIVE 33 REEF STREET, VENICE,
CA U.S.A. 90292
</TABLE>
The said directors shall be the directors of the AMALGAMATED CORPORATION until
replaced by others duly elected or appointed in their stead. The subsequent
directors of the AMALGAMATED CORPORATION shall be elected each year at the
annual meeting of the AMALGAMATED CORPORATION by a majority vote of the common
shares represented at such meeting. Any vacancy occurring in the board of
directors of the AMALGAMATED CORPORATION may be filled for the remainder of the
term by the remaining directors, if any, provided they constitute a quorum.
12. THAT the COMPANIES shall contribute to the AMALGAMATED CORPORATION all their
assets subject to all their liabilities as of the earliest moment on October
21st, 1994 which time shall be the effective date for the Amalgamation
contemplated by this Agreement. In the event that the registration on title with
respect to any property of the COMPANIES is not effected on the effective date
of the Amalgamation of the COMPANIES into the AMALGAMATED CORPORATION, such
property shall nonetheless be the property of the AMALGAMATED CORPORATION as of
the effective date of the Amalgamation contemplated in this Agreement.
13. THAT the by-laws of PHOENIX (namely By-Law No. 94-1 and By-Law No. 94-2)
shall, MUTATIS MUTANDIS, and unless they are contrary to law or the Act, be the
by-laws of the AMALGAMATED CORPORATION unless and until added to, repealed or
amended.
14. THAT any provisions of the Articles of Amalgamation and Schedule annexed
thereto which have not been incorporated into this Agreement shall be deemed to
be contained herein, as if set out word by word in this Agreement (a copy of
said Articles of Amalgamation and Schedule are annexed to this Agreement and
form an integral part hereof, the parties hereto
-45-
<PAGE>
taking full cognizance of the provisions of said Articles of Amalgamation and
Schedule). In the event that any provision of this Agreement is inconsistent
with the Articles of Amalgamation and Schedule thereto, then the provisions
contained in the Articles of Amalgamation and Schedule thereto shall prevail.
15. THAT any director of each of the COMPANIES is authorized to sign the
Articles of Amalgamation on behalf of each of the COMPANIES which is a party to
this Agreement.
16. THAT upon the adoption of this Agreement by not less than two-thirds (2/3)
of the votes cast by the shareholders entitled to vote at a special general
meeting of shareholders of each of the COMPANIES voting thereon separately as a
class, duly held, or the adoption of special resolutions to that affect by all
the shareholders of each of the COMPANIES voting thereon separately as a class,
the fact shall be certified by the respective secretary of each of the COMPANIES
upon a signed copy of this Agreement under their respective corporate seals and
the parties hereto shall thereupon file the Articles of Amalgamation with the
Schedule annexed thereto with the Director, Corporations Directorate, Industry
Canada pursuant to Section 185 of the Act.
17. THAT this Agreement say be terminated without cause or reason by the board
of directors of any one of the COMPANIES, notwithstanding the approval of this
Agreement by the shareholders of the COMPANIES, at any time prior to the
issuance of the Certificate of Amalgamation.
18. THAT the parties hereto have requested and are satisfied that this Agreement
be drafted in English. Les parties aux presentes ont exige quo cette entente
soit redigee on anglais et s'en declarent satisfaites.
-46-
<PAGE>
DATED at Montreal, this 4th day of October, 1994.
PHOENIX INTERNATIONAL LIFE SCIENCES INC./PHOENIX INTERNATIONALE
SCIENCES DE LA VIE, INC.
Per: /s/ JEAN-YVES CALOZ
----------------------------------------------------
JEAN-YVES CALOZ
PILS INVESTMENTS INC./GESTION PILS INC.
Per: /s/ JOHN W. HOOPER
----------------------------------------------------
JOHN W. HOOPER
"THE FOREGOING AGREEMENT IS HEREBY CERTIFIED AS HAVING BEEN ADOPTED BY SPECIAL
RESOLUTION OF ALL HOLDERS OF THE CLASS "A" SHARES OF PHOENIX INTERNATIONAL LIFE
SCIENCES INC., VOTING SEPARATELY AS A CLASS, ON THE 4TH DAY OF OCTOBER, 1994
/s/ JEAN-YVES CALOZ
- ---------------------------------------------------------
JEAN-YVES CALOZ
Secretary of PHOENIX INTERNATIONAL LIFE SCIENCES INC.
"THE FOREGOING AGREEMENT IS HEREBY CERTIFIED AS HAVING BEEN ADOPTED BY SPECIAL
RESOLUTION OF ALL HOLDERS OF THE CLASS "A" SHARES OF PILS INVESTMENTS INC.,
VOTING SEPARATELY AS A CLASS, ON THE 4TH DAY OF OCTOBER, 1994
/s/ JEAN-YVES CALOZ
- ---------------------------------------------------------
JEAN-YVES CALOZ
Secretary of PILS INVESTMENTS INC.
"THE FOREGOING AGREEMENT IS HEREBY CERTIFIED AS HAVING BEEN ADOPTED BY SPECIAL
RESOLUTION OF ALL HOLDERS OF THE CLASS "B" SHARES OF PILS INVESTMENTS INC.,
VOTING SEPARATELY AS A CLASS, ON THE 4TH DAY OF OCTOBER, 1994
/s/ JEAN-YVES CALOZ
- ---------------------------------------------------------
JEAN-YVES CALOZ
Secretary of PILS INVESTMENTS INC.
"THE FOREGOING AGREEMENT IS HEREBY CERTIFIED AS HAVING BEEN ADOPTED
BY SPECIAL RESOLUTION OF ALL HOLDERS OF THE CLASS "C" SHARES OF PILS
-47-
<PAGE>
INVESTMENTS INC., VOTING SEPARATELY AS A CLASS, ON THE 4TH DAY OF
OCTOBER, 1994
/s/ JEAN-YVES CALOZ
- ---------------------------------------------------------
JEAN-YVES CALOZ
Secretary of PILS INVESTMENTS INC.
"THE FOREGOING AGREEMENT IS HEREBY CERTIFIED AS HAVING BEEN ADOPTED BY SPECIAL
RESOLUTION OF ALL HOLDERS OF THE CLASS 1993 SHARES OF PILS INVESTMENTS INC.,
VOTING SEPARATELY AS A CLASS, ON THE 4TH DAY OF OCTOBER, 1994
/s/ JEAN-YVES CALOZ
- ---------------------------------------------------------
JEAN-YVES CALOZ
Secretary of PILS INVESTMENTS INC.
"THE FOREGOING AGREEMENT IS HEREBY CERTIFIED AS HAVING BEEN ADOPTED BY SPECIAL
RESOLUTION OF ALL HOLDERS OF THE CLASS 1994 SHARES OF PILS INVESTMENTS INC.,
VOTING SEPARATELY AS A CLASS, ON THE 4TH DAY OF OCTOBER, 1994
/s/ JEAN-YVES CALOZ
- ---------------------------------------------------------
JEAN-YVES CALOZ
Secretary of PILS INVESTMENTS INC.
-48-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Amalgamation
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Name of Corporation
307972-4
Number
I hereby certify that the above-named corporation resulted from an amalgamation,
under section 185 of the Canada Business Corporations Act, of the corporations
set out in the attached articles of amalgamation.
/s/ Director
------------------------------
Director
October 21, 1994
------------------------------
Date of Amalgamation
-49-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 9
Articles of Amalgamation
(Section 185)
1. Name of Amalgamated Corporation: PHOENIX INTERNATIONAL LIFE SCIENCES
INC.
2. The place in Canada where the registered office is to be situated: THE
MONTREAL URBAN COMMUNITY, PROVINCE OF QUEBEC
3. The classes and any maximum number of shares that the corporation is
authorized to issue: THE ANNEXED SCHEDULE 1 IS INCORPORATED IN THIS
FORM.
4. Restrictions, if any, on share transfers: N/A
5. Number (or minimum and maximum number) of directors:
MINIMUM: 3 MAXIMUM: 15
6. Restrictions, if any, on business the corporation may carry on: N/A.
7. Other provisions, if any: N/A.
8. The amalgamation has been approved pursuant to that section or
subsection of the Act which is indicated as follows: |X| 183 |_| 184(1)
|_| 184(2)
<TABLE>
<CAPTION>
9. Name of amalgamating corporation: Corporation No.
<S> <C> <C>
PHOENIX INTERNATIONAL LIFE SCIENCES INC. 234202-2
PILS INVESTMENTS INC. 237200-2
</TABLE>
<TABLE>
<CAPTION>
Signature Date Title
<S> <C> <C> <C>
/s/Heather Savage October 4, 1994 Director
/s/Heather Savage October 4, 1994 Director
</TABLE>
Filed: October 24, 1994
-50-
<PAGE>
SCHEDULE 1
ARTICLES OF AMALGAMATION
PHOENIX INTERNATIONAL LIFE SCIENCES INC./
PHOENIX INTERNATIONALE SCIENCES DE LA VIE INC.
THE CLASSES OF SHARES THAT THE CORPORATION IS AUTHORIZED TO ISSUE
The corporation is authorized to issue an unlimited number of common shares
without nominal or par value and an unlimited number of preferred shares,
issuable in series, without nominal or par value.
The rights, privileges, restrictions and conditions attaching to the said common
shares and the rights, privileges, restrictions and conditions attaching to the
said preferred shares (as a class) are as follows:
1. The holders of the common shares shall be entitled to vote at all
meetings of shareholders, except meetings at which only holders of a
specified class or series of shares are entitled to vote.
2. The holders of the common shares shall, subject to the rights,
privileges, restrictions and conditions attaching to any other class or
series of shares of the corporation, be entitled to receive any
dividends declared and payable by the corporation on the common shares.
3. The holders of the common shares shall, subject to the rights,
privileges, restrictions and conditions attaching to any other class or
series of shares of the corporation, be entitled to receive the
remaining property of the corporation upon liquidation, dissolution or
winding-up of the corporation, whether voluntary or involuntary, or any
other return of capital or distribution of the assets of the
corporation among its shareholders for the purpose of winding-up its
affairs.
4. The preferred shares may from time to time be issued in one or more
series and, subject to:
(i) the following provisions,
(ii) the filing of articles of amendment in prescribed form, and
(iii) the issuance of a certificate of amendment in respect thereof, the
directors may fix by resolution, from time to time before such issue,
the number of shares which is to comprise each series and the
designation, rights, privileges, restrictions and conditions attaching
to each series of preferred shares including, without limiting the
generality of
-51-
<PAGE>
the foregoing, the rate or amount of dividends or the method of
calculating dividends, the date of payment thereof, the redemption, the
retraction, purchase and/or conversion prices and terms and conditions
of redemption, retraction, purchase and/or conversion, and any sinking
fund or other provisions.
5. The preferred shares of each series shall, with respect to the payment
of dividends and the distribution of assets or return of capital in the
event of liquidation, dissolution or winding-up of the corporation,
whether voluntary or involuntary, or any other return of capital or
distribution of the assets of the corporation among its shareholders
for the purpose of winding-up its affairs, rank on a parity with the
preferred shares of every other series and be entitled to preference
over the common shares and over any other shares of the corporation
ranking junior to the preferred shares.
6. If any cumulative dividends or amounts payable on the return of capital
in respect of a series of preferred shares are not paid in full, all
series of preferred shares shall participate ratably in respect of
accumulated dividends and return of capital.
7. After payment to the holders of preferred shares of the amounts
provided in the articles of the corporation to be payable to them, they
shall not be entitled to share in any further distribution of the
assets of the corporation.
8. The holders of preferred shares of any series shall not, as such, be
entitled to receive notice of, or to attend, any meeting of
shareholders of the corporation, nor shall they have any voting rights
for the election of directors or for any other purpose, except when the
holders of preferred shares or of any series of preferred shares are
entitled to vote separately as a class or series as provided in the
Canada Business Corporations Act and any statute that may be
substituted therefor, as from time to time amended (herein the "Act").
9. The provisions attaching to preferred shares as a class may be
repealed, altered, modified or amended from time to time with such
approval as may then be required by the Act to be given by the holders
of preferred shares as a class.
10. The formalities to be observed with respect to the calling and conduct
of any meeting of holders of preferred shares as a class, or any joint
meeting of holders of two (2) or more series of preferred shares,
including, without limiting the generality of the foregoing, the giving
of notice and the record dates therefor, the quorum therefor, the
procedure and voting thereat, shall mutatis mutandis be those from time
to time prescribed by the by-laws of the corporation with respect to a
meeting of shareholders.
-52-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 3
Notice of Registered Office or Notice of Change of Registered Office
(Section 19)
1. Name of Corporation: PHOENIX INTERNATIONAL LIFE SCIENCES INC.
2. Corporation Name: N/A
3. The place in Canada where the registered office is to be situated: THE
MONTREAL URBAN COMMUNITY, PROVINCE OF QUEBEC
4. Address of registered office:
4625 DOBRIN STREET, VILLE ST. LAURENT (QC) H4R 2P7.
5. Effective date of change: ON AMALGAMATION
6. Previous address of registered office: N/A
Signature:
/s/ Heather Savage
----------------------------
Title: Director
Date: October 4, 1994
-53-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 4
Articles of Amendment
(Section 27 or 177)
1. Name of Corporation: PILS INVESTMENTS INC.
2. Corporation No.: 237200-2
3. The articles of the above-named corporation are amended as follows:
THE ARTICLES OF THE CORPORATION, AS AMENDED FROM TIME TO TIME, BE AND
ARE HEREBY FURTHER AMENDED AS FOLLOWS:
7. OTHER PROVISIONS IF ANY
THE FOLLOWING PARAGRAPH 7 IS HEREBY ADDED TO SCHEDULE 3
OF THE ARTICLES OF THE CORPORATION TO FORM AN INTEGRAL
PART THEREOF:
7. THE CORPORATION SHALL BE ENTITLED TO PAY DIVIDENDS
ON FRACTIONAL SHARES OF ANY CLASS.
Signature:
/s/ Jean-yves Caloz
------------------------------
Title: Director
Date: July 5, 1994
-54-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 6
Notice of Change of Directors or Notice of Change of Directors
(Sections 106 and 113)
1. Name of Corporation: PHOENIX INTERNATIONAL LIFE SCIENCES INC.
2. Corporation No.: N/A
3. The following persons became directors of this corporation: SEE
ATTACHED SCHEDULE "A"
4. The following persons ceased to be directors of the corporation: N/A
5. The directors of this corporation now are:
<TABLE>
<CAPTION>
Resident
Name Residential address Occupation Canada
<S> <C> <C> <C>
John W. Hooper 64A Birch Hill, Hudson (QC) J0P 1J0 Executive Yes
Heather Savage 7 Cedar Ave., Pointe Claire (QC) H9S 4X9 Executive Yes
Jean-Yves Caloz 47 Calais Circle, Kirkland (QC) H9H 3R7 Executive Yes
Judy Zilber 98 Autumn Ridge Rd., Bedminister, NJ USA 07921 Executive No
Serge Carriere 40 Du Chene, Vaudreuil (QC) J7V 8P3 Executive Yes
Jean E. Douville 186 Ch. Strathcona, Mont-Royal (QC) H3R 1E6 Executive Yes
Claude Forget 1227 Sherbrooke W., #82, Montreal (QC) H3G 1G1 Executive Yes
Jean-Rene Halde 1160 Mistral, Montreal (QC) H2P 2Z1 Executive Yes
Cornelius P. McCarthy, III 33 Reef Street, Venice, CA , U.S.A. 90292 Executive No
Raymond H. Farmen 386 Lakeshore Rd., Beaconsfield
(QC) H9W 4H9 Executive Yes
</TABLE>
Signature:
/s/ Heather Savage
----------------------------
Title: Director
-55-
<PAGE>
Date: October 4, 1994
-56-
<PAGE>
SCHEDULE "A"
Form 6
Notice of Directors
(Sections 106 and 113)
<TABLE>
<CAPTION>
Resident
Name Effective Date Residential address Occupation Canada
<S> <C> <C> <C> <C>
John W. Hooper On Amal. 64A Birch Hill, Hudson (QC) J0P 1J0 Executive Yes
Heather Savage On Amal. 7 Cedar Ave., Pointe Claire (QC) H9S 4X9 Executive Yes
Jean-Yves Caloz On Amal. 47 Calais Circle, Kirkland (QC) H9H 3R7 Executive Yes
Judy Zilber On Amal. 98 Autumn Ridge Rd.,
Bedminister, NJ USA 07921 Executive No
Serge Carriere On Amal. 40 Du Chene, Vaudreuil (QC) J7V 8P3 Executive Yes
Claude Forget On Amal. 1227 Sherbrooke W., #82, Montreal
(QC) H3G 1G1 Executive Yes
Jean E. Douville On Amal. 186 Ch. Strathcona, Mont-Royal
(QC) H3R 1E6 Executive Yes
Jean-Rene Halde On Amal. 1160 Mistral, Montreal (QC) H2P 2Z1 Executive Yes
Raymond H. Farmen On Amal. 386 Lakeshore Rd., Beaconsfield
(QC) H9W 4H9 Executive Yes
Cornelius P.
McCarthy, III On Amal. 33 Reef Street, Venice, CA , U.S.A. 90292 Executive No
</TABLE>
-57-
<PAGE>
C A N A D A
PROVINCE OF QUEBEC
DISTRICT OF MONTREAL
IN THE MATTER of the Canada Business Corporations Act and the Articles of
Amalgamation of PHOENIX INTERNATIONAL LIFE SCIENCES INC. and PILS INVESTMENTS
INC.
I, HEATHER SAVAGE, of the City of Pointe Claire, Province of Quebec, do solemnly
declare that:
1. I am a Director of PHOENIX INTERNATIONAL LIFE SCIENCES INC., one of the
amalgamating corporations (hereinafter called the "Corporation") and an
such have personal knowledge of the matters herein declared.
2. I have conducted such examinations of the books and records of the
Corporation and have made such inquiries and investigations as are
necessary to enable me to make this declaration.
3. I have satisfied myself that:
(a) The Corporation is and the amalgamated corporation will be able to pay
its liabilities as they become due,
(b) The realizable value of the assets of the amalgamated corporation will
not be less than the aggregate of its liabilities and stated capital of
all classes of its shares, and
(c) No creditor will be prejudiced by the amalgamation.
And I make this solemn declaration consciously believing the same to be true and
knowing that it is of the same force and effect as if made under oath and by
virtue of the Canada Evidence Act.
/s/ HEATHER SAVAGE
- -----------------------------------------------------
HEATHER SAVAGE
SOLEMNLY DECLARED BEFORE ME at
Montreal, this 4th day of October, 1994
/s/ ANNA MARIA MASCOLO (SEAL)
- -----------------------------------------------------
Commissioner of Oaths for the City and District
of Montreal
-58-
<PAGE>
C A N A D A
PROVINCE OF QUEBEC
DISTRICT OF MONTREAL
IN THE MATTER of the Canada Business Corporations Act and the Articles of
Amalgamation of PHOENIX INTERNATIONAL LIFE SCIENCES INC. and PILS INVESTMENTS
INC.
I, HEATHER SAVAGE, of the City of Pointe Claire, Province of Quebec, do solemnly
declare that:
1. I am a Director of PILS INVESTMENTS INC., one of the amalgamating
corporations (hereinafter called the "Corporation") and an such have
personal knowledge of the matters herein declared.
2. I have conducted such examinations of the books and records of the
Corporation and have made such inquiries and investigations as are
necessary to enable me to make this declaration.
3. I have satisfied myself that:
(a) The Corporation is and the amalgamated corporation will be able to pay
its liabilities as they become due,
(b) The realizable value of the assets of the amalgamated corporation will
not be less than the aggregate of its liabilities and stated capital of
all classes of its shares, and
(c) No creditor will be prejudiced by the amalgamation.
And I make this solemn declaration consciously believing the same to be true and
knowing that it is of the same force and effect as if made under oath and by
virtue of the Canada Evidence Act.
/s/ HEATHER SAVAGE
- -----------------------------------------------------
HEATHER SAVAGE
SOLEMNLY DECLARED BEFORE ME at
Montreal, this 4th day of October, 1994
/s/ ANNA MARIA MASCOLO (SEAL)
- -----------------------------------------------------
Commissioner of Oaths for the City and District
of Montreal
-59-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Amendment
PILS INVESTMENT INC.
Name of Corporation
237200-2
Number
I hereby certify that the Articles of the above-mentioned Corporation were
amended
(a) under Section 13 of the Canada Business Corporations Act in accordance
with the attached notice; |_|
(b) under Section 27 of the Canada Business Corporations Act as set out in
the attached articles of amendment designating a series of shares; |_|
(c) under Section 179 of the Canada Business Corporations Act as set in the
attached articles of amendment; |X|
(d) under Section 191 of the Canada Business Corporations Act as set out in
the attached articles of reorganization; |_|
(e) under Section 192 of the Canada Business Corporations Act as set out in
the attached articles of arrangement. |_|
/s/ Director
------------------------------
Director
July 12, 1994
------------------------------
Date of Amendment
-60-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Amendment
PILS INVESTMENT INC.
Name of Corporation
237200-2
Number
I hereby certify that the Articles of the above-mentioned Corporation were
amended
(a) under Section 13 of the Canada Business Corporations Act in accordance
with the attached notice; |_|
(b) under Section 27 of the Canada Business Corporations Act as set out in
the attached Articles of Amendment designating a series of shares; |_|
(c) under Section 171 of the Canada Business Corporations Act as set in the
attached Articles of Amendment; |X|
(d) under Section 185 of the Canada Business Corporations Act as set out in
the attached Articles of Reorganization; |_|
(e) under Section 185.1 of the Canada Business Corporations Act as set out
in the attached Articles of Arrangement. |_|
/s/ Director
- -----------------------------
Director
February 14, 1989
- -----------------------------
Date of Amendment
-61-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 4
Articles of Amendment
(Section 27 or 177)
1. Name of Corporation: 163641 CANADA INC.
2. Corporation No.: 237200-2
3. The articles of the above-named corporation are amended as follows:
SECTION 1 OF THE ARTICLES OF INCORPORATION BE AND IT IS HEREBY DELETED
AND ARE SUBSTITUTED BY THE FOLLOWING:
1. NAME OF CORPORATION
PILS INVESTMENTS INC.
Signature:
/s/ John W. Hooper
-------------------------------
Description of Office: Director
Date: January 25, 1989
-62-
<PAGE>
-63-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Amendment
PILS INVESTMENT INC.
Name of Corporation
237200-2
Number
I hereby certify that the Articles of the above-mentioned Corporation were
amended
(a) under Section 13 of the Canada Business Corporations Act in accordance
with the attached notice; |_|
(b) under Section 27 of the Canada Business Corporations Act as set out in
the attached Articles of Amendment designating a series of shares; |_|
(c) under Section 171 of the Canada Business Corporations Act as set in the
attached Articles of Amendment; |X|
(d) under Section 191 of the Canada Business Corporations Act as set out in
the attached Articles of Reorganization; |_|
(e) under Section 192 of the Canada Business Corporations Act as set out in
the attached Articles of Arrangement. |_|
/s/ Director
----------------------------
Director
May 3, 1993
----------------------------
Date of Amendment
-64-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 4
Articles of Amendment
(Section 27 or 171)
1. Name of Corporation: PILS INVESTMENTS INC.
2. Corporation No.: 237200-2
3. The articles of the above-named corporation are amended as follows:
THE ARTICLES OF INCORPORATION ARE HEREBY AMENDED AS FOLLOWS:
3. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE
CORPORATION IS AUTHORIZED TO ISSUE:
THE ANNEXED SCHEDULE I IS INCORPORATED IN THIS FORM.
Signature:
/s/ John W. Hooper
------------------------------------
Description of Office: Director
Date: April 30, 1993
-65-
<PAGE>
SCHEDULE I
ARTICLES OF AMENDMENT
PILS INVESTMENTS INC.
THE CLASSES OF SHARES THAT THE CORPORATION IS AUTHORIZED TO ISSUE
In addition to the Class "A" shares, Class "B" shares, Class "C" shares, Class
"D" shares, Class "E" shares and Class "F" shares the Corporation shall be
entitled to issue Class 1993 through Class 2005 shares inclusive and the shares
of each such class shall be without par value.
A maximum number of one hundred (100) shares for each of the Class 1993 through
Class 2005 shares may be issued by the Corporation.
The rights, privileges, restrictions and conditions attaching to the said Class
1993 through Class 2005 shares inclusive are as follows:
1. Except as otherwise specifically provided in the Canada Business
Corporations Act, the Class 1993 through Class 2005 shares inclusive
shall not carry any right to vote.
2. The Class 1993 shares shall only be issued by the Corporation in the
Corporation's 1993 fiscal year (the "Reference Year").
3. Each Class 1993 share will be entitled to participate in one-quarter of
a percent (.25%) of the increase, if any, in the cumulative net profits
of Phoenix International Life Sciences Inc. ("Phoenix") from the first
day of the Reference Year to the last day of the fiscal year
terminating immediately prior to the fiscal year in which the Event (as
hereinafter defined) occurs, determined as if Phoenix had not paid any
dividends during such period, the whole as established by the
Corporation's auditors. (This increase in cumulative net profits on a
per share basis shall be referred to as the "Agreed Value").
4. For each Class 1993 share the Redemption Value to be received on a
redemption, a liquidation or winding-up (hereinafter the "Event"), will
be an amount equal to the lesser of (i) the amount determined in
accordance with the Unanimous Shareholders' Agreement executed by all
of the shareholders of the Corporation as at May 16, 1990, as from time
to time amended or replaced, and (ii) the amount determined in
accordance with the following schedule:
-66-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT TO BE RECEIVED
---------------------
<S> <C>
If the Event takes place in the Reference Year the consideration for which such share was
issued
If the Event takes place in the first fiscal year 20% of Agreed Value
of Phoenix following the Reference Year
If the Event takes place in the second fiscal 40% of Agreed Value
year of Phoenix following the Reference Year
If the Event takes place in the third fiscal year 60% of Agreed Value
of Phoenix following the Reference Year
If the Event takes place in the fourth fiscal 80% of Agreed Value
year of Phoenix following the Reference Year
If the Event takes place in or after the fifth 100% of Agreed Value
fiscal year of Phoenix following the
Reference Year
</TABLE>
5. The Corporation may redeem all or any part of the Class 1993 shares for
an amount equal to the Redemption Value at any time at the option of
the directors of the Corporation upon a notice of seven (7) days,
without the consent of the holders thereof, and if less than the whole
amount of the outstanding Class 1993 shares shall be so redeemed, the
shares to be redeemed shall be selected pro rata or by lot in such
manner as the directors may determine.
6. Each Class 1993 share shall carry the right, in the event of the
liquidation or winding up of the Corporation to repayment of an amount
equal to the Redemption Value.
7. The Class 1993 shares shall not carry the right to any further
participation in profits or assets of the Corporation.
8 The Class 1994 shares shall carry the same rights and conditions as the
Class 1993 shares as provided for in paragraphs 1 to 6 above, except
that the Reference Year shall be advanced one (1) year to the 1994
fiscal year of Phoenix. Likewise the rights and conditions attaching to
the Class 1995 to Class 2005 shares inclusive shall be identical to the
Class 1993 and Class 1994 shares except that the Reference Year shall
be advanced, MUTATIS MUTANDIS.
9. The Class 1993 through Class 2005 shares shall rank PARI PASSU in every
other respect.
-67-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Amendment
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Name of Corporation
307972-4
Number
I hereby certify that the Articles of the above-mentioned Corporation were
amended
(a) under Section 13 of the Canada Business Corporations Act in accordance
with the attached notice; |_|
(b) under Section 27 of the Canada Business Corporations Act as set out in
the attached articles of amendment designating a series of shares; |_|
(c) under Section 179 of the Canada Business Corporations Act as set in the
attached articles of amendment; |X|
(d) under Section 191 of the Canada Business Corporations Act as set out in
the attached articles of reorganization. |_|
/s/ Director
---------------------------
Director
January 12, 1996
---------------------------
Date of Amendment
-68-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 4
Articles of Amendment
(Section 27 or 171)
1. Name of Corporation: PHOENIX INTERNATIONAL LIFE SCIENCES INC.
2. Corporation No.: 3079724
3. The articles of the above-named corporation are amended as follows:
PARAGRAPH 7 OF THE ARTICLES OF AMALGAMATION OF THE CORPORATION IS
HEREBY AMENDED BY ADDING THE FOLLOWING:
THE DIRECTORS MAY APPOINT ONE OR MORE DIRECTORS, WHO SHALL HOLD OFFICE
FOR A TERM EXPIRING NOT LATER THAN THE CLOSE OF THE NEXT ANNUAL MEETING
OF SHAREHOLDERS, PROVIDED THAT:
(i) THE TOTAL NUMBER OF DIRECTORS OF THE CORPORATION
IMMEDIATELY AFTER SUCH APPOINTMENT SHALL NOT EXCEED THE
MAXIMUM NUMBER SET FORTH IN THE ARTICLES OF
INCORPORATION, AND THAT
(ii) THE TOTAL NUMBER OF DIRECTORS SO APPOINTED BY THE DIRECTORS
SHALL NOT EXCEED ONE THIRD OF THE NUMBER OF DIRECTORS ELECTED
AT THE PREVIOUS ANNUAL MEETING OF SHAREHOLDERS.
Signature:
/s/ Jean-yves Caloz
--------------------------
Title: Secretary
Date: September 1, 1996
-69-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 4
Articles of Amendment
(Section 27 or 171)
1. Name of Corporation: PHOENIX INTERNATIONAL LIFE SCIENCES INC.
2. Corporation No.: 307972-4
3. The articles of the above-named corporation are amended as follows:
PARAGRAPH 1 THEREOF IS REPLACED WITH THE FOLLOWING PARAGRAPH:
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Signature:
/s/ Jean-yves Caloz
------------------------------------------
Title: Senior Vice-President, Finance and
Corporate Development and Secretary
Date: July 1, 1998
-70-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 4
Articles of Amendment
(Section 27 or 171)
1. Name of Corporation: PHOENIX INTERNATIONAL LIFE SCIENCES, INC.
2. Corporation No.: 307972-4
3. The articles of the above-named corporation are amended as follows:
PARAGRAPH 1 THEREOF IS REPLACED WITH THE FOLLOWING PARAGRAPH:
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Signature:
/s/ Jean-yves Caloz
------------------------------------------
Title: Senior Vice-President, Finance and
Corporate Development and Secretary
Date: July 1, 1998
-71-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Certificate of Amendment
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Name of Corporation
307972-4
Number
I hereby certify that the Articles of the above-mentioned Corporation were
amended
(a) under Section 13 of the Canada Business Corporations Act in accordance
with the attached notice; |_|
(b) under Section 27 of the Canada Business Corporations Act as set out in
the attached articles of amendment designating a series of shares; |_|
(c) under Section 179 of the Canada Business Corporations Act as set in the
attached articles of amendment; |X|
(d) under Section 191 of the Canada Business Corporations Act as set out in
the attached articles of reorganization. |_|
/s/ Director
-------------------------
Director
January 20, 1998
-------------------------
Date of Amendment
-72-
<PAGE>
Consumer and Corporate Affairs Canada
Canada Business Corporations Act
Form 4
Articles of Amendment
(Section 27 or 171)
1. Name of Corporation: PHOENIX INTERNATIONAL LIFE SCIENCES, INC.
2. Corporation No.: 307972-4
3. The articles of the above-named corporation are amended as follows:
PARAGRAPH 1 THEREOF IS REPLACED WITH THE FOLLOWING:
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Signature:
/s/ Jean-yves Caloz
------------------------------------------
Title: Senior Vice-President, Finance and
Corporate Development and Secretary
Date: July 1, 1998
<PAGE>
PHOENIX INTENTIONAL LIFE SCIENCES INC.
BY-LAW NUMBER 94-1
1. CANADA BUSINESS CORPORATIONS ACT
Unless otherwise provided in these by-laws, the provisions of the Canada
Business Corporation Act ("Act") shall apply to the Corporation. Terms not
defined in these by-laws shall have the same meanings as set forth in the
Act.
2. SPECIAL MEETINGS OF SHAREHOLDERS
Special meetings of shareholders may be called at any time by order of the
Chairman of the Board or the President or any Vice-President of the
Corporation in addition to the provisions for the calling thereof set forth
in the Act.
3. PLACE OF MEETINGS OF SHAREHOLDERS
Meetings of shareholders shall be held at the registered office of the
Corporation or at any other place within Canada determined by the directors
or, subject to the Act, at any place outside Canada.
4. PROCEDURE AT MEETINGS OF SHAREHOLDERS
The Chairman of any meeting of shareholders shall conduct the procedure
thereat in all respects and his decision on all matters or things,
including, but without in any way limiting the generality of the foregoing,
any question regarding the validity or invalidity of any instruments of
proxy, shall be conclusive and binding upon the shareholders.
A declaration by the Chairman at any meeting that a resolution has been
carried or carried unanimously or carried by any particular majority or
lost or not carried by a particular majority shall be conclusive evidence
of the fact.
<PAGE>
The Chairman at any meeting of shareholders may vote as a shareholder but
shall not have a second or casting vote in case of an equality of votes.
A quorum of shareholders is present at a meeting of shareholders,
irrespective of the number of persons actually present at the meeting, if
holders of twenty-five percent (25%) of the shares entitled to vote at the
meeting are present in person or represented by proxy.
5. SCRUTINEERS
The Chairman at any meeting of shareholders may appoint one or more persons
(who may but need not be shareholders, directors, officers or employees of
the Corporation) to act as scrutineers at such meeting.
6. MEETINGS OF DIRECTORS AND NOTICES
As soon as may be practicable after the annual meeting of shareholders in
each year there shall be held, without notice, a meeting of such of the
newly elected directors as are then present, provided they shall constitute
a quorum, for the election or appointment of officers of the Corporation.
Meetings of the directors may be called at any time by or by order of the
Chairman of the Board, the President or any two directors, and may be held
at the registered office of the Corporation, or at any other place
determined by the directors. Notice specifying the place, day and time of
each such meeting shall be served upon each director or left at his usual
residence or usual place of business, or shall be mailed, telegraphed or
cabled prepaid, addressed to each director at his address as it appears on
the books of the Corporation at least 48 hours prior to the time fixed for
such meeting in the case of notice served personally or telegraphed or
cabled, and at least 72 hours prior to the time fixed for such meeting in
other cases.
7. QUORUM AND VOTING AT MEETINGS OF DIRECTORS
The directors may from time to time fix the quorum for meetings of
directors, but unless so fixed a majority of the directors in office shall
constitute a quorum.
The Chairman at any meeting of directors may vote as a director but shall
not have a second or casting vote in case of an equality of votes.
<PAGE>
8. INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
8.1 LIMITATION OF LIABILITY
No director or officer shall be liable for the acts, receipts,
neglects or default of any other director or officer or employee, or
for joining in any receipt or other act for conformity, or for any
loss, damage or expense happening to the Corporation through the
insufficiency or deficiency of title to any property acquired for or
on behalf of the Corporation, or for the insufficiency or deficiency
of any security in or upon which any of the moneys of the Corporation
shall be invested, or for any loss or damage arising from the
bankruptcy, insolvency or tortious acts of any person with whom any of
the moneys, securities or effects of the Corporation shall be
deposited, or for any loss occasioned by any error of judgment or
oversight on his part, or for any other loss, damage or misfortune
whatever which shall happen in the execution of the duties of his
office or in relation thereto, unless the same are occasioned by his
own wilful neglect or default; provided that nothing herein shall
relieve any director or officer from the duty to act in accordance
with the Act and the regulations thereunder or from liability for any
breach thereof.
8.2 INDEMNITY
Subject to the limitations contained in the Act, the Corporation shall
indemnify a director or officer, a former director or officer, or a
person who acts or acted at the Corporation's request as a director or
officer of a body corporate of which the Corporation is or was a
shareholder or creditor (or a person who undertakes or has undertaken
any liability on behalf of the Corporation or any such body corporate)
and his heirs and legal representatives, against all costs, charges
and expenses, including an amount paid to settle an action or satisfy
a judgment, reasonably incurred by him in respect of any civil,
criminal or administrative action or proceeding to which he is made a
party by reason of being or having been a director or officer of the
Corporation or such body corporate, if
8.2.1 he acted honestly and in good faith with a view to the best
interests of the Corporation; and
<PAGE>
8.2.2 in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds
for believing that his conduct was lawful.
8.3 INSURANCE
Subject to the limitations contained in the Act, the Corporation may
purchase and maintain such insurance for the benefit of its directors
and officers as such, as the Board may from time to time determine.
9. FINANCIAL YEAR
The directors may fix and from time to time change the financial year end
of the Corporation.
10. DECLARATIONS
Any officer, or any other person authorized by the directors, by any two
officers or by the Chairman of the Board or the President, is authorized
and empowered to appear and make answer for the Corporation to all writs,
orders and interrogatories upon articulated facts issued out of any court,
and to declare for and on behalf of the Corporation any answer to writs of
attachment by way of garnishment in which the Corporation is garnishee, and
to make affidavits and solemn declarations in connection therewith or in
connection with any and all judicial proceedings to which the Corporation
is a party, and to make petitions for winding-up or bankruptcy orders upon
any debtor of the Corporation, and to attend and vote at all meetings of
creditors of the Corporation's debtors and grant proxies in connection
therewith.
11. REPRESENTATION AT MEETINGS
Any officer, or any other person authorized by the directors, may:
11.1 represent the Corporation and attend and vote at any and all meetings
of shareholders or members of any firm, syndicate, company or
corporation in which the Corporation has shares or is
<PAGE>
otherwise interested, and any action taken and vote cast by him at any
such meeting shall be deemed to be the act and/or vote of the
Corporation;
11.2 authorize any person (whether an officer of the Corporation or not) to
attend, vote and otherwise act, for and on behalf and in the name of
the Corporation, at any and all meetings of shareholders or members of
any firm, syndicate, company or corporation in which the Corporation
has shares or is otherwise interested, and for such purpose may
execute and deliver instruments of proxy in such form and terms as the
person so executing and delivering the same may see fit, including
therein, but without in any way limiting or restricting the generality
of the foregoing, provision for the appointment of substitute proxies
and the revocation of all instruments of proxy given by the
Corporation prior thereto with respect to any such meeting.
<PAGE>
Enacted by the Board the 27th day of June, 1994.
/S/ DR. JOHN W. HOOPER
------------------------
Dr. John W. Hooper
President
/S/ JEAN-YVES CALOZ
------------------------
Jean-Yves Caloz
Secretary
Confirmed by the Shareholders in accordance with the Act the 27th day of
June, 1994.
/S/ JEAN-YVES CALOZ
------------------------
Jean-Yves Caloz
Secretary
<PAGE>
ADDENDUM
The attached by-laws are intended to supplement the provisions of the
Canada Business Corporations Act and of applicable securities laws; provisions
which heretofore have normally been included in by-laws but which are set forth
in the Act and applicable securities laws are not repeated in the attached
by-laws; accordingly it is necessary to refer to the Act and to applicable
securities laws when considering the provisions applicable to the Corporation;
the following is a summary of items heretofore normally included in by-laws -
the references to sections and parts are to the sections and parts of the Act
and the references to by-laws are to the attached by-laws.
SHAREHOLDERS
Annual meetings - Subsections 133(a) and 155(1)
Special meetings - Subsection 133(b) and Section 143; By-law 2
Place of meetings - Section 132; By-law 3
Notice of meetings - Sections 135 and 136; National Policy No. C-41
and adjournments and applicable securities laws
Quorum - Section 139
Right to vote, proxies - Sections 140, 141 and Part XII; By-law 4;
and proxy material National Policy No. C-41 and applicable
securities laws
Joint shareholders - Subsection 140(4)
Procedure at meetings - By-law 4
Scrutineers - By-law 5
Proposals - Section 137
DIRECTORS
Number - Paragraph 6(1)(e), Subsections 102(2) and
Election, term of and 107(a)
office and
qualification - Sections 105, 106 and 116
General powers of
directors - Subsection 102(1) and Section 122
Meetings and notices - Section 114; By-law 6
<PAGE>
Quorum and voting - Section 114; By-law 7
Removal of directors - Section 109
Ceasing to hold office - Subsection 108(1)
Filling vacancy - Subsection 111(1)
Remuneration of
directors - Section 125
Resolution in lieu
of meeting - Section 117
Indemnities of directors
and others - Section 124; By-law 8
Disclosure of interest - Section 120
COMMITTEES
Appointment and powers - Sections 115 and 171
OFFICERS
Appointment - Section 121
CAPITAL STOCK
Issue of shares - Subsection 25(1)
FINANCIAL YEAR AND AUDIT
Financial year - By-law 9
Audit - Sections 162 and 163
FINANCIAL DISCLOSURE - Section 160; applicable securities laws
CORPORATION REPRESENTATION FOR CERTAIN PURPOSES
Declarations - By-law 10
Representation at
meetings - By-law 11
<PAGE>
ENACTMENT, REPEAL AND AMENDMENT OF BY-LAWS - Section 103
<PAGE>
BY-LAW, 94-2
A BY-LAW RESPECTING THE BORROWING OF MONEY,
THE ISSUING OF SECURITIES AND THE SECURING OF
LIABILITIES BY
PHOENIX INTERNATIONAL LIFE SCIENCES INC./
PHOENIX INTERANTIONALE SCIENCES DE LA VIE INC.
BE IT ENACTED as a by-law of the Corporation as follows:
1. Without limiting the borrowing powers of the Corporation as set forth in
the Act, the board may from time to time:
(a) borrow money upon the credit of the Corporation;
(b) issue, reissue, sell or pledge bonds, debentures, notes or other
evidence of indebtedness or guarantee of the Corporation, whether
secured or unsecured; and
(c) mortgage, hypothecate, pledge or otherwise create an interest in or
charge upon all or any property (including the undertaking and rights)
of the Corporation, owned or subsequently acquired, by way of
mortgage, hypothec, pledge or otherwise, to secure payment of any such
evidence of indebtedness or guarantee of the Corporation.
Nothing in this section limits or restricts the borrowing of money by the
Corporation on bills of exchange or promissory notes made, drawn, accepted or
endorsed by or on behalf of the Corporation.
2. The Board may from time to time delegate to such one or more of the
directors and officers of the Corporation as may be designated by the board all
or any of the powers conferred on the board by section 1 or by the Act to such
extent and in such manner as the board shall determine at the time of each such
delagation.
ENACTED by the board the 27th day of June, 1994
President /S/ DR. JOHN W. HOOPER Secretary /S/ JEAN-YVES CALOZ
----------------------- -------------------------
DR. JOHN W. HOOPER JEAN-YVES CALOZ
<PAGE>
CONFIRMED by the shareholders in accordance with the Act the 27th day of
June, 1994.
Secretary /S/ JEAN-YVES CALOZ
-----------------------------
JEAN-YVES CALOZ
<PAGE>
Exhibit 4
SPECIMEN CERTIFICATE
PHOENIX INTERNATIONAL [LOGO]
Number
OC-01831
Shares
Specimen
AUTHORIZED SHARE CAPITAL
An unlimited number of common shares
without par value and an unlimited number
of preferred shares without par value
issuable in series.
Cusip 718919 10 3
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Amalgamated under the Canada Business Corporations Act
This certifies that _____________________________________is the registered
holder of fully paid and non assessable common shares without par value in the
share capital of PHOENIX INTERNATIONAL LIFE SCIENCES, INC. transferable only on
the books of the Corporation by the registered holder hereof in person or by
attorney duly authorized in writing upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar of the Corporation.
In Witness Whereof the Corporation has caused this certificate to be
signed by its duly authorized officers.
<TABLE>
<S> <C> <C>
Dated:
------------------------ ------------------------ ----------------------
Countersigned and Registered Vice-President Chairman, President
Montreal Trust Company Finance and Corporate and Scientific
Transfer Agent and Registrar Development, and Director
Secretary
By:
---------------------------
Authorized Officer
</TABLE>
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE TRANSFERABLE AT THE OFFICES OF
THE MONTREAL TRUST COMPANY IN MONTREAL, TORONTO, HALIFAX, WINNIPEG, REGINA,
CALGARY AND VANCOUVER.
<PAGE>
There are rights, privileges, restrictions or conditions attached to the shares
by this certificate and the Corporation will furnish to a shareholder, on demand
and without charge, a full copy of the text of (i) the rights, privileges,
restrictions and conditions attached to each class authorized to be issued and
to each series insofar as the same have been fixed by the directors and (ii) the
authority of the directors to fix the rights, privileges, restrictions and
conditions of subsequent series.
For value received, the undersigned hereby sells, assigns and transfers unto
- --------------------------------------------------------
Social Insurance Number:
--------------------------------
_______________________ shares of the share capital represented by the within
certificate and does hereby irrevocably constitute and appoint
______________________________ Attorney to transfer the said shares of the
securities registers of the Corporation with full power of substitution in the
premises.
Date:
------------------------------
Signature:
---------------------------
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. THE SIGNATURE SHOULD BE
GUARANTEED BY A BANK OR BY A TRUST CORPORATION, OR BY A MEMBER OF A CANADIAN
STOCK EXCHANGE WHOSE SIGNATURE IS KNOWN TO THE TRANSFER OFFICE.
<PAGE>
Exhibit 5
MCCARTHY TETRAULT
AVOCATS - AGENTS DE BREVETS & MARQUES DE COMMERCE
BARRISTERS & SOLICITORS - PATENTS & TRADEMARK AGENTS
"LE WINDSOR", 1170 PEEL, MONTREAL
QUEBEC, CANADA H3B 4S8
FAX (514) 875-6246 - TELEPHONE (514) 397-4100
Montreal, April 7, 1999
Phoenix International Life Sciences Inc.
2350 Cohen Street
Ville St-Laurent, Quebec
H4R 2N6
Re: Phoenix International Life Sciences Inc.
Registration Statement of Form F-4
----------------------------------------
Sirs:
We are Canadian legal counsel to Phoenix International Life Sciences
Inc., a Canada corporation (the "Company"). We are issuing this opinion in
connection with the Registration Statement of Form F-4 being filed by the
Company with the Securities and Exchange Commission (the "Commission") on the
date hereof (the "Registration Statement") for the purpose of registering
with the Commission under the SECURITIES ACT OF 1933, as amended (the "1933
Act"), up to 1,500,000 shares (the "Shares") of no par value common stock of
the Company, issuable pursuant to the Agreement and Plan of Merger by and
among the Company, its wholly-owned subsidiary Phoenix Merger Sub Corp., a
Delaware corporation ("Merger Sub") and Chrysalis International Corporation,
a Delaware corporation ("Chrysalis") dated as of November 18, 1998, as
amended (the "Merger Agreement"). In this connection, we have examined and
are familiar with originals or copies, certified or otherwise identified to
our satisfaction, of (i) the Registration Statement, (ii) the Merger
Agreement, (iii) the Certificate of Amalgamation and the By-laws of the
Company, as amended, each as currently in effect, and (iv) certain
resolutions adopted by the Board of Directors of the Company relating to the
issuance of the Shares and certain related matters. We have also examined
originals or copies, certified or otherwise identified to our satisfaction,
of such records of the Company and such agreements, certificates of public
officials, certificates of the Company and others, and such other documents,
certificates and records as we have deemed necessary or appropriate as a
basis for the opinions set forth herein.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such copies. In making our examination
of documents executed or to be executed by parties other than the Company, we
have assumed that such parties had or will have the capacity and power,
corporate or other, to enter into and perform all obligations thereunder and
have also assumed the due authorization by all requisite action, corporate or
other, and execution and delivery by such parties and the validity and
binding effect thereof. As to any facts material to the opinions expressed
herein which we have not independently established or verified, we have
<PAGE>
relied upon statements and representations of other officers and representatives
of the Company and others contained in the Merger Agreement and in
certificates.
We express no opinion concerning any law other than the substantive law of
the Province of Quebec and the laws of Canada applicable therein.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized for issuance and, upon consummation of the
merger in the manner contemplated in the Merger Agreement, the Shares will be
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption
"Legal Opinions" in the proxy statement/prospectus included therein. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the 1933 Act or the
rules and regulations of the Commission promulgated thereunder.
This opinion is furnished by us, as counsel to the Company in Canada, in
accordance with the requirements of Item 601(b)(5) of Regulation S-K under the
1933 Act and, except as provided in the immediately preceding paragraph, is not
to be used, circulated or quoted for any other purpose or otherwise referred to
or relied upon by any other person without the express written permission of the
Company.
Very truly yours,
McCarthy Tetrault
-2-
<PAGE>
215.981.4362
[email protected]
April 7, 1999
Phoenix International Life Sciences Inc.
2350 Cohen Street
Saint-Laurent, Montreal, Quebec
Canada H4R 2N6
MERGER AGREEMENT
DATED AS OF NOVEMBER 18, 1998
AMONG PHOENIX INTERNATIONAL LIFE SCIENCES INC.,
CHRYSALIS INTERNATIONAL CORPORATION AND PHOENIX MERGER SUB CORP.
Ladies and Gentlemen:
We have acted as counsel for Phoenix International Life Sciences Inc in
connection with the proposed merger (the "Merger") of Phoenix Merger Sub Corp.,
a Delaware corporation (the "Sub") and a wholly owned subsidiary of Phoenix
International Life Sciences Inc., a Canadian corporation ("Parent"), with and
into Chrysalis International Corporation, a Delaware corporation ("Company"),
pursuant to an Agreement and Plan of Merger dated as of November 18, 1998, as
amended by Amendment No. 1 thereto dated as of March 24, 1999 (the "Merger
Agreement"), by and among Parent, Sub and Company under which each issued and
outstanding share of Company common stock, par value $.01 per share (the
"Company Stock") will be converted into the right to receive common stock of
Parent (the "Buyer Common Stock").
In that connection, you have requested our opinion regarding the
taxability of the Buyer Common Stock received by the holders of Company Stock
(in the aggregate the "Sellers") as a result of the Merger. In providing our
opinion, we have examined the Merger Agreement and the proxy
statement/prospectus filed on April 7, 1999 and such other documents and
corporate records as we have deemed necessary or appropriate for purposes of
our opinion. In addition, we have assumed that (i) the Merger will be
consummated in accordance with the provisions of the Merger Agreement, (ii)
the statements concerning the Merger set forth in the Merger Agreement are
true, correct and complete and will continue to be true, correct and complete
at all times up to and including the closing date of the Merger (the "Closing
Date"),
<PAGE>
Phoenix International Life Sciences Inc.
Page 2
April 7, 1999
(iii) the representations made to us by the Company and Parent in their
respective letters to us each dated the date hereof, and delivered to us for
purposes of this opinion are true, correct and complete and will continue to be
true, correct and complete at all times up to and including the Closing Date
(such letters, the "Representation Letters"), (iv) Parent and Company will
complete all actions as represented in the Representation Letters that are to be
completed after the Closing Date, and (iv) any representations made in the
Representation Letters, the Merger Agreement, and the proxy statement/prospectus
"to the best knowledge of" or similarly qualified are correct, and will continue
to be true, correct and complete at all times up to and including the Closing
Date, in each case without such qualification. If any of the above-described
assumptions are untrue for any reason or if the Merger is consummated in a
manner that is inconsistent with the manner in which it is described in the
Merger Agreement or the proxy statement/prospectus, our opinions as expressed
below may be adversely affected and may not be relied upon.
Based upon the foregoing, in our opinion, for U.S. Federal income tax
purposes, the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and will meet the requirements of Section 367 of the Code. It follows,
therefore, that in our opinion, for Federal income tax purposes, the exchange by
Sellers of Company Stock for Buyer Common Stock pursuant to the Merger will
qualify as a tax free exchange under Section 354 of the Code, other than for
Sellers who own 5% or more of Buyer Common Stock after the Merger who fail to
file the gain recognition agreement as provided under Treasury Regulation
Section 1.367(a)-3 and Treasury Regulation Section 1.367(a)-8. With respect to
cash received for fractional shares, it is our opinion the difference between
the cash received and the portion of the tax basis in the shares of the Company
Stock surrendered that is allocable to the fractional shares will be capital
gain or loss, assuming the Common Stock is held as a capital asset, as defined
by Section 1221 of the Code by the Seller.
The opinions expressed herein are based upon existing statutory,
regulatory and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinions are based solely on the documents
that we have obtained, the statements contained in the Representation Letters,
and the assumptions referred to above, all of which we have assumed will be
true, correct and complete (without regard to any "to the best knowledge of" or
similar qualification) as of the effective time of the Merger. Our opinions
cannot be relied upon if any of the facts pertinent to the Federal income tax
treatment of the Merger stated in such documents or in such additional
information is, or later becomes, inaccurate, or if any of the statements
contained in the Representation Letters, or the assumptions referred to above
are, or later become, inaccurate. Finally, our opinions are limited to the tax
matters specifically covered hereby, and we have not been asked to address, nor
have we addressed, any other tax consequences of the Merger or any other
transactions.
<PAGE>
Phoenix International Life Sciences Inc.
Page 3
April 7, 1999
This opinion is being furnished to you for use in connection with the
Form F-4 filed by Parent in connection with the Merger (the "Form F-4"). We
consent to the filing of this opinion as an exhibit to the Form F-4. We also
consent to the references to Pepper Hamilton LLP under the headings "Material
Tax Consequences - TAX IMPLICATIONS OF THE MERGER TO U.S. HOLDERS OF CHRYSALIS
COMMON STOCK" and "Legal Opinions" in the proxy statement/prospectus forming a
part of the Form F-4.
Very truly yours,
Pepper Hamilton LLP
<PAGE>
Exhibit 10.1
RESTRICTED ACCESS POLICY
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
WORLDWIDE EXECUTIVE REMUNERATION PLAN, GRADES AND TITLES
Version 1.8
September 25, 1998
THIS POLICY CONTAINS CONFIDENTIAL INFORMATION
PERTINENT TO INDIVIDUAL EXECUTIVE REMUNERATION.
ACCESS IS STRICTLY RESTRICTED TO
MEMBERS OF THE BOARD OF DIRECTORS,
THE CEO, COOS AND THE CFO
1
<PAGE>
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
POLICY
WORLDWIDE EXECUTIVE REMUNERATION PLAN, GRADES AND TITLES
Version 1.8
September 25, 1998
1. BACKGROUND
Until mid-1997, Phoenix International was primarily a Canadian-based specialized
CRO, focussing on the North American market for Phase I and bioanalytical
studies. However, at the time of writing Phoenix International has transformed
into a global CRO with operations in many countries, and is in the process of
acquiring or starting operations in other countries. It is considered important
for harmonious and collaborative teamwork and to attract and retain executives,
that executives in acquired companies, existing executives in Phoenix
International's original operations, and newly hired executives, be remunerated
on an equitable basis worldwide, and in a manner that is competitive in the
international market for CRO executives.
It is Phoenix International's policy that executive titles are standardized
worldwide, to reflect salary grades and level of responsibility, and to ensure
that executives and other senior staff relate appropriately, based on
consistency of titles among all of Phoenix International's operations.
This version 1.8 is the first official authorized version of this policy,
although certain 1998 salary changes have been based on earlier drafts.
2. OBJECTIVES
The objectives of this policy are:
2.1 To ensure that Phoenix International has a competitive and equitable
Executive Remuneration Plan (ERP) that will appropriately attract,
retain and reward high calibre executives at Phoenix International, in
all countries in which Phoenix International has executive level
personnel.
2.2 To define standard titles for executives worldwide
3. SCOPE
All employees whose responsibilities, as judged by the HR committee of the Board
of Directors,
2
<PAGE>
are consistent with an executive level position in the CRO industry. This will
usually apply to employees with the title of Vice President or higher. However,
in some Phoenix International business units, certain employees who do not have
executive responsibility have the title Vice President, based on historical
practice prior to the acquisition of the business unit by Phoenix International.
Such employees do not qualify for treatment under this policy.
4. RESPONSIBILITY
The CEO is responsible for administration and application of this policy. He/she
is also responsible for keeping records of executive salaries, bonuses, stock
option eligibility and awards, and salary ranges; this responsibility may be
delegated with appropriate supervision and review.
5. SALARIES, GRADES AND TITLES
5.1 ESTABLISHED EXECUTIVES
An Established Executive is an executive who has served 3 or more years
with Phoenix International or an organization acquired by Phoenix
International, or a comparable organization, at the level of his/her
current responsibilities. In general, Phoenix International pays
salaries to Established Executives typical of those of the world's top
10 publicly traded CROs (most are based in the USA). These are referred
to as "Salary Norms". Norms are generally maxima for executives with
extensive experience, except in special circumstances (see below)
since, as is common with high growth high technology-based
organizations, Phoenix International prefers to pay "typical" salaries
to established executives, and reward superior performance with
superior annual incentives, rather than with higher than typical
salaries.
5.2 NEW EXECUTIVES
A New Executive is a newly appointed executive at Phoenix International
who has less than three years experience with Phoenix International or
a company acquired by Phoenix International or a comparable
organization, at the level of his her current responsibilities. Such
executives will usually be hired at salaries below the Norms, usually
at the low end of the range, and may expect to progress to the Norm
over a period of 1-3 years, depending on ability to meet the criteria
for the position, and previous experience at the same executive level.
5.3 BASIS FOR SETTING THE NORMS
5.3.1 CEO AND COO
Data on competitive salaries for the CEO and COOs are readily
available from the
3
<PAGE>
regulatory filings of publicly traded competitors. As of
January 1, 1998, salaries for these positions and those with
similar responsibilities will be based on the relevant (as
determined by the HR Committee of the Board of Directors) mean
salary for publicly traded CROs with annual net revenues of
greater than or equal to US$40 million, based on the last
available 12 month period published by those competitive CROs.
These data will usually be adjusted for inflation, since they
are typically one year out of date. When such salaries are
reviewed in future years, the US$40 million threshold will
be adjusted to reflect the average growth rate of the industry
between the time of review of this Policy, and the last review
of the Policy.
5.3.2 OTHER EXECUTIVES
Data for executives below the CEO and COO levels are not
generally publicly available and Norms will therefore be set
by the company's Corporate Executive Committee, based on
perceived market value and demand. The market for some CRO
industry executives with particular qualifications or
experience pays higher salaries than the CRO market for
executives in general, and than other executives fulfilling
similar functions in other areas of the business. These
qualifications and experience are:
5.3.2.1 Executives who have an M.D. degree
5.3.2.2 Executives with advanced technical knowledge in an
area where such knowledge is in great demand and
short supply
5.3.2.3 Executives who are founding members of a company
An executive in any of the above categories, as judged by the
CEO, will normally receive a salary in a grade one higher than
that justified by his/her responsibilities. In extraordinary
circumstances, for industry leading executives, salaries could
be two grades higher.
5.4 SALARY RANGES
The market for CRO executives is a world market, with substantial
executive movement within and between continents. Since the largest
single-country market for CRO executives is the USA, the basis used for
setting salary ranges in this Policy was US comparables in 1997,
translated into Canadian dollars at the June, 1998 exchange rate.
Factors affecting differences in salaries among countries include
exchange rates, taxation, the purchasing power of the local currency,
cost of living variations between countries, etc, and market supply and
demand for executives. Although all such factors will be taken into
account when translating ranges among countries, in view of the number
of factors, their fluctuation, and the fact that some act positively
and some negatively, the actual chosen ranges will inevitably be
somewhat arbitrary.
4
<PAGE>
For the first year of this policy, US and European ranges have been set
simply using the exchange rates for the Canadian dollar prevailing at
the time of original drafting of this policy (June, 1998). Critical
evaluation of these ranges indicates that this produces executive
salaries that are competitive at the time of writing. Salary Norms and
ranges ranges for the period June 1, 1998 to May 31, 1999 are shown in
Table 2, attached. Ranges are from 20% less than the Norm to 10% higher
than the Norm. However, as a matter of policy, the Norm will usually be
the highest salary for an executive, except in extraordinary
circumstances as judged by the CEO and the HR committee of the Board of
Directors, and as authorized by both the CEO and the HR Committee.
5.6 ANNUAL REVIEWS OF SALARIES, SALARY NORMS AND RANGES
The basis for executive salary increases shall be the level of
experience and expertise the incumbent CURRENTLY brings to the
position, compared to that required of an Established Executive. Note
that superior performance will be rewarded through an annual incentive
(bonus and stock option) plan, and not by changes in salaries. All
executive salary changes must be approved by the executive's direct
supervisor and the next highest executive. For grades E1 and E2 and the
CFO, all salary changes must be approved by the Human Resources
Committee of the Board of Directors.
The Salary Norms and ranges for executives specified in this policy
will normally be changed effective May 31 of each year by the Human
Resources Committee of the Board of Directors, to reflect the actual
(for CEO and COO) and estimated (for all other positions) change in CRO
industry executive salaries worldwide.
Salaries will be reviewed annually on the anniversary of the last
salary review for each executive.
5.7 GRANDFATHERED EXECUTIVES
As of the implementation or revision of this policy, some existing
executives may have higher salaries than the Norm for their grade,
usually as a result of salary policies in companies acquired by Phoenix
International, before these companies were acquired. The salaries of
these executives are "grandfathered" and are not subject to reduction
to match the requirements of this policy. However, while annual raises
are applicable, these will normally be lower than is typical for other
Phoenix International executives until such time as the salaries are
compatible with Norms.
5.8 ASSIGNED AND PAID GRADES FOR INDIVIDUAL EXECUTIVES
These will be listed by executive in a table maintained and updated by
the CEO and made
5
<PAGE>
available to the Human Resources Committee of the Board of Directors.
6. EXECUTIVE BONUS PLAN
Annual bonuses are intended to provide an incentive for executives to achieve
superior financial results and address objectives that will produce short term
and/or long term beneficial change in the organization and their own
performances. Only Senior Executives will benefit from the plan below. All other
personnel with executive status or titles will benefit only from the company
Plan for Incentives for Employees (PIE). A "Senior Executive" is an employee who
is so identified by the CEO, as advised by the company's Corporate Executive
Committee.
Executive bonuses will consist of up to three components, based on worldwide
profitability expressed as earnings per share (EPS) (Corporate Bonus),
profitability (pretax profit) of the local business unit (Local Bonus), and
achievement of personal objectives (Objectives Bonus). Bonuses will be paid
based on % achievement for each of these components, multiplied by a "Base
Bonus" for each component. Base Bonuses are specified percentages of the salary
paid to the executive in the relevant fiscal year.
All executive bonuses are subject to approval by the Human Resources Committee
of the Board of Directors.
6.1 BASE BONUSES
Bonuses are based on percentages of salary paid in the year. For 100%
achievement for any component, the executive will be paid the Base
Bonus for that component, as defined in the table below for various
categories of executives:
BASE BONUS AS % OF SALARY
<TABLE>
<CAPTION>
CORPORATE LOCAL OBJECTIVES
BASE BONUS BASE BONUS BASE BONUS
Related to Related to Related to Total
Corporate Fiscal Target Strategic Base
Nominal Grade Net Profit Of Bus. Unit Objectives Bonus
------------- ---------- ------------ ---------- -----
<S> <C> <C> <C> <C>
CEO 37.5% 0% 12.5% 50%
COO 10% 20% 10% 40%
CFO 20% 0% 15% 35%
Other Line Executive 7.5% 15% 7.5% 30%
Staff Executive 10% 0% 15% 25%
</TABLE>
A "Line Executive" is responsible either for a profit center, or for
business development.
6
<PAGE>
A "Staff Executive" is responsible for a cost center, or for a
co-ordinating role.
6.2 CORPORATE BONUS
The Corporate Bonus will be paid based on Phoenix International's
worldwide earnings per share (EPS), as compared to the budgeted EPS.
The Corporate Base Bonus is subject to upwards or downwards
adjustments, based on an Adjustment Factor. This Factor is (% of target
- 70%)/30, with a value of zero for less than or equal to 70% of target
and a value of 2.0 for greater than or equal to 130% of target. Thus,
the Corporate Bonus is calculated as follows:
Salary Paid x [Actual EPS - 0.7 x Budgeted EPS]/[0.3 x Budgeted EPS] x
Base Bonus
6.3 BASED ON PROFITABILITY OF THE LOCAL PROFIT CENTER (LOCAL BONUS)
No Local Bonus, is payable if EITHER corporate or local profit
achievement is less than or equal to 70% of target.
The Local Bonus will be paid on the pretax profit of the local business
unit. The Local Base Bonus is subject to upwards or downwards
adjustments, based on an Adjustment Factor. This Factor is (% of target
- 70%)/30, with a value of zero for less than or equal to 70% of target
and a value of 2.0 for greater than or equal to 130% of target. Thus,
this bonus is calculated as follows:
Salary Paid x [Actual Pretax Profit - 0.7 x Budgeted Pretax
Profit]/[0.3 x Budgeted Pretax Profit] x Base Bonus
Note that for bonus purposes, local pretax profit excludes taxes and
certain allocated corporate charges, but includes amortization of
acquisition costs, interest charges associated with acquisition, and
corporate charges for directly provided services, software, etc.
6.4 BASED ON ACHIEVEMENT OF NON-FINANCIAL OBJECTIVES (OBJECTIVES BONUS)
The Objectives Base Bonus is subject to adjustment through
multiplication of the Base Bonus by percentage achievement of
objectives. These objectives must be agreed before the end of the first
quarter of each year between the executive and his/her direct
supervisor, or in the case of the CEO, with the Board of Directors. At
the end of the fiscal year, the direct supervisor (or the HR Committee
of the Board for the CEO) shall discuss with the executive the extent
to which these objectives are achieved. While agreement between an
executive and his/her supervisor on percentage completion is the
objective, in the event of lack of agreement, the direct supervisor
shall be the sole judge of the final percentage completion. This bonus
shall be calculated as follows:
Salary Paid x % Achievement of Objectives x Base Bonus
7
<PAGE>
The Objectives Bonus is payable regardless of corporate or local
financial achievement.
6.5 BONUS FOR OUTSTANDING ACHIEVEMENT WHEN FINANCIAL PERFORMANCE IS
DEPRESSED
If Phoenix International does not achieve 70% of its financial
objectives in any particular year, and/or if a particular business unit
does not achieve 70% of its financial objectives, then fiscally related
bonuses may be minimal or zero. Under these circumstances, Phoenix
International wishes to ensure that executives who have performed in an
outstanding fashion despite the poor financial results, can be
rewarded. Thus, in such years, the Human Resources Committee of the
Board of Directors has the power to make Outstanding Performance Bonus
awards to deserving individuals.
6.6 CALCULATION AND PAYMENT OF BONUSES
All bonuses are calculated after subtraction of potential bonuses from
Phoenix International's profit figures. Since this results in a
circular calculation, it will be iterated several times.
For bonus purposes, financial data for budgeted and actual results
shall be calculated on a consistent basis. Extraordinary losses and
gains will normally be excluded from such calculations.
Annual Bonuses will be paid within 3 months of the end of the fiscal
year. If an executive resigns or is dismissed for cause, any unpaid
bonus shall be forfeited. If an executive dies, or is permanently
disabled or is dismissed other than for cause, or his/her contract is
not renewed, he/she shall receive, within one month of the event, a
bonus proportionate to results achieved in the period between the first
day of the fiscal year and the date in the fiscal year when the event
occurs.
7. ANNUAL STOCK OPTION AWARDS
Consistent with industry practice, annual stock option awards are provided to
certain Senior Executives, as decided from time to time by the Human Resources
Committee of the Board of Directors. These awards will be made each year at the
first meeting of the Human Resources Committee of the Board of Directors
following the fiscal year end (expected on or before November 15). The first
such award will take place in the Fall of 1998. The number of options to be
awarded annually will be calculated by taking the total value of the salary paid
to the executive in the fiscal year, multiplying by the exchange rate of the
Canadian dollar at the end of that year, multiplying by a fraction which will
vary among Senior Executives, and dividing by the year end share price for
Phoenix International shares in Canadian dollars. For Example, assuming the
salary paid to a Senior Executive is US$150,000, a US dollar is equal to
Can$1.40, and Phoenix International shares are trading at Can$15.00, and the
fraction of salary is 25%, the
8
<PAGE>
number of options to be awarded would be:
150,000 x 1.40 x 0.25/15.00 = 3,500 share options
Annually awarded share options vest differently from options awarded on hiring
or promotion. Annually awarded options vest 20% for each year of service
following the award of such options.
8. BENEFITS
Some executives will receive a car allowance. All executives will receive
increased insurance coverage for death or disability. Benefits may vary by
country and according to local situations and practice.
9. START UP AND FUTURE REVIEW OF THIS POLICY
Phoenix International has implemented this policy by:
9.1 Adjusting salaries for incumbent executives whose salaries are
significantly lower than specified by this policy.
9.2 Establishing an executive incentive scheme (bonus plan) based on
corporate and local profitability and achievement of objectives. Since
the company's financial resources and results, the nature of its
business, and its objectives are all subject to more or less frequent
change, the bonus plan is also subject to possible substantial change
each year.
9.3 Providing for annual stock option awards to certain Senior Executives.
10. OVERRIDING FACTORS AND EXCEPTIONS
Notwithstanding provisions elsewhere in this policy, salary increase and bonus
policies and plans are contingent on the company's economic circumstances each
year, and contingent on annual review by the HR committee of the Board of
Directors, and approval of the Board of Directors. This review and approval
shall deviate from this policy only if the economic circumstances of the company
require this, or in the event of a significant performance issue for a
particular executive, or in the event of a change in this policy as a result of
a policy review initiated by the Board of Directors.
On a country by country basis, the Chairman and CEO may authorize adjustment of
the Norms for any grade except those subject to approval of the HR committee of
the Board of Directors, in countries where this is necessary to reflect local
conditions, such as taxation and competitive salaries in the particular country.
9
<PAGE>
TABLE 1
TITLES, GRADES AND FUNCTIONS
----------------------------
<TABLE>
<CAPTION>
TITLE GRADE
- -------------------------------------------------------------------
Normal Founder Normal Founder/Expert Description
- ------ ------- ------ -------------- -----------
<S> <C> <C> <C> <C>
Chairman and CEO Same E1 Same The company's legal Chief Executive Officer
President and COO Same E2 E1* An executive responsible for all business for a
country or group of countries, with
combined annual net revenues in excess of
US$35 million, or a corporate executive
with line responsibilities second only to
those of the CEO.
President, CFO Same E3 E2* An executive responsible for all business
for a country, or group of countries, or
other independent business unit, with
annual net revenues of between US$15 and
$35 million, or the corporate CFO.
President Same E4 E3* An executive responsible for all business
for a country or independent business
unit(s) with annual net revenues in the
range US$7.5-15 million.
Senior Vice President Same E4 E3*# A business development executive responsible
for a business volume in excess of US$50 million
and who has relationships with pertinent drug
development executives above the Director
level in client companies, or an executive
responsible for a substantial business
unit within an operating organization.
VP (line or staff) Senior VP E5 E4*# Corporate or local Line or Staff VP with
substantial direct staff management responsibilities.
Business development executive responsible for an
annual business volume in the range US$25-50 million
and supervising greater than or equal to 4 BD - directors.
VP (line or staff) Senior VP E6 E5*# Corporate or local line or staff VP with minimal
staff management responsibilities, or senior
director level employee with skills or knowledge in very
high demand. Business Development executive responsible
for annual business volume in the range US$25-50
million, and supervising less than or equal to 4 BD
directors.
</TABLE>
10
<PAGE>
* = Founder, # = Expert
11
<PAGE>
Exhibit 10.2
PHOENIX INTERNATIONAL WORLDWIDE
"PLAN FOR INCENTIVES FOR EMPLOYEES"
[PIE]
VERSION 1.3
JULY 8, 1998
1
<PAGE>
"PLAN FOR INCENTIVES FOR EMPLOYEES"
[PIE]
VERSION 1.3
JULY 8, 1998
Note: This Plan refers to "business units". A business unit is a
semi-autonomous operation, usually a single country operation (e.g. UK
or France), but sometimes a unit within a country (e.g. Cincinnati or
Neptune or the former IRG US).
1. BACKGROUND
The history of employee incentives for the major business units is summarized
below:
1.1 IBRD-ROSTRUM-GLOBAL (IRG)
IRG Employees were awarded bonuses for the fiscal year ending December
31, 1997, totalling in excess of $900,000, despite major losses in
those organizations. When Phoenix International acquired these
operations, it informed IRG employees that its policy was to award
bonuses only if profits were produced. This affected morale in IRG,
mostly in the UK where, in contrast to IRG US which is now profitable,
a significant profit in 1998 was seen by UK employees to be difficult
to achieve. While profitability is and will always be a key to
incentive plans, Phoenix International's Executive Committee believes
that the employees of business units that are in a "recovery mode",
such as the former IRG-UK, should have an incentive to perform other
than salary, and it is thus revising its incentive plans to provide
such encouragement. This is also true of start up operations, where
profitability may not come quickly.
1.2 FRANCE (I.T.E.M.)
In France, assuming the company meets certain criteria, profit sharing
is compulsory by law for a business unit the size of Phoenix
International France (previously I.T.E.M.). However, profits in France
may be reduced by legitimate charges from corporate and European Head
Offices. This could be viewed by employees as an ARTIFICIAL reduction
in profitability in order to avoid profit sharing. Thus, a formal
incentive plan is required in France to reward employees appropriately,
if the amount provided by government-legislated profit sharing is
inconsistent with amounts awarded to other Phoenix International
business units with similar performance.
2
<PAGE>
1.3 SPAIN, GERMANY (IPR) AND SWITZERLAND (ANAWA)
Bonuses have been paid on a variable basis in previous years to some
employees in some business units.
1.4 CINCINNATI
While Cincinnati has been profitable for some periods, it has yet to be
profitable for a complete fiscal year. Thus, bonuses have generally not
been paid in Cincinnati.
1.5 MONTREAL
In Montreal, employees have benefited from sharing of 20% of profits
every year (except in loss years) since the start of the company in
1989. However, both Phoenix International's Board of Directors and its
executives feel that use of a bonus formula in Montreal based entirely
on local results is counter-productive in a multinational organization
where mutual feeding of business between business units is desired.
Additionally, the 20% of profit formula, while appropriate when Phoenix
was a private company or a primarily Montreal-based public company, is
an unusual formula for a multinational public company.
1.6 EMPLOYEES WITH CONTRACTUAL BONUSES
Some employees have bonuses defined in their employment agreements.
Such employees will not participate in this incentive plan, although
they may revoke their contractual bonus at any time and become
permanently subject to this plan.
2. OBJECTIVES
To pay bonuses to employees based on results in the fiscal year ending August
31, that will provide an incentive to:
2.1 Maximize Corporate Net Profit
2.2 Maximize Local Net Profit
2.3 Meet or exceed the local budget
2.4 Achieve personal objectives that will assist the company in achieving
its goals
3. THE INCENTIVE POOL FOR 1998
This Plan allocates a pool for incentive payments to various business units. An
interim policy is
3
<PAGE>
necessary for 1998, since it is a transition year:
a) For Montreal, from a profit sharing scheme to a more formal incentive
plan, equitable with business units in other countries, and
b) For other operations, from their previous plans or lack of plans, to a
formal plan based on performance.
The interim incentive plan for 1998 reflects the pool of cash that can be made
available, considering Phoenix International's profit targets. It will provide
some incentive payment to all employees who perform at least adequately,
regardless of whether or not their business unit is profitable in fiscal 1998.
The pool of money available for incentives for fiscal 1998 will be approximately
20% of corporate net profit, and assuming current forecasts are achieved, this
is estimated at approximately Can$2 million. This pool reflects the Phoenix
International "Plan for Incentives for Employees", to be known as the "PIE".
4. THE 1998 INCENTIVE PLAN
Phoenix International's 1998 Incentive Plan is designed to put different degrees
of emphasis on each of the objectives in 2., above.
Phoenix International recognizes that employees have most influence on their own
activities and the results of their own business units. Nevertheless, without a
strong corporate performance, and without collaboration and business sharing
between business units, funds for incentive payments will not exist, and thus
significant emphasis on corporate profits and international collaboration is
necessary in allocating the PIE. The PIE will be allocated as follows:
<TABLE>
<S> <C>
a) To reflect corporate net profit: 30% of the PIE
b) To reward local net profit achievement: 30% of the PIE
c) To reward local performance vs budget (or in 1998, forecast): 20% of the PIE
d) For individual achievement and international collaboration: 20% of the PIE
</TABLE>
Thus, 70% of the incentive payment will be largely associated with local results
(Local Net Profit, Local Performance vs Budget, and Individual Achievement), and
30% with corporate performance.
Some components of the PIE are allocated based partly on the percentage of the
fiscal year that the business unit was part of the Phoenix International group.
This will be called the Time Factor, or "TF". For example, for the former ANAWA,
which will have been part of Phoenix International for 124 days as of August 31,
1998, its TF will be 124/365 = 34% of what its share would have been if it had
been part of Phoenix International for a full year.
Some components of the PIE are allocated based partly on the number of employees
in the
4
<PAGE>
business unit, relative to the total number of Phoenix International employees
worldwide. This is called the Employee Factor, or "EF". For example, if the
total number of Phoenix International employees is 1,800 and the number of
employees in Montreal is 1,000, then the Montreal EF is 1,000/1,800 = 55.6%.
Details of PIE allocation are as follows:
4.1 CORPORATE NET PROFIT (30%)
The 30% of the PIE allocated to this category is simply multiplied by
the EF to provide the piece allocated to a business unit.
4.2 LOCAL NET PROFIT (30%)
Allocated proportional to actual Local Net Profit divided by Total
Local Net Profit of all profitable business units. Note that if there
is no Local Net Profit (i.e. a loss), then the allocation to the
business unit from this piece of the PIE is zero.
4.3 LOCAL PERFORMANCE VS FORECAST (20%)
This is allocated based on percentage of Net Profit (or Loss) vs
forecast for 1998 (or in future years, vs budget), adjusted for the EF
and for the TF. This category was included in order to reward startup
and recovering business units whose forecast or budget does not predict
profits, and who therefore are unlikely to benefit from 4.2, above.
4.4 INDIVIDUAL ACHIEVEMENT (20%)
The 20% of the PIE allocated to this category is multiplied by the TF
and the EF to arrive at the allocation for a particular business unit.
5. DISTRIBUTION OF POOLS AMONG EMPLOYEES
Distribution of incentive pools among local employees is to be according to a
local written policy that must be approved by the local COO and the Corporate
CEO, and must be in place by July 31, 1998. The senior management of each
business unit will choose a distribution plan that is consistent with the local
corporate culture and objectives. Some portion of this must be based on
achievement of personal objectives or performance. For all employees at Director
level or higher, at least 35% of the achievement of personal objectives must
reflect the extent to which they have contributed to collaboration between their
own business unit and other business units, particularly business units in other
countries. If an employee at Director level or higher has not had or created the
opportunity to indulge in meaningful international collaboration, he/she will
not be eligible for this portion of his/her bonus.
5
<PAGE>
In France, individual bonuses will be the greater of government-mandated profit
sharing (GMPS) or the bonuses derived from this plan. If the latter is higher
than the GMPS, then the employee shall receive the GMPS plus the difference
between bonus from this plan and the GMPS.
6. 1999 INCENTIVE PLAN
6.1 BONUS POOL
Phoenix International will budget for an incentive pool of 5% of
salaries (approximately $5 million). No incentive of any type, other
than in 6.2, below, will be paid if corporate Net Profit is below 70%
of target. The incentive pool will vary between 2.5 and 7.5% of salary
for corporate profits between 70% and 130% of target, proportionate in
this range. The pool will be capped at 7.5% of salaries.
6.2 RESCUE FUND
A rescue fund will be established to provide incentives to outstanding
performers in the event corporate profit does not reach 70% of target.
This will be distributed at the discretion of Executive committee.
6.3 INCENTIVE ALLOCATION AND DISTRIBUTION
To be identical to that described for 1998, above.
7. ELIGIBILITY AND PAYMENT
Any full time permanent or part time permanent employee who has been employed
for the last three months of the fiscal year is eligible for this plan.
Employees who have worked less than a full fiscal year (but more than 3 months)
and permanent part time personnel will receive a bonus payment proportional to
their days of service that year. Annual bonuses will be paid within 3 months of
the end of the fiscal year. If prior to payment of a bonus an employee gives
notice of resignation, or his/her contract is not renewed, or he or she is
dismissed, the bonus shall be forfeited. If an employee dies, or is permanently
disabled, he/she or his/her estate shall receive within one month of the event a
bonus proportionate to results achieved in the period between the first day of
the fiscal year and the date in the fiscal year when the event occurs.
8. POSSIBLE EMPLOYEE SHARE OWNERSHIP PLAN (ESOP)
Employee share ownership is seen as means of creating greater interest in profit
generation among employees, and motivating and potentially profitable for the
employee-investor. Phoenix International is investigating an ESOP that will
allow any employee to purchase shares at market prices in an amount up to a
defined percentage of annual salary. Phoenix International would make
arrangements that result in an effective discount to market price for these
employee share
6
<PAGE>
purchases. These arrangements may vary with business unit, due to variations in
tax and securities laws and regulations. A limit on the total benefit provided
by Phoenix International will be imposed. Such share purchases would most likely
be done on a regular basis through payroll deductions.
Phoenix International will investigate the tax implications for employees in
various countries, and the corporate and securities regulations in various
countries. While viewed as desirable by management, there can be no guarantee
that an ESOP will be implemented in any particular country, or at all, pending
the results of these investigations and an evaluation of the cost of
administering the plan.
9. POSSIBLE SHARE PURCHASES AT PUBLIC OFFERINGS
It is proposed that Phoenix International offer interest free loans, repayable
through payroll deductions, for employees to purchase shares at any public
offering that Phoenix International may make. The shares will be held by Phoenix
International as collateral until the loan is fully repaid.
10. APPROVAL OF PLAN
This Plan for Incentives for Employees has been approved in principle by the
Human Resources Committee of the Board of Directors of Phoenix International,
and the company's Corporate Executive Committee. However, the Plan is subject to
the final approval of Phoenix International's Board of Directors.
7
<PAGE>
Exhibit 10.3
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
KEY EMPLOYEE SHARE OPTION PLAN
1. PURPOSE. The Phoenix International Life Sciences Inc. Key Employee
Share Option Plan (the "Plan") is intended to attract and retain highly
qualified directors and employees who will be motivated toward the success of
Phoenix International Life Sciences Inc. ("Phoenix") and to encourage share
ownership in Phoenix by such persons.
2. NUMBER OF COMMON SHARES TO BE OFFERED. The shares subject to the
options to be granted under this Plan shall be Common Shares of Phoenix ("Common
Shares"). The maximum number of Common Shares that may be issued under this Plan
shall not exceed 2,428,920 Common Shares. Upon the expiration, surrender or
termination, in whole or in part, of an unexercised option, the Common Shares
subject to such option shall be available for other options to be granted from
time to time under this Plan.
3. TERMS AND CONDITIONS OF OPTION
(a) EMPLOYEE ELIGIBLE TO RECEIVE OPTIONS. The individuals who shall be
eligible to receive options under this Plan shall be directors, senior
executives and key employees of Phoenix and its subsidiaries (the "Optionee") as
the Compensation Committee of the Board of Directors of Phoenix ("Committee")
from time to time shall determine. The maximum number of Common Shares that may
be optioned in favour of any single Optionee will not exceed 5% of the total
number of all of the outstanding Common Shares.
(b) OPTION PRICE. The price at which Common Shares may be purchased
under the Plan shall be the local currency equivalent on the date of grant of
the option (the "Grant Date") as determined by the Committee, provided however,
that such price may not be less than the average of the market price of the
Common Shares for the five-day period immediately preceding the Grant Date. For
the purpose hereof, "market price" shall mean:
(i) the average of the high and low prices of the Common Shares on
The Montreal Exchange and The Toronto Stock Exchange on a
trading day, and
(ii) if there was no trade for the Common Shares on one or both of
such exchanges on any particular relevant trading day, then
the market price will be the average of the bid and ask
quotations for the Common Shares on such relevant trading day
on such stock exchange.
(c) OPTION PERIOD. Each option for Common Shares granted under the Plan
(the "Option Shares") may be exercised at any time or from time to time as
follows:
(i) up to 4% of the Option Shares during the one year period
following the date which is 12 months after the date of grant
of such option,
<PAGE>
Page 2
(ii) up to 16% of the Option Shares during the one year period
following the date which is 24 months after the date of grant
of such option,
(iii) up to 36% of the Option Shares during the one year period
following the date which is 36 months after the date of grant
of such option,
(iv) up to 64% of the Option Shares during the one year period
following the date which is 48 months after the date of grant
of such option, and
(v) up to 100% of the Option Shares following the date which is 60
months after the date of grant of such option.
On the date which occurs ten years following the date of grant of an option, the
option shall expire and terminate and be of no further force or effect
whatsoever.
(d) METHODS OF PAYMENT. The Optionee from time to time during the
option period may elect to purchase all or part of the Option Shares which the
Optionee is entitled to purchase by lump sum payment by delivering to Phoenix a
completed stock option purchase form. Such form shall specify the number of
Option Shares the Optionee desires to purchase and shall be accompanied by
payment in full of the purchase price for such Option Shares. Payment can be
made by cash, certified cheque, bank draft or money order payable to Phoenix.
(e) WITHHOLDING. No Option Shares shall be issued by Phoenix to an
Optionee until appropriate arrangements have been made for the payment of any
amounts which may be withheld or paid by Phoenix with respect thereto,
including, without limitation, withholding the transfer of a portion of the
shares of Phoenix's stock otherwise issuable in order to satisfy all or a
portion of the required withholdings or payments.
(f) TERMINATION OF EMPLOYMENT OF AN OPTIONEE. In the event that an
Optionee's employment with Phoenix or any subsidiary is terminated prior to the
date which is ten years following the date of grant of the Optionee's option for
any reason other than death, the Optionee's option may be exercised, at anytime
during the period which is no more than 60 days following the date the
Optionee's employment is terminated (but in no event after the date which is ten
years following the date of grant of such option), as to such of the Option
Shares in respect of which such option has not previously been exercised, but
only to the extent that the Optionee was entitled at his termination of
employment to purchase such Option Shares then exercisable pursuant to Section
3(c) above; provided, however, that in the event the employment of an Optionee
who has received an option under the Plan is terminated as set forth above, the
Compensation Committee of Phoenix may, in its own discretion, amend the terms of
any option to permit the Optionee to exercise such options as if such Optionee's
employment had not been terminated. For purposes of this Plan, the transfer of
an Optionee's employment to Phoenix or to any subsidiary of Phoenix shall not be
considered a termination of employment.
<PAGE>
Page 3
(g) NON-EMPLOYEE DIRECTOR CEASING TO ACT AS DIRECTOR. In the event that
a non-employee director ceases to act as a director of Phoenix prior to the date
which is ten years following the date of grant of the director's options, such
non-employee director may exercise, at any time during the 180 days following
the announcement of the quarterly results next following the date such director
ceases to act as such and prior to the date which is ten years following the
date of grant of the director's options, any or all of his options then
exercisable pursuant to Section 3(c) above on the date he ceased to act as a
director and not previously exercised; those options which are not exercisable
pursuant to Section 3(c) above on or prior to the date such director ceases to
act as such shall terminate on such date.
(h) RIGHTS IN THE EVENT OF AN OPTIONEE'S DEATH. In the event of the
death of an Optionee while in the employment of Phoenix or any subsidiary on or
prior to the date which is ten years after the date of grant of the Optionee's
option, the portion of the Optionee's option which is not exercisable on the
date of such Optionee's death, if any, shall be accelerated so that the
Optionee's option may be exercised by the Optionee's legal personal
representative(s), at any time after the date of the Optionee's death up to and
including (but not after) a date which is 180 days following the date of the
Optionee's death (but in no event after the date which is ten years following
the date of grant of such option), as to any or all of the Option Shares in
respect of which such option was granted.
(i) NO EMPLOYMENT RIGHT. Nothing in this Plan shall confer upon the
Optionee the right to continue in the employ of Phoenix or interfere in any way
with the right of Phoenix to terminate the Optionee's employment at any time and
for any reason.
(j) NO SHAREHOLDER RIGHTS. An Optionee shall have no rights as a
shareholder with respect to any Option Shares covered by the Optionee's option
until the date of the valid issuance of such shares to the Optionee and only
after such shares are fully paid for. No adjustment will be made for dividends
or other distributions or rights for which the record date is prior to the date
of such issuance.
(k) TRANSFER AND ASSIGNMENT. The Optionee's rights with respect to
options granted under the Plan are not assignable or transferable by the
Optionee or subject to any other alienation, sale, hypothec or encumbrance by
such Optionee other than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the U.S. Internal
Revenue Code. Therefore, the options are exercisable during the Optionee's
lifetime only by the Optionee. The obligations of each Optionee shall be binding
on his heirs, executors and administrators.
(l) COMPLIANCE WITH UNITED STATES SECURITIES AND OTHER LAWS. Option
Shares may be purchased only if Phoenix has obtained the necessary approvals to
sell its Common Shares to Optionees who are citizens of, or who are employed in,
the United States under applicable United States securities and other laws.
<PAGE>
Page 4
4. ADJUSTMENTS. Upon the happening of any of the following events, an
Optionee's rights with respect to options granted under the Plan shall be
adjusted as hereinafter provided.
(a) In the event of any subdivision, redivision or change of the Common
Shares into a greater number of shares at any time, or in the case of the issue
of shares of Phoenix to the holders of its outstanding Common Shares by way of
stock dividend or stock dividends (other than an issue of shares to shareholders
pursuant to their exercise of options to receive dividends in the form of shares
of Phoenix in lieu of cash dividends declared payable in the ordinary course by
Phoenix on its Common Shares), the number of Common Shares deliverable by
Phoenix upon the exercise of an option shall be appropriately increased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, redivision or change.
(b) In the event of any consolidation or change of the Common Shares
into a lesser number of shares at any time, the number of Common Shares
deliverable by Phoenix upon the exercise of an option shall be appropriately
decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such consolidation.
(c) In the event of any reclassification or reclassifications of the
Common Shares, an Optionee shall accept, at the time of purchase of Option
Shares, in lieu of the number of Common Shares in respect of which the option to
purchase is being exercised, the number of shares of Phoenix of the appropriate
class or classes as the Optionee would have been entitled as a result of such
reclassification or reclassifications had the option been exercised before such
reclassification or reclassifications.
(d) If Phoenix is to be amalgamated with or acquired by another entity
in a merger, a sale of all or substantially all of Phoenix's assets or otherwise
(an "Acquisition"), the Committee or the Board of Directors or any entity
assuming the obligations of Phoenix under the Plan (the "Successor Board")
shall, as to outstanding options, either (i) make appropriate provision for the
continuation of such options by substituting on an equitable basis for the
shares then subject to such options the consideration payable with respect to
the outstanding Common Shares in conjunction with the Acquisition; or (ii) upon
written notice to the Optionees, provide that all options must be exercised, to
the extent then exercisable, within a specified number of days of the date of
such notice, at the end of which period the options shall terminate; or (iii)
terminate all options in exchange for a cash payment equal to the excess of the
fair market value of the shares subject to such options (to the extent then
exercisable) over the exercise price thereof.
(e) In the event of the proposed dissolution or liquidation of Phoenix,
each option will terminate immediately prior to the consummation of such
proposed action or at such other time and subject to such other conditions as
shall be determined by the Committee.
(f) Except as expressly provided herein, no issuance by Phoenix of
shares of any class, or securities convertible into shares of any class, shall
affect, and no adjustment by reason thereof
<PAGE>
Page 5
shall be made with respect to, the number or price of shares subject to options.
No adjustments shall be made for dividends paid in cash or in property other
than securities of Phoenix.
(g) No fractional shares shall be issued under the Plan and the
Optionee shall receive from Phoenix cash in lieu of such fractional shares.
(h) Upon the happening of any of the foregoing events described in
subparagraphs (a), (b), (c) or (d) above, the aggregate number of shares set
forth in paragraph 2 that are subject to options which previously have been or
subsequently may be granted under the Plan shall also be appropriately adjusted
to reflect the events described in such subparagraphs. The Committee or the
Successor Board shall determine the specific adjustments to be made under this
paragraph 4 and, subject to paragraph 5, its determination shall be conclusive.
5. ADMINISTRATION. This Plan shall be administered by the Compensation
Committee. Members of the Committee shall be appointed by the Board of Directors
of Phoenix and shall serve as such at the pleasure of the Board of Directors.
The Committee shall have full power and authority to designate those directors,
senior executive officers and key employees of Phoenix and its subsidiaries who
are to be granted options under this Plan, the number of options to be granted
and otherwise to interpret and construe the terms and conditions of the options
granted under this Plan. Any determination by the Committee shall be final and
conclusive unless otherwise determined by the Board of Directors of Phoenix, and
in any such event such determination of the Board of Directors shall be final
and conclusive. The day-to-day administration of this Plan may be delegated to
such officers and employees of Phoenix or of any subsidiary of Phoenix as the
Committee in its sole discretion shall determine.
6. AMENDMENT AND DISCONTINUANCE. The Board of Directors of Phoenix
shall have the right to amend, modify or terminate this Plan or any option
granted under this Plan at any time without notice; provided, however, that any
such amendment or modification of this Plan which increases the total number of
Common Shares which are to be offered under this Plan, as so amended or
modified, shall be approved by the shareholders of Phoenix. Any amendment or
modification of this Plan or of any option granted under this Plan, will be
subject to the prior approval of The Montreal Exchange, The Toronto Stock
Exchange and any regulatory body requiring similar approval.
7. QUEBEC STOCK SAVINGS PLAN. According to the current provisions of
the TAXATION ACT (Quebec) (the "Act"), Option Shares issued to an Optionee under
the Plan will qualify for inclusion in a Quebec Stock Savings Plan ("QSSP"),
subject to certain conditions set forth in the Act. An Optionee who is a Quebec
resident on the last day of a year will be entitled to deduct in the calculation
of his taxable income the adjusted cost of Option Shares purchased in the year
under the Plan and included in a QSSP no later than January 31 of the following
year. The adjusted cost will be determined in accordance with the rates of
deduction in effect at the time an option is exercised, based however on the
characteristics of Phoenix and of the Option Shares at the date of the
<PAGE>
Page 6
exemption from filing a prospectus. The deduction allowed for an individual
regarding all shares included in a QSSP during a given taxation year, including
those purchased under the Plan, may not exceed 10% of his total income for the
year. IT IS POSSIBLE THAT UPON EXERCISE OF OPTIONS, THE OPTION SHARES THEN
ISSUED BY PHOENIX MAY NO LONGER BE ELIGIBLE FOR INCLUSION IN A QSSP BY REASON OF
AMENDMENTS WHICH MAY HAVE BEEN MADE TO THE ACT SUBSEQUENT TO THE DATE HEREOF.
ACCORDINGLY, THERE IS NO ASSURANCE THAT AT THE TIME OF EXERCISE OF OPTIONS, THE
OPTION SHARES WILL CONTINUE TO BE ELIGIBLE FOR INCLUSION IN A QSSP. OPTIONEES
WHO ARE RESIDENT IN QUEBEC SHOULD CONSULT WITH THEIR TAX ADVISORS WITH REGARD TO
QUESTIONS CONCERNING THE QSSP.
8. TERMINATION OF THE PLAN. The Plan shall remain effective until
terminated by the Board of Directors of Phoenix provided that the termination of
the Plan shall have no effect on outstanding options, which shall remain in
accordance with their terms and conditions and the terms and conditions of the
Plan.
9. NO CORPORATE ACTION RESTRICTION. Nothing contained in the Plan shall
be construed to prevent or preclude Phoenix from taking any corporate action
which is deemed by Phoenix to be appropriate or in its best interest, whether or
not such action would have an adverse effect on the Plan or any option award
made under the Plan. No Optionee, beneficiary or other person shall have any
claim against Phoenix as a result of such corporate action.
10. GOVERNING LAW. The Plan and the options granted under the Plan
shall be construed in accordance with and be governed by the laws of the
Province of Quebec and the laws of Canada applicable therein.
Dated this 24th day of October, 1994, amended to increase the total number of
Common Shares which are to be offered under this Plan on December 18, 1997.
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT ENTERED INTO AT MONTREAL, THIS 2ND DAY OF JUNE, 1998.
BY AND BETWEEN: PHOENIX INTERNATIONAL LIFE SCIENCES INC., corporation duly
incorporated according to law, having a place of business in
the Province of Quebec, herein acting and represented by
Claude Forget, Dave Goldman, Dr. Bert Spilker, Dr. Lucien
Steru, Robert Raich, and duly authorized for the purposes
hereof as they hereby declare (hereinafter referred to as
"Phoenix"),
AND; DR. JOHN W. HOOPER, residing and domiciled in the City of
Hudson, Province of Quebec (hereinafter referred to as "JH")
WHEREAS JH is currently employed by Phoenix and holds the position of
Chairman of the Board and Chief Executive Officer of Phoenix;
WHEREAS the parties hereto wish to amend certain terms and conditions
of JH's employment with Phoenix and wish to provide that the terms and
conditions contained herein shall supersede all previous terms and conditions
relating to JH's employment with Phoenix, unless specifically provided herein.
NOW, THEREFORE, FOR THE REASONS SET FORTH ABOVE, AND IN CONSIDERATION
OF THE MUTUAL PREMISES AND AGREEMENTS HEREINAFTER SET FORTH, THE PARTIES HERETO
ACKNOWLEDGE AND AGREE AS FOLLOWS:
1. PREAMBLE
1.1 The preamble hereto shall form an integral part hereof as if recited
herein at length.
2. NATURE AND TERM OF SERVICES
2.1 The parties hereto hereby agree that the terms and conditions contained
herein shall apply to JH's employment with Phoenix and shall supersede
all previous agreements and terms and conditions relating to JH's
employment with Phoenix, unless specifically provided herein.
2.2 The term of the present Agreement (the "Term") begins on January 1, 1998
and shall continue for an indeterminate period unless terminated in
accordance with the provisions of the present Agreement.
<PAGE>
2.3 JH agrees that he shall, during the Term, continue to provide the
services that he is currently providing to Phoenix on a full-time basis.
Without limiting the generality of the foregoing, in addition to the
above mentioned services, JH shall do whatever is required of him during
the Term to hire and train a person to replace him as Chief Executive
Officer of Phoenix (hereinafter the "Services").
2.4 JH shall use his best efforts in providing the Services and in fulfilling
his duties and obligations hereunder pursuant to the terms hereof.
3. COMPENSATION
3.1 As consideration for the Services rendered pursuant to this Agreement,
and in further consideration for the confidentiality, non-competition and
non-solicitation covenants described in Article 4, 5, 6, 7 hereof,
Phoenix shall pay to JH an annual salary of $400,000 for each year of the
Term.
3.2 JH shall continue to be eligible for a merit bonus, subject to the
discretion of the Board of Directors of Phoenix and to be determined in a
manner consistent with other senior executives of Phoenix.
3.3 For the duration of the Term, JH shall be entitled to the following
annual car allowance and maximum annual car mileage allowance:
3.3.1 Annual car allowance - $6,000
3.3.2 Annual maximum car mileage allowance - $7,500 (upon presentation
of appropriate receipts).
4. CONFIDENTIALITY AND NON-COMPETITION
4.1 JH agrees to be bound by the provisions of that "Confidentiality,
Proprietary Rights, Regulatory and Non-Competition" agreement dated May
7, 1998, a copy of which is attached hereto under Schedule A. For greater
certainty, JH hereby agrees that the foregoing shall also apply during
the term of the New Agreement, if any.
5. TERMINATION
5.1 The present Agreement may be terminated by either party, by written
notice at least three (3) months prior to the effective date of
termination, however, such notice may not be given prior to September 30,
1999.
6. OTHER-MATTERS
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6.1 Upon the termination of the Term and subject to the agreement of both
parties hereto, Phoenix and JH may enter into an employment agreement (the "New
Agreement") whereby JH provides services to Phoenix for a fee, the whole subject
to the approval of the Board of Directors of Phoenix and Phoenix's new Chief
Executive Officer. The fee for JH's services shall be $1,000 per day of
services. If such a New Agreement is concluded, it may be terminated by either
party thereto at any time, subject to a three (3) month prior notice to the
other party.
6.2 The terms of the interest free loan currently due by JH to Phoenix shall
continue to apply during the Term and during the term of the New Agreement, as
the case may be. The foregoing amount shall immediately be reimbursed by JH to
Phoenix upon the termination of the present Agreement or upon termination of the
New Agreement, its the case may be.
6.3 All health, disability or other executive benefits which are specified in
the current Executive Benefits Plan, as such plan may be amended from time to
time, shall be provided to JH during the Term, and during the term of the New
Agreement, as the case may be, and shall immediately cease upon the termination
of the present Agreement or upon the termination of the New Agreement, as the
case may be.
6.4 JH's stock options pursuant to Phoenix's Key Employee Share Option Plan
shall expire in accordance with the said plan, that is, sixty (60) days
following the termination of the present Agreement or upon termination of the
New Agreement, as the case may be.
6.5 During the Term, as well as during the term of the New Agreement, as the
case may be, JH shall be eligible to receive a bonus as well as annual stock
grants in accordance with the executive bonus plan and the Key Employee Share
Option Plan in effect at such time (and based on the position that JH will be
occupying at such time) and as determined by the Board of Directors of Phoenix.
6.6 The parties hereto acknowledge that if they enter into the New Agreement,
as the case may be, JH will be an employee of Phoenix pursuant to the terms
thereof.
7. SEVERANCE
7.1 Following the termination of the Term in accordance with the provisions
of the present agreement, Phoenix shall pay to JH the following amount:
7.1.1 If the parties hereto do not enter into the New Agreement, JH
shall receive as severance the sum of $750,000 payable in sixty
(60) equal, consecutive, monthly payments of $12,500, the first
such payment being due and payable upon the expiry of the Term; or
7.1.2 If the parties hereto enter into the New Agreement and the New
Agreement is terminated prior to the day that is one year from the
beginning of the term of the
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<PAGE>
New Agreement, JH shall receive as severance the sum of $700,000
payable in sixty (60) equal consecutive monthly payments of
$11,666, the first such payment being due and payable upon the
termination of the New Agreement; or
7.1.3 If the parties hereto enter into the New Agreement and the New
Agreement is terminated on or after the day that is one year from
the beginning of the term of the New Agreement but prior to the
day that is two years from the beginning of the term of the New
Agreement, JH shall receive as severance the sum of $600,000
payable in sixty (60) equal, consecutive, monthly payments of
$10,000, the first such payment being due and payable upon the
termination of the New Agreement; of
7.1.4 If the parties hereto enter into the New Agreement and the New
Agreement is terminated on or after the day that is two years from
the beginning of the term of the New Agreement, JH shall receive
as severance the sum of $500,000 payable In sixty (60) equal,
consecutive, monthly payments of $8,333.33, the first such payment
being due and payable upon the termination of the New Agreement;
8. MISCELLANEOUS
8.1 This Agreement shall be binding upon and shall enure to the benefit of
the parties hereto, and any successor to or assignee of all or substantially all
of the business and property of Phoenix. In addition, Phoenix may assign its
rights hereunder to a direct or indirect subsidiary, affiliated company, or
division of Phoenix without the consent of JH. For greater certainty, in the
event of the death of JH, after the termination of the Term, the sums payable in
accordance with Section 6 shall be payable to JH's estate.
8.2 This Agreement contains the entire agreement relating to JH's employment
with Phoenix, and shall not be modified except in writing by the parties hereto.
Furthermore, the parties hereto specifically agree that all prior agreements,
whether written or oral, relating to the Services shall be of no further force
or effect from and after the date hereof, other than as provided herein.
8.3 If any phrase, clause or provision of this Agreement is declared invalid
or unenforceable by a court of competent jurisdiction, such phrase, clause or
provision shall be deemed severable from this Agreement, but will not effect any
other provisions of this Agreement which otherwise shall remain in full force
and effect. If any restriction or limitation in this Agreement is deemed to be
unreasonable, onerous and unduly restrictive by a court of competent
jurisdiction, it shall not be stricken in its entirety and held totally void and
unenforceable, but shall remain effective to the maximum extent permissible
within reasonable bounds.
8.4 The waiver by JH or Phoenix of any breach of any term or condition of
this Agreement shall not be deemed to constitute the waiver of any other breach
of the same or any other term or
-4-
<PAGE>
condition hereof.
8.5 The parties hereto agree that this Agreement shall be construed as to both
validity and performance and shall be enforced in accordance with and governed
by the laws of Quebec and the laws of Canada applicable therein.
8.6 The parties hereto have requested that this Agreement and all
documentation relating thereto be drafted in English. LES PARTIES AUX PRESENTES
ONT DEMANDE QUE CE CONTRAT ET TOUTES AUTRES DOCUMENTS Y AFFERENTES SOIENT
REDIGEES EN ANGLAIS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Per: /s/ Claude Forget
-----------------------------------
Claude Forget
Per: /s/ Dave Goldman
-----------------------------------
Dave Goldman
-5-
<PAGE>
Exhibit 10.5
Page 1
EMPLOYMENT AGREEMENT
AGREEMENT ENTERED INTO AT MONTREAL, THIS 18th DAY OF NOVEMBER, 1998.
BY AND BETWEEN: PHOENIX INTERNATIONAL LIFE SCIENCES INC., a
corporation duly incorporated according to law,
having a place of business in the Province of Quebec,
herein acting and represented by Dr. John W. Hooper,
duly authorized for the purposes hereof as he hereby
declares (hereinafter referred to as "Phoenix"),
AND: JEAN-YVES CALOZ, residing and domiciled at , in the
City of Calabasas, California, USA (hereinafter
referred to as "JYC")
WHEREAS JYC is currently employed by Phoenix and holds the
position of Senior Vice-president, Chief Financial Officer and Secretary;
WHEREAS the parties hereto wish to provide that the terms and
conditions of JYC's employment shall change,and his employment shall be limited
as to term, in recognition of his having moved to the Los Angeles, California
area with no prior notification by JYC to Phoenix of this move.
NOW, THEREFORE, FOR THE REASONS SET FORTH ABOVE, AND IN
CONSIDERATION OF THE MUTUAL PREMISES AND AGREEMENTS HEREINAFTER SET FORTH, THE
PARTIES HERETO ACKNOWLEDGE AND AGREE AS FOLLOWS:
1. PREAMBLE
1.1 The preamble hereto shall form an integral part hereof as if recited herein
at length.
2. NATURE AND TERM OF SERVICES
2.1 The parties hereto hereby agree that the terms and conditions which
currently apply to JYC's employment with Phoenix shall continue to apply for the
term specified herein,
<PAGE>
Page 2
unless specifically provided herein.
2.2 Subject to the provisions of paragraph 6.1, the parties hereto agree that
JYC's employment with Phoenix shall terminate no earlier than March 1, 1999,
and thereafter the earlier of when he has obtained alternative employment, or
on August 31, 1999 (the "Expiry of the Term"). JYC will make all best efforts
to obtain alternative employment as soon as possible. However, JYC agrees not
to leave Phoenix before March 1, 1999.
2.3 JYC agrees that until December 31, 1998, he shall continue to provide the
services that he is currently providing to Phoenix on the basis of four (4)
days per week, namely three (3) days per week in Montreal (Monday, Tuesday
and Wednesday) and one (1) day per week in California (Thursday). As of
January 1, 1999, JYC will provide the bulk of his services from Phoenix's
Irvine Office, and will travel to Montreal only on prior approval by
Phoenix's CEO. In weeks where JYC does not travel to Montreal, he will work
the normal 5 days per week. Without limiting the generality of the foregoing,
JYC shall do whatever is required of him, when instructed by Phoenix's CEO
from time to time, to rapidly and permanently transfer his current
responsibilities to the person replacing him as Chief Financial Officer in
Montreal.
2.4 JYC shall use his best efforts in providing the Services and in fulfilling
his duties and obligations hereunder pursuant to the terms hereof.
2.5 Effective November 15, 1998, JYC's title shall be Senior Vice President,
International Finance and Acquisitions.
3. COMPENSATION
3.1 As consideration for the Services rendered pursuant to this Agreement, and
in further consideration for the confidentiality, non-competition and
non-solicitation covenants described in Article 4 hereof, Phoenix shall, until
the termination of the present Agreement, continue to pay to JYC the salary that
he is currently being paid (hereinafter the "Salary"). However, JYC shall no
longer be eligible for annual stock option awards.
3.2 JYC shall continue to be eligible for a merit bonus, subject to the
discretion of the Human Resources Committee of the Board of Directors of
Phoenix (HRCB) and to be determined by the HRCB in a manner consistent with
other senior executives of Phoenix.
3.3 The parties hereto hereby declare that at the time of execution of the
present agreement, they have no intention of renewing the present Agreement.
However, if both parties agree, the present Agreement may be renewed. The
foregoing provision shall not bind Phoenix in any manner whatsoever.
<PAGE>
Page 3
3.4 The terms of the interest free loan of $60,000 currently due by JYC to
Phoenix shall continue to apply until the termination of the present Agreement.
The foregoing amount shall immediately be reimbursed by JYC to Phoenix upon the
termination of the present Agreement.
3.5 The terms of any health disability or other executive benefits plan which
currently apply to JYC shall continue to apply until the Expiry of the Term and
shall immediately cease upon the termination of the present Agreement.
3.6 JYC's stock options pursuant to Phoenix's Key Employee Share Option Plan
shall expire as of December 1, 1999, regardless of the date his employment
with Phoenix terminates. All options outstanding but not vested at the date
or termination of JVC's employment shall be vested as of that date.
Notwithstanding the foregoing, all changes in the status or stock options
are subject to the approval of the HRBC.
3.7 For greater certainty, JYC shall be entitled to no additional compensation,
other than as provided in the present Agreement.
4. CONFIDENTIALITY AND NON-COMPETITION
4.1 JYC agrees to be bound by the provisions of that "Confidentiality,
Proprietary Rights, Regulatory and Non-Competition" agreement dated November 15,
1998, a copy of which is attached hereto as Schedule A.
5. EXPENSES
5.1 All costs and expenses incurred by JYC, until the termination of the
present Employment Agreement, in the performance of the Services shall be
reimbursed by Phoenix in the manner and as is currently the practice between
JYC and Phoenix, provided such costs and expenses are incurred in the normal
course of business. With reference to the costs incurred by JYC in travelling
between his home in Los Angeles, CA to Montreal in order to fulfill his job
functions, these costs and expenses may be terminated at any time at
Phoenix's Option.
6. TERMINATION
6.1 In the event of a breach by JYC of any of the terms and conditions of the
present Agreement, or upon death or permanent disability such that JYC cannot
perform the services hereunder, or for any other just cause, this Agreement
may be terminated by Phoenix without notice or penalty. Notwithstanding the
foregoing, any Salary earned by JYC prior to such termination shall remain
payable by Phoenix to JYC. In the event of JYC's death, all invested options
shall be fully vested as of the date of his death.
<PAGE>
Page 4
6.2 The present Agreement may be terminated by JYC after March 1, 1999, by a
Thirty (30) day written notice to Phoenix, which may be waived by Phoenix at
its option.
7. MISCELLANEOUS
7.1 This Agreement contains the entire agreement relating to JYC's employment
with Phoenix, and shall not be modified except in writing by the parties hereto.
Furthermore, the parties hereto specifically agree that all prior agreements,
whether written or oral, relating to the Services shall be of no further force
or effect from and after the date hereof, other than as provided herein.
7.2 If any phrase, clause or provision of this Agreement is declared invalid or
unenforceable by a court of competent jurisdiction, such phrase, clause or
provision shall be deemed severable from this Agreement, but will not effect any
other provisions of this Agreement, which otherwise shall remain in full force
and effect. If any restriction or limitation in this Agreement is deemed to be
unreasonable, onerous and unduly restrictive by a court of competent
jurisdiction, it shall not be stricken in its entirety and held totally void and
unenforceable, but shall remain effective to the maximum extent permissible
within reasonable bounds.
7.3 The waiver by JYC or Phoenix of any breach of any term or condition of
this Agreement shall not be deemed to constitute the waiver of any other
breach of the same or any other term or condition hereof. Notwithstanding as
well, all provisions relating to health disability benefits or life
insurance will continue.
7.4 The parties hereto agree that this Agreement shall be construed as to both
validity and performance and shall be enforced in accordance with and governed
by the laws of Quebec and the laws of Canada applicable therein.
7.5 The parties hereto have requested that this Agreement and all documentation
relating thereto be drafted in English. LES PARTIES AUX PRESENTES ONT DEMANDE
QUE CE CONTRAT ET TOUTES AUTRES DOCUMENTS Y AFFERENTES SOIENT REDIGEES EN
ANGLAIS.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
per: /s/ Dr. John W. Hooper
---------------------------------------
Dr. John W. Hooper
<PAGE>
Page 5
/s/ Jean-Yves Caloz
---------------------------------------
JEAN-YVES CALOZ
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
Lucien Steru, M.D. August 7th, 1997
31 Rue Robert de Flers
75015 Paris
France
Dear Mr. Steru,
The undersigned, Phoenix International Life Sciences Inc. (Phoenix) hereby
offers you employment subject to the following terms and conditions:
1. You hereby agree to commence employment with Phoenix on August 7th.
1997, on a full-time basis. You agree to continue to work for Phoenix,
in the role specified below, or any other role you are assigned by
mutual agreement, for a period of two years. In the three months prior
to the expiration of this Employment Agreement, the parties may
negotiate a further contract for continued employment.
2. Your titles shall be President, Phoenix International Life
Sciences-Europe and President, Phoenix International Life Sciences
(France) [formerly I.T.E.M.], reporting initially to the Phoenix's
Chairman and CEO. You will be the Chairman of the Phoenix-Europe
Executive Committee, and a member of the Board of Directors of Phoenix
International Life Sciences Inc . Your initial duties will be described
in a Position Description to be agreed with Phoenix's Chairman and CEO.
3. Your starting gross annual remuneration shall be 1,580,000 French
francs. You will receive annual increases based on your ability to
fulfill the position description and consistent with Phoenix's
executive salary administration policies. You will also be reimbursed
for kilometers traveled in your car on company business at the rate
established from time to time by Phoenix. You have indicated you have
or will establish residency in Brussels, Belgium. Phoenix will
reimburse you for all reasonable travel expenses incurred for you and
your family to move to Brussels, and for transport of your house
furnishings and other personal effects to Brussels, to a maximum of
100,000 French francs. Please be advised that legal and real estate
fees or charges of any type other than specified above are not
reimbursable. Health insurance and other benefits comparable to those
previously provided to you and your family by ITEM, will be provided
at Phoenix's expense.
4. You will be entitled to 5 weeks (25 working days) annual vacation.
5. You will be eligible to receive a bonus following the end of each
financial year, based on the Executive Bonus Plan approved by the Human
Resources Committee of Phoenix's Board of Directors. Please note that
this plan is subject to change on an annual basis.
<PAGE>
6. Within one week of your first day of employment at Phoenix you will be
awarded options to purchase 62,500 Phoenix shares. These options may be
exercised as they become vested, subject to securities commission and
stock exchange regulations. The options vest progressively each year on
the anniversary of the date of granting of the options, as follows:
Year Cumulative % Vested
---- -------------------
1998 4%
1999 16%
2000 36%
2001 64%
2002 100%
If your employment with Phoenix ceases before the anniversary date of the
granting of options in the year 2002, you will have 60 days after your
employment ceases to exercise vested options. Subsequent to this 60 days, all
options will expire automatically.
The option price shall be the average Market Price on the five trading days
preceding the day the options are awarded to you. Market Price is defined as the
average of the high and low prices of Phoenix's Common Shares on the Montreal
Exchange and the Toronto Exchange on a trading day or, if there were no trades
that day, the average of the bid and ask quotations for that day.
If a take over bid for Phoenix common shares results in a change in legal
control of Phoenix, defined as a person or persons achieving beneficial
ownership of voting shares carrying more than 50% of the votes for the election
of directors of Phoenix, or if Phoenix elects to sell substantially all of its
assets, then all options for the purchase of shares held by you will vest and
become exercisable, contingent on securities regulations.
You and Phoenix agree that the other terms and conditions of Phoenix's Key
Employee Share Option Plan (attached; Schedule A), as amended from time to time,
shall apply.
This offer of stock options is conditional on signature of the attached
Confidentiality, Proprietary Rights, Regulatory Compliance and Non-Competition
Agreement that requires, among other things, that you not compete with Phoenix
for two years after leaving the company.
7. If, you are dismissed other than for cause, then you will receive a
severance payment of 6 month's salary, in monthly installments, and the
non-competition aspects of the Confidentiality, Proprietary Rights,
Regulatory Compliance and Non-Competition Agreement you have signed,
shall become null and void 6 months after your employment with Phoenix
ceases. You affirm that you commit to remaining employed by Phoenix for
2 years. If you wish to terminate your employment with Phoenix
subsequent to the expiration of 2 years of employment, you agree to
give 6 months notice of termination of employment.
<PAGE>
8. It is agreed that the obligations of Phoenix pursuant to Sections 3, 4,
5, 6 and 7 will only commence once you have started work on a full time
basis with Phoenix accordance with Section 1 hereof.
9. During your employment you shall devote your full time and efforts to
Phoenix and shall not, directly or indirectly, engage in any business
competitive with or similar to any business carried on by Phoenix, its
subsidiaries, affiliates or alliance partners.
10. You shall sign concurrently herewith a Confidentiality, Proprietary
Rights, Regulatory Compliance and Non-Competition Agreement (Schedule
B; also associated code of conduct) with Phoenix, as amended from time
to time, which Agreement shall be, in form and content, satisfactory to
Phoenix.
11. You hereby agree that any breach by yourself of Sections 1 or 9 of this
Employment Agreement, or of the Confidentiality, Proprietary Rights,
Regulatory Compliance and Non-Competition Agreement, will entitle
Phoenix to damages of Can$200,000, which amount shall not be reduced
for partial performance or any other reason whatsoever. You also agree
that any breach of the Non-Competition or Non-Solicitation provisions
of the Confidentiality, Proprietary Rights, Regulatory Compliance and
Non-Competition Agreement will entitle Phoenix to damages of
Can$1,000,000. which amount shall not be reduced for partial
performance or any other reason whatsoever. You will not be considered
in breach of Section 1 of this Employment Agreement if you are unable
to start work with Phoenix on the date specified in Section 1, due to
illness or other personal indisposition.
12. You understand fully the provisions of this Agreement and the
Confidentiality, Proprietary Rights, Regulatory Compliance and
Non-Competition Agreement, having had ample opportunity to review same
and consult counsel, if desired. You recognize that, consistent with
Phoenix's policies for all of its executives and senior managers who
have equity in the company or who receive stock options, this agreement
binds you to non-competition restrictions after your employment with
Phoenix ceases.
13. The parties have agreed that this Agreement be drafted in English. Les
parties ont convenue que cette convention soit redigee en anglais.
14. This agreement shall be interpreted under the laws of Belgium.
<PAGE>
If you are in agreement with the above mentioned terms and conditions, kindly
signify your consent by initialing each page and signing a counterpart of this
letter.
Yours very truly,
Phoenix International Life Sciences Inc.
/s/ John W. Hooper
-------------------------
per John W. Hooper, Ph.D.
Chairman and CEO
Accepted on this 7th day of August, 1997.
/s/ Lucien Steru
- -----------------------------
Signature of Dr. Lucien Steru
<PAGE>
Exhibit 10.7
EMPLOYMENT AGREEMENT
BETWEEN: PHOENIX INTERNATIONAL LIFE SCIENCES INC., a
corporation duly incorporated under the laws
of Canada, having its head office at 2350
Cohen Street, in the City of Saint-Laurent,
Quebec, and represented herein by its duly
authorized representative,
(hereinafter called "PHOENIX")
AND: STEPHANE HUGUET, M.D., domiciled and
residing at 145 Linwood Crescent, Town of
Mount Royal, Quebec H3P 1J1,
(hereinafter called "DR. HUGUET")
WHEREAS Phoenix wishes to retain the services of Dr. Huguet on
the terms and conditions hereinafter set forth; and
WHEREAS Phoenix acknowledges that Dr. Huguet enters into this
Employment Agreement in consideration of Phoenix's undertaking that it
EXPECTS THAT WITHIN THREE (3) WEEKS AND IN ANY CASE NO LATER THAN THREE
(3) MONTHS AFTER SIGNATURE OF THIS EMPLOYMENT AGREEMENT, IT WILL obtain
the necessary certificate of acceptance or employment authorization for
Dr. Huguet; and
WHEREAS Phoenix and Dr. Huguet wish to acknowledge by this
agreement their mutual rights and obligations with respect to Dr.
Huguet's employment by Phoenix.
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereto hereby agree as follows:
1 PREAMBLE
1.1 The preamble is deemed to form part of this agreement.
2 POSITION
2.1 Dr. Huguet's title with Phoenix shall be President and Chief
Operating Officer, PHOENIX CANADA (a division of Phoenix),
reporting to the Chairman and CEO of Phoenix. Dr. Huguet
will be a member of the company's corporate Executive
Management Committee, together with the CEO and other
executives. (see attached Schedule "A" entitled "Initial
Position Description").
3 OTHER EMPLOYMENT AND DUTY TO DEVOTE WHOLE TIME
3.1 Dr. Huguet agrees that during the term of his employment, he
shall devote his full time and efforts to Phoenix and shall
not, directly or indirectly, engage in any business
competitive with or similar to the business carried on by
Phoenix.
4 REMUNERATION AND OTHER BENEFITS
4.1 Signing bonus: Upon execution of this agreement and in
consideration thereof Dr. Huguet shall be entitled to receive
a signing bonus of $100,000, less applicable deductions, which
will be paid immediately by Phoenix to Dr. Huguet as a lump
sum payment.
4.2 BASE SALARY: Dr. Huguet's starting annual salary shall be
$240,000, less all applicable deductions, PAYABLE BI-WEEKLY IN
ARREARS.
4.3 BASE SALARY INCREASES: Dr. Huguet will BE ELIGIBLE TO receive
annual increases of his base salary. Said increases will be
based on his ability to fulfill the position description and
consistent with decisions of Phoenix's Board of Directors.
4.4 CAR EXPENSES: DR. HUGUET WILL RECEIVE A CAR ALLOWANCE OF
$5,000 ANNUALLY.
2
<PAGE>
4.5 HOUSE RENT: PHOENIX WILL PAY THE GROSS RENT ON DR. HUGUET'S
HOUSE, ON A MONTHLY BASIS. THIS RENT IS CURRENTLY $4,000
MONTHLY. PHOENIX WILL PAY FOR REASONABLE INCREASES IN RENT, AS
NEGOTIATED WITH THE OWNER.
4.6 BENEFIT PLANS: Subject to completion by Dr. Huguet of any
medical examinations and other like procedures and such
inquiries required by Phoenix's insurers, Phoenix shall pay
and maintain a short term and long term disability benefits
and insurance coverage CONSISTENT WITH THE BENEFITS PROVIDED
TO OTHER CANADIAN EXECUTIVES OF PHOENIX.
Dr. Huguet shall be entitled to participate in all present or
future benefit, insurance, bonus, profit sharing, incentive,
remuneration or compensation plans, stock ownership or
purchase plans which Phoenix makes available to management
and/or key employees IN CANADA.
4.7 VACATION: Dr. Huguet will be entitled to four (4) weeks
(twenty (20) working days) annual vacation.
4.8 BONUS: Dr. Huguet will be entitled to receive an annual bonus
on Phoenix's Executive Bonus Plan, which plan is subject to
review by the Board of Directors on an annual basis.
4.9 SERVICES OF AN ACCOUNTANT: EACH YEAR, PHOENIX WILL PROVIDE AT
ITS EXPENSE ACCOUNTING SERVICES FOR DR. HUGUET FOR THE PURPOSE
OF PREPARING AND SUBMITTING HIS ANNUAL INCOME TAX RETURNS TO
THE APPROPRIATE GOVERNMENTAL AGENCIES, PROVIDED HOWEVER THAT
THE COST OF THESE SERVICES SHALL NOT EXCEED $3,000.
4.10 ATTORNEYS AND ACCOUNTANT FEES: Any and all attorneys and/or
accountant fees that were paid or incurred by Dr. Huguet
in order to revise and conclude the present Employment
Agreement with Phoenix will be reimbursed by Phoenix to
Dr. Huguet upon presentation of a proof of payment of said
fees and provided such fees do not exceed $6,000.
5 PROFESSIONAL LIABILITY INSURANCE
5.1 Dr. Huguet will be covered by professional liability insurance
to which the company subscribes, to the same extent as all
Phoenix senior executives of his level.
6 PHOENIX SHARE OPTIONS
3
<PAGE>
6.1 Within one week of Dr. Huguet's first day of employment at
Phoenix Dr. Huguet will be awarded options to purchase 250,000
Phoenix shares. These options may be exercised as they become
vested, subject to securities commission and stock exchange
regulations. The options vest progressively on each
anniversary of the date of granting of the options, as
follows:
<TABLE>
<CAPTION>
CUMULATIVE
YEAR % VESTED
---- ----------
<S> <C>
1998 4%
1999 16%
2000 36%
2001 64%
2002 100%
</TABLE>
6.2 The exercise price of the options shall be the average Market
Price on the five trading days preceding the day the options
are granted to Dr. Huguet. Market Price is defined as the
average of the high and low prices of Phoenix's Common Shares
on the Montreal Exchange and the Toronto Exchange on a trading
day or, if there were no trades that day, the average of the
bid and ask quotations for that day.
6.3 SUBJECT TO THE CHANGE IN CONTROL AGREEMENT ATTACHED HERETO
AS ANNEX "A" AND WHICH IS EXECUTED CONCURRENTLY HEREWITH (THE
"CHANGE IN CONTROL AGREEMENT"), if Dr. Huguet's employment is
terminated before the fifth anniversary of the granting of
options in the year 2002, Dr. Huguet will have sixty (60)
days, after his employment ceases, to exercise vested options.
Subsequent to this sixty (60) days, all options will expire
automatically.
6.4 DR. HUGUET AND PHOENIX AGREE THAT THE OTHER TERMS AND
CONDITIONS OF PHOENIX'S KEY EMPLOYEE SHARE OPTION PLAN
(ATTACHED HERETO AS ANNEX "B"), AS AMENDED FROM TIME TO TIME,
SHALL APPLY TO THE OPTIONS HELD BY HIM, SAVE THAT IN THE
EVENT OF A PROPOSED CHANGE OF CONTROL OF PHOENIX, INCLUDING
UNDER A TAKEOVER BID, OR ANY OF THE OTHER CIRCUMSTANCES
COVERED BY THE CHANGE IN CONTROL AGREEMENT, THE TERMS AND
CONDITIONS OF THE CHANGE OF CONTROL AGREEMENT CONCERNING
THE VESTING AND EXERCISABILITY OF THE OPTIONS SHALL APPLY AND
OVERRIDE THE PROVISIONS HEREOF AND OF THE KEY EMPLOYEES SHARE
OPTION PLAN.
6.5 This offer of employment and the grant of stock options is
conditional on signature of the attached Confidentiality,
Proprietary Rights, regulatory Compliance and Non-Competition
Agreement (Schedule "C" attached) that requires, among other
things, that DR. HUGUET not compete with Phoenix for one year
after leaving the company.
4
<PAGE>
7 TERM OF THE AGREEMENT
7.1 Subject to Section 9, Dr. Huguet's employment shall commence
on January 1, 1998 and shall be for an indeterminate term.
7.2 Dr. Huguet may however, at his option, decide to start his
employment earlier.
7.3 Dr. Huguet will not be considered in breach of Section 7.1 or
7.2 of this Employment Agreement if he is unable to start work
with Phoenix on the date specified in Section 7.1, due to
illness or other personal indisposition, or by reason of
circumstances beyond his reasonable control or because Phoenix
has not obtained the necessary certificate of acceptance or
employment authorization.
8 TERMINATION
8.1 TERMINATION BY PHOENIX FOR SERIOUS REASON: Phoenix may
terminate this Employment Agreement at any time, for a serious
reason. If Phoenix exercises its rights under this sub-section
to terminate this Employment Agreement, Dr. Huguet shall not
be entitled to receive any further remuneration, save any
accrued base salary, benefits or bonuses accrued as at the
date of termination and calculated notwithstanding any
requirement for completing a full fiscal year or other
period. For the purposes of this agreement, a "serious
reason" shall mean that Dr. Huguet:
a) has willfully refused, without valid reason, to
comply with the reasonable instructions of the Board
of Directors or the CEO given to him in his capacity
as an executive of Phoenix having duties and
privileges of an executive character as undertaken
pursuant to the terms of this Agreement;
b) has committed misconduct or has been grossly
negligent in the performance of his duties hereunder;
c) commits wrongful acts directly against the interests
of Phoenix or against its property;
d) becomes subject in any way to bankruptcy or
insolvency laws; or
e) commits and is found guilty of an indictable criminal
offense or other similar offense involving fraudulent
or dishonest conduct.
5
<PAGE>
8.2 TERMINATION BY PHOENIX WITHOUT SERIOUS REASON
8.2.1 Phoenix may also terminate this agreement without a
serious reason (if not related Phoenix's inability
to obtain a certificate of acceptance or employment
authorization which case shall be governed by
Section 9) at will and for any reason whatsoever by
giving Dr. Huguet an appropriate 6 month prior
notice.
8.2.2 In order to give notice as set out in Section 8.2.1,
Phoenix may, at any time prior to or during said
notice period, choose to immediately discharge Dr.
Huguet provided that Dr. Huguet is compensated for
the duration or the remainder of said notice period
by the payment of an amount equal to the gross base
salary, all (calculated notwithstanding any
requirement for completing a full fiscal year or
other period) and all other benefits Dr. Huguet
would have been entitled to if he had remained
in the employment of Phoenix for the duration or
any remainder of said notice period.
8.2.3 Phoenix's obligation to give the aforesaid 6 month
notice or make payment in lieu thereof, will not
be reduced or affected if Dr. Huguet has secured
alternative employment.
8.2.4 In the event that Dr. Huguet has not commenced
alternative equivalent employment within 6 months
from the date notice of termination was given, he
will be entitled to receive and Phoenix shall
continue to pay him the equivalent of his gross
base salary as at termination, by way of bi-weekly
installments. Such bi-weekly payments shall commence
6 months from the date notice or termination was
given and continue to be paid until such time as
Dr. Huguet shall have commenced alternative
employment. In no event shall such payments
continue for more than 18 months (36 bi-weekly
payments) after the first of such payments was made.
8.3 TERMINATION BY DR. HUGUET: Dr. Huguet may (subject to
Section 9), at his option, terminate this agreement for any
reason whatsoever provided that Phoenix is given at least
12 weeks notice before said termination becomes effective.
9 INABILITY TO OBTAIN A CERTIFICATE OF ACCEPTANCE OR EMPLOYMENT
AUTHORIZATION
9.1 In the event Dr. Huguet is unable to commence or assume
his employment by reason of Phoenix's inability to
obtain a proper certificate of acceptance or employment
authorization within 3 months of January 1, 1998, or if
6
<PAGE>
Dr. Huguet is subsequently unable to perform his duties
hereunder by reason of Phoenix's failure to maintain such
certificate of acceptance or employment authorization,
Phoenix agrees that Dr. Huguet will suffer irreparable
harm and will therefore have the right to immediately
receive from Phoenix, a lump sum payment equivalent to
2 years of Dr. Huguet's base salary and all benefits
hereunder, payable as liquidated damages.
9.2 Such lump sum payment will be due and payable to Dr. Huguet
on the date it will have been confirmed that Dr. Huguet
will not be able to fulfill his obligations hereunder
because of Phoenix's inability to obtain or maintain, as
the case may be, said certificate of acceptance or
employment authorization. Upon such confirmation, Dr. Huguet
shall be released from any further obligations hereunder.
10 TERMINATION FOLLOWING CHANGE IN CONTROL
10.1 In the event of a Change in Control or proposed Take-over
Bid (within the meaning of and as such terms are defined
in the Change in Control Agreement), the terms and
conditions of the Change of Control Agreement with respect
to termination of employment shall override the provisions
hereof to the extent and provided that they are no less
favorable than these herein contained.
11 OBLIGATIONS OF PHOENIX
11.1 It is agreed that the obligations of Phoenix pursuant to
Sections 2,4,5 and 6 will only commence once Dr. Huguet will
have started work on a permanent full time basis with Phoenix
in accordance with Section 2 and 7 hereof.
12 CONFIDENTIAL INFORMATION / NON-COMPETITION UNDERTAKINGS
12.1 Dr. Huguet shall sign concurrently herewith the
Confidentiality, Proprietary Rights, Regulatory Compliance and
Non-Competition Agreement with Phoenix, which Agreement shall
be, in form and content, satisfactory to Phoenix (see attached
Schedule "C").
12.2 Dr. Huguet fully understands the provisions of this Agreement
and the Confidentiality, Proprietary Rights, Regulatory
Compliance and Non-Competition Agreement (Schedule "C"
attached), having had ample opportunity to review same and
consult counsel, if desired. Subject to Section 13 of this
Employment Agreement, Dr. Huguet recognizes that, consistent
with Phoenix's policies for all of its executives and senior
managers who have equity in the company or who receive stock
options, this agreement binds Dr. Huguet to non-competition
restrictions for one year after his employment with Phoenix
ceases.
7
<PAGE>
12.3
Notwithstanding anything contained in the Confidentiality,
Proprietary Rights, Regulatory Compliance and Non-Competition
Agreement, Dr. Huguet shall not be in breach of that agreement
if subsequent to the termination of his employment with
Phoenix, he owns, maintains, operates, joins, controls,
participates in, is connected with or has an interest in, as
an officer, advisor, consultant, employee, partner,
stockholder or otherwise in a pharmaceutical or biotechnology
company, or an educational institution, provided that such
company's or institution's core activities are not the
provision to Phoenix's Clients (as defined in the
Confidentiality, Proprietary Rights, Regulatory Compliance
and Non-Competition Agreement) of services or computer
software that compete with Phoenix's services or computer
software.
13 SURVIVAL OF RESTRICTIVE COVENANTS
13.1 The parties agree that the undertakings of Dr. Huguet under
Section 5 of the Confidentiality, Proprietary Rights,
Regulatory Compliance and Non-Competition Agreement, shall
only survive termination of this agreement in accordance with
their respective terms, in the event that Dr. Huguet's
employment is terminated by Phoenix, for a serious reason
and/or following Dr. Huguet's resignation (if such resignation
does not follow Change of Control, a constructive dismissal,
or Phoenix's inability to obtain or maintain an employment
authorization as set out in Section 9 of this Agreement).
14 DAMAGES
14.1 Dr. Huguet hereby agrees that any breach by him of Sections
3.1 or 7.1 of this Employment Agreement, or of the
Confidentiality, Proprietary Rights, Regulatory Compliance
and Non-Competition Agreement will entitle Phoenix to damages
of no less than $100,000, which amount shall not be reduced
for partial performance or any other reason whatsoever.
8
<PAGE>
15 GENERAL
15.1 If any provision of this agreement is unenforceable or
invalid, for any reason whatsoever, such enforceability or
invalidity will not affect the enforceability or validity of
the remaining provisions of this agreement and such provision
will be severable from the remainder of this agreement.
15.2 This agreement shall be governed and construed in accordance
with the laws of the Province of Quebec and federal laws of
Canada applicable therein.
15.3 No consent to or waiver of any breach of a term of provision
of this agreement by either party shall be construed as a
consent to or waiver of a subsequent breach of the same term
or provision, nor shall it be considered a consent to or
waiver of any other then existing or subsequent breach of a
different term or provision.
15.4 The parties declare that it is their desire that this
agreement and all the documents and notices related thereto be
drafted in the English language. Les parties ont manifeste le
desir que la presente entente et tous les autres contrats,
documents ou avis soient redigee en anglais.
IN WITNESS THEREOF, the parties have executed this agreement in
The City of St. Lawrent on the 7th day of November 1997
9
<PAGE>
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Per:
/s/ John W. Hooper
----------------------------------------
JOHN W. HOOPER, Ph.D.
CHAIRMAN and CEO
/s/ Stephane Huguet
----------------------------------------
Dr. Stephane Huguet
10
<PAGE>
Exhibit 10.8
- 1 -
EMPLOYMENT AGREEMENT
MEMORANDUM OF AGREEMENT entered into at Montreal, Quebec, this 5th day of
October, 1998.
BY AND BETWEEN: PHOENIX INTERNATIONAL LIFE SCIENCES INC., a
company duly incorporated under the laws of
Canada, having its principal place of
business at 2350 Cohen, Ville St. Laurent,
Quebec, herein acting and represented by Dr.
John Hooper, duly authorized to act
hereunder for the purposes of the present
Employment Agreement as he or she so
declares;
(hereinafter "PHOENIX")
AND Mr. David Moszkowski, Executive, domiciled
and residing at 2913 Lake Road,
Dollard-des-Ormeaux, Quebec H9B 2K5.
(hereinafter the "Employee")
THE PARTIES DECLARE AS FOLLOWS:
WHEREAS PHOENIX wishes to retain the Employee's services for
the position set forth in Schedule 4.1 and whereas the Employee wishes to offer
his or her services on such basis to PHOENIX, the whole in accordance with the
conditions stipulated in this Employment Agreement;
WHEREAS PHOENIX and the Employee wish to set forth the working
conditions governing their employment relationship;
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT, in consideration
of the mutual promises contained herein, and other good and valuable
consideration the adequacy and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
<PAGE>
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ARTICLE 1
PREAMBLE
1.1 The Preamble forms an integral part of this Employment Agreement.
ARTICLE 2
GENERAL PROVISIONS
2.1 HEADINGS. The insertion of headings is for convenience of reference only and
shall not affect or be utilized in the interpretation hereof.
2.2 SEVERABILITY. Any article, section, subsection or other subdivision of this
Employment Agreement or any other provision of this Employment Agreement which
is deemed to be or becomes, illegal, invalid or unenforceable shall be severed
herefrom and shall be ineffective to the extent of such illegality, invalidity
or unenforceability and shall not affect or impair the remaining provisions
hereof which shall remain in full force and effect.
2.3 ENTIRE AGREEMENT. This agreement constitutes the entire agreement between
the parties pertaining to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations, and discussions, whether oral or
written, by the parties in respect of its subject matter.
2.4 AMENDMENT. No amendment hereto shall be binding unless expressly provided
for in an instrument duly executed by the parties hereto.
2.5 WAIVER. No waiver by any party hereto, whether by conduct or otherwise, of
any of the provisions of this Employment Agreement shall be deemed to constitute
a waiver by such party of any other provisions nor shall such waiver constitute
a continuing waiver hereof, unless otherwise expressly provided in an instrument
duly executed by the party or parties hereto.
2.6 GOVERNING LAW. This Employment Agreement shall be governed by and
interpreted and construed in accordance with the Laws of Quebec.
2.7 CONFLICTING AGREEMENTS. PHOENIX and the Employee acknowledge that there may
be other contracts attached as Schedules to this Employment Agreement. If these
Schedules contain terminology, definitions or terms, or create rights or
obligations which are at variance or conflict with the terminology, definitions
or terms, rights or obligations used or contained in this Employment Agreement,
then the parties agree that the terms of this Employment Agreement shall be
deemed to set forth their true and complete intention and agreement.
2.8 PHOENIX. The term "PHOENIX" used in this Employment Agreement shall mean
Phoenix International Life Sciences Inc., a legal person having its head office
and principal place
<PAGE>
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of business in the City of St. Laurent, district of Montreal, Quebec, Canada,
and its subsidiaries and affiliated companies.
2.9 BUSINESS. For the purposes of this Employment Agreement, "Business" shall
mean, in relation to PHOENIX, the business now and heretofore and hereafter
conducted by PHOENIX to the termination of this Employment Agreement, as well as
the business PHOENIX was in the process of actively developing at the time of
the termination of this Employment Agreement and of which the Employee was
aware. Without limiting the generality of the foregoing, the business at the
time of the signing of this Employment Agreement is the business of a
multi-service contract research organization ("CRO") which provides discovery,
analytical services, preclinical studies, clinical studies, regulatory affairs
services and scientific software products and services, to pharmaceutical and
biotechnology companies in the United States, Canada, the European Common
Market, and Switzerland.
2.10 SCHEDULES: The following Schedules form part of this Employment Agreement:
Schedule 4.1 Initial Position Description
Schedule 11.5 Key Employee Share Option Purchase Plan
Schedule 14.3 Change in Control Agreement
ARTICLE 3
DURATION
3.1 This Employment Agreement is hereby concluded for an indeterminate period of
time, effective as of November 16, 1998. The Employee may, at his or her option,
report for work at an earlier date than November 16, 1998.
ARTICLE 4
DUTIES
4.1 As an employee of PHOENIX, the Employee's duties and responsibilities shall
include, above and beyond those inherent to the position set forth in Schedule
4.1 and normally pertaining to it, those compatible with the position and which
PHOENIX may delegate to the Employee from time to time, including but not
limited to, holding director or officer positions in PHOENIX and/or one or more
of PHOENIX's wholly owned subsidiary companies, as well as performing other
duties on behalf of these latter companies as may be required from time to time.
The Employee's initial title shall be Senior Vice President and Chief
Financial Officer.
4.2 The Employee shall execute all duties and functions from Montreal but will
travel
<PAGE>
- 4 -
as reasonably required to properly perform the work required of him or her
hereunder.
4.3 Without limitation, the Employee acknowledges that the Business depends to a
considerable extent on PHOENIX's compliance with regulations particularly Good
Laboratory Practices Regulations and Good Clinical Practices Regulations,
governing drug development and issued by the International Committee on
Harmonization, regulatory bodies in the U.S.A., Canada and Europe, and other
national and international drug regulations. The Employee affirms and agrees
that he or she is familiar with all drug regulations relevant to his or her
duties, and that he or she will use his or her best efforts to strictly conform
with these regulations in carrying out his or her duties.
4.4 The Employee shall report to the Chairman and CEO.
ARTICLE 5
LOYALTY
5.1 The Employee shall devote his or her full time, attention, skills and
competence to PHOENIX and to the Business. The Employee shall act with
diligence, loyalty and honesty and shall make all necessary efforts to promote
PHOENIX's legitimate business interests during the term of this Employment
Agreement.
5.2 Subject to section 5.4, the Employee shall not, during the term of this
Employment Agreement, on his or her own behalf or on behalf of any person,
whether directly or indirectly, in any capacity whatsoever, alone, through or in
connection with any person, carry on, or be engaged in, or have any financial or
other interest in, or be otherwise commercially involved in any endeavor,
activity or business whether or not such other endeavor, activity or business is
in competition, in whole or in part, with the Business.
5.3 If the Employee breaches his or her obligations pursuant to section 5.2
above, then PHOENIX shall be entitled to receive the greater of any profits,
benefits or other advantages which may result or ensue from the Employee's
activities.
5.4 The Employee shall not be in default under this Employment Agreement by
virtue of holding, strictly for portfolio purposes and as a passive investor, no
more than five percent (5%) of the issued and outstanding shares of any body
corporate which is listed on a recognized stock exchange, the business of which
body corporate is in competition, in whole or in part, with the Business. The
five percent (5%) limitation shall not apply to securities which the Employee
may hold in a company affiliated with PHOENIX, within the meaning of the CANADA
BUSINESS CORPORATIONS ACT.
<PAGE>
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ARTICLE 6
CONFIDENTIALITY
6.1 The Employee hereby agrees that during his or her employment and for a
period of three (3) years following the termination of his or her employment, he
or she shall not, directly or indirectly, use, divulge, diffuse, sell, transfer,
give, circulate, or otherwise exploit for his or her own benefit or for the
benefit of any other person, whatsoever or whomsoever, or otherwise make public,
any Confidential Information.
"CONFIDENTIAL INFORMATION": For the purposes of this
Employment Agreement, shall mean all information or Works in
whatever form (oral, written, machine readable or otherwise)
pertaining to PHOENIX and its Business, operations,
properties, assets and liabilities, including, without
limitation, files and records pertaining to the Business and
trade secrets (including, but not limited to, lists of
Customers and suppliers, Customer requirements and practices,
costings, equipment, technical information, research results,
methodology, supplier availability, business plans, sales
methods and ideas, marketing strategy, employee remuneration
and benefits and pricing structures and information) as well
as all financial information known to the Employee.
"Confidential Information" shall also mean information which
although not technically a trade secret, may prove prejudicial
to PHOENIX and its Business if disclosed or disseminated, for
example, related to products, services, computer software and
the activities of PHOENIX or its Customers (whether of a
financial, technical or planning nature), but the phrase
"Confidential Information" shall not include information
which:
(i) is in the public domain through no fault of the
Employee;
(ii) is required by law, governmental authority or a court of
law to be disclosed: or
(iii) is approved in writing by PHOENIX for disclosure prior
to its disclosure.
"CUSTOMER": For the purposes of this Employment Agreement
shall mean any pharmaceutical manufacturer (regardless of
whether or not has contacted such manufacturer) and any other
individual, partnership, legal person or entity for whom
PHOENIX has performed services, or to whom has sold products
or licensed computer software or contacted with a view to
performing services, selling products or licensing software,
during the twelve (12) month period preceding the date of
termination of the Employee's employment.
"WORKS": For the purposes of this Employment Agreement, shall
mean all Standard Operating Procedures, techniques and methods
used to perform research or services, all inventions,
improvements, discoveries, literary and artistic works and
other original works of any kind or nature whatsoever,
industrial
<PAGE>
- 6 -
designs, trade marks, patents, software programs, source codes
and related materials (whether or not registered) and software
validation procedures related to PHOENIX or to the Business.
6.2 Notwithstanding anything to the contrary herein contained, the Employee's
covenant set forth in section 6.1 above shall be unlimited as to time insofar as
it relates to trade secrets of PHOENIX and its Customers, and Confidential
Information of Customers.
6.3 Any document or Works composed, assembled or produced by the Employee, or by
any employee of PHOENIX, or any Customer, and containing Confidential
Information shall be deemed to be Confidential Information within the meaning of
this Employment Agreement and shall be treated as such.
6.4 Confidential Information and all embodiments thereof (including any
reproduction) are and shall remain the sole property of PHOENIX and shall be
returned to PHOENIX immediately on demand, whether before or after termination
of this Employment Agreement.
6.5 Notwithstanding any provision hereof, nothing in this Employment Agreement
shall prevent the disclosure of Confidential Information if such disclosure must
be made in response to the formal request of a governmental body or is otherwise
required under any applicable law; it being understood, however, that the
Employee shall inform PHOENIX of such a request for disclosure in order that the
latter may decide to contest the said disclosure.
6.6 All Works made or conceived in whole or in part by the Employee related to
the Business, whether alone or with others, will promptly be disclosed by the
Employee to PHOENIX and will be the sole and exclusive property of PHOENIX, the
Employee hereby acknowledging that he or she shall have no right to, or title or
interest of any nature whatsoever in such Works, unless otherwise agreed to in
writing by PHOENIX. The Employee further agrees to assist PHOENIX and to sign
all such documents or do all such things as may be required to protect or to
register the Works.
6.7 The Employee agrees that he or she shall not, at any time during the term of
his or her employment with PHOENIX make or cause to be made or remove or cause
to be removed from PHOENIX's possession or premises any documents or materials
of any nature whatsoever that are based upon Raw Data. For purposes of this
Employment Agreement, Raw Data means any worksheets, records, memoranda, notes
or exact copies thereof, that are the result of original observations and
activities and are necessary or useful or related to a project. Raw Data may
include, but is not limited to, photographs, microfilm or microfiche copies,
computer printouts, magnetic or optical mass data storage media, including
detailed observations and recorded data from automated instruments.
ARTICLE 7
<PAGE>
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OBLIGATION NOT TO COMPETE
7.1 In the grant of options referred to in article 11.5 hereof by PHOENIX, the
Employee covenants and agrees that he or she shall not at any time within the
period of one (1) year following the termination of his or her employment
hereunder, on his or her own behalf or on behalf of any person, whether directly
or indirectly, in any capacity whatsoever, alone, through or in connection with
any person, compete or be employed by a business which competes with the
Business anywhere within Canada, the United States of America, the European
Common Market or Switzerland.
ARTICLE 8
OBLIGATION NOT TO SOLICIT CUSTOMERS
8.1 In consideration the grant of options referred to in article 11.5 hereof by
PHOENIX, the Employee shall not, for a period of one (1) year following the
termination of his or her employment, on the Employee's own behalf or on behalf
of any person, whether directly or indirectly, in any capacity whatsoever,
alone, through or in connection with any person for any purpose which is in
competition, in whole or in part, with the Business:
8.1.1 solicit any Customer or aid, procure or assist in the soliciting of any
Customer; or
8.1.2 accept, or aid, procure or assist in the acceptance of, any business from
any Customer.
ARTICLE 9
OBLIGATION NOT TO SOLICIT EMPLOYEES
9.1 In consideration of the grant of options referred to in article 11.5 hereof
by PHOENIX, the Employee shall not, for a period of one (1) year following the
termination of his or her employment, on the Employee's own behalf, or on behalf
of any person, whether directly or indirectly, in any capacity whatsoever,
alone, through or in connection with any person:
9.1.1 employ, offer employment to, or solicit the employment or
engagement of or otherwise entice away from the employment of
PHOENIX any individual who is or was employed by PHOENIX at
any time within the twelve (12) months preceding the
termination of the Employee's employment, including but not
limited to any employee, contractor, salesman, agent,
consultant, distributor, representative, advisor, or supplier
of PHOENIX having received remuneration from PHOENIX in
recognition of services rendered to; or
<PAGE>
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9.1.2 aid, procure or assist any person to employ, offer employment
or solicit the employment or engagement of or otherwise entice
away from the employment of PHOENIX any individual who is or
was employed by at any time within the twelve (12) months
preceding the termination of the Employee's employment,
including but not limited to any employee, contractor,
salesman, agent, consultant, distributor, representative,
advisor, or supplier of PHOENIX having received remuneration
from PHOENIX for services rendered to PHOENIX.
ARTICLE 10
RECOGNITION
10.1 The Employee hereby expressly recognizes that Articles 6, 7, 8 and 9 of
this Employment Agreement are of the essence of this Employment Agreement, and
that PHOENIX would not have entered into this Employment Agreement without the
inclusion of these Articles.
10.2 The Employee hereby recognizes and expressly acknowledges that Articles 6,
7, 8 and 9 above grant PHOENIX only such reasonable protection as is admittedly
necessary to preserve the legitimate interests of PHOENIX and also recognizes
that in this respect, the description of the Business is reasonable, and hereby
agrees to waive (and irrevocably agrees not to raise) as a defense any issue of
reasonableness, including, without limitation, arguments as to the duration and
scope of the covenants or provisions contained in said Articles.
10.3 The Employee hereby further recognizes and expressly acknowledges: (a) that
the application of the aforesaid Articles will not have the effect of
prohibiting the Employee from earning a living in a satisfactory manner in the
event of termination of his or her employment; (b) that serious and irreparable
damage for which monetary damages would not be an adequate remedy would result
to PHOENIX from any violation of the covenants set forth in Articles 6, 7, 8 and
9; and (c) that in addition to any and all remedies available to PHOENIX in the
event of any actual or impending violation of such covenants, PHOENIX shall have
the immediate remedy of injunction or such other relief as may be decreed or
issued by any court of competent jurisdiction to enforce the provisions of this
Employment Agreement.
10.4 The Employee hereby recognizes that Articles 6, 7, 8 and 9 of this
Employment Agreement, being of the essence hereof, shall be interpreted
independently from any other provisions of this Employment Agreement, the
intention of the parties being to provide for the legitimate and reasonable
protection of the interest of the Business and PHOENIX by providing, among other
things, for the broadest scope, the longest duration and the widest territory
allowable by law.
<PAGE>
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ARTICLE 11
REMUNERATION, BONUS AND SHARE OPTIONS
11.1 As remuneration for his or her services, the Employee shall receive an
initial annual base salary in the amount of $200,000, less all applicable
deductions.
11.2 The base salary shall be subject to an annual review upon each anniversary
of the commencement date hereof.
11.3.1 In addition to the base salary specified above, the Employee will be paid
a car allowance of $5,000.
11.4 At the sole discretion of the Board of Directors of PHOENIX, the Employee
shall be entitled to receive an annual bonus, based on PHOENIX's Worldwide
Executive Remuneration Plan, as same may be amended from time to time. The
initial annual bonus shall be 20% of salary for 100% achievement of corporate
budgeted net profit, and 15% of annual salary for 100% of achievement of
personal objectives.
11.5 The Employee shall be awarded options to purchase PHOENIX on the terms and
conditions specified in PHOENIX's Key Employee Share Option Plan (Schedule 11.5
hereof) as same may be amended from time to time, the whole subject to
regulatory approval, if required. The amounts of these options are as follows:
a) On joining the company, 50,000 shares.
b) Annually, a number of shares equal to the salary earned by the Employee
with the Employer in the previous fiscal year multiplied by 33% and
divided by the option price.
<PAGE>
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ARTICLE 12
BENEFITS, VACATION AND LIABILITY INSURANCE
12.1 Subject to any medical or similar approvals which may be required, the
Employee shall have the right to participate in benefit programs and/or plans of
PHOENIX and his or her entitlement to vacation shall be determined and granted
in accordance with the policy of PHOENIX at the time the benefits and vacation
are granted, provided that the Employee's annual vacation shall not be less than
four weeks (20 working days) in each calendar year.
12.2 If the Employee is required to serve as a director or officer of PHOENIX or
one of its wholly owned subsidiaries:
12.2.1 PHOENIX shall subscribe for and pay the cost of Directors and
Officers liability insurance for the Employee, which insurance
coverage shall be no less favorable than the insurance
coverage extended by PHOENIX to all of its directors and
senior officers;
12.2.2 PHOENIX shall indemnify and hold harmless the Employee against
all costs and expenses (including, without limitation,
reasonable attorneys fees) if the Employee was or is a party
to or threatened to be made a party to or otherwise is
involved in any proceeding involving PHOENIX by reason of his
or her corporate status or capacity, if the Employee acted in
good faith and in a manner which he or she reasonably believed
to be in, or not opposed to the best interests of PHOENIX, and
with respect to any criminal proceeding, the Employee had no
reasonable cause to believe that his or her conduct was
unlawful;
12.2.3 Notwithstanding the foregoing, PHOENIX shall not indemnify or
hold harmless the Employee in connection with a proceeding
initiated by the Employee or a proceeding by the Employee
against PHOENIX
ARTICLE 13
TERMINATION OF THE EMPLOYMENT AGREEMENT
13.1 The parties hereto acknowledge and expressly agree this Employment
Agreement and the Employee's employment shall be terminated in any of the
following cases:
(a) by PHOENIX, at any time, for a Serious Reason on
simple notice from PHOENIX to the Employee, the whole
without the Employee being entitled to the benefit of
any other notice, or, notwithstanding the terms of
the Key Employee Share Option Purchase Plan, any
unexercised or unvested stock options, or any pay in
lieu of notice, or any indemnity whatsoever. For the
purpose of this Employment Agreement, a "Serious
Reason" means that
<PAGE>
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the Employee:
(i) has refused to comply with the
reasonable instructions given to the
Employee in his or her capacity as
an executive of PHOENIX by the Board
of directors of PHOENIX, or
Phoenix's Chief Executive Officer,
or the person to whom the Employee
normally reports;
(ii) has committed misconduct which is
materially detrimental to PHOENIX,
or has been consistently negligent
in the performance of his or her
duties hereunder;
(iii) commits wrongful acts against the
interests of PHOENIX or against the
property of either;
(iv) is found guilty of an indictable
criminal offence or other offence
involving fraudulent or dishonest
conduct; or
(v) gives cause to PHOENIX for dismissal
for a reason similar in gravity to
those set forth above.
(b) upon the death, bankruptcy or Incapacity of the
Employee, in which case termination shall be
automatic, the whole without notice or the benefit of
any unvested stock options, or any pay in lieu of
notice or any indemnity whatsoever (except for
payments in the ordinary course pursuant to PHOENIX's
benefits program by which the Employee may be
covered); or
(c) by the Employee, upon providing PHOENIX with ninety
(60) days notice of resignation; or
(d) by PHOENIX, at any time, without cause, in accordance with
Article 14.
13.2 "INCAPACITY": For the purposes of this Employment Agreement, shall mean any
medical condition whatsoever, which leads to the Employee's absence from his or
her job function for a continuous period of six (6) months, without the Employee
being able to resume functions on a full time basis at the expiration of such
period and unsuccessful attempts to return to work for periods under fifteen
(15) working days shall not interrupt the calculation of the said six (6) month
period.
13.3 The parties hereby agree that upon termination of this Employment
Agreement, all provisions of this Employment Agreement, shall immediately
terminate. Notwithstanding the foregoing, Articles 6, 7, 8, 9 and 10 of this
Employment Agreement shall survive any termination hereof and shall remain in
full force and effect.
<PAGE>
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ARTICLE 14
TERMINATION WITHOUT CAUSE
14.1 In consideration of the Employee's services and his or her respecting the
covenants set forth in Articles 6, 7, 8, 9 and 10 above, the parties agree that
if the Employee's employment be terminated by PHOENIX without cause, the
Employee shall receive after the effective date of termination of his or her
employment i) all amounts which are then due and owing to the Employee pursuant
to this Employment Agreement, and ii) a further amount (the "Termination
Payment") equal to the Employee's gross base annual salary (at the time of
notice of termination) divided by 12 and multiplied by the number of complete
years (not less than six years and to a maximum of twelve years) that the
Employee has been employed by PHOENIX, less all applicable withholding at
source. The Termination Payment shall be calculated from and as at the date
notice of termination is given to the Employee. This payment shall be made in
two equal installments, with the first installment due and payable by PHOENIX to
the Employee thirty (30) days following the effective date of termination and
the second installment payable by PHOENIX to the Employee five (5) months after
the anniversary date of the first installment, the whole subject to the
Employee's duty to mitigate his or her damages by seeking alternative
employment. If the Employee continues to work after receiving notice of
termination from PHOENIX and up to the effective date of termination, amounts
earned during said period will reduce the Termination Payment.
14.2 The Employee hereby recognizes and accepts that neither PHOENIX nor its
subsidiaries or affiliated companies nor PHOENIX shall in any case, be
responsible to pay the Employee any additional amount, indemnity in lieu of
notice, severance pay or other damages arising from the termination of this
Employment Agreement or his or her employment, above and beyond the amounts
specifically provided for in section 14.1.
14.3 If the employment of the Employee is terminated hereunder as a result of a
Change of Control or Proposed Take-over Bid (within the meaning of and as such
terms are defined in the Change of Control Agreement attached hereto as Schedule
14.3), then the terms and conditions of the Change in Control Agreement shall
override the provisions hereof, if they are more favorable than those contained
herein.
<PAGE>
- 13 -
ARTICLE 15
COOPERATION WITH PHOENIX AFTER
TERMINATION OF THE EMPLOYMENT AGREEMENT
15.1 The Employee hereby undertakes to cooperate with PHOENIX in all matters
related to the conclusion of ongoing work or projects and to facilitate an
orderly transfer of responsibilities or functions and duties hereunder to such
other employees as may be designated by PHOENIX.
ARTICLE 16
CONFIDENTIALITY OF EMPLOYMENT AGREEMENT
16.1 With the exception of his or her spouse, immediate family and legal and
financial advisers, the Employee hereby agrees to keep strictly confidential all
information contained in or concerning this Employment Agreement.
ARTICLE 17
FINAL PROVISIONS
17.1 NOTICE. Any notice, direction or other communication required or permitted
to be given hereunder shall be in writing and given by registered mail, hand
delivered or sent by telecopier or similar telecommunications device and
addressed as follows:
(a) in the case of PHOENIX, to it at:
Phoenix International Life Sciences Inc.
c/o The Chief Executive Officer
2350 Cohen
Ville St. Laurent
Quebec, Canada
H4R 2N6
(b) in the case of the Employee, to him or her at:
2913 Lake Road,
Dollard-des-Ormeaux,
Quebec, Canada
H9B 2K5
<PAGE>
- 14 -
Any notice, direction or other communication given as
aforesaid shall be deemed to have been effectively given and received, if by
registered mail, then on the date of delivery thereof, if sent by telecopier or
similar telecommunications device on the next business day following such
transmission or, if hand delivered, to have been given and received on the date
of such delivery. Any address for service may be changed by written notice given
as aforesaid.
17.2 ASSIGNMENT. Except as otherwise expressly provided for herein, this
Employment Agreement, and the rights granted and the obligations incurred
hereunder, are not assignable, whether in whole or in part, by the Employee
without the prior written consent of PHOENIX.
17.3 LANGUAGE. The parties hereto acknowledge that they have requested and are
satisfied that this Employment Agreement and all related documents be drawn up
in the English language. Les parties aux presentes reconnaissent avoir requis
que la presente entente et les documents qui y sont relatifs soient rediges en
anglais.
<PAGE>
- 15 -
IN WITNESS WHEREOF this Employment Agreement has been executed
by the parties hereto on the date and at the place first herein above mentioned:
SIGNED AND DELIVERED BY:
/s/ David Moszkowski
-----------------------------------------
The Employee
Phoenix International Life Sciences Inc.
/s/ John Hooper
-----------------------------------------
Per: John Hooper
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
George Engelberg, Ph.D. January 7, 1997
5608 Randall Avenue
Montreal, Quebec H4V 2W2
Dear Mr. Engelberg,
The undersigned, Phoenix International Life Sciences Inc. (Phoenix) hereby
offers you employment subject to the following terms and conditions:
1. You hereby agree to commence employment with Phoenix on, or at your
option before, February 10, 1997, on a permanent full-time basis.
2. Your title with Phoenix shall be Vice President, Information
Technology, reporting initially to the Chairman and CEO of Phoenix
International Life Sciences Inc. You will be a member of the company's
Executive Management Committee, together with the CEO, the COO and
other Vice Presidents. See attached initial Position Description.
3. Your starting annual remuneration shall be $160,000. You will receive
annual increases based on your ability to fulfill the position
description and consistent with Phoenix's salary administration
policies. You will be reimbursed for business-related car mileage which
is anticipated to be in the order of $5,000 annually, and you will
receive a car allowance of $5,000 annually.
4. You will be entitled to 4 weeks (20 working days) annual vacation in
accordance with Phoenix's policies and procedures.
5. You will be eligible to receive a bonus based on Phoenix's Executive
Bonus Plan, which plan is subject to the approval of the Board of
Directors on an annual basis.
6. Within one week of your first day of employment at Phoenix you will be
awarded options to purchase 35,000 Phoenix shares. These options may be
exercised as they become vested, subject to securities commission and
stock exchange regulations. The options vest progressively each year on
the anniversary of the date of granting of the options, as follows:
Cumulative
Year % Vested
---- ----------
1998 4%
1999 16%
2000 36%
2001 64%
2002 100%
If your employment with Phoenix ceases before the anniversary date of
the granting of
<PAGE>
options in the year 2007, you will have 60 days after your employment
ceases to exercise vested options. Subsequent to this 60 days, all
options will expire automatically.
The option price shall be the average Market Price on the five trading
days preceding the day the options are awarded to you. Market Price is
defined as the average of the high and low prices of Phoenix's Common
Shares on the Montreal Exchange and the Toronto Exchange on a trading
day or, if there were no trades that day, the average of the bid and
ask quotations for that day.
If a take over bid for Phoenix common shares results in a change in
legal control of Phoenix, defined as a person or persons achieving
beneficial ownership of voting shares carrying more than 50% of the
votes for the election of directors of Phoenix, or if Phoenix elects to
sell substantially all of its assets, then all options for the purchase
of shares held by you will vest and become exercisable, contingent on
securities regulations. This eventuality will be governed by a "Change
of Control Agreement" currently being drafted for approval by Phoenix's
Board of Directors. Such Change of Control Agreement may contain other
options for dealing with outstanding share purchase options held by
Phoenix's senior executives, which alternatives shall apply to all of
Phoenix's senior executives at your level.
You and Phoenix agree that the other terms and conditions of Phoenix's
Key Employee Share Option Plan (attached; Schedule A), as amended from
time to time, shall apply.
This offer of stock options is conditional on signature of the attached
Confidentiality, Proprietary Rights, Regulatory Compliance and
Non-Competition Agreement that requires, among other things, that you
not compete with Phoenix for one year after
leaving the company.
7. If, you are dismissed other than for just cause, then you will receive
a severance payment of 6 month's salary, in monthly installments. If,
after 6 months, you have not found employment, the monthly payments
from Phoenix will continue until such time as you are again employed,
or one year has expired after your employment with Phoenix ceases,
whichever is earlier. If you are again employed during the period
between 6 months and one year after your employment with Phoenix
ceases, and your salary with your new employer is less than that
previously provided to you by Phoenix, then Phoenix will pay you the
difference between these two salaries, on a monthly basis, until such
time as one year has expired since your employment with Phoenix ceased.
Employee benefits and your car allowance also continue until such time
as you are again employed, or one year has expired after your
employment with Phoenix ceases, whichever is earlier
"Just Cause" is not defined in this Employment Agreement, but will be
defined in the "Change of Control Agreement" currently being drafted
for approval by Phoenix's Board of Directors. The definition of "Just
Cause" in the Change of Control Agreement shall apply to you and all
other senior executives of Phoenix at your level.
8. It is agreed that the obligations of Phoenix pursuant to Sections 3, 4,
5, 6 and 7 win only commence once you have started work on a full time
basis with Phoenix in accordance
<PAGE>
with Section 1 hereof.
9. During your employment you shall devote your full time and efforts to
Phoenix and shall not, directly or indirectly, engage in any business
competitive with or similar to the business carried on by Phoenix.
10. You shall sign concurrently herewith the Confidentiality, Proprietary
Rights, Regulatory Compliance and Non-Competition Agreement with
Phoenix, which Agreement shall be, in form and content, satisfactory to
Phoenix.
11. You hereby agree that any breach by yourself of Sections 1 or 9 of this
Employment Agreement, or of the Confidentiality, Proprietary Rights,
Regulatory Compliance and Non- Competition Agreement, will entitle
Phoenix to damages of $100,000, which amount shall not be reduced for
partial performance or any other reason whatsoever. You will not be
considered in breach of Section 1 of this Employment Agreement if you
are unable to start work with Phoenix on the date specified in Section
1, due to illness or other personal indisposition.
12. You understand fully the provisions of this Agreement and the
Confidentiality, Proprietary Rights, Regulatory Compliance and
Non-Competition Agreement, having had ample opportunity to review the
same and consult counsel, if desired. You recognize that, consistent
with Phoenix's policies for all of its executives and senior managers
who have equity in the company or who receive stock options, this
agreement binds you to non-competition restrictions for 1 year after
your employment with Phoenix ceases.
13. You will be covered by professional liability insurance to which the
company subscribes, to the same extent as all Phoenix senior executives
at your level.
If you are in agreement with the above mentioned terms and conditions, kindly
signify your consent by initialing each page and signing a counterpart of this
letter.
Yours very truly,
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
/S/ JOHN W. HOOPER
-----------------------------------------
per John W. Hooper, Ph.D.
President and CEO
Accepted on this 13th day of January, 1997.
/S/ GEORGE ENGELBERG
- ---------------------------------
Signature of Dr. George Engelberg
<PAGE>
Exhibit 10.10
EMPLOYMENT AGREEMENT
BETWEEN: PHOENIX INTERNATIONAL LIFE SCIENCES (IBRD) INC., a
corporation duly incorporated under the laws of
Delaware, having its head office at Gwynedd Hall,
Suite 100, 17777 Sentry Parkway West, in the City of
Blue Bell, Pennsylvania 19422, and represented herein
by its duly authorized representative,
(hereinafter called "PHOENIX")
AND: SUSAN THORNTON, PH.D., domiciled and residing at 1101
Green Valley Road, Bryn Mawr, Pennsylvania 19010.
(hereinafter called "DR. THORNTON")
WHEREAS Phoenix is a subsidiary of Phoenix International Life
Sciences (U.S.) Inc., itself a subsidiary of Phoenix International Life Sciences
Inc. (The last mentioned company hereinafter "Phoenix International"), which
term shall include, if the context so requires, all the subsidiaries of Phoenix
International Life Sciences Inc.); and
WHEREAS Phoenix International undertakes to guarantee
performance of all of the terms and obligations undertaken by Phoenix for the
benefit of Employee for the duration of such Employee's employment and
conditional upon the Employee's respect of her own undertakings for the benefit
of Phoenix hereunder; and
WHEREAS Phoenix wishes to continue to employ Dr. Thornton on
the terms and conditions hereinafter set forth; and
WHEREAS Phoenix and Dr. Thornton wish to acknowledge by this
agreement their mutual rights and obligations with respect to Dr. Thornton's
employment by Phoenix; and
WHEREAS this agreement shall be deemed to have commenced June
1, 1998 regardless of the date it is actually signed,
NOW THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereto hereby agree as follows:
<PAGE>
- 2 -
1. PREAMBLE
1.1 The preamble is deemed to form part of this agreement.
2. POSITION
2.1 Dr. Thornton's title shall be President and Chief Operating
Officer, Phoenix International US, Phase II-IV, initially
reporting to the Chairman and CEO of Phoenix International.
Dr. Thornton will be a member of Phoenix International's
corporate Executive Management Committee, together with the
CEO and other executives (SEE ATTACHED SCHEDULE A ENTITLED
"INITIAL POSITION DESCRIPTION"). Dr. Thornton will be invited
to attend meetings of the Board of Directors of Phoenix
International Life Sciences Inc., when other executives of her
rank are so invited. Dr. Thornton agrees to serve as an
Officer of Phoenix, at the discretion of the Board of
Directors.
3. OTHER EMPLOYMENT AND DUTY TO DEVOTE WHOLE TIME
3.1 Dr. Thornton agrees that during the term of her employment,
she shall devote her full time and efforts to Phoenix and
shall not, directly or indirectly, engage in any other
business whether or not said other business is competitive
with or similar to the business carried on by Phoenix
International.
4. REMUNERATION AND OTHER BENEFITS
4.1 BASE SALARY: Dr. Thornton's starting annual salary shall be
$250,000, less all applicable deductions, payable bi-weekly in
arrears.
4.2 BASE SALARY INCREASES: Dr Thornton will be eligible to receive
annual increases of her base salary upon each anniversary of
the commencement date, June 1, 1998, of this Agreement. Said
increases will be based on her ability to fulfill the position
description and consistent with decisions of Phoenix
International's Board of Directors.
4.3 CAR EXPENSES: Dr. Thornton will receive a car allowance of
$6,000 annually, payable in monthly installments.
<PAGE>
- 3 -
4.4 BENEFIT PLANS: Subject to completion by Dr. Thornton of any
medical examinations and other like procedures and such
enquiries, as may be required by Phoenix International's
insurers, Phoenix shall pay and maintain for Dr. Thornton
short term and long term disability benefits and insurance
coverage consistent with the benefits provided to other
executives of Phoenix International.
Dr. Thornton shall be entitled to participate in all present
or future benefit and insurance plans which Phoenix
International makes available to its executives, including the
401k plan currently in place at Phoenix, or modifications
thereof.
4.5 VACATION: Dr. Thornton will be entitled to 4 weeks (20 working
days) annual vacation.
4.6 BONUS: Dr. Thornton will be eligible to receive an annual
bonus in accordance with the provisions of Phoenix's WORLDWIDE
EXECUTIVE REMUNERATION PLAN, a copy of which is attached
hereto as SCHEDULE B, (but which may be amended from time to
time).
5. PROFESSIONAL LIABILITY INSURANCE
5.1 Dr. Thornton will be covered by professional liability and
Directors and Officer insurance to which Phoenix International
subscribes, to the same extent as all Phoenix International
executives of her level. Phoenix agrees that Dr. Thornton
shall be covered by the INDEMNIFICATION AGREEMENT attached
hereto as SCHEDULE C, subject to approval by the Human
Resources Committee of the Board of Directors of Phoenix
International. Such indemnification shall be no less favorable
than for other Officers and Directors of Phoenix
International.
6. PHOENIX SHARE OPTIONS
6.1 Dr. Thornton was granted options to purchase 125,000 of
Phoenix International's common shares on July 14, 1998, in
accordance with the terms and conditions of the KEY EMPLOYEE
SHARE OPTION PLAN attached hereto as SCHEDULE D (but which may
be amended from time to time). These options may only be
exercised as they become vested, subject to securities
commission and stock exchange regulations. The options vest
progressively on each anniversary of the date of granting of
the options, as follows:
<PAGE>
- 4 -
<TABLE>
<CAPTION>
CUMULATIVE
YEAR % VESTED
---- ----------
<S> <C>
1999 4%
2000 16%
2001 36%
2002 64%
2003 100%
</TABLE>
6.2 Dr. Thornton will be eligible to be awarded further stock
options annually in accordance with Phoenix International's
WORLDWIDE EXECUTIVE REMUNERATION PLAN. The number of such
options currently authorized by Phoenix International's Board
of Directors is equal to 50% of the salary Dr. Thornton earned
in the previous fiscal year, divided by the option exercise
price. Subject to amending the KEY EMPLOYEE SHARE OPTION PLAN
and obtaining shareholder and regulatory approval, these
options will vest 20% for each year of continuous service
subsequent to their granting. If shareholder or regulatory
approval are not received for this vesting schedule, these
options will vest as provided for by the KEY EMPLOYEE SHARE
OPTION Plan.
6.3 The exercise price of all stock options shall be the price
provided for by the KEY EMPLOYEE SHARE OPTION PLAN.
6.4 Subject to the CHANGE IN CONTROL AGREEMENT attached hereto as
SCHEDULE E and which is executed concurrently herewith (the
"CHANGE IN CONTROL AGREEMENT"), if Dr. Thornton's employment
is terminated before the fifth anniversary of the granting of
options in the year 2003, Dr. Thornton will have 60 days,
after her employment ceases to exercise vested options.
Subsequent to this 60 days, all options will expire
automatically.
6.5 Dr. Thornton and Phoenix agree that the other terms and
conditions of the KEY EMPLOYEE SHARE OPTION PLAN, shall apply
to the options held by her, save that in the event of a
proposed change of control of Phoenix International, including
under a takeover bid, or any of the other circumstances
covered by the CHANGE IN CONTROL AGREEMENT, the terms and
conditions of the CHANGE IN CONTROL AGREEMENT concerning the
vesting and exercisability of the options shall apply and
override the provisions hereof and of the KEY EMPLOYEE SHARE
OPTION PLAN, providing they are not less favorable than those
contained herein.
<PAGE>
- 5 -
6.6 All grants of stock options are conditional on signature of
the attached CONFIDENTIALITY, PROPRIETARY RIGHTS, REGULATORY
COMPLIANCE AND NON-COMPETITION AGREEMENT (SCHEDULE F ATTACHED)
that requires, among other things, that Dr. Thornton not
compete with Phoenix International for one year after
voluntarily leaving the company or being terminated for a
serious reason pursuant to Article 8 of this Agreement.
7. TERM OF THE AGREEMENT
7.1 Dr. Thornton's employment with Phoenix in her new position
shall commence on June 1, 1998 and shall be for an
indeterminate term.
8. TERMINATION
8.1 TERMINATION BY PHOENIX FOR SERIOUS REASON
8.1.1 Phoenix may terminate this Employment Agreement at any
time, for a serious reason, by resolution of its Board
of Directors adopted at a duly constituted meeting of
the Board. If Phoenix exercises its rights to terminate
this Employment Agreement for a serious reason, Dr.
Thornton shall not be entitled to receive any further
remuneration, save any base salary, vacation, and
benefits (but not bonuses), accrued as at the date of
termination. For the purposes of this agreement, a
"serious reason" shall mean that Dr.
Thornton:
(a) has refused, without valid reason, to comply with
the reasonable instructions of the Board of Directors
or the CEO of Phoenix International given to her in her
capacity as an executive of Phoenix insofar as such
instructions are not inconsistent with the terms of
this Agreement;
(b) has committed improper misconduct which is
materially detrimental to Phoenix, or has been grossly
negligent in the performance of her duties hereunder;
(c) commits wrongful acts against the interests of
Phoenix International or against its property;
(d) becomes subject in any way to bankruptcy or
insolvency laws;
<PAGE>
- 6 -
(e) commits and is found guilty of an indictable
criminal offence or other similar offence involving
fraudulent or dishonest conduct, by a court of
competent jurisdiction; or
(f) gives cause to Phoenix International for a serious
reason similar in gravity to those set forth above.
8.2 TERMINATION BY PHOENIX WITHOUT A SERIOUS REASON
8.2.1 Phoenix may also terminate this agreement at its
discretion for any reason whatsoever by giving Dr.
Thornton 12 weeks prior notice of its decision to
dismiss. Phoenix may, at any time during the notice
period, choose to immediately discharge Dr. Thornton,
but in this case Dr. Thornton shall be entitled to
receive and shall be paid all amounts which she would
otherwise earn during the notice period.
8.2.2 If Phoenix terminates this agreement at its
discretion, without a serious reason, Phoenix shall
pay Dr. Thornton an amount equal to her gross base
annual salary (at the time of notification of
termination) divided by 12 and multiplied by the
number of years of employment (not less than one (1))
Dr. Thornton has been employed by Phoenix
International or any of its subsidiaries. All
appropriate withholding as may be required by law
will be deducted from the amount so calculated. The
starting date of employment for the purpose of
calculating the payment due hereunder is January 27,
1992. This payment shall be made within 7 days after
the last day Dr. Thornton is employed. The bonus for
the fiscal year in which termination takes place, if
any, will be paid pro rata to the number of days
worked in the fiscal year. With the exception of the
amount referred to aforesaid, Dr. Thornton shall have
no right to be paid or to claim any further payments
related to or arising out of the termination of her
employment by Phoenix and she renounces to any such
further right or claim.
8.2.3 Phoenix's obligation to make the aforesaid payments
will not be reduced or affected if Dr. Thornton has
secured alternative employment.
8.3 TERMINATION BY DR. THORNTON
8.3.1 Dr. Thornton may, at her option, terminate this
agreement for any reason whatsoever provided that Phoenix is
given at least 90 days notice before said termination becomes
effective.
<PAGE>
- 7 -
8.3.2 Dr. Thornton has the right to terminate this agreement
if constructively dismissed, and receive compensation
according to the terms and conditions of section 8.2, above.
Dr. Thornton shall be considered to have been constructively
dismissed if a) there is a material and adverse diminution on
an accumulative basis of her duties, authority, position,
compensation, benefits, or title, which is not applied to all
other executives of Phoenix International, (b) she is required
to move her home or residence anywhere other than in the
municipality or metropolitan area in which her office and
residence currently exist; or (c) there is a breach by Phoenix
of any of the material terms of this Agreement.
9. TERMINATION FOLLOWING CHANGE IN CONTROL ETC.
9.1 In the event of a Change of Control or proposed Take-over Bid
(within the meaning of and as such terms are defined in the
CHANGE IN CONTROL AGREEMENT), the terms and conditions of the
CHANGE IN CONTROL AGREEMENT with respect to termination of
employment shall override the provisions hereof to the extent
and provided that they are no less favourable than those
herein contained.
10. CONFIDENTIAL INFORMATION / NON-COMPETITION AND OTHER UNDERTAKINGS
10.1 Dr. Thornton shall sign concurrently herewith the
CONFIDENTIALITY, PROPRIETARY RIGHTS, REGULATORY COMPLIANCE AND
NON-COMPETITION AGREEMENT with Phoenix and Phoenix
International, which is ATTACHED AS SCHEDULE F.
10.2 Dr. Thornton fully understands the provisions of this
Employment Agreement and the CONFIDENTIALITY, PROPRIETARY
RIGHTS, REGULATORY COMPLIANCE AND NON-COMPETITION AGREEMENT,
having had ample opportunity to review same and consult
counsel, if desired. Subject to Section 12 of this Employment
Agreement, Dr. Thornton recognizes that, consistent with
Phoenix International's policies for all of its executives and
senior managers who have equity in the company or who receive
stock options, this agreement binds Dr. Thornton to
non-competition restrictions for one year after her employment
with Phoenix ceases if she voluntarily leaves Phoenix or is
terminated for a serious reason pursuant to Article 8.1 of
this Agreement..
10.3 With respect to the non-competition provisions included in the
CONFIDENTIALITY, PROPRIETARY RIGHTS, REGULATORY COMPLIANCE AND
NON-COMPETITION AGREEMENT, which are applicable after
cessation of employment of Dr. Thornton by Phoenix, it is
understood and agreed by both Parties that the purpose of
these
<PAGE>
- 8 -
provisions is to ensure that Dr. Thornton does not join a CRO
or any other organization offering similar services or
software products to those provided by Phoenix International,
for a period of one (1) year subsequent to the termination of
her employment at Phoenix if she voluntarily leaves Phoenix or
is terminated for a serious reason pursuant to Article 8.1 of
this Agreement. Thus, Dr. Thornton would be free to work for
any biotechnology or pharmaceutical company which does not
offer similar services or software products to those provided
by Phoenix International.
11. INCENTIVES SUBJECT TO CHANGE
11.1 Dr. Thornton acknowledges and accepts that all of Phoenix
International's executive share option plans, bonus plans and
other incentives are subject to future revision by Phoenix
International's Board of Directors, and that if such revisions
conflict with this Employment Agreement, the revisions to the
incentive plans shall prevail and shall replace anything to
the contrary contained in this agreement, provided such
revisions shall have no effect on share options already issued
to Dr. Thornton. Furthermore, such revisions, if made, shall
not be a cause for constructive dismissal notwithstanding any
other provision of this agreement.
12. SURVIVAL OF RESTRICTIVE COVENANTS
12.1 The parties agree that the undertakings of Dr. Thornton under
Section 5 of the CONFIDENTIALITY, PROPRIETARY RIGHTS,
REGULATORY COMPLIANCE AND NON-COMPETITION AGREEMENT, shall
only survive termination of this agreement in accordance with
their respective terms, in the event that Dr. Thornton's
employment is terminated by Phoenix for a serious reason
and/or following Dr. Thornton's resignation (if such
resignation does not follow a Change of Control or a
constructive dismissal),
13. DAMAGES
13.1 Dr. Thornton hereby agrees that any breach by her of Section
3.1 of this Employment Agreement, or of the CONFIDENTIALITY,
PROPRIETARY RIGHTS, REGULATORY COMPLIANCE AND NON-COMPETITION
AGREEMENT, will entitle Phoenix to damages of no less than
$100,000, which amount shall not be reduced for partial
performance or any other reason whatsoever.
<PAGE>
- 9 -
14. GENERAL
14.1 If any provision of this agreement is unenforceable or
invalid, for any reason whatsoever, such unenforceability or
invalidity will not affect the enforceability or validity of
the remaining provisions of this agreement and such provision
will be severable from the remainder of this agreement.
14.2 This agreement shall be governed and construed in accordance
with the laws of the Commonwealth of Pennsylvania.
14.3 No consent to or waiver of any breach of a term of provision
of this agreement by either party shall be construed as a
consent to or waiver of a subsequent breach of the same term
or provision, nor shall it be considered a consent to or
waiver of any other then existing or subsequent breach of a
different term or provision.
14.4 PHOENIX and the Employee acknowledge that there are other
contracts attached as Schedules to this Employment Agreement.
If these Schedules contain terminology, definitions or terms,
or create rights or obligations which are at variance or
conflict with the terminology, definitions or terms, rights or
obligations used or contained in this Employment Agreement,
then the parties agree that the terms of this Agreement shall
be deemed to set forth their true and complete intention and
agreement.
<PAGE>
- 10 -
IN WITNESS WHEREOF, the parties have executed this agreement in the
City of __________________ on the 1st day of June, 1998
PHOENIX INTERNATIONAL LIFE SCIENCES (IBRD) INC.
Per:
/s/ John W. Hooper
-----------------------------------------
JOHN W. HOOPER, Ph.D.
President
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Per:
/s/ John W. Hooper
-----------------------------------------
JOHN W. HOOPER, Ph.D.
Chairman and CEO
/s/ Susan Thornton
-----------------------------------------
SUSAN THORNTON, Ph.D.
<PAGE>
Exhibit 10.11
EMPLOYMENT AGREEMENT
BETWEEN: PHOENIX INTERNATIONAL LIFE SCIENCES (IBRD) INC., a
corporation duly incorporated under the laws of
STATE, having its head office at ADDRESS, in the City
of CITY, STATE ZIP, and represented herein by its
duly authorized representative,
(hereinafter called "PHOENIX")
AND: JAMES CONKLIN, M.D., domiciled and residing at
1439 Buford Drive, Yardley, PA 19067
(hereinafter called "DR. CONKLIN")
WHEREAS Phoenix is a subsidiary of Phoenix International Life
Sciences (U.S.) Inc., itself a subsidiary of Phoenix International Life Sciences
Inc. (The last mentioned company hereinafter "Phoenix International"), which
term shall include, if the context so requires, all the subsidiaries of Phoenix
International Life Sciences Inc.); and
WHEREAS Phoenix International undertakes to guarantee
performance of all of the terms and obligations undertaken by Phoenix for the
benefit of Employee for the duration of such Employee's employment and
conditional upon the Employee's respect of his own undertakings for the benefit
of Phoenix hereunder; and
WHEREAS Phoenix wishes to employ Dr. Conklin on the terms and
conditions hereinafter set forth; and
WHEREAS Phoenix and Dr. Conklin wish to acknowledge by this
agreement their mutual rights and obligations with respect to Dr. Conklin's
employment by Phoenix; and
WHEREAS this agreement shall be deemed to have commenced
September 1, 1998 regardless of the date it is actually signed,
NOW THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereto hereby agree as follows:
<PAGE>
- 2 -
1. PREAMBLE
1.1 The preamble is deemed to form part of this agreement.
2. POSITION
2.1 Dr. Conklin's initial title shall be Senior Vice President and
General Manager, Scientific Software Division (SEE ATTACHED
SCHEDULE A ENTITLED "INITIAL POSITION DESCRIPTION"). Phoenix
International intends to spin off its Scientific Software
Division as a separate company (MIPSS). If and when this takes
place, it is intended that Dr. Conklin will immediately be
appointed President and CEO of MIPSS.
3. OTHER EMPLOYMENT AND DUTY TO DEVOTE WHOLE TIME
3.1 Dr. Conklin agrees that during the term of his employment, he
shall devote his full time and efforts to Phoenix and shall
not, directly or indirectly, engage in any other business
whether or not said other business is competitive with or
similar to the business carried on by Phoenix International.
4. REMUNERATION AND OTHER BENEFITS
4.1 BASE SALARY: Dr. Conklin's starting annual salary shall be
US$220,000, less all applicable deductions, payable bi-weekly
in arrears. If Dr. Conklin is appointed President and CEO of
MIPSS before August 31, 1999, his salary will be identical to
that specified above, but will still be subject to annual
review on the anniversary date of his hiring by Phoenix.
4.2 BASE SALARY INCREASES: Dr Conklin will be eligible to receive
annual increases of his base salary upon each anniversary of
the commencement date, September 1, 1998, of this Agreement.
Said increases will be based on his ability to fulfill the
position description and consistent with decisions of Phoenix
International's Board of Directors.
4.3 CAR EXPENSES: Dr. Conklin will receive a car allowance of
$5,000 annually, payable in monthly instalments.
4.4 BENEFIT PLANS: Subject to completion by Dr. Conklin of any
medical examinations and other like procedures and such
enquiries, as may be required by
<PAGE>
- 3 -
Phoenix International's insurers, Phoenix shall pay and
maintain for Dr. Conklin short term and long term disability
benefits and insurance coverage consistent with the benefits
provided to other executives of Phoenix International.
Dr. Conklin shall be entitled to participate in all present or
future benefit and insurance plans which Phoenix International
makes available to its executives, including the 401k plan
currently in place at Phoenix, or modifications thereof.
4.5 VACATION: Dr. Conklin will be entitled to 4 weeks (20 working
days) annual vacation.
4.6 BONUS: Dr. Conklin will be eligible to receive an annual bonus
in accordance with the provisions of Phoenix's WORLDWIDE
EXECUTIVE REMUNERATION PLAN, a copy of which is attached
hereto as SCHEDULE B, (but which may be amended from time to
time). If and when Dr. Conklin is appointed President and CEO
of MIPSS, his eligibility for the Phoenix International bonus
plan will cease, and he will be eligible for a bonus plan
agreed between him and the Board of Directors of MIPSS.
5. PROFESSIONAL LIABILITY INSURANCE
5.1 Dr. Conklin will be covered by professional liability and
Directors and Officer insurance to which Phoenix International
subscribes, to the same extent as all Phoenix International
executives of his level. If and when Dr. Conklin becomes
President and CEO of MIPSS, he will be covered by insurance no
less favorable to him than that specified above and provided
by Phoenix International.
6. EQUITY IN MIPSS
6.1 If and when Dr. Conklin is appointed President and CEO of
MIPSS, he will be granted equity in MIPSS, as assigned by
MIPSS Board of Directors. It is expected that such equity will
be approximately 10% of the portion of the equity of MIPSS set
aside for employees of MIPSS.
7. TERM OF THE AGREEMENT
7.1 Dr. Conklin's employment with Phoenix in his new position
shall commence on September 1, 1998 and shall be for an
indeterminate term.
<PAGE>
- 4 -
8. TERMINATION
8.1 TERMINATION BY PHOENIX FOR SERIOUS REASON
8.1.1 Phoenix may terminate this Employment Agreement at any
time, for a serious reason, by resolution of its Board
of Directors adopted at a duly constituted meeting of
the Board. If Phoenix exercises its rights to terminate
this Employment Agreement for a serious reason, Dr.
Conklin shall not be entitled to receive any further
remuneration, save any base salary, vacation, and
benefits (but not bonuses), accrued as at the date of
termination. For the purposes of this agreement, a
"serious reason" shall mean that Dr.
Conklin:
(a) has refused, without valid reason, to comply with
the reasonable instructions of the Board of Directors
or the CEO of Phoenix International given to him in his
capacity as an executive of Phoenix insofar as such
instructions are not inconsistent with the terms of
this Agreement;
(b) has committed improper misconduct which is
materially detrimental to Phoenix, or has been grossly
negligent in the performance of his duties hereunder;
(c) commits wrongful acts against the interests of
Phoenix International or against its property;
(d) becomes subject in any way to bankruptcy or
insolvency laws;
(e) commits and is found guilty of an indictable
criminal offence or other similar offence involving
fraudulent or dishonest conduct, by a court of
competent jurisdiction; or
(f) gives cause to Phoenix International for a serious
reason similar in gravity to those set forth above.
8.2 TERMINATION BY PHOENIX WITHOUT A SERIOUS REASON
8.2.1 Phoenix may also terminate this agreement at its
discretion for any reason whatsoever by giving Dr.
Conklin 4 weeks prior notice of its decision to
dismiss. Phoenix may, at any time during the notice
period, choose to immediately discharge Dr. Conklin,
but in this case Dr. Conklin shall be entitled to
receive and shall be paid all amounts which he would
otherwise
<PAGE>
- 5 -
earn during the notice period.
8.2.2 If Phoenix terminates this agreement at its
discretion, without a serious reason, Phoenix shall
pay Dr. Conklin an amount equal to his gross base
annual salary (at the time of notification of
termination). All appropriate withholding as may be
required by law will be deducted from the amount so
calculated. This payment shall be made within 7 days
after the last day Dr. Conklin is employed. The bonus
for the fiscal year in which termination takes place,
if any, will be paid pro rata to the number of days
worked in the fiscal year. With the exception of the
amount referred to aforesaid, Dr. Conklin shall have
no right to be paid or to claim any further payments
related to or arising out of the termination of his
employment by Phoenix and he renounces to any such
further right or claim.
8.2.3 Phoenix's obligation to make the aforesaid payments
will not be reduced or affected if Dr. Conklin has
secured alternative employment.
8.3 TERMINATION BY DR. CONKLIN
8.3.1 Dr. Conklin may, at his option, terminate this agreement
for any reason whatsoever provided that Phoenix is given at
least 120 days notice before said termination becomes
effective.
8.3.2 Dr. Conklin has the right to terminate this agreement if
constructively dismissed, and receive compensation according
to the terms and conditions of section 8.2, above. Dr. Conklin
shall be considered to have been constructively dismissed if
a) there is a material and adverse diminution on an
accumulative basis of his duties, authority, position,
compensation, benefits, or title, which is not applied to all
other executives of Phoenix International, or (b) there is a
breach by Phoenix of any of the material terms of this
Agreement.
9. CONFIDENTIAL INFORMATION / NON-COMPETITION AND OTHER
UNDERTAKINGS
9.1 Dr. Conklin shall sign concurrently herewith the
CONFIDENTIALITY, PROPRIETARY RIGHTS, REGULATORY COMPLIANCE AND
NON-COMPETITION AGREEMENT with Phoenix and Phoenix
International, which is ATTACHED AS SCHEDULE C.
9.2 Dr. Conklin fully understands the provisions of this
Employment Agreement and the CONFIDENTIALITY, PROPRIETARY
RIGHTS, REGULATORY COMPLIANCE AND NON-COMPETITION AGREEMENT,
having had ample opportunity to review same and consult
counsel, if desired. Subject to Section 11 of this Employment
Agreement, Dr. Conklin recognizes that, consistent with
Phoenix International's policies for
<PAGE>
- 6 -
all of its executives and senior managers who are eligible to
receive equity in the company or its subsidiaries, or who
receive stock options, this agreement binds Dr. Conklin to
non-competition restrictions for one year after his employment
with Phoenix ceases if he voluntarily leaves Phoenix or is
terminated for a serious reason pursuant to Article 8.1 of
this Agreement..
9.3 With respect to the non-competition provisions included in the
CONFIDENTIALITY, PROPRIETARY RIGHTS, REGULATORY COMPLIANCE AND
NON-COMPETITION AGREEMENT, which are applicable after
cessation of employment of Dr. Conklin by Phoenix, it is
understood and agreed by both Parties that the purpose of
these provisions is to ensure that Dr. Conklin does not join a
CRO or any other organization offering similar services or
software products to those provided by Phoenix International,
for a period of one (1) year subsequent to the termination of
his employment at Phoenix if he voluntarily leaves Phoenix or
is terminated for a serious reason pursuant to Article 8.1 of
this Agreement. Thus, Dr. Conklin would be free to work for
any biotechnology or pharmaceutical company which does not
offer similar services or software products to those provided
by Phoenix International.
10. INCENTIVES SUBJECT TO CHANGE
10.1 Dr. Conklin acknowledges and accepts that all of Phoenix
International's executive bonus plans and other incentives are
subject to future revision by Phoenix International's Board of
Directors, and that if such revisions conflict with this
Employment Agreement, the revisions to the incentive plans
shall prevail and shall replace anything to the contrary
contained in this agreement. Furthermore, such revisions, if
made, shall not be a cause for constructive dismissal
notwithstanding any other provision of this agreement.
11. SURVIVAL OF RESTRICTIVE COVENANTS
11.1 The parties agree that the undertakings of Dr. Conklin under
Section 5 of the CONFIDENTIALITY, PROPRIETARY RIGHTS,
REGULATORY COMPLIANCE AND NON-COMPETITION AGREEMENT, shall
only survive termination of this agreement in accordance with
their respective terms, in the event that Dr. Conklin's
employment is terminated by Phoenix for a serious reason
and/or following Dr. Conklin's resignation (if such
resignation does not follow a constructive dismissal).
<PAGE>
- 7 -
12. DAMAGES
12.1 Dr. Conklin hereby agrees that any breach by him of Section
3.1 of this Employment Agreement, or of the CONFIDENTIALITY,
PROPRIETARY RIGHTS, REGULATORY COMPLIANCE AND NON-COMPETITION
AGREEMENT, will entitle Phoenix to damages of no less than
US$100,000, which amount shall not be reduced for partial
performance or any other reason whatsoever.
13. GENERAL
13.1 If any provision of this agreement is unenforceable or
invalid, for any reason whatsoever, such unenforceability or
invalidity will not affect the enforceability or validity of
the remaining provisions of this agreement and such provision
will be severable from the remainder of this agreement.
13.2 This agreement shall be governed and construed in accordance
with the laws of the Commonwealth of Pennsylvania.
13.3 No consent to or waiver of any breach of a term of provision
of this agreement by either party shall be construed as a
consent to or waiver of a subsequent breach of the same term
or provision, nor shall it be considered a consent to or
waiver of any other then existing or subsequent breach of a
different term or provision.
13.4 Phoenix, Phoenix International and the Employee acknowledge
that there are other contracts attached as Schedules to this
Employment Agreement. If these Schedules contain terminology,
definitions or terms, or create rights or obligations which
are at variance or conflict with the terminology, definitions
or terms, rights or obligations used or contained in this
Employment Agreement, then the parties agree that the terms of
this Agreement shall be deemed to set forth their true and
complete intention and agreement.
<PAGE>
- 8 -
IN WITNESS WHEREOF, the parties have executed this agreement in the
City of Montreal on the 1st day of September, 1998
PHOENIX INTERNATIONAL LIFE SCIENCES (IBRD) INC.
Per:
/s/ John W. Hooper
-------------------------------------------
JOHN W. HOOPER, Ph.D.
President
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
Per:
/s/ John W. Hooper
-------------------------------------------
JOHN W. HOOPER, Ph.D.
Chairman and CEO
/s/ James Conklin
-------------------------------------------
JAMES CONKLIN, M.D.
<PAGE>
Exhibit 10.12
L E A S E A G R E E M E N T
BY AND BETWEEN:
GAMMA THREE ASSOCIATES LIMITED PARTNERSHIP,
a New Jersey Limited Partnership,
"LANDLORD"
- and -
INSTITUTE FOR BIOLOGICAL RESEARCH
AND DEVELOPMENT, INC.,
a Delaware corporation,
"Tenant"
Premises: 105 Neptune Boulevard
Neptune Business Center
Neptune Township, New Jersey
DATED: November 27, 1991
PREPARED BY: ROBERT K. BROWN, ESQ.
<PAGE>
#13740-198
RKB Disk #279
<PAGE>
TABLE OF CONTENTS
3. RENT........................................................6
4. PARKING AND USE OF EXTERIOR AREA............................6
5. USE.........................................................7
6. CONSTRUCTION................................................7
7. REPAIRS AND MAINTENANCE.....................................8
8. UTILITIES..................................................11
11. SIGNS......................................................13
12. FIXTURES...................................................13
13. BROKERAGE..................................................14
14. FIRE AND CASUALTY..........................................15
15. COMPLIANCE WITH LAWS, RULES AND REGULATIONS................16
16. INSPECTION BY LANDLORD.....................................19
17. DEFAULT BY TENANT..........................................20
18. LIABILITY OF TENANT FOR DEFICIENT..........................24
19. NOTICES....................................................24
20. NON-WAIVER.................................................25
21. RIGHT OF TENANT TO MAKE ALTERATIONS AND IMPROVEMENTS.......25
22. NON-LIABILITY OF LANDLORD..................................26
23. RESERVATION OF EASEMENT....................................27
24. POLLUTION..................................................27
<PAGE>
25. STATEMENT OF ACCEPTANCE....................................28
26. FORCE MAJEURE..............................................28
27. STATEMENTS BY LANDLORD AND TENANT..........................29
28. CONDEMNATION...............................................29
29. LANDLORD'S REMEDIES........................................30
30. QUIET ENJOYMENT............................................31
31. SURRENDER OF PREMISES......................................31
32. INDEMNITY..................................................32
33. LEASE CONSTRUCTION.........................................33
34. BIND AND INURE CLAUSE......................................33
35. DEFINITIONS................................................33
36. DEFINITION OF TERM OF "LANDLORD"...........................33
37. COVENANTS OF FURTHER ASSURANCES............................34
38. COVENANT AGAINST LIENS.....................................34
39. SUBORDINATION..............................................34
40. EXCULPATION OF LANDLORD....................................35
41. NET RENT...................................................35
42. SECURITY...................................................35
43. ASSIGNMENT AND SUBLETTING..................................36
44. OPTION TO RENEW............................................39
45. FINANCIAL STATEMENTS.......................................42
46. TENANT'S FIRST RIGHT OF NEGOTIATION........................42
<PAGE>
47. LANDLORD IS DEFAULT........................................43
<PAGE>
THIS AGREEMENT, made the day of 1991, by and between GAMMA THREE ASSOCIATES
LIMITED PARTNERSHIP, a New Jersey Limited Partnership, having an office at 14A
Worlds Fair Drive, Franklin Township, New Jersey 08873 (P.O. Box 5850, Somerset,
New Jersey 08875) hereinafter called the "LANDLORD"; and INSTITUTE FOR
BIOLOGICAL RESEARCH AND DEVELOPMENT, INC., a Delaware corporation, about to have
an office at 105 Neptune Boulevard, Suite Neptune, New Jersey 07753, hereinafter
called the "Tenant".
W I T N E S S E T H :
WHEREAS, the LANDLORD intends to lease to the Tenant a portion of the
building commonly known as 105 Neptune Boulevard, Neptune Township, New Jersey
(the "Building"), which portion is located on the first floor of the Building
and contains 11,100 square feet, outside dimensions to center line of common
wall, identified on the plot plan attached hereto and made a part hereof as
Schedule "A", hereinafter referred to as the "Leased Premises"; and
WHEREAS, the parties hereto wish to mutually define their rights, duties
and obligations in connection with the said Lease,
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for the rents
reserved, the mutual considerations herein and the parties mutually intending to
be legally bound hereby, the LANDLORD does demise, lease and let unto the Tenant
and the Tenant does rent and take from the LANDLORD the Leased Premises as
described in
<PAGE>
ninety (90) days following the date of execution of this Lease Agreement. If the
LANDLORD has not delivered possession of the Leased Premises to Tenant as
required by this Lease by May 31, 1992, Tenant shall have the right to terminate
this Lease. The foregoing right of termination is expressly subject to and
contingent upon the execution of this Lease Agreement by LANDLORD and Tenant,
and the approval of Tenant's Plan as well as the cost of installation of all
improvements set forth thereon, by November 25, 1991; for each day of delay
beyond November 25, 1991, the "outside" date hereinabove set forth of May 31,
1992 shall be extended for an additional day. In the event of termination of
this Lease in accordance with this Article 2.1, LANDLORD hereby agrees that it
shall refund to Tenant all monies previously paid to LANDLORD in accordance with
the terms and conditions of this Lease, including the Tenant's Contribution as
hereinafter defined in Article 6.2.
1.
2.
2.1
2.2 Subject to the terms and conditions of this Lease, in the event the
Leased Premises are delivered to the Tenant in the manner provided in Article
2.1 above, prior to or after February 1, 1992, the Lease term of five (5) years
shall commence on the first day of the next succeeding month following delivery
of possession to the Tenant (hereinafter called the "Commencement Date") and
shall continue for a term of five (5) years thereafter. The Tenant
2
<PAGE>
shall, however, pay to the LANDLORD a sum equal to the pro rata share of one (1)
month's rent for that portion of the month prior to the Commencement Date.
During said period of partial monthly occupancy" if any, all other terms and
conditions of this Lease shall be applicable to the occupancy of the Leased
Premises by the Tenant.
2.3 It is expressly understood and agreed that for the purpose of this
Lease, wherever and whenever the term "substantial completion" is used, the term
"substantial completion" shall not include items of maintenance, service or
guarantee, which may be required pursuant to the terms and conditions of this
agreement. The Building and improvements shall be considered substantially
completed upon the issuance of a Certificate of Occupancy.
3. RENT
3.1 Tenant covenants and agrees to pay the annual rent as follows:
<TABLE>
<CAPTION>
RENT PER MONTHLY
LEASE YEAR SQUARE FOOT ANNUAL RENT INSTALLMENT
- ---------- ----------- ----------- -----------
<S> <C> <C> <C>
1 $10.00 $111,000.00 $ 9,250.00
2 $10.30 $114,330.00 $ 9,527.50
3 $10.60 $117,660.00 $ 9,805.00
4 $10.80 $119,880.00 $ 9,990.00
5 $11.00 $122,100.00 $10,175.00
</TABLE>
The figures for "Annual Rent" and "Monthly Installment" are subject to
adjustment as of the Commencement Date based Upon the gross
3
<PAGE>
rentable area of the Leased Premises, as shall be certified by LANDLORD's
architect or engineer, multiplied by "Rent Per Square Foot".
All of the foregoing monthly installments shall be paid promptly in
advance on the first day of each and every month during the term of the Lease
without demand and without off-set or deduction, together with such additional
rent and other charges required to be paid by Tenant as are hereinafter set
forth.
3.2 Simultaneously with the execution hereof, the Tenant has delivered
to the LANDLORD the first month's installment of annual rent payable hereunder.
4. PARKING AND USE OF EXTERIOR AREA
4.1 The LANDLORD shall reserve for the Tenant's exclusive use twelve (12)
parking spaces at the Building. Otherwise and in addition thereto, the Tenant
shall have the right to use the parking spaces on a non-exclusive basis in
common with other tenants of the Complex and to use the access driveways and
allocated parking spaces for its business purposes and for those of its agents,
servants, employees or invitees. The LANDLORD reserves the right to allocate
designated parking spaces if LANDLORD chooses. The LANDLORD and Tenant mutually
agree that they will not block, hinder or otherwise obstruct the access
driveways and parking areas so as to impede the free flow of vehicular traffic
in and out of the Complex. In connection with the use of the loading platforms,
if any, both LANDLORD and Tenant agree that
4
<PAGE>
they will not use the same in connection with the conduct of their business so
as to unreasonably interfere with the use of the access driveways and parking
areas.
4.2 The Tenant may not utilize any portion of the land outside of the
Leased Premises for outside storage of raw materials or finished products.
5. USE
The Tenant covenants and agrees to use and occupy the Leased Premises for
general offices and for an in-patient and outpatient clinic, biomedical research
facility and future analytical laboratory together with ancillary medical and
professional offices for the purpose of conducting pharmaceutical testing in
compliance with applicable FDA procedures for Phases I, II, III and IV, which
use by Tenant, however, is and shall be expressly subject to all applicable
zoning ordinances, rules and regulations of any governmental instrumentalities,
boards or bureaus having jurisdiction thereof.
6. CONSTRUCTION
6.1 Subject to the prior written approval of the Tenant and LANDLORD's
architect, the LANDLORD shall construct and complete Tenant's Leased Premises in
accordance with the Building Standard set forth on Schedule "B", and in
accordance with the plan annexed hereto and made a part hereof as Schedule "B-1"
("Tenant's Plan") , provided that the LANDLORD shall have the right to
substitute for the materials and equipment required by the Building Standard and
Tenant's Plan, materials and equipment of equal or
5
<PAGE>
better quality and standard, provided said substitutions conform with applicable
Building Codes.
6.2 Upon execution of the within Lease Agreement, Tenant shall deliver to
LANDLORD the sum of SEVENTY FIVE THOUSAND AND 00/100 ($75,000.00) DOLLARS (the
"Tenant's Contribution"), which Tenant's Contribution represents the estimated
cost of installation of all items set forth in Tenant's Plan which are in excess
of Building Standard (which, for the purposes of this Article, is hereby deemed
to include all cabinetry to be installed by LANDLORD in accordance with Tenant's
Plan) . In the event the actual cost of installation of such excess requirements
of Tenant shall be less than the sum of SEVENTY FIVE THOUSAND AND 00/100
($75,000.00) DOLLARS, the difference shall be rebated to Tenant upon
establishment of the actual cost of such work. In the event that the cost of
installation of leasehold improvements which exceed the Building Standard shall
exceed the sum of SEVENTY FIVE THOUSAND AND 00/100 ($75,000.00) DOLLARS, the
Tenant shall deliver the amount in excess of Tenant's Contribution to the
LANDLORD upon the Commencement Date. Prior to the commencement of the term of
this Lease, LANDLORD shall provide Tenant with a detailed schedule of all costs
for labor and materials actually paid by LANDLORD for completing Tenant's Plan.
6.3 LANDLORD hereby agrees that it shall give Tenant at least thirty (30)
days prior written notice of the estimated date upon which the Leased Premises
shall be delivered to the Tenant.
6
<PAGE>
7. REPAIRS AND MAINTENANCE
7.1 The Tenant shall pay to the LANDLORD monthly, as additional rent, a sum
equal to Tenant's Building Percentage of costs incurred by the LANDLORD for
maintenance, repair and replacement of the structural parts of the Building,
including the walls, roof, concrete floor, foundations, structural steel, the
electrical system, together with the air-conditioning and heating plant, the
plumbing, pipes, sewer lines and conduits, and fixtures belonging thereto,
except for repairs or maintenance occasioned by the negligence or deliberate act
of Tenant, or its agents, servants, employees and invitees, which shall then be
repaired by LANDLORD at the cost and expense of the Tenant. LANDLORD warrants
and represents that all fixtures, equipment and systems described herein shall,
at the commencement of the term of this Lease, be new and in first-class
condition and working order. In addition, the LANDLORD hereby warrants the
condition of the foregoing items for a period of one (1) year following the
Commencement Date hereunder, it being understood that Tenant shall nonetheless
be responsible for its Building Percentage of the cost of all maintenance (but
not repair and replacement) of said items.
7.2 The Tenant shall pay to the LANDLORD monthly as additional rent a sum
equal to Tenant's Common Area Percentage of cost incurred by the LANDLORD for
maintenance, repair and replacement of the following: (i) parking lot and
roadways, driveways, sidewalks, walkways,
7
<PAGE>
exterior lighting; (ii) exterior sewer and utility lines; (iii) lawns and
shrubbery; (iv) snow removal; (v) signs serving the Complex; and (vi) detention
ponds. In addition the Tenant shall pay the LANDLORD monthly as additional rent,
Tenant's Building Percentage of costs incurred by the LANDLORD for the
maintenance, repair and replacement of the following: roof, gutters, leaders,
flashings, metal gravel stops and roof drains. Nothing hereinabove contained in
Articles 7.1 and 7.2 shall require the Tenant to pay any portion of the
construction costs applicable to the initial construction of other phases of the
Complex. In addition LANDLORD hereby agrees that in the event the replacement of
the roof, foundation, exterior walls, structural steel, heating, ventilating and
air-conditioning system or the parking lot serving the Building is necessary
during the term of this Lease, the cost of any such replacement shall be
amortized over the useful life of the item being replaced [not to exceed ten
(10) years in any event] and Tenant shall only be responsible to reimburse
LANDLORD for that portion of said amortized expense as shall be applicable to
the remaining term of this Lease. The remaining term of this Lease shall be
deemed to include any extension or renewal of this Lease, effective as of the
exercise by Tenant of its option to renew as hereinafter contained in Article
44, or upon execution of an agreement by and between LANDLORD and Tenant
otherwise extending the term of this Lease.
7.3 Tenant agrees to keep the Leased Premises in as good repair as they are
at the beginning of the term, reasonable use and wear thereof and
8
<PAGE>
damage by fire or other casualty not caused by Tenant excepted. Tenant further
agrees not to damage, overload, deface or commit waste of the Leased Premises.
Tenant shall be responsible for all damage of any kind or character to the
Leased Premises, including the windows, glass, floors, walls and ceilings,
caused by Tenant or by anyone using or occupying the Leased Premises by, through
or under the Tenant. LANDLORD shall repair the same, and Tenant agrees to pay
the costs incurred therefor to LANDLORD upon demand. Anything hereinabove
contained to the contrary notwithstanding, it is expressly understood and agreed
that the Tenant shall, at its sole cost and expense, be responsible for the
repair, maintenance and replacement of any items installed by LANDLORD for
Tenant's use as leasehold improvements over and above the improvements furnished
by LANDLORD, as part of LANDLORD's work.
7.4 During the first year of the Lease term, the LANDLORD shall estimate
the cost of all of the maintenance, repair and replacement services required
pursuant to Articles 7.1 and 7.2 above. LANDLORD shall furnish such estimate to
the Tenant, and Tenant shall pay to LANDLORD one-twelfth (1/12th) of its Common
Area Percentage or Building Percentage thereof, as applicable, during each month
of the Lease year as additional rent. At the expiration of the first twelve (12)
months of the Lease term, the LANDLORD shall furnish to Tenant a breakdown,
certified by the LANDLORD, as to the total cost of maintenance, repair and
replacement for the prior twelve (12) months. In the event Tenant's pro rata
share shall be more than the aggregate
9
<PAGE>
paid by the Tenant during the preceding twelve (12) month period, Tenant shall
pay to the LANDLORD, in one lump sum, any difference in such obligation, said
sum to be paid within fifteen (15) days after demand. In the event Tenant shall
have overpaid its pro rata share, any such overage shall be applied to the
monthly maintenance, repair and replacement charges prospectively due under the
Lease. This procedure shall be followed during each year of the Lease term, and
at the expiration of the Lease, any overage or underage shall be credited or
paid after computation by the LANDLORD, which obligation of LANDLORD and Tenant
shall survive the expiration of the Lease term.
7.5 Upon receipt of written request from Tenant, LANDLORD hereby agrees
that it shall deliver copies of applicable invoices and supporting documentation
which form thebasis of any statement delivered to Tenant pursuant to Article 7.4
hereof, within thirty (30) days of receipt by LANDLORD of Tenant's request
therefor, it being the intention that Tenant shall be obligated to pay its pro
rata share of such reasonable expenses as are actually incurred by LANDLORD.
7.6 LANDLORD shall be obligated to maintain the Building, Common Area,
Complex and all other portions of the Property in a first-class condition.
8. UTILITIES
8.1 The Tenant shall, at its own cost and expense, pay all utility meter
and service charges applicable to the Leased Premises, including gas,
10
<PAGE>
sewer, electric, water, janitorial and garbage disposal services and Tenant's
Building Percentage of standby sprinkler charges, if any, based upon invoices
which will be submitted by LANDLORD to Tenant. It is understood and agreed that
the Leased Premises are separately metered for gas and electrical consumption.
8.2 The LANDLORD is hereby granted the privilege of entering the Leased
Premises for the purpose of repairing any
9.
10.
10.1 sprinkler damage, flood insurance and comprehensive liability for the
whole of the land, Building and improvements of which the Leased Premises are a
part, including LANDLORD's cost for umbrella insurance (excess coverage) in an
amount not to exceed FIFTEEN MILLION ($15,000,000.00) DOLLARS. Tenant shall pay
the full premium attributable to casualty rent insurance, insuring the value of
one (1) year's gross rental obligation of Tenant hereunder, including taxes and
insurance premiums. Any increase in the premiums hereinabove referred to due to
change in rating of the Building, attributable to the use of the Leased Premises
by the Tenant shall be paid entirely by the Tenant. LANDLORD covenants and
agrees that it shall carry the aforementioned insurance policies and LANDLORD
shall certify annually, the annual cost of such insurance premiums, and shall
furnish to
11
<PAGE>
Tenant, if requested, a copy of all insurance premium bills for which Tenant has
been charged its pro rata share thereof.
10.2 In addition to the above, the Tenant covenants and agrees that it
will, at its sole cost and expense, carry liability insurance covering the
Leased Premises in the minimum amount of ONE MILLION ($1,000,000.00) DOLLARS per
accident for one (1) person, THREE MILLION ($3,000,000-00) DOLLARS per accident
for two (2) or more persons, and a minimum amount of TWO HUNDRED FIFTY THOUSAND
($250,000.00) DOLLARS for property damage, and the Tenant further covenants and
agrees that it will add as a party insured by such policy the interest of the
LANDLORD and will furnish LANDLORD with a certificate of said liability
insurance.
10.3 It is expressly understood and agreed that all policies of insurance
shall contain a clause that the same shall not be cancelled except on thirty
(30) days' written notice to any and all parties in interest.
10.4 The parties hereto mutually covenant and agree that each party, in
connection with insurance policies required to be furnished in accordance with
the terms and conditions of this Lease, or in connection with insurance policies
which they obtain insuring such insurable interest as LANDLORD or Tenant may
have in its own properties, whether personal or real, shall expressly waive any
right of subrogation on the part of the insurer against the LANDLORD or Tenant
as the same may be applicable, which right to the extent not prohibited or
violative of any such policy is hereby expressly
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waived, and LANDLORD and Tenant each mutually waive all right of recovery
against each other, their agents, or employees for any loss, damage or injury of
any nature whatsoever to property or person for which either party is required
by this Lease to carry insurance.
11. SIGNS
Tenant shall have the right and privilege of placing a sign on the Building
containing the Leased Premises which shall be of sufficient size and design so
as to be clearly visible to vehicles and pedestrians on adjacent and contiguous
streets. The said sign shall comply with the applicable rules and regulations of
the applicable governmental boards and bureaus having jurisdiction thereof, and
shall be approved by the LANDLORD, which approval shall not be unreasonably
withheld. No other exterior signage of Tenant shall be permitted.
12. FIXTURES
The Tenant is given the right and privilege of installing and removing
property, machinery, equipment and fixtures in the Leased Premises during the
term of the Lease subject to compliance with applicable rules and regulations of
governmental boards and bureaus having jurisdiction thereof. However, if the
Tenant is in default and moves out, or is dispossessed, and fails to remove any
property, machinery, equipment and fixtures or other property prior to such
default, dispossess or removal, then and in that event, the said property,
machinery, equipment and fixtures or other property shall be
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deemed, at the option of the LANDLORD, to be abandoned; or in lieu thereof, at
the LANDLORD's option, the LANDLORD may remove such property and charge the
reasonable cost and expense of its removal, storage and disposal to the Tenant.
The Tenant shall be liable for any damage which it causes in the removal of said
property from the Leased Premises.
13. BROKERAGE
The parties mutually represent to each other that JACOBSON, GOLDFARB &
TANZMAN ASSOCIATES, Ten Woodbridge Center Drive P.O. Box 1408, Woodbridge, New
Jersey 07095, and GRUBB & ELLIS, Two Research Way, Princeton Forrestal Center,
Princeton, New Jersey 08540, are the sole brokers who negotiated and consummated
the within transaction, and that neither party dealt with any other broker in
connection with the within Lease, it being understood and agreed that the
LANDLORD shall be responsible, at its sole cost and expense, to pay the real
estate brokerage in connection with this Lease transaction. LANDLORD agrees to
indemnify, defend and save harmless Tenant in connection with the claims of any
other real estate brokers claiming commissions in connection with the within
transaction and claiming authority from LANDLORD. Tenant agrees to indemnify,
defend and save harmless LANDLORD in connection with the claims of any other
real estate brokers claiming commissions in connection with the within
transaction and claiming authority from Tenant.
14. FIRE AND CASUALTY
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14.1 In case of any damage to the Building by f ire or other casualty
occurring during the Term or previous thereto, which renders the Leased Premises
wholly untenantable so that the same cannot be repaired within one hundred
eighty (180) days from the happening of such damage, then the Term hereby
created shall, at the option of the LANDLORD, terminate from the date of such
damage. If the LANDLORD elects to terminate the Lease, LANDLORD shall notify the
Tenant of such election within thirty (30) days of the happening of the fire or
casualty, and in such event the Tenant shall immediately surrender the Leased
Premises and shall pay Fixed Rent and Additional Rent only to the time of such
damage and the LANDLORD may re-enter and re-possess the Leased Premises,
discharged from this Lease. In the event the LANDLORD can restore the Leased
Premises within one hundred eighty (180) days, it shall advise the Tenant of
such fact, and the Lease shall remain in full force and effect during the period
of LANDLORD's restoration, except that all rent reserved hereunder shall abate,
upon the happening of fire or casualty, and while the repairs and restorations
are being made, but the rent shall recommence upon restoration of the Leased
Premises and delivery of the same by the LANDLORD to the Tenant. LANDLORD agrees
that it will undertake reconstruction and restoration of the Leased Premises
with due diligence and reasonable speed and dispatch, subject to the terms and
conditions of Article 8.
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14.2 If the Building shall be damaged, but the damage is repairable within
one hundred eighty (180) days the LANDLORD agrees to repair the same with due
diligence and reasonable speed and dispatch subject to the terms and conditions
of Article 8. In such event, the rent accrued and accruing shall not abate,
except f or that portion of the Leased Premises that has been rendered
untenantable and as to that portion the rent shall abate, based on equitable
adjustments.
14.3 The Tenant shall immediately notify the LANDLORD in case of fire or
other damage to the Leased Premises.
14.4 Notwithstanding anything contained in Article 14.1 or 14.2 above, if
such repairs are for any reason not completed within two hundred ten (210) days,
then the Tenant shall have the right to terminate this Lease upon written notice
to the LANDLORD of such election, and in such event of termination LANDLORD and
Tenant shall thereupon be released of liability one to the other, and the within
Lease shall be deemed null and void.
14.5 Rent, as referred to in this Article 14, is intended to include annual
rent, additional rent and all other Lease charges required to be paid by Tenant
pursuant to this Lease.
15. COMPLIANCE WITH LAWS, RULES AND REGULATIONS
15.1 (i) The Tenant covenants and agrees that upon acceptance and occupancy
of the Leased Premises, it, will, during the Lease term, promptly, at Tenant's
cost and expense, execute and comply with all statutes,
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ordinances, rules, orders, regulations and requirements of the Federal, State
and Municipal governments and of any and all their instrumentalities,
departments and bureaus, applicable to the Leased Premises, as the same may
require correction, prevention and abatement of nuisances, violations or other
grievances, in, upon or connected with the Leased Premises, and arising from the
operations of the Tenant therein.
(ii) The Tenant covenants and agrees at its own cost and expense, to
comply with such regulations or requests as may be required by the fire or
liability insurance carriers providing insurance for the Leased Premises, and
will further comply with such other requirements that may be promulgated by the
Board of Fire Underwriters, in connection with the use by the Tenant of the
Leased Premises in the conduct of its business.
(iii) The Tenant covenants and agrees that it will not commit any
nuisance, nor permit the emission of any objectionable sound, noise or odors
which would be violative of any applicable governmental rule or regulation or
would per se create a nuisance. The Tenant further covenants and agrees that it
will handle and dispose of all rubbish, garbage and waste in connection with the
Tenant's operations in the Leased Premises in accordance with reasonable
regulations established by the LANDLORD from time to time in order to keep the
premises in an orderly condition and in order to avoid unreasonable emission of
dirt, fumes, odors or debris which may constitute a nuisance or induce pests or
vermin. In addition, the Tenant shall handle and
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dispose of all medical waste, at Tenant's sole cost and expense, in accordance
with all applicable statutes, laws, rules and regulations of governmental
entities having jurisdiction thereof.
15.2 In case the Tenant shall fail or neglect to comply with the aforesaid
statutes, ordinances, rules, orders, regulations and requirements or any of
them, as hereinbefore provided, or in case the Tenant shall neglect or fail to
make any necessary repairs, then the LANDLORD or the LANDLORD's agents may after
thirty (30) days' written notice specifying the applicable statute, ordinance,
rule, order, regulation or requirement, the nature of Tenant's failure or
neglect to comply with the same and the required repair or other cure (except
for emergency repairs, which may be made immediately) enter the Leased Premises
and make said repairs and comply with any and all of the said statutes,
ordinances, rules, orders, regulations or requirements, at the cost and expense
of the Tenant and in case of the Tenant's failure to pay therefor, the said cost
and expense shall be added to the next month's rent and be due and payable as
such, or the LANDLORD may deduct the same from the balance of any sum remaining
in the LANDLORD's hands. This provision is in addition to the right of the
LANDLORD to terminate this Lease by reason of any default on the part of the
Tenant, subject to the rights of the Tenant as hereinabove mentioned in the
manner as in this Lease otherwise provided. Notwithstanding anything hereinabove
contained, the Tenant shall have right to contest any of the aforementioned
statute, ordinances, rules, orders,
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regulations and requirements, provided that Tenant shall indemnify, defend and
save harmless the LANDLORD from and against any and all claims or liabilities
which may be incurred by LANDLORD due to Tenant's non-compliance with same. No
such contest may be conducted which shall result in the imposition of any lien
on the Complex or which would affect the use and occupancy of the Complex by any
other tenant thereof.
15.3 Without limiting anything hereinabove contained in this Article 15,
Tenant expressly covenants and agrees to fully comply with the provisions of the
New Jersey Environmental Cleanup Responsibility Act (N.J.S.A. 13:1K-6, et seq.)
hereinafter referred to as 11ECRA11, and all regulations promulgated thereto
with respect to Tenant's use of the Leased Premises prior to the expiration or
earlier termination of the within Lease, or at any time that any action of the
Tenant triggers the applicability of ECRA. In particular, the Tenant agrees that
it shall comply with the provisions of ECRA in the event of any "closing,
terminating or transferring" of Tenant's operations, as defined by and in
accordance with the regulations which have been promulgated pursuant to ECRA. In
the event evidence of such compliance is not delivered to the LANDLORD prior to
surrender of the Leased Premises by the Tenant to the LANDLORD, it is understood
and agreed that the Tenant shall be liable to pay to the LANDLORD an amount
equal to two times the annual rent then in effect, provided on monthly basis,
together with all applicable additional rent from the date of such surrender
until such time as
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evidence of compliance with ECRA has been delivered to the LANDLORD, and
together with any costs and expenses incurred by LANDLORD in enforcing Tenant's
obligations under this Article 15.3. Evidence of compliance, as used herein,
shall mean a "letter of non-applicability" issued by the New Jersey Department
of Environmental Protection, hereinafter referred to as "NJDEP", or an approved
"negative declaration" or a "cleanup plan" which has been fully implemented and
approved by NJDEP. Evidence of compliance shall be delivered to the LANDLORD,
together with copies of all submissions made to the NJDEP, including all
environmental reports, test results and other supporting documentation. In
addition to the above, Tenant hereby agrees that it shall cooperate with
LANDLORD in the event of the termination or expiration of any other Lease
affecting the Property, or a transfer of any portion of the property indicated
on Schedule "A-l", or any interest therein, which triggers the provisions of
ECRA. In such case, Tenant agrees that it shall fully cooperate with LANDLORD in
connection with any information or documentation which may be requested by the
NJDEP. In the event that a cleanup of the Property is required in connection
with the conduct by Tenant of its business in the Leased Premises, Tenant
expressly covenants and agrees that it shall be responsible for that portion of
said cleanup which is attributable to the Tenant's use and occupancy thereof.
Tenant hereby represents and warrants that its Standard Industrial
Classification No. is .., and that Tenant shall not generate, manufacture,
refine, transport, treat, store,
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handle or dispose of "hazardous substances" as the same are defined under ECRA
and the regulations promulgated pursuant thereto. Tenant hereby agrees that it
shall promptly inform LANDLORD of any change in its SIC number or the nature of
the business to be conducted in the Leased Premises. The within covenants shall
survive the expiration or earlier termination of the Lease term.
16. INSPECTION BY LANDLORD
The Tenant agrees that the said LANDLORD's agents, and other
representatives, shall have the right to enter into and upon the Leased
Premises, or any part thereof, at all reasonable hours for the purpose of
examining the same, or for exhibiting the same to prospective purchasers (at any
time) and tenants [within the last twelve (12) months of the term of this Lease,
or during any period during which Tenant is in default under the terms and
conditions of this Lease] upon reasonable advance oral notice of not less than
twenty-four (24) hours (except in the event of emergency), or making such
repairs or alterations therein as may be necessary for the safety and
preservation thereof, or to repair and maintain the common utilities without
unduly or unreasonably disturbing the operations of the Tenant (except in the
event of emergency. LANDLORD understands and acknowledges that the nature of
Tenant's business is such that one or more areas within the Leased Premises may
be restricted by Tenant because of the presence of trade secrets or proprietary
information or for reasons of patient confidentially. With respect
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to such areas Tenant may restrict all non-emergency access or, at Tenant's
option, grant non-emergency entrance on condition that each entrant sign a
confidentiality statement in form and substance satisfactory to Tenant. Upon
LANDLORD's prior oral request, Tenant hereby agrees that it shall specify a time
that the entire Leased Premises may be inspected or exhibited by LANDLORD,
during normal business hours, which time shall be within seven (7) days of
receipt by Tenant of LANDLORD's oral request. LANDLORD agrees that any such
inspection or exhibition shall be arranged to be made in the presence of a
representative of Tenant, with due regard for Tenant's security requirements.
LANDLORD hereby agrees that anyone inspecting the Leased Premises shall be
required to sign a confidentiality statement, as hereinabove set forth.
17. DEFAULT BY TENANT
17.1 Each of the following shall be deemed a default by Tenant and a breach
of this Lease:
(1) (i) filing of a petition by the Tenant for adjudication as a
bankrupt, or for reorganization, or for an arrangement under any federal or
state statute, except in a Chapter 11 Bankruptcy where the rent and
additional rent stipulated herein is being paid and the terms of the Lease
are being complied with;
(ii) dissolution or liquidation of the Tenant;
(iii) appointment of a permanent receiver or a permanent trustee
of all or substantially all of the property of the Tenant, if such
appointment shall not be vacated within one hundred twenty (120) days,
provided the rent and additional rent stipulated herein is
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being paid and the terms of the Lease are being complied with, during said
one hundred twenty (120) day period;
(iv) taking possession of the property of the Tenant by a
governmental officer or agency pursuant to statutory authority for
dissolution, rehabilitation, reorganization or liquidation of the Tenant if
such taking of possession shall not be vacated within one hundred twenty
(120) days, provided the rent and additional rent stipulated herein is
being paid and the terms of the Lease are being complied with,. during said
one hundred twenty (120) day period;
(v) making by the Tenant of an assignment for the benefit of
creditors;
(vi) abandonment, desertion or vacation of the Leased Premises by
the Tenant. There shall be no abandonment, desertion or vacation provided
that Tenant is current in the payment of rent and other sums due under this
Lease, and further provided that prior written notice of such a vacation of
the Leased Premises is given to LANDLORD which notice shall set forth the
length of time that Tenant expects the Leased Premises to be vacant; the
Tenant shall be responsible for any increased costs for insurance premiums
or security services which may be necessitated by the vacation of the
Leased Premises by the Tenant.
If any event mentioned in this subdivision (1) shall occur, LANDLORD may
thereupon or at any time thereafter elect to cancel this Lease by thirty (30)
days' notice to the Tenant and this Lease shall terminate on the day in such
notice specified with the same force and effect as if that date were the date
herein fixed for the expiration of the term of the Lease.
(2) (i) Default in the payment of the rent or additional rent
herein reserved or any part thereof for a period of seven (7) days after
the same is due and payable as in this Lease required.
(ii) A default in the performance of any other covenant or
condition of this Lease on the Oath of the Tenant to be
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performed for a period of thirty (30) days after written notice. For
purposes of this subdivision (2) (ii) hereof, no default on the part of
Tenant in performance of work required to be performed or acts to be done
or conditions to be modified shall be deemed to exist if steps shall have
been commenced by Tenant diligently after notice to rectify the same and
shall be prosecuted to completion with reasonable diligence, and if the
LANDLORD is indemnified against loss or liability arising from the default.
17.2 In case of any such default under Article 17.1 (2), at any time
following the expiration of the respective grace periods above mentioned,
LANDLORD may serve a notice upon the Tenant electing to terminate this Lease
upon a specified date not less than seven (7) days after the date of serving
such notice and this Lease shall then expire on the date so specified as if that
date had been originally fixed as the expiration date of the term herein
granted; however, a default under Article 17.1 (2) hereof shall be deemed waived
if such default is made good before the date specified for termination in the
notice of termination served on the Tenant.
17.3 In case this Lease shall be terminated as hereinbefore provided, or by
summary proceedings or otherwise, LANDLORD or its agents may, immediately or any
time thereafter, reenter and resume possession of the Leased Premises or such
part thereof, and remove all persons and property therefrom, either by summary
proceedings or by a suitable action or proceeding at law, without being liable
for any damages therefor. No re-entry by LANDLORD shall be deemed an acceptance
of a surrender of this Lease.
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17.4 In case this Lease shall be terminated as hereinafter provided, or by
summary proceedings or otherwise, LANDLORD may, in its own name and in its own
behalf, relet the whole or any portion of the Leased Premises, for any period
equal to or greater or less than the remainder of the then current terms, for
any sum which it may deem reasonable, to any tenant which it may deem suitable
and satisfactory, and for any use and purpose which it may deem appropriate, and
in connection with any such Lease LANDLORD may make such changes in the
character of the improvements on the Leased Premises as LANDLORD may determine
to be appropriate or helpful in effecting such Lease and may grant concessions
or free rent. LANDLORD hereby agrees that it shall use reasonable efforts to
relet the Leased Premises, so as to mitigate the damages otherwise payable by
Tenant hereunder. LANDLORD shall not in any event be required to pay Tenant any
surplus of any sums received by LANDLORD on a reletting of the Leased Premises
in excess of the rent reserved in this Lease.
17.5 (1) In case this Lease be terminated by summary proceedings or
otherwise, as provided in this Article 17, and whether or not the Leased
Premises be relet, LANDLORD shall be entitled to recover from the Tenant, the
following:
(i) a sum equal to all expenses, if any, including reasonable
counsel fees, incurred by LANDLORD in recovering possession of the Leased
Premises, and all reasonable costs and charges for the care of the Leased
Premises while vacant, which damages shall be
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due and payable by Tenant to LANDLORD at such time or times as such
expenses shall have been incurred by LANDLORD; and
(ii) a sum equal to all damages set forth in this Article 17 and
in Article 18.
(2) Without any previous notice or demand, separate actions may be
maintained by LANDLORD against Tenant from time to time to recover any damages
which, at the commencement of any such action, have then or theretofore become
due and payable to the LANDLORD under this Article 17 and subsections hereof
without waiting until the end of the then current term.
(3) All sums which Tenant has agreed to pay by way of adjustments to
rent or equitable adjustments in utility charges shall be deemed rent reserved
in this Lease within the meaning of this Article 17 and subsections hereof.
17.6 In addition to any other remedy, a ten (10%) per cent late charge
shall be due and payable on any portion of rent or other charges not received by
LANDLORD on or before the fifth (5th) day of the month in which it is due. This
is liquidated damages for the added costs incurred by the LANDLORD.
Notwithstanding the above, the foregoing late charge shall not be imposed until
five (5) days following oral notice to the Tenant that any such payment is
overdue, in connection with the first episode of late payment occurring during
any twelve (12) month period during the term of this Lease.
18. LIABILITY OF TENANT FOR DEFICIENT
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In the event that the relation of the LANDLORD and Tenant may cease or
terminate by reason of the default by the Tenant and the re-entry of the
LANDLORD as permitted by the terms and conditions contained in this Lease or by
the ejectment of the Tenant by summary proceedings or other judicial
proceedings, or after the abandonment of the Leased Premises by the Tenant, it
is hereby agreed that the Tenant shall remain liable to pay in monthly payments
the rent which shall accrue subsequent to the re-entry by the LANDLORD, and the
Tenant expressly agrees to pay as damages for the breach of the covenants herein
contained the difference between the rent reserved and the rent collected and
received, if any, by the LANDLORD, during the remainder of the unexpired term,
as the amount of such difference or deficiency shall from time to time be
ascertained, subject to the LANDLORD's obligation to attempt to mitigate damages
in accordance with Article 17.4 hereof.
19. NOTICES
All notices required or permitted to be given to the LANDLORD shall be
given by certified mail, return receipt requested, at the address hereinbefore
set forth on the first page of this Lease, and/or such other place as the
LANDLORD may designate in writing.
All notices required or permitted to be given to the Tenant shall be given
by certified mail, return receipt requested, at the Leased Premises, with a copy
to Institute for Biological Research and Development, Inc., P. 0. Box
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19759, Irvine, California 92713-9759, Attn: Thomas B. Semler, Executive Vice
President/Chief Financial Officer, and/or such other place as the Tenant may
designate in writing.
20. NON-WAIVER
The failure by either party to insist upon strict performance of any of the
covenants or conditions of this Lease, or to exercise any option herein conf
erred (except for Tenant's Option to Renew, which must be exercised strictly in
accordance with its terms) in any one or more instances, shall not be construed
as a waiver by such party of any of its rights or remedies in this Lease, and
shall not be construed as a waiver, relinquishment or failure of any such
covenants, conditions, or options, but the same shall be and remain in full
force and effect.
21. RIGHT OF TENANT TO MAKE ALTERATIONS AND IMPROVEMENTS
21.1 The Tenant may make non-structural alterations, additions or
improvements to the Leased Premises having a cost of TWENTY FIVE THOUSAND AND
00/100 ($25,000.00) DOLLARS or less without the consent of LANDLORD. Tenant
may make alterations, additions or improvements having a cost of more than
TWENTY FIVE THOUSAND AND 00/100 ($25,000.00) DOLLARS, or those which are
structural, only with the prior written consent of the LANDLORD, which
consent shall not be unreasonably withheld, provided such alterations,
additions or improvements do not require structural changes
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in the Leased Premises, or do not lessen the value of the Leased Premises.
Tenant hereby agrees to deliver to the LANDLORD revised "as built" plans showing
any such alteration, addition or improvement, together with evidence of all
required governmental approvals necessary for the performance of such work. Any
consent which may be required of LANDLORD shall be conditioned upon Tenant
furnishing to LANDLORD, detailed plans and specifications with respect to any
such changes, to be approved by LANDLORD in writing. LANDLORD reserves the right
to require Tenant to remove, at Tenant's sole cost and expense, any such
alterations or additions prior to the expiration of the Lease term. If LANDLORD
does not require such removal, any such alterations or additions shall be deemed
to be part of the realty upon installation. LANDLORD and Tenant hereby agree
that they shall perform a walk through inspection of the Leased Premises at
least ninety (90) days prior to the date of expiration of the within Lease
Agreement, at which time LANDLORD shall determine which improvements that have
been installed by the Tenant are to be removed by the Tenant and which of said
improvements are to remain. It is expressly understood and agreed that the
LANDLORD shall have the right to require the Tenant to remove all or any portion
of the built in cabinetry which shall be installed by LANDLORD prior to the
Lease term in accordance with Tenant's Plan. All such alterations, additions or
improvements shall be only in conformity with applicable governmental and
insurance company requirements and regulations applicable to the Leased
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Premises. Tenant shall hold and save LANDLORD harmless and indemnify LANDLORD
against any claim for damage or injury in connection with any of the foregoing
work which Tenant may make as hereinabove provided.
21.2 Nothing herein contained shall be construed as a concert on the part
of the LANDLORD to subject the estate of the LANDLORD to liability under the
Mechanic's Lien Law of the State of New Jersey, it being expressly understood
that the Landlords estate shall not be subject to such liability.
22. NON-LIABILITY OF LANDLORD
22.1 It is expressly understood and agreed by and between the parties to
this agreement that the Tenant shall assume all risk of damage to its property,
equipment and fixtures occurring in or about the Leased Premises, whatever the
cause of such damage or casualty.
22.2 It is expressly understood and agreed that in any event, the LANDLORD
shall not be liable for any damage or injury to property or person caused by or
resulting from steam, electricity, gas, water, rain, ice or snow, or any leak or
flow from or into any part of said Building, or from any damage or injury
resulting or arising from any other cause or happening whatsoever, except for
such damage caused by the breach by LANDLORD of any warranty or representation
made by LANDLORD or a failure by LANDLORD to perform any obligation on its part
to be performed hereunder.
23. RESERVATION OF EASEMENT
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The LANDLORD reserves the right, easement and privilege to enter on the
Complex and Leased Premises in order to install, at its own cost and expense,
any storm drains and sewers and/or utility lines in connection therewith as may
be required by the LANDLORD, provided that such entry and/or installation does
not materially interfere with the conduct of Tenant's business and subject to
the restricted area provisions of Article 16. It is understood and agreed that
if such work as may be required by LANDLORD requires an installation which may
displace any paving, lawn, seeded area or shrubs the LANDLORD, shall, at its own
cost and expense, restore said paving, lawn, seeded area or shrubs. The LANDLORD
covenants that the foregoing work shall not unreasonably interfere with the
normal operation of Tenant's business, and the LANDLORD shall indemnify and save
the Tenant harmless in connection with such installations, notwithstanding any
other provision of this Lease.
24. POLLUTION
The Tenant expressly covenants and agrees to indemnify, defend, and save
the LANDLORD harmless against any claim, damage, liability, costs, penalties, or
fines which the LANDLORD may suffer as a result of air, water or ground, toxic
or hazardous waste pollution caused by the Tenant in its use of the Leased
Premises. The Tenant covenants and agrees to notify the LANDLORD immediately of
any claim or notice served upon it with respect to any such claim the Tenant is
causing water, air or ground pollution; and the
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Tenant, in any event, will take immediate steps to halt, remedy or cure any
pollution of air, water or ground, toxic or hazardous waste caused by the Tenant
by its use of the Leased Premises. The within covenant on the part of the Tenant
shall survive the expiration or earlier termination of this Lease.
25. STATEMENT OF ACCEPTANCE
Upon the delivery of the Leased Premises to the Tenant, pursuant to the
terms and conditions of this Lease, the Tenant covenants and agrees that it will
furnish to the LANDLORD a statement that it accepts the Leased Premises (subject
to LANDLORD's continuing responsibility for "punch list" or "pick-up" items and
latent defects) and agrees to pay rent from the date of acceptance, subject to
the terms and conditions of the Lease as herein contained, which statement may
be in recordable form if required by the LANDLORD, and which statement shall set
forth the Commencement Date and the date of expiration of the Lease term.
26. FORCE MAJEURE
Except for the obligation of the Tenant to pay rent and other charges as in
this Lease provided, the period of time during which the LANDLORD or Tenant is
prevented from performing any act required to be performed under this Lease by
reason of fire, catastrophe, strikes, lockouts, civil commotion, acts of God or
the public enemy, government prohibitions or preemptions, embargoes, inability
to obtain material or labor by reason of governmental regulations or
prohibitions, the act or default of the other party,
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or other events beyond the reasonable control of LANDLORD or Tenant, as the case
may be, shall be added to the time for performance of such act.
27. STATEMENTS BY LANDLORD AND TENANT
LANDLORD and Tenant agree at any time and from time to time upon not less
than ten (10) days' prior notice from the other to execute, acknowledge and
deliver to the party requesting same, a statement in writing, certifying that
this Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications) that it is not in default (or if claimed to be in default,
stating the amount and nature of the default) and specifying the dates to which
the basic rent and other charges have been paid in advance, if any; it being
intended that any such statement delivered pursuant to this Article may be
relied upon as to the facts contained therein.
28. CONDEMNATION
28.1 If due to the condemnation or taking or seizure by any authority
having the right of eminent domain, (i) more than fifteen (15%) percent of the
Leased Premises is taken or rendered untenantable, or (ii) in the event that
more than twenty-five (25%) percent of the ground allocated to the Building is
taken (including the parking areas, but exclusive of front, side and rear set
back areas) , or (iii) if access to the Leased Premises be denied, which taking
in the manner hereinabove referred to and in excess of the foregoing percentage
amounts shall unreasonably or unduly interfere with the use of the
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Building, ground area, parking area, or deny access to the Leased Premises, then
and in either of such events as hereinabove provided, the Lease term created
shall, at the option of the Tenant, terminate, cease and become null and void
from the date when the authority exercising the power of eminent domain takes or
interferes with the use of the Building or the Leased Premises, its use of the
ground area, parking area, or area of access to the Leased Premises. The Tenant
shall only be responsible for the payment of rent until the time of surrender.
In any event, no part of the LANDLORD's condemnation award shall belong to or be
claimed by the Tenant. Without diminishing LANDLORD's award, the Tenant shall
have the right to make a claim against the condemning authority for such
independent claim which it may have and as may be allowed by law, for costs and
damages due to relocating, moving and other similar costs and charges directly
incurred by the Tenant and resulting from such condemnation.
28.2 In the event of any partial taking which would not be cause for
termination of the within Lease or in the event of any partial taking in excess
of the percentages provided in Article 28.1, and in which event the Tenant shall
elect to retain the balance of the Leased Premises remaining after such taking,
then and in either event, the rent shall abate in an amount mutually to be
agreed upon between the LANDLORD and Tenant based on the relationship that the
character of the property prior to the taking bears to the property which shall
remain after such condemnation. In any event, no part of
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<PAGE>
the LANDLORD's condemnation award shall belong to or be claimed by the Tenant.
However, the LANDLORD shall, to the extent permitted by applicable law and as
the same may be practicable on the site of the Leased Premises, at the
LANDLORD's sole cost and expense, promptly make such repairs and alterations in
order to restore the Building and/or improvements to usable condition to the
extent of the condemnation award.
29. LANDLORD'S REMEDIES
29.1 The rights and remedies given to the LANDLORD in this Lease are
distinct, separate and cumulative remedies, and no one of them, whether or not
exercised by the LANDLORD, shall be deemed to be in exclusion of any of the
others.
29.2 In addition to any other legal remedies for violation or breach by or
on the part of the Tenant or by any undertenant or by anyone holding or claiming
under the Tenant or any one of them, of the restrictions, agreements or
covenants of this Lease on the part of the Tenant to be performed or fulfilled,
such violation or breach shall be restrainable by injunction at the suit of the
LANDLORD.
29.3 No receipt of money by the LANDLORD from any receiver, trustee or
custodian or debtors in possession shall reinstate, continue or extend the term
of this Lease or affect any notice theretofore given to the Tenant, or to any
such receiver, trustee, custodian or debtor in possession, or operate as a
waiver or estoppel of the right of the LANDLORD to recover
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<PAGE>
possession of the Leased Premises for any of the causes therein enumerated by
any lawful remedy; and the failure of the LANDLORD to enforce any covenant or
condition by reason of its breach by the Tenant shall not be deemed to void or
affect the right of the LANDLORD to enforce the same covenant or condition on
the occasion of any subsequent default or breach.
30. QUIET ENJOYMENT
The LANDLORD further covenants that the Tenant, on paying the rental and
performing the covenants and conditions contained in this Lease (within
applicable notice and cure periods as are set forth within this Lease) , shall
and may peaceably and quietly have, hold and enjoy the Leased Premises for the
term aforesaid.
31. SURRENDER OF PREMISES
On the last day, or earlier permitted termination of the Lease
term, Tenant shall quit and surrender the Leased Premises in good and orderly
condition and repair (reasonable wear and tear, and damage by fire or other
casualty excepted) and shall deliver and surrender the Leased Premises to the
LANDLORD peaceably, together with all alterations, additions and improvements
in, to or on the Leased Premises made by Tenant as permitted under the Lease.
The LANDLORD reserves the right, however, to require the Tenant at its cost and
expense to remove any alterations or improvements installed by the Tenant, and
not permitted pursuant to the terms and conditions of this Lease, which covenant
shall survive the surrender and the
36
<PAGE>
delivery of the Leased Premises as provided hereunder. Prior to the expiration
of the Lease term the Tenant shall remove all of its property, fixtures,
equipment and trade fixtures from the Leased Premises. All property not removed
by Tenant shall be deemed abandoned by Tenant, and LANDLORD reserves the right
to charge the reasonable cost of such removal to the Tenant, which obligation
shall survive the Lease termination and surrender hereinabove provided. If the
Leased Premises be not surrendered at the end of the Lease term, Tenant shall
indemnify LANDLORD against loss or liability resulting from delay by Tenant in
surrendering the Leased Premises, including, without limitation any claims made
by any succeeding tenant founded on the delay.
32. INDEMNITY
Anything in this Lease to the contrary notwithstanding, and without
limiting the Tenant's obligation to provide insurance pursuant to Article 10
hereunder but subject to the provisions of Article 10.4, the Tenant covenants
and agrees that it will indemnify, defend and save harmless the LANDLORD against
and from all liabilities, obligations, damages, penalties, claims, costs,
charges and expenses, including without limitation reasonable attorneys' fees,
which may be imposed upon or incurred by LANDLORD by reason of any of the
following occurring during the term of this Lease:
(i) Any matter, cause or thing arising out of Tenant's use, occupancy,
control or management of the Leased Premises and any part thereof;
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<PAGE>
(ii) Any negligence on the part of the Tenant or any of its agents,
contractors, servants, employees or licensees;
(iii) Any accident, injury, damage to any person or property occurring
within the Leased Premises;
(iv) Any failure on the part of Tenant to perform or comply with any
of the covenants, agreements, terms or conditions contained in this Lease
on its part to be performed or complied with, to the extent the same are
not covered by any insurance which is carried by LANDLORD. The foregoing
shall not be deemed to impose liability for consequential damages based
solely on the non-payment of rent by the Tenant.
LANDLORD shall promptly notify Tenant of any such claim asserted again*t it and
shall promptly send to Tenant copies of all papers or legal process served upon
it in connection with any action or proceeding brought against LANDLORD by
reason of any such claim.
33. LEASE CONSTRUCTION
This Lease shall be construed pursuant to the laws of the State of New
Jersey.
34. BIND AND INURE CLAUSE
The terms, covenants and conditions of the within Lease shall be binding
upon and inure to the benefit of each of the parties hereto and their respective
successors and assigns.
35. DEFINITIONS
The neuter gender, when used herein and in the acknowledgment hereafter set
forth, shall include all persons and corporations, and words used
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<PAGE>
in the singular shall include words in the plural where the text of the
instrument so requires.
36. DEFINITION OF TERM OF "LANDLORD"
When the term "LANDLORD" is used in this Lease it shall be construed to
mean and include only the owner of the title to the Building containing the
Leased Premises. Upon the transfer by the LANDLORD of the title, the LANDLORD
shall advise the Tenant in writing by certified mail, return receipt requested,
of the name of the LANDLORD's transferee. In such event, the LANDLORD shall be
automatically freed and relieved from and after the date of such transfer of
title of all personal liability with respect to the performance of any of the
covenants and obligations on the part of the LANDLORD herein contained to be
performed, provided any such transfer and conveyance by the LANDLORD is
expressly subject to the assumption by the grantee or transferee of the
obligations of the LANDLORD to be performed pursuant to the terms and conditions
of the within Lease.
37. COVENANTS OF FURTHER ASSURANCES
If, in connection with obtaining financing for the improvements on the
Complex, the Mortgage Lender shall request reasonable modifications in this
Lease as a condition to such financing, Tenant will not unreasonably withhold,
delay or refuse its consent thereto, provided that such modifications do not in
Tenant's reasonable judgment increase the obligations of Tenant
39
<PAGE>
hereunder or materially adversely affect the leasehold interest hereby created
or Tenant's use and enjoyment of the Leased Premises.
38. COVENANT AGAINST LIENS
Tenant agrees that it shall not encumber, or suffer or permit to be
encumbered, the Leased Premises or the fee thereof by any lien, charge or
encumbrance, and Tenant shall have no authority to mortgage or hypothecate this
Lease in any way whatsoever. Any violation of this Article shall be considered a
breach of this Lease.
39. SUBORDINATION
This Lease shall be subject and subordinate at all times to the ,, lien of
any mortgages or ground leases or other encumbrances now or hereafter placed on
the land Complex without the necessity of any further instrument or act on the
part of Tenant to effectuate such subordination, but Tenant covenants and agrees
to execute and deliver upon demand such further instrument or instruments
evidencing such subordination of the Lease to the lien of any such mortgage or
ground lease or other encumbrances as shall be desired by a mortgagee or
proposed mortgagee or by any person. LANDLORD hereby agrees that it shall use
its best efforts to obtain a subordination, non-disturbance and attornment
agreement from LANDLORD's current mortgagee, which agreement will be on said
mortgagee's customary form.
40. EXCULPATION OF LANDLORD
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Neither LANDLORD nor its principals shall have any personal obligation for
payment of any indebtedness or for the performance of any obligation under this
Lease but the payment of the indebtedness and the performance of obligations
expressed herein may be enforced only against the Complex, and the rents, issues
and profits thereof, and the Tenant agrees that no deficiency judgment or other
judgment for money damages shall in any event be entered by it against the
LANDLORD or its principals personally in any action; provided, however, that the
provisions of this paragraph shall in no way affect Tenant's other remedies for
the payment of any indebtedness or for the enforcement of LANDLORD's covenants
under this Lease.
41. NET RENT
It is the purpose and intent of the LANDLORD and Tenant that the rent shall
be absolutely net to LANDLORD, so that this Lease shall yield, net, to LANDLORD,
the rent specified in Article 3 and all additional rent and charges under the
terms hereof, in each month during the term of the Lease, and that all costs,
expenses and obligations of every kind and nature whatsoever relating to the
Leased Premises which may arise or become due during or out of the term of this
Lease, shall be paid by the Tenant, except for such obligations and charges as
have otherwise expressly been assumed by the LANDLORD in accordance with the
terms and conditions of the Lease.
42. SECURITY
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The Tenant shall deposit with the LANDLORD, at least seven (7) days prior
to the Commencement Date hereunder, the sum of THIRTY THOUSAND AND 00/100
($30,000.00) DOLLARS as security for the full and faithful performance of this
Lease upon the part of the Tenant to be performed. Anything herein contained to
the contrary notwithstanding, it is expressly understood and agreed that the
said security deposit shall be held by Epstein, Epstein, Brown & Bosek in an
interest-bearing trust account, with interest to follow the deposit. Tenant
covenants and agrees that it will not assign, pledge, hypothecate, mortgage or
otherwise encumber the aforementioned security during the term of this Lease. It
is expressly understood and agreed that the LANDLORD shall not have the right to
co-mingle the security funds with its general funds and said security shall be
required to be segregated. Upon termination of this Lease, and providing the
Tenant is not in default hereunder and has performed all of the conditions of
this Lease, the LANDLORD shall return to the Tenant the said sum of THIRTY
THOUSAND AND 00/100 ($30,000.00) DOLLARS, together with interest thereon.
43. ASSIGNMENT AND SUBLETTING
43.1 Tenant shall neither assign this Lease nor sublet all or any portion
of the Leased Premises to any person or entity other than a parent, subsidiary
or affiliate of Tenant without LANDLORD's prior consent, which consent shall not
be unreasonably withheld, subject to LANDLORD's rights hereinafter provided in
Article 43.4. LANDLORD may withhold such consent if,
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in the reasonable exercise of its judgment, it determines that any of the
following enumerated conditions are applicable:
(a) the proposed assignee's or subtenant's financial condition is not
sufficient to meet its obligations undertaken in such assignment or
sublease;
(b) the proposed use of the Leased Premises is not appropriate for the
Building or in keeping with the character of its existing tenancies;
(c) such assignee's or subtenant's occupancy will cause an excessive
density of traffic or make excessive demands on the building's services,
maintenance or facilities;
(d) such assignee or subtenant is a tenant of and is vacating premises
in the Building, the property known as Neptune Business Center or any other
building owned by or through the persons constituting LANDLORD hereunder,
including any corporation in which LANDLORD's principals are majority
stockholders, and any affiliates, subsidiaries or parent o f such
corporation;
(e) the rental obligation of such assignee or subtenant would be less
than eighty (80%) percent of Tenant's rental obligations hereunder;
(f) less than ninety (90%) per cent of the Building's rentable area is
then rented; or
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(g) LANDLORD wishes to accept the offer as provided in Article 43.4.
43.2 Any request by Tenant for LANDLORD's consent to an assignment of the
Lease shall state the proposed assignee's address and be accompanied by a profit
and loss and balance statements of the proposed assignee for the prior three (3)
years, as well as duplicate original of the instrument of assignment (wherein
the assignee assumes, jointly and severally with Tenant, the performance of
Tenant's obligations hereunder).
43.3 Any request by Tenant for LANDLORD's consent to a sublease shall state
the proposed subtenant's address and be accompanied by profit and loss and
balance statements of the proposed subtenant for the prior three (3) years, as
well as a duplicate original of the instrument of sublease (wherein Tenant and
the proposed subtenant agree that such sublease is subject to the Lease and such
subtenant agrees that, if the Lease is terminated because of Tenant's default,
such subtenant shall, at LANDLORD's option, attorn to LANDLORD).
43.4 Any request by Tenant for LANDLORD's consent to an assignment of the
Lease or a sublease of all or substantially all of the Leased Premises shall
clearly set forth the proposed terms of such proposed assignment or sublease and
shall constitute Tenant I s of f er to cancel the Lease. LANDLORD may accept
such of f er by notice to Tenant within thirty (30) days after LANDLORD's
receipt thereof, in which event, the Lease shall
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terminate as of the end of the month following the month in which such notice is
sent (with the same effect as if such date were the date fixed herein for the
natural expiration of the term), annual rent and additional rent shall be
apportioned to such date, Tenant shall surrender the Leased Premises on such
date as herein provided, and subject to payment of required Lease adjustments,
the parties shall thereafter have no further liability one to the other. If
LANDLORD fails to send such notice, Tenant, within twenty (20) days after the
expiration of such ninety (90) day period, may assign the Lease or sublet all or
substantially all of the Leased Premises to the proposed assignee or subtenant
and upon the terms specified in such request, subject, however, to LANDLORD's
rights under Article 43.1(a) through (f). In any event, Tenant shall pay to
LANDLORD, as additional rent, amounts received by Tenant from the assignee or
subtenant in excess of the annual rent and additional rent payable by Tenant
hereunder.
43.5 In the event of a permitted assignment, LANDLORD may collect annual
rent and additional rent directly from the assignee. In the event of a permitted
sublease, LANDLORD may, if Tenant defaults hereunder, collect annual rent and
additional rent directly from the subtenant. In either such event, LANDLORD may
apply any amounts so collected to the annual rent and additional rent hereunder
without thereby waiving any provisions hereof or releasing Tenant from liability
for the performance of its obligations hereunder.
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43.6 LANDLORD's consent to any assignment or sublease hereunder shall not
be deemed a consent to any further proposed assignment or sublease by Tenant or
any one claiming under or through the Tenant, except in accordance with this
Article 43.
43.7 It is expressly understood and agreed that Tenant's Option to Renew,
as hereinafter set forth in Article 44, shall be personal to Tenant only (for
the purposes of this Article 43.7 being deemed to include any parent, subsidiary
or affiliate of Tenant) , and may not be exercised by any permitted assignee or
subtenant hereunder. It is understood and agreed that Tenant I s Option to Renew
shall be null and void in the event that fifty (50%) percent or more of the
Leased Premises have been sublet by the Tenant prior to the date set for the
exercise by Tenant of any Option to Renew hereinafter set forth.
44. OPTION TO RENEW
Provided the Tenant is not in default pursuant to the terms and conditions
of this Lease, the Tenant is hereby given the right and privilege to renew the
within Lease for two (2) successive five (5) year periods, to commence at the
end of the initial term of this Lease, which renewals shall be upon the same
terms and conditions as in this Lease contained, except as follows:
(1) During the first five (5) year renewal term, Tenant shall pay to
LANDLORD annual rent in the amount of ONE HUNDRED FORTY SIX THOUSAND FIVE
HUNDRED TWENTY AND 00/100 ($146,520.00) DOLLARS per annum, payable in equal
monthly installments in the
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amount of TWELVE THOUSAND TWO HUNDRED TEN AND 00/100 ($12,210.00) DOLLARS
per month in the manner provided in Article 3 of this Lease.
(2) (a) During the second five (5) year renewal term, there shall be
paid annually the minimum annual rent of ONE HUNDRED FORTY SIX THOUSAND
FIVE HUNDRED TWENTY AND 00/100 ($146,520.00) DOLLARS hereinafter referred
to as the "Original Base Rent". The Original Base Rent shall be increased,
if applicable, in the event of an increase in the Cost of Living Index
based on application of the Cost of Living formula which is hereinafter
defined as follows:
At the inception of the second five (5) year renewal term, there shall
be compared the "All Items" Index figures for the New
York-Northeastern New Jersey average of the "Consumers Price Index for
All Urban Consumers" (revised CPI-U) (1982-84 equal to 100) published
by the Bureau of Labor Statistics of the U.S. Department of Labor (in
this paragraph hereinafter referred to as the "Index") for the first
month of the first five (5) year renewal term of this Lease with the
first month of the second five (5) year renewal term. If there is an
increase in the Index for the first month of the second five (5) year
renewal period compared to the applicable Index for the first month of
the first five (5) year renewal term of this Lease, said increase in
Index figures shall be used to determine the applicable percentage of
increase which shall be the basis for determining rent increase over
the Original Base Rent in accordance with the formula hereinbefore set
forth, and as shown in the following example:
EXAMPLE: If the Index figure for the first month of the first five (5)
year renewal term of this Lease is 100 (the denominator) and
the Index figure for the first month of the second five (5)
year renewal
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term is 110, the increase in the Index figures will produce
an increase of 10%.
(110-100)
-------
100
Applying the formula, 10% of $146,520.00 is equal to
$14,652.00. Adding said sum of $14,652.00 to the original
Base Rent of $146,520.00 produces an annual renewal rent of
$161,172.00 payable in equal monthly installments of
$13,431.00.
Since the rent payment for at least the first month of the second five (5) year
renewal term will have been paid prior to the determination of any applicable
rent increase in excess of the Original Base Rent payable for the second five
(5) year renewal term, any increase for months already elapsed after
commencement of the second five (5) year renewal term shall then be added to the
next monthly rent payment then becoming due and payable.
(b) Anything herein contained to the contrary notwithstanding, it
is expressly understood and agreed that the minimum rent during the second
five (5) year renewal period shall not be less than ONE HUNDRED FORTY SIX
THOUSAND FIVE HUNDRED TWENTY AND 00/100 ($146,520.00) DOLLARS per annum.
(c) It is understood and agreed that should the applicable Index
figure not be published for any particular month when the same shall be
applicable under the terms of this Lease, the last published figure prior
to that date shall be used, but in no event shall such figure be
retroactive for a period in excess of three (3) months. In the event that
the applicable Index figure is
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discontinued by way of publication with respect to the entire Index, then
and in that event, the parties shall agree on an equivalent and substituted
Cost of Living Index to be applied in the same manner as in this Lease
provided. In the event the parties cannot mutually agree as to the
equivalent substituted Index, then and in that event the question should be
submitted for arbitration to the American Arbitration Association.
(d) If the base year (1982-84 equal to 100) hereinabove referred
to with respect to the "Index" shall be changed after the execution of this
Lease, appropriate adjustments based on such new Index shall be made so as
to have a proper application of the Cost of Living formula.
(3) The right, option, and privilege of the Tenant to renew
this Lease as hereinabove set forth is expressly conditioned upon the
Tenant delivering to the LANDLORD, in writing, by certified mail,
return receipt requested, six (6) months' prior notice of its
intention to renew, which notice shall be given to the LANDLORD by the
Tenant no later than six (6) months prior to the date fixed for
termination of the original term or first renewal term of this Lease,
as applicable.
(4) In addition to Tenant's obligation to pay the renewal
rent as hereinabove provided, Tenant shall be responsible to pay all
Additional Rent and other charges as are in this Lease provided.
(5) LANDLORD further agrees that it shall repaint and
re-carpet the Leased Premises at the commencement of each five (5)
year
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renewal term, using building standard paint and carpeting. Tenant
hereby agrees that it shall fully cooperate with LANDLORD in
connection with the performance of such work so that the same may be
accomplished as quickly as is possible and at the least possible cost
to LANDLORD.
45. FINANCIAL STATEMENTS
The Tenant agrees, at the request of the LANDLORD, to be made not more than
once during any lease year, to furnish its latest current financial statements
provided by the accountant and certified to by an officer of the corporation.
46. TENANT'S FIRST RIGHT OF NEGOTIATION
46.1 Tenant is hereby granted the first right to negotiate for the leasing
of the balance of the space in the Building upon the following terms and
conditions. Prior to leasing any unoccupied space within the Building to any
other tenant, the LANDLORD hereby agrees that it shall give oral notice to the
Tenant at such time as LANDLORD is actively discussing the leasing of such
unoccupied space to any other person or entity. Tenant shall then have five (5)
days within which to notify the LANDLORD, in writing, of its intention to
negotiate a lease agreement with LANDLORD for such additional space. In the
event Tenant elects to negotiate for the leasing of said space with LANDLORD, it
is understood and agreed that an amendment to the within Lease Agreement shall
be entered into by LANDLORD and Tenant within two
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(2) weeks following the date upon which LANDLORD originally shall have given
oral notice to the Tenant, as hereinabove set forth. In the event that Tenant
does not respond to LANDLORD's notice within the five (5) day period hereinabove
set forth, or in the event LANDLORD and Tenant do not enter into a lease
amendment for such additional space within the two (2) week period hereinabove
set forth, LANDLORD shall be entitled to lease such space to any third party,
free and clear of Tenant I s rights hereunder. Tenant expressly acknowledges
that the LANDLORD is currently involved in negotiations with Jersey Shore
Medical Center for the leasing of approximately 2,100 square feet of the
Building, and it is understood and agreed that Tenant shall have no rights
whatsoever to negotiate for the leasing of said space. Nothing hereinabove
contained shall prevent or prohibit the LANDLORD from extending the term of any
lease agreement in the Building. Notwithstanding anything hereinabove contained,
the LANDLORD hereby agrees that it shall not lease the space immediately
contiguous to the Leased Premises, containing approximately 3,800 square feet,
prior to January 1, 1992.
46.2 In addition, the Tenant shall have the first right of negotiation for
the leasing of up to 10,000 square feet of the next building to be constructed
by LANDLORD on the Complex, in the same manner as is hereinabove set forth in
Article 46.1. said right shall expire on June 30, 1992. In the event that Tenant
enters into a lease for any space within said building, the Tenant shall be
given the additional first right of negotiation on all space
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contiguous to that leased by the Tenant, which right shall continue for the
balance of the initial term of the within Lease Agreement.
47. LANDLORD IS DEFAULT
Notwithstanding the provisions of Article 3.1 to the contrary, in the event
LANDLORD's failures to perform any obligation on its part to be performed after
receiving thirty (30) days' prior written notice of such failure from Tenant,
then, in addition to all other rights and remedies of Tenant at law or in
equity, Tenant shall be entitled (but shall not be obligated) to remedy such
failure and to charge the reasonable cost thereof to the LANDLORD. Nothing
herein shall entitle the Tenant to any offset or deduction from the rent
otherwise payable in accordance with the terms and conditions of this Lease.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals or
caused these presents to be signed by its proper corporate officers and caused
its proper corporate seal to be hereunto affixed, the day and year first above
written.
WITNESS: /s/ Sandra A. Steinberg GAMMA THREE ASSOCIATES
LIMITED PARTNERSHIP
BY: /s/ Herbert Punia
---------------------------
ATTEST: /s/ Lisa M. Stensness INSTITUTE FOR BIOLOGICAL
RESEARCH AND DEVELOPMENT, INC.
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BY: /s/ Thomas Semler
--------------------------
53
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<PAGE>
STATE OF NEW JERSEY )
) SS.:
COUNTY OF SOMERSET )
BE IT REMEMBERED, that on this 27th day of November 1991, before me, the
subscriber, Sandra A. Steinberg personally appeared Herbert Punia Partner of
GAMMA THREE ASSOCIATES LIMITED PARTNERSHIP, a New Jersey Limited Partnership,
who, I am satisfied, is the LANDLORD mentioned in the within Instrument, and
thereupon he acknowledged that he signed, sealed and delivered the same as
his act and deed, for the uses and purposes therein expressed.
/s/ Sandra A. Steinberg
STATE OF CALIFORNIA )
) SS.
COUNTY OF ORANGE )
BE IT REMEMBERED, that on this 26th day of November 1991, before me,
Lisa Stensness the subs personally appeared Thomas Semler who, I am
satisfied, is the person the within Instrument as of INSTITUTE FOR BIOLOGICAL
RESEARCH AND DEVELOPMENT, INC., a Delaware corporation, the Tenant named
therein, and he thereupon acknowledged that the said instrument made by the
corporation and sealed with its corporate seal, was signed, sealed with the
corporate seal and delivered by him as such officer and is the voluntary act
and deed of the corporation, made by virtue of authority from its Board of
Directors.
/s/ Lisa M. Stensness
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LIST OF SCHEDULES
Schedule "A" - Site Plan
Schedule "A-1" - Metes and Bounds Description
Schedule "B" - Building Standard Work Letter
Schedule "B-1" Tenant's Plan
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Exhibit 10.13
GWYNEDD HALL - SENTRY PARK WEST
OFFICE LEASE
BETWEEN
SENTRY WEST JOINT VENTURE, AN ILLINOIS JOINT VENTURE ("LANDLORD")
by its agent, Equity Office Properties, Inc.
AND
INSTITUTE FOR BIOLOGICAL RESEARCH AND DEVELOPMENT ("TENANT")
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
I. Basic Lease Information-Definitions......................................................................4
II. Lease Grant..............................................................................................7
III. Adjustment of Commencement Date/Possession...............................................................7
V. Rent....................................................................................................10
VI. Security Deposit........................................................................................11
VII. Services to be Furnished by Landlord....................................................................11
VIII. Leasehold Improvements..................................................................................14
IX. Graphics................................................................................................15
X. Repairs and Alterations by Tenant.......................................................................15
XI. Use of Electrical and HVAC Services by Tenant...........................................................16
XII. Entry by Landlord.......................................................................................17
XIII. Assignment and Subletting...............................................................................17
XV. Indemnity and Waiver of Claims..........................................................................20
XVI. Tenant's Insurance......................................................................................21
XVII. Subrogation.............................................................................................23
XVIII. Landlord's Insurance....................................................................................23
XIX. Casualty Damage.........................................................................................24
XX. Demolition..............................................................................................26
XXI. Condemnation............................................................................................26
XXII. Events of Default.......................................................................................27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
XXIII. Remedies................................................................................................28
XXIV. LIMITATION OF LIABILITY.................................................................................30
XXV. No Waiver...............................................................................................30
XXVI. Event of Bankruptcy.....................................................................................31
XXVII. Quiet Enjoyment.........................................................................................32
XXVIII. Relocation..............................................................................................32
XXIX. Holding Over............................................................................................32
XXX. Subordination to Mortgages..............................................................................32
XXXI. Attorney's Fees.........................................................................................34
XXXII. Notice..................................................................................................34
XXXIII. Intentionally Omitted...................................................................................35
XXXIV. Excepted Rights.........................................................................................35
XXXIV. Surrender of Premises...................................................................................35
XXXV. Miscellaneous...........................................................................................36
</TABLE>
<PAGE>
OFFICE LEASE AGREEMENT
This Office Lease Agreement (the "Lease"), is made and entered into as
of the first day of FEBRUARY, 1994, by and between Sentry West Joint Venture, an
Illinois joint venture ("Landlord") by its Agent, Equity Office Properties, Inc.
and Institute for Biological Research and Development, a Delaware corporation
("Tenant").
I. BASIC LEASE INFORMATION-DEFINITIONS.
A. The following is some of the basic lease information and defined
terms used in this Lease.
1. "Broker" means Grubb & Ellis.
2. "Building" shall mean the office building located at 1777
Sentry Parkway West, Blue Bell, Montgomery County, State of Pennsylvania, and
commonly known as Gwynedd Hall -Sentry Park West.
3. The "Lease Term" shall mean a period of forty-eight (48)
months commencing on the later to occur of (1) February 1, 1994 (the "Target
Commencement Date") and (II) the date upon which Landlord Work in the Premises
has been substantially completed, as such date is determined pursuant to Section
III.A. hereof (the later to occur of such dates being defined as the
"Commencement Date"). The "Termination Date" shall, unless sooner terminated as
provided herein, mean the last day of the Lease Term. Notwithstanding the
foregoing, if the Termination Date, as determined herein, does not occur on the
last day of a calendar month, Landlord, shall extend the Lease Term by the
number of days necessary to cause the Termination Date to occur on the last day
of the last calendar month of the Lease Term. Tenant shall pay Base Rental and
Additional Bass Rental for such additional days at the same rate payable for the
portion of the last calendar month immediately preceding such extension. The
Commencement Date, Lease Term (including any extension by Landlord pursuant to
this subsection) and Termination Date shall be set forth in a Commencement
Letter prepared by Landlord and executed by Tenant in accordance with the
provisions of Section III.A. hereof.
4. "Guarantor(s)" shall mean Kuraya Yakumin and any other
party that agrees in writing to guarantee the Lease.
5. "Landlord Work" shall mean the work, if any, that Landlord
is obligated to perform in the Promises pursuant to the Work Letter Agreement
<PAGE>
attached hereto as Exhibit "C".
6. "Notice Addresses" shall mean the following addresses for
Tenant and Landlord, respectively:
Tenant:
Prior to the Commencement Date, notices shall be sent to
Tenant at the following address:
IBRD
2525 Campus Drive
Irvine, CA 92715
Attn: Dottie Soteriou
On or after the Commencement Date, notices shall be sent to
Tenant at the Promises, with a copy to Tenant at the above
address.
Landlord:
Sentry West Joint Venture
c/o FKB Management, Inc.
1777 Sentry Park West - Gwynedd Hall - Suite 301
Blue Bell, PA 19422
Attention: Building Manager
With a copy to:
Equity Officer Property, Inc.
Two North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
Attention: General Counsel
Payments of Rent only shall be made payable to the order of
Sentry West Joint Venture at the following address:
Sentry West Joint Venture
c/o FKB Management, Inc.
1777 Sentry Park West - Gwynedd Hall - Suite 301
Blue Bell, PA 19422
7. "Permitted Use" shall mean: General Office Use
<PAGE>
8. "Premises" shall mean the area located on the 1st floor of
the Building and outlined on Exhibit A-2 attached hereto and Incorporated herein
and known as Suite # 100.
9. "Prepaid Rental": Eleven Thousand, Seven Hundred
Twenty-One and 50/100 Dollars ($11,721.50) payable by Tenant upon execution of
this Lease by Tenant in accordance with Article V hereof.
10. "Rentable Area of the Premises" shall mean the area
contained within the demising walls of the Premises and any other area
designated for the exclusive use of Tenant, without deduction for any columns or
projections necessary to the Building, plus a proportionate share of any Common
Areas located on the floor(s) on which the Premises is located and a
proportionate share of the Building's public areas, management office,
engineer's office and "Mechanical Spaces" i.e. spaces housing service areas,
equipment and/or access corridors for HVAC and communications facilities,
plumbing, fire protection and elevators. The Rentable Area of the Premises is
deemed for all purposes under this Lease to be 11,032 square feet. The "Rentable
Area of the Park" is deemed for all purposes under this Lease to be 216,000
square feet. The square footage amounts set forth for the Rentable Area of the
Premises and the Rentable Area of the Park constitute a material part of the
economic basis of this Lease and the execution thereof by Landlord and shall not
be adjusted without the written consent of Landlord.
11. "Security Deposit" shall mean the sum of Eleven Thousand
Seven Hundred Twenty-One and 50/100 Dollars ($11,721.50).
12. "Tenant's Pro Rate Share" shall mean 5.1074 percent
(5.1074%), which is the sum derived by dividing the Rentable Area of the
Premises by The Rentable Area of the Park and multiplying the result thereof by
one hundred (100).
B. The following are additional definitions of some of the defined
terms used in the Lease.
1. "Basic Costs" shall mean the direct and indirect costs and
expenses incurred in connection with the Park more fully defined in Exhibit B-2.
2. "Building Standard" shall mean the type, grade, brand,
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<PAGE>
quality and/or quantity of materials Landlord designates from time to time to be
the minimum quality and/or quantity to be used in the Park.
3. "Business Day(s)" shall mean Mondays through Fridays
exclusive of the normal business holidays ("Holidays") of New Year's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day,
and such other days as Landlord may designate which are then treated as business
holidays at most comparable projects in Montgomery County.
4. "Common Areas" shall mean those areas provided for the
common use or benefit of all tenants generally and/or the public, such as
corridors, elevator foyers, common mail rooms, restrooms, vending areas, and
lobby areas (whether at ground level or otherwise), and other similar facilities
including the "Exterior Common Areas" as defined in Exhibit B-2.
5. "Maximum Rate" shall mean the greatest per annum rate of
interest permitted from time to time under applicable federal and state law.
6. "Normal Business Hours" for the Park shall mean 8:00 a.m.
to 6:00 p.m. Mondays through Fridays, exclusive of Holidays, and such other
hours as Landlord may designate from time to time.
7. "Prime Rate" shall mean the per annum interest rate
publicly announced by The First National Bank of Chicago from time to time
(whether or not charged in each instance) as its prime or base rate.
8. "Park" shall mean the area described on Exhibit A-2
attached hereto and all improvements located thereon, including, without
limitation, the Building and the following buildings: Meriontowle Hall, Abington
Hall, Provident Bank Building and Dublin Hall.
II. LEASE GRANT. Subject to and upon the terms herein set forth, Landlord leases
to Tenant and Tenant leases from Landlord the Premises. Subject to the terms and
conditions of this Lease, Landlord shall provide to Tenant possession and
enjoyment of the Premises and the non-exclusive use of the "Common Areas" (as
defined in Article I of this Lease) during the period commencing on the
Commencement Date and ending on the expiration or earlier termination of this
Lease.
III. ADJUSTMENT OF COMMENCEMENT DATE/POSSESSION.
4
<PAGE>
A. If Landlord is performing Landlord Work in the Premises, the Lease
Term shall not commence until the later to occur of the Target Commencement Date
and the date that Landlord has substantially completed the Landlord Work;
provided, however, that if Landlord shall be actually delayed in substantially
completing the Landlord Work as a result of the occurrence of any of the
following (a "Delay"):
1. Tenant's failure to furnish information in accordance with
the Work Letter Agreement or to respond to any request by Landlord for any
approval or Information within any time period prescribed, or if no time period
is prescribed, then within three (3) Business Days of such request; or
2. Tenant's insistence on materials, finishes or
installations that have long lead times after having first been informed in
writing by Landlord that such materials, finishes or installations will cause a
Delay; or
3. Changes in any plans and specifications made at the
request of Tenant, in writing; or
4. The performance by a person or entity employed by Tenant
in the completion of any work (all such work and such persons or entities being
subject to the prior approval of Landlord) which unreasonably interferes with
the construction of the Landlord Work; or
5. Any request by Tenant in writing that Landlord delay the
completion of any of the Landlord Work; or
6. Any breach or default by Tenant In the performance of
Tenant's obligations under this Lease; or
7. Any delay resulting from Tenant's having taken possession
of the Premises for any reason prior to substantial completion of the Landlord
Work; or
8. Any other delay chargeable to unreasonable acts or
omissions of Tenant, its agents, employees or independent contractors;
then, for purposes of determining the Commencement Date, the date of substantial
completion shall be deemed to be the day that said Landlord Work would have been
substantially completed absent the net effect of such Delay(s). The Landlord
Work shall be deemed to be substantially completed on the date
5
<PAGE>
that is five (5) business days following receipt by Tenant of a factually
correct written notice from Landlord that all of the following have occurred (or
would have occurred absent any Delays): (a) Landlord has tendered possession of
the Premises to Tenant; (b) Landlord's Work has been completed, other than any
details of construction, mechanical adjustment or any other matter in the nature
of punch-list items, the existence of which does not interfere with Tenant's use
of the Premises; (c) a Temporary Certificate of Occupancy is in effect with
respect to the Premises; (d) the Common Areas are completed and operating
(including without limitation all parking facilities); and (e) all of the
services and utilities to the Premises and the Common Area ware operating.
Except as provided below with respect to Tenant's termination rights, the
adjustment of the Commencement Date and, accordingly, the postponement of
Tenant's obligation to pay Rent shall be Tenant's sole remedy and shall
constitute full settlement of all claims that Tenant might otherwise have
against Landlord by reason of the Premises not being ready for occupancy by
Tenant on the Target Commencement Date. Landlord's determination of the
Commencement Date shall, if not disputed by Tenant within five (5) Business Days
after Tenant's receipt of the "Commencement Letter" (defined below), be final
and binding on all parties for all purposes, Including, without limitation,
determination of the date of commencement of the Lease Term and of Tenant's
obligation to pay Rent hereunder. Promptly after the determination of the
Commencement Date by Landlord, Landlord shall prepare a letter agreement (the
"Commencement Letter") setting forth the Commencement Date, the Termination Date
and any other dates that are affected by the adjustment of the Commencement
Date. Tenant, within five Business (5) days after receipt thereof from Landlord,
shall execute the Commencement Letter and return the same to Landlord.
Notwithstanding anything herein to the contrary, Landlord shall use reasonable
efforts to cause the Commencement Date to occur on or before February 1, 1994,
or as soon thereafter as is reasonably practicable. In the event that the
Commencement Date does not occur, for any reason other than Tenant Delays or
Force Majeure delays, on or before May 1, 1994, then Tenant, as its sole remedy,
shall be entitled to terminate this Lease by irrevocable written notice to
Landlord on or before the earlier to occur of the 15th day thereafter and the
day before the Commencement Date occurs. In the event that the Commencement Date
does not occur, for any reason other than Tenant Delays (including any Force
Majeure reason) on or before July 1, 1994, Tenant, as its sole remedy, shall be
entitled to terminate this Lease by irrevocable written notice to Landlord on or
before the earlier to occur of the 15th day thereafter and the pay prior to the
Commencement Date.
B. Subject to latent defects and the completion or correction of any
items of Landlord Work set forth on a construction punchiest jointly prepared
6
<PAGE>
by Landlord and Tenant in good faith based on a walk through of the Premises
within fifteen (1 5) days after substantial completion (or subsequently
disclosed on a second punchiest prepared within forty-five (45) days after
substantial completion), by taking possession of the Premises, Tenant is deemed
to have:
1. accepted the Premises and agreed that the Premises is in
good order and satisfactory condition, with no representation or warranty by
Landlord as to the condition or suitability of the Premises or of the Building
for Tenant's use thereof; and
2. agreed that Landlord has no obligation to clean, decorate,
alter, remodel, Improve or repair the Premises or the Building unless said
obligation is specifically set forth in this Lease. Landlord agrees to proceed
in good faith to complete or correct any items set forth on the punchiest.
Notwithstanding the foregoing to the contrary, Landlord shall not be responsible
for the correction of any latent defects in Tenant's equipment or other personal
property, even if such equipment or personal property was installed by Landlord
as part of the Landlord Work.
C. Notwithstanding anything to the contrary contained in the Lease,
Landlord shall not be obligated to tender possession of any Offering Space or
Refusal Space that is occupied by a third party on the date that Landlord would
otherwise be required to deliver possession, nor shall Landlord have any other
obligations to Tenant under this Lease with respect to such space until the date
Landlord: 1. recaptures such space from such existing tenant or occupant; and 2.
regains the legal right to possession thereof. This Lease shall not be affected
by any such failure to deliver possession and Tenant shall have no claim for
damages against Landlord as a result thereof, all of which are hereby waived and
released by Tenant. Notwithstanding the foregoing, Landlord agrees to proceed in
good faith and with due diligence to obtain possession of any such Offering
Space or Refusal Space. In such event, the commencement date for such space
shall be postponed until the date Landlord delivers possession of the Premises
to Tenant and any other commencement conditions are satisfied.
D. So long as such work does not interfere with the completion of
Landlord's Work, Tenant shall have the right prior to the Commencement Date to
enter the Premises to install Tenant's communication and computer systems.
Landlord shall cooperate with Tenant in scheduling performance of the Landlord's
Work so that Tenant's communication and computer systems can be installed as
efficiently as possible. Tenant's entry into the Premises prior to the
Commencement Date for the purpose of installing its
7
<PAGE>
communication and computer systems shall be subject to all of the terms and
conditions of this Lease, including, without limitation, the insurance and
indemnity provisions, but no Base Rental or Additional Base Rental shall accrue
until the Commencement Date. If Tenant enters the Premises prior to the
Commencement Date for the purpose of conducting its business therein such
possession shall be subject to all of the terms and conditions of the Lease and
Tenant shall pay Base Rental and Additional Base Rental to Landlord on a per
diem basis for each day of occupancy prior to the Commencement Date.
IV. USE. The Premises shall be used for the Permitted Use and for no other
purposes. Tenant agrees not to use or permit the use of the Premises for any
purpose which is illegal, dangerous to life, limb or property or which, in
Landlord's opinion, creates a nuisance or which would increase the cost of
insurance coverage with respect to the Building. Tenant shall conduct its
business and control its agents, servants, contractors, employees, customers,
licensees, and invitees in such a manner as not to interfere with, annoy or
disturb other tenants, or in any way interfere with Landlord in the management
and operation of the Building. Tenant will maintain the Premises in a clean and
healthful condition, and comply with all laws, ordinances, orders, rules and
regulations of any governmental entity with reference to the operation of
Tenant's business and to the use, condition, configuration or occupancy of the
Premises, including without limitation, the Americans with Disabilities Act.
Notwithstanding the foregoing, nothing herein shall be construed to require
Tenant to make structural changes to the Park or Premises, including changes to
windows, sprinkler heads and other Building systems and structural elements of
the Project or Premises, unless such changes are required as a result of the
specific nature of Tenant's use (as opposed to general office use) or because of
the specific nature of any alterations, additions or improvements performed by
Tenant or contractors retained directly by Tenant, nor shall Tenant be
responsible for the cost of compliance except and only to the extent such cost
is included as a Basic Cost pursuant to the terms of this Lease. Tenant will
comply with the rules and regulations of the Building adopted and altered by
Landlord from time to time and will use reasonable efforts to cause all of its
agents, servants, contractors, employees, customers, licensees and invitees to
do so, provided that Landlord has delivered to Tenant a copy of such rules and
regulations and that such rules and regulations (a) do not materially interfere
with Tenant's use of the Premises or the Common Areas, and (b) do not
unreasonably require Tenant to pay or incur any additional monetary obligations
or liabilities. Landlord shall not enforce the rules and regulations in a
discriminatory manner against Tenant, and Landlord shall use reasonable efforts
to enforce the rules and regulations against other tenants of the Park to the
extent necessary to avoid
8
<PAGE>
interference by such other tenants with Tenant's use and enjoyment of the
Premises and Common Areas. All changes to such rules and regulations will be
sent by Landlord to Tenant in writing. A copy of the existing rules and
regulations is attached hereto as Exhibit D and made a part hereof. Tenant
agrees not to commit or allow any waste to be committed on any portion of the
Premises, and at the termination of this Lease to deliver up the Premises to
Landlord in accordance with Article XXXV hereof. Landlord, to the best of its
knowledge, represents and warrants to Tenant that, as of the Commencement Date,
the Premises (exclusive of any aspects of the Premises installed by Tenant), the
Building and the Common Areas shall comply with each applicable law, ordinance,
order, rule or regulation of any governmental body including, without
limitation, the Americans with Disabilities Act (ADA). Landlord shall be
responsible for complying with any such law, ordinance, order, rule or
regulation with respect to the Common Areas, the Building systems and the
Building (other than requirements resulting from changes in laws following the
Commencement Date to the extent that such requirements relate to Leasehold
Improvements in the Premises which do not constitute part of the Building
systems or structure, which requirements shall be Tenant's responsibility);
provided that Landlord shall have the right to contest any alleged violation in
good faith, including, without limitation, the right to apply for and obtain a
waiver or deferment of compliance, the right to assert any and all defenses
allowed by law and the right to appeal any decisions, judgments or rulings to
the fullest extent permitted by law. Landlord, after the exhaustion of any and
all rights to appeal or contest, will make all repairs, additions, alterations
or Improvements necessary to comply with the terms of any final order or
judgment, provided that if Landlord elects not to contest any alleged violation,
Landlord will promptly make all repairs, additions, alterations or improvements
necessary to comply with the notice of violation.
V. RENT.
A. Tenant covenants and agrees to pay to Landlord during the Lease
Term, without any setoff or deduction whatsoever, the full amount of all Base
Rental payments, and any adjustments thereof, due in accordance with the rental
schedule set forth in Exhibit B-1 hereof (the "Base Rental"), the full amount of
all payments of Additional Base Rental due in accordance with Exhibit B-2 hereof
(the "Additional Base Rental") and all such other sums of money as shall become
due under this Lease (including, without limitation, any charges for replacement
of electric lamps and ballasts and any other services, goods or materials
furnished by Landlord at Tenant's request), all of which hereinafter may be
collectively called "Rent." Except as otherwise provided herein, the Base Rental
and Additional Bass Rental for each calendar year or
9
<PAGE>
portion thereof during the Lease Term, shall be due and payable in advance in
equal monthly installments on the first day of each calendar month during the
Lease Term and any extensions or renewals hereof, and Tenant hereby agrees to
pay such Base Rental and Additional Base Rental to Landlord without demand,
provided that the installment of Base Rental for the first full calendar month
of the Lease Term shall be payable upon the execution of this Lease by Tenant.
If the Lease Term commences on a day other than the first day of a month or
terminates on a day other than the last day of a month, then the installments of
Base Rental and Additional Base Rental for such month or months shall be
prorated, based on the number of days in such month. All such payments shall be
by a good and sufficient check. No payment by Tenant or receipt or acceptance by
Landlord of a lesser amount than the correct amount of Rent due under this Lease
shall be deemed to be other than a payment on account of the earliest Rent due
hereunder, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance or pursue any other available remedy. The acceptance by
Landlord of any Rent on a date after the due date of such payment shall not be
construed to be a waiver of Landlord's right to declare a default for any other
late payment. Except as otherwise specifically provided herein, Tenant's
covenant to pay Rent shall be independent of every other covenant set forth in
this Lease.
B. All Rent not paid within five (5) days after such amount was due and
payable shall bear interest from the date due until paid (unless Tenant explains
to Landlord in writing, in reasonable detail, that such delay resulted from a
good faith error by Tenant) at the lesser of (1) ten percent (10%) per annum or
(2) the Maximum Rate. In addition, if Tenant fails to pay any installment of
Base Rental, Additional Base Rental or any other item of Rent within five (5)
business days after written notice from Landlord that such amount was not paid
when due and payable hereunder, a service fee equal to five percent (5%) of such
unpaid amount will be due and payable immediately by Tenant to Landlord;
provided that such five (5) business-day period shall be ten (10) business days
for the first late charge imposed hereunder in any calendar year.
VI. SECURITY DEPOSIT. INTENTIONALLY OMITTED.
VII. SERVICES TO BE FURNISHED BY LANDLORD.
A. Subject to the provisions of Article XI below, Landlord, as part of
10
<PAGE>
Basic Costs, agrees to furnish Tenant the following services:
1. Hot and cold water in the Common Area lavatories and cold
water at those points of supply provided for general use of tenants in the
Building, central heat and air conditioning in season, at such temperatures
thermostatically controlled by Tenant and in such amounts as are considered by
Landlord to be standard for buildings of similar class, size, age and location,
or as required by governmental authority. Notwithstanding the foregoing, Tenant
acknowledges that electricity to the Promises is separately metered and that the
electricity consumed in connection with supplying HVAC service to the Premises
is included on such meter and billed directly to Tenant in accordance with the
provisions of Article XI of this Lease. Notwithstanding the foregoing, if Tenant
requires HVAC service after Normal Business Hours, in addition to the cost of
electricity consumed, Tenant shall be required to pay Landlord a separate charge
for the cost incurred by Landlord for operating its water source heat pumps and
related equipment. Such additional costs shall be measured by a separate
override meter and allocated proportionally between Tenant and any other tenants
of the Building, if any, that requested after hours HVAC service for those hours
during which such service is being supplied to Tenant. Tenant shall pay Landlord
for such additional costs upon demand as additional Rent.
2. Routine maintenance and electric lighting service for all
Common Areas of the Building in the manner and to the extent; and replacement of
building standard fluorescent tubes, light bulbs and ballasts in the Premises as
required as a result of normal usage standard for buildings of similar class,
size, age and location.
3. Janitor service on Business Days in accordance with the
schedule attached hereto as Exhibit H (or such reasonably comparable
specifications designated by Landlord from time to time); provided, however, if
Tenant's use, floor covering or other improvements require special services,
Tenant shall, at Landlord's option, either (i) retain its own contractors (which
contractor shall be subject to Landlord's reasonable approval) to do such work
or, (ii) pay the additional cost reasonably attributable thereto as additional
Rent upon presentation of statements therefor by Landlord. Upon request from
Tenant, Landlord shall provide Tenant with a copy of its then current janitorial
and cleaning specifications.
4. Elevator service in common with other tenants of the
Building for ingress and egress to and from the floor of the Promises during
Normal Business Hours, provided that, subject to force majeure, at least one
11
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(1) elevator shall be available to serve the Premises 24 hours per day, 7 days
a week.
5. Snow removal and ice treatment as necessary to provide the
parking required hereunder and access to the Premises.
Subject to Landlord's reasonable rules and regulations and
temporary closures for emergency purposes, Tenant shall have access to its
parking and the Premises 24 hours per day, 7 days per week.
B. Except for the alteration, maintenance and repair responsibilities
of Tenant with respect to the Premises which are expressly set forth in this
Lease, Landlord shall operate and maintain the Building and the Park in
accordance with all applicable laws, with all requirements of any applicable
board of property insurance underwriters (to the extent necessary for Landlord
to maintain the insurance required hereunder), and with the standards prevailing
from time to time for projects of similar class, size, age and location, and, in
any event, in as good a condition as at the time this Lease is executed by
Landlord and Tenant, reasonable wear and tear excepted. Except as otherwise
expressly provided herein, the failure by Landlord to any extent to furnish, or
the interruption or termination of these services in whole or in part, resulting
from adherence to laws, regulations and administrative orders, wear, use,
repairs, improvements, alterations, Force Majeure (as hereinafter defined) or
any other causes beyond the reasonable control of Landlord shall not render
Landlord liable in any respect nor be construed as an eviction of Tenant, nor
give rise to an abatement of Rent, nor relieve Tenant from the obligation to
fulfill any covenant or agreement hereof. Should any of the equipment or
machinery used in the provision of such services for any cause cease to function
properly, Landlord shall use reasonable diligence to repair such equipment or
machinery, but except as otherwise expressly provided herein, Tenant shall have
no claim for offset or abatement of Rent or damages on account of an
interruption in service or resulting therefrom. To the extent reasonably
possible based on the nature of the work to be performed, Landlord shall
schedule the performance of any repairs, improvements or alterations that will
result In an interruption of service for non Business Days or after Normal
Business Hours. Landlord's entire obligation with respect to the repair and
maintenance of the Premises are set forth In this Lease.
C. Notwithstanding anything to the contrary contained in this Section
VII if (I) Landlord ceases to furnish any utility or service to the Premises,
Building or Common Areas or any damaged or dysfunctional aspect of the Premises,
Building or Common Areas which is not Tenant's repair
12
<PAGE>
responsibility interferes with Tenant's use or the Premises and Tenant notifies
Landlord of such cessation in writing (the "Interruption Notice'), (II) such
cessation or other problem does not arise as a result of an act or omission of
Tenant, (III) such cessation or other problem is not caused by a fire or other
casualty (in which case Article XIX shall control), (iv) the repair or
restoration of such cessation or other problem Is reasonably within the control
of Landlord, and (v) as a result of such cessation or other problem, the
Premises or a material portion thereof, is rendered untenantable (meaning that
Tenant Is unable to use the Premises in the normal course of its business) and
Tenant in fact ceases to use the Premises, or material portion thereof, then,
Tenant's sole remedy shall be as follows: on the third (3rd) consecutive
business day following the later to occur of the date the Premises (or material
portion thereof) becomes untenantable, the date Tenant ceases to use such space
and the date Tenant provides Landlord with an Interruption Notice, the Base
Rental and Additional Base Rental payable hereunder shall be abated on a per
them basis for each day after such three (3) business day period based upon the
percentage of the Premises so rendered untenantable and not used by Tenant, and
such abatement shall continue until the date the Premises become tenantable
again. Landlord agrees to proceed in good faith and with due diligence to
correct any such interruption of service or other problem. If, as a result of
any such interruption in services or other problem, all or any part of the
Premises are rendered untenantable for more than 30 consecutive days (or such
longer period as may be necessary to cure [not to exceed 60 days]) or more than
60 days (in the aggregate) in any lease year, Tenant may, at Tenant's option, by
30 days' prior written notice given to Landlord at any time after such 30th day
(as the same may be extended) or 60th day, as applicable, and before the
Premises are again usable, terminate this Lease.
D. Notwithstanding anything to the contrary contained in this Section
VII.B. if (I) Landlord ceases to furnish any utility or service to the Premises,
Building or Common Areas or any damaged or dysfunctional aspect of the Premises,
Building or Common Areas which is not Tenant's repair responsibility interferes
with Tenant's use or the Premises and Tenant notifies Landlord of such cessation
In writing (the "Interruption Notice"), (II) such cessation or other problem
does not arise as a result of an act or omission of Tenant, (III) such cessation
or other problem is not caused by a fire or other casualty (in which case
Article XIX shall control), (iv) the repair or restoration of such cessation or
other problem IS NOT reasonably within the control of Landlord, and (v) as a
result of such cessation or other problem, the Premises or a material portion
thereof, is rendered untenantable (meaning that Tenant is unable to use the
Premises in the normal course of its business) and Tenant in fact ceases to use
the Premises, or material portion thereof, then, Tenant's sole
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remedy shall be as follows: on the fifteenth (15th) consecutive business day
following the later to occur of the date the Premises (or material portion
thereof) becomes untenable, the date Tenant ceases to use such space and the
date Tenant provides Landlord with an Interruption Notice, the Base Rental and
Additional Base Rental payable hereunder shall be abated on a per diem basis for
each day after such fifteen (15) business day period based upon the percentage
of the Premises so rendered untenantable and not used by Tenant, and such
abatement shall continue until the date the Premises become tenantable again.
Landlord agrees to proceed in good faith and with due diligence to correct any
such Interruption of service or other problem. If, as a result of any such
interruption in services or other problem, all or any part of the Premises are
rendered untenantable for more than 130 consecutive days, Tenant may, at
Tenant's option, by 30 days' prior written notice given to Landlord at any time
after such 130th day and before the Premises are again usable, terminate this
Lease. Notwithstanding anything in Section VII.C. or the VII.D. to the contrary,
it is understood and agreed that Landlord shall be entitled to take whatever
action is necessary to restore the interrupted services, including, without
limitation, the installation of a temporary generator to provide electrical
service to the Building, providing portable washroom facilities, etc. and, upon
such restoration of services, Tenant's obligation to pay Rent shall commence,
provided that (x) if Landlord elects to restore services by such temporary
measures, Landlord shall continue to provide such temporary services until the
interrupted services in question are restored, and (y) the furnishing of
temporary services shall not relieve Landlord of its obligation to proceed in
good faith to perform any necessary repairs, replacements or other work that is
necessary to restore the services in question.
E. Tenant expressly acknowledges that If Landlord, from time to time,
elects to provide security services, Landlord shall not be deemed to have
warranted the efficiency of such security personnel, service, procedures or
equipment and Landlord shall not be liable in any manner for the failure of any
such security personnel, services, procedures or equipment to prevent or
control, or apprehend any one suspected of personal injury or property damage
in, on or around the Park.
VIII. LEASEHOLD IMPROVEMENTS.
A. Except as otherwise specifically provided elsewhere in this Lease or
in the Work Letter Agreement, if any, attached hereto as Exhibit C and
Incorporated herein, all Installations and Improvements now or hereafter placed
on or In the Premises shall be for Tenant's account and at Tenant's cost, which
cost shall be payable by Tenant to Landlord upon demand as additional
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Rent.
B. Any and all alterations, additions and improvements to the Premises,
all attached furniture, equipment and non-trade fixtures (collectively,
"Leasehold Improvements") shall, to the extent included In the Landlord Work, be
owned and insured by Landlord and shall remain upon the Premises, all without
compensation, allowance or credit to Tenant. Any unattached and movable
equipment or furniture, trade fixtures or other personalty of Tenant, including
computer, communications and security systems, and the wiring therefor,
("Tenant's Property") shall be owned and insured by Tenant, provided that Tenant
shall also be required to insure any additions, alterations and improvements
performed to the Premises subsequent to the performance of the Landlord Work by
Landlord. Landlord may, nonetheless, require Tenant to remove any Leasehold
Improvements performed by or for the benefit of Tenant (other than the Landlord
Work) and all electronic, phone and data cabling as are designated by Landlord
(the "Required Removables") at Tenant's sole cost. In the event that Landlord so
elects, Tenant shall remove such Required Removables on or before the expiration
or earlier termination of this Lease and repair any damage caused by such
removal. If Tenant fails to remove the Required Removables after Landlord's
request therefor, Landlord may remove, store or dispose of the Required
Removables at Tenant's cost, and repair any damage caused by such removal and
Tenant shall pay Landlord as additional Rent hereunder, on demand, all such
costs.
IX. GRAPHICS. Landlord shall provide and Install, at Tenant's cost, all letters
or numerals on the exterior of the Premises; all such letters and numerals shall
be In the standard graphics for the Building and no others shall be used or
permitted on the Premises without Landlord's prior written consent.
X. REPAIRS AND ALTERATIONS BY TENANT.
A. Without limiting the generality of Section VII.B, above, Landlord
shall diligently maintain and repair all aspects of the Premises which are
structural or which relate to the Building systems, including without limitation
the separate HVAC system for Tenant's computer area(s) and drug room, provided
that, except with regard to the separate HVAC system, Tenant shall be
responsible for any plumbing, electrical and other systems to the extent that
they are located within the Premises and serve Tenant exclusively, e.g. any
separate sink or shower installed in the Premises. Notwithstanding the
foregoing, Landlord hereby represent and warrants that the separate sink and
shower currently located on the Premises are in good working order and condition
and, in addition, Landlord agrees that it will be responsible for
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making any repairs to such sink and shower during the first ninety (90) days of
the Lease Term. Tenant shall keep the interior of the Premises in good
condition, and shall diligently maintain and repair all nonstructural aspects of
the Premises not included in Landlord's obligations, above. Any such repairs by
either party shall restore the Premises to as good a condition as it was in
prior to the occurrence of the applicable damage or other problem. If Tenant
fails to make any repair which is Tenant's responsibility with reasonable
diligence, and in the event that such failure impairs the use or enjoyment of
the Building by any other tenant, and if such repair remains incomplete on the
20th day following written notice to Tenant that Tenant has failed to exercise
reasonable diligence (or a shorter period in the case of an emergency repair, or
longer to the extent that Tenant is then proceeding diligently and diligent
completion takes more than 20 days), then Landlord may, at its option, perform
such repair itself and Tenant shall pay the cost thereof to Landlord on demand
as additional Rent.
B. Tenant shall not make or allow to be made any alterations, additions
or improvements to the Premises, nor install any sates or other heavy property
or equipment within the Premises, nor place signs or window coverings on the
Premises which are visible from outside the Premises, without first obtaining
the written consent of Landlord in each such instance, provided that Tenant may
install vending machines for the sale of candy, food, beverages or other goods,
for the sole and exclusive use of Tenant's employees and visitors, in locations
within the Premises able to bear the weight of such machines. Notwithstanding
the foregoing, Landlord's consent shall not be required for any alteration,
addition or improvement that satisfies all of the following criteria: 1) costs
less than $5,000.00, 2) is of a cosmetic nature such as painting, wallpapering,
hanging pictures and installing carpeting, 3) Is not visible from the exterior
of the Premises or Building, and 4) will not affect the systems or structure of
the Building and does not require work to be performed inside the walls or above
the ceiling of the Premises; provided that even if consent is not required,
Tenant shall still comply with all the other provisions of this Section X.B.
Prior to commencing any such work, Tenant must furnish Landlord with plans and
specifications; names and addresses of contractors; copies of contracts;
necessary permits; evidence of contractor's and subcontractor's insurance in
accordance with section XVI.B. hereof; and all such improvements, alterations or
additions shall be installed in a good workmanlike manner using new materials.
Upon completion, Tenant shall furnish marked-up plans showing all changes from
the plans originally approved by Landlord, contractor's affidavits and full and
final waivers of lien and receipted bills covering all labor and materials. All
improvements, alterations and additions shall comply with all insurance
requirements, codes,
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ordinances, laws and regulations, including without limitation, the Americans
with Disabilities Act. Tenant shall reimburse Landlord upon demand as additional
Rent for all reasonable sums expended by Landlord for examination of the
architectural, mechanical, electric and plumbing plans for any alterations,
additions or improvements and for the costs of repairing any damage done to the
Building caused by Tenant or Tenant's agents, servants, employees, customers,
licensees, or invitees in connection with such work. If Landlord so requests,
Tenant shall permit Landlord to supervise construction operations, to the extent
that they affect the Building structure or systems or the premises of any other
tenant but no such supervision shall impose any liability upon Landlord. In the
event Landlord supervises such construction, Landlord shall be entitled to a
supervisory fee in an amount not to exceed the lesser of (1) five percent (5%)
of the cost of the aspect of such work which affects the Building structure or
systems or the premises of any other tenant, or (2) $40.00 per hour. Landlord's
approval of Tenant's plans and specifications or supervision of any work
performed for or on behalf of Tenant shall not be deemed to be a representation
by Landlord that such plans and specifications comply with applicable Insurance
requirements, building codes, ordinances. laws or regulations.
XI. USE OF ELECTRICAL AND HVAC SERVICES BY TENANT. All electricity used by
Tenant In the Premises shall, at Landlord's option, be paid for by Tenant either
(1) by a separate charge (in an amount equal to the actual utility company
charge) billed directly to Tenant by Landlord and payable by Tenant as
additional Rent, or (2) by a separate charge billed by the utility company
supplying electricity and payable by Tenant directly to such utility company.
Tenant's use of electrical service furnished by Landlord shall not exceed 6
watts per square foot. In the event Tenant shall request that it be allowed to
consume electrical or HVAC services in excess of 6 watts per square foot,
Landlord may not refuse to consent to such usage but may reasonably condition
such consent upon such conditions as Landlord elects (including the installation
of utility service upgrades, submeters, air handlers or cooling units), and all
such additional usage (to the extent permitted by law), installation and
maintenance thereof shall be paid for by Tenant as additional Rent.
XII. ENTRY BY LANDLORD. Landlord and its agents or representatives shall have
the right (after 24 hours prior notice except in an emergency where Landlord
shall give Tenant notice reasonable under the circumstances and except that
notice shall not be required with respect to the furnishing of janitorial and
cleaning service) to enter the Premises to inspect the same, or to show the
Premises to prospective purchasers, mortgagees, tenants or insurers, or to
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clean or make repairs, alterations or additions thereto, including any work that
Landlord deems necessary for the safety, protection or preservation of the
Building or any occupants thereof, or to facilitate repairs, alterations or
additions to the Building or any other tenants premises. Notwithstanding the
foregoing, Tenant may, at its own expense, provide its own locks to an area
within the Premises ("Secured Area"). Tenant need not furnish Landlord with a
key but upon the Termination Date, Tenant shall surrender all such keys to
Landlord. If Landlord must gain access to a Secured Area in a non-emergency
situation, Landlord shall contact Tenant and Landlord and Tenant shall arrange a
mutually agreed upon time for Landlord to do so. Landlord shall comply with all
reasonable security measures pertaining to the Secured Area. If Landlord
determines in its sole discretion that an emergency in the Building or the
Premises, including, without limitation, a suspected fire or flood, requires
Landlord to gain access to the Secured Area, Tenant hereby authorizes Landlord
to forcibly enter the Secured Area. In such event, Landlord shall have no
liability whatsoever to Tenant, and Tenant shall pay all reasonable expenses
incurred by Landlord In repairing or reconstructing any entrance, corridor, door
or other portions of the Premises damaged as a result of a forcible entry by
Landlord. Landlord shall have no obligation to provide either janitorial service
or cleaning in the Secured Area. If reasonably necessary for the protection and
safety of Tenant and its employees, Landlord shall have the right to temporarily
close the Premises to perform repairs, alterations or additions in the Premises,
provided that, except in the event of an emergency and to the extent possible
based upon the nature of the work to be performed, Landlord shall perform all
such work on weekends and after Normal Business Hours. Entry by Landlord in
accordance with this Article XII shall not constitute a constructive eviction or
entitle Tenant to any abatement or reduction of Rent by reason thereof.
XIII. ASSIGNMENT AND SUBLETTING.
A. Tenant shall not assign, sublease, transfer or encumber this Lease
or any interest therein or grant any license, concession or other right of
occupancy of the Premises or any portion thereof or otherwise permit the use of
the Premises or any portion thereof by any party other than Tenant (any of which
events is hereinafter called a "Transfer") without the prior written consent of
Landlord, which consent shall not be unreasonably withheld with respect to any
proposed assignment or subletting. Landlord's consent shall not be considered
unreasonably withheld if: 1. the proposed transferee's financial responsibility
does not meet the same criteria Landlord uses to select Building tenants; 2. the
proposed transferee's business is not suitable for the Building considering the
business of the other tenants and the Building's prestige or
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would result in a violation of an exclusive right granted to another tenant in
the Building; 3. the proposed use is different than the Permitted Use; 4. the
proposed transferee is a government agency whose operations involve an average
number of daily visits by non-employees which is materially inconsistent with
the character of the Park, or occupant of the Building; or 5. Tenant is in
default. Tenant acknowledges that the foregoing is not intended to be an
exclusive list of the reasons for which Landlord may reasonably withhold its
consent to a proposed Transfer. Any attempted Transfer in violation of the terms
of this Article shall, at Landlord's option, be void. Consent by Landlord to one
or more Transfers shall not operate as a waiver of Landlord's rights as to any
subsequent Transfers. In addition, Tenant shall not, without Landlord's consent,
publicly offer or advertise the Lease for Transfer in any media unless the Park
is at least 90% occupied or Tenant Is advertising the space for sublease or
assignment at no less than 90% of the then current rental rate for similar space
In the Building offered by Landlord for direct lease. In the event Tenant or
anyone acting on behalf of Tenant or with Tenant's knowledge violates the
provisions of the foregoing sentence, Landlord, in addition to its other
remedies, shall be entitled to seek injunctive relief preventing such action,
and Tenant shall be responsible for all costs incurred by Landlord in connection
therewith.
B. If Tenant requests Landlord's consent to a Transfer, Tenant shall
notify Landlord in writing at least 30 days prior to the effective date of the
proposed Transfer of the name of the proposed transferee and the nature of the
business of the proposed transferee, the term, use, rental rate and all other
material terms and conditions of the proposed Transfer, including, without
limitation, evidence satisfactory to Landlord that the proposed transferee is
financially responsible. Notwithstanding the provisions of Section XIII.A.
above, Landlord may, during said 30-day period, 1. consent to or refuse to
consent to such Transfer in writing; or 2. negotiate directly with the proposed
transferee and (in the event Landlord is able to reach agreement with such
proposed transferee) upon execution of a lease with such transferee (or the date
of Tenant's proposed transfer, if earlier), terminate this Lease, with respect
to the portion of the Premises which Tenant proposed to sublease or assign, upon
thirty (30) days' notice; or 3. cancel and terminate this Lease, with respect to
the portion of the Premises which Tenant proposed to sublease or assign, upon 30
days notice. No termination date resulting from any Landlord election to
terminate under this paragraph shall (unless Tenant otherwise consents) be later
than the planned date of Tenant's proposed transfer. In the event that Landlord
elects to terminate this Lease as provided in this paragraph, Tenant may elect,
within 10 days following notice of Landlord's termination election, to withdraw
Tenant's request for Landlord's consent to the applicable assignment
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or sublease in which event this Lease shall not terminate and Landlord's and
Tenant's rights shall be the same as if Tenant had never requested such consent.
In the event Landlord consents to any such Transfer, the Transfer shall be in a
form reasonably approved by Landlord (it being understood and agreed that
Landlord's approval rights shall not extend to aspects of the Transfer which do
not materially affect Landlord's interests in the Building or Premises), and
Tenant shall bear all costs and expenses reasonably incurred by Landlord in
connection with the review and approval of such documentation, which costs and
expenses shall not exceed Five Hundred Dollars ($500.00).
C. If for any assignment or sublease Tenant receives rent or other
consideration (after deducting all reasonable costs of (a) free rent, tenant
improvements and allowances provided to such assignee or sublessee, (b) to the
extent that Tenant vacated the Premises no less than 1 0 days prior to the
effective date of the applicable Transfer, all Rent (including without
limitation Additional Base Rental) paid to Landlord for the period from Tenant's
vacation of the Premises to the effective date of the Transfer, and (c)
brokerage commissions and marketing costs) either initially or over the term of
the assignment or sublease, In excess of the rent called for hereunder, or in
case of the sublease of a portion of the Premises, in excess of such rent fairly
allocable to such portion (the "Transfer Consideration") Tenant shall pay
one-half of such Transfer Consideration to Landlord within ten (10) days
following receipt thereof by Tenant. In addition to any other rights Landlord
may have In connection with an uncured default by Tenant under the Lease,
Landlord shall have the right to contact any transferee and require that all
payments made pursuant to the Transfer shall be made directly to Landlord.
D. If Tenant is a corporation and if at any time during the Lease Term
the person or persons who own the voting shares at the time of the execution of
this Lease cease for any reason, including but not limited to merger,
consolidation or other reorganization involving another corporation, to own a
majority of such shares, or if Tenant is a partnership and if at any time during
the Lease Term the general partner or partners who own the general partnership
interests In the partnership at the time of the execution of this Lease, cease
for any reason to own a majority of such interests (except as the result of
transfers by gift, bequest or inheritance to or for the benefit of members of
the immediate family of such original shareholder(s) or partner(s)), such an
event shall be deemed to be a Transfer. The preceding sentence shall not apply
whenever Tenant is a corporation the outstanding stock of which is listed on a
recognized security exchange, or if at least eighty per cent (80%) of its voting
stock is owned by another corporation, the voting stock of which is so listed.
Notwithstanding anything to the contrary contained herein or in Section
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XIII.D., Tenant may assign its entire Interest under this Lease or sublet the
Premises to a wholly owned corporation or controlled subsidiary or parent of
Tenant (or entity under common control with Tenant) or to any successor to
Tenant by purchase, merger, consolidation or reorganization (hereinafter
collectively referred to as "Corporate Transfer") without the consent of
Landlord, provided: (I) Tenant is not in default under this Lease; (II) if such
proposed transferee is a successor to Tenant by purchase, said proposed
transferee shall acquire all or substantially all of the stock or assets of
Tenant's business or, if such proposed transferee is a successor to Tenant by
merger, consolidation or reorganization, the continuing or surviving corporation
shall own all or substantially all of the assets of Tenant; (III) such proposed
transferee operates. the business in the Premises for the Permitted Use and no
other purpose; and (iv) in 66 event shall any Transfer release or relieve Tenant
from any of its obligations under this Lease. Tenant shall give Landlord written
notice at least twenty (20) days prior to the effective date of such Corporate
Transfer If such transfer involves an actual change in possession of the
Premises. As used herein, the terms "controlled" or "subsidiary" shall mean a
corporate entity wholly owned by Tenant or at least fifty-one percent (51%) of
whose voting stock Is owned by Tenant. The parties to whom Tenant is entitled to
assign this Lease or sublet all or any portion of the Premises pursuant to a
Corporate Transfer shall be referred to herein as "Permitted Transferees".
E. Any Transfer consented to by Landlord In accordance with this
Article XIII shall be only for the Permitted Use and for no other purpose, and
In no event shall any Transfer release or relieve Tenant or any Guarantors from
any obligations under this Lease.
XIV. LIENS. Tenant will not permit any mechanic's liens or other liens to be
placed upon the Premises or Tenant's leasehold interest therein, the Building,
or the real estate associated therewith. Landlord's title to the Building and
Park is and always shall be paramount to the interest of Tenant, and nothing
herein contained shall empower Tenant to do any act that can, shall or may
encumber Landlord's title. In the event any such lien does attach, Tenant shall,
within ten (10) days of notice of the filing of said lien, either discharge or
bond over such lien to the satisfaction of Landlord and Landlord's Mortgagee (as
hereinafter defined), and in such a manner as to stay the enforcement or
foreclosure of such lien. If Tenant shall fail to so discharge or bond over such
lien, then, in addition to any other right or remedy of Landlord, Landlord may,
but shall not be obligated to, discharge the same. Any amount paid by Landlord
for any of the aforesaid purposes, including reasonable attorneys fees (if and
to the extent permitted by law) shall be paid by Tenant to Landlord on demand as
additional Rent.
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XV. INDEMNITY AND WAIVER OF CLAIMS.
A. Tenant shall indemnify, defend and hold Landlord, its principals,
beneficiaries, partners, officers, directors, agents, employees and Mortgagees
(collectively, the "Landlord Related Parties") harmless against and from all
liabilities, obligations, damages, penalties, claims, costs, charges or expenses
arising, directly or indirectly, out of or in connection with the acts,
negligence or wilful misconduct of Tenant or the failure on the part of Tenant
to perform or comply with any of the covenants, agreements, terms or conditions
contained in this Lease with which Tenant must comply or perform, but not
including any liabilities, obligations, damages, penalties, claims, costs,
charges or expenses arising, directly or indirectly, out of or in connection
with the negligence or wilful misconduct of Landlord or the failure on the part
of Landlord to perform or comply with any of the covenants, agreements, terms or
conditions contained in this Lease with which Landlord must comply or perform.
In case any action or proceeding is brought against Landlord or any of the
Landlord Related Parties by reason of any of the foregoing, Tenant shall, at
Tenant's sole cost and expense, resist and defend such action or proceeding with
counsel reasonably approved by Landlord. Landlord shall indemnify, defend and
hold Tenant, its principals, beneficiaries, partners, officers, directors,
agents and employees (collectively, the "Tenant Related Parties") harmless
against and from all liabilities, obligations, damages, penalties, claims,
costs, charges or expenses arising, directly or indirectly, out of or in
connection with the acts, negligence or wilful misconduct of Landlord or the
failure on the part of Landlord to perform or comply with any of the covenants,
agreements, terms or conditions contained in this Lease with which Landlord must
comply or perform, but not including any liabilities, obligations, damages,
penalties, claims, costs, charges or expenses arising, directly or indirectly,
out of or in connection with the negligence or wilful misconduct of Tenant or
the failure on the part of Tenant to perform or comply with any of the
covenants, agreements, terms or conditions contained in this Lease with which
Tenant must comply or perform. In case any action or proceeding is brought
against Tenant or any of the Tenant Related Parties by reason of any of the
foregoing, Landlord shall, at Landlord's sole cost and expense, resist and
defend such action or proceeding with counsel reasonably approved by Tenant.
B. Landlord and the Landlord Related Parties shall not be liable for,
and Tenant waives, all claims for loss or damage to Tenant's business or damage
to person or property sustained by Tenant or any person claiming by, through or
under Tenant (including Tenant's employees) resulting from any accident or
occurrence in, on or about the Premises, the Building or the Park,
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unless such claim for loss or damage arises directly or indirectly out of or in
connection with the negligence or willful misconduct of Landlord or the failure
on the part of Landlord to perform or comply with any of the covenants,
agreements, terms or conditions contained in this lease with which Landlord must
comply or perform, including, without limitation, claims for loss, theft or
damage resulting from: 1. the Premises, Building, or Park, or any equipment or
appurtenances becoming out of repair; 2. wind or weather; 3. any defect in or
failure to operate, for whatever reason, any sprinkler, heating or
air-conditioning equipment, electric wiring, gas, water or steam pipes; 4.
broken glass; 5. the backing up of any sewer pipe or downspout, 6. the bursting,
leaking or running of any tank, water closet, drain or other pipe; 7. the escape
of steam or water; 8. water, snow or ice being upon or coming through the roof,
skylight, stairs, doorways, windows, walks or any other place upon or near the
Building; 9. the failing of any fixture, plaster, tile or other material; or 10.
any act, omission or negligence of other tenants, licensees or any other persons
or occupants of the Building or of adjoining or contiguous buildings, of owners
of adjacent or contiguous property or the public, or by construction of any
private, public or quasi-public work. To the maximum extent permitted by law,
and except as otherwise provided herein, Tenant agrees to use and occupy the
Premises, and to use such other portions of the Building as Tenant Is herein
given the right to use, at Tenant's own risk.
XVI. TENANT'S INSURANCE.
A. At all times commencing on and after the earlier of the Commencement
Date and the date Tenant or its agents, employees or contractors enters the
Premises for any purpose, Tenant shall carry and maintain, at its sole cost and
expense:
1. Commercial General Liability Insurance with a Broad Form
General Liability Endorsement application to the Premises and its appurtenances
providing, on an occurrence basis, a minimum combined single limit of Two
Million dollars ($2,000,000).
2. All Risks of Physical Loss Insurance written at replacement
cost value and with a replacement cost endorsement covering all of Tenant's
Property in the Premises.
3. Workers Compensation Insurance as required by the state in
which the Premises is located and in amounts as may be required by applicable
statute, and Employers Liability Coverage of One Million Dollars ($1,000,000)
per occurrence.
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4. Whenever good business practice, in Landlord's reasonable
judgment, indicates the need of additional insurance coverage or different types
of insurance in connection with the Premises or Tenant's use and occupancy
thereof, Tenant shall, upon request, obtain such insurance at Tenant's expense
and provide Landlord with evidence thereof.
B. Except for items for which Landlord is responsible under the Work
Letter Agreement, before any repairs, alterations, additions, improvements, or
construction are undertaken by or on behalf of Tenant, Tenant shall carry and
maintain, at its expense, or Tenant shall require any contractor performing work
on the Premises to carry and maintain, at no expense to Landlord, in addition to
worker's compensation insurance as required by the jurisdiction in which the
Building is located, All Risk Builder's Risk Insurance in the amount of the
replacement cost of any alterations, additions or improvements (or such other
amount reasonably required by Landlord) and Commercial General Liability
Insurance (including, without limitation, Contractor's Liability coverage,
Contractual Liability coverage, Completed Operations coverage, a Broad Form
Property Damage coverage and Contractor's Protective liability) written on an
occurrence basis with a minimum combined single limit of Two Million Dollars
($2,000,000); such limit may be accomplished by means of an umbrella policy.
C. Any company writing any insurance which Tenant is required to
maintain or cause to be maintained pursuant to the terms of this Lease (all such
insurance as well as any other insurance pertaining to the Premises or the
operation of Tenant's business therein being referred to as "Tenant's
Insurance"), as well as the form of such insurance, shall at all times be
subject to Landlord's reasonable approval, and each such insurance company shall
have an A.M. Best rating of "A-7" or better and shall be licensed and qualified
to do business in the state in which the Premises are located. All policies
evidencing Tenant's Insurance (except for. Workers Compensation) shall specify
Tenant and the owners] of the Building and its (or their) respective principals,
beneficiaries, partners, officers, directors, employees, agents and
mortgagee[s]" (and any other designees of Landlord as the interest of such
designees shall appear) as additional insureds. Provided that the coverage
afforded Landlord and any designees of Landlord shall not be reduced or
otherwise adversely affected, all of Tenant's Insurance may be carried under a
blanket policy covering the Premises and any other of Tenant's locations. All
policies of Tenant's Insurance shall contain endorsements that the insurer(s)
will give to Landlord and its designees at least thirty (30) days' advance
written notice of any change, cancellation, termination or lapse of said
insurance.
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Tenant shall be solely responsible for payment of premiums for all of Tenant's
Insurance. Tenant shall deliver to Landlord at least fifteen (15) days prior to
the time Tenant's Insurance is first required to be carried by Tenant, and upon
renewals at least fifteen (15) days prior to the expiration of any such
Insurance coverage, a certificate of insurance of all policies procured by
Tenant in compliance with its obligations under this Lease. The limits of
Tenant's Insurance shall in no event limit Tenant's liability under this Lease.
D. Tenant shall not do or fail to do anything in, upon or about the
Premises which will: 1. violate the terms of any of Landlord's insurance
policies; 2. prevent Landlord from obtaining policies of insurance acceptable to
Landlord or any Mortgagees; or 3. result in an increase in the rate of any
insurance on the Premises, the Building, any other property of Landlord or of
others within the Building. In the event of the occurrence of any of the events
set forth in this Section, Tenant shall pay Landlord upon demand, as additional
Rent, the cost of the amount of any increase in any such insurance premium. If
Tenant fails to obtain the insurance coverage required by this Lease, Landlord
may, at its option, obtain such insurance for Tenant, and Tenant shall pay, as
additional Rent, the cost of all premiums thereon and all of Landlord's costs
associated therewith.
XVII. SUBROGATION. Notwithstanding anything set forth in this Lease to the
contrary, Landlord and Tenant do hereby waive any and all right of recovery,
claim, action or cause of action against the other, their respective principals,
beneficiaries, partners, officers, directors, agents, and employees, and, with
respect to Landlord, its Mortgagee[s], for any loss or damage that may occur to
Landlord or Tenant or any party claiming by, through or under Landlord or
Tenant, as the case may be, with respect to their respective property, the
Building, the Park or the Premises or any addition or improvements thereto, or
any contents therein, by reason of fire, the elements or an other cause
regardless of cause or origin, including the negligence of Landlord or Tenant,
or their respective principals, beneficiaries, partners, officers, directors,
agents and employees and, with respect to Landlord, its Mortgagee[s], which loss
or damage is (or would have been, had the insurance required by this Lease been
carried) covered by insurance. Since this mutual waiver will preclude the
assignment of any such claim by subrogation (or otherwise) to an insurance
company (or any other person), Landlord and Tenant each agree to give each
insurance company which has issued, or in the future may issue, its policies of
fire, extended coverage or material damage insurance, written notice of the
terms of this mutual waiver, and to have such insurance policies property
endorsed, if necessary, to prevent the invalidation of any of the coverage
provided by such insurance policies by reason of such mutual waiver. For the
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purpose of the foregoing waiver, the amount of any deductible applicable to any
loss or damage shall be deemed covered by, and recoverable by the insured under
the insurance policy to which such deductible relates. In the event that Tenant
is permitted to and self-insures any risk which would have been covered by the
insurance required to be carried by Tenant pursuant to Article XVI of the Lease,
or if Tenant fails to carry any insurance required to be carried by Tenant
pursuant to Article XVI of this Lease, then all loss or damage to Tenant, its
leasehold interest, its business, its property, the Premises or any additions or
improvements thereto or contents thereof required to be covered by Tenant's
insurance shall be deemed covered by and recoverable by Tenant under valid and
collectible policies of insurance.
XVIII. LANDLORD'S INSURANCE. Landlord shall maintain property insurance
on the Building in the amount of 100% of the replacement cost thereof (excluding
foundations) covering fire and all other hazards normally covered by "all-risk"
insurance in the area in which the Building is located (including loss by flood
or earthquake if in an area subject to such hazards). Landlord shall carry
commercial general liability insurance in the types and no less than the amounts
required to be carried by Tenant under Paragraphs XVI.A. and B. of this Lease.
Any company writing any insurance which Landlord is required to maintain or
cause to be maintained pursuant to the terms of this Lease (all such insurance
as well as any other insurance pertaining to the Park being referred to as
"Landlord's Insurance") shall have an A.M. Best rating of "A-7" or better and
shall be licensed and qualified to do business in the state in which the
Premises are located. The cost of such insurance shall be included as a part of
the Basic Costs, and payments for losses thereunder shall be made solely to
Landlord or the Mortgagees of Landlord as their interests shall appear.
XIX. CASUALTY DAMAGE.
A. DAMAGE DIRECTLY AFFECTING PREMISES. If any portion of the Premises
is rendered untenantable by damage from any cause, or if any casualty to any
portion of the Building or Common Areas materially impairs Tenant's use of, or
access to, the Premises or reduces the parking available to Tenant and/or its
invitees below the minimum amount required by law, the following shall apply:
1. DETERMINATION OF EXTENT OF DAMAGE. Landlord shall promptly
(in any event, within 45 days following the date of the casualty), notify Tenant
In writing as to how long, in Landlord's reasonable judgment, it will take to
substantially restore the damage (ignoring any absence of insurance proceeds or
delays in receiving the same). If Landlord fails to notify Tenant within such 45
day period and such failure continues for ten (10) days after written notice
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from Tenant, Landlord's failure to so notify Tenant shall, if Tenant so chooses,
be deemed to be Landlord's determination that such restoration will take longer
than 240 days (measured from the date of the casualty).
2. RIGHTS TO TERMINATE FOLLOWING MAJOR DAMAGE OR DAMAGE NEAR
END OF TERM. In the event that Landlord determines that such substantial
restoration will take longer than 240 days (measured from the date of the
casualty), or in the event that Landlord determines that such damage is
restorable within a shorter period but the remaining term of this Lease
following such restoration period is less than 2.5 times as long as such
restoration period, then in either case Landlord or Tenant may terminate this
Lease by irrevocable written notice to the other within 30 days following
Tenant's receipt of Landlord's determination (or within 30 days following the
45th day following the date of the casualty, in the event that Landlord's
determination is not timely delivered). Tenant shall not have the foregoing
termination right in the event that Landlord notifies Tenant (within the 45-day
period described above) that, notwithstanding the fact that substantial
restoration will take longer than 240 days, substantial restoration of all
damage to the Premises and all aspects of the damage to the Building and Common
Areas which materially impair Tenant's available parking and/or access to the
Premises has or would with the passage of time have, the rights to extend this
Lease and (b) Tenant can be accomplished within 240 days of the casualty. Any
termination by Landlord due solely to the fact that the remaining term of this
Lease following such restoration period will be less than 2.5 times as long as
such restoration period shall not be effective in the event that (a) Tenant then
irrevocably notifies Landlord in writing, within 10 business days following
Landlord's termination notice, that Tenant is exercising such extension.
3. RESTORATION. In the event that, following the occurrence of
any damage described in Section XIX.A, this Lease is not terminated , (a)
Landlord shall promptly commence and diligently proceed to restore the damage to
the Premises and to all aspects of the Building and Common Areas necessary to
remedy any material impairment to access to the Premises, except to the extent
that the damage relates to aspects of the Premises that were made or installed
by Tenant and were not required to be insured by Landlord hereunder, and (b)
Tenant shall promptly commence and diligently proceed to restore all aspects of
the Premises that were made or installed by Tenant and were not required to be
insured by Landlord hereunder, and Tenant shall present Landlord with evidence
satisfactory to Landlord of Tenant's ability to pay such costs prior to
Landlord's commencement of repair and restoration of the Premises. Both
Landlord's and Tenant's restoration obligations hereunder
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shall be effective regardless of whether the damage is covered by insurance
(except as otherwise expressly provided herein) and regardless of any delays in
obtaining insurance proceeds.
4. ADDITIONAL TERMINATION RIGHTS. In the event that, for any
reason, all damage required to be restored by Landlord is not substantially
restored on or before the later of the 240th day following its occurrence or the
date set forth in Landlord's initial notice of the estimated period of time for
restoration (the later of such dates being referred to as the "Outside
Completion Date"), and in the event that such nonrestoration involves the
Premises or materially impairs access to the Premises or reduces the parking
available to Tenant and/or its invitees below the minimum amount required by
law, Tenant shall have the right, within 10 business days thereafter, to
terminate this Lease by irrevocable written notice to Landlord; and Tenant shall
thereafter have the same right to terminate this Lease within 10 business days
following the 30th, 60th and 120th days following the Outside Completion Date.
Notwithstanding the foregoing, if Landlord reasonably determines, at any time
prior to the completion of the restoration work, that such restoration is not
likely to be completed by the applicable Outside Completion Date (or such 30, 60
or 120 day periods, as applicable), Landlord shall be entitled to provide Tenant
with written notice thereof, which notice shall advise Tenant of Landlord's
revised estimate of the date on which the restoration work will be substantially
completed. Tenant, within 1 0 business days after receipt of Landlord's notice,
shall be entitled to terminate this Lease by written notice to Landlord. If
Tenant does not terminate this Lease within such 10 business day period, the
date set forth in Landlord's revised estimate shall be considered to be the
Outside Completion Date for purposes hereof.
B. OTHER DAMAGE TO BUILDING OR PARK. In the event that 20% or more of
the Building or Park is destroyed, or In the event that 1) the cost to repair
any damage to the Building or Park caused by a casualty is greater than the
lesser of $200,000.00 and the then remaining net income that will be payable to
Landlord under this Lease for the remainder of the Lease Term, and 2) either (a)
the casualty was of a nature against which Landlord was not insured (and was not
required to be insured hereunder) or (b) the casualty was of a nature with
respect to which the applicable property insurance proceeds are ultimately paid
to any mortgagee, ground lessor or other third party, then in any such event
Landlord shall have the right to terminate this Lease by irrevocable written
notice to Tenant within 45 days following the occurrence of the damage, but only
in the event that Landlord (i) terminates the leases of all tenants similarly
situated in relation to the damage, and (ii) does not restore such damage within
18 months following the date of the casualty. The percentages
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of destruction referred to In this paragraph shall be determined by dividing the
cost of the applicable restoration by the replacement cost of the entire
Building (or Park, as applicable).
C. ADJUSTMENT OF RENT. Following the occurrence of any damage described
in this Article XIX, the Base Rental and Additional Base Rental shall each be
proportionately abated to the extent that the Premises are thereby rendered
unusable by Tenant in its business from the date of such casualty until the
earlier of a. the date on which the Premises (or part thereof so rendered
unusable) are again usable or b. the date on which (but only to the extent)
Tenant again uses the Premises (or part thereof rendered unusable) in its
business (and such rents shall be 100% abated in the event that no less than 30%
of the Premises is rendered unusable by Tenant and Tenant reasonably elects not
to use the remaining partial Premises pending restoration). Except for the
foregoing rent abatement and except as otherwise expressly provided herein,
Landlord shall have no liability to Tenant for any costs, damages or other
losses incurred by Tenant in connection with any casualty to the Premises or
Building.
D. EFFECTIVE TERMINATION DATE. The effective date of any termination by
Landlord or Tenant under this Article XIX shall be the date on which Tenant
reasonably ceased, or ceases, to use the Premises for its ordinary business
operations as the result of the casualty and, in the event that Tenant is still
so using the Premises at the time of the notice of termination, such effective
date shall be a date specified by the terminating party in such notice of
termination, which date shall not be (i) later than the 60th day following such
notice if Landlord is the terminating party; or (ii) earlier than the 60th day
following such notice if Landlord is the terminating party; provided that, if
both parties effectively give such termination notices, Tenant's effective date
shall apply.
E. WAIVER OF INCONSISTENT LAWS. Landlord and Tenant hereby waive the
provisions to any law from time to time in effect during the Lease Term relating
to the effect upon leases of partial or total destruction of leased property.
Landlord and Tenant agree that their respective rights in the event of any
damage to or destruction of the Premises shall be those specifically set forth
herein.
XX. DEMOLITION. INTENTIONALLY OMITTED.
XXI. CONDEMNATION. If 1. the whole or any substantial part of the Premises or 2.
any portion of the Building or Park which would leave the remainder of the
Building
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unsuitable for use as an office building comparable to its use on the
Commencement Date, shall be taken or condemned for any public or quasi-public
use under governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, then Landlord may, at its
option, terminate this Lease, by written notice given no later than sixty (60)
days prior to the date the physical taking shall occur, effective as of the date
the physical taking of said Premises or said portion of the Building or Park
shall occur. Notwithstanding the foregoing, if the whole or any substantial part
of the Premises shall be taken or condemned for any public or quasipublic use
under governmental law, ordinance or regulation, or by right of eminent domain,
or by private purchase in lieu thereof, Tenant shall also have the right to
terminate this Lease effective as of the date the physical taking of the
Premises occurs. Such right to terminate shall be exercised by written notice to
Landlord within thirty (30) days after the date on which Tenant is first
notified of the taking. In the event this Lease is not terminated, the Rentable
Area of the Building, the Rentable Area of the Premises and Tenant's Pro Rata
Share shall be appropriately adjusted. In addition, Rent for any portion of the
Premises so taken or condemned shall be abated during the unexpired term of this
Lease effective when the physical taking of said portion of the Premises shall
occur. All compensation awarded for any such taking or condemnation, or sale
proceeds in lieu thereof, shall be the property of Landlord, and Tenant shall
have no claim thereto, the same being hereby expressly waived by Tenant, except
for any portions of such award or proceeds which are specifically allocated by
the condemning or purchasing party for the taking of or damage to trade fixtures
of Tenant, relocation expenses and tenant improvements paid for by Tenant, which
Tenant specifically reserves to itself.
XXII. EVENTS OF DEFAULT. The following events shall be deemed to be events of
default under this Lease:
A. Tenant shall fall to pay any Base Rental, Additional Base Rental or
other Rent under this Lease on or before the 5th business day following Tenant's
receipt of written notice from Landlord that Tenant failed to pay such amount
when due (hereinafter sometimes referred to as a "Monetary Default").
B. Any failure by Tenant (other than a Monetary Default) to comply
with any term, provision or covenant of this Lease, which failure is not
cured within twenty (20) days after delivery to Tenant of notice of the
occurrence of such failure, provided that (i) if any such failure creates a
hazardous condition, such failure must be cured Immediately; and (ii) if such
failure cannot reasonably be cured within such twenty (20) days, Tenant shall
not be in default hereunder so long as Tenant commences such cure within such 20
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days and thereafter diligently prosecutes such cure to completion.
C. Tenant or any Guarantor shall become insolvent, or shall make a
transfer in fraud of creditors, or shall commit an act of bankruptcy or shall
make an assignment for the benefit of creditors, or Tenant or any Guarantor
shall admit in writing its inability to pay its debts as they become due.
D. Tenant or any Guarantor shall file a petition under any section or
chapter of the United States Bankruptcy Code, as amended, pertaining to
bankruptcy, or under any similar law or statute of the United States or any
State thereof, or Tenant or any Guarantor shall be adjudged bankrupt or
insolvent in proceedings filed against Tenant or any Guarantor thereunder; or a
petition or answer proposing the adjudication of Tenant or any Guarantor as a
debtor or its reorganization under any present or future federal or state
bankruptcy or similar law shall be filed in any court and such petition or
answer shall not be discharged or denied within sixty (60) days after the filing
thereof.
E. A receiver or trustee shall be appointed for all or substantially
all of the assets of Tenant or any Guarantor or of the Premises or of any of
Tenant's property located thereon in any proceeding brought by Tenant or any
Guarantor, or any such receiver or trustee shall be appointed in any proceeding
brought against Tenant or any Guarantor and shall not be discharged with in
sixty (60) days after such appointment or Tenant or such Guarantor shall consent
to or acquiesce in such appointment.
F. The leasehold estate hereunder shall be taken on execution or other
process of law or equity in any action against Tenant.
G. The liquidation, termination, dissolution, forfeiture of right to do
business or death of Tenant or any Guarantor.
XXIII. REMEDIES.
A. Upon the occurrence of any event or events of default under this
Lease, whether enumerated in Article XXII or not, Landlord shall have the option
to pursue any one or more of the following remedies
1. Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord. If Tenant fails to surrender the
Premises upon termination of the Lease hereunder, Landlord may without prejudice
to any other remedy which it may have, enter upon and take
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possession of the Premises and expel or remove Tenant and any other person who
may be occupying said Premises, or any part thereof, and Tenant hereby agrees to
pay to Landlord on demand the amount of all loss and damage which Landlord may
suffer by reason of such termination, whether through inability to relet the
Premises on satisfactory terms or otherwise, specifically including but not
limited to all Costs of Reletting (hereinafter defined) and any deficiency that
may arise by reason of any reletting or failure to relet.
2. Enter upon and take possession of the Premises and expel or
remove Tenant or any other person who may be occupying said Premises, or any
part thereof, without terminating this Lease. Landlord may (but shall be under
no obligation to) relet the Premises or any part thereof for the account of
Tenant, in the name of Landlord, without notice to Tenant for such term or terms
which may be greater or less than the period which would otherwise have
constituted the balance of the Lease Term and on such conditions (which may
include concessions, free rent and alterations of the Premises) and for such
uses as Landlord in its absolute discretion may determine, and Landlord may
collect and receive any rents payable by reason of such relenting. Tenant agrees
to pay Landlord on demand all Costs of Reletting and any deficiency that may
arise by reason of such reletting or failure to relet. Landlord shall not be
responsible or liable for any failure to relet the Premises or any part thereof
or for any failure to collect any Rent due upon any such relenting. No such
re-entry or taking of possession of the Premises by Landlord shall be construed
as an election on Landlord's part to terminate this Lease unless a written
notice of such termination is given to Tenant.
3. Enter upon the Premises and do whatever Tenant is obligated
to do under the terms of this Lease, and Tenant agrees to reimburse Landlord on
demand for any expense which Landlord may incur in thus affecting compliance
with Tenant's obligations under this Lease together with interest at the lesser
of a per annum rate equal to: a. the Maximum Rate, or b. the Prime Rate plus
five percent (5%), and Tenant further agrees that Landlord shall not be liable
for any damages resulting to Tenant from such action, unless caused by the
negligence or wilful misconduct of Landlord.
4. In order to regain possession of the Premises and to deny
Tenant access thereto in any instance in which Landlord has terminated this
Lease or Tenant's right to possession, Landlord shall be entitled to exercise
any and all rights provided to at law or in equity under the laws of the state
and city in which the Building is located. Landlord may, without notice, remove
and store, at Tenant's expense, any property belonging to Tenant that remains in
the Premises after Landlord has regained possession thereof.
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5. Terminate this Lease, in which event, Tenant shall
immediately surrender the Premises to Landlord and pay to Landlord the sum of:
a. all Rent accrued hereunder through the date of termination, and, upon
Landlord's determination thereof, b. an amount equal to (i) the total Rent that
Tenant would have been required to pay for the remainder of the Lease Term
discounted to present value at the prime rate then in effect, minus (ii) the
then present fair rental value of the Premises for the remainder of the Lease
Term, similarly discounted, after deducting all anticipated Costs of Reletting.
Landlord's determination of such amount shall be conclusive and binding on
Tenant, and shall be deemed to have been made in good faith, subject only to
manifest error.
B. For purposes of this Lease, the term "Costs of Reletting" shall mean
all costs and expenses incurred by Landlord in connection with the reletting of
the Premises, including without limitation, Rent loss during the period the
Premises are vacant prior to reletting, the cost of cleaning, renovation,
repairs, decoration and alteration of the Premises for a new tenant or tenants,
advertisement, marketing, brokerage and legal fees (if and to the extent
permitted by law), the cost of protecting or caring for the Premises while
vacant, the cost of removing and storing any property located on the Premises,
any increase in insurance premiums caused by the vacancy of the Premises and any
other out-of-pocket expenses incurred by Landlord including tenant inducements
such as the cost of moving the new tenant or tenants and the cost of assuming
any portion of the existing lease(s) of the new tenant(s).
C. Except as otherwise herein provided, no repossession or re-entering
on the Premises or any part thereof pursuant to Article XXIII hereof or
otherwise shall relieve Tenant or any Guarantor of its liabilities and
obligations hereunder, all of which shall survive such repossession or
re-entering. Notwithstanding any such repossession or re-entering by reason of
the occurrence of an event of default, Tenant will pay to Landlord the Rent
required to be paid by Tenant pursuant to this Lease.
D. No right or remedy herein conferred upon or reserved to Landlord is
intended to be exclusive of any other right or remedy, and each and every right
and remedy shall be cumulative and in addition to any other right or remedy
given hereunder or now or hereafter existing by agreement, applicable law or in
equity. In addition to other remedies provided in this Lease, Landlord shall be
entitled, to the extent permitted by applicable law, to injunctive relief, or to
a decree compelling performance of any of the covenants, agreements, conditions
or provisions of this Lease, or to any other remedy allowed to
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Landlord at law or in equity. Forbearance by Landlord to enforce one or more of
the remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default.
E. This Article XXIII shall be enforceable to the maximum extent such
enforcement is not prohibited by applicable law, and the unenforceability of any
portion thereof shall not thereby render unenforceable any other portion.
F. If Tenant provides written notice to Landlord of an event or
circumstance which requires the action of Landlord with respect to repair and/or
maintenance and the continuation of which Is materially impairing Tenant's use
or enjoyment of the Premises or Common Areas, and Landlord fails to provide such
action within a reasonable period of time, given the circumstances, after the
receipt of such written notice, but In no event earlier than thirty 30 days
after receipt of such written notice, then Tenant may proceed to take the
required action three (3) days after the delivery of an additional written
notice to Landlord specifying that Tenant is taking such required action and, if
such action was required under the terms of this Lease to be taken by Landlord,
then Tenant shall be entitled to prompt reimbursement by Landlord for Tenant's
reasonable costs and expenses in taking such action (unless, pursuant to this
Lease, Tenant is solely responsible for the cost of such repair). If Landlord
fails to pay such amounts within 30 days after written demand, then Tenant shall
be entitled to deduct such amount from the Rent payable by Tenant under this
Lease, provided, however, if Landlord disputes Tenant's right to receive
reimbursement for the costs incurred by Tenant, Landlord shall have the right to
place the disputed amount in an escrow account with an independent third party
and to have the dispute between Landlord and Tenant resolved by appropriate
legal proceedings. Notwithstanding the foregoing, in no event shall Tenant be
entitled to (i) perform any work on any portion of the Building systems that
serve tenants or occupants of the Building other than or in addition to Tenant,
(ii) perform any work that affects the structure of the Building, or (iii)
perform any work that requires entry into another tenant's or occupant's
premises.
XXIV. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED IN THIS LEASE, THE LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR
LANDLORD HEREUNDER) TO TENANT SHALL BE LIMITED TO THE INTEREST OF LANDLORD IN
THE BUILDING, AND TENANT AGREES TO LOOK SOLELY TO LANDLORD'S INTEREST IN THE
BUILDING FOR THE RECOVERY OF ANY JUDGMENT OR AWARD AGAINST THE LANDLORD, IT
BEING INTENDED THAT LANDLORD SHALL NOT BE PERSONALLY LIABLE FOR ANY JUDGMENT OR
DEFICIENCY. TENANT
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HEREBY COVENANTS THAT, PRIOR TO THE FILING OF ANY SUIT FOR AN ALLEGED DEFAULT BY
LANDLORD HEREUNDER, IT SHALL GIVE LANDLORD AND ALL MORTGAGEES WHOM TENANT HAS
BEEN NOTIFIED HOLD MORTGAGES OR DEED OF TRUST LIENS ON THE PROPERTY, BUILDING OR
PREMISES NOTICE AND REASONABLE TIME TO CURE SUCH ALLEGED DEFAULT BY LANDLORD. IN
ADDITION, TENANT ACKNOWLEDGES THAT EQUITY OFFICE PROPERTIES, INC. IS ACTING
SOLELY IN ITS CAPACITY AS AGENT FOR LANDLORD AND SHALL NOT BE LIABLE FOR ANY
OBLIGATIONS, LIABILITIES, LOSSES OR DAMAGES ARISING OUT OF OR IN CONNECTION WITH
THIS LEASE, ALL OF WHICH ARE EXPRESSLY WAIVED BY TENANT.
XXV. NO WAIVER. Failure of Landlord or Tenant to declare any default immediately
upon its occurrence, or delay in taking an action in connection with an event of
default shall not constitute a waiver of such default, nor shall it constitute
an estoppel against Landlord or Tenant, but Landlord or Tenant shall have the
right to declare the default at any time and take such action as is lawful or
authorized under this Lease. Failure by Landlord or Tenant to enforce its rights
with respect to any one default shall not constitute a waiver of its rights with
respect to any subsequent default. Receipt by Landlord of Tenant's keys to the
Premises shall not constitute an acceptance or surrender of the Premises.
XXVI. EVENT OF BANKRUPTCY. In addition to, and in no way limiting the other
remedies set forth herein, Landlord and Tenant agree that if Tenant ever becomes
the subject of a voluntary or involuntary bankruptcy, reorganization,
composition, or other similar type proceeding under the federal bankruptcy laws,
as now enacted or hereinafter amended, then:
A. "Adequate protection" of Landlord's interest in the Premises
pursuant to the provisions of Section 361 and 363 (or their successor sections)
of the Bankruptcy Code, 11 U.S.C. Section 101 et seq., (such Bankruptcy Code as
amended from time to time being herein referred to as the "Bankruptcy Code"),
prior to assumption and/or assignment of the Lease by Tenant shall include, but
not be limited to all (or any part) of the following: the continued payment by
Tenant of the Base Rental and all other Rent due and owing hereunder and the
performance of all other covenants and obligations hereunder by Tenant;
B. "Adequate assurance of future performance" by Tenant and/or any
assignee of Tenant pursuant to Bankruptcy Code Section 365 will include (but not
be limited to) payment of an additional/new Security Deposit in the
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amount of two (2) times the then-current monthly Base Rental payable hereunder.
C. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed without further act or deed
to have assumed all of the obligations of Tenant arising under this Lease on and
after the effective date of such assignment. Any such assignee shall, upon
demand by Landlord, execute and deliver to Landlord an instrument confirming
such assumption of liability.
D. Notwithstanding anything in this Lease to the contrary, all amounts
payable by Tenant to or on behalf of the Landlord under this Lease, whether or
not expressly denominated as "Rent", shall constitute "rent" for the purposes of
Section 502(b) (6) of the Bankruptcy Code.
E. It this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other considerations
payable or otherwise to be delivered to Landlord (including Base Rentals and
other Rent hereunder), shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the bankruptcy estate of
Tenant. Any and all monies or other considerations constituting Landlord's
property under the preceding sentence not paid or delivered to Landlord shall be
held in trust by Tenant or Tenant's bankruptcy estate for the benefit of
Landlord and shall be promptly paid to or turned over to Landlord.
F. If Tenant assumes this Lease and proposes to assign the same
pursuant to the provisions of the Bankruptcy Code to any person or entity who
shall have made a bona fide offer to accept an assignment of this Lease on terms
acceptable to the Tenant, then notice of such proposed offer/assignment, setting
forth 1. the name and address of such person or entity, 2. all of the terms and
conditions of such offer, and 3. the adequate assurance to be provided Landlord
to assure such person's or entity's future performance under the Lease, shall be
given to Landlord by Tenant no later than twenty (20) days after receipt by
Tenant, but in any event no later than ten (10) days prior to the date that
Tenant shall make application to a court of competent jurisdiction for authority
and approval to enter into such assumption and assignment, and, unless such
transfer is to a Permitted Transferee, Landlord shall thereupon have the prior
right and option, to be exercised by notice to Tenant given at any time prior to
the effective date of such proposed assignment, to accept an assignment of this
Lease upon the same terms and conditions and for the same consideration, if any,
as the bona fide offer made by such persons or entity, less any brokerage
commission which may be payable out of the consideration
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to be paid by such person for the assignment of this Lease.
XXVII. QUIET ENJOYMENT. Tenant shall, and may peacefully have, hold, and enjoy
the Premises, subject to the other terms of this Lease (including. without
limitation, Article XXX hereof), provided that Tenant pays the Rent herein
recited to be paid by Tenant and performs all of Tenant's covenants and
agreements herein contained. This covenant and any and all other covenants of
Landlord shall be binding upon Landlord and its successors only during its or
their respective periods of ownership of the Landlord's Interest hereunder.
XXVIII. RELOCATION. INTENTIONALLY OMITTED.
XXIX. HOLDING OVER. In the event of holding over by Tenant after expiration or
other termination of this Lease or in the event Tenant continues to occupy the
Premises after the termination of Tenant's right of possession pursuant to
Articles XXII and XXIII hereof, occupancy of the Premises subsequent to such
termination or expiration shall be that of a tenancy at sufferance and in no
event from month-to-month or year-to-year, but Tenant shall, throughout the
entire holdover period, pay rent (on a per month basis without reduction for any
partial months during any such holdover) equal to 150% of the sum of the Base
Rental and Additional Base Rental due for the period immediately preceding such
holding over, provided that in no event shall Base Rental and Additional Base
Rental during the holdover period be less than the fair market rental for the
Premises. No holding over by Tenant or payments of money by Tenant to Landlord
after the expiration of the term of this Lease shall be construed to extend the
Lease Term or prevent Landlord from recovery of immediate possession of the
Premises by summary proceedings or otherwise. Tenant shall be liable to Landlord
for all damage, including any consequential damage, which Landlord may suffer by
reason of any holding over by Tenant, and Tenant shall indemnity Landlord
against any and all claims made by any other tenant or prospective tenant
against Landlord for delay by Landlord in delivering possession of the Premises
to such other tenant or prospective tenant. Notwithstanding the foregoing,
Tenant shall not be liable for consequential damages unless (1) Landlord
notifies Tenant that it has entered into a lease for the Premises or has
received a bona fide offer to lease the Premises, and (2) Tenant fails to vacate
the Premises within ten (10) days after the date of Landlord's notice.
XXX. SUBORDINATION TO MORTGAGES.
A. Tenant accepts this Lease subject and subordinate to any mortgage,
deed of trust, ground lease or other lien presently existing or
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hereafter arising upon the Premises, or upon the Building and/or the Park and to
any renewals, modifications, refinancings and extensions thereof (any such
mortgage, deed of trust, lease or other lien being hereinafter referred to as a
"Mortgage", and the person or entity having the benefit of same being referred
to hereinafter as a "Mortgagee'), but Tenant agrees that any such Mortgagee
shall have the right at any time to subordinate such Mortgage to this Lease on
such terms and subject to such conditions as such Mortgagee may deem appropriate
in its discretion. This clause shall be self-operative and no further instrument
of subordination shall be required. However, Landlord is hereby irrevocably
vested with full power and authority to subordinate this Lease to any Mortgage,
and Tenant agrees upon demand to execute such further instruments subordinating
this Lease, acknowledging the subordination of this Lease or attorning to the
holder of any such Mortgage as Landlord may request. The terms of this Lease are
subject to approval by the Landlord's existing lender(s) and any lender(s) who,
at the time of the execution of this Lease, have committed or are considering
committing to Landlord to make a loan secured by all or any portion of the Park,
and such approval is a condition precedent to Landlord's obligations hereunder.
If any person shall succeed to all or part of Landlord's interests in the
Premises whether by purchase, foreclosure, deed in lieu of foreclosure, power of
sale, termination of lease or otherwise, and if and as so requested or required
by such successor-in-interest, Tenant shall, without charge, attorn to such
successor-in-interest if and so long as such successors) agree(s) that Tenant's
possession of the Premises and this Lease, including any options to extend the
term hereof, any rights of first offer and rights of first refusal, and any
other options hereunder, will not be disturbed so long as Tenant is not In
default hereunder (subject to any applicable notice and cure periods). Tenant
and Landlord each agree that it will from time to time upon request by the other
and, within fifteen (15) days of the date of such request, execute and deliver
to such persons as the requesting party shall request an estoppel certificate or
other similar statement in recordable form certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as so modified), stating the dates to
which Rent and other charges payable under this Lease have been paid, stating
that the requesting party is not in default hereunder (or if the requesting
party alleges a default stating the nature of such alleged default) and further
stating such other matters as the requesting party shall reasonably require.
B. Notwithstanding the foregoing to the contrary, this Lease is
contingent upon Landlord providing Tenant with a fully executed non-disturbance,
attornment, estoppel and subordination agreement from Landlord's current
Mortgagee on the form attached hereto as Exhibit I (the
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"Non-disturbance Agreement") within ten (10) business days after the full and
final execution of this Lease by Landlord and Tenant. Tenant shall execute the
Non-disturbance Agreement upon receipt from Landlord and shall return the same
to Landlord for execution by Landlord's Mortgagee. In the event that Landlord
fails to provide Tenant with the Non-Disturbance Agreement within such ten (10)
business day period, Tenant, as its sole remedy, shall have the right to
terminate this Lease by written notice to Landlord within ten (10) days after
the expiration of such ten (10) day period. Notwithstanding anything herein to
the contrary, Landlord shall also be required to provide Tenant with a
non-disturbance, subordination and attornment agreement in favor of Tenant from
any Mortgagee who comes into existence after the Commencement Date. Such
non-disturbance, subordination and attornment agreement in favor of Tenant shall
provide that, so long as Tenant is paying the Rent due under this Lease and is
not otherwise in default under the Lease, its right to possession and other
terms of the Lease shall remain in full force and effect. Such non-disturbance,
subordination and attornment agreement may include additional time on behalf of
the Mortgagee to cure defaults of the Landlord and provide that a) neither
Mortgagee nor any successor in interest shall be bound by (i) any payment of
Base Rental, Additional Base Rental or other sum due hereunder for more than one
(1) month in advance, or (ii) any amendment or modification of this Lease made
without the express written consent of Mortgagee or any successor in interest;
b) neither Mortgagee nor any successor in interest will be liable for (i) any
act or omission or warranties of any prior landlord (including Landlord), except
with regard to any continuing default of which Tenant has provided Mortgagee
with written notice and a reasonable opportunity to cure after the date on which
Mortgagee takes title to the Building, or (ii) the breach of any warranties or
obligations relating to construction of improvements on the Property or any
tenant finish work performed or to have been performed by any prior landlord
(including Landlord), provided that in the event Mortgagee, after notice and a
reasonable opportunity to perform, fails to perform any tenant finish work
required to be performed under this Lease with respect to Offering Space A,
Offering Space B or any Refusal Space, Tenant shall have the right to perform
such work and to offset the reasonable cost thereof against Rent, or (iii) the
return of any security deposit, except to the extent such deposits have been
received by Mortgagee; c) neither Mortgagee nor any successor in interest shall
be subject to any offsets or defenses which Tenant might have against any prior
landlord (including Landlord). Notwithstanding the foregoing, Landlord shall use
reasonable efforts to attempt to cause any Mortgagee to delete, prior to
execution by Tenant and the Mortgagee, any provision of the Mortgagees
non-disturbance, subordination and attornment agreement with Tenant that
requires Tenant to waive any offsets or defenses which Tenant might have against
any prior
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landlord.
XXXI. ATTORNEY'S FEES. In the event that Landlord should retain counsel and/or
institute any suit against Tenant for violation of or to enforce any of the
covenants or conditions of this Lease, or should Tenant institute any suit
against Landlord for violation of any of the covenants or conditions of this
Lease, or should either party intervene in any suit in which the other is a
party to enforce or protect its interest or rights hereunder, the prevailing
party in any such suit shall be entitled to all of its costs, expenses and
reasonable fees of its attorneys) (if and to the extent permitted by law) in
connection therewith.
XXXII. NOTICE. Whenever any demand, request, approval, consent or notice
("Notice") shall or may be given to either of the parties by the other, each
such Notice shall be in writing and shall be sent by registered or certified
mail with return receipt requested, or sent by overnight courier service (such
as Federal Express) at the respective addresses of the parties for notices as
set forth in Section I.A.6. of this Lease, provided that if Tenant has vacated
the Premises or is in default of this Lease Landlord may serve Notice by any
manner permitted by Law so long as such notice is delivered in such manner
permitted by law (1) to the Irvine address set forth in Section I.A.6 (or any
substitute for such address of which Tenant has notified Landlord in writing) in
all events and (2) also to the Premises unless Tenant has vacated the Premises.
Any Notice under this Lease delivered by registered or certified mail shall be
deemed to have been given and effective on the earlier of (a) the third day
following the day on which the same shall have been mailed with sufficient
postage prepaid or (b) the delivery date indicated on the return receipt. Notice
sent by overnight courier service shall be deemed given and effective upon the
day after such notice is delivered to or picked up by the overnight courier
service. Either party may, at any time, change its Notice Address by giving the
other party Notice stating the change and setting forth the new address.
XXXIII. Intentionally Omitted.
XXXIV. EXCEPTED RIGHTS. This Lease does not grant any rights to light or air
over or about the Building. Landlord specifically excepts and reserves to itself
the use of any roofs, the exterior portions of the Premises, all rights to and
the land and improvements below the improved floor level of the Premises, the
improvements and air rights above the Premises and the improvements and air
rights located outside the demising walls of the Premises, and such areas within
the Premises as are required for installation of utility lines and other
installations required to serve any occupants of the Building and the right to
maintain and repair the same, and no rights with respect thereto are conferred
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upon Tenant unless otherwise specifically provided herein. Landlord further
reserves to itself the right from time to time, after notice to Tenant as
required under this Lease or as otherwise reasonable under the circumstances and
subject to any abatement rights granted to Tenant in this Lease: A. to change
the Building's name or street address; B. to install, fix and maintain signs on
the exterior and interior of the Building; C. to designate and approve window
coverings; D. to make any decorations, alterations, additions, improvements to
the Building, or any part thereof (including the Premises) which Landlord shall
desire, or deem necessary for the safety, protection, preservation or
improvement of the Building, or as Landlord may be required to do by law; E. to
have access to the Premises to perform its duties and obligations and to
exercise its rights under this Lease; F. to retain at all times and to use
pass-keys to all locks within and into the Premises, except to the Secured Ares
(as defined in Paragraph XII of this Lease); G. to approve the weight, size or
location of heavy equipment, articles in and about the Premises; H. to close or
restrict access to the Building at all times other than Normal Business Hours
subject to Tenant's right to admittance at all times under such regulations as
Landlord may prescribe from time to time, or to close (temporarily or
permanently) any of the entrances to the Building; 1. to change the arrangement
and/or location of entrances of passageways, doors and doorways, corridors,
elevators, stairs, toilets and public parts of the Building; and J. to grant to
anyone the exclusive right to conduct any business or undertaking in the
Building, subject to the Tenant's right to continue to use the Premises for the
purposes for which Tenant is entitled to use the Premises. Landlord, in
accordance with Article XII hereof, shall have the right to enter the Premises
in connection with the exercise of any of the rights set forth herein and such
entry into the Premises and the performance of any work therein shall not
constitute a constructive eviction or entitle Tenant to any abatement or
reduction of Rent by reason thereof, except as otherwise provided in this Lease
to the contrary.
XXXV. SURRENDER OF PREMISES. At the expiration or earlier termination of this
Lease or Tenant's right of possession hereunder, Tenant shall quit and surrender
the Premises to Landlord, broom clean, and in good order, condition and repair,
ordinary wear and tear and damage from casualty or condemnation excepted. If
Tenant fails to remove any of Tenant's Property within three (3) days after the
termination of this Lease or Tenant's right to possession hereunder, Landlord
may, without notice to Tenant, remove and/or store such Tenant's Property at the
risk, cost and expense of Tenant and Landlord shall in no event be responsible
for the value, preservation or safekeeping thereof. Tenant shall pay Landlord,
upon demand, any and all expenses caused by such removal and all storage charges
against such property so long as the
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same shall be in the possession of Landlord or under the control of Landlord. In
addition, if Tenant fails to remove any of its Tenant's Property within thirty
(30) days after the termination of this Lease of Tenant's right to possession,
such Tenant's Property, at the option of Landlord, shall be conclusively
presumed to have been abandoned by Tenant and title to such items shall pass to
Landlord.
XXXVI. MISCELLANEOUS.
A. If any term or provision of this Lease, or the application thereof
to any person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and enforced to the fullest extent permitted by law.
B. Tenant agrees not to record this Lease or any memorandum hereof
without Landlord's prior written consent.
C. This Lease and the rights and obligations of the parties hereto
shall be interpreted, construed, and enforced in accordance with the laws of the
state in which the Building is located.
D. Events of "Force Majeure" shall include strikes, riots, acts of God,
shortages of labor or materials, war, governmental law, regulations or
restrictions and any other cause whatsoever that is beyond the control of
Landlord. Whenever a period of time is herein prescribed for the taking of any
action by Landlord or Tenant, Landlord or Tenant, as applicable, shall not be
liable or responsible for, and there shall be excluded from the computation of
such period of time, any delays due to events of Force Majeure.
E. Landlord shall have the right to transfer and assign, in whole or in
part, all of its rights and obligations hereunder and in the Building and Park
referred to herein, and in such event and upon such transfer (and the assumption
of Landlord's obligations by such transferee) Landlord shall be released from
any further obligations hereunder, except for liabilities which accrued prior to
such transfer, and Tenant agrees to look solely to such successor in interest of
Landlord for the performance of such obligations.
F. Tenant hereby represents to Landlord that it has dealt directly with
and only with the Broker as a broker in connection with this Lease. Tenant
agrees to indemnify and hold Landlord and the Landlord Related Parties
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harmless from all claims of any brokers claiming to have represented Tenant in
connection with this Lease.
G. If there is more that one Tenant, or if the Tenant is comprised of
more that one person or entity, the obligations hereunder imposed upon Tenant
shall be joint and several obligations of all such parties. All notices,
payments, and agreements given or made by, with or to any one of such persons or
entities shall be deemed to have been given or made by, with or to all of them.
H. In the event Tenant is a corporation (including any form of
professional association), partnership (general or limited), or other form of
organization other than an individual, then each individual executing or
attesting this Lease on behalf of Tenant hereby covenants, warrants and
represents: 1. that such individual is duly authorized to execute or attest and
deliver this Lease on behalf of Tenant in accordance with the organizational
documents of Tenant; 2. that this Lease is binding upon Tenant; 3. that Tenant
is duly organized and legally existing in the state of its organization, and is
qualified to do business in the state in which the Premises is located; 4. that
upon request, Tenant will provide Landlord with true and correct copies of all
organizational documents of Tenant, and any amendments thereto; and 5. that the
execution and delivery of this Lease by Tenant will not result in any breach of,
or constitute a default under any mortgage, deed of trust, lease, loan, credit
agreement, partnership agreement or other contract or instrument to which Tenant
is a party or by which Tenant may be bound. If Tenant is a corporation, Tenant
will, within ten (10) Business Days after the later of (i) request therefor by
Landlord, or (ii) the date this Lease is executed by Landlord and Tenant,
deliver to Landlord a copy of a resolution of Tenant's board of directors
authorizing or ratifying the execution and delivery of this Lease, which
resolution will be duly certified to Landlord's satisfaction by the secretary or
assistant secretary of Tenant.
I. Tenant acknowledges that the financial capability of Tenant to
perform its obligations hereunder is material to Landlord and that Landlord
would not enter into this Lease but for its belief, based on its review of
Tenant's financial statements, that Tenant is capable of performing such
financial obligations. Tenant hereby represents, warrants and certifies to
Landlord that its financial statements previously furnished to Landlord were at
the time given true and correct in all material respects and that there have
been no material subsequent changes thereto as of the date of this Lease. At any
time during the Lease Term, Tenant shall provide Landlord, upon forty-five (45)
days' prior written notice from Landlord, with a current consolidated financial
statement
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and financial statements of the two (2) years prior to the current financial
statement year. Such statement shall be prepared in accordance with generally
accepted accounting principles (or, in the case of any Japanese or other foreign
entity, in accordance with the Japanese or other foreign accounting standards
applicable to such entity) and, if such is the normal practice of Tenant, shall
be audited by an independent certified public accountant.
J. Except as expressly otherwise herein provided, with respect to all
required acts of Tenant, time is of the essence of this Lease. This Lease shall
create the relationship of Landlord and Tenant between the parties hereto, and
no estate shall pass out of Landlord. Tenant has only a usufruct, not subject to
purchase or sale, which may not be assigned by Tenant except as expressly
provided in this Lease.
K. This Lease and the covenants and conditions herein contained shall
inure to the benefit of and be binding upon Landlord and Tenant and their
respective permitted successors and assigns.
L. Notwithstanding anything to the contrary contained in this Lease,
the expiration of the Lease Term, whether by lapse of time or otherwise, shall
not relieve Tenant from Tenant's obligations accruing prior to the expiration of
the Lease Term.
M. The headings and titles to the paragraphs of this Lease are for
convenience only and shall have no effect upon the construction or
interpretation of any part hereof.
N. Landlord has delivered a copy of this Lease to Tenant for Tenant's
review only, and the delivery hereof does not constitute an offer to Tenant or
option. This Lease shall not be effective until an original of this Lease
executed by both Landlord and Tenant and an original Guaranty, if any, executed
by each Guarantor Is delivered to and accepted by Landlord, and this Lease has
been approved by Landlord's Mortgagees, if required.
XXXVII. ENTIRE AGREEMENT. This Lease Agreement, including the following
Exhibits:
EXHIBIT A-1 - Legal Description of Park
EXHIBIT A-2 - Outline of Premises
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EXHIBIT B-1 - Schedule of Base Rental
EXHIBIT C - Work Letter Agreement (if required)
EXHIBIT D - Rules and Regulations
EXHIBIT E - Additional Terms
EXHIBIT F - Expansion Rights
EXHIBIT G - Guaranty
EXHIBIT H - Cleaning and Janitorial Specifications
EXHIBIT I - Subordination, Attornment and Non-Disturbance Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter of this Lease. TENANT EXPRESSLY ACKNOWLEDGES AND AGREES THAT
LANDLORD HAS NOT MADE AND IS NOT MAKING, AND TENANT, IN EXECUTING AND DELIVERING
THIS LEASE, IS NOT RELYING UPON, ANY WARRANTIES, REPRESENTATIONS, PROMISES OR
STATEMENTS, EXCEPT TO THE EXTENT THAT THE SAME ARE EXPRESSLY SET FORTH IN THIS
LEASE. ALL UNDERSTANDINGS AND AGREEMENTS HERETOFORE MADE BETWEEN THE PARTIES ARE
MERGED IN THIS LEASE WHICH ALONE FULLY AND COMPLETELY EXPRESSES THE AGREEMENT OF
THE PARTIES, NEITHER PARTY RELYING UPON ANY STATEMENT OR REPRESENTATION NOT
EMBODIED IN THIS LEASE. THIS LEASE MAY BE MODIFIED ONLY BY A WRITTEN AGREEMENT
SIGNED BY LANDLORD AND TENANT. LANDLORD AND TENANT EXPRESSLY AGREE THAT THERE
ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY,
SUITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT
OF THIS LEASE, ALL OF WHICH ARE HEREBY WAIVED BY TENANT, AND THAT THERE ARE NO
WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease in
multiple original counterparts as of the day and year first above written.
ATTEST: /s/ Eric Marx LANDLORD: SENTRY WEST JOINT
VENTURE, an Illinois joint venture
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Name (print): Eric Marx BY: EQUITY OFFICE PROPERTIES, INC.,
as agent
By: /s/ Michael Sheinkop
------------------------------------------
Name (print):
Name: /s/ Michael Sheinkop
----------------------------------------
Title: Vice President
---------------------------------------
TENANT: INSTITUTE FOR BIOLOGICAL RESEARCH
AND DEVELOPMENT, a Delaware Corporation
ATTEST: /s/ Grace R. Davis
By: /s/ Thomas B. Semler
-----------------------------------------
Name (print): Grace R. Davis Name: /s/ Thomas Semler
----------------- ---------------------------------------
/s/ Dorothy Soteriou Title: Executive Vice President and CFO
--------------------------------------
Name (print) Dorothy Soteriou
-----------------
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FIRST AMENDMENT
This First Amendment (the "Amendment") is made and entered
into as of the day of 1994, by and between SENTRY WEST JOINT VENTURE, an
Illinois joint venture ("Landlord") by its agent, Equity Office Properties, Inc.
and INSTITUTE FOR BIOLOGICAL RESEARCH AND DEVELOPMENT, a Delaware corporation
("Tenant").
WITNESSETH
A. WHEREAS, Landlord and Tenant are parties to that certain
lease dated the 1st day of February, 1994, currently containing approximately
11,032 rentable square feet of space described as Suite No. 100 on the first
floor ("Original Premises") of the building commonly known as Gwynedd Hall -
Sentry Park West, and the address of which is 1777 Sentry Parkway West, Blue
Bell, Montgomery County, State of Pennsylvania (the "Building"), which lease has
not been previously amended or assigned (the "Lease"); and
B. WHEREAS, Tenant desires to lease additional space
consisting of approximately 10,540 rentable square feet on the first floor of
the Building (the "Expansion Space"), as shown on Schedule 1 to Exhibit F of the
Lease as Offering Space A and Offering Space B (the Original Premises and
Expansion Space are sometimes collectively referred to as the "Premises"), and
Landlord is willing to do the same on the terms and conditions set forth below;
C. WHEREAS, the Lease by its terms shall expire on February
28, 1998 ("Prior Termination Date"), and the parties desire to extend the Lease,
all an the term and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant
agree as follows:
I. EXPANSION. Effective December 1, 1994 ("Expansion Effective
Date"), the Premises is increased from 11,032 rentable square foot on the first
floor to 21,572 rentable square feet on the first floor by the addition of the
Expansion Space. The lease term for the Expansion Space shall commence on the
Expansion Effective Date and end on the Extended Termination Date (as
hereinafter defined). The Expansion Space is subject to all the terms and
conditions of the Lease except as expressly modified herein and except that
Tenant shall not be entitled to receive any allowances, abatements or other
financial concessions granted with respect to the Original Premises unless such
concessions are expressly provided for herein with respect to the Expansion
Space.
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II. EXTENSION. The Lease Term is hereby modified from
forty-eight (48) months and seven (7) days expiring on February 26, 1996 ("Prior
Termination Date") to seventy-eight (78) months and seven (7) days ("Extended
Lease Term") expiring on August 31, 2000 ("Extended Termination Date"), unless
sooner terminated in accordance with the terms of the Lease. That portion of the
Lease Term commencing the day immediately following the Prior Termination Date
("Extension Date") and ending on the Extended Termination Date should be
referred to herein as the "Extended Term."
III. MONTHLY BASE RENTAL. Section A of Exhibit B-1 to the
Lease (Schedule of Base Rental) is hereby deleted in its entirety and replaced
with the following Section A:
"Tenant shall pay Landlord the sum of One Million
Eight Hundred Eighty-Four Thousand Sixty-Nine and
52/100's Dollars ($1,884,069.52) as Base Rental for
the Lease Term in monthly installments as follow:
1. One (1) installment in the amount of
$2,930.41 for the period beginning February
22, 1994 and ending February 28, 1994.
2. Nine (9) equal monthly installments of
$11,721.50 each payable on or before the
first day of each month during the period
beginning March 1, 1994 and ending November
30, 1994.
3. Fifteen (15) equal monthly installments of
$22,920.25 each payable on or before the
first day of each month during the period
beginning October 1, 1994 and ending
February 29, 1996.
4. Fifty-four (54) equal monthly installments
of $26,515.59 each payable on or before the
first day of each month during the period
beginning March 1, 1996 and ending August
31, 2000."
IV. TENANT'S PRO RATA SHARE. For the period commencing with
the Expansion Effective Date and ending on the Extended Termination Date,
Tenant's Pro Rata Share for the Premises (inclusive of the Expansion Space)
shall be 9.987%, it being agreed that Tenant shall pay for Tenant's Pro Rate
Share of Basic Costs for the Expansion Space in accordance with the terms and
conditions of Exhibit B-2 to the Lease, including, without limitation, a 1994
Base Year.
V. IMPROVEMENTS TO EXPANSION SPACE. Landlord shall perform
Landlord Work in the Expansion Space in accordance with the terms and conditions
of Exhibit C to the Lease, including without limitation, the Plans described in
Exhibit C to the Lease (to the extent applicable to the Expansion Space).
Landlord agrees to proceed in good faith to complete the
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Landlord Work in the Expansion Space within a reasonable time following the
execution of this Amendment. Notwithstanding the foregoing, the Expansion
Effective Date and, accordingly, Tenant's obligation to pay Base Rental and
Additional Base Rental for the Expansion Space shall not be postponed as a
result of Landlord's failure to complete the Landlord Work by the Expansion
Effective Date, it being agreed that the Base Rental Abatement set forth in
Article VI.1 hereof is intended to compensate Tenant for any such delays.
Notwithstanding the foregoing, if the Landlord Work in the Expansion Space is
not substantially completed on or before eighty-four (84) days after the date on
which a copy of this Amendment, executed by Tenant, is delivered to Landlord
(the "Inside Completion Date"), Tenant, as its sole remedy, shall be entitled to
receive a credit against Base Rental in the amount of $368.18 per day for each
day in the period beginning on the Inside Completion Date and ending on the
earlier to occur at (x) the day prior to the date on which the Landlord Work in
the Expansion Space is substantially completed and (y) the day prior to the date
the Landlord Work in the Expansion Space would have been substantially completed
absent any Delays by Tenant and events of Force Majeure. Such Rent credit shall
be applied against Base Rental beginning on June 1, 1995 and shall continue from
day to day thereafter until Tenant has received the full value of the Rent
credit provided herein. In addition, if the Landlord Work in the Expansion Space
is not substantially completed by one hundred eighty (180) days after the date
on which a copy of this Amendment, executed by Tenant, is delivered to Landlord,
as such date shall be extended on a day by day basis by the number of days of
delay resulting from Tenant Delays and events of Force Majeure (the "Outside
Completion Date"), then Tenant, as its sole remedy, shall be entitled to
terminate this Lease with respect to the Expansion Space only by providing
written notice of termination to Landlord by the later to occur of five (5) days
after the Outside Completion Date, as the same may be extended, or the date on
which Landlord Work in the Expansion Space is substantially completed.
Notwithstanding the foregoing, if Landlord determines that it will be unable to
substantially complete the Landlord Work in the Expansion Space by the Outside
Completion Date, Landlord shall have the right to provide Tenant with written
notice (the "Outside Extension Notice") of such inability, which Outside
Extension Notice shall set forth the date on which Landlord reasonably believes
that it will be able to substantially complete the Landlord Work. Upon receipt
of to Outside Extension Notice, Tenant shall have the right to terminate this
Lease with respect to the Expansion Space only by providing written notice of
termination to Landlord within five (5) days after the date of the Outside
Extension Notice. In the event that Tenant does not terminate this Lease with
respect to the Expansion Space within such five (5) day period, the Outside
Completion Date shall automatically be amended to be the date set forth in
Landlord's Outside Extension Notice, as such date may thereafter be extended in
accordance the terms hereof.
VI. OTHER PERTINENT PROVISIONS. Landlord and Tenant agree that
this Lease shall be amended in the following additional respects:
1. BASE RENTAL ABATEMENT. Notwithstanding Article III
above to the contrary, as long as Tenant shall be
entitled to an abatement of Base Rental in the amount
of $11,196.75 per month for six (6) consecutive full
calendar months period beginning December 1,
3
<PAGE>
1994 and ending May 31, 1995 (the "Base Rental
Abatement Period"). The total amount of Base Rental
abated during the Base Rental Abatement Period shall
equal Sixty-Seven Thousand One Hundred Ninety-Two and
50/100 Dollars ($67,192.50) (the "Abated Base
Rental"). In the event Tenant defaults at any time
during the Lease Term, all Abated Base Rental shall
immediately become due and payable. The payment by
Tenant of the Abated Base Rental in the event of a
default shall not limit or effect any of the
Landlord's other rights, pursuant to this Lease or at
law or in equity. During the Base Rental Abatement
Period, only Base Rental shall be abated and all
Additional Base Rental and other costs and charges
specified in this Lease shall remain as due and
payable pursuant to the provisions of this Lease.
2. Paragraph 2 of Exhibit F, Right of First
Offering/Refusal, is hereby deleted in its entirety
and rendered null and void and of no further force
and effect.
3. Promptly following the execution and delivery of
this First Amendment by Tenant and Landlord, Landlord
will use reasonable efforts to cause its existing
mortgagee to enter into an amendment to the existing
non-disturbance, subordination and attornment
agreement between Tenant and such mortgagee, which
amendment shall extend the scope of such
non-disturbance, subordination and attornment
agreement to include the Expansion Space. "Reasonable
efforts" of Landlord shall not require Landlord to
incur any cost, expense or liability to obtain such
agreement. It being agreed that Tenant shall be
responsible for any fee or review costs charged by
the mortgagee. Upon request of Landlord, Tenant will
execute the mortgagee's form of non-disturbance,
subordination and attornment agreement and return the
same to Landlord for execution by the mortgagee.
Landlord's failure to obtain a non-disturbance,
subordination and attornment agreement for Tenant
shall have not effect on the rights, obligations and
liabilities of Landlord and Tenant or be considered
to be a default by Landlord hereunder.
VII. MISCELLANEOUS.
A. This Amendment sets forth the entire agreement
between the parties with respect to the matters set
forth herein. There have been no additional oral or
written representations or
4
<PAGE>
agreements. Under no circumstances shall Tenant be
entitled to any Rent abatement, improvement
allowance, leasehold improvements, or other work to
the Premises, or any similar economic incentives that
may have been provided Tenant in connection with
entering into the Lease, unless specifically set
forth in this Amendment.
B. Except as herein modified or amended, the
provisions, conditions and terms of the Lease shall
remain unchanged and in full force and affect.
C. In the case of any inconsistency between the
provisions of the Lease and this Amendment the
provisions of this Amendment shall govern and
control. Under no circumstances shall this Amendment
be deemed to grant Tenant any further right to expand
the Premises or extend the Lease, provided, however,
any such additional rights specifically provided
Tenant in the Lease are not hereby relinquished or
waived.
D. Submission of this Amendment is not an offer to
enter into this Amendment but rather a solicitation
for such an offer by Tenant. Landlord shall not be
bound by this Amendment until Landlord has executed
and delivered the same to Tenant.
E. The capitalized terms used in this Amendment shall
have the same definitions as set forth in the Lease
to the extent that such capitalized terms are defined
therein and not redefined in this Amendment.
F. Tenant hereby represents to Landlord that Tenant
has dealt with Grubb & Ellis in connection with this
Amendment. Tenant agrees to indemnify and hold
Landlord and the Landlord Related Parties harmless
from all claims of any other brokers claiming to have
represented Tenant in connection with this Amendment.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed
this Amendment as of the day and year first above
written.
WITNESS; ATTESTATION LANDLORD:
5
<PAGE>
SENTRY WEST JOINT VENTURE,
an Illinois joint venture
By: EQUITY OFFICE PROPERTIES, INC.,
as agent
- ------------------- By: /s/ Michael Sheinkop
------------------------------------------
- ------------------- Name: Michael Sheinkop
Title: Vice-President, Asset Management
TENANT:
INSTITUTE FOR BIOLOGICAL RESEARCH
AND DEVELOPMENT, a Delaware corporation
/s/ Grace Davis
- ------------------- By: /s/ Thomas B. Semler
Executive Secretary Name: Thomas B. Semler
- -------------------
Title: Executive Vice-President and Chief
Financial Officer
6
<PAGE>
Exhibit 10.14
October 22, 1993
Phoenix International Life Sciences Inc.
Dear Sirs:
Notwithstanding the terms and conditions of the Offer and Amendment to Lease to
ensue and more particularly the Article entitled "Entire Agreement" the
following modifications and/or option shall be granted to Tenant upon the terms
and conditions therein contained:
(A) Article 50 of the existing Lease executed between the parties hereto on
the 28th day of February 1989 shall be modified by the deletion of the
last four (4) paragraphs thereof and by the inclusion of the following
paragraphs at the end of the said Article:
"Notwithstanding anything herein contained to the contrary, the present
right of first refusal shall not apply to one sale by the Landlord during
the first year of the term.
Furthermore, the present Article shall not apply and there shall be no
right of first refusal in the following circumstances:
i) the offer to purchase or lease from the third party involves
the purchase and/or sale and/or lease of one or more other
properties of the Landlord; and/or
ii) there is a sale or purchase or lease of the Property to any
of Landlord's affiliates or subsidiaries or related companies
or to any existing partners of Landlord; and/or
iii) there is any transfer/roll-over of the Property for income
tax or corporate reorganization purposes.
iv) the sale of the shares of the company or companies owning the
Property."
In the event that any person other than the Landlord acquires the Property under
conditions such that the Tenant is not permitted to exercise its right of first
refusal (such person being hereinafter referred to as the "Exempt Purchaser")
then such person shall be required to enter into an agreement directly with the
Tenant in registrable form providing that the exempt Person agrees to abide by
the terms of the right of first refusal.
(B) Provided Tenant pays the Minimum Net Net Rental and all other
amounts payable in virtue of the Lease and Amendment to Lease and
has fulfilled all the terms and conditions of the Lease and
Amendment to Lease, then Tenant shall have a one-time option to
purchase the lands and building upon which the Leased Premises are
situate (including the Parking Lot as defined in the Offer and
Amendment to Lease) (the "Property") at any
<PAGE>
time after the expiry of the first year of the Term and up to the
expiry of the fifth year of the term ("Option to Purchase"), the
whole subject to the conditions, hereunder enumerated:
a) The Tenant shall advise the Landlord in writing four (4) months in
advance that it intends to purchase the Property upon the terms
and conditions set out hereinbelow on a date specified (the
"Closing Date") in default whereof, the present Option to Purchase
shall be deemed to be null and void and/or to have expired by
lapse of time. It is understood and agreed that the notification
for the exercise of the option may be sent by Tenant at the
earliest after the expiration of the first four (4) months of the
Term of the Amendment to Lease and at the latest, before the
expiry of the first four (4) years and eight (8) months of the
Term of the Amendment to Loan.
b) The purchase price of the Property shall be to product obtained by
i) multiplying the sum of six million four hundred thousand
dollars ($6,400,000.00) by a fraction, the numerator of
which is the Consumer Price Index for the City of Montreal,
All Items (the "CPI") for the month in which the Closing
Date is scheduled and this denominator of which is the CPI
for the month of May 1993, and by
ii) adding thereto the applicable factor based on the
Deficiencies described in Schedule "Z" annexed hereto and
entitled "Compensation for cash flow deficiency" calculated
as follows: the difference, between the Deficiency with
respect to the year in which the Closing Date occurs and
the Deficiency for the year prior thereto shall be
pro-rated based on the applicable month during which the
Closing Date occurs and such pro-rata portion shall be
added to the Deficiency for the year prior to that in which
the Closing Date occurs to after that will be added to the
price otherwise determined. By way of example, if the
Closing Date occurs after two years and seven months of the
term have elapsed then the factor shall equal ($244,431 -
$214,723) x 7/12 + $214,723.
c) In the event the Tenant has so exercised its Option to Purchase in
the manner hereinabove described, the Landlord and Tenant shall
sign the deed of sale before the notarial firm chosen by Tenant
out of three notarial firms designated by Landlord on the Closing
Date and Tenant shall assume all notarial costs incurred with
respect thereto, such deed of sale to include all terms and
conditions herein agreed as well as the usual terms and conditions
of a deed of sale, in default whereof the present Option to
Purchase shall, at Landlord's sole discretion be deemed to be null
and void and/or to have expired by the lapse of time.
Notwithstanding anything heretofore contained, the Option to Purchase shall, at
no time be interpreted as restricting the absolute right of Landlord to sell,
lease, alienate, transfer or
<PAGE>
exchange the Property, in whole or in part, at any time to any person, moral or
corporate, during the Term of the Lease or extension thereof, provided it has
compiled with the of Article 50 of the existing Lease as amended herein and has
required the third party acquireror to respect the present Option to Purchase.
The present is conditional upon the signing of the Offer and subsequent
Amendment to Lease.
The parties hereby confirm having requested that the present document be drafted
in the English language. Les parties certifient avoir exige qua les presentes
soient redigees en langue anglaise.
Your truly,
BELCOURT INC.
/s/ Joseph Zunenshine
- ---------------------------------
Joseph Zunenshine
Director of Leasing AYD:012
We, the undersigned, acknowledge having read the foregoing letter and accept the
terms and conditions contained therein.
SIGNED at __________________________ this day of ________________, 1993.
PHOENIX INTERNATIONAL LIFE SCIENCES INC
Per:
--------------------------------
<PAGE>
SCHEDULE "Z"
COMPENSATION FOR CASH FLOW DEFICIENCY
<TABLE>
<S> <C>
Year 1: $ 187,830
Year 2: $ 214,723
Year 3: $ 244,431
Year 4: $ 277,250
Year 5: $ 313,506
</TABLE>
<PAGE>
MEMORANDUM OF AGREEMENT
BETWEEN: BELCOURT INC., a body politic and corporate, duly incorporated, having
its head office and principal place of business at 7405 Trans Canada
Highway, St. Laurent, Quebec, H4T 1Z2, herein acting and represented
by JOSEPH ZUNENSHINE and A. YVONNE DAIGLE duly authorized,
AND: LES INVESTISSEMENTS RENARY INC., a body politic and corporate, duly
incorporated, having its head office and principal place of business
at 7405 Trans Canada Highway, St. Laurent, Quebec, H4T IZ2, herein
acting and represented by JOSEPH ZUNENSHINE, duly authorized,
(hereinafter jointly the "Landlord")
PARTY OF THE FIRST PART
AND: PHOENIX INTERNATIONAL LIFE SCIENCES INC., a body politic and
corporate, duly incorporated, having a place of business in the
district of Montreal, Province of Quebec, herein acting through and
represented by its hereunto duly authorized as he declares,
(hereinafter the "Tenant")
PARTY OF THE SECOND PART
WHEREAS by a lease entered into between the Landlord and the Tenant on the
28th day of February 1989 (hereinafter the "Lease") the Landlord agreed to lease
to the Tenant that certain thirty-three thousand three hundred thirty-one
(33,331) square feet situated on the ground floor of the building of which the
leased premises form part bearing civic number 2330 Cohen, St. Laurent, Quebec
and being part of the building erected upon that certain parcel of land more
specifically described in Schedule "B" attached hereto and initialed by the
parties for identification to form an integral part of the Lease, for a term
expiring on the last day of June 2004. The Building is situated upon the land
described in the attached Schedule "B";
WHEREAS by a Memorandum of Agreement entered into on the 1st day of January
1990, the Landlord agreed to lease to the Tenant an additional space situated on
the ground floor, of three thousand eight hundred forty-eight (3,848) square
feet, bringing the total area of the premises to thirty-seven thousand one
hundred and seventy-nine (37,179) square feet (hereinafter the "Original
Premises"), for a term expiring on the last day of June 2004:
WHEREAS Tenant offers to lease from Landlord additional space situated on
the ground floor and mezzanine level of the building, having an area of
approximately thirty-four thousand four hundred and ninety-six (34,496) square
feet (hereinafter the "Additional Premises");
<PAGE>
WHEREAS Landlord accepts to lease to Tenant the aforesaid additional space
on the conditions stipulated hereunder and consequently, the total area of the
Leased Premises shall be seventy-one thousand six hundred and seventy-five
(71,675) square feet which represents the entire building (hereinafter the
"Leased Premises"):
WHEREAS the parties hereto desire to amend the Lease accordingly;
WHEREFORE IT IS HEREBY AGREED AS FOLLOWS:
1. The preamble hereto shall form part of these presents as though set out at
length herein.
2. The Landlord hereby leases to Tenant thirty-four thousand four hundred and
ninety-six (34,496) square feet, located on the ground floor and mezzanine
level of the building to be constructed as shown outlined in blue on the
plan attached hereto as Schedule "A-2" (hereinafter the "Additional
Premises") and as a consequence of the leasing of such Additional Space,
Tenant will have leased the entire Building as it then stands.
3. The term (hereinafter the "Term") for the Additional Premises shall
commence (hereinafter the "Commencement Date") on the first day of May 1993
and terminate (hereinafter the "Termination Date") on the last day of April
2008.
4. During the year through to the expiration of the fifth year of the Term,
the Tenant covenants and agrees to pay to the Landlord for the Additional
Premises, without deduction, abatement or setoff, an annual minimum net
rental of one hundred seventy- two thousand four hundred eighty dollars
($172,480.00) calculated on the basis of five dollars ($5.00) per square
foot per annum and payable in advance on the first day of each month in
equal consecutive monthly instalments during said period of fourteen
thousand three hundred seventy-three at the Landlord dollars ($14,373.00);
and
During the 6th year through to the expiration of the 15th year of the Term,
the Tenant covenants and agrees to pay to the Landlord for the Additional
Premises, without deduction, abatement or setoff, an annual minimum net net
rental of two hundred twenty-nine thousand fifty-three dollars and
forty-four cents ($229,053.44) calculated on the basis of six dollars and
sixty-four cents ($6.64) per square foot per annum and payable in advance
on the first day of each month in equal, consecutive monthly instalments
during said period of nineteen thousand eighty-seven dollars and
seventy-nine cents ($19,087.79).
5. Tenant shall pay with respect to the Additional Premises all those expenses
referred to in Article 9 of the Lease ("Proportionate Expense Rental")
except that the parties acknowledge that there is currently no policing or
supervision being done by the Landlord and the Tenant will not be charged
for any Proportionate Expense Rental with respect to same, it being agreed
and understood that the Tenant renounces the right to ask the Landlord for
this service. Furthermore, all expenses incurred by the Landlord shall be
reasonable. At any time during the term, upon six (6) months prior written
notice to the
<PAGE>
Landlord the Tenant shall have the option of assuming the landscaping and
gardening or the snow removal or both for the property, and from and after
the expiry of the six (6) month period the Tenant shall not be required to
pay Landlord for such service or services.
6. The Landlord will effect in the Additional Premises, at its expense, the
work outlined in Schedule "C-2" attached hereto, hereinafter "Landlord's
Work" with the exception of a maximum of fourteen (14) roof openings for
which the Tenant will contribute the sum of forty thousand dollars
($40,000.00) plus applicable taxes at the date of completion of Landlord's
Work.
Should the Tenant require modifications in writing which involve work other
than Landlord's Work, the said work shall be deemed extra work and shall be
payable by Tenant in accordance with the following provisions:
In the event Landlord agrees to execute the said extra work, it shall
forward Tenant a written estimate indicating the cost of said extra work.
Tenant shall have a delay of five (5) days upon receipt of said estimate to
confirm, in writing to Landlord, that it wishes Landlord to proceed with
the work.
Tenant shall have the option of having the extra work performed by other
parties.
The Landlord shall perform Landlord's Work in accordance with the state of
the art and shall guarantee Landlord's Work for a period of one (1) year
from the Completion Date being March 15, 1993. Furthermore and in addition
to the foregoing, the Landlord shall warrant that the roof and walls for
the building shall be watertight for a period of five (5) years from the
Completion Date. Tenant shall ensure that the window caulking is maintained
by Tenant during the aforesaid period. This warranty shall not apply to the
extent that the leakage is the result of any access, maintenance, use, or
abuse, or Tenant's equipment and installations thereof, to which the roof
and walls were subjected by Tenant's employees, subcontractors or agents.
7. Tenant will be allowed to place such signage on the exterior of the
building as it shall in its sole discretion consider to be advisable
provided that it shall comply with all laws and regulations applicable
thereto and it shall hold the Landlord harmless and indemnify it against
any damages, losses or penalties that the Landlord might suffer or incur as
a result of any signage which might be erected by the Tenant. Tenant shall
at its sole expense repair any damage or holes left in the Building
following removal of their signage at the expiration of the Lease as
amended herein.
8. Landlord undertakes to provide to Tenant for the Additional Premises one
hundred and one (101) additional exterior parking spaces, in addition to
all the one hundred and eleven (111) parking spaces located on the
property.
9. The Lease is amended as follows:
<PAGE>
a. Article 3 of the Lease is deleted as it no longer applies.
b. Article 5 of the Lease is deleted and replaced by the following:
"The Leased Premises can be used for any purpose permitted by law and
the Landlord expressly acknowledges that Tenant intends to perform
research and other scientific studies with respect to AIDS and other
infectious diseases. The Tenant agrees to hold the Landlord harmless
from and against any damages, losses or penalties that the Landlord
might suffer or incur as a result of the use to which the Tenant might
put the Premises. Furthermore, at the end at the term or the earlier
termination of the term the Tenant shall take such measures as shall
reasonably satisfy the Landlord that there is no danger or
inconvenience to any party as a result of the use to which the Leased
Premises have been put. In addition, Tenant agrees to sign and conform
to the Hazardous Substances Amendment attached hereto as Schedule "Z".
c. Article 9 is amended by deleting subsection (iii) thereof and making
such other amendments thereto so that Article 9 corresponds to Section
5 hereof. Article 9 is further amended by inserting a provision
whereby the Tenant shall be entitled to contest the Real Estate Taxes
without the consent of the Landlord provided that it will pay the Real
Estate Taxes notwithstanding its contestation and that it informs the
Landlord of such contestation.
d. The second paragraph of Article 11 is hereby amended so that the
Tenant shall be required to regularly maintain and repair the heating,
ventilating and air conditioning system.
e. Article 12 is amended by deleting the Landlord's right to cancel the
Lease on a sublet or assignment.
f. Article 13 shall provide that expropriation shall entitle both parties
to the maximum compensation permitted by law to each of them for their
respective interests and that the lease shall not automatically be
cancelled.
g. Article 14 and Article 20 are amended by changing the interest payable
by the Tenant to the prime rate of the Royal Bank of Canada plus four
percent (4%).
h. The first five lines of Article 15 are replaced by "The Tenant shall
save the Landlord harmless...".
i. Article 16 is amended so that the Tenant shall be entitled to remove
at the end of the term anything that it installed in the Leased
Premises or whose installation was paid for by the Tenant (all of such
items being herein expressly referred to as the "Leasehold
Improvements") with the exception of the air-conditioning and
<PAGE>
ventilation units, in addition to any base building, electrical or gas
installation (but, specifically including the electrical generator
which Tenant shall be entitled to remove) in respect of which Landlord
reserves its right to either keep, at its discretion, provided that
any damage caused as a result at any such removal is repaired by the
Tenant. Tenant shall not in any event be required to remove base
Building installations of any type or any floors or walls. It is
expressly agreed and understood that during the term all of the
Leasehold Improvements shall belong to the Tenant.
j. The first sentence of the second paragraph of Article 19 is amended so
that the Tenant shall not be required to carry out any modifications
for which it appeals to the relevant organizations and which those
organizations eventually agree are not required. As well any need for
the Landlord's consent for the Tenant's alterations and improvements
is also deleted provided that the Tenant informs the Landlord of any
significant alterations and Improvements and provides the Landlord
with as-built drawings on completion where same is appropriate.
However, the consent of the Landlord is only required for major
structural changes, said consent not being unreasonably withhold.
k. Article 24 is deleted, the Tenant having the right to make any
alterations or Improvements that it desires to the Leased Promises
provided that the Tenant informs the Landlord of any significant
alterations and Improvements and provides the Landlord with as-built
drawings on completion where same is appropriate. However, the consent
of the Landlord is only required for major structural changes, said
consent not being unreasonably withheld.
l. Article 26 is amended by inserting in the second line from the bottom
of page 26 after "solvents" the words "and other toxic or flammable
materials" and by providing that the Tenant shall not be required to
obtain an environmental Impairment Insurance policy unless same is
required by the Insurer of the Building, by the hypothecary creditor
of the Building or by some governmental authority having jurisdiction
thereover.
m. Article 27 is amended so that the Landlord shall not be entitled to
re-enter the Leased Promises unless it has attempted and failed to
obtain other reasonable insurance for the Building.
n. Article 29 is amended to delete the Landlord's, right to terminate the
Lease.
o. Article 35 is amended in accordance with Section 8 hereof.
p. The sum deposited with the Landlord pursuant to Article 40 shall be
applied as indicated therein notwithstanding the extension of the
Lease.
q. Article 49 is deleted.
<PAGE>
r. Article 64 is deleted.
s. Article 68 is amended to provide that the Tenant shall be entitled to
all one hundred and eleven (111) parking spaces on the Property and
one hundred and one (101) parking spaces as outlined in red on a plan
attached hereto as part of Schedule "A".
10. The Tenant Acknowledges that the additional space agreement prepared and
sent to the Tenant for the three thousand eight hundred and forty-eight
(3,848) square feet of additional space located on the ground floor and
forming part of the Original Premises, which commenced on the first day of
January, 1990 shall be comprised and executed simultaneously with the
present Memorandum of Agreement.
11. The term for the Original Promises shall be extended so that it shall be
coterminous with the present Memorandum of Agreement, the minimum rent for
such extension namely, the period starting July 1, 2004 and terminating on
the Termination Date to be the market rental for similar space of a similar
size with similar improvements at the beginning of the calendar year 2004
with a maximum of ten dollars ($10.00) per square foot. If the parties are
unable to agree on the market rent, same shall be settled by arbitration.
Any arbitration shall be conducted and finally decided prior to the
extension of the term for the Original Premises, such that the rental shall
be due and payable at the commencement of such extension. A single
arbitrator shall be named by the Syndic du Barreau from his list of
available arbitrators. Said arbitrator shall render the final decision to
any dispute in this matter having taken into account the considerations
hereinabove described.
12. Schedules "A-2", "B", "C-2", "Z" and the plan attached hereto and initialed
by the parties for identification form part of the Lease.
13. Save and except for the modifications stipulated herein, all the terms and
conditions of the Lease shall apply mutatis mutandis to the Additional
Premises.
14. It is hereby declared and agreed that these presents and everything herein
contained shall enure to the benefit of and be binding upon the parties
hereto and their respective heirs, administrators, successors and assigns.
15. These presents shall come into force as of the first day of May 1993.
16. The parties hereto hereby confirm that they have requested that these
presents be drawn in English. Les parties aux presentes confirment avoir
exigequo les presentes soient redigees en anglais.
<PAGE>
IN WITNESS WHEREOF THE LANDLORD HAS SIGNED IN THE CITY OF ST. LAURENT,
PROVINCE OF QUEBEC., ON THIS 9 DAY OF NOVEMBER 1993.
BELCOURT INC.
Per: /s/ Belcourt Inc. Signature
----------------------------------------------
Per: /s/ Belcourt Inc. Signature
----------------------------------------------
/s/ Suelyn Li
- -----------------------------
Witness
/s/ Linda Fraraccio
- -----------------------------
Witness
LES INVESTISSEMENTS RENARY INC.
Per: /s/ Les Investissements Renary Inc. Signature
----------------------------------------------
/S/ SUELYN LI
- -----------------------------
Witness
/S/ LINDA FRARACCIO
- -----------------------------
Witness
IN WITNESS WHEREOF THE TENANT HAS SIGNED IN THE CITY OF MONTREAL ON THIS
8TH DAY OF NOVEMBER, 1993.
PHOENIX INTERNATIONAL LIFE SCIENCES
INC.
Per: /s/ Heather Savage
----------------------------------------------
/s/ Blake Glover
- -----------------------------
Witness
/s/ Witness
- -----------------------------
Witness
<PAGE>
LEASE AGREEMENT
BETWEEN
AMENAGEMENTS ROVO INC.
AND
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL LEASE
TABLE OF CONTENTS
ARTICLE TITLE PAGE
------- ----- ----
<S> <C>
PARTIES 1
PREAMBLE 1
I DEFINITIONS, INTENT AND INTERPRETATION 3
1.1 Definitions 3
1.2 Intent 4
1.3 Duty to act reasonably 5
II LEASE 5
2.1 Lease of Premises 5
2.2 Defects 5
III TERM 5
3.1 Term 5
IV RENT 5
4.1 Rental 5
4.2 Late Payment Charges 6
V OPERATING EXPENSES 6
5.1 Operating Expenses 6
5.2 Initial Amount of Operating Expenses 6
VI TAXES 7
6.1 Tax Contestation 7
6.2 Business and Other Taxes of the Tenant 7
6.3 Taxes 7
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
6.4 Sales and Services Tax 8
6.5 Surtax 9
VII UTILITIES AND HEATING, VENTILATION,
AIR-CONDITIONING 9
7.1 Heating, Utilities - Additional Rent 9
7.2 Overloading of Utility Facilities 9
7.3 Heating, Ventilation and Air-Conditioning 9
7.4 Failure of Tenant to Comply 9
VIII USE OF LEASED PREMISES 10
8.1 Use of Premises 10
8.2 Compliance with Laws 10
8.3 Remedies of Landlord 10
IX MAINTENANCE, REPAIRS AND ALTERATIONS 10
9.1 Improvements to Leased Premises 10
9.2 Conditions of Premises 11
9.3 Maintenance and Repairs by Tenant 12
9.4 Approval of Tenant's Repairs 12
9.5 Special Repairs 13
9.6 Maintenance by the Landlord 13
9.7 Landlord's Right of Maintenance 13
9.8 Right of Inspection 13
9.9 Loss of Enjoyment 14
9.10 Overloading of Floors 14
9.11 Discharge of Hypothecs 14
9.12 Signs, Awnings and Canopies 14
9.13 Surrender of Premises 14
9.14 Tenant's Obligation to Protect 15
X INSURANCE AND INDEMNITY 15
10.1 Tenant's Insurance 15
10.2 Terms and Conditions of Tenant's Insurance 15
10.3 Increase in Landlord's Insurance Premiums 16
10.4 Cancellation of Insurance 17
10.5 Loss or Damage 17
10.6 Indemnification of Landlord 18
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
XI DAMAGE AND DESTRUCTION AND
EXPROPRIATION 18
11.1 Destruction of Leased Premises 18
11.2 Lease in Force 19
11.3 Rebuilding 19
11.4 Expropriation 19
XII SUB-LET AND ASSIGNMENT 20
12.1 Consent to Sublet or Assign 20
12.2 Conditions Precedent 20
12.3 Landlord's Option 20
12.4 Conditions of Consent 21
12.5 Change in Control 21
12.6 Solidary Liability 21
12.7 Liability to Landlord 21
12.8 Assignment by Landlord 22
12.9 Documents 22
XIII DEFAULT AND TERMINATION 22
13.1 Events of Default 22
13.2 Re-entry 23
13.3 Right to Re-let 24
13.4 Application of Moneys 24
13.5 Abandoned Goods 24
13.6 Landlord's Right to Cure Defaults 24
13.7 Remedies Generally 25
13.8 Surrender of Leased Premises 25
XIV ACCESS BY LANDLORD 25
14.1 Right of Entry 25
14.2 Excavation 25
XV SUBORDINATION, ATTORNMENT AND STATUS
STATEMENT BY TENANT 25
15.1 Subordination and Attornment by Tenant to
Hypothecary Creditor 25
15.2 Status Statement (Estoppel Certificate) 26
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
XVI MISCELLANEOUS 26
16.1 No Tacit Renewal 26
16.2 Accord and Satisfaction 26
16.3 Entire Agreement 27
16.4 Waiver 27
16.5 No Partnership 27
16.6 Force Majeure 27
16.7 Notice 27
16.8 Governing Law and Severability 28
16.9 Registration 28
16.10 Successors and Assigns 28
16.11 Security Deposit 28
16.12 Qualification to do Business 29
16.13 Non-Canadian Person 29
16.14 Waiver 29
16.15 Waiver of Liability 29
16.16 Peaceable Enjoyment 29
16.17 Interest on Overdue Payments 29
16.18 Brokerage Commission 30
16.19 Headings and Numbers 30
16.20 Interpretation 30
16.21 Financial Information 30
16.22 Hypothecary Creditor Changes 30
16.23 Solidary Liability 30
16.24 Election of domicile 30
16.25 Language 30
SCHEDULE "A" Description of Land
SCHEDULE "B" Site Plan of Leased Premises
SCHEDULE "C" Landlord's Work and Tenant's Work
SCHEDULE "D" Operating Expenses
SCHEDULE "E" Pre-Authorized Payment Plan
SCHEDULE "F" Building Modification Plans
</TABLE>
iv
<PAGE>
THIS LEASE made in Ville Mont-Royal, the eighteenth (18) day of April nineteen
hundred and ninety-five (1995)
BETWEEN: AMENAGEMENTS ROVO INC., a corporation duly incorporated under the laws
of Canada and having its head office in the City of Ville Mont-Royal,
Province of Quebec, herein acting and represented by Mr. Norman
Zavalkoff, its President, duly authorized for the purposes hereof as
he so declares,
(hereinafter referred to as the "Landlord"),
OF THE FIRST PART;
AND: PHOENIX INTERNATIONAL LIFE SCIENCES INC., a company duly
incorporated according to law and having its head office in
the City of St. Laurent, herein acting and represented by J.Y.
Caloz, it duly authorized for the purposes hereof in virtue of
a resolution passed at a meeting of its Board of Directors
held on the 23rd day of January, nineteen hundred and
ninety-five (1995), a certified copy whereof being annexed
hereto (hereinafter referred to as the "Tenant").
OF THE SECOND PART.
THE PARTIES hereby agree as follows:
PREAMBLE
BASIC LEASE PROVISIONS
SECTION I - NAME OF LEASED PREMISES - N/A
SECTION II - LOCATION OF THE LEASED PREMISES - N/A
SECTION III - AREA OF THE LANDS AND THE LEASED PREMISES
The Leased Premises hereunder contain a Gross Leasable Building Area of
approximately twenty-six thousand square feet (26,000 sq ft) measured to the
outermost limit of all walls, and a total land area approximately fifty-nine
thousand, one hundred thirty-nine (59,139) square feet, English Measure.
SECTION IV - TERM
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The Term referred to in Section 3.1 shall be of an approximate period of
fourteen (14) years and one-half month (1/2) month, commencing on the
Commencement Date, (being the date Landlord gives Tenant vacant possession of
the Leased Premises), and ending on April 30, 2009.
SECTION V - MINIMUM RENT
The Minimum Rent provided for in Sub-Section 4.1.1 is:
<TABLE>
<CAPTION>
PERIOD MINIMUM ANNUAL MONTHLY
RENTAL PAYMENT
------ -------------- -------
<S> <C> <C>
Commencement Date
to April 30, 1999 $175,500.00 $14,625.00
From May 1, 1999
to April 30, 2004 $201,500.00 $16,791.67
From May 1, 2004
to April 30, 2009 $227,500.00 $18,958.33
</TABLE>
payable according to the provisions of Sub-Section 4.1.1.
SECTION VI - INITIAL PAYMENT OF TAXES AND OPERATING EXPENSES
For purposes of Sections 5 and 6, the initial payments of Taxes and Operating
Expenses shall be a per annum amount of Fifty-three thousand, seven hundred and
forty-one dollars and eighteen cents ($53,741.18) per square foot of the Gross
Leasable Area, that is, a per month amount of Four Thousand, four hundred and
seventy-eight dollars and forty-three cents (4,478.43);
SECTION VII - USE OF THE LEASED PREMISES
The Tenant shall use the Leased Premises solely for the purpose of conducting
the business of office, laboratory and related uses.
SECTION VIII -NOTICE
Notices shall be sent to the following addresses:
(i) Landlord: 5500 Royalmount Avenue
Suite 200
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Ville Mont-Royal, Quebec
H4P 1H7
(ii) Tenant: 4625 Dobrin Street
St. Laurent, Quebec
H4R 2127
SECTION IX - DEPOSIT
The Tenant shall deposit with the Landlord the sum of ______________ ($________)
applicable to
ARTICLE I
DEFINITIONS- INTENT AND INTERPRETATION
1.1 DEFINITIONS
When used in this Lease or in any schedule attached to this Lease, the following
words or expressions have the meaning hereinafter set forth, unless the context
indicates otherwise:
1.1.1 "Additional Rent" means any and all sums of money or charges required
to be paid by the Tenant under this Lease (except Minimum Rent),
whether or not the same are designated "Additional Rent" and whether
or not the same are payable to the Landlord or otherwise, and,
notwithstanding anything contained in the Civil Code to the contrary,
without deduction, diminution, set-off or compensation whatsoever.
Unless otherwise specifically provided, Additional Rent is due and
payable with and in addition to each monthly instalment of Minimum
Rent;
1.1.2 "Architect" means the architect from time to time named by the
Landlord, and whose decision or certificate, whenever required
hereunder, shall be final and binding on the parties hereto provided
that such decision or certificate is reasonable and in accordance with
the standards of such person's profession.
1.1.3 "Bankruptcy Act" means the Bankruptcy and Insolvency Act, S.C.
1992, c. 27 and any amendments thereto or replacements thereof.
1.1.4 "Building" means the building part of the Leased Premises, as may be
altered or expanded from time to time.
1.1.5 "C.P.I." means the Consumer Price Index (All items for regional cities)
for the City of Montreal as published by Statistics Canada, or failing
it, the index most nearly
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corresponding thereto and with the appropriate conversions being made
where the basis of comparison or calculation has changed;
1.1.6 "Civil Code" means the Civil Code of Quebec, S.Q. (1991) ch. 64 as
amended.
1.1.7 "Creditors Arrangement Act" means the Companies Creditors Arrangements
Act, S.C. c. 36 and any amendments thereto or replacements thereof.
1.1.8 "Gross Leasable Area" means the building area expressed in square feet,
as certified by the Architect, of the Leased Premises, measured from
the exterior face of all exterior walls,
1.1.9 "HVAC System" means the entirety of the system in the Building, for the
supply of heating, ventilating and air-conditioning to the Building
wherever such system, or portions thereof, is located, including any
central plant therefor and the improvement and fixtures necessary for
any such central plant and all the appurtenances and equipment and
systems associated with or for such a system and includes the apparatus
for the further processing and distribution of exhaust air such as
ducts, diffusers, reheat coils, controls and other apparatus and
equipment therefor;
1.1.10 "Hypothecary Creditor" means any hypothecary creditor of the Leased
Premises or any part thereof;
1.1.11 "Landlord" means the Party of the First Part and its successors and
assigns.
1.1.12 "Lease" means the present agreement, including the Preamble, all
written modifications or amendments, all schedules as well as all Rules
and Regulations adopted and promulgated by the Landlord;
1.1.13 "Lease Year" means a period of time, the first Lease Year commencing on
the first day of the Term hereof, and ending on the last day of the
ensuing twelve (12) month period.
Lease Year, insofar as Operating Expenses are concerned, for the first
Lease Year signifies the period from commencement to July 31st, for all
subsequent Lease Years, all consecutive twelve (12) month periods
commencing on the first day of the month of August and terminating on
the 31st day of July;
It is understood that the Landlord may at anytime during the Term
change the Lease Year, provided that the Tenant is not prejudiced
financially as a result.
1.1.14 "Leased Premises" means the building bearing civic number 2350 Cohen
Street, Ville Saint Laurent, Province of Quebec, and the lands
described in Schedule "A", and other
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improvements, equipment and facilities erected or situated on those
lands from time to time;
1.1.15 "Minimum Rent" means the rent payable by the Tenant pursuant to
Sub-Section 4.1.1 hereof;
1.1.16 "Operating Expenses" are defined in Schedule "D";
1.1.17 "Sales Tax" means all goods and services tax, provincial sales tax,
value added tax and any other existing or future tax of a similar
nature imposed by any governmental authority with respect to any amount
payable by Tenant to Landlord under this Lease.
1.1.18 "Surtax" means the tax on non-residential immoveables and all additions
to and substitutions for any such tax, imposed against the Landlord
and/or the Leased Premises.
1.1.19 "Taxes" means all municipal, school, urban community taxes (if any),
local improvement, snow removal and special taxes (and including any
tax on the Landlord and/or the owners of the Leased Premises, which
may replace the special, local improvement, municipal, school and/or
urban community taxes, rates, levies, assessments) any business and/or
water taxes now levied against the Landlord that were previously
levied against the Tenant by the province or the municipality, and all
tax on paid-up capital assessed against the Landlord or the owners of
the Leased Premises with respect to the Leased Premises, and all other
taxes, rates, duties, charges, assessments, impositions and levies
assessed, levied or imposed by any competent authority having
jurisdiction upon or against the Leased Premises or levied, assessed
or imposed against the Landlord on account of its ownership of the
Leased Premises or its interest therein.
1.1.20 "Tenant" means the Party of the Second Part and its permitted
successors and assigns;
1.1.21 "Term" means the period of time for which this Lease has been granted
as described in Section 3.1 hereof;
1.1.22 "Utilities" means electricity, gas, water, fuel, steam, power and all
other utilities consumed in any part of the Leased Premises.
1.2 INTENT
It is the intent of the parties to this Lease that the Lease shall be totally
net and care free to the Landlord, except as expressly stipulated in this Lease.
Subject only to the latter exception, the Landlord will not be liable to
contribute to any costs, charges, expenses or outlays with respect to the Leased
Premises and/or to the Building.
1.3 DUTY TO ACT REASONABLY
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<PAGE>
The parties agree to act reasonably with one another in their respective
dealings regarding this Lease and will cause their professionals, agents,
employees and others acting on their behalf to do likewise.
ARTICLE II
LEASE
2.1 LEASE OF PREMISES
The Landlord hereby leases to the Tenant and the Tenant hereby leases from the
Landlord, the Leased Premises which have an approximate Gross Lessable Area as
set forth in Section III of the Preamble, subject to certification by the
Architect.
2.2 DEFECTS
The Landlord shall have no obligation to the Tenant regarding defects, if any,
in or in respect to the Leased Promises or in respect to the use for which the
Premises are leased. The Landlord will assign any rights that it has against the
person from whom it acquired the Leased Premises to the Tenant with respect to
any defects in the Leased Premises, or, in the event such assignment is not
legally recognized, then Landlord shall take such steps as Tenant shall request,
at Tenant's sole cost and expense, to pursue the person from whom Landlord
acquired the Leased Premises.
ARTICLE III
TERM
3.1 TERM
The Tenant shall occupy the Leased Premises throughout the Term which shall be,
unless sooner terminated pursuant to any other provision hereof, a period equal
to that set forth in Section IV of the Preamble.
ARTICLE IV
RENT
4.1 RENTAL
The Tenant covenants and agrees to pay from and after the Commencement Date, to
the Landlord, or as the Landlord may direct, in lawful money of Canada, and,
notwithstanding any law, usage or custom to the contrary, without any prior
demand therefor and without any set-off, compensation, diminution, or deduction
whatsoever, rental comprised as follows:
6
<PAGE>
4.1.1 Minimum Rent with respect to each year of the Term equal to the amount
provided for in Section V of the Preamble and payable in equal monthly
instalments equal to the amount provided for in Section V, in advance
on the first day of each calendar month, the first instalment of
Minimum Rent to become due on the Commencement Date. If the
Commencement Date is on a day other than the first day of a calendar
month, then the Tenant shall pay, on the Commencement Date, a portion
of the Minimum Rent pro-rated on a per diem basis from the Commencement
Date to the end of the month in which the Commencement Date occurs,
based upon a period of three hundred and sixty-five (365) days.
4.1.2 The Tenant shall also pay as Additional Rent:
(a) its Operating Expenses in the manner set forth in Article V;
(b) Taxes, as set out in Article VI;
(c) unless the Surtax is included within Taxes and/or Operating Expenses,
the surtax as provided for in Section 6.5;
(d) the cost of Utilities, heating and air-conditioning as provided for in
Article VII.
4.2 LATE PAYMENT CHARGES
Tenant recognizes that the late payment of any rent or other sum due hereunder
will result in administrative expense to Landlord, the extent of which
additional expense is extremely difficult and economically impractical to
ascertain. Tenant therefore agrees that if rent or any other sum is due and
unpaid five (5) days after said amount is due more than twice in any Lease Year,
such amount shall be increased by a late charge of an amount equal to:
(a) $50.00 plus
(b) $5.00 per day for each day after said five (5) day period.
The amount of the late charge to be paid by Tenant shall be reassessed and added
to Tenant's obligation for each successive monthly period until paid. The
provision of this paragraph in no way relieves the Tenant of the obligation to
pay rent or other payments on or before the date on which they are due, nor to
pay interest on past due amounts as required under this Lease, nor do the terms
of this paragraph in any way affect Landlord's remedies under this Lease in the
events that rent or other payment is unpaid after the date due.
ARTICLE V
OPERATING EXPENSES
7
<PAGE>
5.1 OPERATING EXPENSES
The Tenant covenants and agrees to pay to the Landlord, or as the Landlord may
direct, during each Lease Year, in equal consecutive monthly instalments in
advance as Additional Rent, without any set-off, compensation or deduction
whatsoever, an amount equal to Taxes and Operating Expenses on the first day of
each month, as hereinafter determined.
5.2 INITIAL AMOUNT OF TAXES AND OPERATING EXPENSES
The initial amount of Taxes and Operating Expenses shall be an annual amount
equal to the amount provided for in Section VI of the Preamble. This amount
shall be adjusted at the end of the Lease Year or during any Lease Year based on
real costs incurred by the Landlord and on the Landlord's expectation of costs
for the current or following Lease Year or part thereof.
The amounts payable by the Tenant pursuant to the above paragraph shall be
estimated by the Landlord for each Lease Year; the Tenant agrees to pay to the
Landlord, in addition to its Minimum Rent, the Operating Expenses in monthly
instalments in advance, on the first day of each calendar month, subject, in the
case of the Surtax, to Section 6.5.2. At the end of each Lease Year for which
estimates have been determined, the Tenant shall be advised of the real amounts
payable as Operating Expenses, and, if the amount the Tenant has paid is less
than the amounts due, the Tenant shall pay such additional amounts due with the
next monthly payment of Minimum Rent. If the Tenant has paid in excess of the
amounts due, the excess shall be refunded by the Landlord in the form of a
credit applied towards the next Minimum Rent and Additional Rent payments due.
Landlord may require adjustments for taxes and insurance during any Lease Year
if the expected or actual expenses exceed the initial estimates. Landlord may
alternately, at its sole option, require Tenant to pay Taxes and/or Insurance
directly to Landlord upon Landlord being required to make payment for same, in
accordance with the procedure set forth in Section 6.3 (e).
ARTICLE VI
TAXES
6.1 TAX CONTESTATION
The Landlord shall not have the right to contest taxes during the first ten (10)
years of the Term, unless the Tenant so requests. The Tenant shall pay to the
Landlord, within five (5) days after demand therefor by the Landlord, as
Additional Rent, any expenses, including legal, appraisal, administration and
overhead expenses, incurred by the Landlord in obtaining or attempting to obtain
a reduction of any Taxes, provided, however, the Landlord shall have no
obligation to contest the levying or imposition of any Taxes.
6.2 BUSINESS AND OTHER TAXES OF THE TENANT
8
<PAGE>
As Additional Rent and to the complete exoneration of the Landlord, the Tenant
shall pay to the competent authority having jurisdiction, all water and business
taxes, garbage taxes and all taxes imposed or levied against the personal or
moveable property, trade fixtures and other property placed by the Tenant in, on
or about the Leased Premises. If any such taxes are imposed or levied against
the Landlord or the Landlord's property in or on the Leased Premises and the
Landlord pays the same (which the Landlord shall have the right to do regardless
of the validity of such levy) then the Tenant shall forthwith reimburse the
Landlord, as Additional Rent, the amount of such payment by the Landlord. Should
the assessed value of the Leased Premises be increased by the inclusion of the
value of such property or trade fixtures of the Tenant or be increased by
alterations, additions or improvements made by the Tenant in and to the Leased
Premises and if the Landlord pays the taxes based on such increased assessments
(which the Landlord shall have the right to do regardless of the validity
thereof) then and in such event the Tenant shall upon demand likewise pay to the
Landlord as Additional Rent the amount of such taxes resulting from such
increase in the assessment. Should any competent authority having jurisdiction
require that any of the taxes mentioned in this Section 6.2 be paid by the
Landlord in lieu of payment by the Tenant, then, regardless of the validity or
correctness of such requirement, the Tenant undertakes to pay to the Landlord
the amount of any such taxes charged to the Landlord on account of or related to
the Leased Premises.
6.3
[6.3a) DELETED BY THE PARTIES.]
b) The Tenant shall (i) pay to the taxing authorities or to the Landlord
as Additional Rent as the Landlord may direct, and discharge in each
year during the Term and within the times provided for by the taxing
authorities, all Taxes that are levied, rated, charged or assessed from
time to time, respectively against the Leased Premises or any part
thereof, on the basis of a separate property tax bill and separate
property assessment notice rendered by any lawful taxing authority;
(ii) provide the Landlord within ten (10) days after demand with a copy
of any separate tax bills and assessment notices for the Leased
Premises or any part thereof, (iii) promptly deliver to the Landlord
receipts evidencing the payment of such Taxes payable to any such
taxing authorities as aforesaid and furnish such other information in
connection therewith as the Landlord reasonably requires.
c) In addition to the taxes payable by the Tenant pursuant to paragraph
(b) of this Article, the Tenant shall pay as Additional Rent to the
lawful taxing authorities, or to the Landlord, as it may direct, and
shall discharge in each Lease Year when the same becomes due and
payable (i) all taxes, rates, duties, assessments, or surtaxes charged
against the Landlord in lieu thereof and other charges that are levied,
rated, charged or assessed against or in respect of all improvements,
equipment and facilities of the Tenant on or in the Leased Premises, or
any part or parts thereof, or against the Landlord on account of its
ownership thereof or interest therein, including Tax on capital; and
(ii) every tax and license fee which is levied, rated, charged or
assessed against or in respect
9
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of any and every business carded on in the Leased Premises, or any
surcharge exigible in lieu thereof against the Landlord on account of
its ownership thereof or interest therein, (all of the foregoing being
collectively referred to as "Business Taxes") and whether in any case,
any such taxes, rates, duties, assessments or license fees are rated,
charged or assessed by any Federal, Provincial, Municipal, School or
other body during the Term or any extension thereof.
d) The Tenant shall (a) upon request of the Landlord [d(i) AND (ii)
DELETED BY THE PARTIES] (iii) furnish such other information in
connection with any such Taxes and any such Business Taxes payable by
the Tenant pursuant to Section "c" of this Article as the Landlord
reasonably determines from time to time; and (b) promptly deliver to
the Landlord notice of any appeal or contestation which the Tenant
shall intend to institute with respect to any such Taxes payable
pursuant to Section "b" of this Article or any such Business Taxes
payable pursuant to Section "c" of this Article and consult with the
Landlord prior to any such appeal or contestation. If the Tenant
proceeds to appeal or contest, the Tenant shall deliver to the Landlord
such security for the payment of such Taxes and Business Taxes as the
Landlord deems advisable and the Tenant shall diligently prosecute any
such appeal or contestation to a speedy resolution and shall keep the
Landlord informed of its progress in that regard, from time to time.
The Tenant shall promptly indemnify and keep indemnified the Landlord
from and against all loss, costs, charges and expenses occasioned by or
arising from all such Taxes and all such Business Taxes and any taxes
which may in future be levied in lieu of such Taxes or Business Taxes
or which may be assessed against any rentals payable pursuant to this
Lease in lieu of such Taxes or Business Taxes, whether against the
Landlord or the Tenant, including without limitation, any increase
whensoever occurring in Taxes or Business Taxes directly or indirectly
arising out of any appeal or contestation by the Tenant of the Taxes or
Business Taxes relating to the Leased Premises. Excluded from this
indemnity will be any failure by Landlord to pay Taxes or Business
Taxes that have been paid to it by the Tenant.
e) All Taxes payable to Landlord by Tenant shall be paid ten (10) days
after invoice by Landlord to Tenant for Taxes, and not more than ten
(10) days before such payment is due to the Taxing Authority.
6.4 SALES AND SERVICES TAX
The Tenant shall pay to the Landlord all Sales Tax calculated in accordance with
applicable legislation, it being the intention of the parties that the Landlord
shall be fully reimbursed by the Tenant with respect to any and all Sales Taxes.
Sales Tax will be paid at the same time as the payment to which same relates.
Despite any other section or clause in this Lease, the amount payable by the
Tenant under this paragraph shall be deemed not to be Rent, but the Landlord
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shall have all of the same remedies for and rights of such amount as it has for
recovery of Rent under this Lease.
6.5. Surtax
[6.5.1 DELETED BY THE PARTIES.]
6.5.2 The Tenant will pay the of Surtax in the manner described in Section
5.2 or by the date or dates the Landlord must pay the Surtax to the
taxing authority.
[6.5.3 DELETED BY THE PARTIES.]
ARTICLE VII
UTILITIES AND HEATING, VENTILATION, AIR-CONDITIONING
7.1 HEATING AND UTILITIES - ADDITIONAL RENT
7.1.1 The Tenant shall pay the cost of heating and air-conditioning (if any)
of the Building.
7.1.2 The Tenant shall assume and pay for all gas, water, steam or
hot water, electricity or other utilities which may be used in
the Leased Premises or in respect thereof and for fittings,
machines, apparatus, meters or other devices and things leased
and/or to be installed in respect thereof, or for all work or
services performed by any corporation or commission in
connection with such public utility, the whole during the Term
of this Lease or any extension thereof.
7.1.3 in no event shall the Landlord be liable for, nor has the Landlord any
obligation with respect to, an interruption or cessation of, or a
failure in the supply of any such Utilities, services or systems in, to
or serving the Leased Premises, whether supplied by the Landlord or
others.
7.2 OVERLOADING OF UTILITY FACILITIES
The Tenant will not install equipment that will exceed or overload the capacity
of any utility facilities. If equipment installed by the Tenant requires
additional utility facilities, such equipment will be installed at the Tenant's
expense in accordance with plans and specifications approved by the Landlord
prior to installation.
7.3 HEATING VENTILATING AND AIR-CONDITIONING
The Tenant shall, at its expense, operate, repair, maintain and replace, when
necessary, the heating, air-conditioning and ventilation systems in and for the
Building. Any additional
11
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installation over and above the initial equipment installed shall conform to
specifications approved by the Landlord, prior to their installation in the
Leased Premises.
7.4 FAILURE OF TENANT TO COMPLY
In the event that Tenant fails to commence to carry out any of the above (other
than any obligation to pay imposed with respect to the foregoing) within ten
(10) days after notice in writing from Landlord or in the event Tenant fails to
diligently continue until same shall be fully remedied, the Landlord may carry
out such obligation and include the cost in Operating Expenses, including a
fifteen percent (15%) administration fee.
ARTICLE VIII
USE OF LEASED PREMISES
8.1 USE OF PREMISES
The Tenant shall use the Leased Premises solely for the purpose of conducting
the business set forth in Section VII of the Preamble and the Tenant will not
use or permit the use of the Leased Premises or any part thereof for any other
business or purpose, without the consent of the Landlord, which consent shall
not be unreasonably withheld.
8.2 COMPLIANCE WITH LAWS
The Tenant shall, at its sole cost and expense, promptly:
8.2.1 observe and comply with all provisions of law, by-law or regulation of
all governmental, para-governmental or insurance company authorities
and, without limiting the generality of the foregoing, with all
requirements of all such authorities having jurisdiction now or
hereafter in force which pertain to the Leased Premises, the Tenant's
use of the Leased Premises or the conduct of any business in the Leased
Premises, or the making of any repairs, replacements, alterations,
additions, changes, substitutions or improvements to the Leased
Promises;
8.2.2 carry out all modifications, alterations or changes of or to
the Leased Premises and the Tenant's conduct of business in or
use of the Leased Premises which are required by any such
authorities, provided, however, that prior to effecting any
such modification, alteration or change, the Tenant shall
deliver to the Landlord for its written approval, plans and
specifications in connection therewith.
8.3 REMEDIES OF LANDLORD
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Should the Tenant in any way fail to observe any of the obligations of the
present Article VIII, Landlord shall be entitled, without prejudice to any and
all other rights and recourses hereunder, to immediate injunctive relief in
order to force the Tenant to abide by the present Article VIII or prevent the
Tenant from breaching same. The foregoing in no way restricts the right to
specific performance for any other default of the Tenant mentioned elsewhere in
this Lease.
ARTICLE IX
MAINTENANCE, REPAIRS AND ALTERATIONS
9.1 IMPROVEMENTS TO LEASED PREMISES
9.1.1 The Landlord shall effect at its expense, the improvements more fully
described in Schedule "C" hereto annexed. All improvements in and to
the Leased Premises other than those set forth in Schedule "C" shall be
the responsibility of Tenant and shall be performed at Tenant's sole
cost and expense, the whole subject to the terms and conditions
hereinafter set forth, and shall become the property of the Landlord
once incorporated into the Leased Premises. The Tenant undertakes to
carry out, at its own expense, modifications to the building according
to the plans annexed hereto as Schedule "F", prior to July 1, 1997, in
which case, Tenant shall furnish the Landlord with all appropriate
performance bonds and such other assurances in favour of the Landlord
as Landlord may reasonably require, before commencing any work. The
following is also required as relating to Tenant's proposed
improvements:
9.1.2 The Tenant shall forward for approval by the Landlord
mechanical / electrical plans which shall be issued in final
format and shall be stamped by a professional engineer. Plans
shall be accompanied by full specifications for all materials
provided.
9.1.3 All sprinkler and fire protection work shall be installed in
accordance with standards required by Landlord's insurers.
Plans for the sprinkler work shall be submitted to the
Landlord's insurer for approval.
9.1.4 The Tenant, at his expense shall obtain an architect's opinion that
drainage is adequate in new parking lot.
9.1.5 The Tenant, at his expense, shall provide the services of a
roof inspector acceptable to the Landlord who shall supervise
the roof cuts and provide the Landlord with a copy of his
reports.
9.1.6 All work shall be in accordance with all governing codes and
regulating agencies having jurisdiction over the work.
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9.1.7 The Tenant shall provide details with regards to environmental
protective measures taken for the generator fuel tank. (Ignore
this item, if generator is gas fired.).
9.1.8 Tenant to provide full and final quittances from all trades
performing work on the property no later than 60 days
following final substantial completion of the work.
9.1.9 Tenant to provide full "as built" set of drawings no later
than 60 days following substantial completion of the work,
which shall be signed by the professionals supervising the
work.
9.1.10 The Landlord reserves the right to review the plans of any
"lien future" between the property known as 2350 Cohen and the
property known as 4625 Dobrin.
9.1.11 The Tenant shall provide the Landlord with satisfactory proofs of
insurance of all contractors working on the Leased Premises prior to
the commencement of work and shall be responsible that insurance
satisfactory to the Landlord is held in force for the duration of the
work or any other major improvements which the Tenant wishes to
undertake from time to time. These certificates shall name the Landlord
as named insured.
The parties agree that the above comments are not all-inclusive. Landlord has
not examined Tenant's plans and specifications in detail and assumes no
responsibility for the sufficiency or standards of the plans or for their
execution.
Any implied approval hereby given is for the broad concept shown by the plans,
and is still subject to the comments annexed.
9.2 CONDITIONS OF PREMISES
9.2.1 Subject to Section 2.2, the taking of possession of the Leased Premises
by the Tenant shall be conclusive evidence as against the Tenant that
the Leased Premises were satisfactory to the Tenant at the time of such
possession. The Tenant acknowledges that it has received no promise of
the Landlord to after, remodel, improve, repair, decorate or clean any
part of the Leased Premises, and no representation respecting the
condition of the Leased Premises has been made by the Landlord to the
Tenant. The Tenant shall, at all times, keep the Leased Premises in a
clean and sanitary condition, in accordance with the laws, directions,
rules and regulations of governmental agencies having jurisdiction, and
at Tenant's sole expense, and in all respects the Tenant shall comply
with all requirements of law applicable to the Leased Premises.
9.2.3 The Tenant shall at all times during the Term hereof or any extension
or renewal thereof, at its own cost and expense, maintain the Leased
Premises and shall keep them and every part thereof in working order
and condition and shall promptly make all necessary repairs
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and replacements (including major structural repairs) to the Leased
Premises and to pipes, mains and any other machinery, facilities and
equipment belonging to or connected with the Leased Premises or used in
their operation, including without limitation, heating, plumbing,
ventilating, electrical, parking areas, loading areas, driveways,
ramps, sidewalks, fences, lawns and shrubs, the whole at the Tenant's
expense and whether the repairs are normally defined at Landlord's or
Tenant's and whether such repairs be major or minor, and shall heat the
Building to a sufficient temperature to avoid damage or deterioration
of the Building. When used in this Section, the term "repairs" shall
include replacements or renewals when necessary, and all such repairs
made by the Tenant shall be equal in quality and class to the original
work.
9.3 MAINTENANCE AND REPAIRS BY TENANT
9.3.1 The Tenant shall, at all times during the Term, at it sole expense,
keep and maintain in good order, first-class condition and repair as
reasonably determined by the Landlord, the whole of the Leased Premises
and the Tenant shall, notwithstanding any article to the contrary in
the Civil Code with respect to maintenance and repairs and subject to
Section 9.4, make all needed repairs and replacements (whether major or
minor and those which the Civil Code requires of a landlord) and
notwithstanding Article 1867 of the Civil Code, any work that may be
required from time to time to maintain the Leased Premises for the
purpose for which they are leased, with due diligence and dispatch. If
the Tenant fails to maintain, repair or replace and if it does not
commence to remedy the defect within ten (10) days after written notice
from the Landlord to that effect and diligently proceed to complete
said work thereafter, the Landlord may then remedy the defect and take
all necessary measures thereto; the Tenant shall then pay to the
Landlord, on demand, as Additional Rent, all required costs for work
done, plus fifteen percent (15%) for the Landlord's overhead and
supervision costs, and the Tenant agrees that such entry into the
Leased Premises by the Landlord does not constitute an eviction or
breach of any obligation to provide peaceable enjoyment.
9.3.2. The Tenant shall provide the Landlord, upon written request, with
evidence of the following contracts which shall be kept in force during
the Term:
a) Fire alarm service contract;
b) Sprinkler service contract and test reports;
c) Air conditioning service contract and reports;
d) Grease interceptor cleaning contract and reports.
9.3.3 The Tenant shall permit the regular inspections of the Landlord's
insurer and shall comply with all reasonable recommendations of the
Landlord's insurer.
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9.4 APPROVAL OF TENANT'S REPAIRS
Before commencing any repair, alteration, replacement, change or improvement in
and to the Leased Premises, the Tenant shall submit to the Landlord:
9.4.1 for the Landlord's prior approval, details of the proposed work,
including drawings and specifications prepared by qualified architects
or engineers and conforming to good engineering practice;
9.4.2 such indemnification against hypothecs, costs, damages and expenses as
the Landlord reasonably requires; and
9.4.3 evidence satisfactory to the Landlord that the Tenant has obtained, at
its expense, all necessary consents, permits, licences and inspections
from all governmental authorities having jurisdiction.
Any repair, replacement, alteration, change or improvement which is made by the
Tenant without the prior written approval of the Landlord or which is not made
in accordance with the drawings and specifications approved by the Landlord and
acting reasonably, shall, if requested by the Landlord, be promptly removed by
the Tenant at the Tenant's expense and the Leased Premises shall be restored to
its previous condition. Should the Tenant not comply with the Landlord's request
to Restore the Leased Premises to its previous condition, the Landlord, acting
reasonably, shall have the right to have the Leased Premises restored to its
previous condition at the expense of the Tenant, including an additional charge
of fifteen percent (15%) for the Landlord's overhead and supervision costs,
payable on demand.
All such repairs, replacements, alterations, changes or improvements by the
Tenant in and to the Leased Premises approved of by the Landlord shall be
performed at the sole cost of the Tenant, by competent workmen, in a good and
workmanlike manner, and in accordance with the drawings and specifications
approved by the Landlord and subject to the reasonable regulations, controls and
inspection of the Landlord. The Landlord shall have the right, at the Tenant's
expense, to have all such work in and to the Leased Premises approved by outside
consultants chosen by the Landlord.
9.5 SPECIAL REPAIRS
Should Landlord effect repairs, alterations, additions or improvements to the
Leased Premises (which are not Tenant's responsibility under this Lease), the
Tenant shall permit same to be performed without being entitled to any indemnity
or reduction in rental or any damages or compensation therefor. All such work
shall be completed by the Landlord with reasonable dispatch and the cost thereof
shall, subject to Section 10.5, be included in Operating Expenses.
9.6 MAINTENANCE BY THE LANDLORD
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The Landlord shall at all times throughout the Term, but subject to Article X,
maintain and repair or cause to be maintained and repaired, as would a prudent
owner of a reasonably similar property, the structure of the Building including,
without limitation, the foundations, exterior weather walls, sub-floor, roof,
bearing walls and structural columns and beams of the Building. The cost of such
maintenance and repairs shall be included in Operating Expenses unless the
Landlord is required, due to the business carried on by the Tenant, to perform
such maintenance and repairs by reason of the application of laws or ordinances
or the direction, rules or regulations of any duly constituted regulatory body,
or by reason of any act, omission to act, neglect or default of the Tenant, or
those for whom the Tenant is in law responsible, in which event, the Tenant
shall be liable and responsible for the total cost of such maintenance and
repairs plus a sum equal to fifteen percent (15%) of the total cost of such
maintenance and repairs representing the Landlord's administrative and
supervision costs, which amount shall immediately become due and payable to the
Landlord as Additional Rent upon demand.
[9.7 DELETED BY THE PARTIES.]
9.8 RIGHT OF INSPECTION
During the Term, upon notice to Tenant, except in the event of emergency, the
Landlord, its servants, employees and agents may enter the Leased Premises from
time to time, as the Landlord sees fit, during normal business hours, or in the
case of emergency, at any other time, to examine the state of repair, decoration
and order of the Leased Premises and the equipment, fixtures and improvements
therein and to make such alterations or repairs as the Landlord shall deem
necessary acting reasonably for the safety or preservation of the Leased
Premises. All lack of repair and maintenance found upon such examination and for
which the Tenant is responsible pursuant to this Lease shall, within ten (10)
days after notice to the Tenant or such longer time as is reasonable in the
circumstances, be properly and sufficiently repaired by the Tenant. If the
Tenant fails to repair and maintain as provided for in this Lease, the Landlord
may, without prejudice to any of its other rights or recourses, but shall not be
obliged to, carry out such repairs or maintenance as may be necessary and all
costs incurred by the Landlord for making such repairs or maintenance, together
with a sum equal to fifteen percent (1 5%) of such sum representing the
Landlord's administrative and supervision costs, which amount shall be payable
forthwith by the Tenant as Additional Rent. In no event shall the Landlord, its
contractors, subcontractors, agents, servants or employees be liable for any
damage, contractual or extra- contractual, suffered to the Leased Premises by
reason of the foregoing entry, examination or work as provided for in this
Section.
9.9 LOSS OF ENJOYMENT
It is expressly understood that any loss of enjoyment of the Leased Premises
resulting from the necessity to make repairs, replacements, maintenance or
re-building, alterations, or improvements or resulting from the carrying out
thereof, whether by the Landlord or the Tenant and regardless of whether the
party so carrying out is or is not bound thereto to this Lease, shall
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not constitute grounds for the cancellation, termination or resolution of this
Lease, or for diminution of the rent payable herein, or for a claim in damages,
contractual or extra-contractual.
Notwithstanding anything to the contrary contained herein, Landlord shall not
carry out any repairs, replacements, construction or improvements in the Leased
Premises except in accordance with Sections 9.6, 9.7 and 9.8 hereof.
9.10 OVERLOADING OF FLOORS
The Tenant shall not bring upon the Leased Premises any machinery, equipment,
article or thing that by reason of its weight, size or use might, in the opinion
of the Landlord, damage the Leased Premises nor shall the Tenant at any time
overload the floors of the Leased Premises. If any damage is caused to the
Leased Premises by any machinery, equipment, object or thing or by overloading,
or by any act, neglect or misuse on the part of the Tenant or any of its
servants, agents or employees or any person having business with the Tenant, the
Tenant shall forthwith repair such damage or, at the option of the Landlord, pay
the Landlord forthwith on demand as Additional Rent the costs of repairing such
damage plus the sum equal to fifteen percent (15%) of such costs representing
Landlord's administrative costs.
9.11 DISCHARGE OF HYPOTHECS
The Tenant shall, throughout the Term, promptly pay all its contractors,
suppliers and workmen for any work or services performed or materials supplied
which might give rise to a prior claim or hypothec and shall ensure that no
hypothec be registered against the Leased Premises or any part thereof as a
result of any work carried out by or at the request of Tenant. Should a hypothec
be registered against the Leased Premises or any part thereof as a result of
work or services performed by or on behalf of the Tenant or as the result of
materials supplied to the Tenant, the Tenant shall upon request by the Landlord,
its agents or representatives, cause the hypothec to be discharged forthwith
and, should the Tenant fail to discharge same promptly, then in such event and
in addition to any other right or remedy of the Landlord, the Landlord may, but
shall not be obliged to, discharge the same by paying the amount claimed
directly to the hypothecary creditor. The amount so paid together with all costs
and expenses, including attorney's fees incurred for the discharge of the
hypothec, shall, upon demand, be immediately due and payable by the Tenant to
the Landlord as Additional Rent.
9.12 SIGNS, AWNINGS AND CANOPIES
The Tenant shall not paint, affix, display or cause to be painted, affixed or
displayed any sign, picture, advertisement, notice, lettering or decoration on
any part of the exterior of the Building or the Leased Premises without, in each
instance, the prior written approval of the Landlord, which approval shall not
be unreasonably withheld or delayed.
9.13 SURRENDER OF PREMISES
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At the expiration of the Term or earlier termination of this Lease, the Tenant
will surrender the Leased Premises in the same condition in which the Leased
Promises were upon delivery of possession thereof for reasonable wear and tear
and except for repair which is the responsibility of the Landlord hereunder and
will surrender all keys for the Leased Premises to the Landlord at the place
then fixed for the payment of Minimum Rent and will inform the Landlord of all
combinations of locks, safes and vaults, if any, in the Leased Premises. The
Tenant shall not be permitted or required to remove anything from the Premises
at the end of the Term unless, at the time that Landlord gives its consent to
any changes or improvements, Landlord indicates to Tenant that it will require
Tenant to remove same at the end of the Term, and shall forthwith repair any
damage to the Leased Premises caused by their installations or removal. The
Tenant's obligation to observe or perform this obligation will survive the
expiration or other termination of this Lease.
9.14 TENANT'S OBLIGATION TO PROTECT
The Tenant shall protect from damage all the heating and air-conditioning
apparatus, water, gas and drain pipes, water closets, sinks and accessories
thereof in and about the Leased Premises and keep same free from all
obstructions that might prevent their free working and give to the Landlord
prompt written notice of any accident to or defects in same or any of their
accessories. Any damage resulting from misuse or failure to protect same shall
be the sole responsibility of the Tenant.
ARTICLE X
INSURANCE AND INDEMNITY
10.1 TENANT'S INSURANCE
The Tenant shall, throughout the Term and during such other time as the Tenant
occupies the Leased Premises or part thereof, at its sole cost and expense, take
out and keep in full force and effect the following insurance:
10.1.1 "all-risk" insurance, including the perils of fire, upon property of
every kind and description owned by the Tenant, or for which the Tenant
is legally liable, or installed by or on behalf of the Tenant and which
is located within the Leased Premises, in amounts not less than the
full replacement cost, in each case, thereof. If there is a dispute as
to the amount which comprises full replacement cost, the decision of
the Architect or the Hypothecary Creditor shall be conclusive;
10.1.2 business interruption insurance in such amount as will
reimburse the Tenant for direct or indirect loss of earnings
attributable to all perils insured against in Sub-Section
10.1.1 when applicable and other perils commonly insured
against by prudent tenants operating under similar
circumstances;
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10.1.3 comprehensive general liability insurance including but not limited to
personal injury liability, contractual liability, contingent employer's
liability, non-owned automobile liability and owners' and contractors'
protective insurance coverage with respect to the Leased Premises, to
the business carried on, in or from the Leased Premises and to the
Tenant's use of the Leased Premises, coverage to include the activities
and operations conducted by the Tenant and any other person on the
Leased Premises, and by the Tenant and any other person performing work
on behalf of the Tenant and those for whom the Tenant is in law
responsible in any other part of the Leased Premises. Such policies
shall be issued for the global amount of not less than Two Million
Dollars ($2,000,000.) for each occurrence involving bodily injury,
death or property damage, or for such higher limits as the Landlord may
reasonably require from time to time;
10.1.4 any other form of insurance as the Hypothecary Creditor or the
Landlord may reasonably require from time to time in form, in
amounts and for insurance risks determined by them, acting
reasonably.
10.2 TERMS AND CONDITIONS OF TENANT'S INSURANCE
Each insurance policy referred to in Section 10.1, other than the "all-risk"
insurance referred to in Subsection 10.1.1 and the business interruption
insurance referred to in Subsection 10.1.2, shall name the Landlord and any
persons, firms or corporations designated by the Landlord, as named insureds as
their interests may appear, and will contain:
10.2.1 the standard mortgage clause as may be required by the Hypothecary
Creditor;
10.2.2 a waiver of any subrogation rights which the Tenant's insurers
may have against the Landlord and/or against those for whom
the Landlord is in law responsible, and, in the case of
comprehensive general liability, a cross liability and
severability of interests clause;
10.2.3 a waiver in favour of the Landlord and the Hypothecary
Creditor of any breach of warranty clause such that the
insurance policies in question shall not be invalidated as
respects their interests, by reason of any breach or violation
of any warranties, representations, declarations or conditions
contained in the policies;
10.2.4 a clause stating that the Tenant's insurance policy will be
considered as primary insurance and shall not call into
contribution any other insurance that may be available to the
Landlord.
The Landlord, for purposes of insurance, shall be designated as:
Amenagements Rovo Inc.
Les Associes Presud
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The Landlord reserves the right to modify this list periodically at no cost to
the Landlord.
All policies shall be issued by insurers acceptable to the Landlord and shall be
in a form satisfactory from time to time to the Landlord. The Tenant agrees that
certificates of insurance or, if required by the Landlord or the Hypothecary
Creditor upon written request, certified copies of each such insurance policy
will be delivered to the Landlord as soon as practicable after the issuance of
the required insurance. All policies shall contain an undertaking by the
insurers to notify the Landlord, at the address for sending notices to the
Landlord and the Hypothecary Creditor, in writing, not less than thirty (30)
days prior to any material change, cancellation or termination thereof. The
Tenant also agrees that if the Tenant fails to take out or keep in force any
policy of insurance referred to in Section 10.1, the Landlord shall have the
right, after notice in writing to Tenant of at least three (3) business days,
but not the obligation to do so, to pay the premium and in that event the Tenant
will pay to the Landlord the amount so paid as premium plus fifteen percent
(15%) for administrative costs as Additional Rent and it will be due and payable
on the first day of the month next following the payment by the Landlord.
The acquisition and maintenance by the Tenant of the insurance policies as
required pursuant to Section 10.1 shall in no manner whatsoever limit or
restrict the liability of the Tenant under this Lease.
Notwithstanding any contribution by the Tenant to the insurance premiums, the
Tenant agrees that it shall have no insurable interest in the insurance carried
by the Landlord, and the Tenant will have no right to receive any proceeds of
any such insurance.
10.2.5 a clause stating that the Tenant's insurance policy will
extend to any and all activities which may occur on the
exterior of the Building but within the Leased Premises (which
shall included the lands) as defined in Article 1.
Furthermore, for purposes of clarity, the policy shall clearly
stipulate that coverage is extended to the parking lot of the
Tenant.
10.3 INCREASE IN LANDLORD'S INSURANCE PREMIUMS
The Tenant will not keep, or suffer to be kept, anything, or use, sell or offer
for sale any article or merchandise in, upon or about the Leased Premises that
may contravene or be prohibited by any of the Landlord's insurance policies
covering the Leased Premises or any part thereof or which will prevent the
Landlord from procuring such policies with companies acceptable to the Landlord.
If the occupancy of the Leased Premises, the conduct of business in the Leased
Premises, the sale of any merchandise on the Leased Premises (whether or not the
Landlord has consented to the sale of such merchandise) or in any other portion
of the Leased Premises or any acts or omission of the Tenant in the Leased
Premises or any other portion of the Leased Premises causes or results in any
increase in premiums for any of the Landlord's insurance policies, the Tenant
shall, upon the rendering by the Landlord of the invoices for such additional
premiums forthwith pay such increase in premiums as Additional Rent forthwith.
In determining whether increased premiums are the result of the Tenant's use of
the Leased premises or any
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other portion the Leased Premises, a statement issued by the organization
establishing the insurance rate on the Leased Premises will be conclusive
evidence of the reasons causing the increase in premiums.
10.4 CANCELLATION OF INSURANCE
If any insurance policy on the Leased Premises or any part thereof is cancelled
or threatened by the insurer to be cancelled, or the coverage thereunder reduced
or threatened to be reduced by the insurer by reason of the use or occupancy of
the Leased Premises or any part thereof by the Tenant or by any assignee or
sub-tenant of the Tenant, or by anyone permitted by the Tenant to be upon the
Leased Premises, and if the Tenant falls to remedy the condition giving rise to
cancellation, threatened cancellation, reduction or threatened reduction of
coverage within twenty-four (24) hours after notice thereof by the Landlord, the
Landlord may, at its option, and without liability to the Tenant, either:
10.4.1 enter the Leased Premises and remedy the conditions giving
rise to the cancellation or reduction or threatened
cancellation or reduction and the Tenant will pay, on demand
as Additional Rent to the Landlord the cost thereof. The
Tenant agrees that any such entry by the Landlord is not a
re-entry or a breach of any obligation for peaceable enjoyment
contained in this Lease; or
10.4.2 re-enter the Leased Premises forthwith and thereupon the provisions of
Article XIV will apply.
The Tenant agrees that the Landlord will not be liable for damage or injury
caused to property of the Tenant or others located on the Leased Premises as a
result of any entry or re-entry by the Landlord under this Section 10.4.
10.5 LOSS OR DAMAGE
10.5.1 The Landlord shall not be liable for any loss, damage, death or injury
arising from or out of any occurrence in, upon, at or relating to the
Leased Premises (to the extent that this waiver is permitted by law),
or damage to property of the Tenant or of others located on the Leased
Premises, nor shall it be responsible for any loss of or damage to any
property of the Tenant or others from any cause whatsoever, unless such
death, injury, loss or damage results from the negligence of the
Landlord, its agents, servants and employees or other persons for whom
it may in law be responsible. Without limiting the generality of the
foregoing, the Landlord shall not be liable for any injury or damage to
persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water, rain, flood, snow or leaks from any
part of the Leased Premises or from the pipes, appliances, plumbing
works, roof, sub-surfaces of any floor or ceiling or from the street or
any other place or by dampness or by any other cause whatsoever and,
notwithstanding any provision of the Civil Code to the contrary, any
act or omission of any other tenant or
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occupant of the Leased Premises. The Landlord shall not be liable for
any such damage caused by other tenants or by persons in the Leased
Premises or by occupants of property adjacent thereto or the public, or
caused by construction or by any private, public or quasi-public work.
All property kept or stored on the Leased Premises shall be so kept and
stored at the risk of the Tenant only and the Tenant shall indemnify
the Landlord and save it harmless from and indemnify it against any
claims resulting or arising out of any damages to the same, including,
without limitation, any subrogation claims by the Tenant's insurers.
10.5.2 Without in any way limiting the application of the foregoing
subsection, where any damage to person or property is caused by the
Landlord or any person for whom the Landlord is responsible on or about
the Leased Premises, and the loss is wholly or partly covered by
insurance which the Tenant is either: (a) in fact maintaining; or (b)
is required to maintain under the terms of this Lease, then to the
extent the Landlord is liable for damage, the Tenant hereby releases
the Landlord for any amount equal to the greater of the actual
insurance proceeds Tenant receives in respect of such damage or the
insurance proceeds it would receive if it maintains the required
insurance and diligently pursues all claims against each applicable
insurer.
10.6 INDEMNIFICATION OF LANDLORD
Notwithstanding any other term, obligation and condition contained in this
Lease, including, without limitation, the Landlord's obligation to repair and
the Tenant's obligation to pay the costs of insurance, but subject to Section
10.7 hereof, the Tenant shall indemnify and save it harmless from and against
any and all loss, claim, action, damage, liability and expense in connection
with loss of life, personal injury, damage to property or any other loss or
injury whatsoever arising from or out of this Lease, or any occurrence in, upon
or at the Leased Premises, or the occupancy or use by the Tenant of the Leased
Promises or any part thereof or occasioned wholly or in part by any act or
omission of the Tenant or by anyone permitted to be on the Leased Premises by
the Tenant. If the Landlord without fault on its part should be made a party to
any litigation commenced by or against the Tenant, then the Tenant shall
protect, indemnify and hold the Landlord harmless and shall pay all costs and
expenses and reasonable legal fees incurred or paid by the Landlord in
connection with such litigation. The Tenant shall also pay all costs, expenses
and legal fees that may be incurred or paid by the Landlord in enforcing the
terms, obligations and conditions of this Lease.
10.7 The Landlord will insure the Building and the Land as a reasonably
prudent landlord of a similar building, it being, however, agreed and understood
that the Landlord will not insure any of Tenant's improvements that are not
incorporated into the Building, same being the responsibility of the Tenant.
The Landlord's property insurance will contain a waiver of any subrogation
rights which the Landlord's insurers may have against the Tenant and/or those
for whom the Tenant is in law
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responsible. The Landlord releases and waives any and all claims for damages
against the Tenant and those for whom the Tenant is in law responsible with
respect to occurrences insured or to be insured by the Landlord, whether or not
such claims arise as a result of the negligence of the Tenant or of those for
whom Tenant is in law responsible.
ARTICLE XI
DAMAGE AND DESTRUCTION AND EXPROPRIATION
11.1 DESTRUCTION OF LEASED PREMISES
a) In the event that the Building is wholly destroyed, then either Tenant
or Landlord shall have an option to cancel the Lease, upon giving the
other notice within forty-five (45) days of the event.
b) Should the Building be partially destroyed and it will take longer than
six (6) months to rebuild, then either Landlord or Tenant shall have an
option to cancel the Lease, upon giving the other notice within
forty-five (45) days of the event. If neither party elects to cancel,
then Landlord shall rebuild and all rent will abate in the proportion
that the unusable part of the Building forms to the whole of the
Building.
c) If it will take less than six (6) months to rebuild, then, provided
that Landlord is insured therefor or would have been insured therefor
had it insured as a reasonable prudent Landlord, then Landlord shall
proceed to rebuild and all rent will abate as aforementioned.
d) The Landlord's architect shall notify the Landlord and the Tenant
within thirty (30) days of the damage or destruction of the time needed
to repair.
From the date of the destruction or damage until the Leased Premises have been
restored and rendered fit for occupancy.
Upon the Tenant being notified in writing by the Landlord that the Landlord's
obligations pursuant to this Section 11.1 have been substantially completed, the
Tenant shall forthwith complete all Tenant's work, including, without
limitation, such work as provided in Schedule "C" hereto and all work required
to fully restore the Leased Premises for business fully fixtured, stocked and
staffed. The Tenant shall diligently complete the Tenant's Work and Minimum Rent
and Additional Rent shall recommence at the earlier of the expiration of sixty
(60) days following completion of Landlord's Work or the commencement of
business by Tenant in the portion of the Leased Premises that have been damaged
or destroyed.
11.2 LEASE IN FORCE
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Notwithstanding anything to the contrary contained in the Civil Code, and except
as may otherwise be provided in this Article XI, this Lease shall continue to be
and remain in full force and effect upon the occurrence of any damages or
destruction to the Leased Premises and/or the Leased Premises or any part(s)
thereof as contemplated in this Article XI.
11.3 REBUILDING
It is expressly understood that all repair and rebuilding by the Landlord under
any provision of this Article XI may be carried out by the Landlord, as the
Landlord, in its discretion, determines and, without limiting the generality of
the foregoing, in no event shall the Landlord be bound to repair or rebuild the
Leased Premises to their original form, specification or dimension, providing
that the parties agree, acting reasonably. to the form, specification and
dimension of the rebuilt premises.
11.4 EXPROPRIATION
Both the Landlord and the Tenant agree to cooperate with each other in respect
of any expropriation of all or any part of the Leased Premises, so that each may
receive the maximum award to which each is respectively entitled by law.
In the event that the whole or any part of the Leased Premises is condemned,
reserved, expropriated or taken or acquired in any manner for any public or
quasi-public use or purpose, rendering the operation of the Leased Premises, no
longer practical, then either party may, at its option, terminate this Lease by
giving notice to the other party, to the effect that the Term shall expire upon
the date of the taking of possession thereof by the expropriating authority and,
in the event of such expiration, each party shall have no claim against other
for any reason whatsoever. The Landlord and the Tenant hereby reserve all right
to claim damages against the expropriating authority. The Tenant agrees that the
Landlord shall have no obligation to contest any expropriation proceedings.
ARTICLE XII
SUB-LET AND ASSIGNMENT
12.1 CONSENT TO SUB-LET OR ASSIGN
Notwithstanding any law, usage or custom to the contrary, the Tenant shall not
transfer, assign, hypothecate or encumber this Lease or any of the Tenant's
right, title or interest therein or thereto, or sub-let the whole or any part of
the Leased Premises or permit the Leased Premises or any part thereof to be
used, occupied or possessed by another without conforming to the terms of
Section 12.3, and in any event without the prior written consent of the
Landlord, which consent shall not be unreasonably withheld as it applies only to
a transfer, assignment or sublet. The consent to hypothecation or encumbrance
may be withheld at the Landlord's sole discretion and
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shall not be subject to any test of reasonableness. Without limiting or
restricting, in any manner whatsoever, the Landlord's right to refuse its said
consent on other reasonable grounds, it is expressly understood and agreed that
the refusal by the Landlord to grant its said consent shall be deemed
reasonable, where the Tenant is in monetary and/or material default under this
Lease, or where the occupant, transferee, assignee or sub-lessee is not, in its
sole discretion and determination, satisfactory to the Landlord as regards
financial standing. The consent of the Landlord to any such transfer,
assignment, encumbrance, sub-let or use shall not constitute a waiver of this
Section and shall not be deemed to permit any further transfer, assignment,
encumbrance, sub-let or use by another.
12.2 CONDITIONS PRECEDENT
As a condition precedent to any transfer or assignment of this Lease or
sub-letting of the whole or any part of the Leased Premises, the Tenant shall
indicate, in writing, to the Landlord the proposed assignee, transferee or
sub-lessee and providing other information as the Landlord, acting reasonably,
may request, including, without limitation, information concerning the
principals thereof and such other financial or business information as the
Landlord or the Hypothecary Creditor may request, and the specific terms and
conditions of such proposed assignment or sub-lease.
12.3 LANDLORD'S OPTION
The Landlord shall have a period of fifteen (15) days from receipt of the
request for its consent required pursuant hereto and all requested information
to either:
12.3.1 consent;
12.3.2 refuse its consent as provided in Section 12.1;
[12.3.3 deleted by the parties.]
If the Landlord consents to such assignment, transfer or sub-let, the Tenant
shall have a delay of sixty (60) days commencing from receipt of such consent to
proceed to assign, transfer or sub-let to the interested party in accordance
with the terms and conditions indicated to the Landlord. If the Tenant fails to
so assign, transfer or sub-let within the said delay of sixty (60) days, the
Landlord's consent shall be deemed null and void and the Tenant shall not be
permitted to assign, transfer or sub-let without again conforming to the
provisions of this Article XIII.
12.4 CONDITIONS OF CONSENT
Notwithstanding the provisions of Section 12.3 and in addition thereto, the
Landlord shall have the right to require the prospective sub-lessee, transferee
or assignee to execute a new lease with the Landlord on the same terms and
conditions as contained in this Lease, and in such event the
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Tenant shall guarantee to the Landlord, in form and substance satisfactory to
the Landlord, the performance of all obligations of such sub-lessee, transferee
or assignee under the new lease.
12.5 CHANGE ON CONTROL
The following shall be deemed to be a sub-lease for the purposes of this Lease
and shall be subject to the provisions of Article XII:
12.5.1 any transfer, sale or assignment involving in effect (by one
or more transactions) a transfer, directly or indirectly, of
fifty percent (50%) or more of the voting shares of the share
capital of the Tenant;
12.5.2 any transfer, sale or assignment involving in effect (by one
or more transactions) a transfer, directly or indirectly, of
fifty percent (50%) or more of the ownership in a partnership,
where the Tenant is a partnership;
12.5.3 if any person other than the Tenant has or exercises the right
to manage or control the Leased Premises or any part thereof,
or any of the business carded on therein other than subject to
the direct and full supervision and control of the Tenant:
12.5.4 if effective control of the Tenant is acquired or exercised by
any person not having effective control of the Tenant as at
the date of execution of this Lease.
Notwithstanding the foregoing, this Section 12.5 shall not apply to the Tenant
at the time of execution of this Lease and thereafter continuing during the Term
and so long as the Tenant is a public corporation whose shares are traded and
listed on any recognized stock exchange in Canada.
12.6 SOLIDARY LIABILITY
Notwithstanding Article 1873 of the Civil Code of Quebec or any other
legislation to the contrary, the Tenant shall remain solidarily liable with the
assignee, transferee or sub-lessee for the due fulfillment of all of the
obligations undertaken herein by the Tenant, or as the case may be, all of the
obligations of such sub-lessee, transferee or assignee. The Tenant shall not be
released from performing any of the terms, obligations and conditions of this
Lease, the Tenant hereby waiving the benefits of division and discussion.
12.7 LIABILITY TO LANDLORD
No assignment, transfer or sub-let shall be permitted unless the sub-lessee or
assignee, as the case may be, shall have expressly agreed to be bound directly
towards the Landlord for the due fulfilment of all of the Tenant's obligations
under this Lease. The Tenant and the assignee, transferee and subtenant will
execute such documentation as Landlord requires. At the
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Landlord's option, the assignee or transferee will enter into a new lease with
the Landlord at the same terms and conditions as this Lease save for the Leased
Premises which will be delivered as is, whereas, the Term, which will be the
unexpired portion of the Term, and the Minimum Rent of which will be calculated
in accordance with Section 4.1.1. The Tenant will guarantee the obligations of
the "Tenant" under the new lease in a manner Landlord determines, acting
reasonably.
If Landlord consents to a sublease, all sub-rentals and similar amounts payable
by a subtenant or other person to the Tenant are hereby irrevocably and
unconditionally assigned to the Landlord such that the subtenant or other person
will pay all such sums directly to the Landlord and the amounts so paid will be
credited against Tenant's monetary obligations under this Lease. In no event
will this assignment or any dealings with the subtenant or other person have the
effect of releasing the Tenant from any of its obligations under this Lease.
Furthermore, it is understood that if Landlord does not collect any sub-rentals
or other amounts from any subtenant or other person the Tenant will have no
claim or defense against the Landlord in any manner whatsoever, provided that
the Landlord notifies Tenant of the defaults on a timely basis. Even in the case
of an assignment or transfer, the Tenant shall at all times be considered a
solidary cotenant, until the end of the Term stipulated herein, and remain
subject to all obligations of the Lease; in case of repudiation of the Lease by
the Assignee or Subtenant, its trustee or liquidator or other legal
representative, the Tenant shall remain liable and in no way relieved of any
obligation of the present Lease.
12.8 ASSIGNMENT BY LANDLORD
In the event of the sale, lease, transfer or other disposition by the Landlord
of the Leased Premises or any part thereof, or the assignment by the Landlord of
this Lease or any interest of the Landlord hereunder, and to the extent that
such purchaser or assignee assumes the obligations of the Landlord hereunder or
by law, the Landlord shall, thereupon and without further agreement, be released
of all liability with respect to such obligations, but only those falling due
after the date of the applicable sale, lease, transfer or other disposition or
the assignment.
12.9 DOCUMENTS
The cost of preparing, negotiating and executing any document in respect of any
assignment, transfer or sublease will be borne exclusively by Tenant.
ARTICLE XIII
DEFAULT AND TERMINATION
13.1 EVENTS OF DEFAULT
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Each of the following events (hereinafter called an "Event of Default") shall be
a default hereunder by the Tenant and a breach of this Lease:
13.1.1 if the Tenant fails to pay Minimum Rent and any other sum
payable pursuant to this Lease as and when the same become
payable and fails to correct such default within five (5) days
after notice in writing from the Landlord, it being hereby
agreed and understood that if the Landlord shall be required
to send two (2) such notices in any consecutive period of
twelve (12) months, Tenant shall not be entitled to any
further notice; or
13.1.2 if, during the Term, any of the goods or moveable effects on
the Leased Premises are seized or taken in execution or
attachment by any creditor of the Tenant, pursuant to a
judgment rendered against the Tenant, or pursuant to this
Lease (in the event of a seizure before judgment it shall be
considered an Event of Default under the present Article if a
main-levee of the seizure is not obtained within fifteen (1 5)
days of the seizure being practiced); or
13.1.3 if a writ of execution is issued against the goods or property
of the Tenant or against this Lease; or
13.1.4 if the Tenant or any person occupying the Leased Premises
files any proposal or makes any assignment for the benefit of
creditors or any arrangement or compromise or becomes bankrupt
or insolvent or takes the benefit of or becomes subject to any
legislation that may be in force relating to bankrupt or
insolvent debtors; or
13.1.5 if any application or petition or certificate or order is made
or granted for the winding-up or dissolution or liquidation of
the Tenant or its assets, voluntarily or otherwise; or
13.1.6 if the Leased Premises, at any time during the Term, becomes
vacant by reason of their abandonment by the Tenant or by the
removal of the Tenant by legal process for non-payment of
rent, breach of covenant or any other cause; or
13.1.7 if any insurance policy insuring the Leased Premises or the
Landlord with respect to the Leased Premises is cancelled or
threatened to be cancelled by reason of the use and occupation
of the Leased Premises or any part thereof, or
13.1.8 if the Tenant assigns, transfers, encumbers, sub-lets or
permits the occupation or use or the parting with or sharing
possession of all or any part of the Leased Premises by anyone
except in a manner permitted by this Lease and the default is
not cured within fifteen (15) days of written notice of such
default from the Landlord; or
13.1.9 if any hypothec or other encumbrance is registered against the
Leased Premises by reason of any act or omission of the Tenant
and the default is not cured within fifteen (15) days of
written notice of such default from the Landlord; or
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13.1.10 if at any time during the Term, the Tenant or any other person
removes or attempts to remove any of the moveable effects of
the Tenant from the Leased Premises, save and except in the
ordinary course of the Tenant's business, without the written
approval of the Landlord; or
13.1.11 if a receiver or a sequestrator is appointed for all or any
portion of the Tenant's property; or
13.1.12 if the Tenant is in default in fulfilling any other term,
condition or obligation of this Lease and the default is not
cured within fifteen (15) days of written notice of such
default from the Landlord.
[13.1.13 deleted by the parties.]
then and in every such Event of Default, at the Landlord's option, the Lease
will be ipso facto resiliated without judicial proceedings being required and
without prejudice to the Landlord's other rights and recourses, and the Term of
this Lease will forthwith become forfeited, without diminishing or extinguishing
the liability of any guarantor or indemnifier. No payment or acceptance of
rental subsequent to such Event of Default will give the Tenant the right to
continue occupancy of the Leased Premises or in any way affect the rights of the
Landlord herein. If the Landlord at any time terminates this Lease for any
breach or by reason of the occurrence of an Event of Default or if any legal
action is taken for the recovery of possession of the Leased Premises or for the
recovery of possession of the Leased Premises, then the equivalent of six (6)
months instalments of Minimum Rent and Additional Rent will immediately become
due and payable as accelerated rent, and the Landlord may, in addition to any
other remedies it may have hereunder or by law, recover from the Tenant all
damages and all expenses it may incur or suffer by reason thereof, including,
without limitation, legal fees and legal costs and the cost of repossessing the
Leased Premises.
13.2 RE-ENTRY
Upon the occurrence of an Event of Default, the Landlord may, without notice to
the Tenant and without prejudice to any other right of the Landlord hereunder or
by law, enter and repossess the Leased Premises and it may use such force as it
may deem necessary for that purpose and for gaining admittance to the Leased
Premises and it may expel all persons and remove all property from the Leased
Premises, which property may be removed and sold or disposed of by the Landlord
as it deems advisable, or may be stored in a public warehouse or elsewhere at
the cost and for the account of the Tenant, the whole without the Landlord being
considered guilty or trespassing or becoming subject to any prosection or
becoming liable for any loss or damage which may be occasioned thereby, any
statute or law to the contrary notwithstanding.
13.3 RIGHT TO RE-LET
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If the Landlord elects to repossess the Leased Premises as herein provided, or
if it takes possession pursuant to legal proceedings, or pursuant to any notice
provided for by law, it may either terminate this Lease or it may from time to
time, without terminating this Lease, make such alterations and repairs as may
be necessary in order to re-let the Leased Premises, and re-let the Leased
Premises or any part thereof, either in the name of the Landlord or otherwise
for a term or terms which may, if the Landlord chooses, be less or greater than
the balance of the Term and at such rent and upon such other terms and
conditions as the Landlord, in its sole discretion, deems advisable, and the
Landlord may grant reasonable concessions in connection therewith. Upon each
such re-letting all rent received by the Landlord from such re-letting shall be
applied firstly to the payment of any indebtedness, other than rent, due
hereunder from the Tenant to the Landlord, secondly to the payment of any costs
and expenses of such re-letting, including legal costs, legal fees and brokerage
fees and the expenses of keeping the Leased Premises in good order and of
preparing the Leased Premises for re-letting, thirdly to the payment of rent due
and unpaid hereunder, and the residue, if any, shall be held by the Landlord and
applied in payment of future rent as the same becomes due and payable hereunder.
If such rentals received from such re-letting during any month be less than that
paid during that month by the Tenant, the Tenant shall pay such deficiency to
the Landlord. Such deficiency shall be calculated and paid monthly. No such
taking possession of the Leased Premises by the Landlord shall be constituted as
an election on its part to terminate this Lease unless a written notice of such
intention in accordance with the present Section is given to the Tenant.
Notwithstanding any re-letting, without termination, in accordance with the
present Section, the Landlord may, at any time thereafter, elect to terminate
this Lease for a previous Event of Default.
13.4 APPLICATION OF MONEYS
All payments by the Tenant under the terms of this Lease, whether in respect of
Minimum Rent, may be applied or allocated by the Landlord towards the payment of
any other amounts due and payable by the Tenant to the Landlord at the date of
such payment, irrespective of the purpose for which such payment by the Tenant
was effected, the whole in such manner as the Landlord, in its sole discretion,
sees fit.
13.5 ABANDONED GOODS
Should the Tenant leave in or about the Leased Premises any moveable effects or
fixtures for more than eight (8) days after having abandoned or vacated the
Leased Premises or remitted the key therefor to the Landlord, and Landlord shall
have notified Tenant of the presence of such movable effects or fixtures and
Tenant has not reacted within a further period of eight (8) days, then the
Landlord shall, ipso facto without any notice being required, become the owner
of such moveable effects and fixtures and the Tenant shall have no claim in
damages, whether contractual or extra-contractual or otherwise, in connection
therewith and the Tenant shall hold the Landlord harmless and indemnified from
and against any claims or actions in connection therewith from whomsoever.
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13.6 LANDLORD'S RIGHT TO CURE DEFAULTS
Without limiting the generality of any provision of this Lease, if the Tenant
defaults in the performance of any of its obligations under this Lease, the
Landlord may, from time to time, after giving ten (10) days notice (or without
notice in the case of an emergency) perform or cause to be performed any of such
obligations and for such purposes, may do such things as may be required,
including, without limitation, entering upon the Leased Premises and doing such
things upon or in respect of the Leased Premises or any part thereof as the
Landlord reasonably considers requisite or necessary. All expenses incurred
pursuant to this Section 13.6 plus a sum equal to fifteen percent (15%) thereof,
representing the Landlord's administrative costs shall be paid by the Tenant, as
Additional Rent, forthwith upon demand. The Landlord shall not be liable to the
Tenant for any loss or damage resulting from any such action or entry by the
Landlord and the same shall not be considered a breach of any obligation for
peaceable enjoyment contained in this Lease or implied by law.
13.7 REMEDIES GENERALLY
Mention in this Lease of any particular remedy or remedies of the Landlord in
respect of any default by the Tenant shall not preclude the Landlord from any
other remedy in respect thereof, including the right to specific performance of
any obligation of the Tenant under this Lease. No remedy shall be exclusive or
dependent upon any other remedy, but the Landlord may, from time to time,
exercise any one or more of such remedies simultaneously or in combination, such
remedies being cumulative and not alternative
13.8 SURRENDER OF LEASED PREMISES
Should the Landlord validly repossess the Leased Premises as a result of an
event of default, or validly terminate this Lease and should it give notice in
writing to the Tenant to that effect, the Tenant shall, within five (5) days
notice, remove all goods located in the Leased Premises, in default of which the
Tenant undertakes to pay the rent for the period during which its goods or goods
under its care remain in the Leased Premises and the Tenant shall pay an
Additional Rent equal to three (3) times the Minimum Rent until complete
surrender of the Leased Premises, the whole without prejudice to the Landlord's
other rights hereunder or by law.
ARTICLE XIV
ACCESS BY LANDLORD
14.1 RIGHT OF ENTRY
Upon twenty-four (24) hours prior notice, the Landlord and its agents have the
right to enter the Leased Premises at all reasonable times to show them to
prospective purchasers, lessees, the Hypothecary Creditor, insurers or their
representatives. During the twelve (12) months prior to
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the expiration of the Term, the Landlord may place upon the Leased Premises the
usual notice "For Rent" or "For Sale" at any time which the Tenant must
tolerate, without damaging same. In the event the Tenant is not personally
present to open and permit an entry into the Leased Premises, at any time, when
for any reason under this Lease an entry therein is necessary or permissible,
and the Landlord has notified Tenant of same, if required, the Landlord or its
agents may forcibly enter the same, without rendering the Landlord or such
agents liable therefor, and without in any manner affecting the obligations
under this Lease.
14.2 EXCAVATION
If an excavation is made upon land adjacent to the Building, or is authorized to
be made by the Landlord, the Tenant will give to the person making the
excavation permission to enter upon the Building for the purpose of doing the
work that the Landlord considers necessary to preserve the wall of the Building
from injury or damage and to support it by proper foundation, without any claim
for damages or indemnification against the Landlord or diminution of rent. Any
work undertaken by or on behalf of the Landlord pursuant to this Section 14.2
shall not be considered a breach by the Landlord of its obligations, contained
in this Lease or implied by law, to provide peaceable enjoyment.
ARTICLE XV
SUBORDINATION ATTORNMENT AND STATUS STATEMENT BY TENANT
15.1 SUBORDINATION AND ATTORNMENT BY TENANT TO HYPOTHECARY CREDITOR
It is a condition of this Lease that it and all of the Tenant's rights hereunder
shall at all times be subject to and subordinate to the rights of each
Hypothecary Creditor, provided that each Hypothecary Creditor agrees that the
peaceful possession of the Leased Premises by Tenant shall not be disturbed as
long as Tenant is not in default hereunder. The Tenant shall, upon demand,
subordinate this Lease and all of its rights hereunder to the rights of each
Hypothecary Creditor, in such form as the Landlord may require, and, if
requested, the Tenant shall become the Tenant of each Hypothecary Creditor.
Whenever and under whatsoever circumstances ownership of the leased Premises
changes, the Tenant shall attorn to and become the tenant of the new owner of
the Leased Promises as if such new owner were the Landlord under this Lease and
the future obligations and liabilities of the Landlord hereunder shall then,
IPSO FACTO, cease and terminate, provided that the new owner has assumed all
future obligations of Landlord hereunder.
15.2 STATUS STATEMENT (ESTOPPEL CERTIFICATE)
At any time during the Term and within ten (10) days of the Landlord's request
therefor, the Tenant shall execute and deliver, as directed by and in the form
prepared by the Landlord to any person, a certificate or status statement
certifying among such other things as the Hypothecary
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Creditor or any prospective purchaser of the Leased Premises or any part
thereof, from time to time, require:
15.2.1 that this Lease has been validly executed and delivered by the
Tenant pursuant to due corporate action properly taken by it;
15.2.2 that this Lease is unmodified and in full force and effect or,
if there have been modifications, that this Lease is in full
force and effect, as modified and identifying the modification
agreements;
15.2.3 the Commencement Date and the termination date;
15.2.4 the date to which Minimum Rent have been paid;
15.2.5 that there is no existing default by the Tenant in the payment
of any Minimum Rent under this Lease and that there is no
other existing or alleged default by either party under this
Lease and if there is any such default, specifying the nature
and extent thereof;
15.2.6 that no rent has been paid more than thirty (30) days in
advance of its due date;
15.2.7 that the Tenant has accepted and is in possession of and is
occupying the Leased Premises;
15.2.8 that the Landlord's work, as provided in Schedule "C" hereto,
has been completed to the satisfaction of the Tenant; and
15.2.9 whether there are any set-offs, defenses or counter-claims
against the enforcement of the obligations to be performed by
the Tenant under this Lease.
ARTICLE XVI
MISCELLANEOUS
16.1 NO TACIT RENEWAL
Notwithstanding the Civil Code, there shall be no tacit renewal of this Lease.
Should the Tenant remain in possession of the Leased Premises after the
expiration of the Term without the written consent of the Landlord, such
continued occupation shall be at a monthly rate payable in advance equal to one
and a half (1-1/2) times the aggregate of the monthly instalment of Minimum Rent
and Additional Rent payable for the last month of the Term and shall be without
prejudice to the Landlord's right to re-enter and take possession of the Leased
Premises and remove the Tenant
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therefrom, without notice or indemnity to the Tenant, and without prejudice to
the Landlord's other recourses hereunder or by law.
16.2 ACCORD AND SATISFACTION
No payment by the Tenant or receipt by the Landlord of a lesser amount than the
monthly payment of Minimum Rent herein stipulated is deemed to be other than on
account of the earliest stipulated Minimum Rent, nor is any endorsement or
statement on any cheque or any letter accompanying any cheque or payment as rent
deemed an acknowledgment of full payment or an accord and satisfaction, and the
Landlord may accept and cash such cheque or payment without prejudice to the
Landlord's right to recover the balance of such rent or pursue any other remedy
provided in this Lease or by law.
16.3 ENTIRE AGREEMENT
This Lease together with the schedules referred to herein and the reasonable
Rules and Regulations adopted and promulgated by the Landlord pursuant to the
provisions hereof set forth the entire agreement and understanding between the
parties concerning the Leased Premises, and the Tenant acknowledges that there
have been no promises, representations, agreements, conditions or
understandings, either oral or written, express or implied, collateral or
otherwise, between the Landlord and the Tenant other than as herein set forth.
Except as otherwise expressly provided, no subsequent alteration, amendment,
change or addition to this Lease shall be binding upon the Landlord or the
Tenant unless in writing and duly signed by the Tenant and the Landlord.
16.4 WAIVER
The waiver by the Landlord of any breach of any term, obligation or condition
herein contained is not deemed to be a waiver of such term, obligations or
condition or of a subsequent breach of the same or of any other term, obligation
or condition herein contained. The subsequent acceptance of rent by the Landlord
will not be deemed to be a waiver of any preceding breach by the Tenant of any
term, obligation or condition of this Lease, regardless of the Landlord's
knowledge of the preceding breach at the time of acceptance of the rent. No
obligation, term or condition of this Lease will be deemed to have been waived
by the Landlord unless the waiver is in writing, signed by the Landlord. All
Minimum Rent to be paid by the Tenant to the Landlord hereunder shall be paid
without any deduction, abatement, set-off or compensation whatsoever and the
Tenant hereby waives the benefit of any statutory or other rights in respect of
abatement, set-off or compensation which could exist in its favour at the
present time hereof or at any future time.
16.5 NO PARTNERSHIP
The Landlord shall not, in any way, or for any purpose, become a partner of the
Tenant in the conduct of its business or otherwise, or a joint venturer or a
member of a joint enterprise with the
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Tenant. The provisions of this Lease payable hereunder are included solely for
the purpose of providing a method whereby the rent is to be measured and
ascertained, and neither the method of computation of rent nor any other
provision contained herein, nor any acts of the parties hereto shall create a
relationship between the parties other than that of landlord and tenant.
16.6 FORCE MAJEURE
Notwithstanding anything to the contrary contained in this Lease, if either
party hereto is BONA FIDE delayed or hindered in, or prevented from, the
performance of any term, obligation or act required hereunder by reason of
strikes, lock-outs, labour troubles, inability to procure materials, failure of
power, restrictive governmental laws or regulations, riots, insurrection, war,
act of God or other reason of a like nature or not the fault of the party
delayed in performing work or doing acts required under the terms of this Lease,
then performance of the act will be excused for the period of the delay and the
period for the performance of the act will be extended for a period equivalent
to the period of the delay. The provisions of this Section 16.6 do not cancel or
postpone or delay the due date of any payment to be made by the Tenant
hereunder, or operate to excuse the Tenant from the prompt payment of Minimum
Rent or other payments required by the terms of this Lease.
16.7 NOTICE
Any notice, demand, request or other instrument which may be or is required to
be given under this Lease shall be delivered in person or sent by registered
mail postage prepaid and shall be addressed:
16.7.1 if to the Landlord: at the address set forth in Section IX (i)
of the Preamble:
16.7.2 if to the Tenant at the Leased Premises or, at the Landlord's
option, to the Tenant's head office at the address set forth
in Section VIII(ii) of the Preamble.
Any such notice, demand, request or other instrument shall be conclusively
deemed to have been given or made on the day upon which such notice, demand,
request or other instrument was delivered or, if mailed, then on the fifth (5th)
business day following the date of mailing (provided at such time no postal
strike is in progress or has been publicly announced), as the case may be.
Either party may at any time give notice to the other of any change of address
of the party giving such notice and from and after the giving of such the
address therein specified is deemed to be the address of such party for the
giving notices hereunder.
16.8 GOVERNING LAW AND SEVERABILITY
This Lease will be interpreted and governed by the laws of the Province of
Quebec. If for any reason whatsoever any provision or any part of any provision
of this Lease, or the application thereof to any person or circumstance, is to
any extent held or rendered in valid, unenforceable or
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illegal, then such provision or part in question shall be deemed to be
independent, severable and divisible from the remainder of the Lease and its
invalidity, unenforceability or illegality shall not affect, impair or
invalidate the remainder of the Lease or any part thereof and such provision or
partial provision shall continue to be applicable to and enforceable against any
other person or circumstance other than those to which it has been held or
rendered invalid, unenforceable or illegal.
16.9 REGISTRATION
The parties hereto hereby agree not to register this Lease without the prior
written consent of the Landlord; only a summary of this Lease (the "Summarized
Lease") prepared by Landlord's attorneys, excluding the financial consideration
of this Lease, may, at the written request of the Tenant and then only after
receiving the prior written consent of the Landlord to such Summarized lease, be
executed by the parties, for purposes of registration only. The inscription
shall include an extreme date equivalent to the Term of this Lease. In any and
all respects, this Lease shall govern and supersede any provision of such
Summarized Lease. Upon the termination of this Lease, the Tenant shall radiate
at its expense the registration of such Summarized Lease, the Tenant hereby
expressly and irrevocably appointing the Landlord as attorney for the Tenant
with full power and authority to radiate such inscription and to execute and
deliver in the name of the Tenant any instruments or certificates required for
such purpose. The Tenant hereby undertakes to forthwith sign and deliver to the
Landlord any further power of attorney or document which the Landlord may
request to confirm the foregoing.
16.10 SUCCESSORS AND ASSIGNS
All rights and liabilities herein granted to or imposed upon the respective
parties hereto extend to and bind the successors and assigns of the Landlord and
the heirs, executors, administrators and permitted successors and assigns of the
Tenant, as the case may be. No right, however, shall enure to the benefit of any
assignee or successor of the Tenant unless such successor or the assignment to
such assignee has been approved by the Landlord in writing as provided in
Article XII of these presents.
16.11 SECURITY DEPOSIT
Concurrently with the execution of this Lease, the Tenant has deposited with the
Landlord the sum set forth in Section IX of the Preamble. The said deposit is
given by the Tenant as security for the due performance by the Tenant of all the
terms, obligations and conditions herein to be respectively paid, observed and
performed by the Tenant. If the Tenant shall breach any of such terms, covenants
and conditions, the Landlord may, at its option, appropriate and apply the said
deposit, or so much thereof as may be necessary, as full or partial compensation
to the Landlord for loss or damage suffered or sustained by the Landlord arising
out of or in connection with such breach by the Tenant. The Tenant upon demand
shall forthwith pay to the Landlord an amount sufficient to restore the deposit
to the original sum required to be deposited. In the event of
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bankruptcy or other creditor-debtor proceedings against the Tenant, such
security deposit shall be applied first to the payment of rent and other sums
due to the Landlord under the terms of this Lease and will be deemed to have
been applied no later than the day prior to the bankruptcy or the institution of
such other debtor/creditor proceedings. Within thirty (30) days of the
termination of this Lease, such security deposit, or so much thereof as shall
then remain in the Landlord's hands, shall be returned, without interest, to the
Tenant. In the event of a sale, transfer or assignment of this Lease by the
Landlord, the Landlord may transfer such security deposit or so much thereof as
shall then remain to the purchaser, transferee or assignee and thereupon the
Landlord shall be free and discharged from any further liability in connection
with such security deposit.
16.12 QUALIFICATION TO DO BUSINESS
The Tenant represents to the Landlord that it has obtained or shall, prior to
the opening of the Leased premises or any part thereof for business, have
obtained any necessary licences and permits to carry on business in the Province
of Quebec and shall, throughout the Term, maintain same in good standing. Upon
request of the Landlord, the Tenant shall from time to time promptly provide the
Landlord with evidence satisfactory to the Landlord and its solicitors of the
status of any such licence or permit.
16.13 NON-CANADIAN PERSON
The Tenant represents to the Landlord that it is not a non-Canadian person
within the meaning of the Investment Canada Act (Bill C-15).
16.14 WAIVER
The Tenant hereby waives any rights it may have in virtue of articles 1859,
1861, 1862, the second paragraph of article 1863, the second and third
paragraphs of article 1865 and, article 1867 of the Civil Code of Quebec.
Except as otherwise expressly permitted in this Lease, the Tenant hereby also
waives any right to compensation for sums which the Tenant may owe under this
Lease as well as any right to claim sums presently owing to it or which may
become owing to it by the Landlord and the Tenant agrees to pay the rent as well
as any sum due under this Lease, notwithstanding the existence of one or several
claims which it may have against the Landlord.
16.15 WAIVER OF LIABILITY
Notwithstanding any law, usage or custom to the contrary, the Landlord shall not
be liable to the Tenant for damages resulting from the act of a third person,
except such third person for whom the Landlord is responsible in law, including
other tenants in the Leased Premises, and the Tenant hereby expressly renounces
to any right or recourse it may have against the Landlord, as a
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result of such act, and, without limiting the generality of the foregoing, the
Tenant renounces to and waives its right to obtain a reduction of rent,
cancellation of the Lease or damages.
16.16 PEACEABLE ENJOYMENT
So long as the Tenant pays the Minimum Rent, Additional Rent and other sums
herein provided, and observes and performs all of the terms, obligations and
conditions on the Tenant's part to be observed and performed under this Lease,
the Tenant shall have peaceable enjoyment of the Leased Premises during the
Term, without hindrance or interruption by the Landlord or any other person
lawfully claiming by, through or under the Landlord, subject, nevertheless, to
the terms, obligations and conditions of this Lease.
16.17 INTEREST ON OVERDUE PAYMENTS
The Tenant shall pay to the Landlord interest on all overdue Minimum Rent and
Additional Rent at a per annum aggregate rate equal to the prime rate of
interest from time to time charged by any Canadian chartered bank determined by
the Landlord to its prime commercial borrowers, plus two percent (2%), such rate
to be compounded monthly. Such interest shall be calculated from the due date
until payment is made, the whole without the necessity of any demand being made
therefor.
16.18 BROKERAGE COMMISSION
The Tenant hereby warrants and represents that any brokerage commission with
respect to this Lease or the transaction contemplated herein shall be borne
exclusively by the Tenant and the Tenant shall indemnity and hold harmless the
Landlord from any and all claims with respect thereto.
16.19 HEADINGS AND NUMBERS
The headings, captions, section numbers, article numbers and table of contents
appearing in this Lease are inserted only as a matter of convenience and in no
way define, limit, construe or describe the scope or intent of this Lease nor in
any way affect this Lease.
16.20 INTERPRETATION
The words "hereof", "herein", "hereunder" and similar expressions used in any
Section or SubSection of this Lease relate to the whole of this Lease and not to
that Section or Sub-Section only, unless otherwise expressly provided. Where
required by the context hereof the singular shall include the plural and the
neuter gender, the masculine or feminine.
16.21 FINANCIAL INFORMATION
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The Tenant shall, upon request and without undue delay, provide the Landlord
with such public information as to the Tenant's financial standing and corporate
organization as the Landlord or the Hypothecary Creditor requires and the
Landlord agrees to strictly maintain the confidentiality of said information and
only to release the same to the Hypothecary Creditor or other person having an
interest or potential interest in the Leased Promises.
16.22 HYPOTHECARY CREDITOR CHANGES
If the Hypothecary Creditor requires reasonable changes to this Lease, the
Tenant shall execute such documents or other instruments necessary to give
effect to such changes, provided no such change shall affect the Term, the
Leased Premises, the Gross Leasable Area of the Leased Premises or any Minimum
Rent payable hereunder.
16.23 SOLIDARY LIABILITY
In the event that the Lease is signed by more than one person, these persons
shall be solidarily liable for the execution of the obligations of this Lease
and they hereby waive the benefit of subrogation.
16.24 ELECTION OF DOMICILE
The parties herein hereby elect domicile in the District of Montreal, where any
and all legal proceedings by either party against the other shall be instituted.
16.25 LANGUAGE
The parties acknowledge having expressly required that this Lease and all
documents relating thereto be drawn in English.
Les parties declarent avoir expressement requis que ce Bail et tous les
documents s'y rapportant soient rediges en anglais.
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IN WITNESS WHEREOF the parties hereto have executed this Lease as of the date
first above- written.
LANDLORD:
AMENAGEMENTS ROVO INC.
Per: /s/ Norman Zavalkoff
- ----------------------------- ------------------------------
Witness Norman Zavalkoff
TENANT:
PHOENIX INTERNATIONAL LIFE SCIENCES
INC.
Per: /s/ Jean-Vyes Caloz
- ------------------------------- ---------------------------------
Per:
- ------------------------------- ---------------------------------
Witness
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SCHEDULE "A"
DESCRIPTION OF LAND
SCHEDULE "B"
SITE PLAN OF LEASED PREMISES
SCHEDULE "C"
LANDLORD'S AND TENANT'S WORK
SCHEDULE "D"
OPERATING EXPENSES
SCHEDULE "E"
PRE-AUTHORIZED PAYMENT PLAN
SCHEDULE "F"
BUILDING MODIFICATION PLANS
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MEMORANDUM OF AGREEMENT OF LEASE ENTERED INTO AT THE CITY AND
DISTRICT OF MONTREAL IN THE PROVINCE OF QUEBEC AS OF THE THIRD (3rd)
DAY OF MARCH 1995.
BY AND BETWEEN:
LIBERTY SITES LTD, a body politic and corporate duly incorporated according to
law and having its head office at 1450 St. Amour Street, in the City and
District of St. Laurent, Province of Quebec, H4S 1J3, herein acting and
represented by Sandra Levy, duly authorized for the purposes of the present
Agreement.
(hereinafter referred to as the "Landlord")
AND
PHOENIX INTERNATIONAL LIFE SCIENCES INC, a body politic and corporate duly
incorporated according to law and having its head office at 4625 Dobrin Street
in the City and District of Saint-Laurent, Province of Quebec, H4R 2P7, herein
acting and represented by Jean- Yves Caloz, duly authorized for the purposes of
the present Agreement in virtue of a resolution of its Board of Directors, a
certified copy of which remains annexed hereto.
(hereinafter referred to as the "Tenant")
1. DESCRIPTION AND LEASE OF PREMISES
Landlord, in consideration of the rents, covenants and agreements
hereinafter contained on the part of the Tenant to be paid, kept and
performed, hereby leases to Tenant and Tenant does hereby accept from
the Landlord that certain part of the building located at 4850 Dobrin
and 4901 Levy streets, in the City of Saint-Laurent (the "Building"),
having an office and a warehouse area, of approximately seventy
thousand nine hundred and eighty (70,980) square feet, the whole as
will be determined and certified by the Landlord's architect in
accordance with BOMA Standards, and as outlined in red on the floor
plans attached hereto as Schedule "A", (hereinafter referred to as
either the "Leased Premises" or the "Premises") and an outside loading
and trucking area, and exterior parking areas of approximately one
hundred and sixty (160) spaces for Tenant employee and visitor
vehicles, the whole as shown in yellow on Schedule "B" attached hereto
(but which may change from time to time, subject to the reasonable
approval of the parties), together with any landspaced areas in front
of the Leased Premises, and the right to use with others the driveways
to access the Leased Premises (the said Building and land hereinafter
referred to as the "Property" as outlined in Schedule "A" attached
hereto).
2. TERM OF LEASE
The Term of this lease shall be for a period of fifteen (15) years to
be computed from the first (1st) day of July 1995 (the "Commencement
Date") and to terminate on June 30, 2010 (the "Term").
<PAGE>
The Tenant shall have the right to occupy the Premises as of the
signing of this Lease save and except the premises presently occupied
by CIBC, outlined in blue on Schedule "A", and to begin to build the
Tenant's Work (as those words are defined in Section 21 hereof) in the
whole of the Leased Premises except the premises occupied by CIBC. As
soon as CIBC vacates its present location, which is expected to be on
or about May 1, 1995 the Tenant shall be able to occupy that part of
the Premises. The Landlord undertakes to use its best effort to have
CIBC vacate their premises on or about May 1, 1995. The Tenant shall be
bound during the period from the date of occupancy until the
Commencement Date by all the provisions of this Lease and, without
limiting the generality of the foregoing, the Tenant shall be liable
for any and all damages caused by its actions or omission or those of
its contractors, subcontractors, agents and employees. During this
period, the Tenant shall be responsible to pay for all electricity and
other utility costs and all special services provided by third parties
whether or not arranged for by the Landlord.
3. USE OF PROPERTY
The Leased Premises shall be used in a first class and reputable manner
solely to carry out pharmaceutical research as well as any use in
connection therewith and for no other purpose.
4. NET LEASE
It is the intention of the parties that the Minimum Net Rental set out
in Section 5 of this lease shall be absolutely net to the Landlord and
that the Tenant shall pay for its own account, to the complete
exoneration of the Landlord, all costs and expenses affecting the
Leased Premises or the business carried on therein, and its
proportionate share of all Property Taxes and Costs as hereinafter
defined, except as is otherwise provided in this lease.
Furthermore, any amount and any obligation which is not expressly
declared herein to be that of the Landlord pertaining to the Premises
shall be deemed to be an obligation of the Tenant and/or at the expense
of the Tenant.
5. NET RENTAL
During the term of the lease, the Tenant shall pay the Landlord the
following minimum net rental (the "Minimum Net Rental"):
(a) Nine Dollars and Fifty Cents ($9.50) per square foot per year
during the first five (5) years of the Term; and
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(b) Thirteen Dollars and Forty Cents ($13.40) per square foot per
year during years six (6) through ten (10) inclusively; and
(c) Eleven Dollars and Fifty Cents ($11.50) per square foot per
year during years eleven (11) through fifteen (15)
inclusively;
each payable in equal monthly instalments in advance on the first day
of each month.
The Minimum Net Rental as herein provided shall be paid to the Landlord
and/or its nominee at the Head Office of the Landlord in the City of
Saint-Laurent, at 1450 St. Amour Street, in the Province of Quebec, or
at such other place in Canada as shall be designated by the Landlord in
writing to the Tenant.
Notwithstanding the above, the Tenant shall not have to pay any Minimum
Net Rental during the first year of the Term. It shall, nevertheless,
pay all Additional Rental and the cost of all electricity and utilities
consumed in the Premises as of the Commencement Date of the Term.
6. ADDITIONAL RENTAL
In this lease, unless there is something in the context inconsistent
herewith, the parties agree that "Additional Rental" means any and all
amounts due or becoming payable to the Landlord pursuant to this lease
other than the Minimum Net Rental, whether such amounts are
specifically referred to as Additional Rental or not.
It is agreed and understood that such amounts other than Proportionate
Expense Rental (as hereinafter defined) and any other amounts for which
a specific payment date is provided for in this lease, whether
specifically referred to as Additional Rent or not, shall be payable on
the first day of the month immediately following the date the said
amount is claimed, or such other date that Landlord designates.
7. PROPORTIONATE EXPENSE RENTAL
The Tenant shall pay without duplication as Additional Rental in each
lease year, its proportionate share of all Property Taxes and Costs,
reasonable expenses and disbursements incurred by the Landlord or on
its behalf to operate, clean, maintain and repair the Property
(hereinafter referred to as "Proportionate Expense Rental") which
include without limitation:
(a) The total cost of insuring the Property (including such
insurance as the Landlord shall, acting reasonably, effect or
shall be required to effect by any secured creditor) against
fire and any other perils which presently are or hereafter may
be from time to time embraced by or defined in a standard fire
insurance policy with
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extended coverage, comprehensive general liability insurance,
boiler and pressure vessel insurance, business interruption
and/or loss of rentals insurance equal to at least (1) one
year's Minimum Net Rental and Proportionate Expense Rental,
and such other insurance as the Landlord, acting reasonably
may deem necessary or advisable.
(b) The cost of cleaning, sweeping, snow removal, gardening and
landscaping maintaining and operating the Property.
(c) The part of such costs reasonably allocated to the Property
with respect to seeing to the security of the Trans Canada
Business Park.
(d) The cost of repairs and replacements to (including major
repairs and structural repairs and replacements but excluding
repairs due to structural defects which relate to the state of
the Building prior to the Tenant's Work (as those words are
defined hereinafter)), and maintenance of the building and
improvements of the Property and their appurtenances and
equipment including the common areas and facilities.
(e) Remuneration, including contributions toward usual fringe
benefits, unemployment insurance and similar contributions,
of employees engaged in maintaining, operating and
supervising the Property, it being agreed and understood
that where employees are not employed on site on a full time
basis, there shall be attributed to the Property only such
sums as are the product obtained by multiplying the
aforementioned remuneration and contributions by a fraction,
the numerator of which is the average time per week that the
employee spends working on the Property on site and the
denominator of which is the average number of hours that
such employee spends each week working for the Landlord.
(f) The Taxes on Capital as defined hereinafter. "Taxes on
Capital" means an amount imputed by the Landlord acting
reasonably to the Property in respect of taxes, rates, duties
and assessments presently or hereafter levied, rated, charged
or assessed from time to time upon the Landlord and payable by
the Landlord to the Government of Canada and to the Province
of Quebec on account of its capital. Capital Taxes shall be
imputed on the basis of the Landlord's determination of the
amount of capital attributable to the Property, which shall be
based on the original capital cost of the Building together
with the cost of any improvements made to it paid by the
Landlord together with the book value of the Land at the
moment of the determination by the Landlord of the amount of
capital attributable to the Property. Capital Taxes also means
the amount of any capital or place of business tax levied by
any government or other applicable taxing authority against
the
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Landlord with respect to the Property whether known as Capital
Taxes or by any other name.
(g) All Montreal Urban Community, municipal, school, special taxes
and taxes and surtaxes on non-residential immovables, for the
Property on which the Leased Premises are situated and any
other taxes assessed against the building and/or land during
the Term of the lease (hereinafter collectively called "Real
Estate Taxes").
Should the mode of collecting business taxes, water taxes or
other assessments be such that the Landlord shall be required
to pay for same, or if the system of Real Estate Taxes shall
be altered or varied and any new tax or levy shall be levied
or imposed on the building and/or land and/or the revenues
there from and/or the Landlord in substitution for and/or in
addition to Real Estate Taxes presently levied or imposed on
immovables in the City of Ville St.Laurent or Montreal Urban
Community in which the property is situated, then any such new
tax or levy shall be included within the definition of Real
Estate Taxes as contained in this section and the provisions
of this section shall apply mutatis mutandis.
For greater certainty, the Surtax and the Tax on
Non-Residential Immovables will be recoverable from the Tenant
on the same basis as Real Estate Taxes, that is, on its
proportionate share basis, notwithstanding any percentage
entered on the schedule to the real estate assessment roll for
the Property or any omissions or errors in same.
The benefit of any reduction in Real Estate Taxes obtained
because of any vacancy in the Building during the previous
fiscal year, if any, will remain with the Landlord and shall
not be shared with the tenants of the Building.
(h) Administrative cost equal to fifteen percent (15%) of all
costs and expenses incurred by the Landlord with respect to
paragraphs (a) to (g) inclusively of this Section 7, less the
exclusions hereinafter provided for.
Notwithstanding the above, the Tenant shall not be required to pay any
of the following costs:
(a) interest and principal payments on outstanding financing of
the Landlord and any other debt costs of the Landlord;
(b) costs or expenses incurred with respect to the acquisition,
development, construction or furnishing of the Building prior
to the commencement of Tenant's Work (as those words are
defined hereinafter);
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(c) costs of repairs done by the Landlord and for which the
Landlord has been or is to be reimbursed, either as a result
of an insurance claim or otherwise;
(d) costs of structural repairs which relate to the state of the
Building prior to the Tenant's Work (as those words are
defined hereinafter);
(e) commissions, fees and all other expenses incurred in
connection with marketing or leasing the Premises or any part
thereof;
(f) any amount paid as a fine or a penalty as result of a
violation of a violation of law (provided such violation of
law was not caused by or contributed to by the Tenant);
(g) income, business and corporate taxes and other personal taxes
to the Landlord (other than capital taxes and large
corporation taxes);
(h) the amount of any sales tax, goods and services tax,
value-added tax or any similar tax ("Sales Tax") paid or
payable by the Landlord on the purchase of goods and services
included in Additional Rent which may be available to the
Landlord as a credit in determining the Landlord's net tax
liability or refund on account of Sales Tax, but only to the
extent Sales Tax is included in Additional Rent;
(i) the cost of any insurance premiums relating to risks or
amounts which are not normally insured against by reasonably
prudent owners of similar buildings;
(j) operating costs which are recoverable from insurance proceeds
or which would be recoverable assuming compliance by the
Landlord with its insurance obligations;
(k) costs covered by warranties or guarantee; and
(l) any cost which would otherwise be included in the Additional
Rent but consists of an amount paid to a corporate affiliate,
parent or subsidiary of the Landlord to the extent such amount
is in excess of the fair market value of the said item or
service where the expense is incurred in an arm's length
transaction.
Notwithstanding anything else contained herein, all Additional Rent
shall be calculated without duplication or profit to the Landlord and
in accordance with generally accepted accounting principles.
In the event that there are separate assessments and tax bills for the
Leased Premises (including but not limited to all licence fees,
charges, rates assessed against the Leased Premises and/or all
equipment and facilities thereon or therein, and every tax and licence
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fee in respect of any and every business carried on therein, or in
respect of the occupancy of the Leased Premises by the Tenant), the
Tenant shall pay to the taxing authority and discharge same, and
discharge in each lease year during the Term and within the times
provided for by the taxing authority all taxes so levied, the Tenant
shall provide the Landlord within thirty (30) days after receipt with a
copy of any separate tax bills and assessments for the Leased Premises
and shall promptly deliver to the Landlord receipts evidencing the
payment of such taxes.
The Tenant shall pay to the Landlord as Additional Rental its
Proportionate Share of any expenses, including, without limitation,
legal and appraisal expenses incurred by the Landlord in obtaining or
attempting to obtain a reduction of or to prevent an increase of any
Real Estate Taxes. The Landlord shall act as a prudent and reasonable
Landlord when exercising its discretion to contest Real Estate Taxes.
Should the Tenant request that the Landlord contest Real Estate Taxes,
the Landlord agrees to cooperate with the Tenant.
The Tenant's Proportionate Share shall be the proportion that the gross
floor area of the Leased Premises bears to the gross leasable floor
area of the building wherein the Leased Premises are situated. The
Tenant's proportionate share can be adjusted, however, by the Landlord
in terms of Real Estate Taxes and capital taxes, to take into
consideration the value of the improvements made to the Premises or the
number of parking spaces used by the Tenant, the whole to be calculated
by the Landlord in an equitable and fair manner to the Landlord and to
the Tenant and provided the Landlord does not recover more than one
hundred percent (100%) of such expenditures.
The amount payable by the Tenant under the provisions of this section
shall be reasonably estimated by the Landlord in advance for each
calendar year. The Tenant agrees to pay to the Landlord such amount in
equal, monthly instalments in advance, during such period together with
the Minimum Net Rental provided for in Section 6. Within a reasonable
period of time after the end of the period for which such estimated
payments have been made, the Landlord shall send the Tenant a statement
showing the actual amount required to be paid under the provisions of
this Section. Overpayments or underpayments shall be adjusted within
thirty (30) days after the delivery of the Landlord's statement.
Should the first year of the Term not commence on the first day of
January, or should the last year of the Term not terminate on the
thirty-first day of December, then, prior to the commencement of the
Term, or of the last year of the Term, as the case may be, or as soon
thereafter as is reasonably possible, the Landlord shall furnish to the
Tenant a reasonable estimate of the charges for the part of the year in
question and the Tenant shall pay to the Landlord on the first day of
each month in advance during the part of the year in question forming
part of the Term, Additional Rental equal to the portion of the
estimated charges divided by the number of months during the part of
the year in question.
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Any capital expenditures incurred by the Landlord will be amortized
over the useful life of the expenditure in question.
8. UTILITIES AND EQUIPMENT
The Tenant shall promptly pay for its electricity (including without
limitation any electricity used for heating and/or air conditioning the
Leased Premises), for the cost of operating, repairing, maintaining and
replacing the machinery and other facilities required for the heating,
ventilating and air conditioning of the Leased Premises and facilities,
and gas, water, sewer and electric utility costs relating to same,
telephone and all public utilities with respect to the Leased Premises.
Throughout the Term of the lease, the Tenant shall engage a qualified
air conditioning maintenance contractor to maintain and repair the
heating, ventilating and air conditioning system. The Tenant shall
provide the Landlord with a copy of a duly executed heating,
ventilating and air conditioning maintenance and repair contract, as
well as all renewals of said contract as soon as same are signed.
9. SUBLETTING AND ASSIGNMENT
Subject to the provisions hereinafter detailed, the Tenant shall not
have the right to sublet the Premises or any part thereof, or assign
its rights in the present lease, or allow the Premises or any part
thereof to be used by another, nor hypothecate or encumber this lease
or the Premises or any part thereof, without the prior written consent
of the Landlord, which consent may not be unreasonably withheld.
Notwithstanding the foregoing, the Tenant shall have the right to
assign or transfer the Lease or sublet the Premises without the prior
written approval of the Landlord if such assignment or sublet is to a
corporation associated (as such terms are defined in the Canada
Business Corporations Act) with the Tenant, provided such subtenant or
assignee carries on the same use of the Leased Premises authorized
herein. Notwithstanding such subletting and assignment, or permitted
use by another, the Tenant shall remain jointly and severally liable
with such sub-lessee, assignee or user, for the performance of all the
terms and conditions of the present lease, for the residue of the
lease, or any renewal thereof.
If the Tenant wishes to so sublet or assign it must provide the name of
the prospective sublessee or assignee together with such other
reasonable information as Landlord shall require together with a
request for consent of the Landlord at least thirty (30) days prior to
the effective date of the proposed transfer or assignment and the
Landlord shall have twenty-one (21) days from receipt of a registered
letter or courier from the Tenant to send a notice to the Tenant
withholding its consent to said sublet or assignment, together with the
basis for such refusal, failing which Landlord shall be deemed to have
given its consent.
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Any document or consent evidencing any assignment of this lease or any
sublet of the Leased Premises if permitted or consented to by the
Landlord shall be prepared by the Landlord or its attorneys and all
reasonable legal costs with respect thereto shall be paid by the Tenant
to the Landlord forthwith upon demand as Additional Rent.
10. EXPROPRIATION
If the whole or a substantial portion of the Property be condemned,
expropriated or taken in any manner for any public or quasi-public use
or purpose such that it is no longer feasible for the Landlord to
continue to operate the Property, then Landlord may at its option
terminate this lease provided such termination shall not affect
Tenant's right of action or the amount claimed pursuant to its right of
action against the expropriating authority by giving notice in writing
to Tenant that the Term hereof shall expire upon the day when
possession is required for such purpose and in the event of such
expiration Landlord shall have no liability to Tenant of any nature.
11. INSPECTION AND REPAIR
Subject to the requirements of Tenant's activities in the Premises,
Landlord and its agent shall have, upon a prior twenty-four (24) hour
notice (except in an emergency), the right at all reasonable hours
during the Term of this lease and any renewals thereof to enter the
Leased Premises to examine the condition thereof and to ascertain
whether Tenant is performing its obligations hereunder, and Tenant
shall make any repairs which Tenant is obliged to make pursuant to the
terms of this lease. If Tenant fails to make any such repairs within
thirty (30) days after written notice from Landlord requesting Tenant
to do so, provided that such repairs may reasonably be made within the
said period. If the Tenant fails to carry out the repairs within the
appropriate delay Landlord may, without prejudice to any other rights
or remedies it may have, make such repairs and charge the cost thereof
to Tenant, plus an administrative fee of fifteen percent (15%) for
doing so, which shall be charged to Tenant as additional rent. Nothing
in this lease shall be construed to obligate or require Landlord to
make any repairs for which the Tenant is responsible hereunder, but
Landlord shall have the right at any time to make emergency repairs
without prior notice to Tenant and, provided same are the
responsibility of Tenant hereunder, charge the cost thereof to Tenant,
plus an administrative fee of fifteen percent (15%) for doing so, which
shall be charged to Tenant as additional rent. Any costs chargeable to
Tenant hereunder shall be payable forthwith on written demand as
Additional Rental.
12. OBSTRUCTIONS
The sidewalks, entries, passage corridors, and stairways shall not be
obstructed by the Tenant, its officers, agents, servants, employees, or
customers or used for any other purposes than for ingress and egress to
or from the Leased Premises, and the Tenant shall
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save the Landlord harmless from damages to persons or Property because,
of any nuisance or other act which obstruct the free movements of
persons to, in and from the building and Property.
13. EXPIRATION OF LEASE
The present lease shall terminate ipso facto and without notice or
demand on the date stated in Section 2 hereof and any continued
occupation of the Premises by Tenant shall not have the effect of
extending the period or of renewing the present lease for any period of
time, the whole notwithstanding any provisions of law and Tenant shall
be presumed to occupy the Premises against the will of Landlord who
shall thereupon be entitled to make use of any and all remedies by law
providing for the expulsion of Tenant and for damages, provided,
however, that Landlord shall have the right at its option in the event
of such continued occupation by Tenant to give to Tenant at any time
written notice that Tenant may continue to occupy the Premises under a
tenancy from month to month in consideration of a net rental one and a
half (1.5) times the monthly Minimum Net Rentals that was payable
during the year immediately preceding the expiry date of this lease,
payable monthly and in advance and otherwise under the same terms and
conditions as are herein set forth.
The Tenant shall, at the expiration or sooner termination of the Term
of this lease, peaceably surrender with all additions, alterations,
changes or installations which at any time during the Tenn hereof shall
be made therein or thereon, in good repair and condition, subject to
reasonable wear and tear and damage by fire, lightening, tempest,
structural weakness or defect, Acts of God, civil commotion, right and
insurrection, cause beyond the control of the Tenant and damage for
which Landlord is insured or damage for which a prudent Landlord would
be insured and those repairs which are the responsibility of the
Landlord pursuant to the terms hereof only.
Notwithstanding the foregoing, the Tenant shall at or prior to the
expiration of the Term hereof remove its movable effects and/or
articles belonging to or brought upon the Leased Premises by Tenant and
the Tenant shall repair any damages caused by such removal. The Tenant
must forthwith remove, at Tenant's expense, all its alterations or
improvements to the Leased Premises upon the written request of
Landlord, unless the Landlord prefers that the whole or any part of
such alterations or installations excluding movable effects and/or
movable articles should remain, without any compensation whatsoever
being allowed to the Tenant for same. At the expiration or sooner
termination of the Term of this lease, Landlord shall have the right,
at Tenant's expense, plus an administrative fee of fifteen percent
(15%) for doing so, which shall be charged to Tenant as additional
rent, to repair any damages caused by the Tenant or those for whom it
is responsible in law to the Leased Premises and not repaired by
Tenant, the whole subject to reasonable wear and tear and damage by
fire, lightening, tempest, structural weakness or defect, Acts of God,
civil commotion, right and insurrection, causes beyond
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the control of the Tenant and damage for which Landlord is insured or
damage for which a prudent Landlord would be insured and those repairs
which are the responsibility of the Landlord pursuant to the terms
hereof. Furthermore, Landlord shall have the right at Tenant's expense
plus an administrative fee of fifteen percent (15%) for doing so, to
remove any signage that Tenant may have left on the Building and to
repair any damages caused by such removal and to restore the Building
to its condition at the commencement of this Lease subject to
reasonable wear and tear and damage by fire, lightening, tempest,
structural weakness or defect, Acts of God, civil commotion, rights and
insurrections, causes beyond the control of the Tenant and damage for
which Landlord is insured or damage for which a prudent Landlord would
be insured and those repairs which are the responsibility of the
Landlord pursuant to the terms hereof.
Notwithstanding the foregoing, the Tenant shall not have to remove the
second floor of the Leased Premises, any structural reinforcement
thereto, the freight elevator and its machine room. exterior walls and
windows.
14. PLATE GLASS AND DOOR SIGNS
Any breakage of glass or plate glass in or about the Leased Premises
and any damage to signs on Tenant's doors, which are not caused by the
negligence of Landlord or those for whom it is in law responsible,
shall be repaired and replaced by the Tenant at its expense.
15. WAIVER
The failure of the Landlord to insist upon the strict performance of
any of the agreements, terms, covenants and conditions hereof shall not
be deemed a waiver of any subsequent breach or default in any of such
agreements, terms, covenants and conditions.
16. COMPLIANCE WITH LAWS AND REGULATIONS
The Tenant shall, at its own expense, promptly comply with the
requirements of every applicable statute, law and ordinance and with
every applicable lawful regulation or order with respect to the removal
of any encroachment placed by the Tenant, or to the condition,
equipment, maintenance, or use or occupation of the Leased Premises,
including the making of any alteration, addition in or to any structure
upon, connected with or appurtenant to the Leased Premises, whether or
not such alteration is required on account of any particular use to
which the Leased Premises or part thereof may be put and whether or not
such requirement, regulation or order be of a kind now existing or
within the contemplation of the parties hereto; and shall comply with
any applicable regulation, recommendation or order of the Canadian Fire
Underwriters' Association, or any body having similar functions or of
any liability or fire insurance company by which the Landlord and/or
the Tenant may be insured.
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17. FAILURE OF TENANT TO PERFORM
If the Tenant fails to pay any taxes, rates, insurance premiums or
charges which it has herein covenanted to pay, and which Tenant has
failed to pay within a period of ten (10) days after notice in writing
from the Landlord to remedy such default, the Landlord may pay the same
and shall be entitled to charge the sums so paid to the Tenant, plus an
administrative fee of fifteen percent (15%) for doing so, which shall
be charged to Tenant as Additional Rental, who shall pay them forthwith
on demand and the Landlord, in addition to any other rights, shall have
the same remedies and may take the same steps for all such sums as it
might take for the recovery of rent.
Such amounts so paid by the Landlord and any payments of Minimum Net
Rental and/or Additional Rental when not paid on any due date as
provided for herein shall bear interest from the due date to the date
of payment, calculated daily at the prime rate of the Canadian Imperial
Bank of Commerce, plus two percent (2%).
18. DEFAULT
The following shall be considered defaults under the terms of this
lease:
(a) If the Tenant shall fail to pay the Landlord any instalments
of Minimum Net Rental, any Additional Rental, or any other
amounts owing, after it shall have become due and payable as
herein provided and Tenant fails to correct such default
within five (5) days after notice in writing from the
Landlord;
(b) If the Tenant shall assign, sublet or permit the use of the
Premises by other except in the manner herein permitted;
(c) If any seizure is practiced against the property of the Tenant
in the Premises as a result of a judgment rendered against
Tenant;
(d) If the Tenant shall fail to take possession of the Premises,
or if the Tenant should abandon or vacate the Premises;
(e) If any insurance carried by the Landlord be cancelled in
consequence of the business carried by the Tenant, or in
consequence of anything brought into or stored in the Premises
by the Tenant, it being agreed and understood that if the
insurer of the Landlord threatens to cancel any of the
Landlord's insurance with respect to the Property, the Tenant
shall be immediately notified in writing; and
(f) If the Tenant shall default in the performance of any of its
other obligations under this lease, including without
limitation the obligation to pay business and water taxes in a
timely manner, or fail to effect any payment that may result
in a charge,
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lien, encumbrance, or other right on the Property, or shall
violate any of the rules and regulations hereinafter set
forth, or hereafter to be established by the Landlord, and
such default continues for fifteen (15) days following written
notice thereof from the Landlord unless such default is
incapable of being remedied with due diligence within such
fifteen (15) day period, in which case, if Tenant fails to
commence to remedy such default within such fifteen (15) day
period and thereafter to continue with due diligence the cure
of such default until it is remedied.
In the event of any default of the terms of this lease, this lease may
be terminated ipso facto, at the option of the Landlord, upon written
notice to the Tenant to such effect. It is expressly agreed that such
right of termination shall be, in addition to and without prejudice to
all other rights as provided by law or herein, the Landlord may
re-enter and re-let the Premises to whomsoever it may choose, acting
reasonably, without further notice or demand being necessary, and may
recover from the Tenant all amounts due hereunder at the date of such
termination, expenses of such reletting (including any repairs,
decorating, alterations or improvements necessitated thereby), and
rental for the six (6) months next succeeding the date of such
termination, all of which shall immediately become due and payable.
Thereafter, (that is, after the period for which Tenant has paid
accelerated rent) the Tenant shall pay to the Landlord as liquidated
damages until the end of the Term an amount equivalent to the rental
provided in this lease, less the sum of the net receipts (if any),
derived by the Landlord from re-letting of the Premises. As used
herein, the expression "rental" shall mean the Minimum Net Rental, and
the Additional Rental, and all other additional rents payable
hereunder. The Tenant hereby irrevocably waives the benefit which may
limit or diminish the Landlord's termination of this lease if the
Tenant owes the Landlord One Hundred Thousand Dollars ($100,000.00) or
more, and any right granted to the Tenant to prevent his eviction in
the event of any default, nor will the payment after legal proceedings
have been instituted entitle the Tenant to avoid the resiliation of the
lease.
19. BANKRUPTCY AND INSOLVENCY
In the event that Tenant shall be adjudicated a bankrupt or make any
general assignment for the benefit of creditors, or take the benefit of
any insolvency or bankruptcy act, or if a receiver or trustee be
appointed for the property of the Tenant, or any major part thereof,
the present lease shall automatically terminate on the occurrence of
any of the aforesaid events without further notice or delay, and
Landlord shall be entitled to recover all arrears of Minimum Net Rental
and Additional Rental as well as six (6) months of future Minimum Net
Rental, Proportionate Expense Rental and Additional Rental or such
other accelerated amount that the law may at any time provide.
The Tenant hereby irrevocably waives his right to repudiate this lease
pursuant to section 65.2 of the Bankruptcy and Insolvency Act or any
section passed to amend or replace it.
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20. MAINTENANCE AND REPAIRS
Notwithstanding the provisions of Article 1864 of the Civil Code of the
Province of Quebec, the Tenant, at its own expense shall operate,
maintain and keep the Leased Premises including all facilities,
equipment and services, both inside and outside, in such good order and
condition, as they would be kept by a careful owner and shall promptly
make all needed repairs and replacements to the Leased Premises which a
careful owner would make (save and except for repairs for which Tenant
is not required to contribute to Proportionate Expense Rental)
including, without limitation, the water, gas, drain and sewer
connections, pipes and mains, electrical wiring, water closets, sinks
and accessories thereof, and all equipment belonging to or connected
with the Leased Premises or used in its operation.
The Tenant shall also be responsible, at its sole expense, to wash the
inside and outside of the windows of the Premises and to maintain and
clean the Premises daily.
21. LEASEHOLD IMPROVEMENTS
The Tenant shall carry out all of the improvements and modifications
required for its use of the Leased Premises including the building of a
second floor and the work necessary to change the location of the
premises of Fuji Photo Film Canada Inc. ("Fuji") in order for the
Leased Premises to comply with the floor plans attached hereto as
Schedule "A" (the "Tenant's Work"). The Tenant shall also be
responsible for any structural work or modifications which are
necessary to the Building as a result of the Tenant's Work. Once
completed, all of the Tenant's Work will remain the property of the
Landlord. The Tenant shall also be responsible to obtain all required
permits to carry out said Tenant's Work.
The second floor to be built by the Tenant must be at the same height
as the mezzanine presently above the premises occupied by Fuji. It must
be of sufficient quality to carry a minimum load of one hundred pounds
(100 lbs.) per square foot, it shall have a minimum two-hour (2 hr)
fire rating resistance and it shall be sufficiently insulated to be
sound proof. The ceiling of the ground floor of the Leased Premises
must have a minimum of eleven clear feet (11 ft.) wherever Possible.
The ceiling of the second floor of the Leased Premises must have a
minimum of ten clear feet (10 ft.) wherever possible. Doors throughout
the Leased Premises must have a minimum of eight feet (8 ft.) in
height. Windows to be built must be wherever possible approximately
fifteen feet wide (15 ft.) by six feet high (6 ft.) all around,
matching the glass and frame of the existing windows on the Building.
The Tenant shall submit to the Landlord, for the Landlord's review and
approval having regards to the first class nature and quality of the
Building, the Tenant's build out plans (the "TBP") on or about March 7,
1995. Once the Landlord has approved the TBP, the
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Tenant's Work will be carried out in a good and workmanlike manner in
accordance with the approved TBP and the requirements of section 22
hereof.
The Landlord agrees to pay for the cost of the Tenant's Work up to a
maximum sum of One Million Seven Hundred and Fifty Thousand Dollars
($1,750,000.00), plus GST and QST thereof. If the Tenant's Work cost
less than One Million Seven Hundred and Fifty Thousand Dollars
($1,750,000.00), the Landlord shall pay to the Tenant the difference
within thirty (30) days of the substantial completion of the leasehold
improvements. The choice of the contractor will be made by both
parties, acting reasonably, from at least three contractors.
The Landlord shall pay for the cost of the Tenant's Work progressively
in accordance with the schedule of payments established in the winning
construction bid. If the Tenant's Work costs more than One million
Seven Hundred and Fifty Thousand Dollars ($1,750,000.00), the Tenant
shall pay to the contractor the balance owing in accordance with the
schedule of payments established in the construction bid.
The Landlord warrants that the current premises of the Tenant can be
connected to the Premises by networking computer cable.
The Landlord further warrants that the Volunteer dormitories can be
located inside the Premises without windows in accordance with Ville
Saint-Laurent by-laws, regulations, directives and ordinances (subject
to the condition that windows will be built all around the outside of
the Leased Premises).
The Tenant shall have the right to use an exterior landscaped space for
the purposes of a play area for a day-care centre to be located in a
location to be established by mutual consent of both parties within 500
meters of the day-care centre for the Premises, provided municipal
approval is obtained for same. The Tenant will have the right to fence
in this play area with a fence of 1.2 meters high and the Tenant shall
have access to the play area during all hours that the day-care centre
is in operation, provided municipal approval is obtained for same.
22. IMPROVEMENTS AND ALTERATIONS
The Tenant shall have the right to make the Tenant's Work and any other
subsequent improvements, alternations or additions (the "Work"), with
the prior written consent of the Landlord, which consent shall not be
unreasonably withheld, in the Leased Premises in compliance with the
following conditions.
(a) Tenant shall furnish to Landlord plans and specifications
showing in reasonably complete detail the Work proposed to be
carried out and the estimated cost thereof and Landlord shall
approve or reject such plans and specifications within thirty
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(30) days after receipt of the same. If such plans and
specifications are approved, all Work shall be carried out in
compliance with the same;
(b) The value of the Leased Premises shall not, as a result of any
Work proposed to be carried on by Tenant, be less than the
value of the Leased Premises before the commencement of such
Work and Landlord, acting reasonably, shall be the sole judge
of such value;
(c) All Work shall be carried out as expeditiously and diligently
as possible, and in a good Workmanlike manner and in
compliance with all applicable permits, authorizations and
building and zoning by-laws and with all regulations and
requirements of all competent authorities having jurisdiction
over the Leased Premises; using first quality materials.
(d) The Leased Premises shall at all times be free of all
Workmen's and suppliers' hypothecs and other similar hypothecs
and charges;
(e) Tenant shall maintain Workmen's Compensation insurance
covering all persons employed in connection with the Work and
shall produce evidence of such insurance to Landlord and shall
also maintain such general liability insurance for the
protection of Landlord and Tenant as Landlord may reasonably
require;
(f) All Work, when completed, shall be comprised in, and form part
of the Leased Premises and shall be subject to all the
provisions of this lease and Tenant shall not have any right
to claim compensation therefor and the same shall not be
removed by Tenant on termination of this lease.
(g) Tenant shall pay the Landlord a sum equal to all its
out-of-pocket expenses with respect to the review and
supervision of the Work, together with an administration fee
of fifteen percent (15%) of such out-of-pocket expenses.
The Tenant shall pay to the Landlord the amount of any increase for any
Real Estate Taxes or Capital Taxes to the extent that such increase is
attributable to any action by the Tenant under this Section or any of
the Tenant's Work set out in Section 21 hereof.
No repairs, alterations, additions, decorations or improvements to the
Premises by or on behalf of the Tenant shall be permitted which may
weaken or endanger the structure, adversely affect the condition or
operation of the Premises, or the building, or diminish the value
thereof, or restrict or reduce the Landlord's coverage for insurance
purposes.
23. RIGHT OF FIRST REFUSAL
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The Tenant shall have the right of first refusal to lease any vacant
space in the Building during the term of the Lease on the same terms
and conditions as offered by another party which the Landlord is
prepared to accept. The Landlord shall submit to the Tenant any offer
to lease received from any party and the Tenant shall have a period of
ten (10) days thereafter in which to exercise its right of first
refusal with respect thereto. If the Tenant fails to notify the
Landlord of its desire to exercise a right of first refusal in the time
permitted therefore, the Landlord shall be permitted to lease the space
on the terms and conditions contained in the offer submitted to the
Tenant to the party in question for a period of sixty (60) days
thereafter. If the Landlord fails to lease the space in question within
such sixty (60) day period or should the terms and conditions be
changed, the offer shall, once again, be subject to the Tenant's right
of first refusal.
24. UNDERSTANDING OF THIS LEASE
Notwithstanding the fact that the Landlord drafted this lease and
submitted it to the Tenant, the Tenant recognizes that the essential
stipulations of this lease were negotiable and that he understands all
of its stipulations and that the Landlord gave him adequate
explanations with respect to the terms and conditions of this lease.
25. DAMAGE AND DESTRUCTION
In the event that the Leased Premises shall be destroyed or damaged,
then:
(a) if, in the opinion of Landlord, the damage or destruction is
such that the Leased Premises are rendered wholly unfit for
occupancy or it is impossible or unsafe to use and occupy
them, and if in either event the damage, in the further
reasonable opinion of Landlord (which shall be given by
written notice to Tenant within sixty (60) days of the
happening of such damage or destruction) cannot be repaired
with reasonable diligence within one hundred and twenty (120)
days from the giving of such notice, either Landlord or Tenant
may within five (5) days next succeeding the giving of
Landlord's opinion as aforesaid, terminate this lease by
giving to the other notice in writing of such termination, in
which event the Term of this lease shall cease and be at an
end as of the date of such destruction or damage and the rent
and all other payments for which Tenant is liable under the
Terms of this lease shall be apportioned and paid in full to
the date of such destruction or damage. In the event that
neither Landlord nor Tenant so terminates this lease, rent and
all other payments for which Tenant is liable hereunder shall
abate from the date of the happening of the damage until the
damage shall be made good to the extent of enabling Tenant to
use and occupy the Leased Premises;
(b) if the damage be such that the Leased Premises are wholly
unfit for occupancy, or if it is impossible or unsafe to use
or occupy them but if in either event the
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damage, in the opinion of Landlord (which shall be given to
Tenant within sixty (60) days from the happening of such
damage) can be repaired with reasonable diligence within one
hundred and twenty (120) days of the giving of such notice,
rent and all other payments for which Tenant is liable
hereunder shall abate from the date of the happening of the
damage until the damage shall be made good to the extent of
enabling Tenant to use and occupy the Leased Premises;
(c) if, in the opinion of Landlord, the damage can be made good as
aforesaid within one hundred and twenty (120) days of the
giving of such notice, and the damage is such that the Leased
Premises are capable of being partially used for the purposes
for which leased, until such damage has been repaired, rent
and all other payments for which Tenant is liable hereunder
shall abate in the proportion that the part of the Leased
Premises rendered unfit for occupancy bears to the whole of
the Leased Premises.
In the event that the building is partially destroyed or damaged so as
to affect twenty-five percent (25%) or more of the rentable area of the
building containing the Leased Premises, or in the opinion of Landlord
the building is rendered unsafe, and whether or not the Leased Premises
are affected, and in the reasonable opinion of Landlord (which shall be
given by written notice to Tenant within sixty (60) days of the
happening of such destruction), cannot be repaired with reasonable
diligence within one hundred and twenty (120) days of the giving of
such notice, Landlord may within five (5) days next succeeding the
giving of Landlord's opinion as aforesaid, terminate this lease by
giving to Tenant notice in writing of such termination, in which event
the Term of this lease shall cease and be at an end as of the date of
such destruction or damage and the rent and all other payments for
which the Tenant is liable under the Terms of this lease shall be
apportioned and paid in full to the date of such destruction or damage.
Nothing herein contained shall oblige Landlord to repair or reconstruct
any leasehold alterations or improvements made to the Premises. On the
contrary, all improvements in and to the Premises shall be the
responsibility of Tenant, who shall be obliged to repair, replace and
re-fixture them to a standard at least the equivalent of that which
existed prior to the date of damage and destruction.
For greater clarity, it is agreed by the parties that rent and all
other payments for which Tenant is liable hereunder shall abate as
provided for in this section until the earlier of the two (2) following
dates:
i. the date on which the Tenant begins to use and occupy
the Leased Premises to carry on its business therein
after it has substantially completed its leasehold
improvements to the Premises;
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ii. ninety (90) days after the Landlord has completed its
repairs to the Property and the Premises to the
extent set out herein.
Despite anything contained in this lease to the contrary, and without
limiting Landlord's right or remedies hereunder, if more than
twenty-five percent (25%) of the leasable area of the Property is
damaged or destroyed, by reason of any cause in respect of which there
are no proceeds of insurance available to Landlord despite the fact
that Landlord has insured as a reasonably prudent landlord of a similar
property, or if the proceeds of insurance are insufficient to pay
Landlord for the cost of rebuilding or making fit the Property by at
least Two Hundred and Fifty Thousand Dollars ($250,000.00) in excess of
the deductible and despite the fact that Landlord has insured as a
reasonably prudent landlord of a similar property, or any part thereof,
or if any mortgagee does not consent to the payment to Landlord of such
proceeds for such purpose, or if the Term of the lease which remains is
less than twenty-four (24) months, then Tenant agrees that Landlord
may, without obligation or liability to Tenant, terminate this lease by
three (3) months written notice to Tenant, and all rents shall be
adjusted as of then, and Tenant shall vacate and surrender the leased
premises on such termination date.
Notwithstanding anything to the contrary contained in this Lease, the
Landlord releases and waives any and all claims for damages against the
Tenant and those for whom Tenant is in law responsible with respect to
occurrences insured or to be insured by the Landlord, and for which the
Landlord receives insurance proceeds (or would have received insurance
proceeds had it acted as a prudent administrator), whether or not such
claims arise as the result of the negligence of the Tenant or of those
for whom the Tenant is in law responsible and all policies of insurance
taken out by the Landlord with respect to the Property shall provide
that the insured shall not have any right of subrogation against the
Tenant or any of its employees, agents or contractors.
Notwithstanding the foregoing, the Landlord shall not be permitted to
terminate this lease as a result of a damage or destruction unless
concurrently therewith, it also terminates the leases of all other
tenants of the Property. Should the Landlord rebuild the Property
within a period of one (1) year from the date of the damage or
destruction, Tenant shall have an option for thirty (30) days after
being notified of Landlord's decision to rebuild to lease Premises
similar to the Premises for the balance of the term after the damage or
destruction and otherwise on the same terms and conditions as contained
in this lease.
26. INSURANCE REQUIREMENTS
Tenant shall not do or commit any act upon the Leased Premises or bring
into or keep upon the premises any article which will affect the fire
risk or increase the rate of fire insurance or other insurance on the
building. The Tenant shall be entitled to use those solvents and
materials which are customarily used in the carrying on of its
business. The
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Tenant shall from time to time provide the Landlord with a list of such
solvents and materials in order that the Landlord shall be able to
advise its insurer accordingly.
Tenant shall comply with the rules and requirements of the Insurers'
Advisory Organization of Canada or any successor body, and with the
requirements of all insurance companies having policies of any kind
whatsoever in effect covering the building, including policies insuring
against tort or delictual liability.
Subject to the foregoing, in no event shall any inflammable material,
except for kinds and quantities required for ordinary office occupancy
and permitted by the insurance policies covering the building, or any
explosives or radioactive material whatsoever, be taken into the Leased
Premises or retained therein.
Should the rate of any type of insurance on the building be increased
by reason of any violation of this lease by Tenant, Landlord, in
addition to all other remedies, shall pay the amount of such increase,
and the amount so paid shall become due and payable immediately by
Tenant and collectible as Additional Rental.
Tenant shall take out and keep in force during the Term of this lease
comprehensive general liability insurance in amounts and with policies
in form satisfactory from time to time to Landlord and with insurers
reasonably acceptable to Landlord, the comprehensive general liability
insurance in no event to be for less than five million dollars
($5,000,000.00), inclusive limits and all risks insurance covering
furniture, fixtures and improvements in an amount equal to the full
insurable value thereof. Copies of each insurance policy shall
forthwith upon execution be delivered to Landlord, at the request of
the Landlord. Each such policy shall name Landlord as an additional
insured as its interest may appear and the comprehensive general
liability policy shall contain a cross liability clause. The cost of
premium for each and every such policy shall be paid by Tenant. Tenant
shall obtain form the insurers under such policies, undertakings to
notify Landlord in writing at least ten (10) days prior to any
cancellation thereof.
Tenant agrees that if Tenant fails to take out or to keep in force such
insurance and Tenant had failed to remedy such default within two (2)
days after written notice from Landlord specifying such default,
Landlord will have the right to do so and to pay the premium therefor
and in such event Tenant shall repay to Landlord the amount paid as
premium, plus fifteen percent (15%) administration fee for doing so,
which repayment shall be collectible as Additional Rental payable on
the first day of the next month following the said payment of Landlord.
27. CANCELLATION OF INSURANCE
If any insurance policy on the Property or any part of it is cancelled
or threatened by the insurer to be cancelled, or refused to be renewed,
or if the coverage under it is reduced in
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any way by the insurer because of the use or occupation of any part of
the Leased Premises by the Tenant or by any occupant of the Leased
Premises, and if the Tenant fails to remedy the condition giving rise
to the cancellation, threatened cancellation or reduction of coverage
within forty-eight (48) Working hours after notice by the Landlord, the
Landlord may, either:
(a) re-enter and take possession of the Leased Premises
immediately by leaving upon the Leased Premises a notice of
its intention to do so upon which the Landlord will have the
same rights and remedies that are available to him under this
lease or in virtue of the general law; or,
(b) enter upon the Leased Premises and remedy the condition giving
rise to the cancellation, threatened cancellation or reduction
of coverage and the Tenant will immediately pay the costs and
expenses to the Landlord, together with a fee of fifteen
percent (15%) of such costs and expenses representing the
Landlord's overhead, which costs and expenses may be collected
by the Landlord as Additional Rent and the Landlord will not
be liable for any damage or injury caused to any Property of
the Tenant or others located on the Leased Premises as the
result of the entry. Such an entry by the Landlord is not a
re-entry or a breach of any covenant for quiet enjoyment.
Tenant will pay the amount of any increase in insurance premiums on the
whole of the Property of which the Leased Premises form part, if such
increase is caused by Tenant's operations in the Leased Premises.
Tenant covenants that nothing will be done or omitted to be done
whereby any policy shall be cancelled or the Leased Premises rendered
uninsurable.
28. SUBORDINATION
The Landlord declares that it may assign its rights under this lease to
a lending institution as collateral security for a loan to the Landlord
and in the event that such an assignment is given and executed by the
Landlord and notification thereof is given to the Tenant by or on
behalf of the Landlord, it is expressly agreed between the Landlord and
Tenant that this lease shall not be cancelled or modified for any
reason whatsoever without the consent in writing of such lending
institution.
Tenant hereby covenants and agrees that it will and whenever reasonably
required by Landlord and at Landlord's expense, consent to and become a
party to any instrument or instruments permitting a mortgage, trust
deed or hypothec: to be placed on the Property, or any part thereof
which the Leased Premises are a part as security for any indebtedness
covered by the said trust deed, mortgage or hypothec in order to
subordinate this lease to the said trust deed, mortgage or hypothec,
provided that any trust deed, mortgage or
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hypothec shall provide that Tenant's peaceful possession of the
Premises shall not be disturbed as long as it does not default in
accordance with the provisions hereof.
29. ATTORNEY
The Tenant will, upon request of the Landlord or the mortgagee,
hypothecary creditor or any person having an interest in the project,
execute and deliver promptly those instruments and certificates
referred to in Section 30 above which are requested by the Landlord.
However, if ten (10) days after the date of request by the Landlord the
Tenant has not executed and delivered them, the Tenant hereby
irrevocably appoints the Landlord as the Tenant's attorney with full
power and authority to execute and deliver in the name of the Tenant
the instruments and certificates required.
30. INDEMNIFICATION
Except in the event of negligence of Landlord or those for whom it is
in law responsible, the Landlord shall not be liable nor responsible in
any way for any injury of any nature whatsoever that may be suffered or
sustained by the Tenant or any employee, agent or customer of the
Tenant or any other person who may be upon the Leased Premises or for
any loss of or damage to any property belonging to the Tenant or to its
employees or to any other person while such property is on the leased
Premises and in particular (but without limiting the generality of the
foregoing) the Landlord shall not be liable for any damage or damages
of any nature whatsoever to any such property caused by the failure, by
reason of a breakdown or other cause, to supply adequate drainage, snow
or ice removal, or by reason of the interruption of any public utility
or service or in the event of steam, water, rain or snow which may leak
into, issue or flow from any part of the building or from the water,
steam, sprinkler, or drainage pipes or plumbing Works of the same, or
from any other place or quarter or for any damage caused by anything
done or omitted by any tenant, but the Landlord shall use all
reasonable diligence to remedy such condition, failure or interruption
of service, after notice of same, when it is within its power and
obligation so to do. Nor shall the Tenant be entitled to any abatement
of Minimum Net Rental and Additional Rental in respect of any such
condition, failure or interruption of service.
The Tenant will indemnify and save harmless the Landlord from and
against all fines, liability, damage suits, claims, demands and actions
of any kind or nature which the Landlord shall or may become liable for
or suffer by reason of any breach, violation or non-performance by the
Tenant of any covenant, term or provision hereof or by reason of any
injury (including death resulting at any time therefrom) or damage to
property occasioned to or suffered by any person or persons including
the Landlord by reason of any such breach, violation or non-performance
or of any wrongful act, neglect, or default on the part of the Tenant
or any of its employees or officers.
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The Landlord will indemnify and save harmless the Tenant from and
against all fines, liability, damage, suits, claims, demands and
actions of any kind or nature which the Tenant shall or may become
liable for or suffer by reason of any breach, violation or non
performance by the Landlord of any covenant, term or provision hereof
or by reason of any injury (including death resulting at any time
therefrom) or damage to Property occasioned to or suffered by any
person or persons including the Tenant by reason of any such breach,
violation or non-performance of any wrongful act, neglect or default on
the part of the Landlord or any of its employees or officers.
Notwithstanding anything to the contrary contained in this Lease, the
Tenant releases and waives any and all claims for damages against the
Landlord and those for whom Landlord is in law responsible with respect
to occurrences insured or to be insured by the Tenant, and for which
the Tenant receives insurance proceeds or for which it would have
received insurance proceeds had it acted as a prudent administrator,
whether or not such claims arise as the result of the negligence of the
Landlord or of those for whom the Landlord is in law responsible and
all policies of insurance taken out by the Tenant shall provide that
the insured shall not have any right of subrogation against the
Landlord or any of its employees, agents or contractors.
31. CONDITION OF PREMISES
The Tenant represents that the Premises have been examined by the
Tenant and save and except for any latent defects, the Tenant accepts
the same in the condition or state which they now are, without
representation or warranty, expressed or implied, in fact or by law, by
the Landlord, and without recourse to the Landlord as to the nature,
condition or usability thereof.
32. OUTSIDE AREAS
The Tenant shall not use any part of the exterior parking and loading
areas or any other areas outside the Leased Premises for any purpose
other than parking shipping or receiving in the areas designated by the
Landlord for same save and except for the day care centre mentioned in
section 21 hereof,
33. PERMITS, ETC
The Tenant shall obtain all necessary permits and licenses required for
the occupancy and carrying on of its business.
34. HEATING
Tenant shall suitably heat the Leased Premises at its own cost and
expense.
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35. SIGNS
The Tenant shall be entitled to install on the upper part of the
Building such signs as are normally installed in connection with its
business, provided such signs comply with municipal by-laws and are
approved by the Landlord in accordance with its criteria, which
approval shall not be unreasonably withheld. Installation, if approved,
will be at the sole expense of the Tenant. At the expiration of this
lease, Tenant shall remove its signs at its own cost. Tenant shall be
responsible for any and all damages incurred by the removal of its
signs, and shall restore that portion of the building or the Property
to its original condition, subject to normal wear and tear and damage
by fire, lightening tempest, structural weakness or defects, Acts of
God, civil commotion, rights and insurrections, causes beyond the
control of Tenant and damage for which the Landlord is insured or
damage for which a prudent Landlord would be insured and those repairs
which are the responsibility of the Landlord pursuant to the terms
hereof.
36. RIGHT OF ENTRY
Upon a twenty-four (24) hour notice, the Landlord shall have the right
to exhibit the Property from time to time to any prospective mortgagee,
purchaser or Tenant at all reasonable hours.
The Tenant hereby renounces to Article 1885 of the Civil Code.
Landlord shall have the right at all times during the Term of this
lease to place upon the Leased Premises a notice of reasonable
dimensions and reasonably placed so as not to interfere with the
business of Tenant, stating that the Leased Premises are for sale and,
for six (6) months prior to the end of the Term, Landlord shall have
the right to place upon the Leased Premises a similar notice that the
Leased Premises are for rent and Tenant win not remove such notice or
knowingly permit same to be removed.
37. DISTURBANCE
The Tenant will not hold the Landlord in any way responsible for any
damages or annoyance which the Tenant may sustain through the fault of
any Tenant or Tenants who occupy any premises adjacent to, near or
above the Leased Premises unless Landlord does not use its reasonable
efforts in order to stop or prevent any such further damage or
annoyance, and not use the Leased Premises for any purpose,
notwithstanding anything stated herein, which may cause noise,
disturbance or noxious odours, to the discomfort of other tenants and
neighbours, and renounces to any claims he may have or acquire against
the Landlord under Article 1861 of the Civil Code of the Province of
Quebec, except to the extent hereinabove otherwise provided.
38. NOTICE AND DEMANDS
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Any notice or demand given by the Landlord to the Tenant shall be
deemed to be duly given when served upon the Tenant personally, or when
mailed (registered) to the Tenant at the address of the premises. The
Tenant elects domicile at ______ for the purpose of service of all
notices, writs of summons or other legal documents in any suit at law,
action or proceeding which the Landlord may take under this lease.
Any notice or demand given by the Tenant to the Landlord shall be
deemed to be duly given when served upon the Landlord personally or
when mailed (registered) to the Landlord at the address designated by
the Landlord for purposes of payment of rent hereunder.
39. RULES AND REGULATIONS
The Landlord shall have the right at its discretion to make reasonable
rules and regulations not contrary to the spirit and intent of this
lease which may from time to time be needful for the safety, care,
cleanliness and proper administration of the Property including the
Leased Premises, and for the preservation of good order therein, and
the same be observed and performed by the Tenant and by the clerks,
servants, employees, agents and customers of the Tenant, and all such
rules and regulations now or hereafter to be established by the
Landlord as herein provided shall form part of this lease as if now set
forth at length herein.
40. PUBLICATION
The parties agree that this Lease is a confidential document which
cannot be shown to any third party.
The rights resulting from the present Lease may be published against
the title to the Property, by way of a summary to which shall be
annexed an abbreviated form of the Lease, which shall not contain any
financial information in order to keep such financial information from
the public. The said abbreviated lease and summary forms shall be
prepared and completed by the Tenant who shall submit them for prior
written approval by the Landlord or its legal counsel prior to
depositing same at the registry office for publication. The provisions
of this Lease shall take precedence over the provisions of the
abbreviated lease which shall be executed by the parties for
publication reasons only. The publication costs and the costs for
providing copy of the said summary to the Landlord shall also be at the
Tenant's expense. Should this Lease be published by way of a summary,
the Tenant shall, at the termination of the Lease, cause the
registration of such summary to be cancelled at its expense, failing
which the Landlord will have the right to cause such cancellation and
charge the Tenant with the cost of same.
41. WASTE OR GARBAGE
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The Tenant agrees that it will keep the Leased Premises in a clean and
tidy condition and will not permit waste paper, garbage, ashes, waste,
debris or other objectionable material to accumulate thereon. Tenant
shall arrange for removal and disposal of waste or garbage at its sole
expense.
42. ODOURS, DUST OR NOISE
The Tenant warrants that no noxious odours, dust or unreasonable noise
will emanate from the Leased Premises as a result of the operations
conducted by the Tenant therein and Tenant further covenants that it
will not cause or maintain any nuisance in, at or on the Leased
Premises and/or the Property. Accordingly, the Tenant agrees that
should such noxious odour, dust, or noise conditions exist, it will, at
its own expense, take such steps as may be necessary to rectify the
same, provided further that if the Tenant shall fail to commence to do
so within forty-eight (48) hours and complete the same within a
reasonable time after notice is received by the Tenant from Landlord,
then the Landlord may, at its option and without prejudice to its other
rights or recourses:
(a) notify Tenant that it must shut down the offending operation
in the Leased Premises; and
(b) Landlord may proceed forthwith to take reasonable measures to
correct the situation and the Landlord shall be entitled to
cover the cost thereof from the Tenant forthwith upon demand,
plus an administrative fee of fifteen percent (15%) for doing
so, which shall be charged to Tenant as additional rent, such
cost to be considered as Additional Rental hereunder.
43. MANAGEMENT OF PROPERTY
The Landlord shall have the right to have the Property managed by a
property management corporation that it designates in writing from time
to time.
44. CUMULATIVE REMEDIES
No reference to or exercise of any specific right or remedy by the
Landlord shall preclude the Landlord from or prejudice the Landlord in
exercising any other right under this lease in pursuing any other
remedy or maintaining any action to which it may otherwise be entitled
at law.
45. ACCORD AND SATISFACTION
No payment by the Tenant or receipt by the Landlord of a lesser amount
other than the monthly payment of Minimum Net Rental is to be construed
as other than on account of
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the earliest stipulated Minimum Net Rental and/or Property Expense
rental and/or Additional Rental nor is any endorsement or statement on
any cheque or any letter accompanying any cheque or payment as rent to
be considered in acknowledgment of full payment or an accord and
satisfaction, and the Landlord may accept payment and cash cheques
without prejudice to the Landlord's right to recover the balance of the
rent or pursue its other remedies.
Except in case of emergency, should the Landlord be required to do any
Work in the Premises, it shall notify the Tenant of the nature and the
location of same and the parties shall agree on mutually convenient
time for the performance of same.
46. ACCESS
Upon a twenty-four (24) hour notice (except in an emergency), the
Landlord shall have the right of access to the Leased Premises only
during business hours except in an emergency, to perform work necessary
for the Building or other tenants in the Building, the Tenant
renouncing any claim to any indemnity or diminution of rent provided
the same be carried out with reasonable diligence.
47. FLOOR LOADING
Tenant shall not bring upon the Leased Premises or any part thereof any
machinery, equipment, article or thing that by reason of its weight or
size might damage the Leased Premises and win not at any time overload
the floors of the Leased Premises and if any damage is caused to the
Leased Premises by any machinery, equipment, article or thing or by
overloading or by any act, neglect or misuse on the part of Tenant or
any of its servants, agents or employees or any person having business
with Tenant, Tenant will forthwith pay to Landlord the cost of making
good the same.
48. OPTION TO RENEW
Provided the Tenant is not in default in virtue of this Lease, Tenant
shall have the option, upon giving a written notice to Landlord not
less than twelve (12) months prior to expiration of the Term of any
renewal period, of renewing the Term of this Lease for three (3)
additional periods of five (5) years each. The Lease shall be renewed
on the same terms and conditions, except for the Minimum Net Rental
which shall be the fair market rental for similar premises; in the same
geographic area for similar renewal terms.
49. SUCCESSORS AND ASSIGNS
This lease binds and benefits the parties and their respective heirs,
executors, administrators, successors and assigns as limited in this
lease.
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50. DESCRIPTIVE HEADINGS
The descriptive headings of this lease are inserted for convenience in
reference for possible registration purposes only and do not constitute
a part of this lease.
51. INTERPRETATION
This lease shall be construed and governed by the laws of the Province
of Quebec. Should any of the provisions of this lease and/or its
conditions be illegal or not enforceable under the laws of the Province
of Quebec, it or they shall be considered severable and the lease and
its conditions shall remain in force and be binding upon the parties as
though the said provisions or conditions had never been included.
52. WAIVER OF RESPONSIBILITY
Landlord and Tenant shall not be liable for failure or delays in
performing any of their obligations hereunder, should such failure or
delays be caused by fire or other casualty, war, disaster, riots,
strikes, walk-outs, acts of God, or other causes, except monetary
inability beyond Landlord's or Tenant's reasonable control.
53. LANGUAGE
The Tenant hereby confirms that it has requested that the present
document be drafted in the English language. Le Locataire certifie
qu'il a requis que les presentes soient redigees en anglais.
EXTRACT OF A RESOLUTION OF THE BOARD OF DIRECTORS OF PHOENIX INTERNATIONAL LIFE
SCIENCES INC. CONSENTED TO BY ALL OF THE DIRECTORS OF THE COMPANY AS OF THE
THIRD (3rd) DAY OF MARCH 1995.
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BE IT RESOLVED AND IT IS HEREBY RESOLVED:
THAT this Corporation lease from Liberty Sites Ltd. part of the
building situated at 4850 Dobrin and 4901 Levy streets, in the City of St.
Laurent, Province of Quebec, containing an office and warehouse area of
approximately seventy thousand nine hundred and eighty square feet (70,980 sq.
ft.) for a term of fifteen (15) years commencing on July 1, 1995, the whole
pursuant to the terms of a draft lease approved by the directors;
THAT Jean-Yves Caloz, secretary of the Corporation, be and she is
hereby authorized to execute the lease and to furthermore sign such further
documents and do such things that may be necessary or incidental in connection
with the foregoing.
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TRUE copy of a resolution of Phoenix International Life Sciences Inc.
adopted as of the third (3 rd) day of March 1995, in full compliance
with the relevant provisions of the articles and by-laws of the
Corporation, which resolution is presently in force, without amendment.
CERTIFIED in St. Laurent as of the third (3d) day of March 1995.
Name: /S/ JEAN-YVES CALOZ
--------------------
Jean-Yves Caloz, Secretary
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Exhibit 10.17
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-GROSS
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
September 30, 1998 is made by and between Jamboree Associates, a joint venture
("Lessor") and Institute for Biological Research and Development, Inc., a
Delaware corporation ("Lessee"), (collectively the "Parties", or individually a
"Party").
1.2 Premises: That certain real property, including all improvements
therein to or to be provided by Lessor under the terms of this Lease, and
commonly known by the street address of 2525 Campus Drive, Irvine, located in
the County of Orange, State of California and generally described as (describe
briefly the nature of the property) the 30,200 rentable square foot building
commonly known as 2525 Campus Drive ("Premises"). (See Paragraph 2 for further
provisions.)
1.3 Term: Ten (10) years and 0 months ("Original Term") commencing [SEE
ADDENDUM] ("Commencement Date") and ending [SEE ADDENDUM] ("Expiration Date").
(See Paragraph 3 for further provisions).
1.4 OMITTED
1.5 Base Rent: $27,482,00 per month ("Base Rent"), payable on the 1st day
of each month commencing in the 1st month of the Original Term [SEE ADDENDUM]
(See Paragraph 4 for further provisions.)
/X/ If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $27,482.00 as Base Rent for the 1st
month of the Original Term.
1.7 Security Deposit: $26,274.00 ("Security Deposit"). (See Paragraph 5 for
further provisions.)
1.8 Permitted Use: office and lawful related purposes (See Paragraph 6 for
further provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party." $______ is the "Base
Premium" (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
represents
- ----------------------------------------------------------------------
/ / Lessor exclusively ("Lessor's Broker"); / / both Lessor and Lessee, and
MARCUS & MILLICHAP represents
- ----------------------------------------------------------------------
/X/ Lessee exclusively ("Lessee's Broker"); / / both Lessee and Lessor (See
Paragraph 15 for further provisions.)
1.11 OMITTED
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 66 and Exhibits "A", "B", "C" and "D" all of which
constitute a part of this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set
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forth in this Lease. Unless otherwise provided herein, any statement of square
footage set forth in this Lease, or that may have been used in calculating
rental, is an approximation which Lessor and Lessee agree is reasonable and the
rental based thereon is not subject to revision whether or not the actual square
footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense.
2.3 Compliance with Covenants, Restrictions and Building Codes. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alternations or Utility Installations (as defined in Paragraph 7.3(a)) made or
to be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use; (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessee's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 OMITTED
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. [SEE INSERT 1A] the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
3.3 OMITTED
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
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5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Lessor shall not be required to keep all or any part of
the Security Deposit separate from its general accounts. Lessor shall, at the
expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
held in trust, to bear interest or other increment for its use, or to be
prepayment for any moneys to be paid by Lessee under this Lease.
6. Use. [SEE ADDENDUM]
6.1 Use. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8 or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonably discretion, deems necessary to protect
itself, the public, the Premise and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of
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reasonably necessary protective modifications to the Premises (such as concrete
encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) Duty to Inform Lessor. if Lessee knows, or has reasonably cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorneys' fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No terminating, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee shall, at Lessee's sole cost and expense, fully, diligently and in
a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, relating in any
manner to Lessee's specific use of the Premises (including but not limited to
matters pertaining to (i) industrial hygiene, (ii) environmental conditions on,
in, under or about the Premises, including soil and groundwater conditions, and
(iii) the use, generation, manufacture, production, installation, maintenance,
removal, transportation, storage, spill or release of any Hazardous Substance or
storage tank), now in effect or which may hereafter come into effect, and
whether or not reflecting a change in policy from any previously existing
policy. Lessee shall, within ten (10) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information [INSERT 2A]
including, but not limited to, permits, registrations, manifests, applications,
reports and certificates, evidencing Lessee's compliance with any Applicable Law
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any
threatened or actual claim, notice, citation, warning, complaint or report
pertaining to or involving failure by Lessee or the Premises to comply with any
Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including, but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable
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Law, or a contamination, caused or materially contributed to by Lessee is found
to exist or be imminent. In any such case, Lessee shall upon request reimburse
Lessor or Lessor's Lender, as the case may be, for the costs and expenses of
such inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.),
7.2 (Lessor's obligations to repair), 9 (damage and destruction), 14
(condemnation) [INSERT 2B] Lessee shall, at Lessee's sole cost and expense and
at all times, keep the interior of the Premises and every part thereof in good
order, condition and repair, (whether or not such portion of the Premises
requiring repair, or the means of repairing the same, are reasonably or readily
accessible to Lessee, and whether or not the need for such repairs occurs as a
result of Lessee's use, any prior use, the elements or the age of such portion
of the Premises), including, without limitation the generality of the foregoing,
all interior surfaces of walls, ceilings, floors, windows and doors. Lessee
shall not cause or permit any Hazardous Substance to be spilled or released in,
on under or about the Premises (including through the plumbing or sanitary sewer
system) and shall promptly, at Lessee's expense, take all investigatory and/or
remedial action reasonably recommended, whether or not formally ordered or
required, for the cleanup of any contamination of, and for the maintenance,
security and/or monitoring of, the Premises, the elements surrounding same, or
neighboring properties, that was caused or materially contributed to by Lessee,
or pertaining to or involving any Hazardous Substance and/or storage tank
brought onto the Premises by or for Lessee or under its control. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense [INSERT 3A]
7.2 Lessor's Obligations. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5 and except for damage by any
negligent or intentional act or omissions of Lessee, Lessee's employees,
suppliers, shippers, customers, or invitees, in which event Lessee shall repair
the damage, Lessor shall, subject to reimbursement pursuant to paragraph 53 of
the Addendum, keep the foundations, exterior roof and structural aspects of the
Premises [INSERT 3B] in good order, condition and repair. Lessor shall not,
however, be obligated to paint the exterior surface of the exterior walls or to
maintain the windows, doors or plate glass or the interior surface of exterior
walls. Lessor shall not, in any event, have any obligation to make any repairs
until Lessor receives written notice of the need for such repairs. It is the
intention of the Parties that the terms of this Lease govern the respective
obligations of the Parties as to maintenance and repair of the Premises. Lessee
and Lessor expressly waive the benefit of any statute now or hereafter in effect
to the extent it is inconsistent with the terms of this Lease with respect to,
or which affords Lessee the right to make repairs at the expense of Lessor or to
terminate this Lease by reason of, any needed repairs. [INSERT 3BB]
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility
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Installations to the interior of the Premises (excluding the roof), as long as
they are not visible from the outside, do not involve puncturing, relocating or
removing the roof or any existing walls, and the cumulative cost thereof during
the term of this Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor. [INSERT 3C]
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(c) Surrender/Restoration. [INSERT 3D] Lessee shall surrender the
Premises by the end of the last day of the Lease term or any earlier termination
date, with all of the Improvements, parts and surfaces thereof clean and free of
debris and in good operating order, condition and state of repair, ordinary wear
and tear excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified in writing by Lessor, the Premises, as surrendered, removal
of Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or
Utility Installations, as well as the removal of any storage tank installed by
or for Lessee, and the removal, replacement, or remediation of any soil material
or ground water contaminated by Lessee, all as may then be required by
Applicable Law and/or good practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a) Lessee shall pay to Lessor any insurance cost increase ("Insurance
Cost Increase") occurring during the term of this Lease. "Insurance Cost
Increase" is defined as any increase in the actual cost of the insurance
required under Paragraph 8.2(b), 8.3(a) and 8.3(b). ("Required Insurance"), over
and above the Base Premium, as hereinafter defined, calculated on an annual
basis. "Insurance Cost Increase" shall include, but not be limited to, increases
resulting from the nature of Lessee's occupancy, any act or omission or Lessee,
requirements of the holder of a mortgage or deed of trust covering the Premises,
increased valuation of the Premises, and/or a premium rate increase. If the
Parties insert a dollar amount in Paragraph 1.9, such amount shall be considered
the "Base Premium." In lieu thereof, if the Premises have been previously
occupied, the "Base Premium" shall be the annual premium applicable to the
Calendar Year 1994. If the Premises have never been occupied, the "Base Premium"
shall be the lowest annual premium reasonably obtainable for the Required
Insurance as of the commencement of the Original term, assuming the most nominal
use possible of the Premises. In no event, however, shall Lessee be responsible
for any portion of the premium cost attributable to liability insurance coverage
in excess of $1,000,000 procured under Paragraph 8.2(b) (Liability Insurance
Carried by Lessor). [INSERT 3DD]
(b) Lessee shall pay any such Insurance Cost increase to Lessor after
receipt by Lessee of a copy of the premium statement or other reasonable
evidence of the amount due. [INSERT 3E] If the insurance policies maintained
thereunder cover other property besides the Premises, Lessor shall also deliver
to Lessee a statement of the amount of such Insurance Cost Increase attributable
only to the Premises showing in reasonable detail the manner in which such
amount was computed. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement or Expiration of the Lease Term.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall no, however, limit the
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liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance to be carried by Lessee shall be primary to and not contributory with
any similar insurance carried by Lessor, whose insurance shall be considered
excess insurance only.
(b) Carried by Lessor. In the event Lessor is the Insuring Party,
Lessor may [INSERT 4A] also maintain liability insurance described in Paragraph
8.2(a) above. In addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance - Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. Lessee Owned Alterations and Utility Installations shall be
insured by Lessee under Paragraph 8.4 If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss, but not including plate glass insurance.
Said policy or policies shall also contain and agreed valuation provision in
lieu of any coinsurance clause, waiver of subrogation, and inflation guard
protection causing an increase in the annual property insurance coverage amount
by a factor of not less than the adjusted U.S. Department of Labor Consumer
Price Index for All Urban Consumers for the city nearest to where the Premises
are located.
(b) Rental Value. Lessor shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and Lender(s), insuring the loss of the full rental and
other charges payable by Lessee to Lessor under this Lease foe one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount f coverage
shall be adjusted annually to reflect the projected rental income, property
taxes, insurance premium costs and other expenses, if any, otherwise payable by
Lessee, for the next twelve (12) month period.
(c) Adjacent Premises. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) Tenant's Improvements. Since Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirement of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property. Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under
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Paragraph 8.3. Such insurance shall be full replacement cost coverage with a
deductible of not to exceed $1,000 per occurrence. The proceeds from any such
insurance shall be used by Lessee for the replacement of personal property or
the restoration of Lessee Owned Alterations and Utility Installations. Lessee
shall be the Insuring Party with respect to the insurance required by this
Paragraph 8.4 and shall provide Lessor with written evidence that such insurance
is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide," Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor certified copies of, or certificates evidencing the
existence and amounts of, the insurance, and with the additional insureds,
required under Paragraphs 8.2(a) and 8.4. No such policy shall be cancellable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable to Lessee to Lessor upon
demand.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's [INSERT 4B] and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises. Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits attorneys' and consultant's fees,
expenses and/or liabilities caused in whole by or in party by but only to the
extent caused by the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by Lessee
in the performance in a timely manner of any obligations on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment, and whether well founded or not. In case
any action or proceeding be brought against Lessor by reason of any of the
foregoing matters, Lessee upon notice from Lessor shall defend the same at
Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid any such
claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability [INSERT 4C]. Lessor shall not be
liable for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about he Premises, whether such damage or injury is caused by
or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether the said injury or damage results from conditions arising
upon the Premises or upon other portions of the building of which the Premises
are a part, or from other sources or places, and regardless of whether the cause
of such damage or injury or the means of repairing the same is accessible or
not. Lessor shall not be liable for any damages arising from any act or neglect
of any other tenant of Lessor. Notwithstanding
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Lessor's negligence or breach of this Lease, Lessor shall under no circumstances
be liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as define din Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage - Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessee's expense repair such damage
(but not Lessee's Trade Fixtures or Lessee Owner Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs.
9.3 Partial Damage - Uninsured Loss. If a Premises Partial damage that is
not an Insured Loss occurs, unless caused by a grossly negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice in the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are
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available. If Lessee does not give such notice and provide the funds or
assurance thereof within the times specified above, this Lease shall terminate
as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a grossly negligent or
willful act of Lessee. In the event, however, that the damage or destruction was
caused by Lessee, Lessor shall have the right to recover Lessor's damages from
Lessee except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), exercising such option. if Lessee duly
exercises such option during said Exercise Period Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
during said Exercise Period, then Lessor may at Lessor's option terminate this
Lease as of the expiration of said sixty (60) day period following the
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within ten (10) days after the expiration of the Exercise
Period, notwithstanding any term or provision in the grant of option to the
contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in paragraph 9 to the Premises or
a Hazardous Substance Condition, whether or not Lessor or Lessee repairs or
restores the Premises the Base Rent, Real Property Taxes, Insurance premiums,
and other charges, if any, payable by Lessee hereunder for the period during
which such damage, its repair or the restoration continues (not to exceed the
period for which rental value insurance is required under Paragraph 8.3(b),
shall be abated in proportion to the degree to which Lessee's use of the
Premises is impaired. Except for abatement of Base Rent, Real Property Taxes,
insurance premiums, and other charges, if any, as aforesaid, all other
obligations of Lessee hereunder shall be performed by Lessee, and Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. if Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either [INSERT 5AA] or the beginning of the actual work on the Premises,
whichever first occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in
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full force and effect, but subject to Lessor's rights under Paragraph 13),
Lessor may at Lessor's option either (i) investigate and remediate such
Hazardous Substance Condition, if required, as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) it the estimated cost to investigate and remediate such
condition exceeds twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater, give written notice to Lessee within thirty (30) days
after receipt by Lessor of knowledge of the occurrence of such Hazardous
Substance Condition of Lessor's desire to terminate this Lease as of the date
sixty (60) days following the giving of such notice. In the Event Lessor elects
to give such notice of Lessor's intention to terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the investigation and
remediation of such Hazardous Substance Condition totally at Lessee's expense
and without reimbursement from Lessor except to the extent of an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment, in
such event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such investigation and remediation as soon as reasonably
possible and the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in Lessor's
notice of termination. If a Hazardous Substance Condition occurs for which
Lessee is not legally responsible, there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided in Paragraph 9.6(a)
for a period of not to exceed twelve months.
9.8 Termination - Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, ir is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
[INSERT 5A] respect to the termination of this Lease and hereby waive the
provisions of any present of future statute to the extent inconsistent
therewith.
10. Real Property Taxes.
10.1 (a) Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises: provided, however, that
Lessee shall pay, in addition to rent, the amount, if any by which Real Property
Taxes applicable to the Premises increase over the Base Year of 1994 ("Tax
Increase"). Subject to Paragraph 10.1(b), payment of any such Tax Increase shall
be made by Lessee after receipt of Lessor's written statement setting forth the
amount due and the computation thereof [INSERT 5B]. Lessee shall promptly
furnish Lessor with satisfactory evidence that such taxes have been paid. If any
such taxes to be paid by Lessee shall cover any period of time prior to or after
the expiration or earlier termination of the term hereof, Lessee's share of such
taxes shall be equitably prorated to cover only the period of time within the
tax fiscal year this Lease is in effect, and Lessor shall reimburse Lessee for
any overpayment after such proration.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Tax Increase to be paid in advance
to Lessor by Lessee, either (i) in a lump sum amount equal to the amount due no
more than twenty (20) days prior to the applicable delinquency date, or (ii)
monthly in advance with the payment of the Base Rent [INSERT 5B] if Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully
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discharge before delinquency the estimated Tax Increase to be paid. When the
actual amount of the applicable Tax Increase is known, the amount of such equal
monthly advance payment shall be adjusted as required to provide the funds
needed to pay the applicable Tax Increase before delinquency. If the amounts
paid to Lessor by Lessee under the provisions of this Paragraph are insufficient
to discharge the obligations of Lessee to pay such Tax Increase as the same
become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional
sums as are necessary to pay such obligation. All moneys paid to Lessor under
this Paragraph may be intermingled with other moneys of Lessor and shall not
bear interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
(c) Additional Improvements. Notwithstanding Paragraph 10.1(a) hereof,
Lessee shall pay to Lessor upon demand therefor the entirety to any increase in
Real Property Taxes assessed by reason of Alterations of Utility Installations
placed upon the Premises by Lessee or at Lessee's request.
10.2 Definition of "Real Property Taxes". As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether to
not contemplated by the Parties. [INSERT 5C]
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all f the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installation, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b). 11.
Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone,
trash disposal and other utilities and services supplied to the Premises,
together with any taxes thereon. If any such services are not separately metered
to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor,
of all charges jointly metered with other premises.
12. Assignment and Subletting. [SEE ADDENDUM]
12.1 Lessor's Consent Required.
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(a) Subject to Section 55 of the Addendum, Lessee shall not
voluntarily or by operation of law assign, transfer, mortgage or otherwise
transfer or encumber (collectively, "assignment") or sublet all or any part of
Lessee's interest in this Lease or in the Premises without Lessor's prior
written consent given under and subject to the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) OMITTED
(d) An assignment or subletting of Lessee's Interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (iii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iv) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) after the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or any else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the
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sublessee, without first exhausting Lessor's remedies against any other person
or entity responsible therefor to Lessor, or any security held by Lessor or
Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee for sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by letter.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions hall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein.
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
Interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not
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be liable for any prepaid rents or security deposit paid by such sublessee to
such sublessor or for any other prior Defaults or Breaches of such sublessor
under such sublease.
(c) OMITTED
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. A Default is defined as a failure by the Lessee to
observe, comply with or perform any of the terms, covenants, conditions or rules
applicable to Lessee under this Lease. A "Breach" is defined as the occurrence
of any one or more of the following Defaults, and, where a grace period for cure
after notice is specified herein, the failure by Lessee to cure such Default
prior to the expiration of the applicable grace period, and shall entitle Lessor
to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3.
(a) The abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of five
(5) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable of (i) compliance with applicable law per Paragraph
6.3, (ii) the recision of an unauthorized assignment or subletting per Paragraph
12.1(b), (iii) a Tenancy Statement per Paragraphs 16 or 37, (iv) the
subordination or non-subordination of this Lease per Paragraph 30, (v) the
execution of any document requested under Paragraph 42 (easements), or (vi) any
other documentation or information which Lessor may reasonably require of Lessee
under the terms of this Lease, where any such failure continues for a period of
twenty (20) days following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b), or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to
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Lessee within thirty (30) days; provided, however in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligation hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed; (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, or (iv) a guarantor's refusal to honor the guaranty and
Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessee may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of such performance by Lessor shall be due and payable by Lessee to
Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not
be honored by the bank upon which it is drawn, Lessor, at its option, may
require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided, and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent. Efforts by Lessor to mitigate damages caused by
Lessee's Default or Breach of this Lease shall not waive Lessor's right to
recover damages under this Paragraph. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding the unpaid rent and damages as are recoverable
therein, or Lessor may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a notice and grace
period required by subparagraphs
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13.1(b), (c), or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by subparagraphs
13.1(b), (c), or (d). In such case, the applicable grace period under
subparagraphs 13.1(b), (c), or (d) and under the unlawful detainer statute shall
run concurrently after the one such statutory notice, and the failure of Lessee
to cure the Default within the greater of the two such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling Lessor
to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture In Event Of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended upon the occurrence of
a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after
written notice to Lessee, Lessee shall pay to Lessor a late charge equal to six
percent (6%) of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Lessor will incur
by reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than
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thirty (30) days after receipt by Lessor, and by the holders of any ground
lease, mortgage or deed of trust covering the Premises whose name and address
shall have been furnished Lessee in writing for such purpose of written notice
specifying wherein such obligation of Lessor has not been performed, provided;
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days after such notice are reasonably required for its performance then
Lessor shall not be in breach of this Lease if performance is commenced within
such thirty (30) day period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within twenty (20) days after Lessor shall
have given Lessee written notice of such taking (or in the absence of such
notice, within twenty (20) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or nay part of the
Premises under the power of eminent domain or any payment made as compensation
for diminution in value of the leasehold or for the taking of the fee, or as
severance damages, provided, however, that Lessee shall be entitled to any
compensation, separately awarded to Lessee for Lessee's relocation expenses
and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of its net
severance damages received, over and above the legal and other expenses incurred
by Lessor in the condemnation matter, repair any damage to the Premises caused
by such condemnation, except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall be responsible for the
payment of any amount in excess of such net severance damages required to
complete such repair.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers for brokerage services rendered by said Brokers to Lessor in this
transaction.
15.3 OMITTED
15.4 OMITTED
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
;any dealings or actions of the Indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 OMITTED
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16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within twenty (20) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the lessee's interest in the prior lease, in the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer of assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein and
no other prior or contemporaneous agreement or understanding shall be effective.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
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23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same if
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof. Lessor's consent to, or approval of, any act shall
not be deemed to render unnecessary the obtaining of Lessor's consent to, or
approval of, any subsequent or similar act by Lessee, or be construed as the
basis of an estoppel to enforce the provision or provisions of this Lease
requiring such consent. Regardless of Lessor's knowledge of a Default or Breach
at the time of accepting rent, the acceptance of rent by Lessor shall not be a
waiver of any preceding Default or Breach by Lessee of any provision hereof,
other than the failure of Lessee to pay the particular rent so accepted. Any
payment given Lessor by Lessee may be accepted by Lessor on account of moneys or
damages due Lessor, notwithstanding any qualifying statements or conditions made
by Lessee in connection therewith, which such statements and/or conditions shall
be of no force or effect whatsoever unless specifically agreed to in writing by
Lessor at or before the time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right to Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law on in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. Subject to Paragraph 30.3, this Lease and any Option
granted hereby shall be subject and subordinate to any ground lease, mortgage,
deed of trust, r other hypothecation or security device (collectively, "Security
Device"), now or hereafter placed by Lessor upon the real property of which the
Premises are a part, to any and all advances made on the security thereof, and
to all renewals, modifications, consolidations, replacements and extensions
thereof Lessee agrees that the Lenders holding any such Security Device shall
have no duty, liability or obligation to perform any of the obligations of
Lessor under this Lease, but that in the event of Lessor's default with respect
to any such obligation, Lessee will give any Lender whose name and address have
been furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its
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Security Device and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such Security Device, notwithstanding the
relative dates of the documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquired
ownership of the Premises by reason of a foreclosure of a Security Device.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises. INSERT 9A
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Less and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term "Prevailing Party" shall
include, without limitation, a Party or Broker who substantially obtains or
defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times [INSERT 9B] for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part, as Lessor may reasonably deem necessary.
Lessor may at time place on or about the Premises or building any ordinary "For
Sale" signs and Lessor may at any time during the last one hundred twenty (120)
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs. All such activities of Lessor shall be without abatement of rent or
liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on ht Premises by or for Lessee shall be subject to the
provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade
Fixtures and Alterations). [SEE ADDENDUM]
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any
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sublease or lesser estate in the Premises; provided, however, Lessor shall, in
the event of any such surrender, termination or cancellation, have the option to
continue any one or all of any existing subtenancies. Lessor's failure within
ten (10) days following any such event to make a written election to the
contrary by written notice to the holder of any such lesser interest, shall
constitute Lessor's election to have such event constitute the termination of
such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Lessor's
consent to any act, assignment of this Lease or subletting of the Premises by
Lessee shall not constitute an acknowledgment that no Default or Breach by
Lessee of this Lease exists, nor shall such consent be deemed a waiver of any
then existing Default or Breach, except as may be otherwise specifically stated
in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time for consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. OMITTED
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in Paragraph 38 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to purchase the
Premise, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee or Permitted Transferee, while the
original Lessee are not assignable (other than to a Permitted Transferee) either
as a part of an assignment of this Lease or separately or apart therefrom, and
no Option may be separated from this Lease in any manner, by reservation or
otherwise.
39.3 OMITTED
39.4 OMITTED
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of
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the grounds, the parking and unloading of vehicles and the preservation of good
order, as well as for the convenience of other occupants or tenants of such
other buildings and their invitees. [INSERT 10A]
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights,
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. it shall be adjudged that
there was no legal obligation on the part of said Party to pay such sum or any
part thereof, said Party shall be entitled to recover such sum or so much
thereof it was not legally required to pay under the provisions of this Lease.
44. Authority. If either Party hereto is as a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is as a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. long they do not materially
change Lessee's obligations hereunder, Lessee agrees to make such reasonable
non-monetary modifications to this Lease may be reasonably required by an
institutional, insurance company, or pension plan Lender in connection with the
obtaining of normal financing or refinancing of the property of which the
Premises are as a part.
48. Multiple Parties. Except otherwise expressly provided herein, if more than
one person or entity is named herein either Lessor or Lessee, the obligations of
such multiple parties shall be the joint and several responsibility of all
persons or entities named herein such Lessor or Lessee.
SEE ADDENDUM FOR SIGNATURES
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ADDENDUM TO
LEASE OF 2525 CAMPUS DRIVE, IRVINE, CALIFORNIA
This Addendum to Lease (the "Addendum"), is made by and between
JAMBOREE ASSOCIATES, a joint venture ("Lessor"), and INSTITUTE FOR BIOLOGICAL
RESEARCH AND DEVELOPMENT, INC., a Delaware corporation ("Lessee"), as of the day
and year set forth on the first page of the form lease to which this Addendum is
attached (the "Form Lease"). The promises, covenants, agreements and
declarations made and set forth herein are intended to and shall have the same
force and effect as if set forth in the body of the Form Lease. To the extent
that the provisions of this Addendum are inconsistent with the terms and
conditions of the Form Lease, the provisions of this Addendum shall control. The
Form Lease and this Addendum shall together constitute the "Lease" for purposes
hereof.
INSERTS TO FORM LEASE
INSERT 1A Lessor shall provide to Lessee possession and enjoyment of the
Premises and the non-exclusive use of the "Common Areas" (as
defined in Paragraph 49 of the Addendum attached hereto) during
the period commencing on the date of execution of this Lease
and ending on the expiration or earlier termination of this
Lease. During the period commencing on the date of execution
of this Lease and ending on the Commencement Date,
INSERT 2A in Lessee's possession or reasonably available to Lessee,
INSERT 2B and Lessor's other repair and maintenance obligations under this
Lease,
INSERT 3A provide its own janitorial, carpet cleaning, interior window
cleaning, plant maintenance, light bulb replacement, interior
painting, refuse collection and other interior services.
INSERT 3B and all other parts of the Premises which are not the obligation
of Lessee pursuant to Paragraph 7.1 above,
INSERT 3BB Notwithstanding anything to the contrary contained in this Lease,
the cost of any repair to the structure and/or the foundation of
the Premises shall not be deemed to be an Operating Expense and
such costs shall be paid by Lessor, at Lessor's sole cost and
expense; provided, however, if such repair arises as a result of
any negligent or intentional act or omission of Lessee, Lessee's
employees, suppliers, shippers, customers or invitee, then Lessee
shall bear the cost of such re air to the extent the cost of such
repair is not covered by any insurance maintained by Lessor
pursuant to the terms hereof.
INSERT 3C Notwithstanding any provision to the contrary, Lessee shall not
be obligated to remove from the Premises any of the Lessee
Improvements or other improvements, fixtures, equipment or other
items installed by Lessor, unless such other improvements,
fixtures, equipment or other items were installed by Lessor at
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Lessee's request and, at the time of such installation by Lessor,
Lessor notified Lessee in writing that Lessor may require such
items to be removed by Lessee at the expiration or sooner
termination of this Lease.
INSERT 3D Subject to Lessor's obligations under this Lease, including,
without limitation, Lessor's maintenance, repair, alteration and
replacement obligations under this Lease,
INSERT 3DD If during any Comparison Year (defined in Paragraph 53, below)
Lessor desires to maintain any new insurance coverage, or
increase any liability or policy limits or other coverage, which
insurance coverage was not maintained during the Base Year, then
effective as of the Comparison Year in which Lessor first
maintains or increases such insurance and continuing until such
time as Lessor ceases to maintain or again decreases such
insurance, the initial cost of such insurance shall be deemed to
be an Operating Expense. For purposes of determining Lessee's
share of such new or increased insurance coverage, the initial
cost thereof shall be added to Operating Expenses for the Base
Year (but only to the extent that the cost thereof exceeds the
cost of any insurance maintained during the Base Year which is
replaced in whole or in part by such new or increased insurance
coverage).
INSERT 3E and in accordance with Paragraph 53 of the Addendum.
INSERT 4A I subject to reimbursement pursuant to Paragraph 53 of the
Addendum,
INSERT 4B gross negligence, willful misconduct, breach of obligations
INSERT 4C Except for Lessor's gross negligence, wilful misconduct, breach
of obligations and/or breach of express warranties,
INSERT 5A 9.10 TERMINATION. Notwithstanding anything to the contrary
contained in this Lease, if (a) there is any damage to the
Premises or any Hazardous Substance Condition at the Premises
which unreasonably interferes with Lessee's use of or access to
or parking for the Premises, (b) such damage or Hazardous
Substance Condition was not caused by any negligent or
intentional act or omission of Lessee, Lessee's employees,
suppliers, shippers, customers or invitee, (c) such damage or
Hazardous Substance Condition takes a period in excess of nine
(9) months from the date of the occurrence of such damage or
Hazardous Substance Condition to repair or remediate, as such
date may be extended by the number of days of Force Majeure
Delays (as defined below) and Lessee Delays (the "Outside Date")
(provided, however, in no event shall the Outside Date be
extended by more than one hundred and twenty (120) days as a sole
result of Force Majeure Delays), then Lessee may, at Lessee's
option, terminate this Lease by delivering written notice of such
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termination to Lessor, not earlier than the Outside Date and not
later than thirty (30) days after the Outside Date; provided,
however, if such written notice of termination by Lessee is not
delivered to Lessor within said thirty (30) day period, Lessee's
right to terminate this Lease shall be of no further force or
effect. For purposes hereof, "Force Majeure Delay" shall mean
any delay in the completion of any construction, repair,
maintenance, and/or restoration obligations of Lessor hereunder
which is attributable to any: (i) delay or failure to perform
attributable to any strike, lockout or other labor or industrial
disturbance (whether or not on the part of the employees of
either party hereto), civil disturbance, future order claiming
jurisdiction, act of a public enemy, war, riot, sabotage,
blockade, embargo, inability to secure customary materials,
supplies or labor through ordinary sources by reason of
regulation or order of any government or regulatory body; (ii)
delay attributable to the failure of governmental agencies to
issue building permits and approvals to the extent that such
delays are not attributable to actions or inactions of Lessor or
Lessee; (iii) delay not attributable to actions or inactions of
Lessor or Lessee in completing plans, repair and/or construction
as a result of changes in any laws or building codes or the
interpretation thereof from the applicable laws or building codes
in effect, or the interpretation thereof, at the time the
applicable plans were prepared by Lessor or Lessee; or (iv) delay
attributable to lightning, earthquake, fire, storm, hurricane,
tornado, flood, washout, explosion, or any other cause beyond the
reasonable control of the party from whom performance is
required, or any of its contractors or other representatives.
INSERT 5AA the delivery to Lessee of preliminary plans for the repair or
restoration work
INSERT 5B and in accordance with Paragraph 53 of the Addendum.
INSERT 5C Notwithstanding any provision to the contrary (a) any obligation
of Lessee to pay for any increase in the amount of Real Property
Taxes shall be subject to Paragraph 53 of the Addendum, and (b)
if the amount of the Real Estate Taxes during the Base Year of
1994 shall be reduced under California Proposition 8 or any
similar law, then for so long as such reduction remains in
effect, the amount of Real Estate Taxes in any Comparison Year
(as defined in Paragraph 53) shall be reduced by the same amount
for the purposes of calculating the portion of such Real Estate
Taxes to be paid by Lessee.
INSERT 9A No later than ten (10) business days after the later to occur of
(a) the execution of this Lease, or (b) the recordation of a deed
of trust or mortgage in favor of Eastrich No. 126 Corporation, a
Massachusetts corporation ("Eastrich") encumbering the Premises
or Common Areas (i) and as a condition to Lessor's obligations
hereunder, Lessee shall execute and deliver to Eastrich, an
estoppel certificate in form and substance satisfactory to
Eastrich and Lessee, and (ii) and
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as a condition to Lessee's obligations hereunder, Lessor shall
deliver to Lessee a non-disturbance agreement executed and
acknowledged by Eastrich and Lessor in the form attached hereto
as Exhibit "D".
INSERT 9B after 24 hours prior notice,
INSERT 10A provided that Lessor has delivered to Lessee a copy of such rules
and regulations and that such rules and regulations (a) do not
materially interfere with Lessee's use of the Premises or the
Common Areas, (b) do not require Lessee to pay or incur any
additional monetary obligations or liabilities, and (c) do not
burden Lessee more than any other occupant or tenant.
49. PREMISES. The Premises consist of the building (the "Building")
located at 2525 Campus Drive, Irvine, California and is situated in part of a
larger project known as the Irvine Technology Center shown on Exhibit "C"
attached hereto (the "Project"). The common areas of the Project are also shown
on Exhibit "C" attached hereto (the "Common Areas"). For purposes of this Lease,
Lessor and Lessee agree that the Building contains a total of 30,200 square feet
of rentable floor space.
50. CONSTRUCTION OF THE LESSEE IMPROVEMENTS.
(a) DESCRIPTION OF LESSEE IMPROVEMENTS. Lessor and Lessee
acknowledge that Lessor shall construct certain improvements to Lessee's
Premises (the "Lessee Improvements") as more particularly described in Section 8
of that certain letter dated as of July 7, 1993, from David L. Kray to Marcus &
Millichap and the plans prepared by H. Hendy & Associates captioned "Design
Drawings" and dated May 14, 1993, as revised on July 13, 1993, a copy of which
is attached hereto as Exhibit "A" and incorporated herein by reference (the
"Preliminary Plan"). Execution of this Lease by Lessor and Lessee shall be
deemed to constitute each party's approval of the matters set forth in the
Preliminary Plan. Lessor shall cause the Lessee Improvements to be constructed
in a good and workmanlike manner and in compliance with all applicable laws and
the Lessee Improvement Plan (as defined below). The understandings and
agreements for such construction and payment of Lessor's costs in connection
therewith are set forth below.
(b) SCHEDULE OF APPROVALS. Lessor and Lessee shall use their
respective best good faith efforts to cause all working drawings (the "Lessee
Improvement Plan") with respect to the Lessee Improvements to be completed by H.
Hendy & Associates and approved by Lessee as soon as possible. The Lessee
Improvement Plan shall be prepared in accordance with Lessee's requirements, and
Lessor's and Lessee's approval of said Lessee Improvement Plan shall not be
unreasonably withheld.
(c) COST OF IMPROVEMENTS. All "Costs" of constructing the Lessee
Improvements in accordance with the Lessee Improvement Plan shall be borne by
Lessor. As
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used in this Paragraph 50, the term "Costs" shall mean and refer to
all costs incurred by Lessor for the construction of the Lessee Improvements
which shall include, but shall not be limited to, cost of equipment, material
and labor, management and supervision fees, contractors field overhead and fee,
architectural and engineering fees, governmental agency fees, testing and
inspection costs, the cost of any requirements regarding construction which are
imposed by any federal, state or local governmental entity or agency which are
not reflected in the plans and specifications, sales and use taxes, permits,
plan check fees, bonds, the costs of preparing the Preliminary Plans and the
Lessee Improvement Plan, inspection and approval fees, certificate of occupancy
costs, overtime for night and weekend work, and other costs related to the
construction of the Lessee Improvements.
(d) CHANGES IN IMPROVEMENTS. In the event that Lessee desires
Lessee Improvements other than or in addition to the Lessee Improvements
described in the Lessee Improvement Plan, or if Lessee desires to change the
Lessee Improvement Plan for the Lessee Improvements, Lessee shall provide
written notice of such proposed change to Lessor for Lessor's prior written
approval, which approval shall not be unreasonably withheld. Lessor's approval
of such proposed change order shall include an estimate of any additional or
decreased Costs resulting from such a change, as well as an estimate of the
delay or time-saving involved in complying with such change order. Any net
additional Costs caused by such change orders requested by Lessee in writing, to
the extent that they are in excess of the Costs to be paid by Lessor to
construct the Lessee Improvements in accordance with the Lessee Improvement Plan
as set forth above, shall be paid by Lessee to Lessor no later than the later to
occur of (i) ten (10) days after Lessor's delivery to Lessee of an invoice
therefor, or (ii) as the invoices therefor (as delivered by Lessor to Lessee)
become due and payable. That part of the actual time delay in the Commencement
Date caused by such change orders requested by Lessee in writing shall be
considered a "Lessee Delay" hereunder and any time by which the Commencement
Date is accelerated as a result of such change shall be set off against any
other Lessee Delay hereunder. Lessor agrees to use reasonable efforts to pursue
such change orders without delay and to reasonably work with the contractor so
as to avoid any unreasonable Lessee Delay. Notwithstanding anything to the
contrary contained in this Lease, upon the Commencement Date, Lessee shall pay
to Lessor an additional payment of a sum calculated by multiplying the per them
fixed Base Rent applicable during the first (1st) month of the Original Term, as
set forth in Paragraph 52 of this Addendum, times the number of days of Lessee
Delays.
(e) COMPLETION OF LESSEE IMPROVEMENTS. The Premises shall be
deemed to be "Ready for Occupancy" when all of the following have occurred: (i)
Lessor has obtained a temporary certificate of occupancy for the Premises and
the Lessee Improvements from the City of Irvine, if required, and (ii) the work
of construction of the Lessee Improvements has been substantially completed in
accordance with the Lessee Improvement Plan (subject to normal so-called "punch
list items" which are mutually approved by Lessor and Lessee) as evidenced by
the delivery to Lessee of a certificate of Lessor's architect or space planner.
Lessor shall diligently complete as soon as reasonably possible any items of
work and adjustment not completed when the Premises are Ready for Occupancy.
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(f) COORDINATION OF WORK WITH LESSEE'S OCCUPANCY. Lessor agrees
that Lessee shall have the right to access, occupy and use the Premises during
the period that Lessor is constructing and installing the Lessee Improvements
(the "Construction Period"), and that Lessor agrees to minimize any disruption
of, or interference with, Lessee's access to or operation of its business in the
Premises or the safety of Lessee and its employees and other individuals who are
in the Premises during the Construction Period. Without limitation on the
generality of the foregoing, Lessor agrees as follows: (i) Lessor and its
contractors) shall be available for weekly meetings with Lessee and Lessee's
construction consultant ("Lessee's Consultant"), and shall give to Lessee at
such meetings a report on the status of the work and a proposed schedule and
plan for the future work by Lessor and its contractor (Lessee shall pay the
entire cost of Lessee's Consultant); (ii) Lessor's work schedule and plan shall
be subject to the mutual approval of Lessor, Lessee and Lessee's Consultant and
shall provide for scheduling and planning the Lessor's work in a manner that
minimizes the interference with Lessee's access to, and operating its business
in, the Premises, and protecting the safety of Lessee and its employees and
other individuals in the Premises; (iii) without limitation on the generality
of the foregoing (A) Lessor's work shall be conducted in phases mutually
approved by Lessor and Lessee, and Lessor shall install appropriate barriers
reasonably approved by Lessee to protect Lessee and its employees and other
individuals in the Premises against Lessor's work, including, without
limitation, any dust or smoke related to such work; and (B) Lessor shall
perform all demolition of walls, sawcutting of floors and new exterior windows,
replacement of the roof-top heating, ventilating and air conditioning system
and any work involving the use of low-impact guns during the hours of 5:00 p.m.
and 7:00 a.m. Monday through Friday and at any time on Saturday, Sunday and
public holidays and pursuant to a schedule mutually acceptable to Lessor and
Lessee; and (iv) Lessor and its contractor shall provide reasonable access to
Lessee and Lessee's Consultant to inspect all work by Lessor and its
contractor, provided that such inspections shall not interfere with Lessor's
work and shall be solely for Lessee's benefit and shall not relieve Lessor of
its obligation to assure that its work is performed in accordance with this
Lease. Lessee agrees to cooperate with Lessor and to make such portions of the
Premises available to Lessor in order that Lessor may construct the Lessee
Improvements in a timely and orderly manner. Any interference by Lessee with
Lessor's construction of the Lessee Improvements in accordance with the
schedule approved by Lessor and Lessee shall constitute a Lessee Delay.
51. COMMENCEMENT DATE. Notwithstanding the commencement date set forth
in Paragraph 1.3 of the Form Lease, the "Commencement Date" shall be the later
of (a) the date which is four (4) months after the date of execution of this
Lease, or (b) the date upon which the Premises are Ready for Occupancy. The
Original Term of the Lease shall end on that date which is ten (10) years after
the Commencement Date. At the request of either party, Lessor and Lessee shall
execute a letter agreement setting forth the actual Commencement Date and
expiration date hereof.
52. RENT.
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(a) Subject to Lessor's obligation to provide the rent abatement
as set forth in Paragraph 64, Lessee shall pay to Lessor as Base Rent for the
Premises, monthly payments as follows:
<TABLE>
<S> <C>
Months 1 through 30 of $27,482.00 per month, or $0.91 per square foot per month
the Original Term
Months 31 through 60 $28,690.00 per month, or $0.95 per square foot per month
of the original Term
Months 61 through 90 $30,502.00 per month, or $1.01 per square foot per month
of the Original Term
Months 91 through 120 $32,012.00 per month, or $1.06 per square foot per month
of the Original Term
</TABLE>
(b) Lessor and Lessee acknowledge that the Base Rent set forth in
Paragraph 52(a) shall be the monthly fixed Base Rent paid by Lessee to Lessor
pursuant to the terms of this Lease for the Original Term hereof. The first
monthly fixed Base Rent payment has been received by Lessor, as set forth in
Paragraph 1.6 of the Form Lease. The second fixed monthly Base Rent payment
shall be due and payable on the first day of the second (2nd) full month after
the Commencement Date (the "First Rent Payment Date") and shall also include
a payment of a pro rata portion of the monthly fixed Base Rent for any partial
month prior to the First Rent Payment Date and subsequent to the Commencement
Date. For purposes hereof "Base Rent" shall mean the monthly fixed payment of
rent. The term "rent" shall mean Base Rent plus operating costs, taxes and all
other amounts to be paid by Lessee pursuant to the terms of this Lease.
53. OPERATING EXPENSE INCREASE.
(a) For purposes of this Lease, the following terms shall be
defined as follows:
(i) "Lessee's Building Share" shall be equal to 100%.
(ii) "Lessee's Project Share" shall be equal to 12.13% for
Project Operating Expenses incurred with respect to both Phase I and Phase II of
the Project, and 22.26% for Project operating Expenses incurred with respect to
Phase I only of the Project.
(iii) "Base Year" shall be the calendar year 1994.
(iv) "Comparison Year" is defined as each calendar year
during the term of this Lease subsequent to the Base Year. Lessee's Building
Share of Building
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Operating Expense Increase (as defined below) and Lessee's Project Share of
Project Operating Expense Increase (as defined below) for the first and last
Comparison Years of the term of the Lease shall be prorated according to that
portion of such Comparison Year as to which Lessee is responsible for a share
of such increase.
(v) "Project Operating Expense" shall mean all costs, if
any, incurred by Lessor in the exercise of its reasonable discretion, for the
operation, repair, maintenance, and replacement, in neat, clean, safe, good
order and condition, of the Common Areas, including, but not limited to, the
following:
(1) The Common Areas, including their surfaces,
coverings, decorative items, parking areas, trash areas, roadways, sidewalks,
walkways, stairways, parkways, driveways, landscaped areas, striping, bumpers,
irrigation systems, and common area lighting facilities.
(2) All plumbing, electrical and sprinkler systems.
(3) Janitorial and security services.
(4) The cost of the premiums for the liability and
property insurance policies attributable to the common areas.
(5) The amount of the real property taxes attributable
to the common areas, subject to the limitations set forth in this Paragraph 53.
(6) The cost of water, sewer, gas, electricity, and
other publicly mandated services to the Common Areas.
(7) Labor, salaries and applicable fringe benefits and
costs, materials, supplies and tools, used in maintaining and/or cleaning the
Common Areas and accounting and a management fee attributable to the operation
of the Project.
(8) Replacing and/or adding improvements where such
replacement or addition is mandated by any governmental agency and any repairs
or removals necessitated thereby amortized over its useful life according to
Federal income tax regulations or guidelines for depreciation thereof (including
interest on the unamortized balance as is then reasonable in the judgment of
Lessor's accountants).
(9) Costs of any capital improvements made to the
Common Areas which improvements actually reduce Project Operating Expenses
(limited to the amount of actual savings realized) amortized over its useful
life according to Federal income tax regulations or guidelines for depreciation
thereof (including interest on the unamortized balance as is then reasonable in
the judgment of Lessor's accountants).
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(vi) "Building Operating Expense" shall mean all costs, if
any, incurred by Lessor in the exercise of its reasonable discretion, for the
operation, repair, maintenance, and replacement, in neat, clean, safe, good
order and condition, of the Building, including, but not limited to, the
following:
(1) The cost of performing Lessor's obligations under
Paragraph 7 of the Form Lease (except as otherwise provided in Paragraph 7).
(2) The cost of the premiums for the liability and
property insurance policies to be maintained by Lessor pursuant to the terms of
Paragraph 8 of the Form Lease.
(3) The amount of the real property taxes to be paid by
Lessor pursuant to the terms of Paragraph 10.1 of the Form Lease, subject to the
other terms of this Lease.
(4) Labor, salaries and applicable fringe benefits and
costs, materials, supplies and tools, used in maintaining and/or cleaning the
Building and accounting and a management fee attributable to the operation of
the Building.
(5) Loading and unloading areas, all heating, air
conditioning, plumbing, electrical systems, life safety equipment,
telecommunication and other equipment used for the Premises, including fire
detection systems including sprinkler system maintenance and repair.
(6) Building exteriors and roofs.
(7) Replacing and/or adding improvements (other than
improvements to the structure or foundations of the Building) where such
replacement or addition is mandated by any governmental agency and any repairs
or removals necessitated thereby amortized over its useful life according to
Federal income tax regulations or guidelines for depreciation thereof (including
interest on the unamortized balance as is then reasonable in the judgment of
Lessor's accountants).
(8) Costs of any capital improvements (other than
improvements to the structure or foundations of the Building) made to the
Building which improvements actually reduce Building Operating Expenses (limited
to the amount of actual savings realized) amortized over its useful life
according to Federal income tax regulations or guidelines for depreciation
thereof (including interest on the unamortized balance as is then reasonable in
the judgment of Lessor's accountants).
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(vii) Notwithstanding anything to the contrary contained in
this Addendum and/or in the Form Lease, Building Operating Expenses and/or
Project Operating Expenses shall not include any of the following costs:
(1) Any ground lease rentals;
(2) Costs incurred by Lessor for the repair of damage
to the Building and/or to the Common Areas to the extent that Lessor is
reimbursed by insurance proceeds;
(3) Costs, including permit, license and inspection
costs, incurred with respect to the installation of improvements for lessees or
occupants of the Building or in other part(s) or the Project, or incurred in
renovating or otherwise improving, decorating, painting or redecorating vacant
space for lessees or other part(s) of the Project other than in the Common
Areas;
(4) Depreciation, amortization and interest payments,
except as provided herein and except on materials, tools, supplies and
vendor-type equipment purchased by Lessor to enable Lessor to supply services
Lessor might otherwise contract for with a third party where such depreciation,
amortization, and interest payments would otherwise have been included in the
charge for such third party's services, all as determined in accordance with
generally accepted accounting principles, consistently applied;
(5) Leasing commissions, attorneys' fees, space
planning costs, and other costs and expenses in connection with negotiations or
disputes with present or prospective lessees or occupants of the Building or
other part(s) of the Project;
(6) Expenses in connection with services or other
benefits which are not offered to Lessee but which are provided to other lessees
of the Project;
(7) Costs incurred by Lessor due to the violation by
Lessor or any lessees (other than Lessee) of the terms and conditions of any
lease of space in the Building or other part(s) of the Project;
(8) Overhead and profit increments paid to Lessor or to
subsidiaries or affiliates of Lessor for goods and/or services in the Building
to the extent the same exceeds the costs of such goods and/or services rendered
by unaffiliated third parties on a competitive basis;
(9) Interest, principal, points and fees on debts or
amortization of any mortgage or mortgages or any debt instrument encumbering the
Building or any other part or interest in the Project;
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(10) Any compensation paid to clerks, attendants or
other persons in commercial concessions operated by Lessor or in the parking
concession at the Project except wherever Lessee is granted its parking
privileges;
(11) All items and services for which Lessee or any
lessee in the Building or in another part of the Project reimburses Lessor
(other than through payment of a tenant's share of building operating expenses
and/or project operating expenses) or which Lessor provides selectively to one
or more lessees or occupants (other than Lessee) without reimbursement;
(12) Costs arising from Lessor's charitable or
political contributions;
(13) Capital costs for sculpture, painting or other
objects or art;
(14) Lessor's general corporate overhead and general
and administrative expenses that are not directly related to the Project (except
salaries, benefits and other compensation of employees whose time is divided
between or among more than one Project, and only provided that such salaries,
benefits and other compensation is included in Building Operating Expenses
and/or Project Operating Expenses pro rata based on the portion of such
employee's time spent working on the Building and/or the Project);
(15) Costs arising from the gross negligence or wilful
misconduct of Lessor or other tenants;
(16) Costs arising from repairs of latent defects in
the base, shell or core of the Building;
(17) Except for the specific capital costs described in
Paragraphs 53(a)(v) and/or 53(a)(vi), any costs of a capital nature, including,
but not limited to, capital improvements, capital repairs, capital equipment,
and capital tools, all as determined in accordance with generally accepted
accounting principles and sound management practices consistently applied, or
any reserves or sinking funds for any such capital costs; and
(18) Except as otherwise specifically provided in
Paragraphs 53(a)(v) and/or 53(a)(vi), any costs of a recurring nature which were
incurred by Lessor in the Base Year but were not included in Project Operating
Expenses or Building Operating Expenses for the Base Year, unless the inclusion
of such costs in Project Operating Expenses or Building Operating Expenses does
not result in a net increase in Project Operating Expenses or Building Operating
Expenses paid by Lessee on account of a reduction in other expenses or a
redetermination by Lessor of how Project Operating Expenses or Building
Operating Expenses are calculated and charged.
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(b) Lessee shall pay to Lessor during the term of this Lease, in
addition to the Base Rent (i) Lessee's Building Share of the amount by which all
Building Operating Expenses for each Comparison Year exceeds the amount of all
Building Operating Expenses for the Base Year, such excess being hereinafter
referred to as the "Building Operating Expense Increase", and (ii) Lessee's
Project Share of the amount by which all Project Operating Expenses for each
Comparison Year exceeds the amount of all Project Operating Expenses for the
Base Year, such excess being hereinafter referred to as the "Project Operating
Expense Increase".
(c) Lessee's Building Share of Building Operating Expense
Increase and Lessee's Project Share of Project Operating Expense Increase shall
be payable by Lessee within thirty (30) days after a reasonably detailed
statement of actual expenses is presented to Lessee by Lessor. At Lessor's
option, however, an amount may be estimated by Lessor from time to time in
advance of Lessee's Building Share of the Building Operating Expense Increase
and/or Lessee's Project Share of Project Operating Expense Increase for any
Comparison Year, and the same shall be payable monthly or quarterly, as Lessor
shall designate, during each Comparison Year of the term of this Lease, on the
same day as the Base Rent is due hereunder. In the event that Lessee pays
Lessor's estimate of Lessee's Building Share of Building Operating Expense
Increase and/or Lessee's Project Share of Project Operating Expense Increase as
aforesaid, Lessor shall deliver to Lessee within sixty (60) days after the
expiration of each Comparison Year a reasonably detailed statement showing
Lessee's Building Share of the actual Building Operating Expense Increase and/or
Lessee's Project Share of the actual Project Operating Expense Increase incurred
during such year. If Lessee's payments under this subparagraph during said
Comparison Year exceed Lessee's share as indicated on said statement, Lessee
shall, at Lessee's option, either be entitled to credit the amount of such
overpayment against Lessee's Building Share of Building Operating Expense
Increase and/or Lessee's Project Share of Project operating Expense Increase
next falling due, or receive payment from Lessor in the amount of such
overpayment within thirty (30) days after written demand therefor from Lessee.
If Lessee's payments under this subparagraph during said Comparison Year were
less than Lessee's share as indicated on said statement, Lessee shall pay to
Lessor the amount of the deficiency within thirty (30) days after delivery by
Lessor to Lessee of said statement. Lessor and Lessee shall forthwith adjust
between them by cash payment any balance determined to exist with respect to
that portion of the last Comparison Year for which Lessee is responsible as to
Building Operating Expense Increase, and/or Project Operating Expense Increase
notwithstanding that the term of this Lease may have terminated before the end
of such Comparison Year.
(d) In the event the occupancy of the Project during the Base
Year or any Comparison Year is less than ninety-five percent (95%), then Project
Operating Expenses for that Base Year and Comparison Year shall be "grossed up"
to that amount of Project Operating Expenses that, using reasonable projections,
would normally be expected to be incurred during the Base Year or Comparison
Year if the Building and the Project were ninety-five percent (95%) occupied
during the Base Year and Comparison Year, as determined under generally accepted
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accounting principles consistently applied. Only those expenses that are
affected by variations in occupancy levels shall be grossed up.
(e) Notwithstanding any other provision in this Lease to the
contrary, for the first (lot) three (3) years of the Original Term of this
Lease, the term "Real Property Taxes" shall not include that increased portion
of real property taxes payable with respect to the Premises which is imposed as
a result of a. sale of Lessor's interest in the Premises during the first (1st)
three (3) years of the Original Term of this Lease. Effective as of the
commencement of the fourth (4th) year of the Original Term, the real property
taxes payable by Lessee hereunder shall by adjusted to market.
(f) Lessor shall use only those expenses directly attributable to
the Premises and the Common Areas, as the case may be, for the calculation of
Building Operating Expenses and Project Operating Costs, as the case may be. To
the extent that Lessor is unable to charge expenses for the Project separately
to the Building and/or the Common Areas, Lessor may allocate expenses on a ro
rata basis based on the rentable square footage of the Premises divided by the
total rentable square footage for the buildings in the Project benefitting from
a particular expenditure by Lessor. Lessor may include any expenses incurred
pursuant to this subparagraph in the estimated expenses calculated by Lessor
pursuant to Paragraph 53(c) above, and Lessee shall pay such additional amount
as provided in Paragraph 53(c) above.
(g) Lessor hereby grants to Lessee the non-exclusive right to use
the Common Area. Subject to reimbursement pursuant to Paragraph 53 of the
Addendum, Lessor shall operate, maintain, repair and replace, in neat, clean,
safe, good order and condition, the Project, including the Common Areas, subject
to Lessee's maintenance obligations with respect to the Premises that are
expressly set forth in this Lease, and except for damage by any grossly
negligent or intentional act or omission of Lessee, Lessee's employees,
suppliers, shippers, customers or invitees, in which event Lessee shall pay
for the cost of the repair of such damage to the extent the cost of the repair
of such damage is not covered by the insurance maintained by Lessor pursuant
to the terms of this Lease. Subject to reimbursement pursuant to Paragraph 53
of the Addendum, Lessor shall pay all real estate taxes and assessments and
other obligations secured by any or all of the Project. Subject to
reimbursement pursuant to Paragraph 53 of the Addendum, Lessor shall maintain
the same types and amounts of property and liability insurance coverage for
the Common Areas, other than the Premises as the types and amounts of property
and liability insurance coverage that Lessor and/or Lessee is obligated to
maintain for the Premises pursuant to the terms of this Lease.
(h) Within ninety (90) days following Lessee's receipt of any
statement of Building operating Expenses and/or Project Operating Expenses for
any Comparison Year, Lessee may, so long as Lessee gives written notice to
Lessor within said ninety (90) day period, cause an audit by an independent,
certified public accountant or other qualified person or entity of Lessor's
books and records pertaining to Building operating Expenses and/or Project
Operating
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Expenses for the Base Year, the Comparison Year which is the subject
of Lessor's statement and the immediately preceding Comparison Year. Such
independent certified public accountant or other qualified person or entity
shall be subject to the prior reasonable approval of Lessor. Within fifteen (15)
days after Lessor's receipt of such notice from Lessee, Lessor shall makes its
books and records available for audit by such independent, certified public
accountant or other qualified person or entity at Lessor's office. Upon
completion of the audit, Lessee shall promptly deliver to Lessor the written
results of such audit. If Lessor has in fact overcharged Lessee for Lessee's
share of Building Operating Expenses and/or Project Operating Expenses, then
Lessee shall receive a credit in the amount of such overcharge against the next
installment of Building Operating Expenses and/or Project Operating Expenses. If
Lessor has in fact undercharged Lessee, then no later than thirty (30) days
after the earlier to occur of completion of such audit or Lessor's delivery to
Lessee of written notice, Lessee shall pay to Lessor the amount of such
undercharge. Any such audit shall be conducted at the sole cost and expense of
Lessee; provided, however, if Lessor has in fact overcharged Lessee by an amount
in excess of five percent (5%) then Lessor shall pay the reasonable cost of such
independent, certified public accountant or other qualified person or entity. If
Lessor has in fact overcharged Lessee, and Lessee did not initially request an
audit of the Building Operating Expenses and/or Project Operating Expenses for
the Comparison Year immediately preceding the Comparison Year which is the
subject of Lessor's current statement, then Lessee may, within ninety (90) days
following the completion of the initial audit, cause an audit of the Building
operating Expenses and/or Project operating Expenses for such preceding
Comparison Year in accordance with the audit procedures described above. Lessor
shall maintain records of all Building operating Expenses and Project Operating
Expenses for the Base Year until the 90th day after the expiration or
termination of this Lease and for the entirety of the two (2) year period
following Lessor's delivery to Lessee of the statement setting forth Lessee's
share of Building Operating Expenses and Project Expenses in any Comparison
Year.
54. ASSIGNMENT OF WARRANTIES. Lessor hereby assigns to Lessee all
warranties against defective workmanship and materials as may be received by
Lessor from the contractor(s) of the Premises and the Lessee Improvements
(collectively, "Improvements") to the extent that such warranties cover any
defects in any of the Improvements which Lessee is required to repair
hereunder. Lessee may proceed in its own name as the assignee of any such
warranties or, at the request of Lessee and at Lessor's sole cost and
expense, Lessor agrees to cause the enforcement of the warranties so assigned
to Lessee. As a matter with respect to which Lessor is to incur no
obligation, Lessor hereby advises Lessee that the warranty period for all of
Lessor's work of construction will be one (1) year from the date of filing of
the notice of completion for such work.
55. ASSIGNMENT AND SUBLETTING. In connection with any proposed
assignment or sublease, Lessee shall submit to Lessor in writing: (i) the name
of the proposed assignee or sublessee; (ii) such information as to the proposed
assignee's or sublessee's financial responsibility and standing as Lessor may
reasonably require; and (iii) all of the material terms and conditions upon
which the proposed assignment or subletting is to be made. If for
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<PAGE>
any assignment or sublease Lessee received rent or other consideration (after
deducting all reasonable costs of (a) free rent, tenant improvements and
allowances provided to such assignee or sublessee, (b) brokerage commissions
and marketing costs, and (c) the Base Rent paid to Lessor by Lessee
subsequent to the "Start Date" (as defined below) and prior to the effective
date of the assignment, provided however that such period shall not exceed
four (4) months) either initially or over the term of the assignment or
sublease, in excess of the rent called for hereunder, or in case of the
sublease of a portion of the Premises, in excess of such rent fairly
allocable to such portion (the "Excess Rent"), Lessee shall pay one-half
(1/2) of such Excess Rent to Lessor promptly after its receipt. For purposes
hereof, the "Start Date" shall mean the later of W thirty (30) days after
Lessee notifies Lessor in writing that it intends to employ a broker to
market the space, and in the event of a sublease, such notice shall also
describe in reasonable detail the portion of the Premises which Lessee
intends to sublease, (ii) the date which Lessee commences to market the space
with such broker, and (iii) the date that Lessee vacates the space and
thereafter does not reoccupy the space (unless Lessee intends to sublet only
a portion of the Premises, in which case the condition set forth in this
clause (iii) shall not apply). Lessee shall bear, at its cost, any brokerage
commissions, tenant improvement expenses and all other expenses pertaining to
such assignment or sublease. In no event shall the consideration to be
received by Lessee pursuant to such assignment or sublease depend in whole or
part on the income or profits derived by any person from the Premises within
the meaning of Section 512(b)(3)(B)(ii) of the Internal Revenue Code of 1986,
as amended. Notwithstanding anything to the contrary contained in this Lease,
Lessee may assign or sublet its interest in this Lease or in the Premises, or
any portion thereof, without Lessor's consent, to (collectively, a "Permitted
Transfer") (i) any corporation or other person or entity which at the time
such assignment or sublease and at all times thereafter controls, is
controlled by or is under common control with the original Lessee, (ii) any
corporation or other person or entity resulting from the merger or
consolidation or other reorganization with the original Lessee, (iii) any
corporation or other person or entity which acquires all or substantially all
of the assets of Lessee in connection with the business conducted at the
Premises as a going concern and continues to operate the business conducted
by Lessee at the Premises, or (iv) any corporation or other person or entity
which acquires all or any part of the stock of Lessee and continues to
operate the business conducted by Lessee at the Premises (collectively, a
"Permitted Transferee"); provided that in connection with any such Permitted
Transfer, said assignee or sublessee assumes, in full, the obligations of
Lessee under this Lease. Any assignment or sublease to a Permitted Transferee
shall not, in any way, affect or limit the liability of Lessee under the
terms of this Lease even if after such assignment or subletting the terms of
this Lease (if Lessee exists after such assignment or subletting) or the
sublease are materially amended or modified without notifying Lessee or
anyone liable on this Lease or the sublease and without obtaining their
consent the consent of whom shall not be necessary, and Lessee (if Lessee
exists after such assignment or subletting) shall continue to remain liable
under the terms of this Lease or any such sublease, as this Lease or such
sublease may from time to time be amended or modified.
56. SIGNS. Notwithstanding the provisions of Paragraph 34 of the Form
Lease, Lessee hereby agrees to comply with the sign program of the City of
Irvine and further
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<PAGE>
agrees to pay any and all costs of signage required in
connection with this Lease and Lessee's use of the Premises. Provided that
Lessee obtains all permits and approvals required by the City of Irvine, Lessee
shall have the right, at Lessee's sole cost and expense, to maintain all
existing signage of Lessee at the Building as of the date of the execution of
this Lease. Except for the signs permitted under Paragraph 32 of the Form Lease,
no person or entity other than Lessee (including Lessor) shall have any right to
place or maintain any signs on the Building (including on the roof of the
Building).
57. LIMITATION ON LESSOR'S LIABILITY. Notwithstanding any provisions
to the contrary set forth in this Lease, Lessor shall not in any event or at any
time be personally liable for the payment or performance of any obligation
required or permitted of Lessor pursuant to this Lease or in any document
executed in connection herewith. In the event of any breach or default by Lessor
under this Lease or any such document, the sole recourse of Lessee shall be
against Lessor's interest in the Premises, and no attachment, execution, writ or
other process shall be Bought or obtained, and no judicial proceeding shall be
initiated by or on behalf of Lessee against Lessor personally or Lessor's assets
except with respect to Lessor's interest in the Premises.
58. OPTION TO EXTEND.
(a) Lessee shall have one (1) option (the "Option") to extend the
Original Term of this Lease for a period of sixty (60) months (the "Option
Term"). The Option to extend the Original Term of this Lease may be exercised
only in the event that Lessee is not in material default under this Lease.
Notwithstanding the foregoing, if Lessee is in default under this Lease during
the period Lessee is otherwise entitled to exercise the Option, then Lessee may
still exercise the option provided that Lessee cures such default within the
cure period provided under this Lease, if any. If Lessee fails to cure any such
default within the cure period provided under this Lease, if any, then Lessee's
exercise of the Option shall automatically be deemed revoked. The period of time
for Lessee to exercise the Option shall not be extended as a result of Lessee
being in default during such exercise period. The Option must be exercised by
notice in writing of such exercise (the 'Option Notice"), delivered by Lessee to
Lessor not earlier than fifteen (15) months and not later than nine (9) months
prior to the end of the Original Term. Lessee's failure to deliver the Option
Notice within the time-period set forth above shall be deemed to constitute
Lessee's waiver of the Option.
(b) The monthly Base Rent payable by Lessee during the Option
Term shall be equal to ninety-five percent (95%) of the "market rate" prevailing
for comparable space in the immediate vicinity of the Building including the
Project, at the time of the commencement of the Option Term. For purposes
hereof, the "market rate" prevailing for comparable space shall mean and refer
to the rate then being charged or projected to be charged to tenants for
non-renewal and non-expansion space, similarly improved, taking into
consideration annual rental rates per rentable square foot, the type of
escalation clauses, (including, but not without limitation, fixed and CPI
adjustments), the length of the relevant term, the extent of services to
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<PAGE>
be provided to the premises and any other relevant conditions. Without
limiting the generality of the foregoing, in the event the market rate
provides for rental increases, then the monthly Base Rate payable during the
Option Term shall be Similarly increased. Notwithstanding the foregoing, in
no event shall the monthly Base Rent payable during the Option Term be less
than the monthly Base Rent payable during the last month of the Original
Term. The parties shall have thirty (30) days after Lessor receives the
option Notice in which to agree on the monthly Base Rent payable during the
Option Term. If the parties agree on such monthly Base Rent, they shall
immediately execute an amendment to this Lease stating the new monthly Base
Rent. If the parties are unable to agree on the monthly Base Rent within the
above-stated period, then no later than ten (10) business days after the
expiration of such thirty (30) day period, Lessee shall have the right to
rescind its exercise of the Option by delivering written notice of such
rescission to Lessor within such ten (10) business day period. Lessee's
failure to deliver such notice of rescission within the time period set forth
above shall be deemed to constitute Lessee's waiver of such right. If the
parties are unable to agree on the monthly Base Rent within the above-stated
period and Lessee waives or is deemed to have waived its right to rescind its
exercise of the Option, then either party shall have the option to submit the
issue to arbitration by delivering written notice to the other party. Within
twenty (20) days after such notice is delivered by either party to the other
party, each party, at its cost and by giving notice to the other party, shall
appoint a real estate appraiser with at least five (5) years' full time
commercial appraisal experience in the vicinity of the Project to appraise
and set the monthly Base Rent for the Option Term. If a party does not
appoint an appraiser within the time allotted, the single appraiser appointed
shall be the sole appraiser and shall set the monthly Base Rent for the
Option Term. If two appraisers are appointed by the parties as stated in this
paragraph, they shall meet and promptly attempt to set the monthly Base Rent
for the Option Term. If the two appraisers are unable to agree within thirty
(30) days after the second appraiser has been appointed, the two appraisers
shall, within ten (10) days, elect a third appraiser meeting the
qualification set forth herein. Each of the parties shall bear one-half (1/2)
of the cost of appointing the third appraiser and paying the third
appraiser's fee. Within thirty (30) days after the selection of the third
appraiser, the monthly Base Rent for the Option Term shall be determined by a
majority of the appraisers.
59. PARKING. During the Original Term of this Lease and any extensions
thereof, Lessor agrees to provide four (4) standard vehicular parking spaces per
1,000 square feet of rentable floor space of the Premises (the "Parking Spaces")
free of charge for Lessee's use. The Parking Spaces shall be unassigned and
located in the area set forth on Exhibit "B' attached hereto.
60. HOLDING OVER. Lessee shall have no right to retain possession of
the Premises or any part thereof beyond the expiration or sooner termination of
this Lease without the written consent of Lessor. If Lessor does not object to
Lessee's holding over, then this Lease shall continue as a tenancy from
month-to-month on the terms and conditions contained herein and at one hundred
twenty-five percent (125%) of the rent in effect immediately preceding the
expiration or sooner termination of this Lease.
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<PAGE>
61. EARLY TERMINATION. Provided that Lessee is not in material default
under this Lease, Lessee shall have the right to terminate this Lease effective
as of the end of the commencement of the sixtieth (60th) month of the Original
Term (the "First Termination Right") or effective as of the ninetieth (90th)
month of the Original Term (the "Second Termination Right"). Notwithstanding the
foregoing, if Lessee is in default under this Lease during the period Lessee is
otherwise entitled to exercise the applicable termination right, then Lessee may
still exercise the applicable termination right provided that Lessee cures such
default within the cure period provided under this Lease, if any. If Lessee
fails to cure any such default within the cure period provided under this Lease,
if any, then Lessee's exercise of the applicable termination right shall
automatically be deemed revoked. The period of time for Lessee to exercise the
applicable termination right shall not be extended as a result of Lessee being
in default during such exercise period. In order to exercise the First
Termination Right or the Second Termination Right, as applicable, Lessee shall
(a) deliver to Lessor a notice in writing of such exercise (the "Termination
Notice") no earlier than fifteen (15) months and no later than nine (9) months
prior to the commencement of (i) the sixtieth (60th) month of the Original Term
with respect to the First Termination Right, or (ii) the ninetieth (90th) month
of the Original Term with respect to the Second Termination Right, and (b)
concurrently with such Termination Notice, pay to Lessor the Termination Fee (as
defined below), in cash or by cashier's or corporate check. Lessee's failure to
deliver the Termination Notice within the time-period set forth above shall be
deemed to constitute Lessee's waiver of the First Termination Right or the
Second Termination Right, as applicable. For purposes of this Lease, the
"Termination Fee" shall be $150,000.00 with respect to the First Termination
Right, and $100,000.00 with respect to the Second Termination Right. If Lessee
exercises a termination right, then no later than the effective date of such
termination, Lessee shall surrender the entire Premises to Lessor free and clear
from all occupancies and in accordance with the terms of Paragraph 7.4 of the
Form Lease.
62. SECURITY DEPOSIT. Lessor and Lessee acknowledge that as of the
date hereof, Lessee has deposited with Lessor a security deposit pursuant to the
terms of the Existing Lease. Upon the execution of this Lease, such security
deposit held by Lessor under the existing Lease shall be deemed to be the
security deposit required under Paragraphs 1.7 and 5 of the Form Lease.
63. TERMINATION OF EXISTING LEASE. Upon the execution of this Lease,
the Existing Lease shall be deemed irrevocably and unconditionally terminated
and of no further force or effect, except for any indemnity obligations
expressly surviving such termination.
64. FREE RENT. Provided that Lessee is not in Breach under this
Lease, then commencing as of the date of Lessor's receipt of all permits
required to construct the Lessee Improvements, and continuing until the date
the Commencement Date would have occurred but for Lessee Delays (the "Rent
Abatement Period"), Lessor hereby agrees to abate the monthly fixed rent paid
by Lessee to Lessor pursuant to the terms of this Lease. Lessee shall during
the Rent Abatement Period pay all rent other than fixed monthly rent (e.g.,
Lessee's share
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<PAGE>
of operating costs, taxes, insurance, etc.) that would have been payable by
Lessee during such period under the terms of the Existing Lease as if the
Existing Lease were still in full force and effect.
65. ALLOWANCE. Provided that Lessee is not in Breach under this Lease,
then (a) subject to Lessor's receipt of invoices setting forth the expenses
incurred by Lessee in detail reasonably satisfactory to Lessor, Lessor shall
reimburse Lessee in the amount of $16,250.00 on the date two (2) months after
the date of execution of this Lease and $16,250.00 on the Commencement Date for
the removal and reinstallation of Lessee's furniture system, and (b)
concurrently with the execution hereof, Lessor shall pay to H. Hendy &
Associates the sum of $2,500.00 for architectural services rendered to Lessee.
66. PAINT AND CARPETING. Provided that Lessee is not in Breach under
this Lease, then within thirty (30) days after Lessee's delivery of written
notice to Lessor (which notice may only be delivered after the sixtieth (60th)
month of the original Term of this Lease), Lessor shall commence and thereafter
complete the repainting and recarpeting of the Premises in accordance with
building standard.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day
and year set forth on the first page of the Form Lease.
Address for notices to LESSOR:
Lessor:
JAMBOREE ASSOCIATES,
c/o Bowers Perez Associates a joint venture
811 W. 7th Street, Suite 320
Los Angeles, CA 90017 By: Copley Investors Limited
Attn: Donald E. Bowers Partnership, a Delaware
limited partnership
By: Copley Management Limited
Partnership, a Delaware limited
partnership, its general partner
By: Copley Advisors, Inc., a
Massachusetts corporation,
its managing partner
By: /s/ James D. Flynn
----------------------------
Its Managing Director
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<PAGE>
By: Jamboree Partners
a California general
partnership, a Joint Venturer
By: /s/ Donald E. Bowers
----------------------------
Donald E. Bowers, a partner
Address for notices to LESSEE:
Lessee:
INSTITUTE FOR BIOLOGICAL
RESEARCH
2525 Campus Drive AND DEVELOPMENT, INC., a Delaware
Irvine, CA 92715 corporation
By: /s/ Thomas Lehrl
---------------------------------
Its: Executive VP
-----------------------------
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<PAGE>
Exhibit 10.18
CIVIL LEASE AGREEMENT
BETWEEN: JEROUN S.A.
327 Louise Avenue
BRUSSELS 1050
Represented by Mr. Magnus Claesson
Acting in his capacity as Delegated Administrator
Hereinafter referred to as "THE LESSOR"
AND: PHOENIX INTERNATIONAL
145 Dieweg
BRUSSELS 1180
Represented by Mr. Lucien Steru
Acting in his capacity as President, Europe
Hereinafter referred to as "THE LESSEE"
<PAGE>
THE FOLLOWING HAS HEREBY BEEN AGREED UPON:
ARTICLE I - LEASED PREMISES
THE LESSOR leases to THE LESSEE, who accepts, the following property for
exclusive office usage:
Part of the 9th Floor of the building located at 327 Louise Avenue in Brussels
1050, of an approximate surface area of 222 sq. m. (see attached plan), 3
parking spaces and some archive space (7 sq. m) # 15 in -2. The furniture and
partitions are part of the leased property and shall be described in the
inventory of the premises as mentioned in Article VI.
All other particulars are perfectly known by THE LESSEE, who does not request
any further description thereof.
It is expressly specified that under no circumstance shall the leased premises
be used for retail activity or craftsmanship directly in contact with the
public, so that the present lease is not and shall not ever be governed by the
Law of April 30, 1951 on Commercial Leasing.
ARTICLE II - TERM OF LEASE
The lease is entered into for a period of nine (9) consecutive years starting on
March 1st, 1998 and terminating automatically at midnight on February 28, 2007.
Each of the parties shall have the right to terminate this agreement at the end
of each 3-year period with a notice sent by registered mail to the other party
at least six (6) months prior to the end of such 3-year period.
The continued occupation of the leased premises beyond the contractual term of
nine (9) years shall in no way constitute a renewal by tacit agreement.
ARTICLE III - RENT AND INDEXATION
The amount of the annual base rent is set at 1,092,100 Belgian francs, payable
each quarter and in advance on January lst, April 1st, July 1st and, October 1st
of each year, and is to be deposited to the account indicated by the owner.
The rent for the month of March shall be paid prior to March 1st, 1998.
Failure to receive payment upon each due date shall render the rent overdue
without the need for a demand letter. The parties expressly agree to adjust the
rent presently established according to the variation of the consumer price
index published monthly by the Ministry of Economics Affairs.
<PAGE>
Each year, at the anniversary date of the lease, the rent shall be adjusted,
automatically and without formal notice, according to the variation of the price
index of the month immediately preceding the year-end of the lease, according to
the following formula:
BASE RENT X NEW INDEX = ADJUSTED RENT
- ---------------------
BASE INDEX
The new index is that of the month which immediately precedes the anniversary
date of the beginning of the lease.
The starting index is that of the month which precedes the current month in
which this lease agreement is executed, i.e. the index for the month of January
1998 = 125.17 points
The consumer price index of the Kingdom is temporarily replaced by a special
index established to this effect, called "health index", i.e. the one for the
month of January 1998 is 101.83 points.
The adjusted rent shall never be less than the applicable rent at the adjustment
date.
ARTICLE IV - EXPENSES
TAXES
The property withholding tax and all other property taxes levied or to be levied
on the leased premises shall be borne solely by THE LESSEE; the same shall apply
to all taxes which might be levied on the leased premises due to their
occupation or due to the activities of THE LESSEE in these premises.
COMMON EXPENSES
THE LESSEE shall pay his share of the common expenses of the building, as they
shall be established by THE LESSOR or the administrator of the building.
The common expenses include all consumption and maintenance costs related to the
building, IN particular, without limitation, the consumption of water,
electricity, and fuels, and common devices for heating and lighting, the
maintenance and cleaning of the building (common areas, facades, etc.), the
administrator's fee, the salaries, insurance and fringe benefits of the eventual
janitor and of the personnel in charge of the maintenance of the common areas.
The participation of THE LESSEE in these above-mentioned costs shall be
proportional to his shares, that is, 438/10,000 for office shares and 21/10,000
for parking shares.
THE LESSEE shall make an advance payment on the common expenses at the
same
<PAGE>
time and in the same account as the payment of the rent. The first
advance payment shall be BEC 72,150 per quarter, estimated according to
the average of actual expenses incurred during the four preceding
quarters in the building. The expenses for the month of March 1998
shall be paid prior to March 1st, 1998.
At least once a year, THE LESSOR or his administrator shall establish a
statement of actual cost of all incurred expenses. THE LESSEE shall have the
right to verify, in the premises of THE LESSOR or the administrator, the
original documents establishing the expenses. The potential difference between
the amount of actual expenses and the advance payments made by THE LESSEE shall
be reimbursed by the party concerned to the other, within ten (10) days of its
request. At that moment, the future advance payments shall be adjusted according
to the actual expenses.
PRIVATE EXPENSES
Shall be borne by THE LESSEE: all private expenses related to the leased
premises such as water, electricity, gas, telephone, fax and others, as well as
related costs such as the cost of connection, consumption, advance payments, and
renting of the meters.
ARTICLE V - PAYMENT AND INTEREST
Without prejudice to all other rights and actions of THE LESSOR, all amounts due
or to be due by THE LESSEE under this lease agreement shall bear, as of their
due date, automatically and without the need for a demand letter, a penalty
interest at a rate of 12% per year.
ARTICLE VI - INVENTORY OF THE PREMISES
Prior to any use of the leased premises by THE LESSEE, it is agreed that an
inventory of the premises shall be established by an expert mutually appointed
by both parties, each party bearing half of the expenses and fees of the said
expert, or if there is no agreement, by two (2) experts, each party shall then
appoint and pay his own.
At the expiration of the lease, an inventory of the premises shall be conducted
following the same procedure as described above, in order to have an expert
establish the amount of damage caused by THE LESSEE and the compensation for the
potential unavailability of the premises.
ARTICLE VII - REPAIRS AND MAINTENANCE
THE LESSEE undertakes to use the premises prudently and to maintain them during
the entire period of the lease in a good state of repairs.
Only major repairs are the responsibility of THE LESSOR. Other repairs are the
responsibility of THE LESSEE; THE LESSEE shall notify, without delay and by
registered mail, THE
<PAGE>
LESSOR of all necessary repairs incumbent upon the latter, otherwise he shall be
deemed responsible for the degradation which might result and of all harmful
consequences.
THE LESSEE shall replace, at his expense, all broken or cracked windows or
mirrors, regardless of the cause. THE LESSEE shall repair and, if necessary,
replace, at his expense, the locks of doors and windows, the hinges and latches,
the taps, the sanitary appliances and, all other devices, except in the case of
hidden defects inherent to the installation. THE LESSEE shall protect the water
pipes and, the sanitary and central heating installations against frost.
THE LESSEE shall not overload the floors with more than 250 kg per sq. m,
including the weight of the partitions, without giving notice to THE LESSOR.
THE LESSEE shall endure the major repairs, which become necessary and which are
incumbent upon THE LESSOR, even though they may last longer than 40 days,
without claiming any compensation.
When an interruption of the services in the building, is due to a cause beyond
the control of THE LESSOR and, as long as he has shown reasonable care to ensure
the operation of these services or their restoration, THE LESSEE shall not claim
any compensation because of any resulting inconvenience for him.
ARTICLE VIII - TRANSFORMATIONS AND MODIFICATIONS
THE LESSEE shall not proceed with any change, modification, construction or
demolition in the leased premises without prior written consent of THE LESSOR.
At the expiration of the lease or in the case of termination, all modifications,
transformations or improvements, including the partitions, shall become the
property of THE LESSOR, at no cost, and shall be left in good condition;
however, THE LESSOR shall have the right to request THE LESSEE that he restore
the premises to their original condition as when they were taken, at no cost to
THE LESSOR.
ARTICLE IX - GUARANTEE
The Company, Phoenix International Life & Sciences, acts as a guarantor for the
proper performance of the obligations of THE LESSEE under this lease agreement.
This guarantee shall be confirmed to THE LESSOR in writing before March lst,
1998.
ARTICLE X - SUBLETTING - TRANSFER
The premises leased under this lease agreement shall not be transferred or
sublet in all or in any part by THE LESSEE without the prior express and written
consent from THE LESSOR. In the case where THE LESSOR would authorize the sublet
or the transfer, THE LESSEE and sublessee or the transferor and transferee shall
remain jointly responsible towards THE LESSOR for all the obligations under this
lease agreement.
<PAGE>
The duration of the sublease shall not in any way last beyond the term of this
lease agreement.
ARTICLE XI - INSURANCE
THE LESSEE shall insure his furniture at his expense, at minimum, against the
damage which may be caused by fire, explosion, water and breaking glass.
In accordance with Articles 1733 and following of the Civil Code, THE LESSEE
shall also insure for the tenant's risks incumbent upon him as well as against
third-party claims.
These insurance policies shall be taken out with companies agreed upon by THE
LESSOR, and for sufficient amounts. These policies shall stipulate that the
coverage may not cease to be effective, for any cause whatsoever, except with a
prior one-month notice given to THE LESSOR. THE LESSEE shall distribute copies
of the policies to THE LESSOR within thirty (30) days of the effective date of
this lease agreement.
If the activity of THE LESSEE leads to an increase in the property insurance
premium for the owner, this increase shall be borne by THE LESSEE.
THE LESSEE shall allocate all sums received in virtue of the insurance policies
to the restoration of the building and its furniture, and if applicable, he
shall provide all the necessary shortfall of funds.
THE LESSEE expressly states that he waives all recourses that he might exercise
against THE LESSOR in accordance with Articles 1386 and 1721 of the Civil Code.
ARTICLE XII - TERMINATION BY ORDER OF A COURT
In the event of termination of the present lease due to a fault of THE LESSEE,
he shall owe, as an indemnity for the termination, an amount equal to six (6)
months of rent, in addition to the rent and the expenses of the current quarter,
and to all costs, disbursements, and legal costs resulting from the termination,
without prejudice to the application of Article IX.
In the event of a bankruptcy, an out-of-court or court-ordered settlement, a
fraudulent bankruptcy, the invalidation or liquidation of THE LESSEE, this lease
agreement shall terminate automatically. In such case, THE LESSEE shall be
liable for an indemnity equal to six (6) months of rent, without prejudice to
the other obligations imposed upon him under this lease in the event of early
termination.
ARTICLE XIII - EXPROPRIATION
In the event of expropriation for public use, THE LESSEE shall not claim any
compensation from THE LESSOR; THE LESSEE shall assert his claim only against the
expropriating authority.
<PAGE>
ARTICLE XIV- VISITS
During the entire period of the lease, THE LESSOR shall have the right to visit
or to have the leased premises visited by one of his representatives, each time
that he shall deem appropriate, with a prior appointment taken with THE LESSEE.
During the last six (6) months of the lease and in the event the building is put
up for sale, THE LESSEE shall allow visits of the leased premises three (3) days
a week, for three (3) consecutive hours. He shall also tolerate the
installation, at the most visible locations, of "For Sale" or "For Rent" signs.
ARTICLE XV - REGISTRATION
THE LESSEE shall be responsible for registering this lease agreement. Each of
the parties shall bear half of the registration fees, fines and potential
duplicate rights.
For the purposes of registration fees only, the parties estimate at 15% of the
annual rent the expenses imposed upon THE LESSEE under this lease agreement.
ARTICLE XVI - CHOICE OF RESIDENCE
With regard to anything relating to this lease agreement, THE LESSEE chooses the
leased premises as his residence.
ARTICLE XVII - GOVERNING LAW AND JURISDICTION OF COURTS
This lease agreement shall be governed by the laws of Belgium; any dispute
related to this lease agreement, or its interpretation, performance or breach,
shall be subject to the exclusive jurisdiction of the Courts of Brussels.
ARTICLE XVIII - MISCELLANEOUS
As of December 1st, 1998, THE LESSEE shall have the possibility to lease the
remaining available space on the 9th Floor of the premises leased under this
lease agreement (+/- 66 sq. m), under the same terms and conditions which apply
to the surface areas mentioned in Article I of this lease agreement. The lease
of the entire surface area on the 9th Floor shall terminate automatically on
February 28, 2007. The intermediate periods shall be the same as those described
in Article I of this lease agreement.
This decision shall be notified to THE LESSOR by registered letter no later than
September 1st, 1998.
Executed in triple copies, including one for registration purposes, in Brussels,
on February 13, 1998.
<PAGE>
THE LESSOR THE LESSEE
- ---------- ----------
/s/ Magnus Claesson /s/ Lucien Steru
<PAGE>
Rider #1
to the Civil Lease Agreement
entered into as of February 13, 1998
BETWEEN JEROUN S.A.
327 Louise Avenue
Brussels 1050
Represented by Mr. Magnus Claesson, Delegated Administrator
Hereinafter referred to as "THE LESSOR"
AND PHOENIX INTERNATIONAL
327 Louise Avenue
Brussels 1050
Represented by Mr. Lucien Steru, President, Europe
Hereinafter referred to as "THE LESSEE"
PREAMBLE
Under a lease agreement executed by the parties hereto as of February 13, 1998
(hereinafter referred to as "THE PRINCIPAL LEASE"), THE LESSOR leased to THE
LESSEE 222 sq. m. of the 9th Floor of the building located at 327 Louise Avenue
in Brussels 1050, for office usage. THE LESSOR also gave the possibility to THE
LESSEE to lease the remaining surface area available on the 9th Floor, under the
same terms and conditions.
THE LESSOR hereby also leases to THE LESSEE additional space in the same
building.
It is expressly further agreed upon:
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ARTICLE 1: LEASED PREMISES
THE LESSOR leases to THE LESSEE, who accepts, the remaining space of the 9th
Floor, that is to say 66 gross sq. m, of the building located at 327 Louise
Avenue in Brussels 1050.
All other particulars are perfectly known by THE LESSEE, who does not request
any further description thereof.
ARTICLE II: USE OF LEASED PREMISES
The premises are leased exclusively as office space and shall under no
circumstance be used for retail activity or craftsmanship directly in contact
with the public, so that the present lease is not and shall not ever be governed
by the Law of April 30, 1951 on Commercial Leasing.
ARTICLE III: TERM OF LEASE
This lease agreement shall be effective December 1st, 1998 and shall terminate
at the same time and under the same terms and conditions as THE PRINCIPAL LEASE.
ARTICLE IV: RENT AND INDEXATION
The present lease is granted and accepted for an annual base rent set at:
BEC 283,800 for offices (that is to say BEC 4,300/sq. m/yr.)
The rent is payable quarterly and in advance, at the same time and in the same
manner as the rent of THE PRINCIPAL LEASE.
The rent shall be indexed at the same time and in the same manner as the rent of
THE PRINCIPAL LEASE; the index is the one for the month of January 1998, i.e.,
125.17 points.
ARTICLE V: EXPENSES
All taxes pertaining to the leased premises shall be borne by THE LESSEE.
The participation of THE LESSEE in the common expenses shall be proportional to
his shares, that is:
131 /10,000 for offices
The advance payment on common expenses set forth in Article IV b of THE
PRINCIPAL LEASE is increased by BEC 21,450.
THE LESSEE shall pay the common expenses and all taxes provided for in THE
PRINCIPAL LEASE as of the effective date of occupation of the leased premises.
In any case, the expenses and taxes shall be borne by THE LESSEE no later than
as of the effective date of this rider.
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ARTICLE VI: INVENTORY OF THE LEASED PREMISES
An inventory of the premises shall be established in accordance with the
provisions of Article VI of THE PRINCIPAL LEASE.
ARTICLE VII: LEASING GUARANTEE
The leasing guarantee set forth in Article IX of THE PRINCIPAL LEASE shall be
increased to an amount equal to six months' rent provided for in Article IV of
this rider.
ARTICLE VIII: APPLICATION OF THE PROVISIONS OF THE PRINCIPAL LEASE
All provisions of THE PRINCIPAL LEASE that are not hereby modified or overridden
fully apply to this rider.
ARTICLE IX: REGISTRATION
This rider shall be registered by and at the expense of THE LESSEE.
For the purposes of registration fees, the parties estimate at 15% of the annual
rent the expenses imposed upon THE LESSEE under this rider.
Executed in Brussels in three (3) copies, including one for registration
purposes, on September 15, 1998.
THE LESSOR THE LESSEE
- ---------- ----------
/s/ Magnus Claesson /s/ Lucien Steru
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EXHIBIT 10.19
COMMERCIAL LEASE
BETWEEN THE UNDERSIGNED PARTIES
The Company named LION SCPI, with a capital value of SIX HUNDRED TWENTY SIX
MILLION TWO HUNDRED NINETY TWO THOUSAND FRENCH FRANCS (FF 626,292,000), whose
head office is located in PARIS, 1st district, 164 de Rivoli Street, registered
in the Register of Companies of PARIS (REGISTRE DU COMMERCE ET DES SOCIETES DE
PARIS) under No. D 344 084 611,
the said Company represented by its manager:
The SOCIETE LYONNAISE DE GERANCE IMMOBILIERE "SLIGERI" S.A., business
corporation with a capital value of ONE MILLION FIVE HUNDRED THOUSAND FRENCH
FRANCS (FF 1,500,000), whose head office is located in PARIS 1st district, 164
de Rivoli, registered in the Register of Companies of PARIS under No. B 682 006
135, with legal representative Mr. Alain LEMAITRE domiciled in PARIS 1st
district, 164 de Rivoli Street, Chairman of the Board,
Hereinafter referred to as "THE LESSOR"
AND
The Company PHOENIX INTERNATIONAL FRANCE, SA with a capital value of FF
2,295,000 whose head office is located at LE KREMLIN BICETRE 94270, 93 de
Fontainebleau Avenue, registered with the Register of Companies of CRETEIL under
No. B326 152 915 represented by Mr. Bruno MAUGEE, residing at KREMLIN BICETRE,
93 de Fontainebleau Avenue, specially empowered to act hereby,
Hereinafter referred to as "THE LESSEE"
THE FOLLOWING IS HEREBY AGREED UPON AND SETTLED:
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CHAPTER I--GENERAL TERMS AND CONDITIONS
0.ARTICLE 1--OBJECT OF LEASE AND DESCRIPTION OF PREMISES
THE LESSOR leases to THE LESSEE, who accepts to lease, the premises described in
the "Specific Terms and Conditions".
0.ARTICLE 2--EFFECTIVE DATE--TERM
This lease shall be effective as of the date indicated in the "Specific Terms
and Conditions."
As of that date, it shall be for a term of nine (9) full and consecutive years.
However, THE LESSEE shall have the right to terminate this lease at the end of
each of the two first three-year periods, by serving written notice to THE
LESSOR at least six (6) months prior to the expiration of the applicable
three-year period.
ARTICLE 3--INVENTORY OF THE PREMISES
THE LESSEE states that he is well aware of the condition of the leased premises
as they were visited with the purpose of leasing and releases THE LESSOR of any
further description other than the one comprised in the "Specific Terms and
Conditions". He accepts them in their present condition without any right to
demand any repairs or restorations.
It is specified that any difference between the assessments and the surface
areas mentioned herein or resulting from plans that might be attached hereto,
and the actual dimensions of the premises, shall not justify an increase or a
decrease in rent; the parties shall refer to the consistency of the premises as
they exist.
THE LESSEE agrees to allow access to the premises to companies in charge of
executing work required for the collection of refuse as well as for repairs to
damage which might be noted subsequently.
An inventory of the premises after hearing both parties shall be drawn up, at
THE LESSEE's expense, within fifteen days, at the latest, of THE LESSEE's entry
into the premises. Otherwise, the premises shall be considered having been
leased in perfect condition.
N.B.: The articles marked with a (0) are strictly completed in the Specific
Terms (in Chapter II).
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(0)
0.ARTICLE 4--TERMS AND CONDITIONS OF LEASE
1) PURPOSE AND USE
(0)The premises shall be occupied exclusively for the purpose and use set forth
in the "Specific Terms and Conditions."
THE LESSEE shall use the premises quietly and so as not to disturb the peace of
neighbours or third parties.
If the leased premises belong to a group divided in volumes or to a
co-ownership, or to a regulated area, or are only a part of a group which
belongs to THE LESSOR or of a group divided in volumes, THE LESSEE agrees to
comply with the provisions of the specifications, of the regulation of the area,
of the articles of association, of the rules of co-ownership, of internal rules
or of any agreements pertaining to the leased premises and mentioned in the
"Specific Terms and Conditions."
This lease does not include any guarantee of exclusivity or of non-competition
by THE LESSOR, who reserves the right to lease all premises for the exercise of
any operations similar or identical to THE LESSEE's.
2) PROVISIONS RELATING TO SAFETY
THE LESSEE shall comply with the administrative regulations and the safety rules
relative to the category of the building of which are part the leased premises.
3) ADMINISTRATIVE AUTHORIZATIONS
THE LESSEE agrees to be solely responsible for obtaining any and all
authorizations deriving from legal, regulatory (in particular, Articles L 510.1
and R 510.1 and subsequent articles in the Town Planning Code, if the premises
are located in the region of Ile-de-France), administrative or other provisons,
concerning the use of the leased premises and, if applicable, their access to
the public; THE LESSOR may in no way be the subject of demand letters or sued
with regard to any matter set forth in this clause. He shall execute all
formalities and bear all expenses which might be necessary in the exercise of
his business, and, consequently, releases THE LESSOR of any possible
responsibility in this regard.
4) SUBLETTING--TRANSFER
a) SUBLETTING
Any subletting, partial or total, is forbidden.
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b) TRANSFER
THE LESSEE shall not transfer, in any manner whatsoever, his rights to this
lease without obtaining the prior written approval of THE LESSOR, unless the
transferee is the purchaser of his business.
In all cases, THE LESSEE shall remain a jointly liable guarantor, without being
able to oppose the benefit of discussion or of division, of the transferee and
the successive transferees, with regard to the payment of the rent and
incidental expenses and the performance of all terms and conditions of this
lease.
The transfer shall be carried out by deed executed and authenticated by a notary
with the participation of THE LESSOR's notary; the latter shall be called upon,
by registered letter return receipt requested, to intervene in this deed, of
which he shall receive an official copy without charge to him.
5) OBLIGATION TO FURNISH THE PREMISES AND TO OPERATE HIS BUSINESS
THE LESSEE shall maintain the premises constantly furnished, at all times, with
equipment and furniture in sufficient quantity and value to answer for the
payment of the rent and the performance of the terms and conditions of the
lease, and shall actually operate, without interruption, the above-mentioned
business.
6) WORK
a) REPAIR AND MAINTENANCE WORK
THE LESSEE shall be responsible not only for the repairs incumbent upon him and
for minor maintenance (Art. 1720 Par. 2 and Art. 1754 Par. 1 of the Civil Code)
but also for repairs of any nature, whatever their importance and whatever the
origin of the degradation (defects in construction, normal wear and tear, etc.),
even Acts of God, regarding the building itself as well as the equipment it
contains.
THE LESSOR shall be responsible only for major repairs as described in Article
606 of the Civil Code.
THE LESSEE shall inform THE LESSOR immediately, with written confirmation, of
any repairs incumbent upon the latter, as well as of all deterioration,
destruction or accidents caused to the leased premises or which occurred because
of them, otherwise he shall be deemed responsible for the consequences which
might result from his silence or delay. THE LESSEE agrees, in order to allow, if
applicable, the validation of the two-year or ten-year warranties, to inform THE
LESSOR, as soon as they are noticed, of the faults or defects affecting the
constructions.
THE LESSEE shall proceed, without delay and at his expense, with the
extermination
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of all rodents and other parasites which might appear in the
leased premises. He shall take all the necessary preventative measures against
frost.
Upon his departure, THE LESSEE shall prove, by an inventory of the premises
drawn up at his expense after due hearing of the parties, that the premises are
in excellent condition regarding maintenance and repairs of all nature pursuant
to the above provisions. Failing that, he shall pay THE LESSOR the cost of
renovations not covered by the security deposit provided for herein.
b) IMPROVEMENT AND CONVERSION WORK
THE LESSEE shall not proceed, in the leased premises, with any conversion, any
installation or any equipment affecting the shell or modifying the interior
layout, without prior written authorization of THE LESSOR, who may impose the
control of his architect, whose fees shall be borne by THE LESSEE.
The plans and descriptions of the conversions, installations or equipment
intended by THE LESSEE, shall be attached to the request for authorization.
Upon the departure of THE LESSEE, all conversions, installations, improvements
and embellishments that he shall have made shall become, by accession and
without compensation, the property of THE LESSOR, unless he prefers to require
that the premises be restored to their original condition at the sole expense of
THE LESSEE, even if he had already authorized the work.
c) WORK IMPOSED BY REGULATIONS PERTAINING TO THE LESSEE'S BUSINESS
THE LESSEE shall carry out all the work, whatever the cost, imposed in the
building either by legislative or regulatory provisions, or by administrative
orders, and in particular, all work affecting hygiene and safety, even in the
case of Acts of God.
d) COMMON PROVISIONS REGARDING WORK
In the event of inefficiency of THE LESSEE, THE LESSOR may have the work
referred to in (a) and (c) executed and the cost shall be reimbursed to him,
upon first request, by THE LESSEE.
THE LESSEE shall carry out all the work set forth in paragraphs (a), (b), and
(c) above, under his sole responsibility and without recourse against THE
LESSOR. He shall obtain all administrative and other authorizations and take out
all necessary insurance policies, and in particular, mandatory insurance
policies, and require that the companies have sufficient coverage for
professional, contractual, and tort liability. If the leased premises belong to
a co-ownership or are only one part of a building owned by THE LESSOR, the
above-mentioned obligations incumbent upon THE LESSEE shall apply to the work
relating to the private leased parts.
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(0)7) SIGNS
The installation of exterior signs or billboards is forbidden, except with prior
written approval by THE LESSOR which is set forth in the "Specific Terms and
Conditions." THE LESSEE shall comply with the prescriptions of THE LESSOR
regarding all inscriptions or indications relating to his corporate name or his
purpose that he might wish to install in the common parts of the building.
8) LIABILITY AND RECOURSES
THE LESSEE may not request any reduction in rent or exercise any recourse
against THE LESSOR:
- -- in case of interruption or malfunction of the various services in the
building;
- -- in case of theft, looting, destruction or other criminal acts committed in
the leased premises; in particular, THE LESSOR does not assume any obligation of
surveillance.
He renounces any recourse against THE LESSOR for disturbance of possession
caused by third parties, and agrees to be solely responsible for legal action to
be taken against the latter; THE LESSOR subrogates him in his rights in this
regard.
9) INSURANCE
a) THE LESSEE shall insure at his expense and maintain insured, for the entire
term of the lease, his furniture, equipment, windows, installations against
risks of fire, explosions, water damage, and the recourses of neighbours or
third parties, acts of malicious intent, terrorism, sabotage, riots, and mass
movements.
b) THE LESSEE shall also be insured at his expense, in his capacity as occupying
tenant, for third-party liability for all damage, property or bodily injury,
that might be caused by either his occupying the premises, or his employees, or
the use of the installations.
c) THE LESSEE's insurance policies shall also provide for their cancellation to
take effect only fifteen days after notice is given by the insurer to THE
LESSOR. THE LESSEE renounces and shall have his insurance company renounce any
recourse against THE LESSOR. Reciprocally, THE LESSOR renounces and shall have
his insurer renounce any recourse against THE LESSEE.
d) THE LESSEE shall provide THE LESSOR, upon first request by the latter, with
all vouchers of the above-mentioned policies and of the payment of the
respective premiums.
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By express agreement, THE LESSOR shall have a privileged claim on all
indemnities due to THE LESSEE by any insurance companies in case of claims, for
any cause whatsoever; this contract constitutes, to the extent necessary,
transfer up to the sums that may be due.
e) THE LESSOR shall be solely responsible for insuring the building; however the
premiums shall be reimbursed to him by THE LESSEE.
10) INCOME TAX AND TAXES
THE LESSEE shall pay all city, police and public works costs which are usually
borne by tenants, so that THE LESSOR might not be troubled about it and, in
particular, he shall pay the business tax and all income tax incumbent upon THE
LESSEE for which THE LESSOR is or might be deemed responsible, in any capacity,
and prove their payment upon request, and, in any case, eight (8) days prior to
his departure from the leased premises.
11) MISCELLANEOUS EXPENSES
THE LESSEE shall be responsible for the payment of water, electricity,
telephone, etc.
(0)12) RESTAURANT
If the building in which the leased premises are located includes an
intercompany restaurant, which in this case is indicated in the "Specific Terms
and Conditions," such restaurant will be made available to tenants for the
service of meals to be eaten on site by their employees, excluding any other
use. However, the initial opening will be dependent upon the needs expressed by
all the users; THE LESSOR shall remain the sole judge as to the advisibility of
its opening.
Upon the execution of this lease, THE LESSEE automatically becomes a member of
the Association or of the Group that will manage the restaurant. He agrees to
maintain his membership for the entire duration of his occupancy and to perform
all obligations, notably financial, incumbent upon him as a member. He shall
comply with the specific provisions of the internal regulation of the building
that apply to the restaurant.
THE LESSEE agrees, for the entire term of the lease, personally, and, if
applicable, in his capacity as a member of the Association or the Group:
1--to use the restaurant according to its purpose as defined above;
2--to be solely responsible for the operation of the company restaurant;
consequently, he shall establish the internal regulation determining the
terms and conditions of its use by his personnel, and enter into all
necessary contracts, notably the contract with the restaurateur and all
appropriate insurance contracts; in all cases, THE LESSEE shall
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be the only one to assume the entire responsibility of all
damage which might be caused to people or property, while using or after having
used the restaurant, without having the right to trouble or sue THE LESSOR in
this regard; THE LESSEE expressly waives any recourse against THE LESSOR.
3--to bear all expenses relating to equipment of any nature necessary for the
restaurant's operation, including that which may become a fixture, even though
they may have to be replaced completely, because of normal wear and tear, Acts
of God or any other cause.
5--to bear the share of expenses related to the space that comprises the
restaurant, and all related taxes, expenses, and costs, including property
taxes.
In the event of vacancy of all or part of the office space belonging to the
above-mentioned building, other than that covered by this lease, the total
amount of expenses of the restaurant resulting from the above-mentioned
obligations shall be borne by its only user or users, so that THE LESSOR does
not have to bear any.
An inventory of the premises shall be drawn up prior to the start of operations
after due hearing of THE LESSEE (or the Association or the Group) and THE
LESSOR.
13) VISIT OF THE PREMISES
During the term of the lease, THE LESSEE shall allow the representatives of THE
LESSOR to visit the leased premises, at any moment, to ensure their good
condition, and shall provide any vouchers that might be requested from him to
prove the proper performance of the terms and conditions of the lease, and
without those visits being abusive, provided he be given, except in cases of
emergency, at least one (1) week's notice.
In the six (6) months preceding the expiration of the lease, THE LESSEE shall
allow visits of the leased premises, on all business days from 9:00 a.m. to
11:00 a.m. and from 2:00 p.m. to 5:00 p.m., by any person authorized by THE
LESSOR. During this same period, he shall allow THE LESSOR to install a notice
or a sign to indicate that the space is for rent.
(0)ARTICLE 5--FINANCIAL TERMS AND CONDITIONS OF THE LEASE
1) RENT
The rent is due as of the effective date of the lease.
a) ANNUAL BASE RENT
(0)This lease is granted and accepted for an annual rent exclusive of tax, the
amount of
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which is set forth hereinafter in the "Specific Terms and Conditions."
This rent shall be payable in installments equal to one quarter of the said
amount, for each quarter and in advance, on the first day of the first month of
each calendar quarter.
The rent pertaining to the period comprised between the effective date of the
lease and the expiration of the calendar quarter that is ongoing at such date,
shall be paid on the effective date of the lease.
THE LESSOR agrees that the value added tax will be levied on revenues from this
lease.
Such tax shall be borne by THE LESSEE who agrees to pay it to THE LESSOR at the
same time as the corresponding rental payment, exclusive of tax, and to bear any
tax that may be substituted or added to the VAT by regulation.
In the event of non-payment when due of the entire amount of the rent, the
corresponding VAT, or the expenses, THE LESSEE shall owe to THE LESSOR a
compensation equal to 1.50% plus taxes, per month or per fraction of month in
arrears. This compensation, calculated on the amount of the unpaid sum when due,
shall be due automatically, without prior demand letter, and its payment shall
not constitute an extension in favour of THE LESSEE.
(0)b) INDEXATION OF ANNUAL RENT
The annual rent shall be adjusted according to the National Construction Cost
Index (INDICE NATIONAL DU COUT DE LA CONSTRUCTION), published quarterly by the
INSEE (National Institute of Statistics and Economic Studies).
The index used for the calculation of the annual base rent is indicated in the
"Specific Terms and Conditions."
Consequently, the annual rent shall automatically be adjusted each year on the
anniversary of the effective date of the lease in the same direction and the
same proportion as the variation, from one year to the other, of the index of
that same quarter.
In the event of the late publication of the index, the rent shall be calculated
in the interim according to the last published index.
The variation of the rent shall be automatic; it shall not be subordinated to
any notification; the fact that it is not calculated immediately shall in no way
cancel the right of either of the parties to request at a later date that it be
applied retroactively.
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If the INSEE index ceases to be published, it shall be replaced, if no official
index is available, by an equivalent index chosen either by amiable agreement
between the parties, or if there is no agreement between them, through expertise
executed by only one expert, appointed either jointly by the parties or by order
of the President of the High Court, upon request of the most diligent party; the
fees relating to the expertise and to the legal proceedings shall be borne
exclusively THE LESSEE. The expert shall act as common agent for both parties in
accordance with Article 1592 of the Civil Code, the provisions of which have
been extended to renting.
This indexation clause constitutes an essential and determining clause without
which THE LESSOR would not have entered into this lease. Consequently, its
partial or total non-application shall authorize THE LESSOR, and him only, to
request the termination of the lease, without compensation.
(0)2) CHARGES
THE LESSEE shall bear all expenses, charges, services, supplies, taxes, and
expenses relating to the leased premises, including, in particular, property
taxes and, if the premises are located in the region of Ile-de-France, the tax
on office space instituted by Article 40 of the rectified law of Finance for
1989, as well as the fees of the management firm and/or the manager, and the
insurance premiums of the building.
In the event, however, that THE LESSOR has to pay any amounts because of THE
LESSEE, the latter shall reimburse the former without delay upon his first
request.
The charges usually incumbent upon THE LESSOR but transferred contractually to
THE LESSEE are, for tax purposes, assimilated to the rent as a supplement.
Consequently, the VAT shall be added to them.
(0)THE LESSEE shall paY THE LESSOR, with each quarterly rent, an advance payment
on charges calculated according to the estimated expenses for the year. They
shall be adjusted afterwards according to the definitive statement of the
expenses relating to the leased premises. The amount of the advance payment
shall be readjusted, each year, according to the evolution of the charges. The
first quarterly advance payment is set in the "Specific Terms and Conditions."
(0)3) SECURITY DEPOSIT
THE LESSEE has paid upon the execution of this lease, as a security deposit, to
THE LESSOR, who acknowledges it, an amount equal to three (3) months' rent
inclusive of tax; such amount is indicated in the "Specific Terms and
Conditions."
The security deposit shall be used, at the expiration of the lease or if it is
terminated earlier for any cause whatsoever, to pay any amounts that might be
owed by THE LESSEE to THE LESSOR; it is specified that THE LESSEE shall in no
case use this
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deposit to pay rent or other charges.
At the time of the annual adjustment of the rent, the security deposit shall be
increased or decreased, so as to always correspond to three (3) months of rent
inclusive of tax. The increases on the payments, or the reimbursements, shall be
paid upon first request.
In the event of termination of this lease due to non-performance by THE LESSEE
of any of his obligations, the security deposit shall be kept by THE LESSOR as
compensation, without prejudice to his right to the payment of the accrued rent
and the rent that will accrue until the end of the current quarterly period, and
of repairs incumbent upon THE LESSEE, and subject to damages that might be due
to THE LESSOR.
ARTICLE 6--TERMINATION
It is expressly agreed that failure to pay when due any one quarterly rental
payment, corresponding VAT, or charges, or failing to perform any of the other
provisions of the lease, this lease shall be automatically terminated, at THE
LESSOR's choice, without any need to have such termination ordered by a court,
one month after an order to pay or a demand letter has been served and remained
unfulfilled.
THE LESSOR shall redeem possession of the premises by the simple eviction of THE
LESSEE, pronounced by provisional order, and no later offers may end the effect
of this clause, and without prejudice to his right to payment of the accrued
rent and rent that will accrue until the end of the current quarterly period,
and of the cost of repairs incumbent upon THE LESSEE, and subject to any other
amounts due, rights or actions.
(0)ARTICLE 7--GUARANTEES
They are indicated and set forth in the "Specific Terms and Conditions."
ARTICLE 8--REGISTRATION
This deed shall be registered at THE LESSOR's request and at THE LESSEE's
expense.
ARTICLE 9--
ARTICLE 10--DOCUMENTS GIVEN TO THE LESSEE
They are indicated in the "Specific Terms and Conditions."
ARTICLE 11--CHOICE OF RESIDENCE AND JURISDICTION OF COURTS
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For the purposes of the performance of this lease, THE LESSOR chooses his head
office as his residence and THE LESSEE chooses his head office as his residence.
THE PARTIES AGREE THAT ALL DISPUTES RELATING TO THIS DEED SHALL BE SUBJECT TO
THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE HEAD OFFICE OF THE LESSOR.
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CHAPTER II--SPECIFIC TERMS AND CONDITONS
In this Chapter II, only those articles from the General Terms and Conditions
that are completed or modified for the purposes of this contract, are repeated.
ARTICLE 1--DESCRIPTION OF PREMISES
- -- Building: BUILDING F, CALLED "LA CRISTALLERIE", which belongs to the building
complex named "Le Quartier d'Affaires Sevres Manufacture," located in the SEVRES
MANUFACTURE Z.A.C. (Commercial Activity Zone), 6/8 RUE DE LA CRISTALLERIE 92310
SEVRES
Leased premises:
the entire 1st, 2nd, 3rd, 4th, 5th, and 6th floors
the main entrance and, generally, all the areas and
equipment common to all tenants,
74 parking spaces located in the 2nd basement and bearing
No. 1 to 74
The plans of the leased premises are attached hereto.
ARTICLE 2--EFFECTIVE DATE OF LEASE
The lease shall be effective as of January 1st, 1999.
It shall be, as of that date, for a firm term of six (6) whole and consecutive
years; THE LESSEE has already expressly renounced his right to terminate the
lease after the first three-year period.
ARTICLE 3--INVENTORY OF THE PREMISES
THE LESSOR agrees to deliver the leased premises in good condition and it is
specified that the 3rd, 4th, 5th, and 6th floors shall be delivered as they
exist on the day of their availability, i.e., with their current partitions.
To this effect, THE LESSOR shall execute the following restoration work:
-- restore walls and carpeting to be identical to the ones on the
2nd floor, up to FF 700,000 exclusive of tax (seven hundred thousand
French francs exclusive of tax);
-- restore computer cables, up to FF 450,000 exclusive of tax (four
hundred fifty thousand French francs, exclusive of tax);
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--remove partitions on the 1st floor;
--take out removed partitions that are on the 2nd floor.
Also, THE LESSOR agrees to deliver the equipment, hereby defined, in good
working order.
THE LESSOR shall be responsible, in accordance with the provisions of Article
1721 of the Civil Code, for hidden defects of the leased premises, even unknown,
as of the day of the execution of this lease.
ARTICLE 4--TERMS AND CONDITIONS OF THE LEASE
1) USE OF THE PREMISES
They are to be used exclusively for the following:
- -- commercial offices of the company, the activity of which is: any and all
theoretical and practical studies and research on medication in any manner and
in all fields, as well as all activities directly or indirectly related thereto.
- -- archives
- -- parking spaces
according to the specific allocation of the space, as indicated in the
description, excluding any other use.
2) PROVISIONS RELATING TO SAFETY
THE LESSOR gives to THE LESSEE a diagnostic report relating to the presence of
asbestos in the leased premises and agrees to assume the costs and
responsibility of any diagnostic and evaluation, of any processing of the
asbestos, of any work in the leased building and of any possible damages that
the presence of this product may cause.
4) a) SUBLETTING
Notwithstanding the provisions of the General Terms and Conditions, partial or
total subletting is subject to the prior written approval of THE LESSOR.
To this end, THE LESSEE shall inform THE LESSOR, by registered letter return
receipt requested, of his intention of subletting. This notice shall indicate
the identity of the sublessee, the activity contemplated, and the term of the
subletting. If THE LESSOR does not respond within fifteen days after receipt of
the notice, he shall be deemed to
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<PAGE>
have given his approval.
The partial or total subletting is already authorized in favour of a company
that belongs to the same group as THE LESSEE, i.e., for a company of which more
than 50% of the capital or voting rights are held, directly or indirectly, by
THE LESSEE or by a company holding, directly or indirectly, more than 50% of the
capital or the voting rights of THE LESSEE or, finally, in favour of a company
holding more than 50% of the capital or the voting rights, directly or
indirectly, of THE LESSEE.
3) b) TRANSFER
THE LESSEE may transfer his rights to the present lease to the purchaser of his
business.
In other cases, THE LESSEE shall transfer his rights to this lease only after
obtaining the prior written approval of THE LESSOR.
To this end, THE LESSEE shall request the approval of THE LESSOR by registered
letter return receipt requested, indicating to him the name and address of the
purchaser and the terms and conditions of the transfer.
If THE LESSOR does not respond within fifteen days after receipt of the request,
he shall be deemed to have given his approval.
The transfer shall be notified to THE LESSOR pursuant to the provisions of
Article 1690 of the Civil Code. A copy of the deed of transfer shall be given to
THE LESSOR free of charge.
In event the lease is transfered, THE LESSEE shall remain a jointly liable
guarantor with the transferee and successive transferees for the payment of the
rent and incidental expenses, as well as for the performance of the provisions
of the lease, for the full term of the lease and its first renewal, unless
expressly discharged by THE LESSOR.
6) a) REPAIRS AND MAINTENANCE WORK
THE LESSEE shall constantly maintain the leased premises in perfect condition
with regard to repairs incumbent upon him and to minor maintenance work provided
for in Article 1754 of the Civil Code; he shall bear all repairs that may become
necessary because of failure to execute repairs incumbent upon him or minor
maintenance work, or degradation resulting from his actions, those of his
personnel or his clientele.
All other repairs shall be incumbent upon THE LESSOR pursuant to the provisions
of Article 1719, Par. 2 of the Civil Code.
-15-
<PAGE>
6) b) IMPROVEMENTS AND CONVERSION WORK
THE LESSOR shall not change the configuration of the leased premises or cancel
any of its services, except for minor modifications or modifications intended to
improve the leased premises without changing their use.
The improvement and conversion work, even when authorized, shall not entail any
compensation by THE LESSOR upon THE LESSEE's departure.
Such work executed by THE LESSEE in the leased premises, and which can not be
detached without being fractured, deteriorated or without deteriorating the part
of the shell to which it is attached, shall remain the property of THE LESSOR.
However, with regard to work done without authorization, THE LESSOR may demand
that the premises be restored to their original condition at the end of the
lease, at THE LESSEE's expense.
The equipment and conversions executed by THE LESSEE that can be dismantled
without causing damages, shall remain his property, if he so wishes, and shall
be removed by him upon his departure, provided he restores the premises to their
previous condition.
6) c) WORK IMPOSED BY REGULATIONS
THE LESSOR shall be responsible for all transformations, improvements or
conversions and, more generally, for all work, whatever its nature or duration,
which may be imposed by and in compliance with any existing or future regulation
relating to hygiene, safety and health.
The work pertaining to the shell of the building remains incumbent upon THE
LESSOR.
6) d) COMMON PROVISIONS REGARDING WORK
THE LESSEE shall endure all work, whatever its importance or duration, that THE
LESSOR may have the right to have executed in the leased premises under this
lease. If such work lasts more than 40 days and makes impossible the use of at
least one floor of the leased building the surface of which is larger than 600
square meters, the price of the lease shall be reduced according to the period
of time and for the part of the leased premises of which he is deprived.
9) INSURANCE
Notwithstanding the 2nd paragraph of item (d): THE LESSOR shall have a
privileged claim only on indemnities from insurance companies in case of damage
of which THE LESSEE is the cause and up to the amounts due to THE LESSOR.
-16-
<PAGE>
12) INTERCOMPANY RESTAURANT
The building complex, consisting of 6 buildings for office use, in which the
leased premises are located includes an intercompany restaurant that belongs
jointly to the group of owners and co-owners of those buildings.
Building "F" is allocated 121 joint shares out of a total of 1,400 shares.
The owners of common spaces have made the intercompany restaurant available to
an association governed by the law of July 1st, 1901, under a free loan
agreement.
THE LESSEE shall bear, in proportion to the leased areas and up to the share of
building "F", the entire expenses incumbent upon the Association together with
the cost of renewal of equipment, furnishings and furniture of the intercompany
restaurant.
THE LESSEE shall be responsible, during the term of the lease, for the work and
repairs, as defined in Article 1754 of the Civil Code, and for all repairs that
may become necessary because of his failure to execute repairs incumbent upon
him or resulting from his actions or those of his personnel. All other repairs
shall be incumbent upon THE LESSOR.
Moreover, THE LESSEE shall bear, in proportion to the leased areas, the share
allocated to the restaurant in the expenses of the Association (L'ASSOCIATION
SYNDICALE LIBRE).
Excluding the fees to be paid to THE LESSOR for the intercompany restaurant and
set at 50 F/m2 exclusive of tax, and excluding the admission fee to be paid to
SODEXHO, the entire aforementioned charges relating in particular to operation
expenses, to the cost of renewal of equipment, furnishings and furniture of the
restaurant, and to repair expenses, are included in the advance payment on
charges paid by THE LESSEE under Article 5-2 of this lease.
5) ARTICLE 5--FINANCIAL TERMS AND CONDITIONS OF THE LEASE
1) RENT
A) ANNUAL BASE RENT
- -- Annual Base Rent, exclusive of tax............FF 3,939,000.00
(three million nine hundred thirty-nine thousand French francs)
- -- Value Added Tax...............................FF 811,434.00
- -- Annual Base Rent, inclusive of all taxes......FF 4,750,434.00
-17-
<PAGE>
This lease includes a rent deductible from January 1st, 1999 to March 14, 1999.
The charges shall be borne by THE LESSEE as of January 1st, 1999.
b) INDEXATION OF THE ANNUAL BASE RENT
Index used for setting the Annual Base Rent: 1058
Index for the 1st quarter of 1998
2) CHARGES
- -- Quarterly advance payment: FF 196,594.00 exclusive of tax.
THE LESSEE shall bear 58% of property taxes and of the cost of the tax roll, the
other 42% being borne by THE LESSOR.
It is specified, if necessary, that the obligation of THE LESSEE pertaining to
all the expenses includes those incumbent upon THE LESSOR in his capacity as a
member of the Association (ASSOCIATION SYNDICALE LIBRE), in which building "F is
subject to shares, and those resulting from the specifications, easements, and
modifications applicable to the building compex, as well as the parking
management agreement.
3) SECURITY DEPOSIT
The security deposit is set, for the first year of the lease, at FF 984,750.00
(nine hundred eighty-four thousand seven hundred fifty French francs), which
corresponds to three (3) months' rent, exclusive of tax.
ARTICLE 9--REPRESENTATIONS OF THE LESSOR
THE LESSOR represents:
- -- that he is under no contractual or legal restriction to enter into this
lease;
- -- that, to the best of his knowledge, the leased property is not subject to
any current threat or action of expropriation, that this property is not
located in a renovation area of and, more generally, that no current
measure of townplanning is susceptible to affect the right of usage
resulting from this lease;
- -- that no order of foreclosure or other has been given as of the date of
execution of this lease with regard to the leased property;
- -- that there is no restriction to the use of the leased property, as defined in
this lease, resulting from the provisions of Articles L 631-7 to L 631-9 of
the Construction and
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<PAGE>
Housing Code (CODE DE LA CONSTRUCTION ET DE L'HABITATION) pertaining to the
transformation of spaces previously affected to housing use to another use, and
resulting from the provisions of Articles L 520-1 to L 520-13 of the
Townplanning Code relating to the payment of the fee payable by owners upon the
construction of office space and research facilities or the transformation of
space previously affected to another use in the region of Ile-de-France.
ARTICLE 10--DOCUMENTS GIVEN TO THE LESSEE
THE LESSEE acknowledges having received, prior to the execution of this lease,
the following:
- -- plans of the leased premises (attached)
- -- description of the division in volume
- -- settlement, specifications and easements
- -- statutes of the ASL (ASSOCIATION SYNDICALE LIBRE)
- -- report on asbestos
Executed in Paris on October 1st, 1998
In two (2) original copies
THE LESSOR THE LESSEE
/s/ Alain Lemaitre /s/ Bruno Maugee
- ------------------ -----------------
-19-
<PAGE>
Exhibit 10.20
REVOLVING CREDIT AGREEMENT
between
IBRD-ROSTRUM GLOBAL INC.
and
BANQUE NATIONALE DE PARIS
Los Angeles Branch
Dated as of March 13, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. DEFINITIONS....................................................................................... 1
1.1 DEFINED TERMS..................................................................................... 1
1.2 OTHER DEFINITIONAL PROVISIONS..................................................................... 13
SECTION 2. AMOUNT AND TERMS OF LOANS; COMMITMENT AMOUNTS..................................................... 14
2.1 REVOLVING LOANS.................................................................................... 14
2.2 OPTIONAL PREPAYMENTS............................................................................... 15
2.3 CONVERSION AND CONTINUATION OPTIONS................................................................ 15
2.4 MINIMUM AMOUNTS OF TRANCHES........................................................................ 16
2.5 INTEREST RATES, FEES AND PAYMENT DATES............................................................. 16
2.6 COMPUTATION OF INTEREST............................................................................ 17
2.7 INABILITY TO DETERMINE INTEREST RATE............................................................... 17
2.8 PAYMENTS........................................................................................... 18
2.9 ILLEGALITY......................................................................................... 18
2.10 INCREASED COSTS.................................................................................... 18
2.11 TAXES.............................................................................................. 20
2.12 INDEMNITY.......................................................................................... 21
2.13 MITIGATION OF COSTS................................................................................ 22
SECTION 3. REPRESENTATIONS AND WARRANTIES.................................................................... 22
3.1 FINANCIAL CONDITION................................................................................ 22
3.2 NO CHANGE.......................................................................................... 23
3.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW........................................................... 23
3.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS............................................ 23
3.5 NO LEGAL BAR....................................................................................... 24
3.6 NO MATERIAL LITIGATION............................................................................. 24
3.7 OWNERSHIP OF PROPERTY; LIENS; CONDITION OF PROPERTIES.............................................. 24
3.8 INTELLECTUAL PROPERTY.............................................................................. 24
3.9 TAXES.............................................................................................. 25
3.10 FEDERAL REGULATIONS................................................................................ 25
3.11 ERISA.............................................................................................. 25
3.12 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT......................................... 26
3.13 SUBSIDIARIES....................................................................................... 26
3.14 PURPOSE OF LOANS................................................................................... 26
3.15 ENVIRONMENTAL MATTERS.............................................................................. 26
3.16 ACCURACY AND COMPLETENESS OF INFORMATION........................................................... 27
3.17 REAL PROPERTY ASSETS............................................................................... 27
3.18 PERMITS, ETC....................................................................................... 27
3.19 PATENTS, TRADEMARKS, ETC........................................................................... 28
3.20 COPYRIGHT ACT REQUIREMENTS......................................................................... 28
3.21 NATURE OF BUSINESS................................................................................. 28
3.22 CAPITAL STOCK OF BORROWER AND ITS SUBSIDIARIES..................................................... 28
3.23 RANKING OF LOANS................................................................................... 29
3.24 EXECUTIVE OFFICES.................................................................................. 29
3.25 INSOLVENCY......................................................................................... 29
3.26 LABOR MATTERS...................................................................................... 29
3.27 CONDEMNATION....................................................................................... 29
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.28 LEASES, LICENSES, PERMITS, SITE USE AGREEMENTS AND OTHER OCCUPANCY AGREEMENTS...................... 29
SECTION 4. CONDITIONS PRECEDENT.............................................................................. 29
4.1 CONDITIONS TO CLOSING DATE......................................................................... 29
4.2 CONDITIONS TO EACH LOAN............................................................................ 32
SECTION 5. AFFIRMATIVE COVENANTS............................................................................. 33
5.1 FINANCIAL STATEMENTS............................................................................... 33
5.2 CERTIFICATES; OTHER INFORMATION.................................................................... 34
5.3 PAYMENT OF OBLIGATIONS............................................................................. 35
5.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE................................................... 36
5.5 MAINTENANCE OF PROPERTY; INSURANCE................................................................. 36
5.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS............................................. 37
5.7 ENVIRONMENTAL LAWS................................................................................. 38
5.8 USE OF PROCEEDS.................................................................................... 38
5.9 COMPLIANCE WITH LAWS, ETC.......................................................................... 38
5.10 LEASE AND LICENSE APPROVALS........................................................................ 39
5.11 ACQUISITION OF REAL PROPERTY IN FEE SIMPLE......................................................... 39
5.12 LEASES AND LICENSES................................................................................ 39
5.13 NOTICES............................................................................................ 40
5.14 EMPLOYEE CONTRACTS................................................................................. 40
5.15 CONDITIONS SUBSEQUENT.............................................................................. 40
SECTION 6. NEGATIVE COVENANTS................................................................................ 40
6.1 LIMITATION ON FUNDAMENTAL CHANGES.................................................................. 40
6.2 LIMITATION ON RESTRICTED PAYMENTS.................................................................. 41
6.3 TRANSACTIONS WITH AFFILIATES....................................................................... 41
6.4 FISCAL YEAR........................................................................................ 41
6.5 UNFUNDED LIABILITIES............................................................................... 41
6.6 LINE OF BUSINESS................................................................................... 41
6.7 LIMITATION ON LIENS................................................................................ 42
6.8 LIMITATION ON LOANS AND ADVANCES................................................................... 42
SECTION 7. EVENTS OF DEFAULT................................................................................. 43
SECTION 8. MISCELLANEOUS..................................................................................... 46
8.1 AMENDMENTS AND WAIVERS............................................................................. 46
8.2 NOTICES............................................................................................ 46
8.3 NO WAIVER; CUMULATIVE REMEDIES..................................................................... 47
8.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................................................... 47
8.5 PAYMENT OF EXPENSES AND TAXES...................................................................... 47
8.6 SUCCESSORS AND ASSIGNS............................................................................. 48
8.7 COUNTERPARTS....................................................................................... 48
8.8 SEVERABILITY....................................................................................... 48
8.9 INTEGRATION........................................................................................ 48
8.10 GOVERNING LAW...................................................................................... 49
8.11 CLAIMS OR CONTROVERSIES SUBJECT TO JUDICIAL REFERENCE.............................................. 49
8.12 ACKNOWLEDGEMENTS................................................................................... 51
8.13 HEADINGS........................................................................................... 51
8.14 CONFLICT OF TERMS.................................................................................. 51
</TABLE>
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<PAGE>
Exhibits
A Form of Revolving Note
B Form of No Default/Representation Certificate
C Form of Continuation Notice
D Form of Closing Opinion
E Form of Borrower Security Agreement
F Form of Guarantees (U.S. and Canadian)
G Form of Monthly Declaration of Borrowing Limit
H Form of Environmental Compliance Agreement
Schedules
1 Borrower's Indebtedness
2 Borrower's Liens
3 Borrower's Permits and Approvals
4 Borrower's Real Property Assets
5 Borrower's Litigation Proceedings
6 Certain Environmental Matters
7 Regarding the Capital Stock of Borrower
8 Borrower Subsidiaries
9 Mortgages
- iii -
<PAGE>
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT, dated as of March 13, 1998, between
IBRD-ROSTRUM GLOBAL INC., a Delaware corporation (the "BORROWER") and BANQUE
NATIONALE DE PARIS, Los Angeles Branch (the "LENDER").
RECITALS
A. The Borrower has requested that the Lender make loans available to
the Borrower on a revolving basis in a maximum aggregate amount not to exceed at
any time $7,000,000. Such revolving credit facility would be available to
finance the Borrower's general corporate operations.
B. The Lender is willing to make available such revolving credit
facility on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following terms shall
have the following meanings:
"ACCOUNTANTS": Ernst & Young LLP, or such other firm of
independent certified public accountants or chartered
accountants of recognized national standing as shall be selected
by the Borrower and satisfactory to the Lender.
"ACCOUNT DEBTORS": any Person who is or who may become
obligated under, with respect to, or on account of an Account
Receivable.
"ACCOUNTS RECEIVABLE": all presently existing and hereafter arising
accounts receivable, contract rights and all other forms of obligation owing to
the Borrower arising out of the sale or lease of goods or the rendition of
services by the Borrower, whether or not earned by performance, all credit
insurance, guaranties and other security therefor, as well as all goods returned
to or reclaimed by the Borrower and all of the Borrower's books and records
relating to any of the foregoing.
"AFFILIATE": as to any Person, (a) any other Person (other
than a Subsidiary) which, directly or indirectly, is in control
of, is controlled by, or is under common control with, such
Person or (b) any Person who is a shareholder having control or
<PAGE>
a director, officer, or partner (i) of such Person, (ii) of any Subsidiary of
such Person or (iii) of any Person described in the preceding clause (a). For
purposes of this definition, "control" of a Person means the power, directly or
indirectly, either to (i) vote securities having 10% or more of the ordinary
voting power for the election of directors of such Person or (ii) direct or
cause the direction of the management and policies of such Person whether by
contract or otherwise.
"AGREEMENT": this Revolving Credit Agreement, as amended,
waived, supplemented or otherwise modified from time to time.
"APPLICABLE LENDING OFFICE": for the Lender, its offices
for LIBOR Loans and Reference Rate Loans, specified on the
signature pages hereof, any of which offices may, upon 10 days'
prior written notice to the Borrower, be changed by the Lender.
"APPLICABLE LIBOR RATE MARGIN": with respect to the Loans
which are LIBOR Loans, for each Interest Period, 1.25% per
annum.
"APPLICABLE REFERENCE RATE MARGIN": with respect to the
Loans which are Reference Rate Loans, .25% per annum.
"BORROWER": as defined in the preamble hereto.
"BORROWING BASE": as at any date, (a) 80% of the Borrower's Eligible
Accounts Receivable PLUS (b) 50% of the EXCESS (which number shall not be
negative) of (i) the costs and estimated profit in excess of progress billings
on contracts in progress OVER (ii) progress billings in excess of costs and
estimated profit on contracts in progress, the whole determined by using the
percentage of completion method, MINUS (c) the liabilities to be deducted
according to the Lender's form "Quarterly Declaration of Borrowing Limit" (as
provided by the Lender).
"BUSINESS DAY": a day other than a Saturday, Sunday or
other day on which commercial banks in the State of California
are authorized or required by law to close and which, in the
case of a LIBOR Loan, is a Eurodollar Business Day.
"CAPITALIZED LEASE OBLIGATIONS": obligations for the payment of rent
for any real or personal property under leases or agreements to lease that, in
accordance with GAAP, have been or should be capitalized on the books of the
lessee and, for purposes hereof, the amount of any such obligation shall be the
capitalized amount thereof determined in accordance with GAAP.
"CAPITAL STOCK": any and all shares, interests,
participation or other equivalent (however designated) of capital stock of a
corporation, any and all equivalent ownership interest in a Person (other than a
corporation), any and all warrants,
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<PAGE>
options or rights to purchase or any other securities convertible into any of
the foregoing.
"CLOSING DATE": the date on which the conditions set forth
in Section 4.1 are satisfied and the initial Loan is made.
"CODE": the Internal Revenue Code of 1986, as amended from
time to time.
"COLLATERAL": all of the property (tangible or intangible)
subject to the lien or security interest to be created by any
mortgage, deed of trust, security agreement, pledge agreement,
assignment or other security document heretofore or hereafter
executed by the Borrower as security for all or part of the
Obligations.
"COLLATERAL DOCUMENTS": the Security Agreement, the Mortgages, all
notices of security interests in deposit accounts requested by the Lender
pursuant to the Security Agreement, Form UCC-1 Financing Statements and
amendments thereto and any other document encumbering the Collateral or
evidencing or perfecting a security interest therein for the benefit of the
Lender executed by the Borrower, as the same may be amended or modified from
time to time in accordance with the terms hereof.
"COMMONLY CONTROLLED ENTITY": as to any Person, an entity, whether or
not incorporated, which is under common control with such Person within the
meaning of Section 4001 of ERISA or is part of a group which includes such
Person and which is treated as a single employer under Section 414 of the Code.
"CONTINUATION NOTICE": a request for continuation or
conversion of a Loan as set forth in Section 2.3, substantially in
the form of Exhibit C.
"CONTRACTUAL OBLIGATION": as to any Person, any provision of
any security issued by such Person or of any agreement, instrument
or other undertaking to which such Person is a party or by which
it or any of its Property is bound.
"DEFAULT": any of the events specified in Section 7, whether
or not any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"DOLLARS" and "$": dollars in lawful currency of the United
States.
"ELIGIBLE ACCOUNT RECEIVABLES": those Accounts Receivable created by
the Borrower in the ordinary course of business that arise out of the Borrower's
sale of goods or rendition of services, are owing from Account Debtors that are
reasonably acceptable to the Lender. In determining such eligibility, the Lender
may, but is not obligated to, rely on agings, reports and
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<PAGE>
schedules of Accounts Receivables furnished by the Borrower, but reliance by the
Lender thereon from time to time shall not be deemed to limit the Lender's right
to revise standards of eligibility at any time as to both the Borrower's present
and future Accounts Receivable. Eligible Accounts shall not include any of the
following:
(a) Accounts Receivable, any portion of which has been due for
more than 90 days, except for Accounts Receivable which have been previously
approved by the Lender as good quality Accounts Receivable notwithstanding that
any portion thereof may be past due beyond 90 days, in which case the portion of
such Accounts Receivable which has been outstanding for less than 90 days may be
included as "Eligible Account Receivables";
(b) Accounts Receivable with respect to which the Account
Debtor is an officer, director, employee or agent of the Borrower;
(c) Accounts Receivable with respect to which the Account
Debtor is a subsidiary of, related to, affiliated with, or has common
shareholders, officers or directors with the Borrower;
(d) Accounts Receivable with respect to which goods are placed
on consignment, guaranteed sale, sale or return, sale on approval, bill and hold
or which contain other terms by reason of which payment by the Account Debtor
may be conditional;
(e) Accounts Receivable with respect to which the Account
Debtor is the United States or any department, agency or instrumentality of the
United States;
(f) Accounts Receivable with respect to which the Borrower is
or may become liable to the Account Debtor for goods sold or services rendered
by the Account Debtor to the Borrower or, for any other reason, are subject to
any right of offset in favor of the Account Debtor;
(g) Accounts Receivable with respect to which the Account
Debtor disputes liability or makes any claim with respect thereto, or is subject
to any insolvency or bankruptcy proceeding, or becomes Insolvent or goes out of
business; and
(h) Accounts Receivable that are payable in currency other
than Dollars.
"ENVIRONMENTAL COMPLIANCE AGREEMENT": the Environmental Compliance
Agreement (substantially in the form of Exhibit H) made by the Borrower in favor
of the Lender, as requested by the Lender from time to time, as it may be
amended or modified in accordance with the terms hereof.
- 4 -
<PAGE>
"ENVIRONMENTAL LAWS": any and all federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees,
requirements of any governmental authority or Requirements of Law (including
common law) regulating, relating to or imposing liability or standards of
conduct concerning protection of human health or the environment, as now or at
any time hereafter in effect.
"ERISA": the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE": as to any Person, each trade or business including
such Person, whether or not incorporated, which together with such Person would
be treated as a single employer under Section 4001(a)(14) of ERISA.
"EVENT OF DEFAULT": any of the events specified in Section 7, PROVIDED
that any requirement for the giving of notice, the lapse of time, or both, and
all other conditions, have been satisfied.
"EURODOLLAR BUSINESS DAY": any day on which banks are open for dealings
in Dollar deposits in the London interbank market.
"EXCLUDED TAXES": all taxes imposed on or by reference to the net
income of the Lender or its Applicable Lending Office by any Governmental
Authority and all franchise taxes, taxes on doing business or taxes measured by
capital or net worth imposed on the Lender or its Applicable Lending Office by
any Governmental Authority and any taxes imposed by any Governmental Authority
arising as a consequence of the failure of the Lender to provide accurate
documentation required to be provided by the Lender pursuant to Section 2.11(b).
"FINANCIAL STATEMENTS": as defined in Section 3.1 hereof.
"GAAP": generally accepted accounting principles in the United States
in effect from time to time.
"GOVERNMENTAL AUTHORITY": any nation or government, any federal, state
or other political subdivision thereof and any federal, state or local entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"),
any obligation of (a) the guaranteeing Person or (b) another Person (including,
without limitation, any bank under any letter of credit) which Person the
guaranteeing Person has agreed to reimburse or indemnify for undertaking such
obligation in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "PRIMARY OBLIGATIONS")
of any other third Person (the "PRIMARY OBLIGOR") in
- 5 -
<PAGE>
any manner, whether directly or indirectly, including, without limitation, any
obligation of the guaranteeing Person, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds for the purchase or
payment of any such primary obligation or to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the owner of any such
primary obligation against loss in respect thereof; PROVIDED, HOWEVER, that the
term Guarantee Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Guarantee Obligation of any guaranteeing Person shall be deemed to be the lesser
of (a) an amount equal to the stated or determinable (by the Borrower) amount of
the primary obligation in respect of which such Guarantee Obligation is made and
(b) the maximum amount for which such guaranteeing Person may be liable pursuant
to the terms of the instrument embodying such Guarantee Obligation, unless such
primary obligation and the maximum amount for which such guaranteeing Person may
be liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such guaranteeing Person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in good
faith.
"GUARANTEES": the guarantees, substantially in the forms of Exhibit F
(as applicable), made by each Guarantor in favor of the Lender, on the Closing
Date, as the same may be amended or modified from time to time in accordance
with the terms hereof.
"GUARANTORS": the Parent and Phoenix.
"INDEBTEDNESS": of any Person at any date, without duplication, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property (other than such amounts which are contingent upon earnings
performance or similar circumstances) or services (other than current trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices) or which is evidenced by a note, bond,
debenture or similar instrument, (b) all obligations of such Person under
Capitalized Lease Obligations, (c) all obligations of such Person in respect of
acceptances issued or created for the account of such Person, (d) all
liabilities secured by any Lien on any property owned by such Person even though
such Person has not assumed or otherwise become liable for the payment thereof,
(e) all obligations of such Person, whether absolute or contingent, in respect
of letters of credit opened for the account of such Person and (f) all Guarantee
Obligations of such Person in respect of any indebtedness,
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obligations or liabilities of any other Person of the type referred to in
clauses (a) through (e) of this definition.
"INSOLVENCY": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"INSOLVENT": pertaining to a condition of Insolvency.
"INTELLECTUAL PROPERTY": as defined in Section 3.8 hereof.
"INTERCREDITOR AGREEMENT": an intercreditor agreement dated as of
February 5, 1998 among the Lender, Banque Nationale de Paris (Canada) and Royal
Bank of Canada, the Borrower, the Parent and Phoenix all in form and substance
satisfactory to the Lender, as it may be amended or modified in accordance with
the terms hereof.
"INTEREST PAYMENT DATE": for Reference Rate Loans, on the first day of
each calendar month while the Loans are outstanding and the day on which the
Loans become due and payable in full and are paid or prepaid in full and for
LIBOR Loans, the last day of each Interest Period therefor and if such Interest
Period is more than three months in length on each three-month anniversary date
of borrowing and the day on which the Loans become due and payable in full and
are paid or prepaid in full.
"INTEREST PERIOD": with respect to any LIBOR Loan:
(a) initially, the period commencing on the borrowing or conversion
date, as the case may be, with respect to such LIBOR Loan and ending one, two,
three or six months thereafter, as selected by the Borrower in its notice of
borrowing or its Continuation Notice, as the case may be, given with respect
thereto; and
(b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such LIBOR Loan and ending one, two,
three or six months thereafter, as selected by the Borrower by irrevocable
notice to the Lender not less than three Eurodollar Business Days prior to the
last day of the then current Interest Period with respect thereto;
PROVIDED that, all of the foregoing provisions relating to
Interest Periods are subject to the following:
(i) if any Interest Period pertaining to a LIBOR Loan would
otherwise end on a day that is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day unless the result
of such extension would be to carry such Interest Period into another
calendar month in which event such Interest Period shall end on the
immediately preceding Business Day;
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(ii) any Interest Period that would otherwise extend beyond
the date final payment is due on the Loans shall end on the date of
such final payment; and
(iii) any Interest Period pertaining to a LIBOR Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of a calendar month.
"INVESTMENT COMPANY ACT": as defined in Section 3.12 hereof.
"LENDER": as defined in the preamble hereto.
"LETTER OF GUARANTEE": a nontransferable letter of guarantee for the
benefit of the Lender issued by Banque Nationale de Paris (Canada) in the face
amount of $7,000,000, in form and substance acceptable to the Lender, as it may
be amended or modified in accordance with the terms hereof and thereof.
"LIBOR": with respect to each day during each Interest Period
pertaining to a LIBOR Loan, the rate of interest determined by the Lender to be
the rate per annum at which deposits in Dollars would be offered to the Lender
by leading banks in the London interbank market at or about 9:00 a.m., Los
Angeles time, two Eurodollar Business Days prior to the beginning of such
Interest Period, for delivery on the first day of such Interest Period for the
number of days comprised therein and in an amount comparable to the amount of
its LIBOR Loan to be outstanding during such Interest Period.
"LIBOR ADJUSTED RATE": with respect to each day during each Interest
Period pertaining to a LIBOR Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
LIBOR
---------------------------------
1.00 - LIBOR Reserve Requirements
"LIBOR LOANS": Loans the rate of interest applicable to which is based
upon LIBOR.
"LIBOR RESERVE REQUIREMENTS": for any day as applied to a LIBOR Loan,
the aggregate (without duplication) of the maximum rates (expressed as a decimal
fraction) of reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect thereto) dealing with
reserve requirements prescribed for eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such Federal Reserve System.
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"LIEN": any mortgage, pledge, charge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), security interest
or other security agreement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
Capitalized Lease Obligation having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction in respect of any
of the foregoing).
"LOAN": a revolving loan made to the Borrower by the Lender pursuant to
the provisions of Section 2.1 and "LOANS" means the aggregate of all revolving
loans outstanding at any given time.
"LOAN DOCUMENTS": this Agreement, the Note, the Collateral Documents,
the Guarantees, the Environmental Compliance Agreement and any other agreement
executed by a Loan Party in connection therewith and herewith including, but not
limited to, UCC-1 Financing Statements, as such agreements and documents may be
amended, supplemented and otherwise modified from time to time in accordance
with the terms hereof.
"LOAN PARTIES": the Borrower and the Guarantors.
"MARGIN STOCK": as defined in Regulation U.
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
business, operations, property or financial condition of the Borrower and its
Subsidiaries, taken as a whole, (b) the ability of the Borrower and its
Subsidiaries, taken as a whole, to perform their obligations under the Loan
Documents or (c) the validity or enforceability of the Loan Documents or the
rights or remedies of the Lender hereunder or thereunder.
"MATURITY": in respect of the Note, the date it shall become due and
payable in full, whether at stated maturity, by acceleration or otherwise.
"MORTGAGES": such mortgages, deeds of trust, collateral assignments of
leases and collateral assignments of licenses and permits as may be made by the
Borrower in favor of the Lender in respect of the Properties owned by the
Borrower, in form and substance satisfactory to the Lender, securing the
Obligations to the extent provided therein, as the same may be amended or
modified from time to time in accordance with the terms hereof.
"MULTIEMPLOYER PLAN": a plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"NOTE": as defined in Section 2.1(c) hereof.
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"OBLIGATIONS": the unpaid principal of and interest on (including,
without limitation, interest accruing after the maturity of the Loans and
interest accruing on or after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Borrower, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding and whether or not at a default rate) the Note,
and all other obligations and liabilities of the Borrower and its Subsidiaries
to the Lender, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, this Agreement, the Note, any other Loan Document and
any other document made, delivered or given in connection herewith or therewith,
whether on account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses (including, without limitation, all reasonable fees
and disbursements of counsel to the Lender that are required to be paid by the
Borrower and its Subsidiaries pursuant to the terms of this Agreement) or
otherwise.
"OCCUPANCY AGREEMENTS": as defined in Section 5.12.
"PARENT": Phoenix International Life Sciences (U.S.) Inc., a Delaware
corporation, which directly owns all of the Capital Stock of the Borrower.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA or any successor thereto.
"PERSON": any individual, firm, partnership, joint venture,
corporation, association, business enterprise trust, unincorporated
organization, government or department or agency thereof or other entity,
whether acting in an individual, fiduciary or other capacity.
"PHOENIX": Phoenix International Life Sciences Inc., a Canadian
corporation which directly or indirectly owns all of the Capital Stock of the
Borrower and the Parent.
"PLAN": as to any Person, any plan (other than a Multiemployer Plan)
subject to Title IV of ERISA maintained for employees of such Person or any
ERISA Affiliate of such Person (and any such plan no longer maintained by such
Person or any of such Person's ERISA Affiliates to which such Person or any of
such Person's ERISA Affiliates has made or was required to make any
contributions within any of the five preceding years).
"PROPERTIES": the collective reference to the real and personal
property owned, leased, or under license or permit, by the Borrower or any of
its Subsidiaries.
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"REFERENCE RATE": the rate of interest per annum publicly announced
from time to time by the Lender, at its Los Angeles Branch office as its
"Reference Rate". The Reference Rate is determined by the Lender from time to
time as a means of pricing credit extensions to some customers and is neither
directly tied to any external rate of interest or index nor necessarily the
lowest rate of interest charged by the Lender at any given time for any
particular class of customers or credit extensions. Any change in the applicable
interest rate due to a change in the Reference Rate shall be effective on the
effective date of such change in the Reference Rate.
"REFERENCE RATE LOANS": Loans the rate of interest applicable to which
is based upon the Reference Rate.
"REGULATION D": Regulation D of the Board of Governors of the Federal
Reserve System, as the same is from time to time in effect, and all official
rulings and interpretations thereunder or thereof and any successor regulation
thereto.
"REGULATION U": Regulation U of the Board of Governors of the Federal
Reserve System, as the same is from time to time in effect, and all official
rulings and interpretations thereunder or thereof and any successor regulation
thereto.
"REORGANIZATION": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA.
"REPORTABLE EVENT": any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty-day notice period is
waived under PBGC regulations.
"REQUIREMENT OF LAW": as to any Person, the Articles of Incorporation
and By-Laws or other organizational or governing documents of such Person, and
any law, treaty, rule, order, judgment or regulation of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"RESPONSIBLE OFFICER": the chief executive officer, the president, any
senior vice president, treasurer or any vice president of the applicable Loan
Party, or, with respect to financial matters, the chief financial officer,
treasurer or controller of the applicable Loan Party, as applicable.
"RESTRICTED PAYMENTS": as defined in Section 6.2.
"REVOLVING COMMITMENT": the commitment of the Lender to make Loans
hereunder through its Applicable Lending Office in an amount not to exceed
$7,000,000, as the same may be adjusted pursuant to the provisions hereof.
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"REVOLVING PERIOD": as defined in Section 2.1(a).
"SECURITY AGREEMENT": the Security Agreement dated as of the Closing
Date by the Borrower in favor of the Lender in respect of the tangible and
intangible personal property of the Borrower described therein, substantially in
form of Exhibit E hereto, as it may be amended or otherwise modified from time
to time in accordance with the terms hereof.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan.
"SOLVENT": when used with respect to any Person, that:
(a) the present fair salable value of such Person's assets is
in excess of the total amount of the probable liability on such
Person's liabilities;
(b) such Person is able to pay its debts generally as they
become due; and
(c) such Person does not have unreasonably small capital to
carry on such Person's business as theretofore operated and all
businesses in which such Person is about to engage.
"SUBSIDIARY": as to any Person at any time of determination, a
corporation, partnership or other entity of which shares of stock or other
ownership interests having ordinary Voting Power (other than stock or such other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries or Subsidiaries, or both, by such Person. Unless
otherwise qualified, all references to a "subsidiary" or to "subsidiaries" in
this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.
"TAXES": as defined in Section 2.11(a) hereof.
"TERMINATION EVENT": (a) a Reportable Event, (b) the institution of
proceedings to terminate a Single Employer Plan by the PBGC under Section 4042
of ERISA, (c) the appointment by the PBGC of a trustee to administer any Single
Employer Plan or (4) the existence of any other event or condition that would
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment by the PBGC of a trustee to administer, any
Single Employer Plan.
"TRANCHE": the collective reference to LIBOR Loans the
Interest Periods with respect to all of which begin on the same
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date and end on the same later date (whether or not such LIBOR Loans shall
originally have been made on the same day).
"TRANSACTION COSTS": for any period, reasonable nonrecurring
out-of-pocket costs, fees and expenses (including reasonable attorneys' fees)
which are incurred by the Borrower and its Subsidiaries in connection with (a)
the negotiation, preparation and consummation of the transactions contemplated
under this Agreement and (b) financing agreements and proposed financing
agreements related to this Agreement.
"TYPE": as to any Loan, its nature as a Reference Rate Loan or a LIBOR
Loan.
"U.S. PERSON": a citizen or resident of the United States, a
corporation, a partnership or other entity created or organized in or under any
laws of the United States or any State thereof, or any estate or trust that is
subject to Federal income taxation regardless of the source of its income.
"VOTING POWER": the aggregate number of votes of all classes of Capital
Stock of such Person which ordinarily has voting power for the election of
directors of such Person.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in any other Loan Document or any certificate or other
document made or delivered pursuant hereto or thereto.
(b) As used herein, in any other Loan Document, and in any certificate
or other document made or delivered pursuant hereto or thereto, accounting terms
not defined in Section 1.1 and accounting terms partly defined in Section 1.1,
to the extent not defined, shall have the respective meanings given to them
under GAAP. Unless otherwise provided herein, all financial calculations made
with respect to the Borrower for the purpose of determining compliance with the
terms of this Agreement shall be made on a consolidated basis.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(e) References to agreements, other contractual instruments and other
documents include all subsequent amendments and other modifications to such
agreement and documents, but only to the
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extent such amendments and other modifications are not prohibited by the terms
of any Loan Document.
SECTION 2. AMOUNT AND TERMS OF LOANS; COMMITMENT AMOUNTS
2.1 REVOLVING LOANS. (a) Subject to the terms and conditions hereof,
the Lender agrees to make revolving loans through its Applicable Lending Office
to the Borrower during the period from and including the Closing Date to the
date upon which the Lender shall, by notice to the Borrower, terminate the right
of the Borrower to obtain revolving loans hereunder or demand the immediate
repayment of all revolving loan amounts hereunder (the "REVOLVING PERIOD") in an
aggregate principal amount not to exceed at any time outstanding the lesser of
(i) the Revolving Commitment, as such amount may be reduced hereunder and (ii)
the Borrowing Base (collectively, the "LOANS"). During the Revolving Period
Loans may be repaid and reborrowed up to the limits set forth herein.
(b) Subject to Sections 2.9 and 2.11, the Loans may from time to time
be (i) LIBOR Loans, (ii) Reference Rate Loans or (iii) a combination thereof, as
determined by the Borrower and notified to the Lender in accordance with either
Section 2.1(e) or 2.3. The Lender may make or maintain its Loans to the Borrower
by or through any Applicable Lending Office.
(c) The Loans made by the Lender to the Borrower shall be evidenced by
a promissory note of the Borrower, substantially in the form of Exhibit A (the
"NOTE"), with appropriate insertions therein, payable to the order of the Lender
and representing the obligation of the Borrower to pay the aggregate unpaid
principal amount of the Loans made by the Lender to the Borrower pursuant to
Section 2.1(a), with interest thereon as prescribed in Sections 2.5 and 2.6. The
Lender is hereby authorized (but not required) to record the date and amount of
each payment or prepayment of principal of its Loans made to the Borrower, each
continuation thereof, each conversion of all or a portion thereof to another
Type and, in the case of LIBOR Loans, the length of each Interest Period with
respect thereto, in the books and records of the Lender, and any such
recordation made as part of its normal lending practices shall constitute PRIMA
FACIE evidence of the accuracy of the information so recorded. The failure of
the Lender to make any such recordation or notation in the books and records of
the Lender (or any error in such recordation or notation) shall not affect the
obligations of the Borrower hereunder or under the Note. The Note shall (i) be
dated the Closing Date, (ii) provide for the payment of interest in accordance
with Sections 2.5 and 2.6 and (iii) be stated to be payable on the Lender's
demand.
(d) On Lender's demand, the Borrower shall immediately repay the
principal of the Note and all interest accrued and unpaid thereon (even if such
demand occurs during the Revolving Period).
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The Borrower shall immediately prepay the Loans in an amount equal to the excess
of any Loans outstanding over the lesser of (i) the Revolving Commitment and
(ii) the Borrowing Base.
(e) The Borrower shall give the Lender irrevocable written notice
(which notice must be received by the Lender prior to 9:00 a.m., Los Angeles
time, in the case of Reference Rate Loans, one Business Day prior to the
proposed date of borrowing and, in the case of a Eurodollar Loan, on the third
Business Day before the date of the proposed borrowing. Each such notice of a
Loan shall be by telephone and confirmed, by the end of the same Business Day,
by telecopy specifying therein the requested (i) date of such Loan, (ii) Type of
such Loan, (iii) amount of such Loan and (iv) in the case of a Eurodollar Loan,
the initial Interest Period for such Loan. Each Loan shall be in the amount of
$500,000 or in integral multiple of $100,000 in excess thereof.
2.2 OPTIONAL PREPAYMENTS. The Borrower may on the last day of any
applicable Interest Period with respect thereto or at any time subject to
compliance with Section 2.12, in the case of LIBOR Loans, or at any time and
from time to time, in the case of Reference Rate Loans, prepay the Loans, in
whole or in part, upon at least three Business Days' irrevocable written notice,
in the case of LIBOR Loans, and upon at least one Business Day's irrevocable
written notice, in the case of Reference Rate Loans, from the Borrower to the
Lender, specifying the date and amount of prepayment and whether the prepayment
is of LIBOR Loans, Reference Rate Loans or a combination thereof and, if of a
combination thereof, the amount allocable to each. If any such notice is given,
the amount specified in such notice shall be due and payable by the Borrower on
the date specified therein, together with accrued interest to such date on the
amount prepaid. Partial prepayments of the Loans shall be in an aggregate
principal amount of $500,000 or whole multiples of $100,000 in excess thereof.
2.3 CONVERSION AND CONTINUATION OPTIONS. (a) The Borrower may elect
from time to time to convert LIBOR Loans to Reference Rate Loans by the Borrower
giving the Lender at least two Business Days' prior irrevocable written notice
of such election pursuant to a Continuation Notice, PROVIDED that any such
conversion of LIBOR Loans may only be made on the last day of an Interest Period
with respect thereto. The Borrower may elect from time to time to convert
Reference Rate Loans to LIBOR Loans by the Borrower giving the Lender at least
three Eurodollar Business Days' prior irrevocable written notice of such
election pursuant to a Continuation Notice. Any such notice of conversion to
LIBOR Loans shall specify the length of the initial Interest Period or Interest
Periods therefor. All or any part of outstanding LIBOR Loans and Reference Rate
Loans may be converted as provided herein, PROVIDED that (i) any such conversion
may only be made if, after giving effect thereto, Section 2.4 shall not have
been contravened, (ii) no such Loan may be converted into a LIBOR Loan
after the date that is one month prior to the end of the Revolving
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Period and (iii) the Borrower shall not have the right to elect to continue at
the end of the applicable Interest Period, or to convert to, a LIBOR Loan if a
Default shall have occurred and be continuing.
(b) Any LIBOR Loan may be continued as such upon the expiration of the
then current Interest Period with respect thereto by the Borrower giving at
least three Eurodollar Business Days' prior irrevocable written notice to the
Lender, in accordance with the applicable provisions of the term "Interest
Period" set forth in Section 1.1, of the length of the next Interest Period to
be applicable to such LIBOR Loan, PROVIDED that no LIBOR Loan may be continued
as such (i) if, after giving effect thereto, Section 2.4 would be contravened,
(ii) after the date that is one month prior to the end of the Revolving Period
or (iii) if a Default shall have occurred and be continuing and PROVIDED,
FURTHER, that if the Borrower shall fail to give any required notice as
described above in this Section or if such continuation is not permitted
pursuant to the preceding proviso, such Loans shall be automatically converted
to Reference Rate Loans on the last day of such then-expiring Interest Period.
2.4 MINIMUM AMOUNTS OF TRANCHES. All borrowings, conversions and
continuations of the Loans hereunder and all selections of Interest Periods
hereunder shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto, the aggregate principal amount of the Loans
comprising such Tranche shall be equal to $500,000 or a whole multiple of
$100,000 in excess thereof, and, in any case, there shall not be more than ten
Tranches.
2.5 INTEREST RATES, FEES AND PAYMENT DATES.
(a) Each LIBOR Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum equal to the LIBOR
Adjusted Rate plus the Applicable LIBOR Rate Margin.
(b) Each Reference Rate Loan shall bear interest at a rate per annum
equal to the Reference Rate plus the Applicable Reference Rate Margin.
(c) If an Event of Default shall exist hereunder, at the option of the
Lender all amounts outstanding under the Note shall bear interest at a rate per
annum which is the rate otherwise applicable under Sections (a) and (b) above
plus 2% from the date of such Event of Default until the date such Event of
Default is cured or waived (after as well as before judgment).
(d) Should the Lender determine that the utilization of the credit
facility established hereunder is not adequately supported by the Borrowing Base
(which determination shall be in the Lender's sole and absolute discretion), the
Borrower agrees to pay
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a fee of 0.50% (with a minimum of $250) as calculated on the amount of the
coverage deficit established on the last day of each calendar month. This fee
will be charged to the account of the Borrower the month following the
determination of such deficit.
(e) If the Borrower fails to deliver to the Lender the reports required
by Section 5.2(a) within the time periods required, the Borrower shall pay to
the Lender a monthly fee of $250 for each month (or a prorated amount for any
portion thereof) for which such reports were not delivered; provided, however,
that payment of such fee shall not waive any resulting Default or Event of
Default which shall occur as a result of the Borrower's failure to provide such
reports to the Lender as required hereunder.
(f) Interest shall be payable in arrears on each Interest Payment Date,
provided that interest accruing pursuant to paragraph (c) of this Section shall
be payable on demand. The fees referenced in (d) and (e) above shall be payable
on demand of the Lender.
2.6 COMPUTATION OF INTEREST. Interest on Loans and all Obligations
shall be calculated on the basis of a 360-day year for the actual days elapsed.
Each determination of an interest rate or the applicable fees described in
Section 2.5(d) and (e) by the Lender pursuant to any provision of this Agreement
shall be conclusive and binding on the Borrower and the Lender in the absence of
manifest error.
2.7 INABILITY TO DETERMINE INTEREST RATE. In the event that prior to
the first day of any Interest Period:
(a) the Lender shall have determined (which determination shall be
conclusive and binding upon the Borrower absent manifest error) that, by reason
of circumstances affecting the relevant market, adequate and reasonable means do
not exist for ascertaining the LIBOR Adjusted Rate for such Interest Period, or
(b) the LIBOR Adjusted Rate determined or to be determined for such
Interest Period will not adequately and fairly reflect the cost to the Lender
(as conclusively certified by the Lender) of making or maintaining its affected
Loans during such Interest Period;
the Lender shall give telecopy or telephonic notice thereof to the Borrower as
soon as practicable thereafter. If such notice is given (i) any LIBOR Loans
requested to be made on the first day of such Interest Period shall be made as
Reference Rate Loans and (ii) any outstanding LIBOR Loans shall be converted, on
the first day of such Interest Period, to Reference Rate Loans. Until such
notice has been withdrawn by the Lender, no further LIBOR Loans shall be made or
continued as such, nor shall the Borrower have the right to convert Reference
Rate Loans to LIBOR Loans.
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2.8 PAYMENTS. All payments (including prepayments) to be made by the
Borrower hereunder and under the Note, whether on account of principal,
interest, fees or otherwise, shall be made without set off or counterclaim and
shall be made prior to 10:00 a.m., Los Angeles time, on the due date thereof to
the Lender to such account as the Lender shall specify to the Borrower in
writing, in Dollars and in immediately available funds. All payments due to the
Lender from the Borrower hereunder shall be deemed paid when received by the
Lender. If any payment hereunder (other than payments on the LIBOR Loans)
becomes due and payable on a day other than a Business Day, such payment shall
be extended to the next succeeding Business Day, and, with respect to payments
of principal, interest thereon shall be payable at the then applicable rate
during such extension. If any payment on a LIBOR Loan becomes due and payable on
a day other than a Eurodollar Business Day, the maturity thereof shall be
extended to the next succeeding Eurodollar Business Day (and interest shall
continue to accrue thereon at the applicable rate) unless the result of such
extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Eurodollar
Business Day.
2.9 ILLEGALITY. Notwithstanding any other provision herein, if any
change after the Closing Date in any Requirement of Law or in the interpretation
or application thereof shall make it unlawful for the Lender or Applicable
Lending Office to maintain LIBOR Loans as contemplated by this Agreement, (a)
the commitment of the Lender hereunder to continue LIBOR Loans as such and to
convert Reference Rate Loans to LIBOR Loans shall forthwith be suspended during
such period of illegality and (b) the Loans of the Lender or Applicable Lending
Office then outstanding as LIBOR Loans, if any, shall be converted automatically
to Reference Rate Loans on the respective last days of the then current Interest
Periods with respect to such Loans or within such earlier period as required by
law. If any such conversion of a LIBOR Loan occurs on a day which is not the
last day of the then current Interest Period with respect thereto, the Borrower
shall pay to the Lender such amounts, if any, as may be required pursuant to
Section 2.12. To the extent that the Lender's LIBOR Loans have been converted to
Reference Rate Loans pursuant to this Section 2.9, all payments and prepayments
of principal that otherwise would be applied to the Lender's LIBOR Loans shall
be applied instead to its Reference Rate Loans.
2.10 INCREASED COSTS. (a) In the event that any change after the
Closing Date in any Requirement of Law or in the interpretation or application
thereof or compliance by the Lender with any request or directive (whether or
not having the force of law but, if not having such force, the compliance with
which is
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generally accepted and standard in the banking industry) from any central bank
or other Governmental Authority having jurisdiction or authority over the Lender
made subsequent to the Closing Date:
(i) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirements against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of the Lender or Applicable Lending
Office which is not otherwise included in the determination of the
LIBOR Adjusted Rate hereunder; or
(ii) shall impose on the Lender or Applicable Lending Office any
other condition (other than with respect to a Tax matter or an Excluded
Tax matter);
and the result of any of the foregoing is to increase the cost to the Lender or
Applicable Lending Office, by an amount which the Lender reasonably deems to be
material, of converting into, continuing or maintaining LIBOR Loans or to reduce
any amount receivable hereunder in respect thereof then, in any such case, the
Borrower shall promptly pay to the Lender or Applicable Lending Office, upon the
demand of the Lender, any additional amounts necessary to compensate the Lender
for such increased cost or reduced amount receivable. If the Lender or any
Applicable Lending Office becomes entitled to claim any additional amounts
pursuant to this Section, it shall promptly notify the Borrower of the event by
reason of which it has become so entitled. A certificate as to any additional
amounts payable pursuant to this Section submitted by the Lender or Applicable
Lending Office to the Borrower, which shall demonstrate in reasonable detail the
computation of such amounts, shall be conclusive evidence of the accuracy of the
information so recorded, absent manifest error. Requests by the Lender for
compensation hereunder shall not be for a period more than six months
retroactive. This covenant shall survive the termination of this Agreement and
the payment of the Note.
(b) If, after the date of this Agreement, the introduction of or any
change in any applicable law, rule, regulation or guideline regarding capital
adequacy, or any change in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration
thereof, affects the amount of capital required or expected to be maintained by
the Lender and the Lender (taking into consideration the Lender's policies with
respect to capital adequacy) determines that the amount of capital maintained by
the Lender which is attributable to or based upon the Loans or this Agreement
must be increased as a consequence of such introduction or change by an amount
deemed by the Lender to be material, then, upon demand of the Lender, the
Borrower shall promptly pay to the Lender additional amounts sufficient to
compensate the Lender for the
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increased costs to such Lender of such increased capital, without duplication of
any adjustment in interest based on the LIBOR Reserve Requirement. Any such
demand shall be accompanied by a certificate of the Lender setting forth in
reasonable detail the computation of any such increased costs, which certificate
shall be conclusive, absent manifest error. Requests by the Lender for
compensation hereunder shall not be for a period more than six months
retroactive. This obligation of the Borrower under this Section 2.10(b) shall
survive the termination of this Agreement and the payment of the Note and all
other amounts payable hereunder in full.
2.11 TAXES. (a) All payments made by the Borrower in respect of the
Obligations shall be made free and clear of, and without deduction or
withholding (except to the extent required by law, in which case the following
sentence shall apply) for or on account of, any present or future income, stamp
or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any United States Governmental Authority or any political subdivision or
taxing authority thereof or therein, other than Excluded Taxes (all such
non-Excluded Taxes being hereinafter called "TAXES"). If any Taxes are required
to be withheld from any amounts payable to the Lender in respect of the
Obligations, the amounts so payable to the Lender shall be increased to the
extent necessary to yield to the Lender (after payment of all Taxes) interest or
any such other amounts payable hereunder at the rates or in the amounts
specified in this Agreement and the other Loan Documents; provided, however,
that no increased amount shall be required to be paid to the Lender under this
sentence except to the extent that any change after the date hereof in any such
withholding requirement (other than a change occasioned by an action of the
Lender) results in an increase in the rate of such withholding from that in
effect as of the date hereof in respect of payments to the Lender. The Lender
shall deliver to the Borrower a certificate setting forth the amount of such
Taxes, the calculation of such Taxes and an explanation of the requirement
therefor, all in reasonable detail and such certificate shall be conclusive,
absent manifest error. Whenever any Taxes are payable by the Borrower, as
promptly as possible thereafter, the Borrower shall send to the Lender a copy of
an original official receipt received by the Borrower showing payment thereof or
such other evidence of payment reasonably satisfactory to the Lender. If the
Borrower fails to pay any Taxes when due to the appropriate taxing authority or
fails to remit to the Lender the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lender for any incremental taxes,
interest or penalties (and related reasonable fees and expenses of counsel) that
may become payable by the Lender as a result of any such failure. The agreements
in this Section shall survive the termination of this Agreement and the payment
of the Note and all other amounts payable hereunder.
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(b) The Lender agrees that it will deliver to the Borrower on or prior
to the Closing Date (i) two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224 or successor applicable form, as the case may
be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable
form. The Lender also agrees to deliver to the Borrower two further copies of
the said Form 1001 or 4224, as applicable, and Form W-8 or W-9, or successor
applicable forms or other manner of certification as to such tax matters, as the
case may be, on or before the date that any such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form previously delivered by it to the Borrower, and such extensions or
renewals thereof as may reasonably be requested by the Borrower, unless in any
such case an event beyond the control of the Lender (including, without
limitation, any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent the Lender from duly completing
and delivering any such form with respect to it and the Lender so advised the
Borrower. The Lender shall certify (i) in the case of a Form 1001 or a Form
4224, that it is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes and (ii) in
the case of a Form W-8 or W-9, that it is entitled to an exemption from United
States backup withholding tax.
(c) The Borrower shall not be required to pay any additional amounts to
any Person in respect of United States withholding tax pursuant to Section
2.11(a) if the obligation to pay such additional amounts would not have arisen
but for a failure by such Person to comply with the requirements of Section
2.11(b) (including the accuracy of the certificate described in the final
sentence thereof).
2.12 INDEMNITY. The Borrower agrees to indemnify the Lender and to hold
the Lender harmless from and to pay the Lender on demand the amount of any
reasonable liability, loss or expense arising from the reemployment of funds
obtained by it or from fees payable to terminate the deposits from which such
funds were obtained (including reasonable fees and expenses of counsel) which
the Lender may sustain or incur as a consequence of (a) default by the Borrower
in payment when due of the principal amount of or interest on any LIBOR Loan,
(b) default by the Borrower in making a borrowing of, conversion into or
continuation of LIBOR Loans after the Borrower has given a notice requesting the
same in accordance with the provisions of this Agreement, but only if the Lender
has suffered actual loss, liability or expense in reliance on such notice, (c)
default by the Borrower in making any prepayment after the Borrower has given a
notice thereof in accordance with the provisions of this Agreement or (d) the
making by the Borrower of a prepayment or conversion of LIBOR Loans on a day
which is not the last day of an Interest Period with respect thereto. The
Lender's certificate as to such liability, loss or
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expense shall be deemed conclusive, absent manifest error. This covenant shall
survive the termination of this Agreement and the payment of the Note and all
other amounts payable hereunder.
2.13 MITIGATION OF COSTS. If the Lender, by changing its Applicable
Lending Office or taking any other reasonable action, so long as making such
change or taking such other action is not disadvantageous to it in any
financial, regulatory or other respect, can mitigate any adverse effect on the
Borrower under Section 2.7, 2.9, 2.10 or 2.11, the Lender shall take such
action.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the
Loans, the Borrower hereby represents and warrants to the Lender that:
3.1 FINANCIAL CONDITION. (a) The reviewed balance sheet of the Borrower
and its consolidated Subsidiaries as at December 31, 1997, and the related
reviewed statements of income and of cash flows for the fiscal year ended on
such date, certified by the Accountants, copies of which will be furnished to
the Lender on or before May 15, 1998 will present fairly in all material
respects the financial condition of the Borrower and its consolidated
Subsidiaries as at such date, and the results of its operations and its cash
flows for the fiscal year then ended. All such financial statements (the
"FINANCIAL STATEMENTS"), including the related schedules and notes thereto, have
been prepared in accordance with GAAP applied consistently throughout the
periods involved (except as approved by such Accountants or Responsible Officer,
as the case may be, and as disclosed therein and for the absence of notes). The
Borrower does not have any, as of such date, Guarantee Obligation, contingent
liability or liability for taxes, or any long-term lease or unusual forward or
long-term commitment, including, without limitation, any interest rate or
foreign currency swap or exchange transaction, which is not reflected in the
foregoing statements or in the notes thereto and which is material in relation
to the financial condition of the Borrower at such date. During the period from
December 31, 1997 to and including the Closing Date, there has been no sale,
transfer or other disposition by the Borrower of any material part of its
business or property and no purchase or other acquisition of any business or
property (including any Capital Stock of any other Person) other than the
acquisition of Borrower's Capital Stock by the Parent material in relation to
the financial condition of the Borrower at December 31, 1997.
(b) The unaudited balance sheet of the Borrower as at February 28,
1998, a copy of which has heretofore been furnished to the Lender, presents
fairly in all material respects, in the opinion of the Borrower, the financial
condition of the Borrower as at such date, subject to year-end adjustments and
changes resulting from audit.
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3.2 NO CHANGE. Since December 31, 1997 no events have occurred which,
individually or in the aggregate, constitute a material adverse change in the
financial condition or business of the Borrower and its Subsidiaries taken as a
whole.
3.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. The Borrower and each
Subsidiary, (a) is (or, when formed, will be) duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has (or, when formed, will have) the corporate, partnership or limited liability
company power, as the case may be, and authority, and the legal right, to own
and operate its Properties, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged and in which it proposes
to be engaged after the Closing Date, (c) is (or, when formed, will be) duly
qualified as a foreign entity and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification and (d) is (or, when formed, will
be) in compliance with all Requirements of Law except to the extent that the
failure to comply therewith could not, in the aggregate, reasonably be expected
to have a Material Adverse Effect.
3.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
Borrower and each of its Subsidiaries has the corporate, partnership or limited
liability company power, as the case may be, and authority, and the legal right,
to make, deliver and perform the Loan Documents, to which it is or will be a
party, to borrow hereunder and the applicable Loan Party has taken all necessary
corporate action to authorize (a) the borrowings on the terms and conditions of
this Agreement and the Note and (b) the execution, delivery and performance of
the Loan Documents to which it is or will be a party. Each Subsidiary has (or,
when formed, will have) the corporate, partnership or limited liability company
power and authority, and the legal right, to make, deliver and perform the Loan
Documents to which it is or will be a party and has (or, when formed, will have)
taken all corporate, partnership or limited liability company action, as the
case may be, to authorize the execution, delivery and performance of such Loan
Documents. Except as set forth on Schedule 3, no consent or authorization of,
filing with or other act by or in respect of, any Governmental Authority or any
other Person is required in connection with the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of this Agreement,
the Note or the other Loan Documents except for any consent, authorization,
filing or other act the failure to obtain or make which could not reasonably be
expected to have a Material Adverse Effect. This Agreement has been, and the
Note and the other Loan Documents to which the Borrower or any Subsidiary is or
will be a party will be, duly executed and delivered by it. This Agreement
constitutes, and the Note and the other Loan Documents when executed and
delivered will constitute, a legal, valid and binding obligation of the Borrower
and each Subsidiary (to the
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extent the Borrower or such Subsidiary is a party thereto) enforceable against
it in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (whether enforcement is sought by
proceedings in equity or at law).
3.5 NO LEGAL BAR. The execution, delivery and performance of this
Agreement, the Note and the other Loan Documents, the borrowings hereunder and
the use of the proceeds thereof will not violate any Requirement of Law or
Contractual Obligations of the Borrower or any Subsidiary which could reasonably
be expected to have a Material Adverse Effect and will not result in, or
require, the creation or imposition of any Lien on any of its properties or
revenues pursuant to any such Requirement of Law or Contractual Obligation,
except pursuant to the Loan Documents or except as otherwise permitted pursuant
to Section 6.7, which Lien could reasonably be expected to have a Material
Adverse Effect.
3.6 NO MATERIAL LITIGATION. Except as set forth in Schedule 5, no
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Borrower,
threatened by or against the Borrower or any Subsidiary or against any of its or
their properties or revenues or by or against any "affiliated person" of the
Borrower or any Subsidiary, within the meaning of the Investment Company Act,
(a) on the Closing Date with respect to this Agreement, the Note or the other
Loan Documents or any of the transactions contemplated hereby or thereby or (b)
which could reasonably be expected to have a Material Adverse Effect.
3.7 OWNERSHIP OF PROPERTY; LIENS; CONDITION OF PROPERTIES. (a) The
Borrower and each Subsidiary has (or, when formed, will have) good title in fee
simple to, a valid leasehold interest in or rights as a permittee or licensee
to, all of its real property, and good title to all of its other Property which
is material to its business, and to the best of the Borrower's current actual
knowledge, none of such Property is subject to any Lien except as permitted by
Section 6.7.
(b) All of the Properties used or useful in the conduct of the
Borrower's business or the business of any Subsidiary are in good repair,
working order and condition (reasonable wear and tear excepted) and suitable for
use in the operation of its businesses currently conducted.
3.8 INTELLECTUAL PROPERTY. The Borrower and each Subsidiary owns, or is
licensed to use, all trademarks, trade names, patents and copyrights necessary
for the conduct of its business as currently conducted except for those the
failure to own or license which could not reasonably be expected to have a
Material Adverse Effect (the "INTELLECTUAL PROPERTY"). To the Borrower's
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knowledge, no claim which could reasonably be expected to have a Material
Adverse Effect has been asserted and is pending by any Person challenging or
questioning the use of any such Intellectual Property or the validity or
effectiveness of any such Intellectual Property, nor does the Borrower or any
Subsidiary know of any valid basis for any such claim. To the Borrower's
knowledge, the use of such Intellectual Property by the Borrower and its
Subsidiaries, if any, does not infringe on the rights of any Person, nor, to the
Borrower's knowledge, does the use by other Persons of such Intellectual
Property infringe on the rights of the Borrower or any Subsidiary.
3.9 TAXES. Except as previously disclosed in writing to the Lender, the
Borrower and each Subsidiary has (or, when formed, will have) filed or caused to
be filed all tax returns which are required to be filed and has paid all taxes
shown to be due and payable on said returns or on any assessments made against
it or any of its property and all other taxes, fees or other charges imposed on
it or any of its property by any Governmental Authority (other than any not yet
delinquent or the amount or validity of which are currently being contested in
good faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of the Borrower or such
Subsidiary, as appropriate); and no tax Lien has been filed, and no claim is
being asserted with respect to any such tax, fee or other charge which could
reasonably be expected to have a Material Adverse Effect.
3.10 FEDERAL REGULATIONS. No part of the proceeds of any Loans are
intended to be or will be used, directly or indirectly, for "purchasing" or
"carrying" any Margin Stock within the respective meanings of each of the quoted
terms under Regulation U or for any purpose which violates the provisions of the
Regulations of the Board of Governors of the Federal Reserve System. If
requested by the Lender, the Borrower will furnish to the Lender a statement to
the foregoing effect in conformity with the requirements of Form U-1 referred to
in Regulation U.
3.11 ERISA. No Reportable Event has occurred during the five-year
period prior to the date on which this representation is made with respect to
any Plan which has or would likely result in a Material Adverse Effect. Each
Plan has complied in all material respects with the applicable provisions of
ERISA and the Code. The present value of all accrued benefits under all Single
Employer Plans maintained by the Borrower, any Subsidiary, or any Commonly
Controlled Entity (based on those assumptions used to fund the Plans) did not,
as of the last annual valuation date prior to the date on which this
representation is made, exceed by an amount which could cause a Material Adverse
Effect the value of the assets of such Plans allocable to such accrued benefits.
Neither the Borrower, any Subsidiary, nor any Commonly Controlled Entity has had
a complete or partial withdrawal from any Multiemployer Plan which has or would
likely result in a Material
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Adverse Effect. The present value (determined using actuarial and other
assumptions which are reasonable in respect of the benefits provided and the
employees participating) of the liability of the Borrower, each Subsidiary, if
any, and each Commonly Controlled Entity for post retirement benefits (excluding
benefits required by Section 4980B of the Code) to be provided to their current
and former employees under plans which are welfare benefit plans (as defined in
Section 3(a) of ERISA) does not, in the aggregate, exceed by an amount which
could cause a Material Adverse Effect the assets under all such plans allocable
to such benefits.
3.12 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.
Neither the Borrower nor any Subsidiary is an "investment company", or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT"). Neither the
Borrower nor any Subsidiary is a "holding company," or an "affiliate" of a
"holding company" or a "subsidiary company" of a "holding company," within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
3.13 SUBSIDIARIES. As of the Closing Date, the Borrower has those
Subsidiaries listed on Schedule 8 hereto.
3.14 PURPOSE OF LOANS. The proceeds of the Loans are intended to be and
shall be used by the Borrower to finance its operational needs and for general
corporate purposes.
3.15 ENVIRONMENTAL MATTERS. To the Borrower's knowledge after
reasonable inquiry, with respect to such of the Properties as is real property:
(a) Such Properties and all operations at such Properties are
in compliance in all material respects with all applicable Environmental Laws,
and there is no contamination at, under or about such Properties, or violation
of any Environmental Law with respect to such Properties or the business
conducted at such Properties which involves a matter or matters which has caused
or are reasonably likely to cause a Material Adverse Effect.
(b) The Borrower has not received any notice of violation,
alleged violation, non-compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Laws with regard to any
of such Properties or the business conducted at such Properties which involves a
matter or matters which has caused or are reasonably likely to cause a Material
Adverse Effect, nor does the Borrower have knowledge or reason to believe that
any such notice will be received or is being threatened except insofar as such
notice or threatened notice, or any aggregation thereof, does not involve a
matter or matters that is or are reasonably likely to cause a Material Adverse
Effect.
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(c) No judicial proceedings or governmental or administrative
action is pending, or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any of its Subsidiaries is named as a
party with respect to such Properties or the business conducted at such
Properties which involves a matter or matters which has caused or are reasonably
likely to cause a Material Adverse Effect, nor are there any consent decrees or
other decrees, consent orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any Environmental Law
with respect to such Properties or such business except insofar as such
proceeding, action, decree, order or other requirement, or any aggregation
thereof, is not reasonably likely to cause a Material Adverse Effect.
3.16 ACCURACY AND COMPLETENESS OF INFORMATION. Unless otherwise
expressly indicated in writing to the Lender, the documents furnished and the
statements made in writing to the Lender by the Borrower in connection with the
negotiation, preparation or execution of this Agreement or any of the other Loan
Documents do not contain any untrue statement of fact material to the
creditworthiness of the Borrower or omit to state any such material fact
necessary in order to make the statements contained therein not misleading, in
either case which has not been corrected, supplemented or remedied by subsequent
documents furnished or statements made in writing to the Lender prior to the
date hereof. The projections and pro forma financial information contained in
such materials are based upon good faith estimates and assumptions believed by
the Borrower to be reasonable at the time made and as of the date of this
Agreement, it being recognized that such projections as to future events are not
to be viewed as facts and that actual results during the period or periods
covered by any such projections may differ from the projected results.
3.17 REAL PROPERTY ASSETS. Schedule 4 sets forth all real property
that, as of the Closing Date, is owned or leased by the Borrower and its
Subsidiaries.
3.18 PERMITS, ETC. Except as set forth on Schedule 3, the Borrower and
its Subsidiaries have (or, when formed, will have) all permits, licenses,
authorizations and approvals required for each of them lawfully to acquire, own,
lease, control, manage or operate their businesses as currently conducted,
except for such permits, licenses, authorizations or approvals required for the
lawful ownership, lease, control, management or operation of their businesses as
currently conducted, the failure to obtain or maintain which will not have a
Material Adverse Effect. Except as set forth in Schedule 5, no condition exists
or event has occurred which, in itself or with the giving of notice or lapse of
time or both, would result in the suspension, revocation, impairment, forfeiture
or non-renewal of any such permit, license, authorization or approval required
for the lawful ownership,
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lease, control, management or operation of their businesses as currently
conducted, and, there is no claim that any thereof is not in full force and
effect, except for such of the immediately preceding matters which are not
likely or reasonably likely to cause a Material Adverse Effect. Except as set
forth on Schedule 5 and for such of the immediately preceding matters and such
of the following matters which are not reasonably likely to cause a Material
Adverse Effect, there are (a) no judgments, decrees or orders issued, or to the
Borrower's knowledge, threatened, by the any court or regulatory Person with
respect to the Borrower or any Subsidiary, (b) no complaints, petitions, filings
or other proceedings pending, or to the Borrower's knowledge, threatened, before
the any court or regulatory Person with respect to the Borrower or any
Subsidiary and (c) no events that have occurred that could reasonably be
expected to result in the imposition of any financial penalty by the any court
or regulatory Person upon the Borrower or any Subsidiary.
3.19 PATENTS, TRADEMARKS, ETC. Schedules A, B and C to the Security
Agreement accurately and completely lists all material patents, trademarks,
service marks, trade names and copyrights owned by or licensed to the Borrower
and its Subsidiaries on the Closing Date.
3.20 COPYRIGHT ACT REQUIREMENTS. The Borrower and its Subsidiaries have
(or, when formed, will have) recorded or deposited with and paid to the United
States Copyright Office, the Registrar of Copyrights, the Patent and Trademark
Office and/or any other licensors of copyrighted materials, all notices,
statements of account, royalty fees and other documents and instruments required
under the terms and conditions of any patent, trademark, service mark, trade
name and copyright used in the operation of their businesses as currently
conducted and are not liable to any Person for copyright infringement under any
law, rule, regulation, contract or license as a result of their business
operations, all except to the extent that noncompliance with the preceding
requirements would not, in the aggregate, be reasonably expected to have a
Material Adverse Effect.
3.21 NATURE OF BUSINESS. Neither the Borrower nor any of its
Subsidiaries is (or, when formed, will be) engaged in any material business
other than the ownership and provision of clinical research and clinical design
management services for the evaluation and certification of new pharmaceutical
products.
3.22 CAPITAL STOCK OF BORROWER AND ITS SUBSIDIARIES. The Parent is the
direct owner of all of the issued and outstanding Capital Stock of the Borrower
as of the Closing Date. All Capital Stock of the Borrower and its Subsidiaries
has been duly authorized and validly issued and is fully paid and
non-assessable. As of the Closing Date (a) no Capital Stock of the Borrower or
its Subsidiaries carries any preemptive rights, (b) neither the Borrower nor any
Subsidiary is obligated to redeem
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or repurchase any of its Capital Stock, (c) no agreement, arrangement, or plan
exists, except as has been disclosed in writing to the Lender, which could
directly or indirectly affect the capital structure of the Borrower or its
Subsidiaries and (d) there are no outstanding options, rights or warrants for
the acquisition by any Person, directly or indirectly, of shares of the Capital
Stock of the Borrower or its Subsidiaries.
3.23 RANKING OF LOANS. This Agreement and the other Loan Documents to
which the Borrower is a party, when executed, and the Loans, when borrowed are
and will be the direct and general obligations of the Borrower. The Borrower's
obligations hereunder and thereunder rank and will rank at least PARI PASSU in
priority of payment to all other Indebtedness of the Borrower.
3.24 EXECUTIVE OFFICES. The location of the Borrower's executive office
and principal place of business as of the Closing Date is 2525 Campus Drive,
Irvine, California 92612-1503.
3.25 INSOLVENCY. After giving effect to the funding of Loans on the
Closing Date, the application of the proceeds of such Loans as provided herein,
and the payment of all estimated legal, underwriting, investment banking,
accounting and other fees related hereto and thereto, the Borrower and each
other Loan Party will be Solvent as of and on the Closing Date.
3.26 LABOR MATTERS. As of the Closing Date, there are no strikes or
other labor disputes against the Borrower or any Subsidiary pending, or to the
Borrower's knowledge, threatened against it or any Subsidiary.
3.27 CONDEMNATION. To the Borrower's knowledge no taking of any of the
Properties comprising real property or any part thereof through eminent domain,
conveyance in lieu thereof, condemnation or similar proceeding is pending or, to
the knowledge of the Borrower, threatened by any Governmental Authority which
would reasonably be expected to have a Material Adverse Effect.
3.28 LEASES, LICENSES, PERMITS, SITE USE AGREEMENTS AND OTHER OCCUPANCY
AGREEMENTS. To the Borrower's knowledge, true and complete copies of all
material leases, licenses, permits, site use agreements and any other type of
occupancy permit to which the Borrower or any Subsidiary is (or, when formed,
will be) a party have been delivered to the Lender and are in full force and
effect with no material defaults existing thereunder which individually or in
the aggregate would have a Material Adverse Effect.
SECTION 4. CONDITIONS PRECEDENT
4.1 CONDITIONS TO CLOSING DATE. The agreement of the Lender to make the
Loans requested to be made by it on the Closing Date for the purposes set forth
in Section 3.14, is subject to the satisfaction, immediately prior to or
concurrently with the making
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of the Loans on the Closing Date (except as otherwise expressly provided
hereunder), of the following conditions precedent:
(a) CREDIT AGREEMENT. The Lender shall have received this Agreement,
executed and delivered by an officer of the Borrower as of the Closing Date.
(b) OTHER LOAN DOCUMENTS. The Lender shall have received the Note, the
Guarantees and the Security Agreement, in each case executed and delivered by an
officer of the relevant Loan Party.
(c) LETTER OF GUARANTEE. The Lender shall have received the Letter of
Guarantee executed and delivered by Banque Nationale de Paris (Canada).
(d) INTERCREDITOR AGREEMENT. The Lender shall have received the
Intercreditor Agreement, dated as of February 5, 1998, executed and delivered by
officers of all of the relevant parties thereto.
(e) INCUMBENCY CERTIFICATE. The Lender shall have received an
incumbency certificate of the Borrower, and each other Loan Party, dated the
Closing Date, executed by one of its Responsible Officers or its Secretary or
Assistant Secretary.
(f) CORPORATE PROCEEDINGS. The Lender shall have received a copy of the
resolutions of the Board of Directors of the Borrower and each other Loan Party
authorizing (i) the Loan Documents referred to in Sections 4.1(a) and 4.1(b) and
to which it is or will be a party and (ii) the borrowings contemplated under
Section 2.1 in each case certified by the Secretary or an Assistant Secretary of
the Borrower and each other Loan Party as of the Closing Date, which certificate
states that the resolutions thereby certified have not been amended, modified,
revoked or rescinded and are in full force and effect.
(g) ORGANIZATIONAL DOCUMENTS. The Lender shall have received copies of
the articles of incorporation and by-laws of the Borrower and each other Loan
Party, as of the Closing Date, certified as of the Closing Date as complete and
correct copies thereof by the Secretary or an Assistant Secretary of the
Borrower and each other Loan Party.
(h) COSTS. The Lender shall have received payment or evidence of
payment by the Borrower of all reasonable costs, expenses and taxes (including,
without limitation, those payable pursuant to Section 8.5) accrued and unpaid
and otherwise due and payable on or before the Closing Date by the Borrower
pursuant to this Agreement.
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(i) LEGAL OPINIONS. The Lender shall have received the following
executed legal opinions:
(i) the executed legal opinion of Pepper Hamilton LLP,
counsel to the Borrower and the other Loan Parties substantially in the
form of Exhibit D hereto; and
(ii) the executed legal opinion of Pillsbury Madison &
Sutro LLP, counsel to the Lender, in form and substance satisfactory to
the Lender; and
(iii)such other legal opinions as the Lender may
reasonably request.
(j) RECORDING. The Lender shall have received as of the Closing Date
evidence of the recording, or of the provision acceptable to the Lender for the
recording, of all documents reasonably necessary to be recorded in such office
or offices as may be necessary or, in the reasonable opinion of the Lender,
desirable to perfect each Lien purported to be created thereby or to otherwise
protect the rights of the Lender thereunder and evidence of the filing, or of
provision acceptable to the Lender for the filing, of appropriate financing
statements on Form UCC-1, or amendments to existing financing statements on Form
UCC-2 (as the Lender may deem appropriate), naming the Lender as secured party,
duly executed by the applicable Loan Party under the Security Agreement, in such
office or offices as may be necessary or, in the reasonable opinion of the
Lender, desirable to perfect the security interests purported to be created by
any of the Collateral Documents.
(k) LIEN SEARCHES. The Lender shall have received certified copies of
requests for information from all relevant jurisdictions, listing all effective
financing statements which name the Borrower or its Subsidiaries, as applicable,
as debtor, together with copies of such financing statements, none of which,
except for Liens permitted by Section 6.7 or Liens otherwise agreed to in
writing by the Lender, shall cover any of the Collateral.
(l) GOOD STANDING CERTIFICATES. The Lender shall have received
certificates, each dated a recent date, of the Secretary of State of the State
of California and the California Franchise Tax Board, respectively, certifying
as to the existence and good standing of, and the payment of taxes by, the
Borrower and each Subsidiary in such state and listing all charter documents of
the Borrower and each Subsidiary on file with such officials.
(m) NO DEFAULT/REPRESENTATIONS. No Default shall have occurred and be
continuing on the Closing Date or would occur after giving effect to the making
of the Loans requested to be made on the Closing Date and the representations
and warranties contained in this Agreement and each other Loan Document, and the
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representations and warranties contained in each certificate or other writing
delivered to the Lender in satisfaction of the conditions set forth in this
Section 4.1 prior to or on the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date, shall be
correct in all material respects on and as of the Closing Date, and the Lender
shall have received a certificate of the Borrower to such effect in the form of
Exhibit B, dated as of the Closing Date and executed by a Responsible Officer of
the Borrower.
(n) INSURANCE POLICIES. The Lender shall have received evidence that
the insurance policies provided for in Section 5.5 and in the other Loan
Documents (including but not limited to flood insurance) are in full force and
effect, certified by the insurance broker therefor, together with appropriate
evidence showing the Lender as an additional named insured or loss payee, as
appropriate, all in form and substance reasonably satisfactory to the Lender.
(o) OPERATIONAL CONSENTS. The Lender shall have received evidence, in
form and substance reasonably satisfactory to the Lender, that the Borrower and
its Subsidiaries have obtained all material consents and licenses, in each case
as required by law or necessary for the operation of the Borrower and its
Subsidiaries.
(p) FINANCIAL STATEMENTS. The Lender shall have received the February
28, 1998 balance sheet referred to in Section 3.1(b).
(q) ADDITIONAL PROCEEDINGS. The Lender shall have received such other
approvals, opinions and documents as it may reasonably request and all legal
matters incident to the making of the Loans shall be reasonably satisfactory to
the Lender.
4.2 CONDITIONS TO EACH LOAN. The agreement of the Lender to make Loans,
including Loans to be made on the Closing Date, is subject to the satisfaction,
immediately prior to or concurrently with the making of such Loans of the
following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The following
statements shall be true and the Borrower's acceptance of the proceeds of each
Loan shall be deemed to be a representation and warranty of the Borrower on the
date of such Loan that:
(i) The representations and warranties contained in this
Agreement, each other Loan Document and each certificate or other
writing delivered to the Lenders in connection herewith are correct on
and as of such date in all material respects as though made on and as
of such date except to the extent that such representations and
warranties expressly relate to an earlier date; and
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(ii) No Default has occurred and is continuing or would result
from the making of the Loan to be made on such date.
(b) LEGALITY. The making of such Loan shall not contravene any law,
rule or regulation applicable to the Lender or the Borrower or any other Loan
Party.
(c) BORROWING NOTICE. The Lender shall have received a borrowing notice
for each such Loan pursuant to the provisions of this Agreement from the
Borrower.
SECTION 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that from and after the Closing Date, so
long as the Note remains outstanding and unpaid or any other amount is owing to
the Lender hereunder:
5.1 FINANCIAL STATEMENTS. The Borrower shall furnish to the Lender:
(a) except in respect of the fiscal year ended December 31, 1997, which
financial statements will be delivered to the Lender by May 15, 1998, and will
be on a reviewed basis and will include only the Borrower and its Subsidiaries
as at such date, as soon as available, but in any event within 90 days after the
end of each fiscal year of the Borrower, a copy of the audited consolidated and
consolidating balance sheets of Phoenix and its consolidated Subsidiaries, its
Subsidiaries as at the end of such year and the related statements of operations
and retained earnings, stockholders' equity and of cash flows for such year,
setting forth in each case in comparative form the figures for the previous
year, reported on without a "going concern" or like qualification or exception,
or other qualification arising out of the scope of the audit, by the
Accountants; and
(b) as soon as available, but in any event not later than 60 days after
the end of each fiscal quarter of the Borrower, the unaudited consolidated and
consolidating balance sheets of Phoenix and its consolidated Subsidiaries as at
the end of such quarter and the related unaudited statements of operations,
retained earnings, stockholders' equity and of cash flows for such quarter and
the portion of the fiscal year through the end of such quarter, setting forth in
each case in comparative form the figures for the previous year, certified by a
Responsible Officer of the Borrower as being fairly stated in all material
respects (subject to normal year-end audit adjustments);
all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with
generally accepted accounting principles in Canada applied consistently
throughout the periods reflected therein and with prior periods (except as
approved by the Accountants or Responsible Officer, as the case may be, and
disclosed therein).
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5.2 CERTIFICATES; OTHER INFORMATION. The Borrower shall:
(a) furnish to the Lender within 15 days after the end of each calendar
month, the "Monthly Declaration of Borrowing Limit" form substantially as set
forth as Exhibit G duly completed and executed, together with a chronological
Accounts Receivable listing based on the billing date and an accounts payable
listing (all in form and substance satisfactory to the Lender) and, upon request
by the Lender, but at least annually concurrently with the delivery of the
financial statements referred to in Section 5.1(a) above, a detailed list of the
Borrower's Accounts Receivable including names, addresses, telephone numbers,
banking locations and any other information which the Lender may request;
(b) furnish to the Lender concurrently with the delivery of the
financial statements referred to in Section 5.1(b) a certificate of a
Responsible Officer of the Borrower stating that, to the best of such Officer's
knowledge, the Borrower and its Subsidiaries during such period have observed or
performed in all material respects all of their agreements, and satisfied in all
material respects every condition, contained in this Agreement and the other
Loan Documents to which the Borrower or any Subsidiary is a party to be
observed, performed or satisfied by it, and that such Responsible Officer has
obtained no knowledge of any Default except as specified in such certificate;
(c) furnish to the Lender within five Business Days after the same are
filed, copies of all financial statements and reports which the Borrower or any
Subsidiary may make to, or file with, the Securities and Exchange Commission or
any successor or analogous Governmental Authority;
(d) furnish to the Lender as soon as available and in any event not
later than August 31 of each fiscal year of the Borrower, a copy of the
projected monthly cash flow and the annual operating budget for the Borrower and
its Subsidiaries for the following fiscal year;
(e) furnish to the Lender as soon as possible and in any event within
five Business Days after a Responsible Officer has knowledge of the occurrence
of a Default or, in the good faith determination of a Responsible Officer of the
Borrower, a Material Adverse Effect, the written statement by a Responsible
Officer of the Borrower, setting forth the details of such Default or Material
Adverse Effect and the action which the Borrower proposes to take with respect
thereto;
(f) furnish to the Lender (i) as soon as possible and in any event
within five days after the Borrower knows or has reason to know that any
Termination Event with respect to any Plan has occurred, a statement of a
Responsible Officer of the Borrower describing such Termination Event and the
action, if any, which
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the Borrower proposes to take with respect thereto, (ii) promptly and in any
event within five Business Days after receipt thereof by the Borrower, any
Subsidiary or any of its or their ERISA Affiliates from the PBGC, copies of each
notice received by the Borrower, any Subsidiary or any of its or their ERISA
Affiliates of the PBGC's intention to terminate any Plan or to have a trustee
appointed to administer any Plan, (iii) promptly and in any event within five
Business Days after the filing thereof with the Internal Revenue Service, copies
of each Schedule B (Actuarial Information) to the annual report (Form 5500
Series) with respect to each Single Employer Plan maintained for or covering
employees of the Borrower or any of its Subsidiaries if the present value of the
accrued benefits under the Plan exceeds its assets by an amount which could
cause a Material Adverse Effect and (iv) promptly and in any event within five
Business Days after receipt thereof by the Borrower, any Subsidiary or any of
its or their ERISA Affiliates from a sponsor of a Multiemployer Plan or from the
PBGC, a copy of each notice received by the Borrower, any Subsidiary or any of
its ERISA Affiliates concerning the imposition or amount of withdrawal liability
under Section 4202 of ERISA or indicating that such Multiemployer Plan may enter
reorganization status under Section 4241 of ERISA;
(g) furnish to the Lender promptly after the commencement thereof, but
in any event not later than five Business Days after service of process with
respect thereto on, or the obtaining of knowledge by, the Borrower, notice of
each action, suit or proceeding before any court or governmental authority or
other regulatory body or any arbitrator as to which there is a reasonable
possibility of a determination that would have a Material Adverse Effect;
(h) furnish to the Lender promptly after the sending or filing thereof,
copies of all statements, reports and other information filed by or on behalf of
the Borrower or any Subsidiary with any relevant regulatory body, the failure of
which to file could reasonably be expected to result in a Material Adverse
Effect;
(i) furnish to the Lender promptly upon receipt thereof, but in any
event not later than five Business Days following such receipt, copies of all
notices and other communications that the Borrower or any Subsidiary shall have
received from any relevant regulatory body with respect to any hearing, order or
dispute directly concerning the Borrower or any Subsidiary that could reasonably
be expected to have a Material Adverse Effect; and
(j) furnish to the Lender promptly such additional financial and other
information as the Lender may from time to time reasonably request.
5.3 PAYMENT OF OBLIGATIONS. The Borrower shall, and shall cause each of
its Subsidiaries to, pay, discharge or otherwise
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satisfy at or before maturity or before they become delinquent, as the case may
be, all its obligations of whatever nature, except where the failure to so
satisfy such obligations would not have a Material Adverse Effect or except
where the amount or validity thereof is currently being contested in good faith
by appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of the Borrower or such Subsidiary, as
applicable.
5.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Subject to
Section 6.6 and except as otherwise permitted pursuant to Section 6.1, the
Borrower shall continue, and shall cause each Subsidiary to continue, to engage
in business of the same general type as conducted by the Borrower or such
Subsidiary as of the Closing Date or as of the date of the formation of such
Subsidiary, as applicable, and preserve, renew and keep in full force and effect
its corporate existence and take all reasonable action to maintain all rights,
registrations, licenses, privileges and franchises necessary or desirable in the
normal conduct of its business, (except to the extent that a failure to maintain
such rights, registrations, licenses, privileges and franchises would not have a
Material Adverse Effect) and comply with all Contractual Obligations and
Requirements of Law (except to the extent that failure to comply therewith would
not, in the aggregate, have a Material Adverse Effect).
5.5 MAINTENANCE OF PROPERTY; INSURANCE. (a) The Borrower shall, and
shall cause each of its Subsidiaries to, keep all property useful or necessary
in its business in good working order and condition (ordinary wear and tear
excepted); maintain with financially sound and reputable insurance companies or
associations insurance on such of its property in at least such amounts and
against such risks as are usually insured against in the same general area by
companies engaged in the same or a similar business; and furnish to the Lender,
upon written request, full information as to the insurance carried. All such
policies of insurance shall contain an endorsement, in form and substance
reasonably satisfactory to the Lender in its sole discretion, showing the Lender
as additional insured or loss payee, as appropriate, or as its interests appear.
Such endorsement, or an independent instrument furnished to the Lender, shall
provide that the insurance companies will give the Lender at least 30 days'
prior written notice before any such policy or policies of insurance shall be
altered or canceled. All policies of insurance required to be maintained under
this Agreement shall be in customary form and with insurers recognized as
adequate by the Lender in its reasonable judgment and all such policies shall be
in such amounts as shall be customary for similar companies in the same or
similar business in the same geographical area. The Borrower shall deliver to
the Lender insurance certificates certified by the Borrower's insurance brokers,
as to the existence and effectiveness of each policy of insurance and evidence
of payment of all premiums then due and payable therefor. In
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addition, the Borrower shall notify the Lender promptly of any occurrence
causing a material loss of any insured Property and the estimated (or actual, if
available) amount of such loss. Further, the Borrower shall maintain all
insurance required under the other Loan Documents.
(b) Each policy for liability insurance shall provide for all losses to
be paid on behalf of the Lender and the Borrower, as their respective interests
may appear, and each policy for property damage insurance shall, to the extent
applicable to equipment and inventory, provide for all losses to be paid
directly to the Lender.
(c) Reimbursement under any liability insurance maintained by the
Borrower or any Subsidiary pursuant to this Section 5.5 may be paid directly to
the Person who shall have incurred liability covered by such insurance. In the
case of any loss involving damage to equipment or inventory as to which Section
5.5(d) is not applicable, the Borrower will make or cause to be made the
necessary repairs to or replacements of such equipment or inventory, and any
proceeds of insurance maintained by the Borrower pursuant to this Section 5.5
shall be paid by the Lender to the Borrower, upon presentation of invoices and
other evidence of obligations, as reimbursement for the costs of such repairs or
replacements.
(d) Upon the actual or constructive total loss of any equipment or
inventory during the continuance of a Default, all insurance proceeds in respect
of such equipment or inventory shall be paid to the Lender and applied in
repayment of the Loans; provided that if no Event of Default or Default has
occurred and is continuing, such proceeds shall be paid to the Borrower to
purchase replacements of such equipment or inventory.
5.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. The
Borrower shall, and shall cause each Subsidiary to, keep proper books of records
and account in which full, true and correct entries in conformity with GAAP and
all Requirements of Law shall be made of all material dealings and transactions
in relation to its business and activities; and upon reasonable notice and at
such reasonable times during usual business hours, permit representatives of the
Lender to visit and inspect any of its properties and examine and make abstracts
from any of its books and records at any reasonable time and as often as may
reasonably be desired and to discuss the business, operations, properties and
financial and other condition of the Borrower and its Subsidiaries with the
Chief Financial Officer of the Borrower and its Subsidiaries and with its
Accountants (provided that the Borrower may, if it so chooses, be present at or
participate in any such discussion).
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5.7 ENVIRONMENTAL LAWS. The Borrower shall, and shall cause
each of its Subsidiaries to:
(i) Comply with, and ensure compliance by all tenants and subtenants,
if any, with, all applicable Environmental Laws and obtain and comply in all
material respects with any and all licenses, approvals, notifications,
registrations or permits required by applicable Environmental Laws except to the
extent that failure to do so could not be reasonably expected to have a Material
Adverse Effect;
(ii) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws except to the extent that the same are being contested in good faith by
appropriate proceedings; and
(iii) Defend, indemnify and hold harmless the Lender, and its
employees, agents, officers and directors, from and against any and all claims,
demands, penalties, fines, liabilities, settlements, damages, costs and expenses
of whatever kind or nature known or unknown, contingent or otherwise, arising
out of, or in any way relating to the violation of, noncompliance with or
liability under any Environmental Laws applicable to the operations of the
Borrower, each Subsidiary or the Borrower's or such Subsidiary's interest in
Properties, or any orders, requirements or demands of Governmental Authorities
related thereto, including, without limitation, reasonable attorneys' and
consultants' fees, investigation and laboratory fees, response costs, court
costs and litigation expenses, except to the extent that any of the foregoing
arise out of the gross negligence or willful misconduct of the party seeking
indemnification therefor. This indemnity shall continue in full force and effect
and survive the termination of this Agreement and payment of the Note.
5.8 USE OF PROCEEDS. The Borrower will use the proceeds of the Loans as
set forth in Section 3.14, and not for the purchasing or carrying of any Margin
Stock.
5.9 COMPLIANCE WITH LAWS, ETC. Except as set forth in Section 5.7
relating specifically to Environmental Laws, the Borrower shall comply in all
material respects with all applicable laws, rules, regulations and orders except
where noncompliance would not reasonably be expected to have a Material Adverse
Effect, such compliance to include, without limitation (a) paying before the
same become delinquent all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or upon any of its Properties and
(b) paying all lawful claims which if unpaid might become a Lien upon any of its
Properties; PROVIDED, HOWEVER, that the Borrower shall not be required to pay
and discharge or to cause to be paid and
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discharged any such tax, assessment, charge, levy or claim so long as (i) the
validity or applicability thereof is being contested in good faith by
appropriate proceedings or the failure to pay such tax, assessment, charge, levy
or claim would not have a Material Adverse Effect and (ii) the Borrower shall,
to the extent required by GAAP, have set aside on its books adequate reserves
with respect thereto.
5.10 LEASE AND LICENSE APPROVALS. Except as set forth in Section
5.12(b), the Borrower shall notify the Lender of any leases, licenses, permits
or other Occupancy Agreements relating to real property or real property
interests that the Borrower or any Subsidiary executes or obtains which provide
for the payment of rent or license fees in excess of $1,000,000 in any fiscal
year. The Lender may request that any lease, license or other similar agreement
become part of the Collateral and the Borrower shall provide or cause to be
provided any and all Collateral Documents or other documents to be executed in
connection therewith requested by the Lender and provide the Lender with title
insurance (to the extent applicable) as a condition to approval.
5.11 ACQUISITION OF REAL PROPERTY IN FEE SIMPLE. The Borrower shall
promptly notify the Lender of any documents relating to any fee simple real
property interest acquired by the Borrower or any Subsidiary. The Lender may
request that any such fee simple real property interest of which it receives
such notice shall become part of the Collateral. The Borrower shall provide or
cause to be provided any and all information relating to a real property
interest which the Borrower or any Subsidiary desires to acquire and for which
it is required to provide notice and, if such real property interest shall
become Collateral, the Borrower shall execute any and all Collateral Documents
and other documents to be executed in connection therewith requested by the
Lender and shall provide the Lender with title insurance as a condition to
approval.
5.12 LEASES AND LICENSES. Unless such failure is not reasonably likely
to cause a Material Adverse Effect, the Borrower shall, and shall cause each
Subsidiary to, perform and carry out all of the leases, licenses, permits and
any other occupancy agreements relating to real property or real property
interests (the "OCCUPANCY AGREEMENTS") to be performed by the Borrower or any
Subsidiary and shall appear in and defend any action in which the validity of
any of the Occupancy Agreements relating to any real property or real property
interests is at issue and shall commence and maintain any action or proceeding
necessary to establish or maintain the validity of any of such Occupancy
Agreements and to enforce the provisions thereof. The Borrower shall provide to
the Lender true, correct and complete copies of any information relating to any
of the Occupancy Agreements as the Lender may reasonably request in writing.
Unless such amendment or termination is not likely to cause a Material Adverse
Effect,
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the Borrower shall not, and shall not permit any Subsidiary to, amend in a
materially adverse manner or terminate any of such Material Occupancy
Agreements, without the prior written consent of the Lender, which consent shall
not be unreasonably withheld or delayed. The Borrower shall immediately give
notice to the Lender of any default by it or any of its Subsidiaries or, to the
knowledge of the Borrower, by any other party to an Occupancy Agreement, which
causes or is reasonably likely to cause a Material Adverse Effect. The Borrower
shall not, and shall not permit any Subsidiary to, execute any new Material
Occupancy Agreements without giving prior or concurrent notice to the Lender.
5.13 NOTICES. The Borrower will provide to the Lender, within five
Business Days following receipt by the Borrower, copies of all notices received
by the Borrower or any Subsidiary from the Internal Revenue Service or other
taxing authority relating to any dispute regarding deductions, audits or any
other material matter which, if adversely determined against the Borrower or
such Subsidiary, would have a Material Adverse Effect.
5.14 EMPLOYEE CONTRACTS. The Borrower shall give to the Lender prompt
notice of any material dispute arising out of, or material uncured default
occurring under, any employee contract of the Borrower or any Subsidiary if any
of such contracts shall be terminated or not renewed on substantially similar
terms.
5.15 CONDITIONS SUBSEQUENT. The Borrower will provide to the Lender,
within thirty days of the Closing Date, Mortgages on real property leased by the
Borrower and as more specifically described on Schedule 4, located in Neptune,
New Jersey and Irvine, California, together with appropriate Environmental
Compliance Agreements and such other documents (other than title policies and
environmental phse one reports) as the Lender may reasonably request to perfect
its security interest in such Properties.
SECTION 6. NEGATIVE COVENANTS
The Borrower hereby agrees that from and after the Closing Date, except
with the prior written consent of the Lender, and so long as the Note remains
outstanding and unpaid or any other amount is owing to the Lender hereunder:
6.1 LIMITATION ON FUNDAMENTAL CHANGES. The Borrower shall not, and
shall not permit any Subsidiary to, (a) amend its corporate charter or by-laws
in any way that would have a Material Adverse Effect, (b) permit (to the extent
within its control), vote to or for, or take any other action to commence or
acquiesce to any bankruptcy or similar proceeding, (c) enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution) except any merger, consolidation or
amalgamation between or among the Loan Parties; PROVIDED THAT such Loan Party
shall give the Lender
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thirty days' prior written notice thereof and shall comply with all reasonable
actions requested by the Lender to protect and maintain its security interests
and Liens granted pursuant to the Loan Documents or (d) except as permitted
hereby, convey, sell, lease, assign, transfer or otherwise dispose of, all or
substantially all of its property, business or assets other than in connection
with a consolidation of its operations including without limitation a cessation
of operations in one or more locations so long as such cessation does not affect
a substantial portion of the Borrower's and its Subsidiaries' business, taken as
a whole.
6.2 LIMITATION ON RESTRICTED PAYMENTS. The Borrower shall not declare
or pay any dividend in cash or in stock on, or make any payment on account of,
or set apart assets for a sinking or other analogous fund for, the purchase,
redemption, defeasance, retirement or other acquisition of, any shares of any
class of Capital Stock of the Borrower or any warrants or options to purchase
any such Capital Stock, whether now or hereafter outstanding (the foregoing
being "RESTRICTED PAYMENTS") other than (a) Restricted Payments in favor of any
Guarantor and (b) other Restricted Payments in amounts not to exceed $1,000,000
in the aggregate in any twelve-month period.
6.3 TRANSACTIONS WITH AFFILIATES. The Borrower shall not, and shall not
permit any Subsidiary to, enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of property or the rendering
of any service, with any Subsidiary (other than wholly-owned Subsidiaries or
wholly-owned subsidiaries of any Guarantor) or any other Affiliate, unless such
transaction (a) is otherwise permitted under this Agreement or (b) is in the
ordinary course of the Borrower's or such Subsidiary's business and is upon
terms no less favorable to the Borrower or such Subsidiary, than it would obtain
in a comparable arm's length transaction with a Person not an Affiliate.
6.4 FISCAL YEAR. The Borrower shall not permit the fiscal year of the
Borrower or any Subsidiary to end on a day other than December 31, except a
change may be made to conform the fiscal year end to the Parent's fiscal year
end.
6.5 UNFUNDED LIABILITIES. The Borrower shall not permit to exist, at
any time, unfunded liabilities which, in the aggregate, for any and all Plans
maintained for or covering employees of the Borrower or any of its Subsidiaries
are an amount which has resulted or would likely result in a Material Adverse
Effect.
6.6 LINE OF BUSINESS. Neither the Borrower nor any of its Subsidiaries
shall engage in any material business other than the provisions of clinical
research and clinical design management services for the evaluation and
certification of new pharmaceutical products or services related thereto.
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<PAGE>
6.7 LIMITATION ON LIENS. The Borrower shall not, and shall not permit
any Subsidiary to, create, incur, assume or suffer to exist any Lien upon any of
its Property, assets or revenues, whether now owned or hereafter acquired,
except for:
(a) Liens created hereunder or under any of the other Loan Documents;
(b) Liens for taxes not yet delinquent or which are being contested in
good faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Borrower or a Subsidiary, as
applicable, in conformity with GAAP;
(c) Liens created by operation of law not securing the payment of
Indebtedness from money borrowed or guaranteed, including carriers',
warehousemen's, mechanics', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business which are not overdue for a period of
more than 45 days or which are being contested in good faith by appropriate
proceedings;
(d) Pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposit
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(e) Deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(f) Easements, rights of way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, would not cause a Material Adverse Effect;
(g) Liens in existence on the Closing Date listed on Schedule 2,
provided that no such Lien is spread to cover any additional property after the
Closing Date and that the amount of Indebtedness secured thereby is not
increased; and
(h) Liens securing capital expenditures incurred by Phoenix and all of
its Subsidiaries not to exceed an aggregate amount of $15,000,000 in fiscal year
1998 and of $10,000,000 in fiscal year 1999.
6.8 LIMITATION ON LOANS AND ADVANCES. The Borrower shall not, and shall
not permit any Subsidiary to, make any advance, loan, extension of credit or
capital contribution to any Person, except (a) extensions of trade credit in the
ordinary course of business; (b) advances to employees of the Borrower and its
Subsidiaries for travel, entertainment and relocation expenses in
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the ordinary course of business; (c) loans to Subsidiaries or Affiliates; and
(d) as contemplated by the Acquisition Agreement.
SECTION 7. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal on the Note when due
or the Borrower shall fail to pay any other amount payable hereunder within
three days after such amount becomes due; or
(b) Any representation or warranty made by any Loan Party herein or in
any other Loan Document, or which is contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement or any other Loan Document shall prove to have been incorrect in
any material respect when made; or
(c) The Borrower shall default in the observance or performance of any
agreement contained in Section 5 or Section 6; or
(d) Any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or the other Loan Documents
(other than as provided in paragraphs (a) through (c) of this Section), and such
default shall continue unremedied for a period of twenty Business Days after the
earlier of (i) notice thereof from the Lender to the Borrower and (ii) actual
knowledge thereof by a senior officer of such Loan Party; or any provision of
any Loan Document shall at any time for any reason be declared null and void by
a court; or
(e) The validity or enforceability of any Loan Document shall at any
time be contested by any Loan Party in writing, or a proceeding shall be
commenced by any Loan Party or by any Governmental Authority or other Person
having jurisdiction over any Loan Party, seeking to establish the invalidity or
unenforceability thereof, or any Loan Party shall deny in writing that it has
any liability or obligation purported to be created under any Loan Document; or
(f) Any Guarantee or the Letter of Guarantee shall cease, for any
reason to be in full force and effect; or
(g) The Borrower or any Loan Party shall (i) default in any payment of
principal or interest, regardless of the amount, due in respect of any (A)
Indebtedness (other than the Note), or (B) any Guarantee Obligation, if such
default is reasonably likely to cause a Material Adverse Effect or (ii) default
in the observance or performance of any other agreement or condition relating to
any such Indebtedness or Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto,
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<PAGE>
if the effect of such default referred to in this clause (ii) is to cause, or to
permit the holder thereof to cause, such Indebtedness or Guarantee Obligation to
become or be declared due and payable prior to its stated maturity or the stated
maturity of any underlying obligation, as the case may be, and if the effect of
such default referred to in this clause (ii) is to cause a Material Adverse
Effect; or
(h) (i) The Borrower or any other Loan Party shall commence any
voluntary case, proceeding or other action (A) under any existing or future law
of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Borrower or any
other Loan Party shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Borrower or any other
Loan Party any involuntary case, proceeding or other action of a nature referred
to in clause (i) above which (A) results in the entry of an order for relief or
any such adjudication or appointment and (B) remains undismissed, undischarged,
unstayed or unbonded for a period of 60 days; or (iii) there shall be commenced
against the Borrower or any other Loan Party any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been vacated,
discharged, stayed or bonded pending appeal within 60 days from the entry
thereof; or (iv) the Borrower or any other Loan Party shall take any action in
writing in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above;
or (v) the Borrower or any other Loan Party shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as they
become due or there shall be a general assignment for the benefit of creditors;
or
(i) (i) Any Person shall engage in any non-exempt "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan which would subject the Borrower or any Loan Party to any
tax, penalty, or other liabilities in the aggregate exceeding $1,000,000, (ii)
any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan, (iii) a Reportable
Event shall occur with respect to, or proceedings shall commence to have a
trustee appointed, or a trustee shall be appointed, to administer or to
terminate any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee would reasonably be expected to result
in the termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of ERISA (other
than a standard termination) or (v) the Borrower or any Commonly Controlled
Entity would reasonably be
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<PAGE>
expected to incur any liability in connection with a withdrawal from, or the
Insolvency or Reorganization of, a Multiemployer Plan; and in each case
regarding clauses (ii) through (v) above, such event or condition, together with
all other such events or conditions, if any, would reasonably be expected to
cause a Material Adverse Effect; or
(j) One or more judgments or decrees shall be entered against the
Borrower or any other Loan Party that in the aggregate are reasonably likely to
have a Material Adverse Effect, and that portion of such judgements or decrees
the failure to vacate, discharge, stay or bond pending appeal would be
reasonably likely to have a Material Adverse Effect shall not have been vacated,
discharged, stayed or bonded pending appeal within sixty days from the entry
thereof or in any event five days before the date of any sale pursuant to such
judgment or decree or any non-monetary judgment or order shall be entered
against the Borrower or any other Loan Party that is reasonably likely to have a
Material Adverse Effect and either (i) enforcement proceedings shall have been
commenced by any Person upon such judgment which has not been stayed pending
appeal or (ii) there shall be any period of ten consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(k) The Parent shall cease to own directly or indirectly and
beneficially 100% of the Capital Stock and Voting Power of the Borrower; or
Phoenix shall cease to own 100% of the Capital Stock and Voting Power of the
Parent; or
(l) There shall occur any default in the material observance or
material performance of the Inter-Lender Agreement or the Letter of Guarantee or
the Inter-Lender Agreement or the Letter or Credit shall terminate or otherwise
no longer be in full force and effect; or
(m) Any material provision of any Loan Document, after delivery thereof
pursuant to the provisions hereof, shall, for any reason other than pursuant to
the terms thereof or an act or omission by the Lender, cease to be valid or
enforceable in accordance with its terms and such cessation shall have a
Material Adverse Effect, or any security interest created under any Loan
Document shall for any reason other than pursuant to the terms thereof or an act
or omission by the Lender, cease to be a valid and perfected first priority
(except for any Lien or security interests permitted under any of the Loan
Documents or which have priority by operation of law) security interest or Lien
(except as otherwise stated or permitted herein or therein) in any material
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<PAGE>
portion of the Collateral or the Property purported to be covered thereby;
then, and in any such event, notwithstanding that the Lender may make demand
hereunder at any time, (A) if such event is an Event of Default specified in
paragraph (h) above, automatically the Loans made to the Borrower hereunder
(with accrued interest thereon, including interest accrued after the filing of a
petition initiating any proceeding referred to in paragraph (h) above) and all
other Obligations shall immediately become due and payable, and (B) if such
event is any other Event of Default, the Lender may, by notice of default to the
Borrower, declare the Loans (with accrued interest thereon) and all other
Obligations under this Agreement and the Note to be due and payable forthwith,
whereupon the same shall immediately become due and payable. In all cases the
Lender may enforce any or all of the Liens and security interests and other
rights and remedies created pursuant to any Loan Document or available at law or
in equity. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived by
the Borrower.
SECTION 8. MISCELLANEOUS
8.1 AMENDMENTS AND WAIVERS. Neither this Agreement, nor the Note, nor
any other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
Section. With the prior written consent of the Lender and the Borrower (and, in
the case of any Loan Document other than this Agreement, the relevant Loan
Party), the Borrower (or such Loan Party, as the case may be) may, from time to
time, enter into written amendments, supplements or modifications hereto and to
the other Loan Documents for the purposes of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lender, the Borrower or any other Loan Party hereunder or thereunder or
waiving, on such terms and conditions as may be specified in such instrument,
any of the requirements of this Agreement or the Note or the other Loan
Documents or any Default and its consequences. Any such waiver and any such
amendment, supplement or modification shall apply equally to the Lender and
shall be binding upon the Borrower, the other Loan Parties, the Lender and all
future holders of the Note. In the case of any waiver, the Borrower, the other
Loan Parties and the Lender, shall be restored to their former position and
rights hereunder and under the outstanding Note and any other Loan Documents,
and any Default waived shall be deemed to be cured and not continuing; but no
such waiver shall extend to any subsequent or other Default, or impair any right
consequent thereon.
8.2 NOTICES. All notices, requests and demands or other communications
to or upon the respective parties hereto to be effective shall be in writing
(including by telecopy), and, unless
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otherwise expressly provided herein, shall be deemed to have been duly given or
made when delivered by hand, or 3 days after being deposited in the United
States mail, certified and postage prepaid and return receipt requested, or, in
the case of telecopy notice, when received, in each case addressed to the
parties at their addresses as set forth on the signature pages hereof or to such
other address as may be hereafter notified by the respective parties hereto;
PROVIDED that any notice, request or demand to or upon the Lender pursuant to
Section 2.1, 2.2, 2.3 or 2.4 or any notice to the Borrower pursuant to Section 7
shall not be effective until received.
8.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay
in exercising, on the part of the Lender, any right, remedy, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
8.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement (but shall not be deemed to be restated unless
otherwise expressly provided for).
8.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees, whether or not
the transactions contemplated hereby are consummated, (a) to pay or reimburse
the Lender for all its reasonable costs and out-of-pocket expenses incurred in
connection with the preparation and execution of, and any amendment, supplement
or modification to, this Agreement and the Note and the other Loan Documents and
any other documents prepared in connection herewith or therewith, and the
consummation and administration of the transactions contemplated hereby and
thereby (including the transactions to occur on the Closing Date), including,
without limitation, the reasonable fees and disbursements of outside counsel to
the Lender and as to any amendment, supplement or modification to this Agreement
or any other Loan Document and the administration of the transactions
contemplated thereby, (b) after the occurrence and during the continuance of a
Default, to pay or reimburse the Lender, for all its reasonable costs and
out-of-pocket expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the other Loan Documents and
any such other documents or in connection with any refinancing or restructuring
of the credit arrangements provided under this Agreement in the nature of a
"work-out" or of any insolvency or bankruptcy proceeding, including, without
limitation, reasonable legal fees and disbursements of outside counsel to the
Lender, (c) to pay,
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<PAGE>
and indemnify and hold harmless Lender from, any and all recording and filing
fees and any and all liabilities with respect to, or resulting from any delay in
paying, stamp, excise and other taxes (but not including Excluded Taxes), if
any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, the Note, the
other Loan Documents and any such other documents and (d) to pay, and indemnify
and hold harmless the Lender from and against, any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs
(including, without limitation, the reasonable legal fees and disbursements of
outside counsel to the Lender), expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Agreement, the Note, the other Loan Documents or the use
of the proceeds of the Loans and any such other documents (all the foregoing,
collectively, the "indemnified liabilities"), PROVIDED, that the Borrower shall
have no obligation hereunder to the Lender with respect to indemnified
liabilities arising from the gross negligence or willful misconduct of the
Lender or its agents or attorneys-in-fact. The agreements in this Section shall
survive repayment of the Note and all other amounts payable hereunder.
8.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the Borrower, the Lender, all future holders of the Note
and their respective successors and assigns, except that the Borrower may not
assign, transfer or delegate any of its rights or obligations under this
Agreement without the prior written consent of the Lender. The Lender may assign
or participate its interest hereunder, without cost or expense to the Borrower
or any other Loan Party.
8.7 COUNTERPARTS. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
8.8 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.9 INTEGRATION. This Agreement, together with the other Loan
Documents, represents the entire agreement of the Borrower and the Lender with
respect to the subject matter hereof, and there are no promises, undertakings,
representations or warranties
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<PAGE>
by the Lender relative to the subject matter hereof not expressly set forth or
referred to herein or in the other Loan Documents.
8.10 GOVERNING LAW. THIS AGREEMENT AND THE NOTE AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
CALIFORNIA (WITHOUT REFERENCE TO ITS CHOICE OF LAW RULES).
8.11 CLAIMS OR CONTROVERSIES SUBJECT TO JUDICIAL REFERENCE.
(a) SUBMISSION TO JUDICIAL REFERENCE. Any claim or controversy
alleged in or subject to a lawsuit between or among the parties to this
Agreement (collectively, the "Parties" and individually, a "Party") which arises
out of or relates to this Agreement, or any negotiations, correspondence or
communications, whether or not incorporated or integrated into or relating to
this Agreement, including but not limited to any claim or controversy which
arises out of or is based upon an alleged tort, shall, at the written request of
any Party, be determined by a reference in accordance with California Code of
Civil Procedure Sections 638 ET SEQ. In connection with such reference, the
Parties hereby expressly, intentionally and deliberately waive any right they
may otherwise have to trial by jury of such claim or controversy.
(b) SELECTION OF REFEREE. Within 30 days after commencement by
any Party of any lawsuit subject to this Agreement, each Party shall provide the
other with a list of three potential referees acceptable to it. If the lists
have one or more referees in common, the person having the highest position on
each list shall be the referee hereunder. If such lists do not have a common
referee, the Parties shall select pursuant to the Commercial Rules of the
American Arbitration Association ("AAA") a single neutral referee and submit by
stipulation such referee to the court for an order of reference of such claim or
controversy. However, the referee selected must be a retired state or federal
court judge with at least five years of judicial experience in civil matters. In
the event that the Parties do not submit such stipulation to the court within
such 30 day period, any Party may move the court pursuant to this Agreement for
an order of reference of such claim or controversy to a single neutral referee
having such qualifications. The Parties shall equally bear the fees and expenses
of the referee unless the referee otherwise provides in the award.
(c) POWERS OF AND LIMITATIONS ON THE REFEREE. The Referee
shall have the powers provided by Title 9 of the California Code of Civil
Procedure Sections 1280 ET SEQ. (the "California Arbitration Act") and the
Commercial Rules of the AAA except as provided in this Agreement, including
without limitation
the following:
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(1) The referee shall determine all challenges to the
legality and/or enforceability of this Agreement.
(2) The referee shall apply the rules of evidence to
the same extent as they would be applied in a court of law.
(3) Subject to the provisions of this Agreement, the
referee may order any remedy or relief, including without limitation judicial
foreclosure, a deficiency judgment or equitable relief, and give effect to all
legal and equitable defenses, including without limitation statutes of
limitation, the statute of frauds, waiver and estoppel.
(4) The Parties shall have the right to conduct
discovery with respect to any dispute, controversy or issue arising out of or
resulting from this Agreement pursuant to the provisions of California Code of
Civil Procedure Section 1283.05, which provisions are incorporated herein by
reference and made a part hereof.
(5) The referee shall determine the time of the
hearing. The hearing shall take place in Los Angeles, California. The hearing
must be commenced within 60 days after completion of discovery, unless the
referee grants a continuance upon a showing of good cause by any Party. At least
14 days before the date set for hearing, the Parties shall exchange copies of
exhibits to be offered as evidence, and lists of witnesses who will testify, at
such hearing. Once commenced, the hearing shall proceed day to day until
completed, unless the referee grants a continuance upon a showing of good cause
by any Party. Any Party may cause to be prepared, at its expense, a written
transcription or electronic recordation of such hearing.
(6) Any award by the referee shall be set forth in a
statement of decision supported by written findings of fact and conclusions of
law which the referee shall concurrently deliver to the Parties.
(7) The referee shall have the authority to award in
the referee's discretion reasonable attorneys' fees and costs to the prevailing
party.
(8) The provisions of California Civil Code Sections
47 ET SEQ. shall apply to the judicial reference to the same extent as they
would apply to a judicial proceeding subject to such provisions.
(9) The laws of the State of California shall govern
the judicial reference pursuant to this Agreement.
(d) PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No
provision of this Section 8.11 shall limit the right of either Party (i) to
exercise any self-help remedies or seek specific
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performance in each case, in accordance with applicable law, (ii) to foreclose
upon or sell any collateral, by power of sale or otherwise, in accordance with
applicable law, or (iii) to obtain or oppose provisional remedies or necessary
procedural orders from a court of competent jurisdiction, including without
limitation appointment of a receiver, before, after or during the pendency of
the judicial reference. The exercise of, or opposition to, any such remedy does
not waive the right of any Party to judicial reference pursuant to this
Agreement.
(e) MISCELLANEOUS. Judgment upon the award of the referee
shall be final and binding (subject to vacation or correction in the amounts set
forth, respectively, in California Code of Civil Procedure Sections 1286.2,
1286.4, 1286.6 and 1286.8) and may be entered in any court of competent
jurisdiction in accordance with California Code of Civil Procedure Sections 644
and 645 and no party shall take any action to contest such award or judgment
except as set forth above. In the event that multiple claims are asserted, some
of which are found not subject to this Agreement, the Parties agree to stay the
proceedings of the claims not subject to this Agreement until all other claims
are resolved in accordance with this Agreement. In the event that claims are
asserted against multiple parties, some of whom are not subject to this
Agreement, the Parties agree to sever the claims subject to this Agreement and
resolve them in accordance with this Agreement.
8.12 ACKNOWLEDGEMENTS. The Borrower hereby acknowledges
that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) the Lender has no fiduciary relationship to the Borrower solely by
virtue of any of the Loan Documents, and the relationship pursuant to the Loan
Documents between the Lender, on one hand, and the Borrower on the other hand,
is solely that of creditor and debtor; and
(c) no joint venture exists among the Lender and the Borrower.
8.13 HEADINGS. Section headings herein are included for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.
8.14 CONFLICT OF TERMS. Except as otherwise provided in this Agreement
or any of the other Loan Documents by specific reference to the applicable
provisions of this Agreement, if any provision contained in this Agreement is in
conflict with, or inconsistent with, any provision in any of the other Loan
Documents, the provision contained in this Agreement shall govern and control.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Los Angeles, California by their proper and duly
authorized officers as of the day and year first above written.
IBRD-ROSTRUM GLOBAL INC.
By: /s/ Jean-Yves Caloz
-------------------------------
Name: Jean-Yves Caloz
------------------------
Title: Secretary & Treasurer
------------------------
Address for Notices:
2525 Campus Drive
Irvine, California 92612-1503
Attention: JoAnne Rosal
Telephone: (714) 476-2727
Facsimile: (714) 752-7297
and
2350 Cohen Street
Saint-Laurent (Montreal), Quebec
Canada H4R 2N6
Attention: Jean-Yves Caloz
Telephone: (514) 333-0033
Facsimile: (514) 333-7306
<PAGE>
BANQUE NATIONALE DE PARIS
Los Angeles Branch
By: /s/ Deborah Y. Gohh
-------------------------------
Name: Deborah Y. Gohh
-------------------------
Title: Vice President
-------------------------
By: /s/ Stephane Ronze
------------------------------
Name: Stephane Ronze
------------------------
Title: Assistant Vice President
------------------------
Address for Notices:
Banque Nationale de Paris
725 So. Figueroa St., Suite 2090
Los Angeles, CA 90017
Attention: Deborah Y. Gohh
Telephone: (213) 688-6419
Facsimile: (213) 488-9602
Applicable Lending Office for
Reference Rate Loans:
725 So. Figueroa St., Suite 2090
Los Angeles, CA 90017
Applicable Lending Office for
LIBOR Loans:
725 So. Figueroa St., Suite 2090
Los Angeles, CA 90017
<PAGE>
EXHIBIT A
FORM OF REVOLVING NOTE
Los Angeles, California
$7,000,000 March 13, 1998
FOR VALUE RECEIVED, the undersigned, IBRD-ROSTRUM GLOBAL, INC. (U.S.)
INC., a Delaware corporation (the "BORROWER"), hereby unconditionally promises
to pay to the order of BANQUE NATIONALE DE PARIS, Los Angeles Branch (the
"LENDER"), in lawful money of the United States and in immediately available
funds, the aggregate unpaid principal amount of the Loans made by the Lender to
the undersigned pursuant to Section 2.1(a) of the Revolving Credit Agreement (as
hereinafter defined), ON DEMAND. Such payment shall be made for the account of
the Lender at the office of Banque Nationale de Paris, Los Angeles Branch,
located at 725 South Figueroa Street, Suite 2090, Los Angeles, CA 90017 or at
such other office as the holder of this Note may notify the undersigned. The
undersigned further agrees to pay interest in like money at such office or such
other office on the unpaid principal amount hereof from time to time from the
date hereof at the rates per annum and on the dates specified in Sections 2.5
and 2.6 of the Revolving Credit Agreement until paid in full (both before and
after judgment to the extent permitted by law).
This Note is the Note referred to in the Revolving Credit Agreement
dated as of March 13, 1998 (as amended, supplemented or otherwise modified from
time to time, the "REVOLVING CREDIT AGREEMENT"), between the undersigned and the
Lender, and is entitled to the benefits thereof and of the other Loan Documents
and is subject to optional and mandatory prepayment in whole or in part as
provided therein. Capitalized terms used herein which are defined in the
Revolving Credit Agreement shall have such meanings unless otherwise defined
herein.
Notwithstanding that the Lender may make demand hereunder at any time,
upon the occurrence of any one or more of the Events of Default specified in the
Revolving Credit Agreement, all amounts then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable, all as provided
therein.
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<PAGE>
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA (WITHOUT REFERENCE TO ITS
CHOICE OF LAW RULES).
IBRD-ROSTRUM GLOBAL INC.
By:________________________________
Name:______________________________
Title:_____________________________
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<PAGE>
EXHIBIT G
MONTHLY DECLARATION OF BORROWING LIMIT
TO: Banque Nationale de Paris, Los Angeles Branch, (the
"Bank").
According to the authorized line of credit (established by the
Revolving Credit Agreement with the Bank dated as of March 13, 1998) the
undersigned Borrower hereby informs the Bank that the maximum amount available
to it in the next month, as calculated by the Borrower, has been calculated as
indicated below with all reports attached hereto as at _________________, 19___.
<TABLE>
<S> <C> <C>
ACCOUNTS RECEIVABLE
Total Accounts Receivable (aged
list attached) $________
SUBTRACT the following
accounts:
o accounts that are partly or
entirely unpaid after -________
90 days
o holdbacks/accounts excluded
from margin
provisions/credit
notes/intercompany -
accounts/sums due from __________
management
o lesser amount due from or
owed to suppliers on -________
receivable list
o doubtful accounts; -________
o any other accounts excluded
by the Bank and specified in
writing to the Borrower -________
Total Eligible Accounts Receivable =$________
Margin percentage applicable: x 80%
Lending value of Accounts Receivable =$________(1)
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
PROGRESS BILLINGS
Cost and estimated profits $________
in excess of progress billings
on contracts in progress
Progress billings in =$_______
excess of costs and estimated
profit on contracts in progress
=$_______(2)
CLAIMS TO BE DEDUCTED
Wages: $________
Rent: +________
Total contributions to a social
plan (unemployment insurance,
pension plan, medical plan,
worker's compensation, etc...) +________
Fiscal obligations (income tax,
deductions at source, sales tax,
etc...); +________
Other sums payable to the
government or one of its agencies
(Identify):
-------------------------- +________
Total claims to be deducted =$________(3)
BORROWING LIMIT
Net lending value of Eligible =$______(4=1+2-3)
Accounts Receivable and Progress
Billings
Authorized credit amount =$________(5)
Global Borrowing limit (the lesser
of 4 or 5) =$________(6)
ORDERS ON HAND: Present season to ship =$________
ORDERS ON HAND: Next season =$________
ACCOUNTS PAYABLE =$________
SALES - CURRENT MONTH =$________
SALES - YEAR TO DATE =$________
</TABLE>
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<PAGE>
The Borrower hereby certifies to the Bank that all the information herein and on
any accompanying reports is complete and accurate in all respects. In addition,
the Borrower certifies that all sums owed to privileged and preferred creditors,
including federal and provincial government agencies have been paid and that the
sums specified above as claims to be deducted are current amounts owing.
Date:__________________________
IBRD-ROSTRUM GLOBAL INC.
(The Borrower)
By: By:
----------------------------- -------------------------
(authorized signature) (authorized signature)
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<PAGE>
Exhibit 10.21
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TERM LOAN AGREEMENT
between
PHOENIX INTERNATIONAL LIFE SCIENCES (U.S.) INC.
and
BANQUE NATIONALE DE PARIS
Los Angeles Branch
Dated as of February 5, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS....................................................................................... 2
1.1 DEFINED TERMS............................................................................... 2
1.2 OTHER DEFINITIONAL PROVISIONS............................................................... 13
SECTION 2. AMOUNT AND TERMS OF LOANS; COMMITMENT AMOUNTS..................................................... 14
2.1 FACILITY A TERM LOAN........................................................................ 14
2.2 FACILITY B TERM LOAN; FACILITY B TERM LOAN
COMMITMENT.................................................................................. 15
2.3 OPTIONAL PREPAYMENTS........................................................................ 16
2.4 CONVERSION AND CONTINUATION OPTIONS......................................................... 17
2.5 MINIMUM AMOUNTS OF TRANCHES................................................................. 18
2.6 INTEREST RATES AND PAYMENT DATES............................................................ 18
2.7 COMPUTATION OF INTEREST AND FEES............................................................ 18
2.8 INABILITY TO DETERMINE INTEREST RATE........................................................ 18
2.9 PRO RATA TREATMENT AND PAYMENTS............................................................. 19
2.10 ILLEGALITY.................................................................................. 19
2.11 INCREASED COSTS............................................................................. 20
2.12 TAXES....................................................................................... 21
2.13 INDEMNITY................................................................................... 23
2.14 MITIGATION OF COSTS......................................................................... 23
SECTION 3. REPRESENTATIONS AND WARRANTIES.................................................................... 23
3.1 FINANCIAL CONDITION......................................................................... 23
3.2 NO CHANGE................................................................................... 24
3.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW.................................................... 24
3.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE
OBLIGATIONS................................................................................. 25
3.5 NO LEGAL BAR................................................................................ 25
3.6 NO MATERIAL LITIGATION...................................................................... 26
3.7 OWNERSHIP OF PROPERTY; LIENS; CONDITION OF
PROPERTIES.................................................................................. 26
3.8 INTELLECTUAL PROPERTY....................................................................... 26
3.9 TAXES....................................................................................... 26
3.10 FEDERAL REGULATIONS......................................................................... 27
3.11 ERISA....................................................................................... 27
3.12 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING
COMPANY ACT................................................................................. 27
3.13 SUBSIDIARIES................................................................................ 28
3.14 PURPOSE OF LOANS............................................................................ 28
3.15 ENVIRONMENTAL MATTERS....................................................................... 28
3.16 ACCURACY AND COMPLETENESS OF INFORMATION.................................................... 29
3.17 REAL PROPERTY ASSETS........................................................................ 30
3.18 PERMITS, ETC................................................................................ 30
3.19 PATENTS, TRADEMARKS, ETC.................................................................... 30
3.20 COPYRIGHT ACT REQUIREMENTS.................................................................. 30
3.21 NATURE OF BUSINESS.......................................................................... 31
3.22 CAPITAL STOCK OF BORROWER AND ITS SUBSIDIARIES.............................................. 31
3.23 RANKING OF LOANS............................................................................ 31
3.24 EXECUTIVE OFFICES........................................................................... 31
3.25 INSOLVENCY.................................................................................. 31
3.26 LABOR MATTERS............................................................................... 32
3.27 CONDEMNATION................................................................................ 32
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3.28 LEASES, LICENSES, PERMITS, SITE USE AGREEMENTS
AND OTHER OCCUPANCY AGREEMENTS.............................................................. 32
3.29 REPRESENTATIONS AND WARRANTIES IN ACQUISITION
AGREEMENT................................................................................... 32
SECTION 4. CONDITIONS PRECEDENT.............................................................................. 32
4.1 CONDITIONS TO CLOSING DATE.................................................................. 32
SECTION 5. AFFIRMATIVE COVENANTS............................................................................. 37
5.1 FINANCIAL STATEMENTS........................................................................ 37
5.2 CERTIFICATES; OTHER INFORMATION............................................................. 37
5.3 PAYMENT OF OBLIGATIONS...................................................................... 39
5.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE............................................ 39
5.5 MAINTENANCE OF PROPERTY; INSURANCE.......................................................... 39
5.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS;
DISCUSSIONS................................................................................. 40
5.7 ENVIRONMENTAL LAWS.......................................................................... 41
5.8 USE OF PROCEEDS............................................................................. 41
5.9 COMPLIANCE WITH LAWS, ETC................................................................... 41
5.10 LEASE AND LICENSE APPROVALS................................................................. 42
5.11 ACQUISITION OF REAL PROPERTY IN FEE SIMPLE.................................................. 42
5.12 LEASES AND LICENSES......................................................................... 42
5.13 NOTICES..................................................................................... 43
5.14 EMPLOYEE CONTRACTS.......................................................................... 43
SECTION 6. NEGATIVE COVENANTS................................................................................ 43
6.1 LIMITATION ON FUNDAMENTAL CHANGES........................................................... 43
6.2 LIMITATION ON RESTRICTED PAYMENTS........................................................... 44
6.3 TRANSACTIONS WITH AFFILIATES................................................................ 44
6.4 FISCAL YEAR................................................................................. 44
6.5 UNFUNDED LIABILITIES........................................................................ 44
6.6 LINE OF BUSINESS............................................................................ 44
6.7 ASSET DISPOSITIONS.......................................................................... 45
6.8 LIMITATION ON LIENS......................................................................... 45
6.9 LIMITATION ON LOANS AND ADVANCES............................................................ 46
SECTION 7. EVENTS OF DEFAULT................................................................................. 46
SECTION 8. MISCELLANEOUS..................................................................................... 49
8.1 AMENDMENTS AND WAIVERS...................................................................... 49
8.2 NOTICES..................................................................................... 50
8.3 NO WAIVER; CUMULATIVE REMEDIES.............................................................. 50
8.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................................................. 50
8.5 PAYMENT OF EXPENSES AND TAXES............................................................... 50
8.6 SUCCESSORS AND ASSIGNS...................................................................... 51
8.7 COUNTERPARTS................................................................................ 51
8.8 SEVERABILITY................................................................................ 51
8.9 INTEGRATION................................................................................. 52
8.10 GOVERNING LAW............................................................................... 52
8.11 CLAIMS OR CONTROVERSIES SUBJECT TO JUDICIAL
REFERENCE................................................................................... 52
8.12 ACKNOWLEDGEMENTS............................................................................ 54
8.13 HEADINGS.................................................................................... 55
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
8.14 CONFLICT OF TERMS........................................................................... 55
</TABLE>
Exhibits
A-1 Form of Facility A Term Note
A-2 Form of Facility B Term Note
B Form of No Default/Representation Certificate
C Form of Continuation Notice
D Form of Closing Opinion
E Form of Borrower Security Agreement
F Form of Guarantees (U.S. and Canadian)
G Form of Mortgage
H Form of Environmental Compliance Agreement
Schedules
1 Borrower's Indebtedness
2 Borrower's Liens
3 Borrower's Permits and Approvals
4 Borrower's Real Property Assets
5 Borrower's Litigation Proceedings
6 Certain Environmental Matters
7 Regarding the Capital Stock of Borrower
8 Borrower Subsidiaries
9 Mortgages
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<PAGE>
TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT, dated as of February 5, 1998, between PHOENIX
INTERNATIONAL LIFE SCIENCES (U.S.) INC., a Delaware corporation (the "BORROWER")
and BANQUE NATIONALE DE PARIS, Los Angeles Branch (the "LENDER").
RECITALS
A. The Borrower has entered into a Stock Purchase Agreement (such
Agreement, as it has been or may be amended or otherwise modified from time to
time, including, without limitation, by a letter agreement dated February 5,
1998, in accordance with the terms hereof, the "ACQUISITION AGREEMENT") dated as
of December 24, 1997 with Kuraya American Systems, Inc., identified as "Seller"
therein (the "SELLER"), pursuant to which the Borrower acquired on February 6,
1998 all of the issued and outstanding shares of IBRD-Rostrum Global Inc. (the
"IRG ACQUISITION"), which operates clinical research and clinical design
management services for the evaluation and certification of new pharmaceutical
products and which has its principal place of business in Irvine, California.
B. In connection with the IRG Acquisition, the Borrower requested that
the Lender make available a short term loan under a Demand Promissory Note dated
February 5, 1998 (the "Demand Note") in an amount equal to $25,440,000. Such
short term loan was made and it is the parties' intention that this term loan
facility shall amend and restate in its entirety the Demand Note and the
Collateral pledged to secure the Demand Note shall continue to secure the
Borrower's obligations hereunder. Such term loan facility would be available to
finance the IRG Acquisition and to pay closing and other costs related to the
IRG Acquisition.
C. The Lender is willing to make available such term loan on the terms
and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
<PAGE>
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following terms shall
have the following meanings:
"ACCOUNTANTS": Ernst & Young LLP or such other firm of independent
certified public accountants or chartered accountants of recognized national
standing as shall be selected by the Borrower and satisfactory to the Lender.
"ACQUISITION AGREEMENT": as defined in Recital A hereto.
"AFFILIATE": as to any Person, (a) any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with, such Person or (b) any Person who is a
shareholder having control or a director, officer, or partner (i) of such
Person, (ii) of any Subsidiary of such Person or (iii) of any Person described
in the preceding clause (a). For purposes of this definition, "control" of a
Person means the power, directly or indirectly, either to (i) vote securities
having 10% or more of the ordinary voting power for the election of directors of
such Person or (ii) direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"AGGREGATE TERM LOAN COMMITMENT": $25,440,000.
"AGREEMENT": this Term Loan Agreement, as amended, waived, supplemented
or otherwise modified from time to time.
"APPLICABLE LENDING OFFICE": for the Lender, its offices for LIBOR
Loans and Reference Rate Loans, specified on the signature pages hereof, any of
which offices may, upon 10 days' prior written notice to the Borrower, be
changed by the Lender.
"APPLICABLE LIBOR RATE MARGIN": with respect to the Loans which are
LIBOR Loans, for each Interest Period, the interest rate margin set forth below
opposite the applicable Facility for that Interest Period:
<TABLE>
<CAPTION>
FACILITY MARGIN
-------- ------
<S> <C>
A .35%
B .40%
</TABLE>
"ASSET DISPOSITION": the sale, sale and leaseback, transfer,
conveyance, exchange, long-term lease accorded sales treatment under GAAP or
similar disposition (including by means of a merger, consolidation,
amalgamation, joint venture or other substantive combination) of any of the
Properties, business or assets (other than marketable securities, including
"margin stock" within the meaning of Regulation U, liquid investments
and other financial instruments but, including, without
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<PAGE>
limitation, the assignment of any lease, license or permit relating to the
Properties) of the Borrower or any of its Subsidiaries to any Person or Persons
other than to the Borrower or any of its Subsidiaries; PROVIDED that Asset
Dispositions shall not include sales in the ordinary course of business.
"BORROWER": as defined in the preamble hereto.
"BUSINESS DAY": a day other than a Saturday, Sunday or other day on
which commercial banks in the State of California are authorized or required by
law to close and which, in the case of a LIBOR Loan, is a Eurodollar Business
Day.
"CAPITALIZED LEASE OBLIGATIONS": obligations for the payment of rent
for any real or personal property under leases or agreements to lease that, in
accordance with GAAP, have been or should be capitalized on the books of the
lessee and, for purposes hereof, the amount of any such obligation shall be the
capitalized amount thereof determined in accordance with GAAP.
"CAPITAL STOCK": any and all shares, interests, participation or other
equivalent (however designated) of capital stock of a corporation, any and all
equivalent ownership interest in a Person (other than a corporation), any and
all warrants, options or rights to purchase or any other securities convertible
into any of the foregoing.
"CLOSING DATE": the date on which the conditions set forth in Section
4.1 are satisfied and the Term Loan is made.
"CODE": the Internal Revenue Code of 1986, as amended from time to
time.
"COLLATERAL": all of the property (tangible or intangible) purported to
be subject to the lien or security interest purported to be created by any
mortgage, deed of trust, security agreement, pledge agreement, assignment or
other security document heretofore or hereafter executed by the Borrower as
security for all or part of the Obligations.
"COLLATERAL DOCUMENTS": the Security Agreement, the Mortgages, all
notices of security interests in deposit accounts requested by the Lender
pursuant to the Security Agreement, Form UCC-1 Financing Statements and
amendments thereto and any other document encumbering the Collateral or
evidencing or perfecting a security interest therein for the benefit of the
Lender executed by the Borrower, as the same may be amended or modified from
time to time in accordance with the terms hereof.
"COMMONLY CONTROLLED ENTITY": as to any Person, an entity, whether or
not incorporated, which is under common control with such Person within the
meaning of Section 4001 of ERISA or is part
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<PAGE>
of a group which includes such Person and which is treated as a single employer
under Section 414 of the Code.
"CONTINUATION NOTICE": a request for continuation or conversion of a
Loan as set forth in Section 2.4, substantially in the form of Exhibit C.
"CONTRACTUAL OBLIGATION": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
Property is bound.
"DEFAULT": any of the events specified in Section 7, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.
"DEMAND NOTE": as defined in Recital B hereto.
"DOLLARS" and "$": dollars in lawful currency of the United
States.
"ENVIRONMENTAL COMPLIANCE AGREEMENT": the Environmental Compliance
Agreement dated as of the Closing Date made by the Borrower in favor of the
Lender, as it may be amended or modified in accordance with the terms hereof.
"ENVIRONMENTAL LAWS": any and all federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees,
requirements of any governmental authority or Requirements of Law (including
common law) regulating, relating to or imposing liability or standards of
conduct concerning protection of human health or the environment, as now or at
any time hereafter in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA AFFILIATE": as to any Person, each trade or business including
such Person, whether or not incorporated, which together with such Person would
be treated as a single employer under Section 4001(a)(14) of ERISA.
"EVENT OF DEFAULT": any of the events specified in Section 7, PROVIDED
that any requirement for the giving of notice, the lapse of time, or both, and
all other conditions, have been satisfied.
"EURODOLLAR BUSINESS DAY": any day on which banks are open for dealings
in Dollar deposits in the London interbank market.
"EXCLUDED TAXES": all taxes imposed on or by reference to the net
income of the Lender or its Applicable Lending Office by any Governmental
Authority and all franchise taxes, taxes on doing
-4-
<PAGE>
business or taxes measured by capital or net worth imposed on the Lender or its
Applicable Lending Office by any Governmental Authority and any taxes imposed by
any Governmental Authority arising as a consequence of the failure of the Lender
to provide accurate documentation required to be provided by the Lender pursuant
to Section 2.12(b).
"FACILITY A TERM LOAN": a term loan made to the Borrower by the Lender
pursuant to the provisions of Section 2.1.
"FACILITY B TERM LOAN": a term loan made to the Borrower by the Lender
under the provisions of Section 2.2.
"FACILITY A TERM NOTE": as defined in Section 2.1(c) hereof.
"FACILITY B TERM NOTE": as defined in Section 2.2(c) hereof.
"FINANCIAL STATEMENTS": as defined in Section 3.1 hereof.
"FIXED RATE": the rate of interest per annum determined by the Lender
and accepted by the Borrower as at any date.
"FIXED RATE LOANS": Loans the rate of interest applicable to which is
based upon the Fixed Rate.
"GAAP": generally accepted accounting principles in the United States
in effect from time to time.
"GOVERNMENTAL AUTHORITY": any nation or government, any federal, state
or other political subdivision thereof and any federal, state or local entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"),
any obligation of (a) the guaranteeing Person or (b) another Person (including,
without limitation, any bank under any letter of credit) which Person the
guaranteeing Person has agreed to reimburse or indemnify for undertaking such
obligation in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "PRIMARY OBLIGATIONS")
of any other third Person (the "PRIMARY OBLIGOR") in any manner, whether
directly or indirectly, including, without limitation, any obligation of the
guaranteeing Person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds for the purchase or payment of any such primary
obligation or to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation
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<PAGE>
or (iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; PROVIDED, HOWEVER, that the term
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing Person shall be deemed to be the lesser of (a) an
amount equal to the stated or determinable (by the Borrower) amount of the
primary obligation in respect of which such Guarantee Obligation is made and (b)
the maximum amount for which such guaranteeing Person may be liable pursuant to
the terms of the instrument embodying such Guarantee Obligation, unless such
primary obligation and the maximum amount for which such guaranteeing Person may
be liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such guaranteeing Person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in good
faith.
"GUARANTEES": the guarantees, substantially in the form of Exhibit F,
made by each Guarantor in favor of the Lender, on the Closing Date, as the same
may be amended or modified from time to time in accordance with the terms
hereof.
"GUARANTORS": the Parent and IRG.
"INDEBTEDNESS": of any Person at any date, without duplication, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property (other than such amounts which are contingent upon earnings
performance or similar circumstances) or services (other than current trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices) or which is evidenced by a note, bond,
debenture or similar instrument, including obligations under non-compete
agreements, (b) all obligations of such Person under Capitalized Lease
Obligations, (c) all obligations of such Person in respect of acceptances issued
or created for the account of such Person, (d) all liabilities secured by any
Lien on any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof, (e) all obligations
of such Person, whether absolute or contingent, in respect of letters of credit
opened for the account of such Person and (f) all Guarantee Obligations of such
Person in respect of any indebtedness, obligations or liabilities of any other
Person of the type referred to in clauses (a) through (e) of this definition.
"IRG": IBRD-Rostrum Global Inc., a Delaware corporation.
"IRG ACQUISITION": as defined in Recital A hereto.
"INSOLVENCY": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
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<PAGE>
"INSOLVENT": pertaining to a condition of Insolvency.
"INTELLECTUAL PROPERTY": as defined in Section 3.8 hereof.
"INTERCREDITOR AGREEMENT": an intercreditor agreement dated as of
February 5, 1998 among the Lender, Banque Nationale de Paris (Canada) and Royal
Bank of Canada, the Borrower, IRG and the Parent all in form and substance
satisfactory to the Lender, as it may be amended or modified in accordance with
the terms hereof.
"INTEREST PAYMENT DATE": the first day of each calendar month while the
Loans are outstanding and the day on which the Loans become due and payable in
full and are paid or prepaid in full; provided, however, that if the Loans are
Fixed Rate Loans, the Interest Payment Date shall be each Reduction Date while
the Loans are outstanding and the day on which the Loans become due and payable
in full and are paid or prepaid in full.
"INTEREST PERIOD": with respect to any LIBOR Loan:
(a) initially, the period commencing on the borrowing or conversion
date, as the case may be, with respect to such LIBOR Loan and ending one, two,
three or six months thereafter, as selected by the Borrower in its notice of
borrowing or its Continuation Notice, as the case may be, given with respect
thereto; and
(b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such LIBOR Loan and ending one, two,
three or six months thereafter, as selected by the Borrower by irrevocable
notice to the Lender not less than three Eurodollar Business Days prior to the
last day of the then current Interest Period with respect thereto;
PROVIDED that, all of the foregoing provisions relating to Interest Periods are
subject to the following:
(i) if any Interest Period pertaining to a LIBOR Loan would
otherwise end on a day that is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day unless the result
of such extension would be to carry such Interest Period into another
calendar month in which event such Interest Period shall end on the
immediately preceding Business Day;
(ii) any Interest Period that would otherwise extend beyond
the date final payment is due on the Loans shall end on the date of
such final payment; and
(iii) any Interest Period pertaining to a LIBOR Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day
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<PAGE>
in the calendar month at the end of such Interest Period) shall end on
the last Business Day of a calendar month.
"INVESTMENT COMPANY ACT": as defined in Section 3.12 hereof.
"LENDER": as defined in the preamble hereto.
"LETTERS OF CREDIT": collectively, a nontransferable letter of
undertaking for the benefit of the Lender issued by Banque Nationale de Paris
(Canada) in the face amount of $11,440,000 and a standby letter of credit for
the benefit of the Lender issued by the Royal Bank of Canada in the face amount
of $14,000,000, both in form and substance acceptable to the Lender, as they may
be amended or modified in accordance with the respective terms hereof and
thereof.
"LIBOR": with respect to each day during each Interest Period
pertaining to a LIBOR Loan, the rate of interest determined by the Lender to be
the rate per annum at which deposits in Dollars would be offered to the Lender
by leading banks in the London interbank market at or about 9:00 a.m., Los
Angeles time, two Eurodollar Business Days prior to the beginning of such
Interest Period, for delivery on the first day of such Interest Period for the
number of days comprised therein and in an amount comparable to the amount of
its LIBOR Loan to be outstanding during such Interest Period.
"LIBOR ADJUSTED RATE": with respect to each day during each Interest
Period pertaining to a LIBOR Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
LIBOR
---------------------------------
1.00 - LIBOR Reserve Requirements
"LIBOR LOANS": Loans the rate of interest applicable to which is based
upon LIBOR.
"LIBOR RESERVE REQUIREMENTS": for any day as applied to a LIBOR Loan,
the aggregate (without duplication) of the maximum rates (expressed as a decimal
fraction) of reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect thereto) dealing with
reserve requirements prescribed for eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such Federal Reserve System.
"LIEN": any mortgage, pledge, charge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), security interest
or other security agreement of any kind
-8-
<PAGE>
or nature whatsoever (including, without limitation, any conditional sale or
other title retention agreement, any Capitalized Lease Obligation having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"LOAN": a Facility A Term Loan or a Facility B Term Loan, as
applicable; and "LOANS" means the aggregate of both the Facility A Term Loan and
the Facility B Term Loan outstanding at any given time.
"LOAN DOCUMENTS": this Agreement, the Notes, the Collateral Documents,
the Guarantees, the Environmental Compliance Agreement and any other agreement
executed by a Loan Party in connection therewith and herewith including, but not
limited to, UCC-1 Financing Statements, as such agreements and documents may be
amended, supplemented and otherwise modified from time to time in accordance
with the terms hereof.
"LOAN PARTIES": the Borrower and the Guarantors.
"MARGIN STOCK": as defined in Regulation U.
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
business, operations, property or financial condition of the Borrower and its
Subsidiaries, taken as a whole, (b) the ability of the Borrower and its
Subsidiaries, taken as a whole, to perform their obligations under the Loan
Documents or (c) the validity or enforceability of the Loan Documents or the
rights or remedies of the Lender hereunder or thereunder.
"MATURITY": in respect of the Notes, the date they shall become due and
payable in full, whether at stated maturity, by acceleration or otherwise.
"MORTGAGES": such mortgages, deeds of trust, collateral assignments of
leases and collateral assignments of licenses and permits as may be made by the
Borrower in favor of the Lender in respect of the Properties owned by the
Borrower, substantially in the form of Exhibit G (with such changes as may be
necessary to reflect the leasehold nature of such Property, if applicable and if
requested by the Lender), securing the Obligations to the extent provided
therein, as the same may be amended or modified from time to time in accordance
with the terms hereof.
"MULTIEMPLOYER PLAN": a plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"NOTE": the Facility A Term Note or the Facility B Term Note; and
"NOTES" means both the Facility A Term Note and Facility B Term Note.
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"OBLIGATIONS": the unpaid principal of and interest on (including,
without limitation, interest accruing after the maturity of the Loans and
interest accruing on or after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Borrower, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding and whether or not at a default rate) the Notes,
and all other obligations and liabilities of the Borrower and its Subsidiaries
to the Lender, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, this Agreement, the Notes, any other Loan Document
and any other document made, delivered or given in connection herewith or
therewith, whether on account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses (including, without limitation, all
reasonable fees and disbursements of counsel to the Lender that are required to
be paid by the Borrower and its Subsidiaries pursuant to the terms of this
Agreement) or otherwise.
"OCCUPANCY AGREEMENTS": as defined in Section 5.12.
"PARENT": Phoenix International Life Sciences Inc., a Canadian
corporation.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA or any successor thereto.
"PERSON": any individual, firm, partnership, joint venture,
corporation, association, business enterprise trust, unincorporated
organization, government or department or agency thereof or other entity,
whether acting in an individual, fiduciary or other capacity.
"PLAN": as to any Person, any plan (other than a Multiemployer Plan)
subject to Title IV of ERISA maintained for employees of such Person or any
ERISA Affiliate of such Person (and any such plan no longer maintained by such
Person or any of such Person's ERISA Affiliates to which such Person or any of
such Person's ERISA Affiliates has made or was required to make any
contributions within any of the five preceding years).
"PROPERTIES": the collective reference to the real and personal
property owned, leased or under license or permit, by the Borrower or any of its
Subsidiaries.
"REDUCTION DATES": the first day of each May, August, November and
February, commencing May 1, 1998 and continuing through November 1, 1999.
"REDUCTION INSTALLMENTS": the payments required under Sections 2.1(d)
and 2.2(d) hereof.
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"REFERENCE RATE": the rate of interest per annum publicly announced
from time to time by the Lender, at its Los Angeles Branch office as its
"Reference Rate". The Reference Rate is determined by the Lender from time to
time as a means of pricing credit extensions to some customers and is neither
directly tied to any external rate of interest or index nor necessarily the
lowest rate of interest charged by the Lender at any given time for any
particular class of customers or credit extensions. Any change in the applicable
interest rate due to a change in the Reference Rate shall be effective on the
effective date of such change in the Reference Rate.
"REFERENCE RATE LOANS": Loans the rate of interest applicable to which
is based upon the Reference Rate.
"REGULATION D": Regulation D of the Board of Governors of the Federal
Reserve System, as the same is from time to time in effect, and all official
rulings and interpretations thereunder or thereof and any successor regulation
thereto.
"REGULATION U": Regulation U of the Board of Governors of the Federal
Reserve System, as the same is from time to time in effect, and all official
rulings and interpretations thereunder or thereof and any successor regulation
thereto.
"REORGANIZATION": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA.
"REPORTABLE EVENT": any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty-day notice period is
waived under PBGC regulations.
"REQUIREMENT OF LAW": as to any Person, the Articles of Incorporation
and By-Laws or other organizational or governing documents of such Person, and
any law, treaty, rule, order, judgment or regulation of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"RESPONSIBLE OFFICER": the chief executive officer, the president, any
senior vice president, treasurer or any vice president of the applicable Loan
Party, or, with respect to financial matters, the chief financial officer,
treasurer or controller of the applicable Loan Party, as applicable.
"RESTRICTED PAYMENTS": as defined in Section 6.2.
"SECURITY AGREEMENT": the Security Agreement dated as of the Closing
Date by the Borrower in favor of the Lender in respect of the tangible and
intangible personal property of the Borrower described therein, substantially in
form of Exhibit E hereto, as
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it may be amended or otherwise modified from time to time in accordance with the
terms hereof.
"SELLER": as defined in Recital A hereto.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan.
"SOLVENT": when used with respect to any Person, that:
(a) the present fair salable value of such Person's assets is
in excess of the total amount of the probable liability on such
Person's liabilities;
(b) such Person is able to pay its debts generally as they
become due; and
(c) such Person does not have unreasonably small capital to
carry on such Person's business as theretofore operated and all
businesses in which such Person is about to engage.
"SUBSIDIARY": as to any Person at any time of determination, a
corporation, partnership or other entity of which shares of stock or other
ownership interests having ordinary Voting Power (other than stock or such other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries or Subsidiaries, or both, by such Person. Unless
otherwise qualified, all references to a "subsidiary" or to "subsidiaries" in
this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.
"TAXES": as defined in Section 2.12(a) hereof.
"TERMINATION EVENT": (a) a Reportable Event, (b) the institution of
proceedings to terminate a Single Employer Plan by the PBGC under Section 4042
of ERISA, (c) the appointment by the PBGC of a trustee to administer any Single
Employer Plan or (4) the existence of any other event or condition that would
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment by the PBGC of a trustee to administer, any
Single Employer Plan.
"TERM LOAN COMMITMENT": the commitment of the Lender to make Loans
hereunder through its Applicable Lending Office as set forth on the signature
pages hereof, as the same may be adjusted pursuant to the provisions hereof.
"TERM LOAN MATURITY DATE": February 5, 2000.
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"TRANCHE": the collective reference to LIBOR Loans the Interest Periods
with respect to all of which begin on the same date and end on the same later
date (whether or not such LIBOR Loans shall originally have been made on the
same day).
"TRANSACTION COSTS": for any period, reasonable nonrecurring
out-of-pocket costs, fees and expenses (including reasonable attorneys' fees)
which are incurred by the Borrower and its Subsidiaries in connection with (a)
the negotiation, preparation and consummation of the transactions contemplated
under this Agreement and the Acquisition Agreement and (b) financing agreements
and proposed financing agreements related to this Agreement and the Acquisition
Agreement.
"TYPE": as to any Loan, its nature as a Reference Rate Loan, a LIBOR
Loan or a Fixed Rate Loan.
"U.S. PERSON": a citizen or resident of the United States, a
corporation, a partnership or other entity created or organized in or under any
laws of the United States or any State thereof, or any estate or trust that is
subject to Federal income taxation regardless of the source of its income.
"VOTING POWER": the aggregate number of votes of all classes of Capital
Stock of such Person which ordinarily has voting power for the election of
directors of such Person.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in any other Loan Document or any certificate or other
document made or delivered pursuant hereto or thereto.
(b) As used herein, in any other Loan Document, and in any certificate
or other document made or delivered pursuant hereto or thereto, accounting terms
not defined in Section 1.1 and accounting terms partly defined in Section 1.1,
to the extent not defined, shall have the respective meanings given to them
under GAAP. Unless otherwise provided herein, all financial calculations made
with respect to the Borrower for the purpose of determining compliance with the
terms of this Agreement shall be made on a consolidated basis.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
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(e) References to agreements, other contractual instruments and other
documents include all subsequent amendments and other modifications to such
agreement and documents, but only to the extent such amendments and other
modifications are not prohibited by the terms of any Loan Document.
SECTION 2. AMOUNT AND TERMS OF LOANS; COMMITMENT AMOUNTS
2.1 FACILITY A TERM LOAN. (a) Subject to the terms and conditions
hereof, the Lender agrees to make a term loan through its Applicable Lending
Office to the Borrower on the Closing Date in an aggregate principal amount
equal to $11,440,000 (the "FACILITY A TERM LOAN") for the sole purpose of
refinancing the Demand Note. After the funding of the Facility A Term Loan on
the Closing Date, the Commitment to make a Facility A Term Loan shall expire.
Facility A Term Loan may not be reborrowed if repaid or prepaid.
(b) Subject to Sections 2.8 and 2.10, the Facility A Term Loan may from
time to time be (i) LIBOR Loans, (ii) Reference Rate Loans, (iii) a combination
thereof or (iv) if adequate funding is available to the Lender, a Fixed Rate
Loan, as determined by the Borrower and notified to the Lender in accordance
with either Section 2.1(e) or 2.4. The Lender may make or maintain its Facility
A Term Loan to the Borrower by or through any Applicable Lending Office.
(c) The Facility A Term Loan made by the Lender to the Borrower shall
be evidenced by a promissory note of the Borrower, substantially in the form of
Exhibit A-1 (the "FACILITY A TERM NOTE"), with appropriate insertions therein,
payable to the order of the Lender and representing the obligation of the
Borrower to pay the aggregate unpaid principal amount of the Facility A Term
Loan made by the Lender to the Borrower pursuant to Section 2.1(a), with
interest thereon as prescribed in Sections 2.6 and 2.7. The Lender is hereby
authorized (but not required) to record the date and amount of each payment or
prepayment of principal of its Facility A Term Loan made to the Borrower, each
continuation thereof, each conversion of all or a portion thereof to another
Type and, in the case of LIBOR Loans, the length of each Interest Period with
respect thereto, in the books and records of the Lender, and any such
recordation made as part of its normal lending practices shall constitute PRIMA
FACIE evidence of the accuracy of the information so recorded. The failure of
the Lender to make any such recordation or notation in the books and records of
the Lender (or any error in such recordation or notation) shall not affect the
obligations of the Borrower hereunder or under the Facility A Term Note. The
Facility A Term Note shall (i) be dated the Closing Date, (ii) provide for the
payment of interest in accordance with Sections 2.6 and 2.7 and (iii) be stated
to be payable in installments of principal in accordance with, and subject to
the provisions of Section 2.1(d).
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(d) On each Reduction Date, the Borrower shall repay the principal of
the Facility A Term Note in an aggregate amount equal to $437,500; provided,
that the outstanding Facility A Term Loan shall be due and payable on the Term
Loan Maturity Date.
(e) The Borrower shall give the Lender irrevocable written notice
(which notice must be received by the Lender, unless waived by the Lender prior
to 9:00 a.m., Los Angeles time, one Business Day prior to the Closing Date)
requesting that the Lender make the Facility A Term Loan on the Closing Date.
2.2 FACILITY B TERM LOAN; FACILITY B TERM LOAN COMMITMENT. (a) Subject
to the terms and conditions hereof, the Lender agrees to make a term loan
through its Applicable Lending Office to the Borrower on the Closing Date in an
aggregate principal amount equal to $14,000,000 (the "FACILITY B TERM LOAN") for
the sole purpose of refinancing the Demand Note. After the funding of the
Facility B Term Loan on the Closing Date, the Commitment to make a Facility B
Term Loan shall expire. Facility B Term Loan may not be reborrowed if repaid or
prepaid.
(b) Subject to Sections 2.8 and 2.10, the Facility B Term Loan may from
time to time be (i) LIBOR Loans, (ii) Reference Rate Loans, (iii) a combination
thereof or (iv) if adequate funding is available to the Lender, Fixed Rate
Loans, as determined by the Borrower and notified to the Lender in accordance
with either Section 2.2(e) or 2.4. The Lender may make or maintain its Facility
B Term Loan to the Borrower by or through any Applicable Lending Office.
(c) The Facility B Term Loan made by the Lender shall be evidenced by a
promissory note of the Borrower, substantially in the form of Exhibit A-2 (the
"FACILITY B TERM NOTE"), with appropriate insertions therein, payable to the
order of the Lender and representing the obligation of the Borrower to pay the
aggregate unpaid principal amount of the Facility B Term Loan made by the Lender
to the Borrower pursuant to Section 2.2(a), with interest thereon as prescribed
in Sections 2.6 and 2.7. The Lender is hereby authorized (but not required) to
record the date and amount of each payment or prepayment of principal of its
Facility B Term Loan made to the Borrower, each continuation thereof, each
conversion of all or a portion thereof to another Type and, in the case of LIBOR
Loans, the length of each Interest Period with respect thereto, in the books and
records of the Lender, and any such recordation made as part of its normal
lending practices shall constitute PRIMA FACIE evidence of the accuracy of the
information so recorded. The failure of the Lender to make any such recordation
or notation in the books and records of the Lender (or any error in such
recordation or notation) shall not affect the obligations of the Borrower
hereunder or under the Facility B Term Note. The Facility B Term Note shall (i)
be dated the Closing Date, (ii) provide for the payment of interest in
accordance with Sections 2.6 and 2.7 and
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(iii) be stated to be payable in installments of principal in accordance with,
and subject to the provisions of, Section 2.2(d).
(d) On each Reduction Date, the Borrower shall repay the principal of
the Facility B Term Note in an aggregate amount equal to $437,500; PROVIDED,
that the outstanding Facility B Term Loan shall be due and payable on the Term
Loan Maturity Date.
(e) The Borrower shall give the Lender irrevocable written notice
(which notice must be received by the Lender, unless waived by the Lender, prior
to 9:00 a.m., Los Angeles time, one Business Day prior to the Closing Date)
requesting that the Lender make the Facility B Term Loan on the Closing Date.
2.3 OPTIONAL PREPAYMENTS. The Borrower may on the last day of any
applicable Interest Period with respect thereto or at any time subject to
compliance with Section 2.13, in the case of LIBOR Loans and/or Fixed Rate
Loans, or at any time and from time to time, in the case of Reference Rate
Loans, prepay the Loans, in whole or in part, upon at least three Business Days'
irrevocable written notice, in the case of LIBOR Loans and/or Fixed Rate Loans,
and upon at least one Business Day's irrevocable written notice, in the case of
Reference Rate Loans, from the Borrower to the Lender, specifying the date and
amount of prepayment and whether the prepayment is of LIBOR Loans, Reference
Rate Loans or a combination thereof or a Fixed Rate Loan, and, if of a
combination thereof, the amount allocable to each. If any such notice is given,
the amount specified in such notice shall be due and payable by the Borrower on
the date specified therein, together with accrued interest to such date on the
amount prepaid. Any such prepayment shall be applied against the Facility A Term
Loan and the Facility B Term Loan as set forth in Section 2.9. Partial
prepayments of the Loans shall be applied to the then outstanding Reduction
Installments in inverse order of maturity. Amounts prepaid on account of the
Loans may not be reborrowed. Partial prepayments of the Loans shall be in an
aggregate principal amount of $500,000 or whole multiples of $100,000 in excess
thereof.
In the case of any prepayment (whether voluntary or involuntary) of a
LIBOR Loan or a Fixed Rate Loan, in addition to the amounts payable pursuant to
Section 2.13, the Borrower shall also pay to the Lender a prepayment fee equal
to the surplus of (a) the interest which the prepaid Loan amount would have
produced, at the applicable interest rate on the date of prepayment, for the
period beginning on such prepayment date and ending on the Term Loan Maturity
Date over (b) the interest which the prepaid Loan amount would have produced,
for the same period, at the Lender's then-prevailing rate for term deposits of
the same amount and period, as determined by the Lender in its sole discretion.
Notwithstanding the foregoing, the prepayment fee payable to the Lender in the
case of any prepayment of a Fixed Rate Loan or a LIBOR Loan must be at least
equal to $150,000,
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together with the payment of all costs resulting from such prepayment, which
costs shall be determined by the Lender in its sole discretion at the time of
each prepayment (provided that if such prepayment occurs as a result of a public
offering or a private placement (whether debt or equity) of either the Borrower
or any of its Subsidiaries or Affiliates, no such prepayment fee shall be
required).
2.4 CONVERSION AND CONTINUATION OPTIONS. (a) The Borrower may elect
from time to time to convert LIBOR Loans to Reference Rate Loans by the Borrower
giving the Lender at least two Business Days' prior irrevocable written notice
of such election pursuant to a Continuation Notice, PROVIDED that any such
conversion of LIBOR Loans may only be made on the last day of an Interest Period
with respect thereto. The Borrower may elect from time to time to convert
Reference Rate Loans to LIBOR Loans or a Fixed Rate Loan by the Borrower giving
the Lender at least three Eurodollar Business Days' prior irrevocable written
notice of such election pursuant to a Continuation Notice. Any such notice of
conversion to LIBOR Loans shall specify the length of the initial Interest
Period or Interest Periods therefor. Any such Fixed Rate Loan shall be for the
period beginning on the conversion date and ending on the Term Loan Maturity
Date and must be in an amount equal to the then-outstanding Loan amount for both
other or the Facility A Term Loan and the Facility B Term Loan. A Fixed Rate
Loan may not be converted to either Reference Rate Loans or LIBOR Loans. All or
any part of outstanding LIBOR Loans and Reference Rate Loans may be converted as
provided herein, PROVIDED that (i) any such conversion may only be made if,
after giving effect thereto, Section 2.5 shall not have been contravened, (ii)
no such Loan may be converted into a LIBOR Loan or a Fixed Rate Loan after the
date that is one month prior to the Term Loan Maturity Date and (iii) the
Borrower shall not have the right to elect to continue at the end of the
applicable Interest Period, or to convert to, a LIBOR Loan or a Fixed Rate Loan
if a Default shall have occurred and be continuing.
(b) Any LIBOR Loan may be continued as such upon the expiration of the
then current Interest Period with respect thereto by the Borrower giving at
least three Eurodollar Business Days' prior irrevocable written notice to the
Lender, in accordance with the applicable provisions of the term "Interest
Period" set forth in Section 1.1, of the length of the next Interest Period to
be applicable to such LIBOR Loan, PROVIDED that no LIBOR Loan may be continued
as such (i) if, after giving effect thereto, Section 2.5 would be contravened,
(ii) after the date that is one month prior to the Term Loan Maturity Date or
(iii) if a Default shall have occurred and be continuing and PROVIDED, FURTHER,
that if the Borrower shall fail to give any required notice as described above
in this Section or if such continuation is not permitted pursuant to the
preceding proviso, such Loans shall be automatically converted to Reference Rate
Loans on the last day of such then-expiring Interest Period.
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2.5 MINIMUM AMOUNTS OF TRANCHES. All borrowings, conversions and
continuations of the Loans hereunder and all selections of Interest Periods
hereunder shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto, the aggregate principal amount of the Loans
comprising such Tranche shall be equal to $500,000 or a whole multiple of
$100,000 in excess thereof, and, in any case, there shall not be more than ten
Tranches.
2.6 INTEREST RATES AND PAYMENT DATES.
(a) Each LIBOR Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum equal to the LIBOR
Adjusted Rate, plus the Applicable LIBOR Rate Margin.
(b) Each Reference Rate Loan shall bear interest at a rate per annum
equal to the Reference Rate.
(c) Each Fixed Rate Loan shall bear interest at a rate per annum equal
to the Fixed Rate.
(d) If an Event of Default shall exist hereunder, at the option of the
Lender all amounts outstanding under the Notes shall bear interest at a rate per
annum which is the rate otherwise applicable under Sections 2.6(a), 2.6(b) and
2.6(c), plus 2% from the date of such Event of Default until the date such Event
of Default is cured or waived (after as well as before judgment).
(e) Interest shall be payable in arrears on each Interest Payment Date,
provided that interest accruing pursuant to paragraph (d) of this Section shall
be payable on demand.
2.7 COMPUTATION OF INTEREST AND FEES. Interest on Loans and all
Obligations shall be calculated on the basis of a 360-day year for the actual
days elapsed. Each determination of an interest rate by the Lender pursuant to
any provision of this Agreement shall be conclusive and binding on the Borrower
and the Lender in the absence of manifest error.
2.8 INABILITY TO DETERMINE INTEREST RATE. In the event that
prior to the first day of any Interest Period:
(a) the Lender shall have determined (which determination shall be
conclusive and binding upon the Borrower absent manifest error) that, by reason
of circumstances affecting the relevant market, adequate and reasonable means do
not exist for ascertaining the LIBOR Adjusted Rate for such Interest Period, or
(b) the LIBOR Adjusted Rate determined or to be determined for such
Interest Period will not adequately and fairly reflect the cost to the Lender
(as conclusively certified by the Lender)
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of making or maintaining its affected Loans during such Interest Period;
the Lender shall give telecopy or telephonic notice thereof to the Borrower as
soon as practicable thereafter. If such notice is given (i) any LIBOR Loans
requested to be made on the first day of such Interest Period shall be made as
Reference Rate Loans and (ii) any outstanding LIBOR Loans shall be converted, on
the first day of such Interest Period, to Reference Rate Loans. Until such
notice has been withdrawn by the Lender, no further LIBOR Loans shall be made or
continued as such, nor shall the Borrower have the right to convert Reference
Rate Loans to LIBOR Loans.
2.9 PRO RATA TREATMENT AND PAYMENTS. Each payment (including each
prepayment) by the Borrower (a) on account of interest on the Loans shall be
made pro rata between the Facility A Term Loan and the Facility B Term Loan then
held by the Lender and (b) on account of principal of the Loans, (i) prior to
acceleration pursuant to Section 7 hereof, shall be applied equally between the
Facility A Term Loan and the Facility B Term Loan then held by the Lender and
(ii) subsequent to acceleration pursuant to Section 7 hereof, shall be applied
pro rata between the Facility A Term Loan and the Facility B Term Loan then held
by the Lender. All payments (including prepayments) to be made by the Borrower
hereunder and under the Notes, whether on account of principal, interest, fees
or otherwise, shall be made without set off or counterclaim and shall be made
prior to 10:00 a.m., Los Angeles time, on the due date thereof to the Lender to
such account as the Lender shall specify to the Borrower in writing, in Dollars
and in immediately available funds. All payments due to the Lender from the
Borrower hereunder shall be deemed paid when received by the Lender. If any
payment hereunder (other than payments on the LIBOR Loans) becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day, and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension. If any payment on a LIBOR Loan becomes due and payable on a day other
than a Eurodollar Business Day, the maturity thereof shall be extended to the
next succeeding Eurodollar Business Day (and interest shall continue to accrue
thereon at the applicable rate) unless the result of such extension would be to
extend such payment into another calendar month, in which event such payment
shall be made on the immediately preceding Eurodollar Business Day.
2.10 ILLEGALITY. Notwithstanding any other provision herein, if any
change after the Closing Date in any Requirement of Law or in the interpretation
or application thereof shall make it unlawful for the Lender or Applicable
Lending Office to maintain LIBOR Loans as contemplated by this Agreement, (a)
the commitment of the Lender hereunder to continue LIBOR Loans as such and to
convert Reference Rate Loans to LIBOR Loans shall forthwith be
suspended during such period of illegality and (b) the Loans of
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the Lender or Applicable Lending Office then outstanding as LIBOR Loans, if any,
shall be converted automatically to Reference Rate Loans on the respective last
days of the then current Interest Periods with respect to such Loans or within
such earlier period as required by law. If any such conversion of a LIBOR Loan
occurs on a day which is not the last day of the then current Interest Period
with respect thereto, the Borrower shall pay to the Lender such amounts, if any,
as may be required pursuant to Section 2.13. To the extent that the Lender's
LIBOR Loans have been converted to Reference Rate Loans pursuant to this Section
2.10, all payments and prepayments of principal that otherwise would be applied
to the Lender's LIBOR Loans shall be applied instead to its Reference Rate
Loans.
2.11 INCREASED COSTS. (a) In the event that any change after the
Closing Date in any Requirement of Law or in the interpretation or application
thereof or compliance by the Lender with any request or directive (whether or
not having the force of law but, if not having such force, the compliance with
which is generally accepted and standard in the banking industry) from any
central bank or other Governmental Authority having jurisdiction or authority
over the Lender made subsequent to the Closing Date:
(i) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirements against assets held
by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of the Lender or Applicable
Lending Office which is not otherwise included in the determination
of the LIBOR Adjusted Rate hereunder; or
(ii) shall impose on the Lender or Applicable Lending Office any
other condition (other than with respect to a Tax matter or an Excluded
Tax matter);
and the result of any of the foregoing is to increase the cost to the Lender or
Applicable Lending Office, by an amount which the Lender reasonably deems to be
material, of converting into, continuing or maintaining LIBOR Loans or to reduce
any amount receivable hereunder in respect thereof then, in any such case, the
Borrower shall promptly pay to the Lender or Applicable Lending Office, upon the
demand of the Lender, any additional amounts necessary to compensate the Lender
for such increased cost or reduced amount receivable. If the Lender or any
Applicable Lending Office becomes entitled to claim any additional amounts
pursuant to this Section, it shall promptly notify the Borrower of the event by
reason of which it has become so entitled. A certificate as to any additional
amounts payable pursuant to this Section submitted by the Lender or Applicable
Lending Office to the Borrower, which shall demonstrate in reasonable detail the
computation of such amounts, shall be conclusive evidence of the accuracy of the
information so recorded, absent manifest error.
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Requests by the Lender for compensation hereunder shall not be for a period more
than six months retroactive. This covenant shall survive the termination of this
Agreement and the payment of the Notes.
(b) If, after the date of this Agreement, the introduction of or any
change in any applicable law, rule, regulation or guideline regarding capital
adequacy, or any change in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration
thereof, affects the amount of capital required or expected to be maintained by
the Lender and the Lender (taking into consideration the Lender's policies with
respect to capital adequacy) determines that the amount of capital maintained by
the Lender which is attributable to or based upon the Loans or this Agreement
must be increased as a consequence of such introduction or change by an amount
deemed by the Lender to be material, then, upon demand of the Lender, the
Borrower shall promptly pay to the Lender additional amounts sufficient to
compensate the Lender for the increased costs to such Lender of such increased
capital, without duplication of any adjustment in interest based on the LIBOR
Reserve Requirement. Any such demand shall be accompanied by a certificate of
the Lender setting forth in reasonable detail the computation of any such
increased costs, which certificate shall be conclusive, absent manifest error.
Requests by the Lender for compensation hereunder shall not be for a period more
than six months retroactive. This obligation of the Borrower under this Section
2.11(b) shall survive the termination of this Agreement and the payment of the
Notes and all other amounts payable hereunder in full.
2.12 TAXES. (a) All payments made by the Borrower in respect of the
Obligations shall be made free and clear of, and without deduction or
withholding (except to the extent required by law, in which case the following
sentence shall apply) for or on account of, any present or future income, stamp
or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any United States Governmental Authority or any political subdivision or
taxing authority thereof or therein, other than Excluded Taxes (all such
non-Excluded Taxes being hereinafter called "TAXES"). If any Taxes are required
to be withheld from any amounts payable to the Lender in respect of the
Obligations, the amounts so payable to the Lender shall be increased to the
extent necessary to yield to the Lender (after payment of all Taxes) interest or
any such other amounts payable hereunder at the rates or in the amounts
specified in this Agreement and the other Loan Documents; provided, however,
that no increased amount shall be required to be paid to the Lender under this
sentence except to the extent that any change after the date hereof in any such
withholding requirement (other than a change occasioned by an action of the
Lender) results in an increase in the rate of such withholding from that in
effect as of the date
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hereof in respect of payments to the Lender. The Lender shall deliver to the
Borrower a certificate setting forth the amount of such Taxes, the calculation
of such Taxes and an explanation of the requirement therefor, all in reasonable
detail and such certificate shall be conclusive, absent manifest error. Whenever
any Taxes are payable by the Borrower, as promptly as possible thereafter, the
Borrower shall send to the Lender a copy of an original official receipt
received by the Borrower showing payment thereof or such other evidence of
payment reasonably satisfactory to the Lender. If the Borrower fails to pay any
Taxes when due to the appropriate taxing authority or fails to remit to the
Lender the required receipts or other required documentary evidence, the
Borrower shall indemnify the Lender for any incremental taxes, interest or
penalties (and related reasonable fees and expenses of counsel) that may become
payable by the Lender as a result of any such failure. The agreements in this
Section shall survive the termination of this Agreement and the payment of the
Notes and all other amounts payable hereunder.
(b) The Lender agrees that it will deliver to the Borrower on or prior
to the Closing Date (i) two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224 or successor applicable form, as the case may
be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable
form. The Lender also agrees to deliver to the Borrower two further copies of
the said Form 1001 or 4224, as applicable, and Form W-8 or W-9, or successor
applicable forms or other manner of certification as to such tax matters, as the
case may be, on or before the date that any such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form previously delivered by it to the Borrower, and such extensions or
renewals thereof as may reasonably be requested by the Borrower, unless in any
such case an event beyond the control of the Lender (including, without
limitation, any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent the Lender from duly completing
and delivering any such form with respect to it and the Lender so advised the
Borrower. The Lender shall certify (i) in the case of a Form 1001 or a Form
4224, that it is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes and (ii) in
the case of a Form W-8 or W-9, that it is entitled to an exemption from United
States backup withholding tax.
(c) The Borrower shall not be required to pay any additional amounts to
any Person in respect of United States withholding tax pursuant to Section
2.12(a) if the obligation to pay such additional amounts would not have arisen
but for a failure by such Person to comply with the requirements of Section
2.12(b) (including the accuracy of the certificate described in the final
sentence thereof).
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2.13 INDEMNITY. The Borrower agrees to indemnify the Lender and to hold
the Lender harmless from and to pay the Lender on demand the amount of any
reasonable liability, loss or expense arising from the reemployment of funds
obtained by it or from fees payable to terminate the deposits from which such
funds were obtained (including reasonable fees and expenses of counsel) which
the Lender may sustain or incur (but without duplication of any amounts payable
pursuant to Section 2.3 hereof) as a consequence of (a) default by the Borrower
in payment when due of the principal amount of or interest on any LIBOR Loan or
any Fixed Rate Loan, (b) default by the Borrower in making a borrowing of,
conversion into or continuation of LIBOR Loans or Fixed Rate Loans after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (c) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement, but only if the Lender has suffered actual loss,
liability or expense in reliance on such notice or (d) the making by the
Borrower of a prepayment or conversion of LIBOR Loans on a day which is not the
last day of an Interest Period with respect thereto, or of a prepayment of Fixed
Rate Loans on a day other than the Term Loan Maturity Date. The Lender's
certificate as to such liability, loss or expense shall be deemed conclusive,
absent manifest error. This covenant shall survive the termination of this
Agreement and the payment of the Notes and all other amounts payable hereunder.
2.14 MITIGATION OF COSTS. If the Lender, by changing its Applicable
Lending Office or taking any other reasonable action, so long as making such
change or taking such other action is not disadvantageous to it in any
financial, regulatory or other respect, can mitigate any adverse effect on the
Borrower under Section 2.8, 2.10, 2.11 or 2.12, the Lender shall take such
action.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the
Loans, the Borrower hereby represents and warrants to the Lender as to itself
and as to each Subsidiary other than IRG and, as to IRG, to Borrower's actual
knowledge and otherwise based solely on the representations of the Sellers set
forth in the Acquisition Agreement (including all exhibits) that:
3.1 FINANCIAL CONDITION. (a) The audited balance sheet of the Parent
and its Subsidiaries as at August 31, 1997, and the related audited statements
of income and of cash flows for the fiscal year ended on such date, certified by
the Accountants, copies of which have heretofore been furnished to the Lender
present fairly in all material respects the financial condition of the Parent
and its Subsidiaries as at such date, and the results of its operations and its
cash flows for the fiscal year then ended. All such financial statements (the
"FINANCIAL
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STATEMENTS"), including the related schedules and notes thereto, have been
prepared in accordance with generally accepted accounting principles in Canada
applied consistently throughout the periods involved (except as approved by such
Accountants or Responsible Officer, as the case may be, and as disclosed therein
and for the absence of notes). The Borrower does not have any, as of such date,
Guarantee Obligation, contingent liability or liability for taxes, or any
long-term lease or unusual forward or long-term commitment, including, without
limitation, any interest rate or foreign currency swap or exchange transaction,
which is not reflected in the foregoing statements or in the notes thereto and
which is material in relation to the financial condition of the Borrower at such
date. During the period from August 31, 1997 to and including the Closing Date,
there has been no sale, transfer or other disposition by the Borrower of any
material part of its business or property and no purchase or other acquisition
of any business or property (including any Capital Stock of any other Person),
other than the IRG Acquisition, material in relation to the financial condition
of the Borrower at August 31, 1997.
(b) The PRO FORMA balance sheet of the Borrower as at the Closing Date,
a copy of which has heretofore been furnished to the Lender, presents fairly, in
the opinion of the Borrower, the PRO FORMA financial condition of the Borrower
as at such date, subject to such accounting adjustments as may be customary in
acquisition transactions similar to the IRG Acquisition, subject to year-end
adjustments and changes resulting from audit.
3.2 NO CHANGE. Since August 31, 1997 no events have occurred which,
individually or in the aggregate, constitute a material adverse change in the
financial condition or business of the Borrower and its Subsidiaries taken as a
whole.
3.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. The Borrower and each
Subsidiary, (a) is (or, when formed, will be) duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has (or, when formed, will have) the corporate, partnership or limited liability
company power, as the case may be, and authority, and the legal right, to own
and operate its Properties, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged and in which it proposes
to be engaged after the Closing Date, (c) is (or, when formed, will be) duly
qualified as a foreign entity and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification and (d) is (or, when formed, will
be) in compliance with all Requirements of Law except to the extent that the
failure to comply therewith could not, in the aggregate, reasonably be expected
to have a Material Adverse Effect.
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3.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
Borrower and each of its Subsidiaries has the corporate, partnership or limited
liability company power, as the case may be, and authority, and the legal right,
to make, deliver and perform the Acquisition Agreement and the Loan Documents,
in each case, to which it is or will be a party, to borrow hereunder and to
consummate the IRG Acquisition under the Acquisition Agreement, and the
applicable Loan Party has taken all necessary corporate action to authorize (a)
the borrowings on the terms and conditions of this Agreement and the Notes, (b)
the execution, delivery and performance of the Acquisition Agreement and the
Loan Documents to which it is or will be a party and (c) the consummation of the
IRG Acquisition. Each Subsidiary has (or, when formed, will have) the corporate,
partnership or limited liability company power and authority, and the legal
right, to make, deliver and perform the Loan Documents to which it is or will be
a party and has (or, when formed, will have) taken all corporate, partnership or
limited liability company action, as the case may be, to authorize the
execution, delivery and performance of such Loan Documents. Except as set forth
on Schedule 3, no consent or authorization of, filing with or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the borrowings hereunder, the consummation of the IRG
Acquisition or with the execution, delivery, performance, validity or
enforceability of this Agreement, the Notes, the other Loan Documents or the
Acquisition Agreement except for any consent, authorization, filing or other act
the failure to obtain or make which could not reasonably be expected to have a
Material Adverse Effect. This Agreement and the Acquisition Agreement have been,
and each of the Notes and the other Loan Documents to which the Borrower or any
Subsidiary is or will be a party will be, duly executed and delivered by it.
This Agreement and the Acquisition Agreement constitute, and each of the Notes
and the other Loan Documents when executed and delivered will constitute, a
legal, valid and binding obligation of the Borrower and each Subsidiary (to the
extent the Borrower or such Subsidiary is a party thereto) enforceable against
it in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (whether enforcement is sought by
proceedings in equity or at law).
3.5 NO LEGAL BAR. The execution, delivery and performance of this
Agreement, the Notes, the other Loan Documents and the Acquisition Agreement,
the borrowings hereunder and the use of the proceeds thereof, and the
consummation of the IRG Acquisition will not violate any Requirement of Law or
Contractual Obligations of the Borrower or any Subsidiary which could reasonably
be expected to have a Material Adverse Effect and will not result in, or
require, the creation or imposition of any Lien on any of its properties or
revenues pursuant to any such Requirement of Law or Contractual Obligation,
except pursuant to the Loan Documents or
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except as otherwise permitted pursuant to Section 6.8, which Lien could
reasonably be expected to have a Material Adverse Effect.
3.6 NO MATERIAL LITIGATION. Except as set forth in Schedule 5, no
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Borrower,
threatened by or against the Borrower or any Subsidiary or against any of its or
their properties or revenues or by or against any "affiliated person" of the
Borrower or any Subsidiary, within the meaning of the Investment Company Act,
(a) on the Closing Date with respect to this Agreement, the Notes or the other
Loan Documents or the Acquisition Agreement or any of the transactions
contemplated hereby or thereby or (b) which could reasonably be expected to have
a Material Adverse Effect.
3.7 OWNERSHIP OF PROPERTY; LIENS; CONDITION OF PROPERTIES. (a) The
Borrower and each Subsidiary has (or, when formed, will have) good title in fee
simple to, a valid leasehold interest in or rights as a permittee or licensee
to, all of its real property, and good title to all of its other Property which
is material to its business, and to the best of the Borrower's current actual
knowledge, none of such Property is subject to any Lien except as permitted by
Section 6.8 or as set forth in the title endorsements and policies of title
insurance required to be delivered pursuant to Section 4.1.
(b) All of the Properties used or useful in the conduct of the
Borrower's business or the business of any Subsidiary are in good repair,
working order and condition (reasonable wear and tear excepted) and suitable
for use in the operation of its businesses currently conducted.
3.8 INTELLECTUAL PROPERTY. The Borrower and each Subsidiary owns, or is
licensed to use, all trademarks, trade names, patents and copyrights necessary
for the conduct of its business as currently conducted except for those the
failure to own or license which could not reasonably be expected to have a
Material Adverse Effect (the "INTELLECTUAL PROPERTY"). To the Borrower's
knowledge, no claim which could reasonably be expected to have a Material
Adverse Effect has been asserted and is pending by any Person challenging or
questioning the use of any such Intellectual Property or the validity or
effectiveness of any such Intellectual Property, nor does the Borrower or any
Subsidiary know of any valid basis for any such claim. To the Borrower's
knowledge, the use of such Intellectual Property by the Borrower and its
Subsidiaries, if any, does not infringe on the rights of any Person, nor, to the
Borrower's knowledge, does the use by other Persons of such Intellectual
Property infringe on the rights of the Borrower or any Subsidiary.
3.9 TAXES. Except as previously disclosed in writing to the Lender, the
Borrower and each Subsidiary has (or, when formed,
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will have) filed or caused to be filed all tax returns which are required to be
filed and has paid all taxes shown to be due and payable on said returns or on
any assessments made against it or any of its property and all other taxes, fees
or other charges imposed on it or any of its property by any Governmental
Authority (other than any not yet delinquent or the amount or validity of which
are currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower or such Subsidiary, as appropriate); and no tax Lien has
been filed, and no claim is being asserted with respect to any such tax, fee or
other charge which could reasonably be expected to have a Material Adverse
Effect.
3.10 FEDERAL REGULATIONS. No part of the proceeds of any Loans are
intended to be or will be used, directly or indirectly, for "purchasing" or
"carrying" any Margin Stock within the respective meanings of each of the quoted
terms under Regulation U or for any purpose which violates the provisions of the
Regulations of the Board of Governors of the Federal Reserve System. If
requested by the Lender, the Borrower will furnish to the Lender a statement to
the foregoing effect in conformity with the requirements of Form U-1 referred to
in Regulation U.
3.11 ERISA. No Reportable Event has occurred during the five-year
period prior to the date on which this representation is made with respect to
any Plan which has or would likely result in a Material Adverse Effect. Each
Plan has complied in all material respects with the applicable provisions of
ERISA and the Code. The present value of all accrued benefits under all Single
Employer Plans maintained by the Borrower, any Subsidiary, or any Commonly
Controlled Entity (based on those assumptions used to fund the Plans) did not,
as of the last annual valuation date prior to the date on which this
representation is made, exceed by an amount which could cause a Material Adverse
Effect the value of the assets of such Plans allocable to such accrued benefits.
Neither the Borrower, any Subsidiary, nor any Commonly Controlled Entity has had
a complete or partial withdrawal from any Multiemployer Plan which has or would
likely result in a Material Adverse Effect. The present value (determined using
actuarial and other assumptions which are reasonable in respect of the benefits
provided and the employees participating) of the liability of the Borrower, each
Subsidiary, if any, and each Commonly Controlled Entity for post retirement
benefits (excluding benefits required by Section 4980B of the Code) to be
provided to their current and former employees under plans which are welfare
benefit plans (as defined in Section 3(a) of ERISA) does not, in the aggregate,
exceed by an amount which could cause a Material Adverse Effect the assets under
all such plans allocable to such benefits.
3.12 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.
Neither the Borrower nor any Subsidiary is an "investment company", or a company
"controlled" by an "investment company",
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within the meaning of the Investment Company Act of 1940, as amended (the
"INVESTMENT COMPANY ACT"). Neither the Borrower nor any Subsidiary is a "holding
company," or an "affiliate" of a "holding company" or a "subsidiary company" of
a "holding company," within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
3.13 SUBSIDIARIES. As of the Closing Date, the Borrower has those
Subsidiaries listed on Schedule 8 hereto.
3.14 PURPOSE OF LOANS. The proceeds of the Loans are intended to be and
shall be used by the Borrower solely to refinance the Demand Note.
3.15 ENVIRONMENTAL MATTERS. (a) To the Borrower's knowledge after
reasonable inquiry, with respect to the Properties:
(i) Such Properties and all operations at such Properties are
in compliance in all material respects with all applicable Environmental Laws,
and there is no contamination at, under or about such Properties, or violation
of any Environmental Law with respect to such Properties or the business
conducted at such Properties which involves a matter or matters which has caused
or are reasonably likely to cause a Material Adverse Effect.
(ii) The Borrower has not received any notice of violation,
alleged violation, non-compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Laws with regard to any
of such Properties or the business conducted at such Properties which involves a
matter or matters which has caused or are reasonably likely to cause a Material
Adverse Effect, nor does the Borrower have knowledge or reason to believe that
any such notice will be received or is being threatened except insofar as such
notice or threatened notice, or any aggregation thereof, does not involve a
matter or matters that is or are reasonably likely to cause a Material Adverse
Effect.
(iii) No judicial proceedings or governmental or
administrative action is pending, or, to the knowledge of the Borrower,
threatened, under any Environmental Law to which the Borrower or any of its
Subsidiaries is named as a party with respect to such Properties or the business
conducted at such Properties which involves a matter or matters which has caused
or are reasonably likely to cause a Material Adverse Effect, nor are there any
consent decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding under any
Environmental Law with respect to such Properties or such business except
insofar as such proceeding, action, decree, order or other requirement, or any
aggregation thereof, is not reasonably likely to cause a Material Adverse
Effect.
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(b) To the Borrower's knowledge after reasonable inquiry, except to the
extent set forth in Schedule 6, with respect to the Properties acquired pursuant
to the IRG Acquisition:
(i) Neither the Seller nor the Borrower has generated, used,
transported, treated, stored, released or disposed of, or suffered or permitted
anyone else to generate, use, transport, treat, store, release or dispose of any
Hazardous Substance (as defined below) on or with respect to such Properties in
violation of any law.
(ii) There has not been any generation, use, transportation,
treatment, storage, release or disposal of any Hazardous Substance on or with
respect to such Properties which has created or might reasonably be expected to
create any liability under any law or which would require reporting to or
notification of any governmental entity.
(iii) No asbestos or polychlorinated biphenyl or underground
storage tank is contained in or located at such Properties.
(iv) Any Hazardous Substance handled or dealt with in any way
in connection with such Properties has been and is being handled or dealt with
in all respect in compliance with all applicable laws.
As used in this Section 3.16(b), "HAZARDOUS SUBSTANCE" means substances that are
defined or listed in, or otherwise classified pursuant to, any applicable laws
as "hazardous substances," "hazardous materials," "hazardous wastes" or "toxic
substances," or any other formulation intended to define, list or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity
or "EP toxicity," and petroleum and drilling fluids, produced waters and other
wastes associated with the exploration, development, or production of crude oil,
natural gas or geothermal energy.
3.16 ACCURACY AND COMPLETENESS OF INFORMATION. Unless otherwise
expressly indicated in writing to the Lender, the documents furnished and the
statements made in writing to the Lender by the Borrower in connection with the
negotiation, preparation or execution of this Agreement or any of the other Loan
Documents do not contain any untrue statement of fact material to the
creditworthiness of the Borrower or omit to state any such material fact
necessary in order to make the statements contained therein not misleading, in
either case which has not been corrected, supplemented or remedied by subsequent
documents furnished or statements made in writing to the Lender prior to the
date hereof. The projections and pro forma financial information contained in
such materials are based upon good faith estimates and assumptions believed by
the Borrower to be reasonable at the
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time made and as of the date of this Agreement, it being recognized that such
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may differ
from the projected results.
3.17 REAL PROPERTY ASSETS. Schedule 4 sets forth all real property
that, as of the Closing Date, is owned or leased by the Borrower and its
Subsidiaries, including all real property acquired in connection with the IRG
Acquisition.
3.18 PERMITS, ETC. Except as set forth on Schedule 3, the Borrower and
its Subsidiaries have (or, when formed, will have) all permits, licenses,
authorizations and approvals required for each of them lawfully to acquire, own,
lease, control, manage or operate their businesses as currently conducted,
except for such permits, licenses, authorizations or approvals required for the
lawful ownership, lease, control, management or operation of their businesses as
currently conducted, the failure to obtain or maintain which will not have a
Material Adverse Effect. Except as set forth on Schedule 5, no condition exists
or event has occurred which, in itself or with the giving of notice or lapse of
time or both, would result in the suspension, revocation, impairment, forfeiture
or non-renewal of any such permit, license, authorization or approval required
for the lawful ownership, lease, control, management or operation of their
businesses as currently conducted, and, there is no claim that any thereof is
not in full force and effect, except for such of the immediately preceding
matters which are not likely or reasonably likely to cause a Material Adverse
Effect. Except as set forth on Schedule 5 and for such of the immediately
preceding matters and such of the following matters which are not reasonably
likely to cause a Material Adverse Effect, there are (a) no judgments, decrees
or orders issued, or to the Borrower's knowledge, threatened, by the any court
or regulatory Person with respect to the Borrower or any Subsidiary, (b) no
complaints, petitions, filings or other proceedings pending, or to the
Borrower's knowledge, threatened, before the any court or regulatory Person with
respect to the Borrower or any Subsidiary and (c) no events that have occurred
that could reasonably be expected to result in the imposition of any financial
penalty by the any court or regulatory Person upon the Borrower or any
Subsidiary.
3.19 PATENTS, TRADEMARKS, ETC. Schedules A, B and C to the Security
Agreement accurately and completely lists all material patents, trademarks,
service marks, trade names and copyrights owned by or licensed to the Borrower
and its Subsidiaries on the Closing Date.
3.20 COPYRIGHT ACT REQUIREMENTS. The Borrower and its Subsidiaries have
(or, when formed, will have) recorded or deposited with and paid to the United
States Copyright Office, the Registrar of Copyrights, the Patent and Trademark
Office and/or
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any other licensors of copyrighted materials, all notices, statements of
account, royalty fees and other documents and instruments required under the
terms and conditions of any patent, trademark, service mark, trade name and
copyright used in the operation of their businesses as currently conducted and
are not liable to any Person for copyright infringement under any law, rule,
regulation, contract or license as a result of their business operations, all
except to the extent that noncompliance with the preceding requirements would
not, in the aggregate, be reasonably expected to have a Material Adverse Effect.
3.21 NATURE OF BUSINESS. Neither the Borrower nor any of its
Subsidiaries is (or, when formed, will be) engaged in any material business
other than the ownership and provision of clinical research and clinical design
management services for the evaluation and certification of new pharmaceutical
products.
3.22 CAPITAL STOCK OF BORROWER AND ITS SUBSIDIARIES. The Parent is the
direct owner of all of the issued and outstanding Capital Stock of the Borrower
as of the Closing Date. All Capital Stock of the Borrower and its Subsidiaries
has been duly authorized and validly issued and is fully paid and
non-assessable. As of the Closing Date (a) no Capital Stock of the Borrower or
its Subsidiaries carries any preemptive rights, (b) neither the Borrower nor any
Subsidiary is obligated to redeem or repurchase any of its Capital Stock, (c) no
agreement, arrangement, or plan exists, except as has been disclosed in writing
to the Lender, which could directly or indirectly affect the capital structure
of the Borrower or its Subsidiaries and (d) there are no outstanding options,
rights or warrants for the acquisition by any Person, directly or indirectly, of
shares of the Capital Stock of the Borrower or its Subsidiaries.
3.23 RANKING OF LOANS. This Agreement and the other Loan Documents to
which the Borrower is a party, when executed, and the Loans, when borrowed are
and will be the direct and general obligations of the Borrower. The Borrower's
obligations hereunder and thereunder rank and will rank at least PARI PASSU in
priority of payment to all other Indebtedness of the Borrower.
3.24 EXECUTIVE OFFICES. The location of the Borrower's executive office
and principal place of business as of the Closing Date is 5642 Hamilton Avenue,
Cincinnati, Ohio 45224.
3.25 INSOLVENCY. After giving effect to the funding of Loans on the
Closing Date, the application of the proceeds of such Loans as provided herein,
consummation of the IRG Acquisition, and the payment of all estimated legal,
underwriting, investment banking, accounting and other fees related hereto and
thereto, the Borrower and each other Loan Party will be Solvent as of and on the
Closing Date.
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3.26 LABOR MATTERS. As of the Closing Date, there are no strikes or
other labor disputes against the Borrower or any Subsidiary pending, or to the
Borrower's knowledge, threatened against it or any Subsidiary.
3.27 CONDEMNATION. To the Borrower's knowledge no taking of any of the
Properties or any part thereof through eminent domain, conveyance in lieu
thereof, condemnation or similar proceeding is pending or, to the knowledge of
the Borrower, threatened by any Governmental Authority which would reasonably be
expected to have a Material Adverse Effect.
3.28 LEASES, LICENSES, PERMITS, SITE USE AGREEMENTS AND OTHER OCCUPANCY
AGREEMENTS. To the Borrower's knowledge, (a) true and complete copies of all
material leases, licenses, permits, site use agreements and any other type of
occupancy permit to which the Borrower or any Subsidiary is (or, when formed,
will be) a party have been delivered to the Lender and are in full force and
effect with no material defaults existing thereunder which individually or in
the aggregate would have a Material Adverse Effect and (b) as of the Closing
Date, all leases, licenses, permits, site use agreements and any other type of
occupancy permit necessary or useful in the operation of IRG will be held by the
Borrower or its Subsidiaries, except to the extent the failure to do so would
not result in a Material Adverse Effect.
3.29 REPRESENTATIONS AND WARRANTIES IN ACQUISITION AGREEMENT. As of the
Closing Date, the Lender has received a complete and correct copy of the
Acquisition Agreement (including all exhibits, schedules and disclosure letters
referred to therein or delivered pursuant thereto, if any) and all amendments
thereto, waivers relating thereto and other side letters or agreements affecting
the terms thereof. As of the Closing Date, the Acquisition Agreement has been
duly executed and delivered by the Borrower and, to the best of the Borrower's
knowledge, the Seller. To the Borrower's actual knowledge, the Seller has not
defaulted with respect to, and there has not occurred any event which with the
giving of notice or lapse of time would constitute a default by such Seller with
respect to, its representations, warranties or covenants in the Acquisition
Agreement, which default would reasonably be expected to cause a Material
Adverse Effect. There is no default by the Borrower with respect to, nor has
there occurred any event which with the giving of notice or lapse of time would
constitute a default by the Borrower with respect to, its representations,
warranties or covenants in the Acquisition Agreement, which default would
reasonably be expected to cause a Material Adverse Effect.
SECTION 4. CONDITIONS PRECEDENT
4.1 CONDITIONS TO CLOSING DATE. The agreement of the Lender to make the
Loans requested to be made by it on the Closing Date to refinance the Demand
Note, is subject to the satisfaction,
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immediately prior to or concurrently with the making of the Loans on the Closing
Date (except as otherwise expressly provided hereunder), of the following
conditions precedent:
(a) CREDIT AGREEMENT. The Lender shall have received this Agreement,
executed and delivered by an officer of the Borrower as of the Closing Date.
(b) OTHER LOAN DOCUMENTS. The Lender shall have received the Notes, the
Mortgages, the Guarantees, the Security Agreement and the Environmental
Compliance Agreement, in each case executed and delivered by an officer of the
relevant Loan Party.
(c) LETTERS OF CREDIT. The Lender shall have received the Letters of
Credit, in each case executed and delivered by Banque Nationale de Paris
(Canada) and the Royal Bank of Canada, as applicable.
(d) INTERCREDITOR AGREEMENT. The Lender shall have received the
Intercreditor Agreement, dated as of February 5, 1998, executed and delivered by
officers of all of the relevant parties thereto.
(e) INCUMBENCY CERTIFICATE. The Lender shall have received an
incumbency certificate of the Borrower, and each other Loan Party, dated the
Closing Date, executed by one of its Responsible Officers or its Secretary or
Assistant Secretary.
(f) CORPORATE PROCEEDINGS. The Lender shall have received a copy of the
resolutions of the Board of Directors of the Borrower and each other Loan Party
authorizing (i) the Loan Documents referred to in Sections 4.1(a) and 4.1(b) and
to which it is or will be a party, (ii) the borrowings contemplated under
Section 4.1 and (iii) the Acquisition Agreement, in each case certified by the
Secretary or an Assistant Secretary of the Borrower and each other Loan Party as
of the Closing Date, which certificate states that the resolutions thereby
certified have not been amended, modified, revoked or rescinded and are in full
force and effect.
(g) ORGANIZATIONAL DOCUMENTS. The Lender shall have received copies of
the articles of incorporation and by-laws of the Borrower and each other Loan
Party, as of the Closing Date, certified as of the Closing Date as complete and
correct copies thereof by the Secretary or an Assistant Secretary of the
Borrower and each other Loan Party.
(h) COSTS. The Lender shall have received payment or evidence of
payment by the Borrower of all reasonable costs, expenses and taxes (including,
without limitation, those payable pursuant to Section 8.5) accrued and unpaid
and otherwise due and payable on or before the Closing Date by the Borrower
pursuant to this Agreement.
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(i) LEGAL OPINIONS. The Lender shall have received the following
executed legal opinions:
(i) the executed legal opinion of Pepper Hamilton LLP,
counsel to the Borrower and the other Loan Parties substantially in the
form of Exhibit D hereto; and
(ii) the executed legal opinion of Pillsbury Madison &
Sutro LLP, counsel to the Lender, in form and substance satisfactory to
the Lender; and
(iii) such other legal opinions as the Lender may
reasonably request.
(j) ACQUISITION AGREEMENT. The Lender shall have received copies of the
Acquisition Agreement in form and substance reasonably satisfactory to the
Lender, certified as true and correct and in full force and effect by the
Borrower.
(k) RECORDING. The Lender shall have received as of the Closing Date
evidence of the recording, or of the provision acceptable to the Lender for the
recording, of the Mortgages and any other documents reasonably necessary to be
recorded in such office or offices as may be necessary or, in the reasonable
opinion of the Lender, desirable to perfect each Lien purported to be created
thereby or to otherwise protect the rights of the Lender thereunder and evidence
of the filing, or of provision acceptable to the Lender for the filing, of
appropriate financing statements on Form UCC-1, or amendments to existing
financing statements on Form UCC-2 (as the Lender may deem appropriate), naming
the Lender as secured party, duly executed by the applicable Loan Party under
the Security Agreement, in such office or offices as may be necessary or, in the
reasonable opinion of the Lender, desirable to perfect the security interests
purported to be created by any of the Collateral Documents, including as a
result of the IRG Acquisition.
(l) LIEN SEARCHES. The Lender shall have received certified copies of
requests for information from all relevant jurisdictions, listing all effective
financing statements which name the Borrower or its Subsidiaries, as applicable,
as debtor, together with copies of such financing statements, none of which,
except for Liens permitted by Section 6.8 or Liens otherwise agreed to in
writing by the Lender, shall cover any of the Collateral.
(m) GOOD STANDING CERTIFICATES. The Lender shall have received
certificates, each dated a recent date, of the Secretaries of State of the State
of California and Ohio and the California Franchise Tax Board, respectively,
certifying as to the existence and good standing of, and the payment of taxes
by, the Borrower and each Subsidiary in such state and listing all charter
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documents of the Borrower and each Subsidiary on file with such officials.
(n) ACQUISITION. The IRG Acquisition shall have been consummated in
accordance with the Acquisition Agreement, and the Lender shall have received
(i) a certificate of the Borrower signed by a Responsible Officer of the
Borrower to the effect that the transactions contemplated by the Acquisition
Agreement have been consummated without amendment, waiver or modification of the
terms thereof, except for amendments, waivers or modifications the effect of
which could not reasonably be expected to have a Material Adverse Effect, or
amendments, waivers or modifications agreed to in writing by the Lender and (ii)
copies of the legal opinions of counsel to the Seller and the Borrower delivered
pursuant to the Acquisition Agreement.
(o) NO DEFAULT/REPRESENTATIONS. No Default shall have occurred and be
continuing on the Closing Date or would occur after giving effect to the making
of the Loans requested to be made on the Closing Date or after giving effect to
the IRG Acquisition and the representations and warranties contained in this
Agreement and each other Loan Document, and the representations and warranties
contained in each certificate or other writing delivered to the Lender in
satisfaction of the conditions set forth in this Section 4.1 prior to or on the
Closing Date, except to the extent such representations and warranties expressly
relate to an earlier date, shall be correct in all material respects on and as
of the Closing Date, and the Lender shall have received a certificate of the
Borrower to such effect in the form of Exhibit B, dated as of the Closing Date
and executed by a Responsible Officer of the Borrower.
(p) INSURANCE POLICIES. The Lender shall have received evidence that
the insurance policies provided for in Section 5.5 and in the other Loan
Documents (including but not limited to flood insurance) are in full force and
effect, certified by the insurance broker therefor, together with appropriate
evidence showing the Lender as an additional named insured or loss payee, as
appropriate, all in form and substance reasonably satisfactory to the Lender.
(q) OPERATIONAL CONSENTS. The Lender shall have received evidence, in
form and substance reasonably satisfactory to the Lender, that the Borrower and
its Subsidiaries have obtained all material consents and licenses, in each case
as required by law or necessary for the operation of the Borrower and its
Subsidiaries.
(r) TITLE POLICY AND ENDORSEMENTS. The Lender shall have received a
commitment for an ALTA Lender's policy of Title Insurance relating to the
Mortgages naming the Lender as the insured, in an amount, containing coverage
and otherwise in form and substance satisfactory to the Lender and subject only
to those exceptions permitted by the Lender and such other endorsements as
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the Lender shall reasonably request, in each case in form and substance
reasonably satisfactory to the Lender and subject only to those exceptions
permitted by the Lender.
(s) FLOOD PLAIN. The Borrower and its Subsidiaries shall have delivered
to the Lender, and the Lender shall have approved with respect to the Property
encumbered by the Mortgages, evidence whether such Property is located in an
area identified as a flood plain area as defined by the U.S. Department of
Housing and Urban Development pursuant to the Flood Disaster Protection Act of
1973.
(t) FINANCIAL STATEMENTS. The Lender shall have received the PRO FORMA
balance sheet referred to in Section 3.1(b).
(u) REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The following
statements shall be true and the Borrower's acceptance of the proceeds of such
Loan shall be deemed to be a representation and warranty of the Borrower on the
date of such Loan that:
(A) The representations and warranties contained in this
Agreement, each other Loan Document and each certificate or other
writing delivered to the Lenders in connection herewith are correct on
and as of such date in all material respects as though made on and as
of such date except to the extent that such representations and
warranties expressly relate to an earlier date; and
(B) No Default has occurred and is continuing or would
result from the making of the Loan to be made on such date.
(v) LEGALITY. The making of the Loan shall not contravene any law, rule
or regulation applicable to the Lender or the Borrower or any other Loan Party.
(w) BORROWING NOTICE. The Lender shall have received borrowing notices
pursuant to the provisions of this Agreement from the Borrower.
(x) ADDITIONAL PROCEEDINGS. The Lender shall have received such other
approvals, opinions and documents as it may reasonably request and all legal
matters incident to the making of the Loans shall be reasonably satisfactory to
the Lender.
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SECTION 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that from and after the Closing Date, so
long as any Note remains outstanding and unpaid or any other amount is owing to
the Lender hereunder:
5.1 FINANCIAL STATEMENTS. The Borrower shall furnish to the Lender:
(a) as soon as available, but in any event within 90 days after the end
of each fiscal year of the Borrower, a copy of the audited consolidated and
unaudited consolidating balance sheets of the Parent and its consolidated
Subsidiaries as at the end of such year and the related statements of operations
and retained earnings, stockholders' equity and of cash flows for such year,
setting forth in each case in comparative form the figures for the previous
year, reported on without a "going concern" or like qualification or exception,
or other qualification arising out of the scope of the audit, by the
Accountants; and
(b) as soon as available, but in any event not later than 60 days after
the end of each fiscal quarter of the Borrower, the unaudited consolidated and
consolidating balance sheets of the Parent and its consolidated Subsidiaries as
at the end of such quarter and the related unaudited statements of operations,
retained earnings, stockholders' equity and of cash flows for such quarter and
the portion of the fiscal year through the end of such quarter, setting forth in
each case in comparative form the figures for the previous year, certified by a
Responsible Officer of the Borrower as being fairly stated in all material
respects (subject to normal year-end audit adjustments);
all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with
generally accepted accounting principles in Canada applied consistently
throughout the periods reflected therein and with prior periods (except as
approved by the Accountants or Responsible Officer, as the case may be, and
disclosed therein).
5.2 CERTIFICATES; OTHER INFORMATION. The Borrower shall:
(a) furnish to the Lender concurrently with the delivery of the
financial statements referred to in Section 5.1(b) a certificate of a
Responsible Officer of the Borrower stating that, to the best of such Officer's
knowledge, the Borrower and its Subsidiaries during such period have observed or
performed in all material respects all of their agreements, and satisfied in all
material respects every condition, contained in this Agreement and the other
Loan Documents to which the Borrower or any Subsidiary is a party to be
observed, performed or satisfied by it, and that such Responsible Officer has
obtained no knowledge of any Default except as specified in such certificate;
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(b) furnish to the Lender within five Business Days after the same are
filed, copies of all financial statements and reports which the Borrower or any
Subsidiary may make to, or file with, the Securities and Exchange Commission or
any successor or analogous Governmental Authority;
(c) furnish to the Lender as soon as available and in any event not
later than August 31 of each fiscal year of the Borrower, a copy of the
projected monthly cash flow and the annual operating budget for the Borrower and
its Subsidiaries for the following fiscal year;
(d) furnish to the Lender as soon as possible and in any event within
five Business Days after a Responsible Officer has knowledge of the occurrence
of a Default or, in the good faith determination of a Responsible Officer of the
Borrower, a Material Adverse Effect, the written statement by a Responsible
Officer of the Borrower, setting forth the details of such Default or Material
Adverse Effect and the action which the Borrower proposes to take with respect
thereto;
(e) furnish to the Lender (i) as soon as possible and in any event
within five days after the Borrower knows or has reason to know that any
Termination Event with respect to any Plan has occurred, a statement of a
Responsible Officer of the Borrower describing such Termination Event and the
action, if any, which the Borrower proposes to take with respect thereto, (ii)
promptly and in any event within five Business Days after receipt thereof by the
Borrower, any Subsidiary or any of its or their ERISA Affiliates from the PBGC,
copies of each notice received by the Borrower, any Subsidiary or any of its or
their ERISA Affiliates of the PBGC's intention to terminate any Plan or to have
a trustee appointed to administer any Plan, (iii) promptly and in any event
within five Business Days after the filing thereof with the Internal Revenue
Service, copies of each Schedule B (Actuarial Information) to the annual report
(Form 5500 Series) with respect to each Single Employer Plan maintained for or
covering employees of the Borrower or any of its Subsidiaries if the present
value of the accrued benefits under the Plan exceeds its assets by an amount
which could cause a Material Adverse Effect and (iv) promptly and in any event
within five Business Days after receipt thereof by the Borrower, any Subsidiary
or any of its or their ERISA Affiliates from a sponsor of a Multiemployer Plan
or from the PBGC, a copy of each notice received by the Borrower, any Subsidiary
or any of its ERISA Affiliates concerning the imposition or amount of withdrawal
liability under Section 4202 of ERISA or indicating that such Multiemployer Plan
may enter reorganization status under Section 4241 of ERISA;
(f) furnish to the Lender promptly after the commencement thereof, but
in any event not later than five Business Days after service of process with
respect thereto on, or the obtaining of knowledge by, the Borrower, notice of
each action, suit or
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proceeding before any court or governmental authority or other regulatory body
or any arbitrator as to which there is a reasonable possibility of a
determination that would have a Material Adverse Effect;
(g) furnish to the Lender promptly such additional financial and other
information as the Lender may from time to time reasonably request.
5.3 PAYMENT OF OBLIGATIONS. The Borrower shall, and shall cause each of
its Subsidiaries to, pay, discharge or otherwise satisfy at or before maturity
or before they become delinquent, as the case may be, all its obligations of
whatever nature, except where the failure to so satisfy such obligations would
not have a Material Adverse Effect or except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower or such Subsidiary, as applicable.
5.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Subject to
Section 6.6 and except as otherwise permitted pursuant to Section 6.1, the
Borrower shall continue, and shall cause each Subsidiary to continue, to engage
in business of the same general type as conducted by the Borrower or such
Subsidiary as of the Closing Date or as of the date of the formation of such
Subsidiary, as applicable, and preserve, renew and keep in full force and effect
its corporate existence and take all reasonable action to maintain all rights,
registrations, licenses, privileges and franchises necessary or desirable in the
normal conduct of its business, (except to the extent that a failure to maintain
such rights, registrations, licenses, privileges and franchises would not have a
Material Adverse Effect) and comply with all Contractual Obligations and
Requirements of Law (except to the extent that failure to comply therewith would
not, in the aggregate, have a Material Adverse Effect).
5.5 MAINTENANCE OF PROPERTY; INSURANCE. (a) The Borrower shall, and
shall cause each of its Subsidiaries to, keep all property useful or necessary
in its business in good working order and condition (ordinary wear and tear
excepted); maintain with financially sound and reputable insurance companies or
associations insurance on such of its property in at least such amounts and
against such risks as are usually insured against in the same general area by
companies engaged in the same or a similar business; and furnish to the Lender,
upon written request, full information as to the insurance carried. All such
policies of insurance shall contain an endorsement, in form and substance
reasonably satisfactory to the Lender in its sole discretion, showing the Lender
as additional insured or loss payee, as appropriate, or as its interests appear.
Such endorsement, or an independent instrument furnished to the Lender, shall
provide that the insurance companies will give the Lender at least 30 days'
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prior written notice before any such policy or policies of insurance shall be
altered or canceled. All policies of insurance required to be maintained under
this Agreement shall be in customary form and with insurers recognized as
adequate by the Lender in its reasonable judgment and all such policies shall be
in such amounts as shall be customary for similar companies in the same or
similar business in the same geographical area. The Borrower shall deliver to
the Lender insurance certificates certified by the Borrower's insurance brokers,
as to the existence and effectiveness of each policy of insurance and evidence
of payment of all premiums then due and payable therefor. In addition, the
Borrower shall notify the Lender promptly of any occurrence causing a material
loss of any insured Property and the estimated (or actual, if available) amount
of such loss. Further, the Borrower shall maintain all insurance required under
the other Loan Documents.
(b) Each policy for liability insurance shall provide for all losses to
be paid on behalf of the Lender and the Borrower, as their respective interests
may appear, and each policy for property damage insurance shall, to the extent
applicable to equipment and inventory, provide for all losses to be paid
directly to the Lender.
(c) Reimbursement under any liability insurance maintained by the
Borrower or any Subsidiary pursuant to this Section 5.5 may be paid directly to
the Person who shall have incurred liability covered by such insurance. In the
case of any loss involving damage to equipment or inventory as to which Section
5.5(d) is not applicable, the Borrower will make or cause to be made the
necessary repairs to or replacements of such equipment or inventory, and any
proceeds of insurance maintained by the Borrower pursuant to this Section 5.5
shall be paid by the Lender to the Borrower, upon presentation of invoices and
other evidence of obligations, as reimbursement for the costs of such repairs or
replacements.
(d) Upon the actual or constructive total loss of any equipment or
inventory during the continuance of a Default, all insurance proceeds in respect
of such equipment or inventory shall be paid to the Lender and applied in
repayment of the Loans; provided that if no Event of Default or Default has
occurred and is continuing, such proceeds shall be paid to the Borrower to
repurchase replacements of such equipment or inventory.
5.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. The
Borrower shall, and shall cause each Subsidiary to, keep proper books of records
and account in which full, true and correct entries in conformity with GAAP and
all Requirements of Law shall be made of all material dealings and transactions
in relation to its business and activities; and upon reasonable notice and at
such reasonable times during usual business hours, permit representatives of the
Lender to visit and inspect any of
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its properties and examine and make abstracts from any of its books and records
at any reasonable time and as often as may reasonably be desired and to discuss
the business, operations, properties and financial and other condition of the
Borrower and its Subsidiaries with the Chief Financial Officer of the Borrower
and its Subsidiaries and with its Accountants (provided that the Borrower may,
if it so chooses, be present at or participate in any such discussion).
5.7 ENVIRONMENTAL LAWS. The Borrower shall, and shall cause each of its
Subsidiaries to:
(i) Comply with, and ensure compliance by all tenants and subtenants,
if any, with, all applicable Environmental Laws and obtain and comply in all
material respects with any and all licenses, approvals, notifications,
registrations or permits required by applicable Environmental Laws except to the
extent that failure to do so could not be reasonably expected to have a Material
Adverse Effect;
(ii) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws except to the extent that the same are being contested in good faith by
appropriate proceedings; and
(iii) Defend, indemnify and hold harmless the Lender, and its
employees, agents, officers and directors, from and against any and all claims,
demands, penalties, fines, liabilities, settlements, damages, costs and expenses
of whatever kind or nature known or unknown, contingent or otherwise, arising
out of, or in any way relating to the violation of, noncompliance with or
liability under any Environmental Laws applicable to the operations of the
Borrower, each Subsidiary or the Borrower's or such Subsidiary's interest in
Properties, or any orders, requirements or demands of Governmental Authorities
related thereto, including, without limitation, reasonable attorneys' and
consultants' fees, investigation and laboratory fees, response costs, court
costs and litigation expenses, except to the extent that any of the foregoing
arise out of the gross negligence or willful misconduct of the party seeking
indemnification therefor. This indemnity shall continue in full force and effect
and survive the termination of this Agreement and payment of the Notes.
5.8 USE OF PROCEEDS. The Borrower will use the proceeds of the Loans as
set forth in Section 3.14, and not for the purchasing or carrying of any Margin
Stock.
5.9 COMPLIANCE WITH LAWS, ETC. Except as set forth in Section 5.7
relating specifically to Environmental Laws, the Borrower shall comply in all
material respects with all applicable
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laws, rules, regulations and orders except where noncompliance would not
reasonably be expected to have a Material Adverse Effect, such compliance to
include, without limitation (a) paying before the same become delinquent all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or profits or upon any of its Properties and (b) paying all lawful
claims which if unpaid might become a Lien upon any of its Properties; PROVIDED,
HOWEVER, that the Borrower shall not be required to pay and discharge or to
cause to be paid and discharged any such tax, assessment, charge, levy or claim
so long as (i) the validity or applicability thereof is being contested in good
faith by appropriate proceedings or the failure to pay such tax, assessment,
charge, levy or claim would not have a Material Adverse Effect and (ii) the
Borrower shall, to the extent required by GAAP, have set aside on its books
adequate reserves with respect thereto.
5.10 LEASE AND LICENSE APPROVALS. Except as set forth in Section
5.12(b), the Borrower shall notify the Lender of any leases, licenses, permits
or other Occupancy Agreements relating to real property or real property
interests that the Borrower or any Subsidiary executes or obtains which provide
for the payment of rent or license fees in excess of $1,000,000 in any fiscal
year. The Lender may request that any lease, license or other similar agreement
become part of the Collateral and the Borrower shall provide or cause to be
provided any and all Collateral Documents or other documents to be executed in
connection therewith requested by the Lender and provide the Lender with title
insurance (to the extent applicable) as a condition to approval.
5.11 ACQUISITION OF REAL PROPERTY IN FEE SIMPLE. The Borrower shall
promptly notify the Lender of any documents relating to any fee simple real
property interest acquired by the Borrower or any Subsidiary. The Lender may
request that any such fee simple real property interest of which it receives
such notice shall become part of the Collateral. The Borrower shall provide or
cause to be provided any and all information relating to a real property
interest which the Borrower or any Subsidiary desires to acquire and for which
it is required to provide notice and, if such real property interest shall
become Collateral, the Borrower shall execute any and all Collateral Documents
and other documents to be executed in connection therewith requested by the
Lender and shall provide the Lender with title insurance as a condition to
approval.
5.12 LEASES AND LICENSES. Unless such failure is not reasonably likely
to cause a Material Adverse Effect, the Borrower shall, and shall cause each
Subsidiary to, perform and carry out all of the leases, licenses, permits and
any other occupancy agreements relating to real property or real property
interests (the "OCCUPANCY AGREEMENTS") to be performed by the Borrower or
any Subsidiary and shall appear in and defend any action in which
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the validity of any of the Occupancy Agreements relating to any real property or
real property interests is at issue and shall commence and maintain any action
or proceeding necessary to establish or maintain the validity of any of such
Occupancy Agreements and to enforce the provisions thereof. The Borrower shall
provide to the Lender true, correct and complete copies of any information
relating to any of the Occupancy Agreements as the Lender may reasonably request
in writing. Unless such amendment or termination is not likely to cause a
Material Adverse Effect, the Borrower shall not, and shall not permit any
Subsidiary to, amend in a materially adverse manner or terminate any of such
Material Occupancy Agreements, without the prior written consent of the Lender,
which consent shall not be unreasonably withheld or delayed. The Borrower shall
immediately give notice to the Lender of any default by it or any of its
Subsidiaries or, to the knowledge of the Borrower, by any other party to an
Occupancy Agreement, which causes or is reasonably likely to cause a Material
Adverse Effect. The Borrower shall not, and shall not permit any Subsidiary to,
execute any new Material Occupancy Agreements without giving prior or concurrent
notice to the Lender.
5.13 NOTICES. The Borrower will provide to the Lender, within five
Business Days following receipt by the Borrower, copies of all notices received
by the Borrower or any Subsidiary from the Internal Revenue Service or other
taxing authority relating to any dispute regarding deductions, audits or any
other material matter which, if adversely determined against the Borrower or
such Subsidiary, would have a Material Adverse Effect.
5.14 EMPLOYEE CONTRACTS. The Borrower shall give to the Lender prompt
notice of any material dispute arising out of, or material uncured default
occurring under, any employee contract of the Borrower or any Subsidiary if any
of such contracts shall be terminated or not renewed on substantially similar
terms.
SECTION 6. NEGATIVE COVENANTS
The Borrower hereby agrees that from and after the Closing Date, except
with the prior written consent of the Lender, and so long as any Note remains
outstanding and unpaid or any other amount is owing to the Lender hereunder:
6.1 LIMITATION ON FUNDAMENTAL CHANGES. The Borrower shall not, and
shall not permit any Subsidiary to, (a) amend its corporate charter or by-laws
in any way that would have a Material Adverse Effect, (b) permit (to the extent
within its control), vote to or for, or take any other action to commence or
acquiesce to any bankruptcy or similar proceeding, (c) enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution) except any merger, consolidation or
amalgamation between or among the Loan Parties; PROVIDED THAT such Loan Party
shall give the Lender
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thirty days' prior written notice thereof and shall comply with all reasonable
actions requested by the Lender to protect and maintain its security interests
and Liens granted pursuant to the Loan Documents or (d) except as permitted
hereby, convey, sell, lease, assign, transfer or otherwise dispose of, all or
substantially all of its property, business or assets other than in connection
with a consolidation of its operations, including without limitation a
discontinuation of operations in one or more locations so long as such
discontinuation does not affect a substantial portion of the Borrower's and its
Subsidiaries' business taken as a whole.
6.2 LIMITATION ON RESTRICTED PAYMENTS. The Borrower shall not declare
or pay any dividend in cash or in stock on, or make any payment on account of,
or set apart assets for a sinking or other analogous fund for, the purchase,
redemption, defeasance, retirement or other acquisition of, any shares of any
class of Capital Stock of the Borrower or any warrants or options to purchase
any such Capital Stock, whether now or hereafter outstanding (the foregoing
being "RESTRICTED PAYMENTS") other than (a) Restricted Payments in favor of a
Guarantor, and (b) other Restricted Payments in amounts not to exceed $1,000,000
in the aggregate in any twelve month period.
6.3 TRANSACTIONS WITH AFFILIATES. The Borrower shall not, and shall not
permit any Subsidiary to, enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of property or the rendering
of any service, with any Subsidiary (other than wholly-owned Subsidiaries or
wholly-owned Subsidiaries of the Parent) or any other Affiliate, unless such
transaction (a) is otherwise permitted under this Agreement or (b) is in the
ordinary course of the Borrower's or such Subsidiary's business and is upon
terms no less favorable to the Borrower or such Subsidiary, than it would obtain
in a comparable arm's length transaction with a Person not an Affiliate.
6.4 FISCAL YEAR. The Borrower shall not permit the fiscal year of the
Borrower or any Subsidiary to end on a day other than August 31, except a change
may be made to conform the fiscal year end to the Parent's fiscal year end.
6.5 UNFUNDED LIABILITIES. The Borrower shall not permit to exist, at
any time, unfunded liabilities which, in the aggregate, for any and all Plans
maintained for or covering employees of the Borrower or any of its Subsidiaries
are an amount which has resulted or would likely result in a Material Adverse
Effect.
6.6 LINE OF BUSINESS. Neither the Borrower nor any of its Subsidiaries
shall engage in any material business other than the provisions of clinical
research and clinical design management services for the evaluation and
certification of new pharmaceutical products or services related thereto.
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6.7 ASSET DISPOSITIONS. Unless the consideration therefor is all cash
and the Borrower makes a mandatory prepayment of Loans outstanding hereunder
with such consideration, Borrower shall not make or permit any Asset Disposition
other than (a) such dispositions in connection with the consolidation of its
business as permitted pursuant to Section 6.1 hereof, and (b) unless otherwise
consented to by the Lender (which consent shall not be unreasonably withheld or
delayed), Asset Dispositions with respect to assets having a fair market value,
when taken together with the fair market value of assets disposed of by the
Parent and its other Subsidiaries, equals less than five percent (5%) of the
total assets of the Parent and all of its Subsidiaries in any fiscal year.
6.8 LIMITATION ON LIENS. The Borrower shall not, and shall not permit
any Subsidiary to, create, incur, assume or suffer to exist any Lien upon any of
its Property, assets or revenues, whether now owned or hereafter acquired,
except for:
(a) Liens created hereunder or under any of the other Loan Documents;
(b) Liens for taxes not yet delinquent or which are being contested in
good faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Borrower or a Subsidiary, as
applicable, in conformity with GAAP;
(c) Liens created by operation of law not securing the payment of
Indebtedness from money borrowed or guaranteed, including carriers',
warehousemen's, mechanics', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business which are not overdue for a period of
more than 45 days or which are being contested in good faith by appropriate
proceedings;
(d) Pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposit
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(e) Deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(f) Easements, rights of way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, would not cause a Material Adverse Effect;
(g) Liens in existence on the Closing Date listed on Schedule 2,
provided that no such Lien is spread to cover any
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additional property after the Closing Date and that the amount of Indebtedness
secured thereby is not increased; and (h) Liens securing capital expenditures
incurred by the Parent and all of its Subsidiaries not to exceed an aggregate
amount of $15,000,000 in fiscal year 1998 and of $10,000,000 in fiscal year
1999.
6.9 LIMITATION ON LOANS AND ADVANCES. The Borrower shall not, and shall
not permit any Subsidiary to, make any advance, loan, extension of credit or
capital contribution to any Person, except (a) extensions of trade credit in the
ordinary course of business; (b) advances to employees of the Borrower and its
Subsidiaries for travel, entertainment and relocation expenses in the ordinary
course of business; (c) loans to Affiliates or Subsidiaries; or (d) as
contemplated by the Acquisition Agreement.
SECTION 7. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal on any Note when due
or the Borrower shall fail to pay interest or any other amount payable hereunder
within three days after such amount becomes due; or
(b) Any representation or warranty made by any Loan Party herein or in
any other Loan Document, or which is contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement or any other Loan Document shall prove to have been incorrect in
any material respect when made; or
(c) The Borrower shall default in the observance or performance of any
agreement contained in Section 5 or Section 6; or
(d) Any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or the other Loan Documents
(other than as provided in paragraphs (a) through (c) of this Section), and such
default shall continue unremedied for a period of twenty Business Days after the
earlier of (i) notice thereof from the Lender to the Borrower and (ii) actual
knowledge thereof by a senior officer of such Loan Party; or any provision of
any Loan Document shall at any time for any reason be declared null and void by
a court; or
(e) The validity or enforceability of any Loan Document shall at any
time be contested by any Loan Party in writing, or a proceeding shall be
commenced by any Loan Party or by any Governmental Authority or other Person
having jurisdiction over any Loan Party, seeking to establish the invalidity or
unenforceability thereof, or any Loan Party shall deny in writing
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that it has any liability or obligation purported to be created under any Loan
Document; or
(f) Any Guarantee or any Letter of Credit shall cease, for any reason
to be in full force and effect; or
(g) The Borrower or any Loan Party shall (i) default in any payment of
principal or interest, regardless of the amount, due in respect of any (A)
Indebtedness (other than the Notes), or (B) any Guarantee Obligation, if such
default is reasonably likely to cause a Material Adverse Effect or (ii) default
in the observance or performance of any other agreement or condition relating to
any such Indebtedness or Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, if the effect of such
default referred to in this clause (ii) is to cause, or to permit the holder
thereof to cause, such Indebtedness or Guarantee Obligation to become or be
declared due and payable prior to its stated maturity or the stated maturity of
any underlying obligation, as the case may be, and if the effect of such default
referred to in this clause (ii) is to cause a Material Adverse Effect; or
(h) (i) The Borrower or any other Loan Party shall commence any
voluntary case, proceeding or other action (A) under any existing or future law
of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Borrower or any
other Loan Party shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Borrower or any other
Loan Party any involuntary case, proceeding or other action of a nature referred
to in clause (i) above which (A) results in the entry of an order for relief or
any such adjudication or appointment and (B) remains undismissed, undischarged,
unstayed or unbonded for a period of 60 days; or (iii) there shall be commenced
against the Borrower or any other Loan Party any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been vacated,
discharged, stayed or bonded pending appeal within 60 days from the entry
thereof; or (iv) the Borrower or any other Loan Party shall take any action in
writing in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above;
or (v) the Borrower or any other Loan Party shall generally not, or shall be
unable to, or shall admit in writing its inability to,
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pay its debts as they become due or there shall be a general assignment for the
benefit of creditors; or
(i) (i) Any Person shall engage in any non-exempt "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan which would subject the Borrower or any Loan Party to any
tax, penalty, or other liabilities in the aggregate exceeding $1,000,000, (ii)
any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan, (iii) a Reportable
Event shall occur with respect to, or proceedings shall commence to have a
trustee appointed, or a trustee shall be appointed, to administer or to
terminate any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee would reasonably be expected to result
in the termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of ERISA (other
than a standard termination) or (v) the Borrower or any Commonly Controlled
Entity would reasonably be expected to incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan;
and in each case regarding clauses (ii) through (v) above, such event or
condition, together with all other such events or conditions, if any, would
reasonably be expected to cause a Material Adverse Effect; or
(j) One or more judgments or decrees shall be entered against the
Borrower or any other Loan Party that in the aggregate are reasonably likely to
have a Material Adverse Effect, and that portion of such judgements or decrees
the failure to vacate, discharge, stay or bond pending appeal would be
reasonably likely to have a Material Adverse Effect shall not have been vacated,
discharged, stayed or bonded pending appeal within sixty days from the entry
thereof or in any event five days before the date of any sale pursuant to such
judgment or decree or any non-monetary judgment or order shall be entered
against the Borrower or any other Loan Party that is reasonably likely to have a
Material Adverse Effect and either (i) enforcement proceedings shall have been
commenced by any Person upon such judgment which has not been stayed pending
appeal or (ii) there shall be any period of ten consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(k) The Parent shall cease to own directly or indirectly and
beneficially 100% of the Capital Stock and Voting Power of the Borrower; or the
Borrower shall cease to own 100% of the Capital Stock and Voting Power of IRG;
or
(l) There shall occur any default in the material observance or
material performance of the Inter-Lender Agreement or either Letter of Credit or
the Inter-Lender Agreement or either Letter or
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Credit shall terminate or otherwise no longer be in full force and effect; or
(m) Any material provision of any Loan Document, after delivery thereof
pursuant to the provisions hereof, shall, for any reason other than pursuant to
the terms thereof or an act or omission by the Lender, cease to be valid or
enforceable in accordance with its terms and such cessation shall have a
Material Adverse Effect, or any security interest created under any Loan
Document shall for any reason other than pursuant to the terms thereof or an act
or omission by the Lender, cease to be a valid and perfected first priority
(except for any Lien or security interests permitted under any of the Loan
Documents or which have priority by operation of law) security interest or Lien
(except as otherwise stated or permitted herein or therein) in any material
portion of the Collateral or the Property purported to be covered thereby;
then, and in any such event, (A) if such event is an Event of Default specified
in paragraph (h) above, automatically the Loans made to the Borrower hereunder
(with accrued interest thereon, including interest accrued after the filing of a
petition initiating any proceeding referred to in paragraph (h) above) and all
other Obligations shall immediately become due and payable, and (B) if such
event is any other Event of Default, the Lender may, by notice of default to the
Borrower, declare the Loans (with accrued interest thereon) and all other
Obligations under this Agreement and the Notes to be due and payable forthwith,
whereupon the same shall immediately become due and payable. In all cases the
Lender may enforce any or all of the Liens and security interests and other
rights and remedies created pursuant to any Loan Document or available at law or
in equity. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived by
the Borrower.
SECTION 8. MISCELLANEOUS
8.1 AMENDMENTS AND WAIVERS. Neither this Agreement, nor any Note, nor
any other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
Section. With the prior written consent of the Lender and the Borrower (and, in
the case of any Loan Document other than this Agreement, the relevant Loan
Party), the Borrower may (or such Loan Party, as the case may be), from time to
time, enter into written amendments, supplements or modifications hereto and to
the other Loan Documents for the purposes of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lender, the Borrower or any other Loan Party hereunder or thereunder or
waiving, on such terms and conditions as may be specified in such instrument,
any of the requirements of this Agreement or the Notes or the other Loan
Documents or any Default and its consequences. Any such
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waiver and any such amendment, supplement or modification shall apply equally to
the Lender and shall be binding upon the Borrower, the other Loan Parties, the
Lender and all future holders of the Notes. In the case of any waiver, the
Borrower, the other Loan Parties and the Lender, shall be restored to their
former position and rights hereunder and under the outstanding Notes and any
other Loan Documents, and any Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default,
or impair any right consequent thereon.
8.2 NOTICES. All notices, requests and demands or other communications
to or upon the respective parties hereto to be effective shall be in writing
(including by telecopy), and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made when delivered by hand, or 3 days
after being deposited in the United States mail, certified and postage prepaid
and return receipt requested, or, in the case of telecopy notice, when received,
in each case addressed to the parties at their addresses as set forth on the
signature pages hereof or to such other address as may be hereafter notified by
the respective parties hereto; PROVIDED that any notice, request or demand to or
upon the Lender pursuant to Section 2.1, 2.2, 2.3 or 2.4 or any notice to the
Borrower pursuant to Section 7 shall not be effective until received.
8.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay
in exercising, on the part of the Lender, any right, remedy, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
8.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement (but shall not be deemed to be restated unless
otherwise expressly provided for).
8.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees, whether or not
the transactions contemplated hereby are consummated, (a) to pay or reimburse
the Lender for all its reasonable costs and out-of-pocket expenses incurred in
connection with the preparation and execution of, and any amendment, supplement
or modification to, this Agreement and the Notes and the other Loan Documents
and any other documents prepared in connection herewith or therewith, and the
consummation and administration of the transactions contemplated hereby and
thereby (including the transactions to occur on the Closing Date),
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including, without limitation, the reasonable fees and disbursements of outside
counsel to the Lender and as to any amendment, supplement or modification to
this Agreement or any other Loan Document and the administration of the
transactions contemplated thereby, (b) after the occurrence and during the
continuance of a Default, to pay or reimburse the Lender, for all its reasonable
costs and out-of-pocket expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the other Loan Documents and
any such other documents or in connection with any refinancing or restructuring
of the credit arrangements provided under this Agreement in the nature of a
"work-out" or of any insolvency or bankruptcy proceeding, including, without
limitation, reasonable legal fees and disbursements of outside counsel to the
Lender, (c) to pay, and indemnify and hold harmless Lender from, any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other taxes (but not
including Excluded Taxes), if any, which may be payable or determined to be
payable in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the Notes, the other Loan Documents and any such other documents
and (d) to pay, and indemnify and hold harmless the Lender from and against, any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs (including, without limitation, the reasonable legal
fees and disbursements of outside counsel to the Lender), expenses or
disbursements of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Agreement, the
Notes, the other Loan Documents or the use of the proceeds of the Loans and any
such other documents (all the foregoing, collectively, the "indemnified
liabilities"), PROVIDED, that the Borrower shall have no obligation hereunder to
the Lender with respect to indemnified liabilities arising from the gross
negligence or willful misconduct of the Lender or its agents or
attorneys-in-fact. The agreements in this Section shall survive repayment of the
Notes and all other amounts payable hereunder.
8.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the Borrower, the Lender, all future holders of the
Notes and their respective successors and assigns, except that the Borrower may
not assign, transfer or delegate any of its rights or obligations under this
Agreement without the prior written consent of the Lender. The Lender may assign
or participate its interest hereunder, without cost or expense to the Borrower
or any Loan Party.
8.7 COUNTERPARTS. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
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8.8 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.9 INTEGRATION. This Agreement, together with the other Loan
Documents, represents the entire agreement of the Borrower and the Lender with
respect to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Lender relative to the subject matter
hereof not expressly set forth or referred to herein or in the other Loan
Documents.
8.10 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
CALIFORNIA (WITHOUT REFERENCE TO ITS CHOICE OF LAW RULES).
8.11 CLAIMS OR CONTROVERSIES SUBJECT TO JUDICIAL REFERENCE.
(a) SUBMISSION TO JUDICIAL REFERENCE. Any claim or controversy
alleged in or subject to a lawsuit between or among the parties to this
Agreement (collectively, the "Parties" and individually, a "Party") which
arises out of or relates to this Agreement, or any negotiations,
correspondence or communications, whether or not incorporated or integrated
into or relating to this Agreement, including but not limited to any claim or
controversy which arises out of or is based upon an alleged tort, shall, at
the written request of any Party, be determined by a reference in accordance
with California Code of Civil Procedure Sections 638 ET SEQ. In connection
with such reference, the Parties hereby expressly, intentionally and
deliberately waive any right they may otherwise have to trial by jury of such
claim or controversy.
(b) SELECTION OF REFEREE. Within 30 days after commencement by any
Party of any lawsuit subject to this Agreement, each Party shall provide the
other with a list of three potential referees acceptable to it. If the lists
have one or more referees in common, the person having the highest position
on each list shall be the referee hereunder. If such lists do not have a
common referee, the Parties shall select pursuant to the Commercial Rules of
the American Arbitration Association ("AAA") a single neutral referee and
submit by stipulation such referee to the court for an order of reference of
such claim or controversy. However, the referee selected must be a retired
state or federal court judge with at least five years of judicial experience
in civil matters. In the event that the Parties do not submit such
stipulation to the court within such 30 day period, any Party may move the
court pursuant to this Agreement for an order of reference of such claim or
controversy to a single neutral referee
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having such qualifications. The Parties shall equally bear the fees and expenses
of the referee unless the referee otherwise provides in the award.
(c) POWERS OF AND LIMITATIONS ON THE REFEREE. The Referee shall have
the powers provided by Title 9 of the California Code of Civil Procedure
Sections 1280 ET SEQ. (the "California Arbitration Act") and the Commercial
Rules of the AAA except as provided in this Agreement, including without
limitation the following:
(1) The referee shall determine all challenges to the legality
and/or enforceability of this Agreement.
(2) The referee shall apply the rules of evidence to the same extent
as they would be applied in a court of law.
(3) Subject to the provisions of this Agreement, the referee may
order any remedy or relief, including without limitation judicial
foreclosure, a deficiency judgment or equitable relief, and give effect to
all legal and equitable defenses, including without limitation statutes of
limitation, the statute of frauds, waiver and estoppel.
(4) The Parties shall have the right to conduct discovery with
respect to any dispute, controversy or issue arising out of or resulting from
this Agreement pursuant to the provisions of California Code of Civil
Procedure Section 1283.05, which provisions are incorporated herein by
reference and made a part hereof.
(5) The referee shall determine the time of the hearing. The hearing
shall take place in Los Angeles, California. The hearing must be commenced
within 60 days after completion of discovery, unless the referee grants a
continuance upon a showing of good cause by any Party. At least 14 days
before the date set for hearing, the Parties shall exchange copies of
exhibits to be offered as evidence, and lists of witnesses who will testify,
at such hearing. Once commenced, the hearing shall proceed day to day until
completed, unless the referee grants a continuance upon a showing of good
cause by any Party. Any Party may cause to be prepared, at its expense, a
written transcription or electronic recordation of such hearing.
(6) Any award by the referee shall be set forth in a statement of
decision supported by written findings of fact and conclusions of law which
the referee shall concurrently deliver to the Parties.
(7) The referee shall have the authority to award in the referee's
discretion reasonable attorneys' fees and costs to the prevailing party.
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(8) The provisions of California Civil Code Sections 47 ET SEQ.
shall apply to the judicial reference to the same extent as they would apply
to a judicial proceeding subject to such provisions.
(9) The laws of the State of California shall govern the judicial
reference pursuant to this Agreement.
(d) PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No provision of
this Section 9.12 shall limit the right of either Party (i) to exercise any
self-help remedies in accordance with applicable law or seek specific
performance, (ii) to foreclose upon or sell any Collateral, by power of sale
or otherwise in accordance with applicable law, or (iii) to obtain or oppose
provisional remedies or necessary procedural orders from a court of competent
jurisdiction, including without limitation appointment of a receiver, before,
after or during the pendency of the judicial reference. The exercise of, or
opposition to, any such remedy does not waive the right of any Party to
judicial reference pursuant to this Agreement.
(e) MISCELLANEOUS. Judgment upon the award of the referee shall be
final and binding (subject to vacation or correction in the amounts set
forth, respectively, in California Code of Civil Procedure Sections 1286.2,
1286.4, 1286.6 and 1286.8) and may be entered in any court of competent
jurisdiction in accordance with California Code of Civil Procedure Sections
644 and 645 and no party shall take any action to contest such award or
judgment except as set forth above. In the event that multiple claims are
asserted, some of which are found not subject to this Agreement, the Parties
agree to stay the proceedings of the claims not subject to this Agreement
until all other claims are resolved in accordance with this Agreement. In the
event that claims are asserted against multiple parties, some of whom are not
subject to this Agreement, the Parties agree to sever the claims subject to
this Agreement and resolve them in accordance with this Agreement.
8.12 ACKNOWLEDGEMENTS. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) the Lender has no fiduciary relationship to the Borrower solely by
virtue of any of the Loan Documents, and the relationship pursuant to the Loan
Documents between the Lender, on one hand, and the Borrower on the other hand,
is solely that of creditor and debtor; and
(c) no joint venture exists among the Lender and the Borrower.
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8.13 HEADINGS. Section headings herein are included for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.
8.14 CONFLICT OF TERMS. Except as otherwise provided in this Agreement
or any of the other Loan Documents by specific reference to the applicable
provisions of this Agreement, if any provision contained in this Agreement is in
conflict with, or inconsistent with, any provision in any of the other Loan
Documents, the provision contained in this Agreement shall govern and control.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Los Angeles, California by their proper and duly
authorized officers as of the day and year first above written.
PHOENIX INTERNATIONAL LIFE SCIENCES
(U.S.) INC.
By: /s/ Jean-Yves Caloz
------------------------------
Name: Jean-Yves Caloz
------------------------
Title: Secretary and Treasurer
------------------------
Address for Notices:
5642 Hamilton Avenue
Cincinnati, Ohio 45224
Attention: ______________________
Telephone: (___) ________________
Facsimile: (___) ________________
<PAGE>
BANQUE NATIONALE DE PARIS
Los Angeles Branch
By: /s/ Banque Nationale De Paris Signator
Name: _________________________
Title: ________________________
By: /s/ Banque Nationale De Paris Signator
Name: _________________________
Title: ________________________
Address for Notices:
Banque Nationale de Paris
725 So. Figueroa St., Suite 2090
Los Angeles, CA 90017
Attention: Deborah Y. Gohh
Telephone: (213) 688-6419
Facsimile: (213) 488-9602
Applicable Lending Office for
Reference Rate Loans:
725 So. Figueroa St., Suite 2090
Los Angeles, CA 90017
Applicable Lending Office for
LIBOR Loans:
725 So. Figueroa St., Suite 2090
Los Angeles, CA 90017
<PAGE>
Exhibit 10.22
CREDIT AGREEMENT
Bearing Formal Date of February 5, 1998
among
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
as Borrower
- and -
BANQUE NATIONALE DE PARIS (CANADA)
and
ROYAL BANK OF CANADA
as Lenders
<PAGE>
TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
Section 1.1 - Definitions ......................................... 1
Section 1.2 - Headings and Table of Contents ...................... 27
Section 1.3 - References .......................................... 27
Section 1.4 - Rules of Interpretation ............................. 27
Section 1.5 - Accounting Terms and Computations ................... 27
Section 1.6 - Time ................................................ 27
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 - Representations and Warranties of the Borrower ...... 28
2.1.1 Corporate Existence, Compliance with Law and
Constating Documents ............................... 28
2.1.2 Governmental Approvals .............................. 28
2.1.3 Chief Executive Offices, Inventory Locations ........ 28
2.1.4 Corporate Power; Authorization; No
Violation; Enforceable Obligations ................. 28
2.1.5 Approvals Required .................................. 29
2.1.6 No Litigation ....................................... 29
2.1.7 No Default .......................................... 30
2.1.8 Financial Statements, No Material Adverse
Change ............................................. 30
2.1.9 Liabilities ......................................... 31
2.1.10 Pro Forma Budget .................................... 31
2.1.11 Ownership of Property; Liens ....................... 31
2.1.12 Intellectual Property ............................... 32
2.1.13 Subsidiaries ........................................ 32
2.1.14 Burdensome Restrictions ............................. 32
2.1.15 Additional Adverse Facts ............................ 33
2.1.16 Labour Matters ...................................... 33
2.1.17 Taxes ............................................... 33
2.1.18 Canadian Benefit and Pension Plans .................. 33
2.1.19 ERISA ............................................... 34
2.1.20 Accuracy of Information ............................. 34
2.1.21 No Omissions ........................................ 35
2.1.22 Environmental Matters ............................... 35
2.1.23 Competition and Anti-trust Laws ..................... 36
2.1.24 Investment Company Act of 1940 of the United
States ............................................. 36
2.1.25 Full Disclosure ..................................... 37
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2.1.26 Solvency ............................................ 37
2.1.27 Insurance ........................................... 37
2.1.28 Millennium Compliance ............................... 37
2.1.29 Survival and Deemed Repetition ...................... 37
ARTICLE III
THE CREDIT FACILITY
Section 3.1 - Obligations of the Lenders .......................... 38
Section 3.2 - BNP Credit Facilities ............................... 38
3.2.1 BNP Acquisition Facility ............................ 38
3.2.2 BNP Revolver Back-Up Facility ....................... 39
3.2.3 BNP FEF Facility .................................... 39
Section 3.3 - Royal Credit Facilities ............................. 39
3.3.1 Royal Acquisition Facility .......................... 39
3.3.2 Royal Capex Facility and Extension of the
Royal Capex Facility ............................... 39
3.3.3 Royal Credit Line Facility .......................... 40
3.3.4 Royal FEF Facility .................................. 40
3.3.5 Royal Visa Facility ................................. 40
Section 3.4 - Purposes of the Credit Facilities ................... 40
3.4.1 BNP Acquisition Facility ............................ 40
3.4.2 BNP Revolver Back-Up Facility ....................... 41
3.4.3 BNP FEF Facility .................................... 41
3.4.4 Royal Acquisition Facility .......................... 41
3.4.5 Royal Capex Facility ................................ 41
3.4.6 Royal Credit Line Facility .......................... 41
3.4.7 Royal FEF Facility .................................. 41
3.4.8 Royal Visa Facility ................................. 41
Section 3.5 - Manner of Borrowing ................................. 41
3.5.1 By Way of Overdraft ................................. 42
3.5.2 Prime Rate Loans and US Base Rate Loans ............. 42
3.5.3 Libor Loans ......................................... 42
3.5.4 Bankers' Acceptances ................................ 42
3.5.5 Letters of Credit ................................... 42
3.5.6 FEF Contracts ....................................... 42
3.5.7 Credit Cards ........................................ 43
Section 3.6 - Mandatory Repayments and Reductions ................. 43
3.6.1 Repayment on the Maturity Date ...................... 43
3.6.2 Automatic Reduction of the BNP Acquisition
Facility and the Royal Acquisition Facility ........ 43
3.6.3 Proceeds from Sale of Assets ........................ 43
3.6.4 Proceeds from Sale or Issuance of Capital
Stock or Debt ...................................... 44
Section 3.7 - Voluntary Payments .................................. 44
Section 3.8 - Cancellation ........................................ 45
Section 3.9 - Conversion Option ................................... 45
Section 3.10 - Deposit of Proceeds of Loans and
Discounted Proceeds ................................ 46
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Section 3.11 - Currency Adjustment ................................ 47
Section 3.12 - Reliance on Oral Instructions ...................... 47
Section 3.13 - Request from Taxing Authority ...................... 47
ARTICLE IV
PAYMENT OF INTEREST AND FEES
Section 4.1 - Payment of Interest ................................ 48
4.1.1 Interest on Prime Rate Loans ....................... 48
4.1.2 Interest on US Base Rate Loans ..................... 48
4.1.3 Interest on Libor Loans ............................ 48
4.1.4 Interest on Fixed Rate Loan ........................ 49
Section 4.2 - Default Interest ................................... 49
Section 4.3 - Nominal Rates of Interest .......................... 50
Section 4.4 - Standby Fee in respect of the Royal Capex
Facility .......................................... 50
Section 4.5 - Acceptance Fee ..................................... 50
Section 4.6 - Letter of Credit Fees .............................. 50
Section 4.7 - Set Up Fees and Annual Review Fees ................. 51
ARTICLE V
CONDITIONS APPLICABLE TO LIBOR LOANS
Section 5.1 - Selection of Libor Interest Periods ................ 52
Section 5.2 - Alternate Basis of Borrowing ....................... 52
Section 5.3 - Illegality Relative to Libor Loans ................. 53
ARTICLE VI
CONDITIONS APPLICABLE TO LETTERS OF CREDIT
Section 6.1 - Initial Letters of Credit .......................... 53
Section 6.2 - Issue of Other Letters of Credit by Royal .......... 54
Section 6.3 - Restrictions on Letters of Credit .................. 54
Section 6.4 - Fees and Charges for Letters of Credit ............. 55
Section 6.5 - Interest on Amounts Paid ........................... 55
Section 6.6 - Indemnity .......................................... 55
Section 6.7 - Reimbursement Following Termination ................ 56
ARTICLE VII
CONDITIONS APPLICABLE TO BANKERS' ACCEPTANCES
Section 7.1 - Bankers' Acceptances ............................... 56
Section 7.2 - Conditions Applicable to Bankers'
Acceptances ....................................... 56
7.2.1 Notice and Documents ............................... 56
7.2.2 Procedures for the Issue of Bankers'
Acceptances ....................................... 57
7.2.3 Delivery of Bankers' Acceptances ................... 57
7.2.4 Execution of Bankers' Acceptances .................. 58
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7.2.5 Procedures relating to the Maturity and Face
Amount of all Bankers' Acceptances ................ 58
7.2.6 Acceptance Fee ..................................... 59
7.2.7 Alternate Basis of Borrowing ....................... 59
7.2.8 Waiver of Claim .................................... 60
7.2.9 Payment by Lender on Maturity ...................... 60
ARTICLE VIII
CONDITIONS APPLICABLE TO FEF CONTRACTS
Section 8.1 - FEF Contracts ...................................... 60
Section 8.2 - Interest on Amounts Payable under FEF Contracts .... 61
Section 8.3 - Documentation, Fees and Charges .................... 61
ARTICLE IX
PAYMENT, TAXES, INCREASED COSTS, EVIDENCE OF INDEBTEDNESS
AND TIMING OF MATURITIES
Section 9.1 - Place of Payment of Principal, Interest
and Charges ....................................... 62
Section 9.2 - Account Debit Authorization ........................ 62
Section 9.3 - Application of Payments ............................ 62
Section 9.4 - Manner of Payment and Taxes ........................ 62
Section 9.5 - Increased Costs .................................... 63
Section 9.6 - Payment of Portion ................................. 64
Section 9.7 - Commitment and Timing of Maturities ................ 64
Section 9.8 - Evidence of Indebtedness ........................... 65
ARTICLE X
SUBSIDIARY GUARANTEE AND COLLATERAL DOCUMENTS
Section 10.1 - Subsidiary Guarantees .............................. 66
10.1.1 Supporting Documents ............................... 66
10.1.2 No Prejudice to Other Documents .................... 66
Section 10.2 - Security ........................................... 66
Section 10.3 - Additional Collateral and Registration ............. 67
Section 10.4 - Conflict ........................................... 68
Section 10.5 - No Prejudice to Other Security ..................... 68
ARTICLE XI
CONDITIONS TO BE SATISFIED
Section 11.1 - Conditions to be Satisfied ......................... 68
11.1.1 Initial Conditions to Borrowings ................... 68
11.1.2 Conditions Precedent to each Borrowing ............. 71
Section 11.2 - Waiver of Conditions Precedent ..................... 71
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ARTICLE XII
COVENANTS OF THE BORROWER
Section 12.1 - Affirmative Covenants of the Borrower .............. 72
12.1.1 Payment Covenant ................................... 72
12.1.2 Corporate Existence ................................ 72
12.1.3 Conduct of Business ................................ 72
12.1.4 Compliance with Laws ............................... 72
12.1.5 Prompt Payment of Indebtedness ..................... 72
12.1.6 Insurance .......................................... 73
12.1.7 Contracts .......................................... 74
12.1.8 Financial Statements and Information ............... 75
12.1.9 Change in Auditors ................................. 76
12.1.10 Notice of Default and Other Events ................. 76
12.1.11 Notice of Breach of Permit ......................... 76
12.1.12 Notice of Litigation ............................... 77
12.1.13 Access ............................................. 77
12.1.14 Reliance ........................................... 77
12.1.15 Change of Name, New Locations ...................... 77
12.1.16 Maintenance of, and Additional, Security ........... 77
12.1.17 Liens on After-acquired Property ................... 78
12.1.18 Intellectual Property .............................. 78
12.1.19 Distributions from Subsidiaries .................... 79
12.1.20 Supplemental Disclosure ............................ 79
12.1.21 Canadian Benefit and Pension Plans ................. 79
12.1.22 ERISA Reporting .................................... 79
12.1.23 Environmental Matters .............................. 80
12.1.24 Environmental Permits .............................. 81
12.1.25 Environmental Information .......................... 81
12.1.26 Environmental Access ............................... 81
12.1.27 Saint-Laurent Property ............................. 81
12.1.28 Financial Ratios ................................... 81
12.1.29 Key Men ............................................ 82
Section 12.2 - Negative Covenants of the Borrower ................. 82
12.2.1 Negative Pledge .................................... 82
12.2.2 Sale of Assets ..................................... 83
12.2.3 Indebtedness, Guarantees, Loans .................... 83
12.2.4 Reorganization and Amalgamation .................... 83
12.2.5 No Change in Nature of Business .................... 84
12.2.6 Distributions ...................................... 84
12.2.7 Capital Expenditures ............................... 84
12.2.8 Financial Year ..................................... 84
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ARTICLE XIII
REIMBURSEMENT OF EXPENSES AND INDEMNITY
Section 13.1 - Reimbursement of Expenses .......................... 84
Section 13.2 - Indemnity .......................................... 85
Section 13.3 - Survival of Indemnification Obligations ............ 87
ARTICLE XIV
OTHER TAXES
Section 14.1 - Other Taxes ........................................ 87
Section 14.2 - Survival of Obligations ............................ 87
ARTICLE XV
EVENTS OF DEFAULT
Section 15.1 - Events of Default .................................. 87
15.1.1 Failure to Pay ..................................... 87
15.1.2 Breach of Financial Covenants ...................... 88
15.1.3 Other Breaches ..................................... 88
15.1.4 Bankruptcy ......................................... 88
15.1.5 Seizure ............................................ 89
15.1.6 Judgment ........................................... 89
15.1.7 Invalidity or Unenforceability ..................... 89
15.1.8 Cross-Default ...................................... 89
15.1.9 Phoenix (USA) Term Facility and IBRD
Revolving Facility ................................ 90
15.1.10 Ceasing to Carry on Business ....................... 90
15.1.11 Ownership of Subsidiaries .......................... 90
15.1.12 Representations and Warranties ..................... 90
15.1.13 Subsidiary Guarantees and Collateral
Documents ......................................... 90
15.1.14 Environmental Matter ............................... 90
15.1.15 Material Adverse Change and Detrimental
Legal Proceedings ................................. 90
Section 15.2 - Acceleration ....................................... 91
Section 15.3 - No Notices ......................................... 92
ARTICLE XVI
REMEDIES
Section 16.1 - Remedies Cumulative ................................ 92
ARTICLE XVII
WAIVER OF DEFAULT
Section 17.1 - Waiver of Default .................................. 93
ARTICLE XVIII
INTERLENDER AGREEMENTS
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Section 18.1 - Separate Credit Facilities ......................... 93
Section 18.2 - Event of Default ................................... 93
Section 18.3 - Intercreditor and Security Sharing
Agreement ......................................... 94
Section 18.4 - Disclaimer ......................................... 94
Section 18.5 - Acknowledgement of Lenders ......................... 94
Section 18.6 - Other Transactions ................................. 95
Section 18.7 - No Preference ...................................... 95
Section 18.8 - No Association among Lenders ....................... 95
Section 18.9 - Amendment of this Article XVIII .................... 95
ARTICLE XIX
SUCCESSORS AND ASSIGNS
Section 19.1 - Benefit and Burden of this Agreement ............... 95
Section 19.2 - The Borrower ....................................... 95
Section 19.3 - The Lenders ........................................ 96
Section 19.4 - Disclosure ......................................... 96
Section 19.5 - Further Documents .................................. 96
Section 19.6 - Expenses ........................................... 96
ARTICLE XX
COMPENSATION
Section 20.1 - Set-off, Compensation .............................. 97
ARTICLE XXI
JUDGMENT CURRENCY
Section 21.1 - Judgment Currency .................................. 97
ARTICLE XXII
GOVERNING LAW
Section 22.1 - Governing Law ...................................... 98
ARTICLE XXIII
NOTICE
Section 23.1 - Address for Notice ................................. 98
Section 23.2 - Notice ............................................. 98
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ARTICLE XXIV
MISCELLANEOUS
Section 24.1 - Severability ....................................... 99
Section 24.2 - Interest Limitation ................................ 99
Section 24.3 - Survival of Representations and
Undertakings ...................................... 99
Section 24.4 - Whole Agreement .................................... 99
Section 24.5 - Amendments ......................................... 99
Section 24.6 - Counterparts ....................................... 100
Section 24.7 - Further Assurances ................................. 100
Section 24.8 - Risks of Force Majeure ............................. 100
Section 24.9 - Good Faith and Fair Consideration .................. 100
Section 24.10 - Term of Agreement .................................. 100
Section 24.11 - Formal Date ........................................ 100
Section 24.12 - Language ........................................... 101
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LIST OF SCHEDULES
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SCHEDULE "A" - BORROWING BASE REPORT
(Sections 1.1, 3.3.3, 12.1.8)
SCHEDULE "B" - IBRD REVOLVING FACILITY
(Sections 1.1 and 2.1.9)
SCHEDULE "C" - PERMITTED LIENS
(Sections 1.1, 2.1.11 and 12.2.1)
SCHEDULE "D" - PHOENIX (USA) TERM FACILITY
(Sections 1.1 and 2.1.9)
SCHEDULE "E" - REAL PROPERTY
(Sections 1.1, 2.1.11 and 12.1.17)
SCHEDULE "F" - SUBSIDIARY GUARANTEE
(Sections 1.1 and 10.1)
SCHEDULE "G" - PLACES OF BUSINESS (AND RECORDS)
(Section 2.1.3)
SCHEDULE "H" - LITIGATION
(Section 2.1.6)
SCHEDULE "I" - LOCATIONS OF ACCOUNT DEBTORS
(Sections 2.1.11(f) and 12.1.16(b))
SCHEDULE "J" - INTELLECTUAL PROPERTY
(Section 2.1.12)
SCHEDULE "K" - LIST OF SUBSIDIARIES AND CAPITAL STOCK HELD
(Section 2.1.13)
SCHEDULE "L" - LABOUR MATTERS
(Section 2.1.16)
SCHEDULE "M" - ENVIRONMENTAL MATTERS
(Section 2.1.22)
SCHEDULE "N" - NOTICE OF BORROWING
(ADVANCE, CONVERSION OR CONTINUATION)
(Sections 3.5, 3.9, 5.1 and 7.2.5(a))
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SCHEDULE "O" - NOTICE OF BORROWING BY WAY
OF LETTER OF CREDIT
(Sections 3.5.5 and 6.1)
SCHEDULE "P" - NOTICE OF REPAYMENT OR PREPAYMENT
(Section 3.7)
SCHEDULE "Q" - BNP LETTER OF GUARANTEE OF US$11,440,000
SCHEDULE "R" - ROYAL LETTER OF CREDIT OF US$14,000,000
SCHEDULE "S" - CERTIFICATE OF COMPLIANCE
(Sections 11.1.1.5 and 12.1.8(e))
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THIS AGREEMENT bearing Formal Date of February 5, 1998 is made
AMONG PHOENIX INTERNATIONAL LIFE SCIENCES INC., a corporation
incorporated under the laws of Canada, having its registered
office at Ville Saint-Laurent, Province of Quebec, Canada (the
"BORROWER"),
AND BANQUE NATIONALE DE PARIS (CANADA), a Canadian chartered bank,
having its head office in the City of Montreal, Province of
Quebec, Canada ("BNP" or, sometimes, a "LENDER"),
AND ROYAL BANK OF CANADA, a Canadian chartered bank, having its head
office in the City of Montreal, Province of Quebec, Canada
("ROYAL" or, sometimes, a "Lender"),
(BNP and Royal, as well as their respective successors and
assigns, being herein collectively called the "LENDERS").
WHEREAS the Borrower has requested the Lenders, acting separately and not
solidarily, to provide it with Credit Facilities to, INTER ALIA, finance in part
the acquisition by a Wholly-Owned Subsidiary of the Borrower of the shares of
the Capital Stock of IBRD-Rostrum Global Inc. based in California, USA; and
WHEREAS the Lenders have agreed to provide their respective Commitments to the
Borrower, subject to the terms and conditions of this Agreement;
THEREFORE, in consideration of the premises, the mutual covenants contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 - DEFINITIONS
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In this Agreement and the Schedules, as well as in all notices pursuant to this
Agreement, unless something in the subject matter or context is inconsistent
therewith, the following words and phrases shall have the following meanings:
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"ACCEPTANCE FEE" means the fee payable at the time of the acceptance of Bankers'
Acceptances established by multiplying the face amount of such Bankers'
Acceptances by:
(A) the applicable Margin, in the case of BNP, and
(B) the Prime Acceptance Fee increased by the applicable Margin, in the case
of Royal,
and by multiplying the product so obtained by a fraction having a numerator
equal to the number of days in the term of such Bankers' Acceptances and a
denominator of 365;
"ACCOUNT FOR PAYMENTS" means, as applicable,
(i) BNP's Account for Payments for all payments to BNP, or
(ii) Royal's Account for Payments for all payments to Royal;
"ACQUISITION TRANSACTION" means the acquisition by Phoenix (USA), of the
outstanding Capital Stock of IBRD;
"ACT OF BANKRUPTCY" shall have the meaning set forth in Section 15.1.4;
"ADDITIONAL COMPENSATION" shall have the meaning set forth in Section 9.5;
"ADVANCE" means the disbursement of funds by or on behalf of a Lender or for the
account of the Borrower pursuant to Section 3.5;
"AFFECTED LENDER" shall have the meaning set forth in Sections 5.2 and 5.3;
"AFFECTED BORROWING" shall have the meaning set forth in Sections 5.2, 5.3 and
9.6;
"AFFILIATE" means with respect to any Person, any other Person which, directly
or indirectly, controls or is controlled by, or is under common control with,
such Person, and for the purposes of this definition, "CONTROL" (including, with
correlative meanings, the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH")
means the power to direct or cause the direction of the management and policies
of any Person, whether through the ownership of shares or by contract or
otherwise; and without restricting the above, one Person shall be deemed to be
affiliated with another Person if one of them is the Subsidiary of the other or
both are Subsidiaries of the same Person, and if two Persons are affiliated with
the same Person at the same time, they are each deemed to be affiliated with
each other;
"AGREEMENT" or "CREDIT AGREEMENT" means this agreement, including the Schedules,
as the same may be amended, modified, supplemented or restated from time to
time;
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"ANNUAL BUDGET" means the annual twelve month Consolidated and unconsolidated
operations budget and business plan for the Borrower and its Subsidiaries as
approved by the Board of Directors of the Borrower, which budget and business
plan (i) shall be presented by division or operating unit (each operating unit
to be reported separately and on a Consolidated basis) and shall include
Consolidated and unconsolidated income statements, monthly cash flow statements,
balance sheets and the underlying principal assumptions, (ii) shall contain
evidence of compliance with all financial covenants and ratios set out in this
Agreement and (iii) shall be accompanied by pro forma Consolidated and
unconsolidated financial statements of the Borrower and each of its
Subsidiaries;
"APPLICABLE LAW" means, in respect of any person, property, transaction or
event, all present or future applicable laws, statutes, regulations, treaties,
judgements and decrees and (whether or not having the force of law) all
applicable official directives, rules, guidelines, orders, approvals and
policies of any governmental, regional, municipal or local bodies (including,
without limitation, the U.S. Food and Drug Administration) having authority over
any of the Credit Parties and all applicable orders and decrees of courts and
arbitrators;
"ASSIGNEE" shall have the meaning set forth in Section 19.3;
"ASSIGNING LENDER" shall have the meaning set forth in Section 19.3;
"AUDITORS" means (i) the present auditors (and any successor firms) of the
Borrower, or (ii) an independent firm or independent firms of chartered
accountants selected among the six largest firms of chartered accountants
nationally recognized in Canada and duly appointed as auditors of the Borrower,
or (iii) another independent firm or other independent firms of chartered
accountants duly appointed as auditors of the Borrower and acceptable to the
Lenders;
"BANKERS' ACCEPTANCE" means a non-interest bearing bill of exchange on a
Lender's usual form, denominated in Canadian Dollars, drawn and endorsed by the
Borrower and accepted by such Lender at its Branch of Account pursuant to this
Agreement;
"BANKING DAY" means a Business Day on which dealings in US Dollar deposits may
be carried on by and between banks in the London interbank eurodollar market;
"BNP" means Banque Nationale de Paris (Canada), a signatory to this Agreement,
and its successors and assigns;
"BNP (LOS ANGELES)" means Banque Nationale de Paris, acting through its branch
or office located at Suite 2090, 725 South Figueroa Street, Los Angeles,
California, USA, or through any other of its branches or offices as to which it
may notify the Lenders from time to time, and its successors and assigns;
"BNP'S ACCOUNT FOR PAYMENTS" means the place or account as to which BNP may
notify the Borrower from time to time;
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"BNP ACQUISITION FACILITY" means the non-revolving term credit facility of up to
US$14,000,000 or the Equivalent Amount in Canadian Dollars which, subject to the
terms and conditions of this Agreement, BNP has, on the Formal Date, made
available to the Borrower until the Maturity Date to finance or support the
financing of approximately 50% of the cost of the Acquisition Transaction by way
of a Letter of Credit (in the form set forth in SCHEDULE "Q") issued in favour
of BNP (Los Angeles) to cover a portion of the Phoenix (USA) Term Facility and
by way of a direct Advance available or convertible as a Prime Rate Loan, US
Base Rate Loan, Libor Loan, Bankers' Acceptances or Fixed Rate Loan, or any
combination thereof, to the extent not cancelled, reduced or terminated pursuant
to this Agreement;
"BNP CREDIT FACILITIES" means the BNP Acquisition Facility, the BNP FEF Facility
and the BNP Revolver Back-Up Facility which BNP is hereby making available to
the Borrower, and "BNP CREDIT FACILITY" means any one of the BNP Credit
Facilities, as applicable;
"BNP FEF FACILITY" means the credit facility of up to Cdn$10,000,000 which,
subject to the terms and conditions of this Agreement, BNP is hereby making
available to the Borrower until the Maturity Date by way of FEF Contracts Risk
Amount, as well as a Cdn$5,000,000 delivery risk in respect of FEF Contracts, to
the extent not cancelled, reduced or terminated pursuant to this Agreement;
"BNP REVOLVER BACK-UP FACILITY" means the credit facility of up to US$7,000,000
which, subject to the terms and conditions of this Agreement, BNP is hereby
making available to the Borrower until the Maturity Date by way of a Letter of
Credit to be issued in favour of BNP (Los Angeles) to cover the IBRD Revolving
Facility, to the extent not cancelled, reduced or terminated pursuant to this
Agreement;
"BORROWER" means Phoenix International Life Sciences Inc., a signatory to this
Agreement, and its successors and permitted assigns;
"BORROWER'S ACCOUNT" means:
(A) with respect to dealings with BNP, a Canadian Dollar account and a US
Dollar account of the Borrower maintained with BNP at BNP's Branch of
Account, and
(B) with respect to dealings with Royal, a Canadian Dollar account and a US
Dollar account of the Borrower maintained with Royal at Royal's Branch
of Account;
"BORROWING" means a utilization and "BORROWINGS" means the aggregate of the
utilizations at the relevant time by the Borrower of a Credit Facility by way of
either Loans, Bankers' Acceptances, FEF Contracts, Letters of Credit or usages
of credit cards expense account, to the extent available under such Credit
Facility; the total amount of "Borrowings" outstanding at any time under a
Credit Facility is the total amount of all Loans outstanding at that time under
such Credit Facility, plus the total face amount of all Bankers' Acceptances
outstanding at that time under such Credit Facility, plus the total of the FEF
Contracts Risk Amount outstanding at that time under such Credit Facility, plus
the total amount of all Letters of Credit outstanding at that
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time under such Credit Facility, plus the total amount owing at that time under
the credit card expense account under such Credit Facility;
"BORROWING BASE" means, with respect to Borrowings under the Royal Credit Line
Facility as of any date of determination thereof and as set forth in the most
recent Borrowing Base Report delivered pursuant to Section 12.1.8, the sum
(calculated in Canadian Dollars and using the Equivalent Amount thereof in
Canadian Dollars for amounts in other currencies) of:
(a) 75% of Eligible Receivables of the Borrower which are subject to the
Liens of the Collateral Documents,
PLUS
(b) 50% of the excess (which amount shall not be negative) of (I) the costs
and estimated profit in excess of progress billings on contracts in
progress OVER (II) progress billings in excess of costs and estimated
profit on contracts in progress, the whole determined by using the
percentage of completion method,
PLUS
(c) 75% of federal and provincial tax credits of the Borrower filed and
payable under the ITA and corresponding provincial tax legislation for
scientific research and development expense, LESS the portion of those
tax credits that cannot be taken into account in calculating the
provisional amount to be paid as tax on capital and income tax,
PLUS
(d) 50% of federal and provincial tax credits of the Borrower accrued and
payable under the ITA and corresponding provincial tax legislation for
scientific research and development expense, LESS the portion of those
tax credits that cannot be taken into account in calculating the
provisional amount to be paid as tax on capital and income tax,
LESS
(e) all Preferred Claims;
"BORROWING BASE REPORT" means a report of the Borrower substantially in the form
set forth in SCHEDULE "A" delivered from time to time to Royal in accordance
with Section 12.1.8(f);
"BRANCH OF ACCOUNT" means with respect to each Lender, the branch or office of
such Lender at the address set out opposite such Lender's name on the signature
pages hereto or such other branch or office of such Lender as may be advised in
writing from time to time to the Borrower by such Lender;
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"BUSINESS DAY" means a day on which the Lenders are open for money market
dealings in Montreal, Province of Quebec and Toronto, Province of Ontario,
excluding Saturday, Sunday and any other day which is in any such cities a legal
holiday or a day on which banking institutions are required by law or by local
proclamation to close, and in respect of a Libor Loan, means a day which is also
a Banking Day;
"CANADIAN BENEFIT PLANS" means all material employee benefit plans maintained or
contributed to by a Credit Party that are not pension plans accepted for
registration under the ITA or under other applicable pension benefits or tax
laws of Canada or a province or territory thereof including, without limitation,
all profit sharing, savings, supplemental retirement, retiring allowance,
severance, deferred compensation, welfare, bonus, supplementary unemployment
benefit plans or arrangements and all life, health, dental and disability plans
and arrangements in which the employees or former employees of any of the Credit
Parties employed in Canada participate or are eligible to participate but
excluding all stock option or stock purchase plans;
"CANADIAN DOLLAR", "CANADIAN DOLLARS" and the symbols "CDN$" and "$" each means
lawful money of Canada;
"CANADIAN PENSION PLAN" means any plan, program, arrangement or understanding
that is a pension plan for the purposes of any applicable pension benefits or
tax laws of Canada or a province or territory thereof (whether or not registered
under any such laws) which is maintained, administered or contributed to by (or
to which there is or may be an obligation to contribute by) a Credit Party in
respect to any person's employment in Canada or a province or territory thereof
with the Credit Party, all related funding agreements and all related
agreements, arrangements and understandings in respect of, or related to, any
benefits to be provided thereunder or the effect thereof on any other
compensation or remuneration of any employee;
"CAPITAL EXPENDITURES" means, as to any Person, the aggregate of (a)
expenditures made by such Person in respect of the purchase or other acquisition
of fixed assets by such Person having a useful life of greater than one year,
including, for greater certainty, Capital Lease Obligations of such Person
(excluding, to the extent otherwise included herein, interest capitalized during
such period in accordance with GAAP) which would, in accordance with GAAP, be
set forth as capital expenditures on a consolidated statement of cash flows of
such Person and (b) all investments made by such Person, other than investments
which are paid for by way of the issuance of Capital Stock of such Person;
"CAPITAL LEASE" means, with respect to a Person, any lease or other arrangement
relating to property or assets which would be required to be accounted for as a
capital lease obligation on a balance sheet of such Person if such balance sheet
were prepared in accordance with GAAP;
"CAPITAL LEASE OBLIGATIONS" means, with respect to a Person, the amount of the
obligation of such Person under a Capital Lease that, in accordance with GAAP,
would appear on a balance sheet of such Person in respect of such Capital Lease
or otherwise be disclosed in a note to such balance sheet, but excluding
leasehold inducements and deferred credits;
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"CAPITAL STOCK" means any and all shares or other equivalents (however
designated) of capital stock of a corporation, any and all equivalent ownership
interests in a Person (other than a corporation) and any and all warrants or
options or other arrangements to purchase any of the foregoing;
"CDOR RATE" means, on any day, the annual rate which is the arithmetic average
(rounded upwards, if necessary, to the nearest 0.01%) of the "BA 1 month" rates
applicable to Canadian Dollar bankers' acceptances displayed and identified as
such on the "Reuters Screen CDOR Page" (as defined in the International Swap and
Derivatives Association, Inc. definitions, as modified and amended from time to
time) as at approximately 10:00 a.m. on such day, or if such day is not a
Business Day then on the immediately preceding Business Day (as adjusted after
10:00 a.m. to reflect any error in a posted rate of interest or in the posted
average annual rate of interest); PROVIDED, however, if such rates do not appear
on the Reuters Screen CDOR Page as contemplated, then the CDOR Rate on any day
shall be the 30-day discount rate applicable to Canadian Dollar bankers'
acceptances quoted by the relevant Lender as of approximately 10:00 a.m. on such
day, or if such day is not a Business Day, then on the immediately preceding
Business Day;
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 of the United States, as amended from time to time;
"CERCLIS" means the Comprehensive Environmental Response, Compensation and
Liability Information System maintained by the US Environmental Protection
Agency;
"COLLATERAL" means the assets, property and undertaking upon which a Lien is
purported to be created by any Collateral Document, and any agreement,
instrument, document, financing statement, financing change statement, warehouse
receipt, bill of lading, notice of assignment of accounts receivable, schedule
of accounts receivable assigned and other written matter necessary or requested
by any of the Lenders to perfect and maintain perfected the Lenders' Lien on the
Collateral for the benefit of the Lenders;
"COLLATERAL DOCUMENTS" means the security and related documentation to be
granted to or for the benefit of the Lenders as described in Article IX and any
other security or collateral documents from time to time entered into as
provided in this Agreement by any of the Credit Parties in favour or for the
benefit of the Lenders or either of them;
"COMMITMENT" means:
(a) with respect to BNP, the obligation of BNP to make available to the
Borrower the BNP Credit Facilities or any of them, and
(b) with respect to Royal, the obligation of Royal to make available to the
Borrower the Royal Credit Facilities or any of them,
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the whole subject to the terms and conditions of this Agreement, and when
"COMMITMENT" is used without specification as to whether it is with respect to a
particular Credit Facility, then "COMMITMENT" shall refer to any of the
Commitments with respect to any of the BNP Credit Facilities or the Royal Credit
Facilities, as appropriate, and "COMMITMENTS" of a Lender refers to all
Commitments of such Lender collectively;
"COMPUTER EQUIPMENT" means the computer equipment and embedded systems currently
owned or used by the Borrower and any of its Subsidiaries, including, without
limitation, all ancillary and communication equipment connected to it;
"COMPUTER SOFTWARE" means all computer software owned or used by the Borrower or
any of its Subsidiaries including, without limitation, all operating systems
software comprised in the Computer Equipment and all applications software and
all other software owned or used by the Borrower or any of its Subsidiaries or
which the Borrower or any of its Subsidiaries is entitled to have or to use by
virtue of its interest in the Computer Equipment or in software owned or used by
it;
"COMPUTER SYSTEMS" means the Computer Equipment and the Computer Software,
collectively;
"CONSOLIDATED" means produced by aggregating the relevant financial statements
or accounts of the Subsidiaries of a Person on a line-by-line basis (i.e.:
adding together corresponding items of assets, liabilities, revenues and
expenses) with the relevant financial statements or account of such Person,
eliminating inter-company balances and transactions and providing for any
minority interest in Subsidiaries;
"CONVERSION DATE" means a Business Day notified by the Borrower to a Lender
pursuant to Section 3.9 as being a date on which the Borrower has elected to
convert a Borrowing from such Lender already outstanding hereunder into another
form of Borrowing; or if the Borrower is deemed to have converted a Borrowing
into another form of Borrowing hereunder pursuant to Section 5.1, 5.2, 5.3, 6.5,
7.2.5 or 8.2, it shall mean the day on which such deemed conversion occurs;
"COUNSEL" means, with regard to a Lender, a barrister or solicitor or firm of
barristers or solicitors retained or employed by such Lender and, with regard to
any Credit Party, a barrister or solicitor or firm of barristers or solicitors
retained or employed by such Credit Party and acceptable to the Lenders;
COVERAGE RATIO" means, for any period, the ratio of:
(a) EBITDA for such period
to
(b) Interest Expenses for such period PLUS (I) the amount of all repayments
made during such period on all interest bearing or discounted
Indebtedness, whether or not evidenced by
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any note, bond, debenture or instrument and (II) all payments made on
account of any Capital Lease Obligations during such period;
"CREDIT DOCUMENTS" means this Agreement, the Subsidiary Guarantees, the
Collateral Documents and all other contracts, agreements, consents, powers of
attorney, notices or other documents, whether heretofore, now or hereafter
executed by or on behalf of any of the Credit Parties and delivered to the
Lenders or either of them in connection with this Agreement or the transactions
contemplated by this Agreement;
"CREDIT FACILITIES" means the BNP Credit Facilities and the Royal Credit
Facilities, and "CREDIT FACILITY" means any one of the BNP Credit Facilities and
the Royal Credit Facilities, as applicable;
"CREDIT PARTIES" means collectively, the Borrower, Phoenix (USA) and IBRD, and
"CREDIT PARTY" means any one of them;
"CURRENT ASSETS" means, with respect to any Person, at a particular date,
inventory, accounts receivable, work in progress, trade and income tax credits,
cash, term deposits and prepaid expenses;
"CURRENT LIABILITIES" means, with respect to any Person, at a particular date,
direct operating loans owing to the Lenders and other Persons, accounts payable
and accrued charges, including outstanding cheques and all income taxes payable,
but excluding the current portion of long term debt and the current portion of
long term lease obligations;
CURRENT RATIO" means, at any time, the ratio to 1.0 of the quotient obtained
when Current Assets are divided by Current Liabilities;
"DEFAULT" means any event or circumstance which constitutes an Event of Default
or which, with the giving of notice or lapse of time or both would, unless cured
or waived, become an Event of Default;
"DEPOSIT" shall have the meaning set forth in Section 20.1;
"DISCOUNT" with respect to any issue of Bankers' Acceptances with the same
maturity date, means the amount by which the face value of such Bankers'
Acceptances exceeds the Discounted Proceeds of such Bankers' Acceptances;
"DISCOUNT RATE" means, with respect to an issue of Bankers' Acceptances with the
same maturity date accepted by a Lender, the rate determined by such Lender as
being its discount rate, calculated on the basis of a year of 365 days,
established in accordance with its normal practices at or about 10:00 a.m. on
the date of issue and acceptance by it of such Bankers' Acceptances, for
bankers' acceptances accepted by it having a comparable face value and an
identical maturity date to the face value and maturity date of the Bankers'
Acceptances forming part of such issue to be accepted by such Lender;
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"DISCOUNTED PROCEEDS" means, in respect of any Bankers' Acceptance to be
accepted by a Lender on any day, an amount (rounded to the nearest whole cent,
and with one-half of one cent being rounded up) calculated on such day by
multiplying:
(a) the face amount of such Bankers' Acceptance, by
(b) the price, where the price is determined by dividing one by the sum of
one plus the product of:
(i) the Discount Rate (expressed as a decimal); and
(ii) a fraction, the numerator of which is the number of days in the
term of such Bankers' Acceptance and the denominator of which is
365;
with the price as so determined being rounded up or down to the fifth
decimal place and .000005 being rounded up;
"DISTRIBUTION" means:
(a) any declaration, payment, setting aside for payment, or distribution of
any dividends or return of capital to holders of the capital stock of a
Person, and any purchase, redemption, reduction, repayment or other
retirement of any shares of the capital stock of a Person, whether in
cash or in kind, and
(b) any payment, setting aside for payment or distribution of any management
fee, management bonus, consulting fee, salary, loan or other payment to
any director, former director, officer, shareholder, former shareholder,
or employee of a corporation, or to any Person related by blood,
adoption or marriage to any such Person or to any corporation not
dealing at arm's length (as such term is defined in the ITA) with any
such Person, except to the extent that such fee, bonus or other payment
constitutes normal remuneration payable in the ordinary course of
business of the corporation;
"DRAWDOWN DATE" means a Business Day on which an Advance is to be made as
specified in the notices referred to in Section 3.5;
"EBITDA" means, for any period, net earnings before income taxes on such net
earnings for such period PLUS, but only to the extent deducted in the
computation of net earnings before income taxes on net earnings, Interest
Expenses, provisions for income taxes, depreciation and amortization;
"ELIGIBLE RECEIVABLES" means good quality accounts receivable of the Borrower,
excluding:
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(a) inter-company accounts between the Borrower and any of its Subsidiaries
or any of its Affiliates or associates (within the meaning of the term
"associate" set forth in the CANADA BUSINESS CORPORATIONS Act),
(b) accounts receivable any portion of which has been due for more than 90
days, except for accounts which have been previously approved by Royal
as good quality accounts receivable notwithstanding that any portion
thereof may be past due beyond 90 days, in which case the portion of
such accounts receivable which has been outstanding for less than 90
days may be included as "Eligible Receivables",
(c) accounts receivable which represent work-in-progress, progress billing
or advance payments for services not yet rendered,
(d) accounts receivable which are subject to any provision prohibiting their
assignment or the grant of security thereon or requiring notice of, or
consent to, such assignment or grant of security, and
(e) accounts receivable which are subject to any claim or assertion of a
right of compensation or set-off on the part of the account debtor, to
the extent of such claim or assertion,
PROVIDED, in any event, that the determination of "good quality accounts
receivable" shall be made in the reasonable judgment of Royal and that Royal
reserves the right, acting reasonably, to eliminate any other receivables
therefrom;
"ENVIRONMENTAL CLAIMS" means any and all administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, investigations or proceedings relating in any way
to any Environmental Law or any permit issued under any such Law (hereafter
"CLAIMS") including without limitation (i) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law and (ii)
any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief in connection
with Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment;
"ENVIRONMENTAL LAWS" means all applicable federal, provincial, state, municipal,
local and foreign laws and regulations, ordinance, code, guideline, policy or
rule of civil or common law now or hereinafter in effect and in each case as
amended and any judicial or administrative order, consent, decree or judgment
relating to pollution or protection of human health, Hazardous Materials or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata, emissions, discharges, releases or
threatened releases of Hazardous Materials, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials);
"EQUIVALENT AMOUNT" means, on any date, the amount of one currency (the "FIRST
CURRENCY") into which an amount in another currency (the "OTHER CURRENCY") may
be converted using for
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the purposes of such conversion the rate determined by the relevant Lender in
accordance with its standard practices as being the rate at which such Lender,
at the relevant time, considers that it may sell the Other Currency to obtain
the First Currency; notwithstanding the foregoing, until notice to the contrary
is given by Royal (at its discretion) to the Borrower, the "Equivalent Amount"
in US Dollars of an amount in Canadian Dollars for purposes of calculating the
amount of Borrowings in US Dollars remaining available from Royal or for
calculating the outstanding amount of Borrowings from Royal, Royal will use a
conversion rate of 1.35 Canadian Dollars for each US Dollar, which conversion
rate may be changed by Royal at any time at its discretion, such change to take
effect immediately;
"ERISA" means the UNITED STATES EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
(or any successor legislation thereto), as amended, and any regulations
promulgated and rulings issued thereunder;
"ERISA AFFILIATE" means any Person that for purposes of Title IV of ERISA is a
member of the controlled group of any Credit Party, within the meaning of
Section 414 of the Internal Revenue Code;
"ERISA EVENT" means:
(a) (i) the occurrence of a reportable event, within the meaning of
Section 4043 of ERISA, with respect to any Plan unless the
30-day notice requirement with respect to such event has been
waived by the PBGC, or
(ii) the requirements of subsection (1) of Section 4043(b) of ERISA
(without regard to subsection (2) of such Section) are met with
respect to a contributing sponsor, as defined in Section
4001(a)(13) of ERISA, of a Plan, and an event described in
paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of
ERISA is reasonably expected to occur with respect to such Plan
within the following 30 days,
(b) the application for a minimum funding waiver with respect to a Plan,
(c) the provision by the administrator of any Plan of a notice of intent to
terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including
any such notice with respect to a plan amendment referred to in Section
4041(e) of ERISA),
(d) the cessation of operations at a facility of any Credit Party or any
ERISA Affiliate in the circumstances described in Section 4062(e) of
ERISA,
(e) the withdrawal by any Credit Party or any ERISA Affiliate from a
Multiple Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA,
(f) the conditions for imposition of a lien under Section 302(f) of ERISA
shall have been met with respect to any Plan,
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(g) the adoption of an amendment to a Plan requiring the provision of
security to such Plan pursuant to Section 307 of ERISA, or
(h) the institution by the PBGC of proceedings to terminate a Plan pursuant
to Section 4042 of ERISA, or the occurrence of any event or condition
described in Section 4042 of ERISA that constitutes grounds for the
termination of, or the appointment of a trustee to administer, such
Plan;
"EVENT OF DEFAULT" means any of the events or circumstances set out in Section
15.1;
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate per annum
equal to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System in the United States of
America arranged by federal funds brokers, as published for such day by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day in
respect of such transactions received by the relevant Lender from three federal
funds brokers of recognized standing selected by it; in the case of a day which
is not a Business Day, the "Federal Funds Effective Rate" for such day shall be
the "Federal Funds Effective Rate" in effect on the immediately preceding
Business Day;
"FEF CONTRACT" means a contract for the purchase or sale of, subject to
availability at the sole discretion of the relevant Lender, any freely traded
foreign currency with maturities not greater than 24 months from the date of
issue, unless otherwise agreed by the relevant Lender; provided that for the
purpose of determining the total amount of Borrowings outstanding under the BNP
FEF Facility or the Royal FEF Facility, as applicable, only the FEF Contracts
Risk Amount in respect thereof (together with any outstanding delivery risk in
respect thereof, in the case of the BNP FEF Facility) shall be deemed to be a
Borrowing;
"FEF CONTRACTS RISK AMOUNT" means at any time for purposes of determining the
amount of Borrowings outstanding under the BNP FEF Facility or the Royal FEF
Facility, an amount determined at any relevant time by BNP or Royal, as the case
may be, in accordance with its standard practices as being the amount then
considered by it to represent the amount of its risk arising from all FEF
Contracts previously issued and then outstanding hereunder and any FEF Contract
proposed to be issued hereunder at the time of determination; the whole taking
into account the FEF Contracts at their market value and in the light of the
time remaining on each FEF Contract;
"FIXED RATE LOAN" means the Loans granted by BNP under the BNP Acquisition
Facility in respect of which the Borrower and BNP shall have agreed to establish
a fixed rate of interest to apply thereto during the term remaining until the
Maturity Date, as set forth in Section 3.2.1 and on which the Borrower must pay
interest in accordance with Section 4.1.4;
"FORMAL DATE" means February 5, 1998, as set forth in Section 24.11;
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"GAAP" means generally accepted accounting principles in effect from time to
time in Canada or, as the case may be, the United States of America, applicable
to the relevant party, applied in a consistent manner from period to period;
"GOVERNMENTAL APPROVAL" means any authorization, certificate, attestation,
permit, approval, grant, licence, consent, registration, filing, commitment,
order, judgment, direction, ordinance or decree issued or granted by or under
law or by any Governmental Body, as well as acquired or vested rights acquired
under or recognized pursuant to Environmental Laws;
"GOVERNMENTAL BODY" means any government, parliament, legislature, regulatory
authority, agency, tribunal, department, commission, board or court or other
law, regulation or rule making entity (including a Minister of the Crown),
national or supranational, and any corporation or other entity owned or
controlled in any manner by any of the foregoing, exercising or purporting to
exercise legislative, judicial, administrative or regulatory authority on behalf
of any nation, state, province, municipality or district, or any subdivision
thereof;
"GUARANTEE" of any Person means, without duplication, all guarantees, sales made
where the purchaser has recourse against the seller, endorsements (other than
for collection or deposit in the ordinary course of business) and other
obligations (contingent or otherwise) to pay, purchase, repurchase or otherwise
acquire or become liable upon or in respect of any Indebtedness of others,
investment in others, obligations to maintain the capital, working capital,
solvency or general financial condition of others, or indemnities of others
against or the holding harmless or protection of others from damages, losses or
liabilities to the extent such guarantees, sales, endorsements and obligations,
indemnities, holding harmless or protection above mentioned are incurred or made
by a Person otherwise than in the ordinary course of business of such Person;
the amount of each guarantee shall be deemed to be the amount of all
Indebtedness of the other obligor to whom the guarantee relates, unless the
guarantee is limited to a determinable amount in which case the amount of such
guarantee shall be deemed to be such determinable amount;
"HAZARDOUS MATERIALS" means (i) any petroleum or petroleum products, radioactive
materials, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation, transformers or other equipment that contains
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(ii) any chemicals, materials or substances defined as or included in the
definition of the "hazardous substances", "hazardous waste", "hazardous
materials", "extremely hazardous waste", "restricted hazardous waste", "toxic
substances", "toxic pollutants", "contaminants", or "pollutants", or words of
similar import, under any applicable Environmental Law; and (iii) or any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any governmental authority;
"IBRD" means IBRD-Rostrum Global Inc., a corporation incorporated under the laws
of the State of Delaware, United States of America, having its head office at
Irvine, California, United States of America;
"IBRD REVOLVING FACILITY" means a revolving demand credit facility of a maximum
amount of US$7,000,000 to be made available by BNP (Los Angeles) to IBRD (and to
Phoenix USA,
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following its amalgamation with IBRD), such credit facility to be substantially
upon the terms set forth in SCHEDULE "B", subject to the modifications to such
terms as may be agreed to by the Lenders;
"INDEBTEDNESS" of a Person means, without duplication,
(a) all debts and liabilities of such Person,
(b) all Capital Lease Obligations, excluding leasehold inducements and
deferred credits,
(c) all debts and liabilities secured by any charge, hypothec, lien,
encumbrance on or other security interest in or mortgage, assignment,
pledge or hypothecation of property or assets owned or acquired by such
Person even though such Person has not assumed or become liable for the
debts and liabilities secured thereby,
(d) all debts and liabilities of such Person representing the deferred
acquisition cost of property or assets created or arising under any
conditional sale agreement or other title retention agreement even
though the rights and remedies of the seller under such agreement in the
event of default are limited to repossession or sale of property or
assets covered thereby,
(e) all debts and liabilities of such Person under any bankers' or trade
acceptance credit facility or any standby or commercial letter of credit
or guarantee facility,
(f) all obligations of such Person evidenced by notes, bonds, debentures or
other similar instruments,
(g) all obligations of such Person to purchase, redeem, retire, decease or
otherwise make any payment in respect of any Capital Stock of or other
ownership or profit interest in such Person or any other Person, valued,
in the case of redeemable preferred stock, at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends,
(h) all obligations of such Person in respect of interest rate, foreign
exchange or commodity price hedging arrangements,
(i) all obligations of such Person for production payments from property
operated by or on behalf of such Person and other similar arrangements
with respect to natural resources, and
(f) all Guarantees;
"INDEMNITEES" shall have the meaning set forth in Section 13.2;
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"INTELLECTUAL PROPERTY" means all patents, industrial designs, trade-marks,
trade secrets and know-how including, without limitation, environmental
technology, biotechnology and other technologies, confidential information,
trade-names, goodwill, copyrights, integrated circuit topographies, software and
all other forms of intellectual and industrial property, and all rights and
options to use any of the foregoing and any registrations and applications for
registration of any of the foregoing;
"INSUFFICIENCY" means, with respect to any Plan, the amount, if any, of its
unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA;
"INTEREST DATE" means the first day of each month;
"INTEREST DETERMINATION DATE" means with respect to a Libor Loan, the date which
is two Banking Days prior to the first day of the Libor Interest Period
applicable to such Libor Loan;
"INTEREST EXPENSE" means, with respect to any Person, for any period, the
interest expense of such Person during such period as determined in accordance
with GAAP including, without limitation, interest in respect of bank
indebtedness, bankers acceptances, discounts and acceptance fees and the
interest portion of payments under Capital Leases;
"INTEREST PAYMENT DATE" means with respect to a Prime Rate Loan and a US Base
Rate Loan, each Interest Date or if such Interest Date is not a Business Day,
the immediately following Business Day;
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986 of the United
States of America, as amended from time to time, and the regulations and rulings
issued thereunder;
"ITA" means the INCOME TAX ACT (Canada) and the regulations promulgated
thereunder, as amended or re-enacted from time to time;
"JUDGMENT CONVERSION DATE" shall have the meaning set forth in Section 21.1;
"JUDGMENT CURRENCY" means judgment currency as defined in Section 21.1;
"LENDERS" means BNP and Royal, and their respective successors and assigns and
"LENDER" means any one of them;
"LETTER OF CREDIT" means a letter of guarantee (including a letter of guarantee
or letter of credit guaranteeing the reimbursement of any advance payment or of
holdbacks, a performance guarantee or a bid guarantee and including letters of
credit and letters of guarantee issued or to be issued by BNP and Royal,
respectively, to BNP (Los Angeles) under the BNP Acquisition Facility, the BNP
Revolver Back-Up Facility and the Royal Acquisition Facility), a letter of
credit or an acceptance under a letter of credit issued by a Lender under this
Agreement, in each case denominated in any freely tradable currencies acceptable
to such Lender, PROVIDED that letters of credit shall (unless agreed otherwise
by the issuing Lender) be subject to the current
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Uniform Customs and Practice for Documentary Credits as published by the
International Chamber of Commerce;
"LIBOR" means with respect to a Libor Loan during the relevant Libor Interest
Period:
(a) the rate per annum (expressed on the basis of a 360-day year) shown on
Telerate, page 3750, as published by the British Bankers Association as
of 11:00 a.m. (London, England time) on the Interest Determination Date
for US Dollar deposits for a period comparable to such Libor Interest
Period, and if different rates are quoted for US Dollar deposits in
varying amounts, in an amount which is closest to the amount of such
Libor Loan, or
(b) if for any reason the Telerate rates are unavailable to determine the
rate applicable to a Libor Loan, "Libor" for such Libor Loan during the
relevant Libor Interest Period, shall mean the rate of interest per
annum (expressed on the basis of a 360-day year) determined by reference
to the rates quoted on the Reuters Monitor Screen (page LIBO) as being
the arithmetic average (rounded upwards, if necessary, to the nearest
whole multiple of 1/16th of 1%) of the rates offered in London, England
by reference banks shown on such screen as of 11:00 a.m. (London,
England time) on the Interest Determination Date to make deposits with
leading banks in the London interbank eurodollar market in US Dollars
for a period equal to such Libor Interest Period, and if different rates
are quoted for deposits in varying amounts, in the amount which is
closest to such Libor Loan, or
(c) if for any reason, neither the Telerate rates nor the Reuters Monitor
Screen rates are available in respect of the relevant Libor Interest
Period, "Libor" for such Libor Loan during the relevant Libor Interest
Period, shall mean the annual rate of interest (expressed on the basis
of a year of 360 days and rounded upwards, if necessary, to the nearest
whole multiple of 1/16th of 1%) at which BNP (in the case of Libor Loans
granted by BNP) or Royal (in the case of Libor Loans granted by Royal),
in accordance with its normal practices, would be prepared to offer to
leading banks in the London interbank eurodollar market for delivery on
the first day of the relative Libor Interest Period for a period equal
to such Libor Interest Period based on the number of days comprised
therein, deposits in US Dollars of amounts comparable to such Libor Loan
(and of any other Libor Loan of such Lender having a Libor Interest
Period of the same duration and commencing on the same date) to be
outstanding under this Agreement during such Libor Interest Period, at
or about 11:00 a.m. (London, England time) on the applicable Interest
Determination Date;
"LIBOR INTEREST DATE" means the last day of each Libor Interest Period, or if
the Borrower selects a Libor Interest Period longer than three months, it shall
mean the date falling every three months after the beginning of such Libor
Interest Period and on the last day of the Libor Interest Period so selected;
"LIBOR INTEREST PERIOD" means with respect to a Libor Loan, the initial period
of approximately one month, two months, three months or six months (or any other
period agreed to by the relevant Lender), as selected by the Borrower and
notified to the relevant Lender pursuant to
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Section 3.5 or 3.9, but always subject to availability to such Lender)
commencing on and including the Drawdown Date or Conversion Date, as the case
may be, applicable to such Libor Loan and ending on and including the last day
of such period, and, thereafter (subject to availability to such Lender), each
successive period, if any, of approximately one month, two months, three months
or six months (or any other period agreed to by such Lender), as selected by the
Borrower for such Libor Loan and notified to the relevant Lender pursuant to
Section 5.1, but in all cases expiring no later than on the relevant Maturity
Date;
"LIBOR LOAN" means, at any given time, the Loan or any portion thereof which the
Borrower has elected pursuant to Section 3.5, 3.9 or 5.1 to denominate in US
Dollars and on which the Borrower must pay interest in accordance with Section
4.1.3;
"LIEN" means any hypothec, security interest, mortgage, pledge, prior claim,
lien, claim, charge, cession, transfer, assignment or encumbrance of whatever
kind or nature that secures the payment of any Indebtedness or liability or the
observance or performance of any obligation, including any title retention
agreement, lessor's interest under a Capital Lease or analogous instrument in,
of, or on any property or the income or profits therefrom of a Person;
"LOANS" means at any given time, the aggregate of the Borrowings made available
by the Lenders to, or to the order of, the Borrower by way of Prime Rate Loans,
US Base Rate Loans, Libor Loans or Fixed Rate Loan;
"LOAN ACCOUNT" means the account or accounts established by each Lender pursuant
to Section 9.8;
"LOSSES" shall have the meaning set forth in Section 13.2;
"MARGIN" means, as applicable:
(a) in respect of the BNP Credit Facilities:
(i) for Prime Rate Loans and US Base Rate Loans: 1/2 of 1% per
annum,
(ii) for Libor Loans: 1 3/4% per annum,
(iii) for the calculation of the Acceptance Fee: 1 3/4% per annum, or
such other rate as may, at aNy time, be fixed by BNP upon 30
days' notice to the Borrower, and
(iv) for the calculation of the Letter of Credit fees payable in
respect of the standby Letter of Credit issued under the BNP
Acquisition Facility: 1-2/5% per annum,
PROVIDED that in the event that Borrowings outstanding under the BNP
Acquisition Facility exceed US$7,000,000 as at November 30, 1998, the
"Margins" set forth in subparagraphs (i), (ii), (iii) and (iv) of this
paragraph (a), insofar as they form part of the BNP Acquisition
Facility, will each automatically be increased by 1/4 of 1% per annum
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as and from such date, and PROVIDED FURTHER that in the event that
Borrowings outstanding under the BNP Acquisition Facility exceed
US$7,000,000 as at May 31, 1999, the "Margins" set forth in
subparagraphs (i), (ii), (iii) and (iv) of this paragraph (a), insofar
as they form part of the BNP Acquisition Facility (as already increased
by 1/4 of 1% per annum), will each automatically be further increased
by another 1/4 of 1% per annum as and from such date;
(b) in respect of the Royal Capex Facility:
(i) for Prime Rate Loans and US Base Rate Loans: 1/4 of 1% per
annum,
(ii) for Libor Loans: 1 1/2% per annum, and
(iii) for the calculation of the Acceptance Fee: the Prime Acceptance
Fee then in effect,
increased by 1/2 of
1% per annum; and
(c) in respect of the Royal Credit Line Facility:
(i) for Prime Rate Loans: zero,
(ii) for US Base Rate Loans: 1/8 of 1% per annum,
(iii) for Libor Loans: 1-1/4% per annum, and
(iii) for the calculation of the Acceptance Fee: the Prime Acceptance
Fee then in effect,
increased by 1/4 of
1% per annum;
"MATERIAL ADVERSE CHANGE" means any event, development or circumstance which, in
the opinion of either of the Lenders, acting reasonably, has had or would
reasonably be expected to have:
(a) a material adverse effect on the Acquisition Transaction,
(b) a material adverse effect on the business, assets, property, operations,
condition (financial or otherwise) or prospects of any Credit Party, or
(c) an adverse effect on the validity or enforceability of any of the Credit
Documents or the rights and remedies of either of the Lenders under any
of the Credit Documents not attributable solely to the fault or neglect
of the Lenders;
"MATERIAL ADVERSE EFFECT" means, when used with reference to any event or
circumstance, an event or circumstance which, in the opinion of either of the
Lenders, acting reasonably, has had or would reasonably be expected to have:
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(a) a material adverse effect on the Acquisition Transaction,
(b) a material adverse effect on the business, assets, property, operations,
condition (financial or otherwise) or prospects of any Credit Party, or
(c) a material adverse effect on the ability of any of the Credit Parties to
perform and discharge its obligations under any of the Credit Documents,
or
(d) an adverse effect on the validity or enforceability of any of the Credit
Documents or the rights and remedies of either of the Lenders under any
of the Credit Documents not attributable solely to the fault or neglect
of the Lenders;
"MATURITY DATE" means:
(a) with respect to the BNP Credit Facilities, other than the BNP FEF
Facility: February 19, 2000, or if such date is not a Business Day, the
immediately following Business Day, except for the Loans and/or Bankers'
Acceptances under the BNP Acquisition Facility which shall mature and be
owing on February 5, 2000, or if such date is not a Business Day, the
immediately following Business Day,
(b) with respect to the BNP FEF Facility: the earlier of (i) the date upon
which BNP shall, at its sole discretion, terminate the availability of
such Credit Facility and (ii) the relevant times set forth in the Credit
Documents relating to FEF Contracts with BNP,
(c) with respect to the Royal Acquisition Facility: February 19, 2000, or if
such date is not a Business Day, the immediately following Business Day,
unless the expiry of the standby Letter of Credit issued thereunder is
extended beyond such date, in which case the "Maturity Date" with
respect thereto shall be the date of such expiry,
(d) with respect to the Royal Capex Facility: February 19, 2000, or if such
date is not a Business Day, the immediately following Business Day, or
such later date falling one year later as may be agreed to by Royal
pursuant to Section 3.3.2;
(e) with respect to the Royal FEF Facility and the Royal Visa Facility: the
earlier of (i) the date upon which Royal shall, at its sole discretion,
terminate the availability of such Credit Facilities and (ii) the
relevant times set forth in the Credit Documents relating to the FEF
Contracts with Royal or to the Royal Visa Facility, as applicable, and
(f) with respect to the Royal Credit Line Facility: the date set forth in
any demand notice of Royal to the Borrower terminating the Royal Credit
Line Facility;
"MILLENNIUM COMPLIANT" means that the Computer Systems Software are capable of
the following functions before, during and after January 1, 2000:
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(a) handling date information involving all and any dates before, during and
after January 1, 2000, including, accepting date input (either from an
internal or external source), providing date output and performing date
calculations in whole or in part and any date format (i.e., julian,
gregorian, international or any other format),
(b) operating accurately without interruption on and in respect of any and
all dates before, during and after January 1, 2000 and without any
change in performance,
(c) responding to and processing any digit year input (either from an
internal or external source) without creating any ambiguity as to the
century, and
(d) receiving, storing, providing and communicating date output information
without creating any ambiguity as to the century;
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which any Credit Party or any ERISA Affiliate is making
or accruing an obligation to make contributions, or has within any of the
preceding five plan years made or accrued an obligation to make contributions;
"MULTIPLE EMPLOYER PLAN" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, that:
(a) is maintained for employees of any Credit Party or any ERISA Affiliate
and at least one Person other than such Credit Party or ERISA Affiliates
or
(b) was so maintained and in respect of which any Credit Party or ERISA
Affiliate could have liability under Section 4064 or 4069 of ERISA in
the event such plan has been or were to be terminated;
"NET WORTH" means the sum of the following, determined on a Consolidated basis
in accordance with GAAP:
(a) the amount of the issued and outstanding paid up share capital of the
Borrower, PLUS
(b) the amount of capital surplus and retained earnings (or, in the case of
a surplus or retained earnings deficit, MINUS the amount of such
deficit), and
(c) PLUS OR MINUS foreign exchange adjustments;
"NPL" means the National Priorities List under CERCLA;
"OBLIGATIONS" means all the liability, obligations and Indebtedness of the
Borrower at any time and from time to time existing or arising under or in
connection with this Agreement and the other Credit Documents;
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"PBGC" means the Pension Benefit Guaranty Corporation of the United States (or
any successor thereto);
"PERMITTED LIENS" has the meaning given to it in SCHEDULE "C";
"PERSON" or "PERSONS" has the meaning set forth in Section 1.4;
"PHOENIX (USA)" means Phoenix International Life Sciences (U.S.) Inc., a
Subsidiary of the Borrower incorporated under the laws of the State of Delaware,
United States of America, having its head office at Cincinnati, Ohio, United
States of America;
"PHOENIX (USA) TERM FACILITY" means a non-revolving term credit facility of a
maximum amount of US$28,000,000 made available by BNP (Los Angeles) to Phoenix
(USA) for a term of two years to finance the acquisition by Phoenix (USA) of the
Capital Stock of IBRD, such credit facility to be substantially upon the terms
set forth in SCHEDULE "D", subject to the modifications to such terms as may be
agreed to by the Lenders;
"PLAN" means a Single Employer Plan or a Multiple Employer Plan;
"PREFERRED CLAIMS" means the aggregate amount of claims ranking prior to the
Lien of the Collateral Documents on Eligible Receivables such as, but not
limited to:
(a) the claims secured by any Lien granted or registered prior to the date
of execution or registration of the Collateral Documents;
(b) the claims of Her Majesty in Right of Canada which are due and payable
and which are not contested in good faith and by appropriate measures
before a court or governmental authority:
(i) for deductions at source of which the Borrower is liable
pursuant to the ITA,
(ii) for amounts of which a Credit Party is liable pursuant to Part
IX of the EXCISE TAX ACT (Canada) as modified by Chapter 45 of
the Statutes of Canada and as may be further modified from time
to time (tax on goods and services), and
(iii) for deductions, interests, penalties and other amounts payable
by a Person pursuant to Part III of the EMPLOYMENT INSURANCE ACT
(Canada);
(c) the claims of Her Majesty in right of a province of Canada which are due
and payable and which are not contested in good faith and by appropriate
measures before a court or governmental authority:
(i) pursuant to a fiscal law granting to the government of such
province or any department thereof a Lien (whether or not filed
or registered) in respect of Eligible Receivables of the
Borrower, and
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(ii) for dues in respect of industrial accidents and occupational
diseases;
(d) the 30-day claims of an unpaid seller provided under Section 81.1 of the
BANKRUPTCY AND INSOLVENCY ACT (Canada), in respect of sold goods which
are identifiable;
(e) the claims of the lessor of leased premises in respect of rental which
is due but remains unpaid,
(f) the claims of employees with respect to salaries, earnings and other
remuneration; and
(g) the claims of any creditor in any foreign jurisdiction similar in effect
to the claims listed in subparagraph (a) to (f) of this definition;
"PRIME ACCEPTANCE FEE" means the annual rate announced by Royal from time to
time as its reference rate then in effect for determining fees on Canadian
Dollar bankers' acceptances accepted by Royal in Canada;
"PRIME RATE" in effect on any one day means the rate of interest per annum that
is the greater of (i) the interest rate per annum publicly announced on such day
by BNP in the case of amounts owing to BNP hereunder or by Royal in the case of
amounts owing to Royal hereunder, as being its reference rate then in effect for
determining interest rates on commercial loans in Canadian Dollars made in
Canada by BNP or Royal, as applicable, and (ii) the annual rate of interest
equal to the sum of the CDOR Rate PLUS 1% per annum, the whole as adjusted from
time to time without notice to the Borrower;
"PRIME RATE LOAN" means at any given time, the Loan or any portion thereof which
the Borrower has elected, pursuant to Section 3.5 or 3.9, to denominate in
Canadian Dollars and on which the Borrower must pay interest in accordance with
Section 4.1.1;
"PROPERTIES" shall have the meaning set forth in Section 2.1.22(a);
"PURCHASE MONEY OBLIGATIONS" means
(a) any Lien created, issued or assumed after the date of this Agreement to
secure Indebtedness not in excess of the value of the underlying
property assumed as a part of, or issued or incurred to provide funds to
pay, the purchase price of any real immovable or personal or movable
property, PROVIDED that such Lien is limited to the property so acquired
and is created, issued or assumed substantially concurrently with the
acquisition of such property; and
(b) any renewal, refunding or extension of any such Lien securing
Indebtedness in a principal amount not in excess of the unpaid principal
amount of the Indebtedness secured thereby immediately prior to such
renewal, refunding or extension;
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"REAL PROPERTY" means the immovable property, real property and interests
described in SCHEDULE "E", and any immovable property or real property acquired
by any of the Credit Parties in the future;
"RESPONSIBLE OFFICER" means, with respect to any Person, the chief executive
officer, the president, a vice president, the secretary or the managing director
and, with respect to financial matters, the chief financial officer or treasurer
of such Person;
"ROYAL" means Royal Bank of Canada, a signatory to this Agreement, and its
successors and assigns;
"ROYAL'S ACCOUNT FOR PAYMENTS" means:
(a) for all payments in Canadian Dollars hereunder to Royal, the place or
account as to which Royal may notify the Borrower from time to time for
the payment of Canadian Dollars to Royal,
and
(b) for all payments in US Dollars hereunder to Royal, the place or account
as to which Royal may notify the Borrower from time to time for the
payment of US Dollars to Royal,
or such other place(s) or account(s) as may be agreed upon by Royal and the
Borrower from time to time;
"ROYAL ACQUISITION FACILITY" means the non-revolving term credit facility of up
to the Equivalent Amount in US Dollars of Cdn$20,000,000 which, subject to the
terms and conditions of this Agreement, Royal has, on the Formal Date, made
available to the Borrower until the Maturity Date to support the financing of
approximately 50% of the cost of the Acquisition Transaction, by way of a
standby Letter of Credit (in the form set forth in SCHEDULE "R") issued in
favour of BNP (Los Angeles) to cover a portion of the Phoenix (USA) Term
Facility, to the extent not cancelled, reduced or terminated pursuant to this
Agreement;
"ROYAL CAPEX FACILITY" means the revolving credit facility of up to
Cdn$15,000,000 or the Equivalent Amount in US Dollars which, subject to the
terms and conditions of this Agreement, Royal is hereby making available to the
Borrower until the Maturity Date by way of Prime Rate Loans, US Base Rate Loans,
Libor Loans or Bankers' Acceptances, or any combination thereof, to the extent
not cancelled, reduced or terminated pursuant to this Agreement;
"ROYAL CREDIT FACILITIES" means the Royal Acquisition Facility, the Royal Capex
Facility, the Royal FEF Facility, the Royal Credit Line Facility and the Royal
Visa Facility which Royal is hereby making available to the Borrower, and "ROYAL
CREDIT FACILITY" means any one of the Royal Credit Facilities, as applicable;
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"ROYAL FEF FACILITY" means the credit facility of up to Cdn$4,000,000 which,
subject to the terms and conditions of this Agreement, Royal is hereby making
available to the Borrower until the Maturity Date by way of FEF Contracts Risk
Amount, to the extent not cancelled, reduced or terminated pursuant to this
Agreement;
"ROYAL CREDIT LINE FACILITY" means the demand revolving credit facility of up to
Cdn$10,000,000 or the Equivalent Amount in US Dollars which, subject to the
terms and conditions of this Agreement, Royal is hereby making available to the
Borrower, until terminated at Royal's sole discretion, by way of Prime Rate
Loans, US Base Rate Loans, Libor Loans, Bankers' Acceptances or (subject to a
sub-limit of Cdn$1,500,000 or the Equivalent Amount in other freely convertible
currencies acceptable to Royal) Letters of Credit, or any combination thereof,
to the extent not cancelled, reduced or terminated pursuant to this Agreement;
"ROYAL VISA FACILITY" means the credit facility of up to Cdn$100,000 which,
subject to the terms and conditions of this Agreement, Royal is hereby making
available to the Borrower by way of corporate expense cards account, to the
extent not cancelled, reduced or terminated pursuant to this Agreement or the
other Credit Documents relating thereto;
"SCHEDULES" means the schedules to this Agreement as the same may be amended,
modified, supplemented or restated from time to time;
"SHAREHOLDERS' EQUITY" in respect of the Borrower, means the shareholders'
equity of the Borrower determined in accordance with Canadian GAAP;
"SINGLE EMPLOYER PLAN" means a single employer plan, as defined in Section
4001(1)(15) of ERISA, that
(a) is maintained for employees of any Credit Party or ERISA Affiliate and
no Person other than a Credit Party and its ERISA Affiliates, or
(b) was so maintained and in respect of which any Credit Party or ERISA
Affiliate could have liability under Section 4069 of ERISA in the event
such plan has been or were to be terminated;
"SOLVENT" means, when used with respect to any Person, that
(a) the aggregate of such Person's property is, at a fair valuation,
sufficient, or, if disposed of at a fairly conducted sale under legal
process, would be sufficient, to enable payment of all such Person's
obligations, due and accruing due,
(b) such Person is able to meet its obligations as they generally become
due,
(c) such Person has not ceased paying its current obligations in the
ordinary course of business as they generally become due, and
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(d) such Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond its ability to pay as such debts and
liabilities mature,
(e) such person is not engaged, and is not about to engage, in business or a
transaction for which its property would constitute an unreasonably
small capital, and
(f) such Person is otherwise solvent under Applicable Law;
"SUBSIDIARY" means, with respect to any Person, any other Person (a) securities
of which having ordinary voting power to elect a majority of the board of the
directors (or other persons having similar functions) or (b) other ownership or
participating interests of which ordinarily constituting a majority voting
interest, are at the time, directly or indirectly, owned by such first Person,
or by one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries; unless otherwise specified, any Person which is a Subsidiary of a
Subsidiary of another Person is deemed to be a "SUBSIDIARY" of such other
Person;
"SUBSIDIARY GUARANTEE" means a guarantee executed and delivered by a Subsidiary
of the Borrower, as required under this Agreement, substantially in the form of
SCHEDULE "F", as amended, restated, supplemented or otherwise modified from time
to time;
"TAX" includes all present and future taxes, levies, imposts, stamp taxes,
duties, charges to tax, fees, deductions and any restrictions or conditions
resulting in a charge to tax and all penalty, interest and other payments on or
in respect thereof, imposed, assessed, levied or collected by or under the laws
of any country or government, or any political subdivision or taxing authority
thereof, but does not include any tax on the overall income of a Lender;
"US BASE RATE" in effect on any one day, means the rate of interest per annum
that is the greater of (i) the interest rate per annum publicly announced on
such day by BNP in the case of amounts owing to BNP hereunder or by Royal in the
case of amounts owing to Royal hereunder as being its reference rate then in
effect for determining interest rates on commercial loans in US Dollars made in
Canada by BNP or Royal, as applicable and (ii) the annual rate of interest equal
to the sum of the Federal Funds Effective Rate then in effect PLUS 1% per annum,
the whole as adjusted from time to time without notice to the Borrower;
"US BASE RATE LOAN" or "US BASE RATE LOANS" means at any given time, the Loan,
or any portion thereof which the Borrower has elected, pursuant to Section 3.5
or 3.9 to denominate in US Dollars and on which the Borrower must pay interest
in accordance with Section 4.1.2;
"US DOLLARS", the symbol "US$", "UNITED STATES DOLLARS" or "LAWFUL MONEY OF THE
UNITED STATES" each means lawful money of the United States of America in same
day immediately available funds, or if such funds are not available, the form of
money of the United States of America that is customarily used in the settlement
of international banking transactions on the day any payment is due to be made
hereunder;
"WELFARE PLAN" means a welfare plan, as defined in Section 3(1) of ERISA;
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"WHOLLY-OWNED SUBSIDIARY" means, with respect to any Person, any Subsidiary all
of the outstanding Capital Stock of which is owned by such Person either
directly or indirectly through other Wholly-Owned Subsidiaries;
"WITHDRAWAL LIABILITY" has the meaning specified in Part I of Subtitle E of
Title IV of ERISA.
SECTION 1.2 - HEADINGS AND TABLE OF CONTENTS
- -----------------------------------------------------------
The headings of the Articles, Sections, Subsections or paragraphs herein and the
table of contents are inserted for convenience of reference only and shall not
affect the construction or interpretation of this Agreement.
SECTION 1.3 - REFERENCES
- ---------------------------------------
Unless the context otherwise requires or unless otherwise provided, all
references to Sections, Subsections, Articles and Schedules are to Sections,
Subsections, and Articles of and Schedules to, this Agreement. The words
"HERETO", "HEREIN", "HEREOF", "HEREUNDER" and similar expressions mean and refer
to this Agreement.
SECTION 1.4 - RULES OF INTERPRETATION
- ----------------------------------------------------
In this Agreement, unless the context otherwise requires or unless otherwise
provided, the singular includes the plural and vice versa, "MONTH" means a
calendar month and "PERSON" or "PERSON" includes any individual, firm, company,
corporation, government, governmental body or agency, instrumentality and
unincorporated body of persons, partnership, limited partnership, association,
trust or joint venture, and "IN WRITING" or "WRITTEN" includes printing,
typewriting or any electronic means of communication capable of being legibly
reproduced at the point of reception, including telecopier, telex or telegraph.
SECTION 1.5 - ACCOUNTING TERMS AND COMPUTATIONS
- --------------------------------------------------------------
Each accounting term used in this Agreement has the meaning assigned to it under
GAAP unless otherwise defined herein and reference to any balance sheet item or
income statement item means such item as computed from the applicable statement
prepared in accordance with GAAP.
All financial statements required to be delivered hereunder shall be made and
prepared in accordance with GAAP consistently applied throughout the periods
involved.
SECTION 1.6 - TIME
- ---------------------------------
Except where otherwise indicated in this Agreement, any reference to a time
shall mean local time in the City of Montreal, Province of Quebec, Canada.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1 - REPRESENTATIONS AND WARRANTIES OF THE BORROWER
- ---------------------------------------------------------------------------
The Borrower represents and warrants to each of the Lenders as follows:
2.1.1 CORPORATE EXISTENCE, COMPLIANCE WITH LAW AND CONSTATING DOCUMENTS: each
of the Credit Parties (i) is a corporation duly incorporated and
organized and is validly subsisting under the laws of its jurisdiction
of incorporation, (ii) has the requisite power and authority to own,
operate and lease its properties and assets and to conduct its business
as now, heretofore and proposed to be conducted, (iii) is duly qualified
and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of properties or assets or the conduct of
its business as now conducted requires such qualification except where
the failure to be so qualified would not have a Material Adverse Effect
and (iv) to the best of the knowledge and belief of the Borrower, is in
compliance with all Applicable Laws including, without limitation, all
Environmental Laws and with its constating documents and its by-laws
except to the extent that the failure to comply therewith would not have
a Material Adverse Effect;
2.1.2 GOVERNMENTAL APPROVALS: each of the Credit Parties has obtained all
Governmental Approvals which are necessary for the conduct of its
business as presently conducted, the failure to obtain which would have
a Material Adverse Effect, and each such Governmental Approval is in
full force and effect, is a good, valid and subsisting approval which
has not been surrendered, forfeited or become void or voidable, and
there are no proceedings in progress, and to the best of the knowledge
of any Responsible Officer of the Borrower, there are no proceedings
pending or threatened, which may result in the revocation, suspension or
modification of any such Governmental Approval which would have a
Material Adverse Effect;
2.1.3 CHIEF EXECUTIVE OFFICES, INVENTORY LOCATIONS: on the date hereof, the
locations of the chief executive offices, principal places of business,
and other material offices and places of business of each of the Credit
Parties are specified in SCHEDULE "G", and such offices and places of
business specified for each Credit Party are the sole offices and places
of business of such Credit Party. On the date hereof, none of the Credit
Parties keeps records regarding its accounts receivable or inventory at
any location other than the locations set forth in SCHEDULE "G" in
respect of such Credit Party;
2.1.4 CORPORATE POWER; AUTHORIZATION; NO VIOLATION; ENFORCEABLE OBLIGATIONS:
the execution, delivery and performance by each Credit Party of any
Credit Document
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to be executed, delivered and performed by it and the creation of all
Liens provided for herein and therein: (i) are within the corporate
power of the Credit Party; (ii) have been duly authorized by all
necessary or proper corporate or other action; (iii) are not in
contravention of, and do not conflict with, violate or result in a
breach of any provision of the constating documents or by-laws of the
Credit Party or any Applicable Law; (iv) will not conflict with or
result in the breach or termination of, constitute a default under, or
accelerate any performance required by, any indenture, mortgage,
hypothec, deed of trust, lease, agreement or other instrument to which
the Credit Party is a party or by which the Credit Party or any of its
property is bound (or would be bound but for such default), where such
conflict, breach, termination, default or acceleration would have a
Material Adverse Effect; (v) will not result in the creation or
imposition of any Lien upon any of the property of any of the Credit
Parties other than those in favour of the Lenders and (vi) do not
require the consent or approval of any Governmental Body or any other
Person except to the extent that such consents and approvals have been
obtained; each of the Credit Documents to be delivered at such time
shall have been duly executed and delivered by each Credit Party which
is a party thereto, and shall constitute a legal, valid and binding
obligation of each Credit Party which is a party thereto enforceable
against each of them, in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium laws or similar laws
affecting creditors' rights generally and to general principles of
equity;
2.1.5 APPROVALS REQUIRED: no material registration, publication, order,
permit, filing, consent, authorization, licence, decree or approval of,
from or with any Person, including any Governmental Body, or in any
public office or any other place, is necessary (i) in order to ensure
the legality, validity, binding effect and enforceability of any of the
Credit Documents, (ii) in order that the Credit Parties may grant to the
Lenders Liens in the Collateral pursuant to the Collateral Documents,
(iii) in order that each Lender may exercise any of its rights or
remedies under the Credit Documents or (iv) in order to ensure the
legality, validity, binding effect and enforceability of the Acquisition
Transaction, except, in each instance, to the extent that such
registration, publication, order, permit, filing, consent, licence,
decree or approval has been made or obtained and evidence thereof
satisfactory to each Lender has been delivered to the Lenders;
2.1.6 NO LITIGATION: except as disclosed in the relevant financial statements
of a Credit Party delivered to any of the Lenders or as set forth in
SCHEDULE "H", no action, litigation, arbitration, claim or proceeding is
now pending or, to the best of the knowledge of the Borrower, threatened
against any of the Credit Parties at law, in equity or otherwise, before
any Governmental Body, or before any arbitrator or panel or arbitrators
in any jurisdiction. None of such matters disclosed in such financial
statements or set forth in SCHEDULE "H", nor all of such matters taken
together, if determined adversely, has or could reasonably be expected
to have a Material Adverse Effect. None of the matters set forth therein
questions the
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validity of the Acquisition Transaction or the Credit Documents or any
action taken or to be taken pursuant thereto;
2.1.7 NO DEFAULT : none of the Credit Parties is in default, nor to the best
of the knowledge of the Borrower is any third party in default, under or
with respect to any contract, agreement, lease, license or other
instrument to which any of the Credit Parties is a party where such
default has or could reasonably be expected to have a Material Adverse
Effect. No Default or Event of Default has occurred and is continuing;
2.1.8 FINANCIAL STATEMENTS, NO MATERIAL ADVERSE CHANGE
(a) the audited Consolidated and the unaudited unconsolidated
financial statements of the Borrower and the unaudited
unconsolidated financial statements of the other Credit Parties,
which have been furnished to the Lenders on or before the date
hereof, have been prepared using accounting methods, procedures
and policies which are in accordance with GAAP applied on a
basis consistent with that of prior years and present fairly the
financial positions of each of the Credit Parties, on a
Consolidated basis or on an unconsolidated basis, as the case
may be, in each case as at the dates thereof, and the results of
operations and the statements of cash flows for the periods then
ended (as to any unaudited interim financial statements, subject
to normal year-end audit adjustments and the absence of
footnotes). Such statements include, without limitation:
(i) the audited Consolidated and the unaudited
unconsolidated financial statements of the Borrower and
the unaudited unconsolidated financial statements of
Phoenix (USA), for the two most recent fiscal years
ended before the date hereof with respect to which such
financial statements are available, and
(ii) the forecasted pro forma Consolidated balance sheet of
the Borrower as at February 28, 1998, adjusted to give
effect to the completion of the Acquisition Transaction
and the transactions contemplated by this Agreement,
(b) as of the date hereof, neither the Borrower and its Subsidiaries
on a Consolidated basis, nor any of the Credit Parties alone,
had any material obligations, contingent liabilities or
liabilities in the form of Taxes or any long-term leases or
unusual forward long-term commitments which would be required by
GAAP to be reflected in the balance sheet of such Credit Party
and which are not reflected in the latest financial statements
referred to in Section 2.1.8(a),
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(c) since the date of the financial statements referred to in
Section 2.1.8(a), there has been no Material Adverse Change;
2.1.9 LIABILITIES: as of the date hereof, none of the Credit Parties had any
debts, liabilities or obligations to any Person, whether direct or
indirect, absolute or contingent, matured or not, or other obligations
for the payment of money which, according to GAAP, are material to the
applicable Credit Party, and which are not disclosed in the audited
Consolidated balance sheet of such Credit Party referred to in Section
2.1.8(a) and the related audited Consolidated statements of net earnings
and cash flows and the notes thereto, other than the Phoenix (USA) Term
Facility and the IBRD Revolving Facility and other than under this
Agreement;
2.1.10 PRO FORMA BUDGET: the pro forma annual budget of the Borrower and its
Subsidiaries dated January 21, 1998 provided to the Lenders for the
period ending August 31, 1998 is based upon reasonable estimates and
assumptions, all of which are fair in light of current conditions, have
been prepared on the basis of the such implied assumptions and reflect
the reasonable estimate of the Borrower of the results of operations and
other information projected therein;
2.1.11 OWNERSHIP OF PROPERTY; LIENS
(a) each of the Credit Parties has good and marketable title to all
of the Real Property described on SCHEDULE "E" and identified in
such Schedule as being owned by such Credit Party, free and
clear of all Liens, except Permitted Liens. On the date hereof,
none of the Credit Parties owns any immovable property or real
property other than those described in SCHEDULE "E". Each of the
Credit Parties has received all deeds, assignments, waivers,
consents, non-disturbance and recognition or similar agreements,
bills of sale and other documents, and duly effected all
recordings, filings and other actions necessary to establish,
protect and perfect its right, title and interest in and to all
such property owned by it, except where the failure to receive
such documents or effect such recordings, filings or other
actions would not have a Material Adverse Effect,
(b) each Credit Party has good and marketable title to all of the
Collateral upon which a Lien is purported to be created by any
Collateral Document to which it is a party free and clear of all
Liens except Permitted Liens. None of the Credit Parties is
restricted or limited in any way from granting the Lien on any
of the Collateral purported to be granted and created by any of
the Collateral Documents to which it is a party. Except with
respect to such as may have been filed or registered in respect
of the Lien in favour of the Lenders under the Collateral
Documents or in respect of Permitted Liens, to the best of the
knowledge of the Borrower after due enquiry, no effective
financing statement, application for the registration
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of a hypothec or other instrument similar in effect covering all
or part of the Collateral is on file in any filing or recording
office. To the best knowledge of the Borrower after due enquiry,
none of the Credit Parties has received notice from any party
asserting, claiming or exercising any right of deduction,
set-off, compensation or other right or claim with respect to
any material amount or portion of the Collateral,
(c) SCHEDULE "I" sets out, as of the date hereof, the nations and
the states and/or provinces in which all of each of the
Borrower's and Phoenix (USA)'s account debtors are located,
together with the aggregate amount of accounts receivable owing
by such account debtors in each relevant jurisdiction, in each
case where the aggregate amount of such accounts receivable in
such relevant jurisdiction exceeds Cdn$500,000 or the Equivalent
Amount thereof in any other currency;
2.1.12 INTELLECTUAL PROPERTY: each Credit Party owns all material Intellectual
Property necessary to conduct its business as now conducted by it. Each
material Intellectual Property owned by any of the Credit Parties is
listed, together with Canadian and all foreign Intellectual Property
application or registration numbers, where applicable, in SCHEDULE "J".
To the best of the knowledge of the Borrower, each Credit Party conducts
its business without material infringement or claim of material
infringement of any Intellectual Property of others. To the best of the
knowledge of the Borrower, there is no material infringement or claim of
material infringement by others of any Intellectual Property of any
Credit Party;
2.1.13 SUBSIDIARIES: on the date hereof, the Subsidiaries of each of the Credit
Parties, together with their respective jurisdictions of organization,
the authorized and issued and outstanding Capital Stock by class and
number of each such Subsidiary and of any partnership, joint venture,
corporation, association or other business organization of which any
Credit Party or any of its Subsidiaries owns, directly or indirectly,
any Capital Stock, or, in the case of any public corporation, 10% of the
Capital Stock, together with the number and class of such Capital Stock
beneficially owned by any Credit Party or any of its Subsidiaries are
set out in SCHEDULE "K". All such Capital Stock was issued in compliance
with all Applicable Laws and is owned beneficially and of record
(including all economic rights and benefits and voting rights with
respect thereto) by the Persons designated in such Schedule. Except as
set forth in such Schedule, none of the Credit Parties owns or controls,
directly or indirectly, any interest in any partnership, joint venture,
corporation, association or other business organization of any nature;
2.1.14 BURDENSOME RESTRICTIONS: no contract, lease, agreement or other
instrument to which any Credit Party is a party or is bound contains any
provision or restriction outside customary commercial practice which is
likely to have a Material Adverse Effect and no provision of Applicable
Laws has a Material Adverse Effect, or
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insofar as the Borrower can reasonably foresee, will have a Material
Adverse Effect;
2.1.15 ADDITIONAL ADVERSE FACTS: no fact or circumstance is known to the
Borrower that, either alone or in conjunction with all other such facts
and circumstances, has had or could reasonably be expected to have a
Material Adverse Effect;
2.1.16 LABOUR MATTERS: on the date hereof, except as set out in SCHEDULE "L",
there are no strikes or other labour disputes against any Credit Party
pending or, to the best of the knowledge of the Borrower, apprehended.
All material amounts due from any Credit Party on account of employee
income taxes (including, without limitation, source deductions),
workers' compensation, unemployment insurance, health and welfare
insurance and other social security of every kind, and vacation pay have
been paid or accrued as a liability on the books of the applicable
Credit Party. There are no complaints or charges against any Credit
Party pending or, to the best of the knowledge of the Borrower,
threatened to be filed with any Governmental Body or arbitrator based
on, arising out of, in connection with, or otherwise relating to the
employment or termination of employment by any Credit Party which could
have a Material Adverse Effect;
2.1.17 TAXES: each of the Credit Parties has filed when due all Tax returns,
reports and statements required to be filed by it with the appropriate
Governmental Body. Each of the Credit Parties has paid when due all
Taxes due and payable and, in the case of Taxes not due or payable, has
made adequate provision for such Taxes in its books and records in
accordance with GAAP consistently applied; there are no unpaid
assessments or reassessments for any Taxes of any Credit Party in
respect of which adequate provision is not reflected in the financial
statements required to be delivered to the Lenders hereunder and there
are no outstanding disputes relating to Taxes of any Credit Party in
respect of which adequate provision is not reflected in the financial
statements required to be delivered to the Lenders hereunder. Each of
the Credit Parties has properly withheld or collected from its
employees, customers and any other applicable payees, and remitted to
the appropriate Governmental Body, all Taxes required to be withheld or
collected and remitted under any Applicable Laws;
2.1.18 CANADIAN BENEFIT AND PENSION PLANS: the Canadian Pension Plans are duly
registered under the provisions of the ITA and any other Applicable Laws
and no event has occurred which is reasonably likely to cause the loss
of such registered status. The Canadian Pension Plans and the Canadian
Benefits Plans have been administered in accordance with the ITA and all
other Applicable Laws. All material obligations of each Credit Party
(including fiduciary and funding obligations) required to be performed
in connection with the Canadian Pension Plans and the funding media
therefor have been performed. No promises of benefit improvements under
the Canadian Pension Plans or the Canadian Benefit Plans have been made
except where such improvement could not have a Material
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Adverse Effect. There have been no improper withdrawals or applications
of the assets of the Canadian Pension Plans or the Canadian Benefit
Plans. Each of the Canadian Pension Plans and the Canadian Benefit Plans
is fully funded and there exist no going concern unfunded actuarial
liabilities or solvency deficiencies in respect of such plans;
2.1.19 ERISA:
(a) no ERISA Event has occurred or is reasonably expected to occur
with respect to any Plan,
(b) as of the last annual actuarial valuation date, if any, the
funded current liability percentage, as defined in Section
302(d)(8) of ERISA, of each Plan exceeds 90% and there has been
no material adverse change in the funding status of any such
Plan since such date,
(c) Schedule "B" (Actuarial Information) to the most recent annual
report (Form 5500 Series) for each Plan, if any, copies of which
have been filed with the Internal Revenue Service of the United
States, is complete and accurate and fairly presents the funding
status of such Plan, and since the date of such Schedule "B"
there has been no material adverse change in such funding
status,
(d) neither any Credit Party nor any ERISA Affiliate has incurred or
is reasonably expected to incur any Withdrawal Liability to any
Multiemployer Plan,
(e) neither any Credit Party nor any ERISA Affiliate has been
notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or has been terminated,
within the meaning of Title IV of ERISA, and no such
Multiemployer Plan is reasonably expected to be in
reorganization or to be terminated, within the meaning of Title
IV of ERISA;
2.1.20 ACCURACY OF INFORMATION: all information concerning the Credit Parties,
provided by the Borrower to the Lenders in respect of the Credit
Parties, is true and accurate in all material respects and the said
information contains no material misstatement of fact nor does it omit a
material fact which is necessary to make such information not
misleading, and there is no fact which the Borrower has not disclosed in
writing to the Lenders which materially and adversely affects, or so far
as the Borrower can now reasonably foresee, will materially and
adversely affect the assets, liabilities, affairs, business, prospects,
operations or conditions, financial or otherwise, of any of the Credit
Parties or their respective ability to perform their obligations under
this Agreement or any document contemplated herein;
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2.1.21 NO OMISSIONS: neither the Borrower nor any of its Subsidiaries has
withheld from the Lenders any information relating to the financial
condition, business or prospects of the Borrower, or any of its
Subsidiaries which could reasonably be expected to be material to a
prospective lender contemplating a loan of the size and nature
contemplated in this Agreement;
2.1.22 ENVIRONMENTAL MATTERS: except as set forth in SCHEDULE "M" hereto and
except for issues the aggregate cost of remedying the same would not, in
the opinion of either of the Lenders, exceed Cdn$500,000, or the
Equivalent Amount in US Dollars:
(a) the use of any contaminant, waste material (hazardous or other)
or other substance on the properties owned or occupied by any of
the Credit Parties (herein referred to as the "PROPERTIES") and
the emission, transportation or disposal of such substances in
or onto the Properties into the environment or by or allowed by
any of the Credit Parties or by prior occupants of the
Properties has at all times been effected in compliance with all
applicable Environmental Laws,
(b) all required certificates, permits, authorizations and registers
have been obtained or maintained, as the case may be, in respect
of the operations of each of the Credit Parties, including,
without limitation, any permits, certificates and registers
required for air emissions, effluent discharges, release of
contaminants, production of hazardous materials, conduct of
hazardous activities and waste disposal,
(c) the operations and activities of each of the Credit Parties and
the use of the Properties by the Credit Parties, including the
construction and modification of any building or equipment on
the Properties have been effected in compliance with all
applicable Environmental Laws,
(d) no contaminant, waste material (hazardous or other) or other
substance has been released or spilled into the environment from
the Properties which has not been cleaned up in conformity with
all applicable Environmental Laws and to the satisfaction of the
appropriate authorities,
(e) proper procedures are used in respect of all Properties for the
handling and storage of PCB waste,
(f) procedures for spill prevention and containment as well as leak
detection testing have been or are presently being established
at all Properties,
(g) all underground storage tanks located on the Properties have
been installed and maintained in conformity with all government
standards and no
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leakage has been detected from such tanks which has not been
remedied in accordance with all applicable Environmental Laws,
(h) there are no pending or, to the best knowledge of the Borrower,
threatened material Environmental Claims against any of the
Credit Parties,
(i) to the best of the Borrower's knowledge, the Properties incurred
no environmental damage or contamination prior to any of the
Credit Parties taking ownership or control of the Properties,
(j) no terms of any credit or financing arrangements between any of
the Credit Parties and any financial institution have been
altered or terminated as a result of considerations of
environmental risk linked to any of the Properties,
(k) there are no facts, circumstances, conditions or occurrences on
any Property that could reasonably be anticipated (i) to form
the basis of an Environmental Claim against any of the Credit
Parties, or any Properties or assets; or (ii) to cause such
Properties or assets to be subject to any restrictions on the
ownership, occupancy, use or transferability of such Properties
under any applicable Environmental Law, and
(l) none of the Properties is listed or proposed for listing on the
NPL or the CERCLIS or any analogous foreign, state or local list
or is adjacent to any such property;
2.1.23 COMPETITION AND ANTI-TRUST LAWS: each of the Credit Parties is in
compliance with all competition and anti-trust legislation insofar as
any of its acquisitions as of the date hereof (including, without
limitation, the Acquisition Transaction) may be concerned, and the
Borrower has no indication and no reason to believe that any such
acquisitions might be challengeable on any competition or anti-trust
grounds by Canadian or foreign governmental authorities;
2.1.24 INVESTMENT COMPANY ACT OF 1940 OF THE UNITED STATES: neither any Credit
Party nor any of its Subsidiaries is an "investment company", or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the INVESTMENT
COMPANY ACT of 1940 of the United States of America, as amended. Neither
the making of any Advances, nor the acceptance of any Bankers'
Acceptance, nor the issuance of any Letters of Credit, nor the
application of the proceeds or repayment thereof by the Borrower, nor
the consummation of the other transactions contemplated hereby, will
violate any provision of such Act or any rule, regulation or order of
the Securities and Exchange Commission thereunder.
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2.1.25 FULL DISCLOSURE: the information, exhibits, certificates, financial
statements and reports provided to the Lenders by any Credit Party under
any of the Credit Documents or filed with any Governmental Body in
connection with the Acquisition Transaction do not, to the best of the
knowledge of the Borrower, contain any untrue statement of a material
fact or omit to state a material fact which may be necessary to make the
statements contained herein and therein not misleading;
2.1.26 SOLVENCY: as of the date hereof, each Credit Party is individually and,
together with its Subsidiaries, Solvent and after giving effect to the
Acquisition Transaction and the payment of all estimated legal,
investment banking, accounting and other fees related hereto and
thereto, and after giving effect to the transactions contemplated by the
Credit Documents, on the date hereof and at all times thereafter, each
Credit Party and its Subsidiaries will be Solvent;
2.1.27 INSURANCE: each of the Credit Parties maintains or causes to be
maintained insurance in accordance with the requirements under Section
12.1.6 and all premiums and other sums of money payable for that purpose
have been paid;
2.1.28 MILLENNIUM COMPLIANCE: by June 30, 1999, the Borrower shall have used
all its best efforts to cause:
(a) the Computer Systems to be Millennium Compliant,
(b) the Computer Systems not to require any remedial work or
replacement to enable them (or any part of them) to continue
functioning accurately before, during and after January 1, 2000
in the manner set forth in the definition of "Millennium
Compliant", and
(c) the Computer Systems and each element of them to pass and
continue to pass date information between each other (and any
third parties' computer systems with which they habitually
communicate) in a way which does not, and will not, create
inaccuracies, errors or problems before, during and after
January 1, 2000;
2.1.29 SURVIVAL AND DEEMED REPETITION: the representations and warranties
contained in Section 2.1 as well as all representations and warranties
contained in any certificate or material delivered hereunder shall:
(a) survive the execution and delivery of this Agreement and shall
continue in effect until payment and performance of all debts,
liabilities and obligations under this Agreement and under all
other Credit Documents,
(b) be deemed to be repeated on each Drawdown Date, Conversion Date
and on each date of renewal of a Bankers' Acceptance or Libor
Loan hereunder
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as if made on and as of such date, unless made as of a date
specified in such representation and warranty, in which case
such representation and warranty shall be deemed to be repeated
as of such specified date, and
(c) will be deemed to have been relied upon by the Lenders
notwithstanding any investigation heretofore or hereafter made
by any of the Lenders or by their Counsel or any other
representatives of any of the Lenders.
ARTICLE III
THE CREDIT FACILITY
SECTION 3.1 - OBLIGATIONS OF THE LENDERS
- -------------------------------------------------------
Relying on each of the representations and warranties set out in Article II and
subject to the terms and conditions herein contained, the Lenders individually
as separate obligors, and not as solidary obligors, agree to make their
respective Commitments available to the Borrower.
SECTION 3.2 - BNP CREDIT FACILITIES
- --------------------------------------------------
Subject to the terms and conditions of this Agreement, BNP hereby establishes in
favour of the Borrower the BNP Credit Facilities which shall be available until
the applicable Maturity Date as follows:
3.2.1 BNP ACQUISITION FACILITY: the BNP Acquisition Facility, being a
non-revolving term credit in a maximum aggregate amount of US$14,000,000
or the Equivalent Amount in Canadian Dollars, has been made available by
BNP to the Borrower (a) by way of the issuance of a Letter of Credit in
the principal amount of US$11,440,000 (in the form set forth in SCHEDULE
"Q" and any renewal or extension thereof) in favour of BNP (Los Angeles)
guaranteeing a portion of the Phoenix (USA) Term Facility, (b) through a
single Advance in the principal amount of US$2,560,000 by way of Prime
Rate Loan, US Base Rate Loan, Libor Loan or Bankers' Acceptances, or (c)
by way of any combination of the foregoing; the Borrower agrees that the
amount of such Letter of Credit and Advance constitute Borrowings
hereunder which are subject to the terms and conditions of this
Agreement;
Should the Borrower elect to have a portion of the BNP Acquisition
Facility outstanding by way of Loan or Bankers' Acceptances, the
Borrower will have the option, which it may exercise only once by giving
a ten day prior notice thereof to BNP, to convert all such Loans and
Borrowings by way of Bankers' Acceptances into a Fixed Rate Loan
denominated in US Dollars, expiring on the applicable Maturity Date and
bearing such fixed rate of interest as shall have been offered by
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BNP to the Borrower and accepted by the Borrower at least two Business
Days prior to the Conversion Date with respect thereto;
3.2.2 BNP REVOLVER BACK-UP FACILITY: the BNP Revolver Back-Up Facility, being
a credit in a maximum aggregate amount of US$7,000,000, is hereby made
available by BNP to the Borrower by way of a Letter of Credit (in the
form of a letter of guarantee) in favour of BNP (Los Angeles) in the
same amount as the IBRD Revolving Facility and guaranteeing the IBRD
Revolving Facility;
3.2.3 BNP FEF FACILITY: the BNP FEF Facility, allowing the entering into of
FEF Contracts between the Borrower and BNP, is hereby made available to
the Borrower (a) for a maximum aggregate amount of Cdn$10,000,000 of FEF
Contracts Risk Amount, PROVIDED that the aggregate spot --------
settlement amounts of all FEF Contracts to be entered into under the BNP
FEF Facility may at no time exceed Cdn$100,000,000 or the Equivalent
Amount in other currencies as well as (b) for a maximum aggregate amount
of Cdn$5,000,000 of delivery risk on the Borrower which BNP will accept
by agreeing to execute its obligation in respect of an FEF Contract
before receiving confirmation that the Borrower has delivered its
counterpart upon expiry of the FEF Contract.
SECTION 3.3 - ROYAL CREDIT FACILITIES
- ----------------------------------------------------
Subject to the terms and conditions of this Agreement, Royal hereby establishes
in favour of the Borrower the Royal Credit Facilities which shall be available
until the applicable Maturity Date as follows:
3.3.1 ROYAL ACQUISITION FACILITY: the Royal Acquisition Facility, being a
non-revolving term credit in a maximum aggregate amount of the
Equivalent Amount in US Dollars of Cdn$20,000,000, has been made
available by Royal to the Borrower by way of the issuance of a standby
Letter of Credit in the principal amount of US$14,000,000 in favour of
BNP (Los Angeles) (in the form set forth in SCHEDULE "R") guaranteeing a
portion of the Phoenix (USA) Term Facility;
3.3.2 ROYAL CAPEX FACILITY AND EXTENSION OF THE ROYAL CAPEX FACILITY: the
Royal Capex Facility, being a revolving term credit in a maximum
aggregate amount of Cdn$15,000,000 or the Equivalent Amount in US
Dollars, is hereby made available by Royal to the Borrower by way of
Prime Rate Loans, US Base Rate Loans, Libor Loans or Bankers'
Acceptances, or any combination thereof.
Provided no Default or Event of Default has occurred and is continuing
(without having been waived or cured as permitted herein), Royal, in its
sole discretion, may offer to extend the Maturity Date for the Royal
Capex Facility for an additional period of 12 months beginning on the
then current Maturity Date of the Royal Capex Facility, by giving
written notice thereof to the Borrower prior to the
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initial Maturity Date, in which case the Borrower shall have ten days
following such notice to accept in writing such offer of extension;
3.3.3 ROYAL CREDIT LINE FACILITY: the Royal Credit Line Facility, being a
demand revolving credit in a maximum aggregate amount of Cdn$10,000,000
or the Equivalent Amount in US Dollars, has been made available by Royal
to the Borrower by way of Prime Rate Loans, US Base Rate Loans, Libor
Loans, Bankers' Acceptances or (subject to the sub-limit set forth in
Section 6.3) Letters of Credit, or any combination thereof, PROVIDED
that the aggregate amount of all Borrowings -------- outstanding under
the Royal Credit Line Facility may at no time exceed the Borrowing Base
as set forth in the most recent Borrowing Base Report delivered to Royal
pursuant to Section 12.1.8; the Borrower agrees that the amounts already
made available to the Borrower by Royal by way of Advances (as evidenced
by the accounts and records of Royal) constitute Borrowings hereunder
which are subject to the terms and conditions of this Agreement;
3.3.4 ROYAL FEF FACILITY: the Royal FEF Facility, allowing the entering into
of FEF Contracts between the Borrower and Royal, is hereby made
available to the Borrower for a maximum aggregate amount of
Cdn$4,000,000 of FEF Contracts Risk Amount, PROVIDED that the aggregate
amounts of all FEF Contracts to be entered into under the Royal FEF
Facility may at no time exceed Cdn$20,000,000 or the Equivalent Amount
in other currencies;
3.3.5 ROYAL VISA FACILITY: the Royal Visa Facility, providing for corporate
expense cards bearing the Visa mark to be issued by Royal to officers,
employees or other representatives of the Borrower in accordance with
Royal's standard practices for such service, is hereby made available to
the Borrower in a maximum aggregate amount of Cdn$100,000. The Borrower
shall execute all documentation and undertakings which may be required
by Royal in respect of the Royal Visa Facility and the issuance of
credit cards thereunder, and the Borrower shall comply with the
provisions of all such documents and undertakings and make, or cause the
making of, the payment of all amounts charged on the accounts for such
credit cards when due, irrespective of any dispute or irregularity in
respect of the use of any such cards. In the event of inconsistency
between the terms contained in the said documentation and undertakings
and the terms contained herein, the former shall prevail.
The indemnity provisions set forth in Section 13.2 shall apply in
respect of the Royal Visa Facility and the credit cards issued
thereunder.
SECTION 3.4 - PURPOSES OF THE CREDIT FACILITIES
- --------------------------------------------------------------
3.4.1 BNP ACQUISITION FACILITY: the BNP Acquisition Facility shall have been
used exclusively to finance or support the financing of approximately
50% of the cost
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of the Acquisition Transaction by guaranteeing the Phoenix (USA) Term
Facility in favour of BNP (Los Angeles) and by making a direct Advance
to the Borrower;
3.4.2 BNP REVOLVER BACK-UP FACILITY: the BNP Revolver Back-Up Facility shall
be used exclusively to guarantee the IBRD Revolving Facility in favour
of BNP (Los Angeles);
3.4.3 BNP FEF FACILITY: the BNP FEF Facility shall be used exclusively to
allow the Borrower to enter into FEF Contracts with BNP, subject to the
FEF Contracts Risk Amount in respect thereof never exceeding
Cdn$10,000,000;
3.4.4 ROYAL ACQUISITION FACILITY: the Royal Acquisition Facility shall have
been used exclusively to support the financing of approximately 50% of
the cost of the Acquisition Transaction by guaranteeing the Phoenix
(USA) Term Facility in favour of BNP (Los Angeles);
3.4.5 ROYAL CAPEX FACILITY: the Royal Capex Facility shall be used to finance
Capital Expenditures and for other general corporate purposes of the
Borrower;
3.4.6 ROYAL CREDIT LINE FACILITY: the Royal Credit Line Facility shall be used
to finance the Borrower's operations generally through the financing of
accounts receivable of the Borrower and income tax credits for
scientific research and development expense of the Borrower;
3.4.7 ROYAL FEF FACILITY: the Royal FEF Facility shall be used exclusively to
allow the Borrower to enter into FEF Contracts with Royal, subject to
the FEF Contracts Risk Amount in respect thereof never exceeding
Cdn$4,000,000;
3.4.8 ROYAL VISA FACILITY: the Royal Visa Facility shall be used exclusively
for the corporate expense cards program of the Borrower.
SECTION 3.5 - MANNER OF BORROWING
- ------------------------------------------------
The parties acknowledge that the BNP Acquisition Facility, the Royal Acquisition
Facility and a portion of the Royal Credit Line Facility have already been made
available or advanced to the Borrower on or after the Formal Date and constitute
outstanding Borrowings hereunder.
Subject to the provisions of this Agreement and provided no Default or Event of
Default has occurred and is continuing (without having been waived as provided
herein), the Borrower may from time to time request Borrowings (in addition to
the Borrowings already outstanding as acknowledged in the preceding paragraph of
this Section) from a Lender under a Credit Facility, up to the amount of its
Commitment with respect thereto, to the extent not cancelled, reduced or
terminated under this Agreement:
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3.5.1 BY WAY OF OVERDRAFT: with respect to a Prime Rate Loan or a US Base Rate
Loan from Royal under the Royal Credit Line Facility, by creating an
overdraft in the Borrower's Account maintained with Royal, in which case
Royal will make an Advance into the said Borrower's Account in a minimum
amount of Cdn$25,000 or US$25,000, as the case may be, or any multiple
thereof so as to cover the overdraft;
3.5.2 PRIME RATE LOANS AND US BASE RATE LOANS: with respect to Borrowing by
way of a Prime Rate Loan or a US Base Rate Loan otherwise than by
overdraft under the Royal Credit Line Facility as contemplated in
Section 3.5.1 (which Borrowing must be in a minimum amount of Cdn$25,000
or US$25,000, as the case may be, or the undrawn amount of the
applicable Commitment), upon giving to BNP or Royal, as the case may be,
an irrevocable telephone notice at least by 10:30 a.m. on the Business
Day preceding the Drawdown Date or Conversion Date, as the case may be,
followed by a written confirmation on the same day addressed to BNP or
Royal, as the case may be, substantially in the form set forth in
SCHEDULE "N", or such other form as BNP or Royal, as applicable, may
approve;
3.5.3 LIBOR LOANS: with respect to a Libor Loan (which must be in a minimum
amount of US$1,000,000 or any multiple thereof), upon giving to BNP or
Royal, as the case may be, an irrevocable telephone notice at least by
10:30 a.m. on the Interest Determination Date applicable thereto,
followed by a written confirmation on the same day addressed to BNP or
Royal, as the case may be, substantially in the form set forth in
SCHEDULE "N", or such other form as BNP or Royal, as the case may be,
may approve;
3.5.4 BANKERS' ACCEPTANCES: with respect to a Borrowing by way of Bankers'
Acceptances (which must be in a minimum aggregate amount of Cdn$500,000
and in increments of Cdn$100,000), upon giving to Royal an irrevocable
telephone notice at least by 10:30 a.m. two Business Days prior to the
Drawdown Date, Conversion Date or date of renewal at maturity, as the
case may be, followed by a written confirmation on the same day
addressed to BNP or Royal, as the case may be, substantially in the form
set forth in SCHEDULE "N", or such other form as BNP or Royal, as the
case may be, may approve;
3.5.5 LETTERS OF CREDIT: with respect to a Borrowing by way of Letter of
Credit, upon giving to BNP or Royal, as the case may be, an irrevocable
written notice at least three Business Days prior to the anticipated
date of issuance of such Letter of Credit substantially in the form set
forth in SCHEDULE "O", or such other form as BNP or Royal, as the case
may be, may approve, such notice to be given after the making of
appropriate arrangements with BNP or Royal, as the case may be, for the
purpose of the Letter of Credit to be so issued as provided in Section
6.1;
3.5.6 FEF CONTRACTS: with respect to a Borrowing by way of FEF Contracts, by
making appropriate arrangements with a Lender as provided in Section
8.1; and
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3.5.7 CREDIT CARDS: with respect to Borrowings from Royal by way of the use of
credit cards issued by Royal under the credit cards expense account made
available under the Royal Visa Facility;
and, subject to the terms hereof, such Borrowings shall be made available to the
Borrower to the extent that BNP or Royal, as the case may be, shall have
determined that on the related Drawdown Date, Conversion Date or date of renewal
at maturity, as the case may be, its relevant Commitment remaining unadvanced
and uncancelled hereunder is then sufficient to allow for the requested
Borrowing; and for such purpose, the Equivalent Amount in Canadian Dollars or US
Dollars, as applicable, of all outstanding Borrowings shall be calculated at
each such time.
SECTION 3.6 - MANDATORY REPAYMENTS AND REDUCTIONS
- ----------------------------------------------------------------
3.6.1 REPAYMENT ON THE MATURITY DATE: subject to the other terms and
conditions of this Agreement, the Borrower covenants and agrees to fully
repay to each Lender all Borrowings outstanding with such Lender under
each Credit Facility on the Maturity Date applicable to such Credit
Facility (as may be extended as provided herein in the case of the Royal
Capex Facility), at which time all amounts of principal, interest, fees
and other amounts then outstanding in respect of the said Credit
Facility shall be due and payable by the Borrower to the relevant
Lender, without penalty other than the indemnities contemplated by
Section 13.2;
3.6.2 AUTOMATIC REDUCTION OF THE BNP ACQUISITION FACILITY AND THE ROYAL
ACQUISITION FACILITY: the BNP Acquisition Facility and the Royal
Acquisition Facility, as well as each Lender's Commitment in respect
thereof, shall automatically reduce, without penalty (except as provided
in the Phoenix (USA) Term Facility), without any action required on the
part of either Lender, concurrently with the scheduled reduction of the
Phoenix (USA) Term Facility;
3.6.3 PROCEEDS FROM SALE OF ASSETS: the Borrower covenants and agrees (a) that
the net proceeds in excess of Cdn$500,000, or the Equivalent Amount in
other currencies, from any sale (either through a single transaction or
a series of related transactions) of assets owned by the Borrower and
conducted outside the normal course of business of the Borrower, shall
be used by the Borrower to permanently repay and reduce or retire
Borrowings under the RBC Capex Facility and to permanently reduce and
cancel the Commitment in respect thereof in a like amount and (b) that
the net proceeds in excess of US$50,000 from any sale (either through a
single transaction or a series of related transactions) of assets owned
by Phoenix (USA) or IBRD and conducted outside the normal course of
business of the said entities, shall be used to permanently repay and
reduce or retire borrowings under the Phoenix (USA) Term Facility, with
a concurrent pro-rata reduction of the Letters of Credit respectively
issued under the BNP Acquisition Facility and the Royal Acquisition
Facility, the whole without penalty other than
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the indemnities contemplated by Section 13.2 and as provided in the
Phoenix (USA) Term Facility; and
3.6.4 PROCEEDS FROM SALE OR ISSUANCE OF CAPITAL STOCK OR DEBT: the Borrower
covenants and agrees that the net proceeds from any public or private
issuance by the Borrower, Phoenix (USA) or IBRD of Capital Stock or of
debt or debt instruments shall first be used to permanently repay and
reduce or retire borrowings under the Phoenix (USA) Term Facility with a
concurrent pro-rata reduction of the Letters of Credit respectively
issued under the BNP Acquisition Facility and the Royal Acquisition
Facility, the whole without penalty other than the indemnities
contemplated by Section 13.2 and as provided in the Phoenix (USA) Term
Facility.
SECTION 3.7 - VOLUNTARY PAYMENTS
- -----------------------------------------------
The Borrower may, without penalty (other than pursuant to the following
provisions of this Section and Section 13.2), repay or otherwise retire the
Borrowings outstanding hereunder in whole or in part from time to time, in
minimum amounts similar to the minimum amounts, if any, set forth for Borrowings
under Section 3.5 or any whole multiple thereof or the remaining balance due in
respect of the relevant Credit Facility, with accrued interest and fees
applicable thereto, by making repayment of the Royal Credit Line Facility
through deposits of funds in the Borrower's account or upon giving an
irrevocable telephone notice to BNP or Royal, as the case may be, followed by
written confirmation on the same day substantially in the form set forth in
SCHEDULE "P", or such other form as BNP or Royal, as the case may be, may
approve, within notice periods preceding the anticipated repayment similar to
the notice periods required for the relevant form of Borrowing by Section 3.5.
Any amount prepaid by the Borrower (whether through a payment or through a
reduction of the face amount of the relevant Letter of Credit) under the BNP
Acquisition Facility or the Royal Acquisition Facility may not be re-borrowed
under this Agreement and shall constitute a permanent reduction of the
Commitment in respect of such Credit Facility.
Notwithstanding the foregoing, a Borrowing outstanding:
(a) by way of Libor Loans may not be so repaid or prepaid prior to the last
day of the applicable Libor Interest Period, unless the repayment or
prepayment is accompanied by the payment to the relevant Lender of the
indemnity to be paid under Section 13.2 hereof in connection with the
amount being repaid;
(b) by way of Letters of Credit may only be repaid or retired prior to the
expiry date thereof by (i) the relevant Lender being fully released and
discharged of all its liabilities and obligations arising from such
Letters of Credit and by written evidence satisfactory to such Lender of
such release and discharge being delivered to it, or (ii) by way of the
issue to the relevant Lender by a bank acceptable to such Lender of a
full unconditional counter-guarantee or indemnity in favour of such
Lender acceptable to it in respect of such Letters of Credit;
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(c) by way of Bankers' Acceptances may not be so repaid or prepaid save for
a repayment on the Maturity Date of the relevant Bankers' Acceptances;
(d) by way of FEF Contracts may not be so repaid or prepaid save for a
payment on the expiry of the related FEF Contracts or by paying the
indemnities set forth in Section 13.2 hereof;
(e) by way of a Fixed Rate Loan with BNP may not be prepaid prior to the
expiry thereof, unless the prepayment is accompanied by (i) the payment
to BNP of a prepayment premium of Cdn$100,000, except if such prepayment
is made with the proceeds of a public offering or a private placement or
with internally generated funds and (ii) the payment to BNP of the
indemnity, if any, to be paid under Section 13.2 hereof in connection
with the amount being prepaid.
SECTION 3.8 - CANCELLATION
- -----------------------------------------
The Borrower may at any time, upon giving not less than three Business Days
prior written notice thereof to Royal, cancel and reduce any portion of the
Commitment in respect of the Royal Capex Facility, in minimum amounts of
Cdn$1,000,000 or multiples thereof (or the Equivalent Amount thereof in US
Dollars or any combination of Canadian Dollars and US Dollars), or the remaining
balance of the Commitment in respect of the Royal Capex Facility. Such notice of
cancellation with respect to any drawn portion of the Royal Capex Facility shall
be without effect unless on or before the last day of such notice period (i)
such drawn portion shall have been repaid or otherwise retired in accordance
herewith, (ii) the accrued interest on such drawn portion shall have been paid
and (iii) any other fees and charges in connection therewith shall have been
paid. Any amount so reduced and cancelled may not be reinstated hereunder and
any such cancellation and reduction is irrevocable and shall permanently reduce
the Commitment of Royal in respect of the Royal Capex Facility in the amount of
such cancellation and reduction.
SECTION 3.9 - CONVERSION OPTION
- ----------------------------------------------
The Borrower may, during the term of this Agreement, upon giving to BNP or
Royal, as applicable, prior irrevocable telephone notice within notice periods
similar to those provided in Section 3.5, followed by written confirmation on
the same day substantially in the form and substance set out in SCHEDULE "N",
effective on any Business Day, convert, in whole or in part, any form of
Borrowing outstanding under a BNP Credit Facility or a Royal Credit Facility
into any other form of Borrowing available under the relevant Credit Facility,
provided that:
(a) no Default or Event of Default has occurred and is continuing;
(b) a Libor Loan may be converted, in whole or in part, only on the last day
of the relevant Libor Interest Period, and provided that if less than
all such Libor Loan is converted, then after such conversion not less
than US$1,000,000 (and multiples thereof) shall remain as a Libor Loan;
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(c) a conversion into a Borrowing by way of Libor Loans shall only be made
to the extent that the conditions outlined in Section 3.11, 5.2 or 5.3
shall not exist on the relevant Conversion Date;
(d) a Borrowing by way of Bankers' Acceptances may be converted, in whole or
in part, only on the relevant maturity date of such Bankers' Acceptances
and provided that if less than all Borrowings by way of Bankers'
Acceptances are converted, then after such conversion not less than
Cdn$500,000 (and multiples of Cdn$100,000 in excess thereof) shall
remain as Borrowings by way of Bankers' Acceptances;
(e) a conversion into a Borrowing by way of Bankers' Acceptances shall only
be made to the extent that the conditions outlined in Section 3.11 or
7.2.7 shall not exist on the relevant Conversion Date;
(f) a Borrowing by way of Letter of Credit may be converted, in whole or in
part, only on the relevant expiry date of such Letter of Credit; and
(g) on the Conversion Date, the amount of the outstanding Borrowings (after
any such conversion) would not exceed the relevant Commitment at that
time;
AND PROVIDED FURTHER that if, pursuant to the foregoing provisions of this
Section 3.9, a Borrowing denominated in Canadian Dollars is to be converted into
a Borrowing denominated in US Dollars, or VICE VERSA, the calculation of the
converted amount shall be made by using the Equivalent Amount of the amount to
be converted as then determined, and such Borrowing shall thereupon be repaid or
retired in the original outstanding currency and forthwith re-advanced or
reinstated without novation in the other currency selected by the Borrower, be
equal to such Equivalent Amount and be repayable in such other currency with
interest accruing thereon on the basis of the Borrowing selected by the
Borrower.
The conversion of any Borrowing as provided above shall not be deemed to
constitute a repayment of any Borrowing hereunder or a new Advance of funds
hereunder.
With respect to all matters referred to in this Section, the determination by a
Lender shall be final and conclusive, save in the case of manifest error.
SECTION 3.10 - DEPOSIT OF PROCEEDS OF LOANS AND DISCOUNTED PROCEEDS
- --------------------------------------------------------------------------------
Until such time as a Lender is otherwise directed by the Borrower in writing,
such Lender shall deposit to the Borrower's Account on the applicable Drawdown
Date the proceeds of each Borrowing by way of Loans made on such Drawdown Date
and the Discounted Proceeds in respect of each Bankers' Acceptance accepted and
purchased by such Lender on such Drawdown Date.
SECTION 3.11 - CURRENCY ADJUSTMENT
- -----------------------------------------------
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If, on any day during the term of this Agreement, a Lender determines that as a
result of a change in the exchange rate of the currency against another currency
or for any other reason, the Borrowings under a Credit Facility would exceed the
Commitment in respect of such Credit Facility (or such applicable lesser amount
if a portion thereof has been cancelled, reduced or terminated pursuant to the
terms of this Agreement), as determined by the relevant Lender on such day, the
Borrower shall forthwith, upon demand by the said Lender, repay and retire the
Borrowings under the relevant Credit Facility to the extent of the amount of
such excess (subject to the provisions of Section 13.2).
SECTION 3.12 - RELIANCE ON ORAL INSTRUCTIONS
- ----------------------------------------------------------
Each Lender shall be entitled to act upon the oral instructions of any Person
who such Lender believes is a person the Borrower has identified in writing from
time to time to such Lender as being a Person authorized by the Borrower to give
instructions regarding the completion and issuance of Letters of Credit,
Bankers' Acceptances or FEF Contracts or credit cards and the drawdown or
conversion of Borrowings and no Lender shall be responsible for any error or
omission in such instructions or in the performance thereof except in the case
of gross negligence or wilful misconduct by that Lender or its employees. Any
such oral instructions so given shall be immediately confirmed in writing by the
Borrower to the applicable Lender. The Borrower may revoke the authority of such
Persons so authorized by notifying the relevant Lender, in writing, which notice
shall be effective on the Business Day immediately following the date of its
actual receipt by such Lender. Any instructions given to any Lender before the
day such notice becomes effective shall remain effective for the purpose of this
Agreement.
SECTION 3.13 - REQUEST FROM TAXING AUTHORITY
- ----------------------------------------------------------
If, in respect of the Borrower, any Lender receives a request to pay specified
amounts to the Receiver General of Canada or other applicable federal or
provincial taxing authority by virtue of Section 224(1.1) of the ITA or any
analogous provision of any other provincial or federal taxing statute then, so
long as such request may require such Lender to make payments to the Receiver
General of Canada or other applicable federal or provincial taxing authority,
such Lender may, but shall not be obligated to, make further Advances under this
Agreement and shall have the right to comply with such request(s).
ARTICLE IV
PAYMENT OF INTEREST AND FEES
SECTION 4.1 - PAYMENT OF INTEREST
- ------------------------------------------------
The Borrower covenants and agrees to pay to the relevant Lender at or before
11:00 a.m. on each relevant day hereafter set forth, interest on Loans
outstanding from time to time from the date of
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the respective Advances and conversions to the date of payment in full at the
rates per annum (subject to the provisions of Section 4.2) determined as
follows:
4.1.1 INTEREST ON PRIME RATE LOANS: the Borrower shall pay to the relevant
Lender on each outstanding Prime Rate Loan of such Lender, as evidenced
by the Loan Account, interest in Canadian Dollars for value on each
Interest Date at a rate per annum equal to the Prime Rate PLUS the
applicable Margin. Each change in the fluctuating interest rate for a
Prime Rate Loan will take place concurrently with the corresponding
change in the Prime Rate. Such interest shall accrue from day to day,
shall be payable monthly in arrears on each Interest Payment Date and
shall be calculated on the daily outstanding balance of such Prime Rate
Loan on the basis of the actual number of days elapsed (including the
first day but excluding the last day of any period of time during which
a Prime Rate Loan is outstanding) in a year of 365 days;
4.1.2 INTEREST ON US BASE RATE LOANS: the Borrower shall pay to the relevant
Lender on each outstanding US Base Rate Loan of such Lender, as
evidenced by the Loan Account, interest in US Dollars for value on each
Interest Date at a rate per annum equal to the US Base Rate PLUS the
applicable Margin. Each change in the fluctuating interest rate for a US
Base Rate Loan will take place concurrently with the corresponding
change in the US Base Rate. Such interest shall accrue from day to day,
shall be payable monthly in arrears on each Interest Payment Date and
shall be calculated on the daily outstanding balance of such US Base
Rate Loan on the basis of the actual number of days elapsed (including
the first day but excluding the last day of any period of time during
which a US Base Rate Loan is outstanding) in a year of 365 days;
4.1.3 INTEREST ON LIBOR LOANS: the Borrower shall pay to the relevant Lender
on each outstanding Libor Loan of such Lender interest in US Dollars for
value on each relative Libor Interest Date of each Libor Interest Period
applicable to such Libor Loan, as evidenced by the Loan Account, at a
rate per annum equal to Libor PLUS the applicable Margin. Such interest
shall accrue from day to day, shall be payable in arrears on each Libor
Interest Date and shall be calculated on the daily outstanding balance
of such Libor Loan on the basis of the actual number of days elapsed
(including the first day of each Libor Interest Period but excluding the
last day thereof) divided by 360 days; and
4.1.4 INTEREST ON FIXED RATE LOAN: the Borrower shall pay to BNP on the Fixed
Rate Loan, if any, established pursuant to the second paragraph of
Section 3.2.1, as evidenced by the Loan Account, interest in US Dollars
for value on each Interest Date at a rate per annum equal to the
applicable rate offered by BNP and accepted by the Borrower pursuant to
the said provisions of Section 3.2.1. Such interest shall accrue from
day to day, shall be payable in arrears on each Interest Payment Date
and shall be calculated on the daily outstanding balance of such Fixed
Rate Loan on the basis of the actual number of days elapsed (including
the first day of
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the period thereof but excluding the last thereof) divided by 360 or 365
days as agreed to at the time of the establishment of the Fixed Rate
Loan.
For purposes of disclosure under the INTEREST ACT (Canada), the yearly rates of
interest to which the rates determined in accordance with the foregoing
provisions of Section 4.1 are equivalent, are the rates so determined multiplied
by the actual number of days in the year and divided by 365 when calculating
interest on a Prime Rate Loan, a US Base Rate Loan or (if the interest
applicable thereto has been agreed to be calculated on 365 days at the time of
the establishment thereof) on the Fixed Rate Loan, or by 360 when calculating
interest on a Libor Loan or (if the interest applicable thereto has been agreed
to be calculated on 360 days at the time of the establishment thereof) on the
Fixed Rate Loan.
Each determination by a Lender of the applicable rate of interest in respect of
a Borrowing pursuant to this Section 4.1 shall, in the absence of manifest
error, be final, conclusive and binding on the Borrower.
SECTION 4.2 - DEFAULT INTEREST
- ---------------------------------------------
Subject to the following provisions of this Section 4.2, upon a default by the
Borrower in the payment of any sum hereunder when due (whether of principal,
interest, fees, expenses or other amounts), the Borrower covenants and agrees to
pay interest on such sum to the Lender or Lenders to which the said sum is
owing, calculated at a rate per annum equal to:
(a) the Prime Rate PLUS the Margin applicable to Prime Rate Loans, if such
sum is owed in Canadian Dollars or currencies other than US Dollars, and
(b) the US Base Rate PLUS the Margin applicable to US Base Rate Loans, if
such sum is owed in US Dollars,
increased in each case, to the extent permitted by law, by 2% per annum from the
date of such default so long as such default shall continue, before and after
demand and judgment, such interest to be compounded monthly on each Interest
Date and to be payable on demand. Such interest shall accrue from day to day on
the basis of the actual number of days elapsed divided by 365.
Notwithstanding the foregoing, upon a default by the Borrower in the payment of
any Acceptance Fee when payable hereunder, the Borrower covenants and agrees to
pay interest on the unpaid amount of such Acceptance Fee to the relevant Lender,
calculated at the rate of 15% per annum, based on a year of 365 days, from the
date of such default so long as such default shall continue, before and after
demand and judgment, such interest to be compounded monthly on each Interest
Date and to be payable on demand.
For purposes of disclosure under the INTEREST ACT (Canada), the yearly rate of
interest to which each of the rates set forth in this Section 4.2 is equivalent
is the rate so determined multiplied by the actual number of days in the year
and divided by 365.
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SECTION 4.3 - NOMINAL RATES OF INTEREST
- ------------------------------------------------------
The parties acknowledge that the rates of interest specified in this Agreement
are nominal rates and that all interest payments and computations are to be made
without allowance or deduction for deemed reinvestment.
SECTION 4.4 - STANDBY FEE IN RESPECT OF THE ROYAL CAPEX FACILITY
- -------------------------------------------------------------------------------
As and by way of a standby fee, the Borrower covenants and agrees to pay to
Royal monthly in arrears on each Interest Payment Date from the date of
execution of this Agreement, an amount in Canadian Dollars equal to 3/8 of 1%
per annum of that portion of the Royal Capex Facility in excess of Cdn$5,000,000
from time to time remaining undrawn pursuant to Section 3.5 and uncancelled
pursuant to Section 3.8, computed daily (on the basis of a year of 365 days)
from and including the date of execution of this Agreement (or from and
including the Interest Date of the relevant month, as the case may be), up to
and excluding the next Interest Date. For purposes of calculating the standby
fees payable to Royal pursuant to this Section 4.4, the Loans outstanding under
the Royal Capex Facility in currencies other than Canadian Dollars on each day
will be deemed to be outstanding in the Equivalent Amount thereof in Canadian
Dollars as in effect on the relevant Interest Date.
SECTION 4.5 - ACCEPTANCE FEE
- -------------------------------------------
Upon acceptance of a Bankers' Acceptance by a Lender hereunder, the Borrower
shall pay to the said Lender the applicable Acceptance Fee as set forth in
Section 7.2.6.
SECTION 4.6 - LETTERS OF CREDIT FEES
- ---------------------------------------------------
The Borrower shall, prior to the issue of any Letter of Credit at its request
under this Agreement and upon the acceptance of any draft thereunder and the
making of any payments thereunder and upon the making of amendments in respect
thereof, pay to the Lender issuing or having issued such Letter of Credit,
letter of credit fees, letter of guarantee fees, acceptance fees, drawing fees,
amendment fees and other fees, as the case may be, as may be established by the
relevant Lender on the appropriate date or at such other rates as may be
negotiated from time to time by the Borrower and the said Lender. The issuance
fees shall be based upon the face amount of the Letter of Credit issued and
calculated on the number of days that the Letter of Credit is to be outstanding
on the basis of 365 days.
Notwithstanding the preceding paragraph:
(a) the Borrower shall pay to BNP, a non-refundable fee with respect to the
Letter of Credit issued under the BNP Acquisition Facility at a rate per
annum equal to the applicable Margin, for the entire term of such Letter
of Credit, which fee shall be payable quarterly in advance on the date
of issuance of such Letter of Credit and thereafter, on the basis of the
then outstanding face amount of such Letter of Credit, on the same date
of each of the
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months of May, August, November and February of each year until
termination of such Letter of Credit;
(b) the Borrower shall pay in advance to Royal the following non-refundable
fees with respect to the Letter of Credit issued under the Royal
Acquisition Facility, namely:
(i) upon issuance of such Letter of Credit, an amount equal to 1
2/5% per annum of the face amount of such Letter of Credit for
the entire period of the Royal Acquisition Facility from the
date of issuance of the said Letter of Credit to and including
the stated date of expiry of such Letter of Credit,
(ii) on November 30, 1998 (if the said Letter of Credit still remains
outstanding), an amount equal to 1/4 of 1% per annum of the then
outstanding face amount of the said Letter of Credit for the
period from and including November 30, 1998 to and including the
Maturity Date of the Royal Acquisition Facility, and
(iii) on May 31, 1999 (if the said Letter of Credit still remains
outstanding) an amount equal to 1/4 of 1% per annum of the then
outstanding face amount of the said Letter of Credit for the
period from and including May 31, 1999 to and including the
stated date of expiry of such Letter of Credit.
SECTION 4.7 - SET UP FEES AND ANNUAL REVIEW FEES
- ---------------------------------------------------------------
As and by way of set up fees, the Borrower shall have paid to each of the
Lenders, prior to the execution of this Agreement, the non-refundable set up
fees respectively agreed to between the Borrower and each Lender in their
separate offers or confirmations of financing to the Borrower dated January 30,
1998, in the case of BNP, and dated February 3, 1998, in the case of Royal.
In addition, the Borrower undertakes to pay to Royal, as and by way of annual
review fees, at the latest on the fifth day following annual written
confirmation by Royal to the Borrower of the Royal Credit Facilities (and of any
amendments thereto) the amount agreed to between the Borrower and Royal in
Royal's confirmation of financing to the Borrower dated February 3, 1998.
ARTICLE V
CONDITIONS APPLICABLE TO LIBOR LOANS
SECTION 5.1 - SELECTION OF LIBOR INTEREST PERIODS
- ----------------------------------------------------------------
All Libor Loans shall be drawn down in the minimum amounts set forth in Section
3.5 and shall be for a Libor Interest Period, subject to availability to each
Lender, respectively.
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If the Borrower has chosen a Borrowing by way of a Libor Loan pursuant to
Section 3.5 or has made a conversion into a Libor Loan pursuant to Section 3.9,
the Borrower shall, prior to the expiry of the then current relevant Libor
Interest Period, select and irrevocably notify the applicable Lender of the next
Libor Interest Period to apply without novation (subject to availability to such
Lender) to such Libor Loan or of the intention of the Borrower to repay or
convert such Libor Loan at the end of the relative Libor Interest Period, such
notice to be given by telephone within notice periods similar to those provided
in Section 3.5, followed by written confirmation on the same day substantially
in form and substance as set out in SCHEDULE "N".
If the Borrower shall choose a new Libor Interest Period for an outstanding
Libor Loan, and thus to renew such Borrowing without novation in the same form
of Loan, the new Libor Interest Period shall commence on and include the last
day of the relative Libor Interest Period during which such choice is made. If
the Borrower fails to so notify the relevant Lender as provided in this Section,
the Borrower shall be deemed to have notified such Lender of its intention to
convert without novation the relevant Libor Loan into a US Base Rate Loan.
SECTION 5.2 - ALTERNATE BASIS OF BORROWING
- ---------------------------------------------------------
If at any time during the term of this Agreement, a Lender determines in good
faith (which determination shall be final, conclusive and binding upon the
Borrower) that:
(a) adequate and fair means do not exist for ascertaining the rate of
interest with respect to a Libor Loan to be made by it;
(b) the cost to such Lender of making, funding or maintaining its Libor Loan
does not accurately reflect the effective cost thereof;
(c) the making or continuing of Libor Loans by such Lender has been made
impracticable by the occurrence of any event which materially and
adversely affects the London interbank eurodollar market; or
(d) deposits in US Dollars are not available to such Lender in the London
interbank eurodollar market in sufficient amounts in the ordinary course
of business for the applicable Libor Interest Period to make, fund or
maintain a Libor Loan during such Libor Interest Period,
then, the Lender affected by such event or circumstance (the "AFFECTED LENDER"),
shall notify the Borrower of such determination in writing with an indication of
the Borrowing affected by such determination (the "AFFECTED BORROWINGS"). For so
long as the circumstances referred to in Section 5.2(a), (b), (c) or (d) shall
continue and until notice to the contrary is given to the Borrower by the
Affected Lender, the Affected Lender shall not be obligated to make any further
Affected Borrowings available under the Credit Facilities. The principal amount
of all outstanding Affected Borrowings granted by the Affected Lender shall, at
the expiry of the related Libor Interest Period, be converted without novation
into such other form of available Borrowings as the Borrower may request by
notice to the Affected Lender or failing such notice
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by the Borrower, into US Base Rate Loans, and thereafter such Affected Lender
shall only be obligated to extend Affected Borrowings in such other forms of
Borrowings or US Base Rate Loans, as the case may be.
SECTION 5.3 - ILLEGALITY RELATIVE TO LIBOR LOANS
- ---------------------------------------------------------------
If the adoption of any Applicable Law, or any change therein or in the
interpretation or application thereof by any court or by any governmental or
other authority or central bank or comparable agency or any other entity charged
with the interpretation or administration thereof or compliance by any Lender
with any request or direction (whether or not having the force of law but if
not, compliance with which is generalized and standard in the banking industry)
of any such authority, central bank or comparable agency or entity now or
hereafter makes it unlawful or impossible for any Lender to make, fund or
maintain the Libor Loans or a portion thereof or to perform its obligations
under this Agreement, such Lender (the "AFFECTED LENDER") may, by written notice
thereof to the Borrower, suspend its obligations under this Agreement with
respect to the Loans affected by such illegality or prohibition (the "AFFECTED
BORROWINGS") for the duration of the period of such illegality or prohibition,
and the Borrower shall, to the extent possible and subject to the provisions of
Section 13.2, forthwith (or at the end of such period as the Affected Lender in
its discretion agrees) convert without novation the Affected Borrowings or such
portion thereof together with accrued interest thereon for the remainder of the
related Libor Interest Period(s) into such other forms of Borrowings as the
Borrower may request by notice to the Affected Lender within not more than two
Business Days after receipt by the Borrower of the notice of the Affected
Lender, and, for the period between such notice by the Affected Lender and such
notice by the Borrower or failing such notice by the Borrower, into US Base Rate
Loans, and thereafter such Affected Lender shall only be obligated to extend its
Affected Borrowings in such other forms of Borrowings or US Base Rate Loans, as
the case may be.
ARTICLE VI
CONDITIONS APPLICABLE TO LETTERS OF CREDIT
SECTION 6.1 - INITIAL LETTERS OF CREDIT
- ------------------------------------------------------
The Borrower acknowledges that:
(a) the Letter of Credit in the initial face amount of US$11,440,000 issued
on February 5, 1998 by BNP in favour of BNP (Los Angeles) under the BNP
Acquisition Facility, a copy of which is set forth in SCHEDULE "Q",
(b) the Letter of Credit in the initial face amount of US$14,000,000 issued
on February 5, 1998 by Royal in favour of BNP (Los Angeles) under the
Royal Acquisition Facility, a copy of which is set forth in SCHEDULE
"R", and
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(c) the Letter of Credit in the initial face amount of US$7,000,000 to be
issued by BNP in favour of BNP (Los Angeles) under the BNP Revolver
Back-Up Facility,
as any such Letter of Credit may be extended, amended, replaced or otherwise
modified from time to time, shall constitute Letters of Credit requested to be
issued by the Lenders hereunder and for which the Borrower shall be fully and
irrevocably liable in accordance with the provisions of this Agreement,
including more particularly the reimbursement and indemnity provisions of this
Article VI.
SECTION 6.2 - ISSUE OF OTHER LETTERS OF CREDIT BY ROYAL
- ----------------------------------------------------------------------
Prior to effecting Borrowings by way of Letters of Credit under the Royal Credit
Line Facility, the Borrower shall make arrangements with Royal for the issuance
of the said Letters of Credit. All such Letters of Credit shall be issued at the
request of the said Borrower and under the indemnity described in Section 6.6.
Prior to effecting Borrowings by way of Letters of Credit under the Royal Credit
Line Facility, the Borrower, after having made arrangements with Royal as
provided above, may give written notice thereof to Royal at the latest on the
third Business Day preceding the anticipated date of issuance substantially in
the form of SCHEDULE "O", or such other form or by such other method as Royal
may approve, and shall execute and deliver to Royal duly completed Letters of
Credit application(s) and other documents, using such form(s) as may be approved
by Royal at the time of issue. In the event of any inconsistency between the
terms contained in such application(s) and documents, and the terms contained
herein, the former shall prevail.
SECTION 6.3 - RESTRICTIONS ON LETTERS OF CREDIT
- --------------------------------------------------------------
In addition to the Letters of Credit already issued under the BNP Acquisition
Facility and the Royal Acquisition Facility and the Letter of Credit to be
issued under the BNP Revolver Back-Up Facility, letters of Credit hereunder may
only be issued under the Royal Credit Line Facility. A Lender may refuse to
issue any particular Letter of Credit at any time at its sole discretion.
Letters of Credit issued under the BNP Revolver Back-Up Facility and the Royal
Credit Line Facility and any renewals or extensions thereof shall, by their
terms, expire not later than one year following the date of issue or the date of
extension or renewal thereof, as the case may be, and the aggregate outstanding
amount of all Letters of Credit issued under the Royal Credit Line Facility may
at no time exceed Cdn$1,500,000 or the Equivalent Amount in other currencies.
SECTION 6.4 - FEES AND CHARGES FOR LETTERS OF CREDIT
- -------------------------------------------------------------------
The Borrower shall pay to the Lender issuing or having issued a Letter of Credit
hereunder, the said Lender's fees set forth in Section 4.6 at the prevailing
rates, as well as the fees of any correspondent bank for or in connection with
such Letter of Credit and documents thereunder.
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SECTION 6.5 - INTEREST ON AMOUNTS PAID
- -----------------------------------------------------
Subject to Section 6.6 hereof, if a Lender makes a payment under a Letter of
Credit issued or outstanding in accordance herewith, the amount or amounts so
paid by the said Lender shall, unless otherwise funded by or for the account of
the Borrower, be deemed to constitute a Prime Rate Loan if such payment is made
in Canadian Dollars or any currency other than US Dollars and a US Base Rate
Loan if such payment is made in US Dollars, and the amount so paid shall bear
interest accordingly from the date of payment by the relevant Lender until full
repayment by the Borrower and shall be repayable on demand. If such payment is
made in a currency other than Canadian Dollars or US Dollars, the amount of such
payment shall be deemed to constitute a Prime Rate Loan in an amount equal to
the Equivalent Amount thereof in Canadian Dollars.
SECTION 6.6 - INDEMNITY
- --------------------------------------
If and when a payment is made by a Lender pursuant to a Letter of Credit issued
by it, the Borrower shall forthwith pay to the said Lender, in the currency(ies)
in which such payment was made, the whole amount so paid under the said Letter
of Credit and if the Borrower fails to make such payment, the amount of such
payment shall be deemed to constitute a demand Loan hereunder in accordance with
Section 6.5 hereof.
Without restriction to the foregoing, the Borrower shall, in addition, indemnify
the issuing Lender and hold it harmless from and against any claims, demands,
losses, costs, liabilities, actions, judgements or suits, damages and expenses,
including legal fees and expenses reasonably incurred which such Lender may
suffer or incur by reason of having issued any Letter of Credit or having
properly accepted drafts or documents thereunder or by reason of false or
incomplete information being provided by or on behalf of the Borrower to the
said Lender in respect of Borrowings or proposed Borrowings by way of Letters of
Credits or acceptances thereunder or by reason of any action taken, admitted or
suffered to be taken in good faith in reliance upon any instructions,
applications, request or order from the Borrower or any other party for whose
account such Letter of Credit was issued or upon other paper or documents
reasonably believed by the relevant Lender to be genuine in connection with a
Letter of Credit or acceptances under a Letter of Credit issued by it.
The reimbursement and indemnity obligations of the Borrower herein shall not be
released, discharged or otherwise affected by any circumstance or occurrence
whatsoever including, without limitation, (A) the lack of validity or
enforceability of the underlying Letter of Credit or any acceptance or other
documentation presented for drawing thereunder, or (B) any dealing by a Lender
with a beneficiary or negotiating, advising or confirming bank in connection
with Letters of Credit and acceptances thereunder.
SECTION 6.7 - REIMBURSEMENT FOLLOWING TERMINATION
- ----------------------------------------------------------------
When a Lender shall have determined at its discretion that it is no longer
liable under a Letter of Credit outstanding hereunder, and provided all amounts
owing in respect of the Credit Facilities have then been fully and undefeasibly
paid to the Lenders, such Lender will reimburse to the
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Borrower, without interest, such amount, if any, as shall have been paid by the
Borrower to such Lender in respect of such Letter of Credit upon a demand for
full repayment of the Credit Facilities or of any Credit Facility.
ARTICLE VII
CONDITIONS APPLICABLE TO BANKERS' ACCEPTANCES
SECTION 7.1 - BANKERS' ACCEPTANCES
- -------------------------------------------------
The Borrower may effect Borrowings under the BNP Acquisition Facility (to the
extent not converted into a Fixed Rate Loan), the Royal Capex Facility and the
Royal Credit Line Facility by way of Bankers' Acceptances denominated in
Canadian Dollars in accordance with the provisions of Section 3.5 and this
Article VII.
For the purposes of this Agreement, the full face value of Bankers' Acceptances,
without Discount, shall be used when calculations are made to determine the
amount of Borrowings.
Each determination by the relevant Lender of the Acceptance Fee, of the Discount
Rate, of the Discounted Proceeds and of the Discount applicable to Bankers'
Acceptances to be accepted by it shall, in the absence of manifest error, be
final, conclusive and binding on the Borrower.
SECTION 7.2 - CONDITIONS APPLICABLE TO BANKERS' ACCEPTANCES
- --------------------------------------------------------------------------
7.2.1 NOTICE AND DOCUMENTS: the Borrower shall request that Advances be made
by way of Bankers' Acceptances, that outstanding Borrowings be converted
into Bankers' Acceptances or that Borrowings outstanding by way of
Bankers' Acceptances be renewed in the same form of Borrowing, by giving
on a timely basis the notice required under Section 3.5, 3.9 or 7.2.5,
as applicable.
Each Lender may at any time cease to accept Bankers' Acceptances
hereunder or set limits on the overall value of Bankers' Acceptances to
be accepted hereunder.
The Borrower shall execute and deliver to each Lender the documentation
relating to Bankers' Acceptances usually required by such Lender from
its clients. In the event of inconsistency between the terms contained
in the said documentation and the terms contained herein, the former
shall prevail;
7.2.2 PROCEDURES FOR THE ISSUE OF BANKERS' ACCEPTANCES:
7.2.2.1 Bankers' Acceptances issued pursuant to this Agreement:
(a) will be denominated in Canadian Dollars, in amounts of
Cdn$100,000 or multiples thereof,
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(b) will be issued in minimum aggregate amounts of
Cdn$500,000,
(c) will have a term of 30 to 180 days, subject to
availability, and shall not allow for days of grace,
(d) will mature on a Business Day on or before the Maturity
Date, and
(e) may be held by the relevant Lender for its own account
or sold or traded in the money market, either directly
or through stock brokers or dealers;
7.2.2.2 Upon each issue of Bankers' Acceptances:
(a) which are purchased by a Lender for its own account, the
Borrower shall be entitled to be credited with the
Discounted Proceeds thereof, less the Acceptance Fee,
(b) as a result of the conversion of outstanding Borrowings
into Bankers' Acceptances or as a result of the renewal
of outstanding Bankers' Acceptances, the Borrower shall,
concurrently with the conversion or renewal, pay in
advance out of its own funds to the accepting Lender an
amount equal to the Discount applicable to such issue,
to be applied against the principal of the Borrowing
being so converted or renewed, plus the applicable
Acceptance Fee;
7.2.3 DELIVERY OF BANKERS' ACCEPTANCES: if the Borrower has chosen a Borrowing
by way of Bankers' Acceptances, the Borrower shall have delivered to the
relevant Lender for acceptance at its Branch of Account, at the latest
by 10:00 a.m. on the Business Day preceding the date of issue of the
related Bankers' Acceptances, an appropriate number of signed and
endorsed forms of Bankers' Acceptances in order to allow such Lender to
accept such instruments in the aggregate and face amounts and for the
maturities chosen by the Borrower. In this respect, Royal will deliver
from time to time to the Borrower blank forms of Bankers' Acceptances to
be signed and returned by the Borrower in order to maintain an adequate
supply of such instruments for acceptance hereunder. No Lender shall be
responsible or liable for its failure to accept a Bankers' Acceptance as
required hereunder if the cause of such failure is, in whole or in part,
due to the failure of the Borrower to provide duly executed and endorsed
drafts to such Lender on a timely basis nor shall any Lender be liable
for any damage, loss or other claim arising by reason of any loss or
improper use of any such instrument except a loss or improper use
arising by reasons of the gross negligence or wilful misconduct of such
Lender or its employees;
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7.2.4 EXECUTION OF BANKERS' ACCEPTANCES: drafts of the Borrower to be accepted
as Bankers' Acceptances hereunder shall be signed by a duly authorized
officer or duly authorized officers of the Borrower. Notwithstanding
that any person whose signature appears on any Bankers' Acceptance as
one of such officers may no longer be an authorized signatory for the
Borrower at the date of issuance of a Bankers' Acceptance, such
signature shall nevertheless be valid and sufficient for all purposes as
if such authority had remained in force at the time of such issuance and
any such Bankers' Acceptance so signed shall be binding on the Borrower;
7.2.5 PROCEDURES RELATING TO THE MATURITY AND FACE AMOUNT OF ALL BANKERS'
ACCEPTANCES:
(a) If Bankers' Acceptances are outstanding hereunder, the Borrower
shall prior to the date of maturity of the then current Bankers'
Acceptances, irrevocably notify the Lender having accepted them
of the intention of the Borrower to repay, renew or convert such
Borrowing at the maturity of the related Bankers' Acceptances,
such notice to be given by telephone within notice periods
similar to those provided in Section 3.5, followed by written
confirmation on the same day substantially in the form attached
as SCHEDULE "N",
(b) if the Borrower shall choose to renew a Borrowing outstanding by
way of Bankers' Acceptances in the same form of Borrowing, the
Borrower shall cause the term of the new Bankers' Acceptances to
commence on and include the date of maturity of the relative
Bankers' Acceptances being renewed. If the Borrower fails to so
notify the relevant Lender as provided in Subsection 7.2.5(a),
the Borrower shall be deemed to have notified the said Lender of
its intention to convert the relevant Borrowing by way of
Bankers' Acceptances into a Prime Rate Loan,
(c) the Borrower shall, by no later than 11:00 a.m. on the maturity
date of each Bankers' Acceptance, pay to the Lender having
accepted Bankers' Acceptances hereunder an amount equal to the
face amount of all Bankers' Acceptances accepted by such Lender
and maturing on that day by effecting such payment out of its
own funds, or by converting such Borrowing by way of Bankers'
Acceptances into another form of Borrowing then available
hereunder or by renewing such Bankers' Acceptances hereunder,
the whole subject to the payment of the Discount as provided in
Subsection 7.2.2.2(b); and in each case of conversion or
renewal, the Discounted Proceeds, together with the Discount
paid in respect thereof, shall be applied to the reduction of
the Borrowing being converted or renewed, as the case may be,
and
(d) in the event that the Borrower fails to provide payment of the
face amount of a Bankers' Acceptance on its maturity date as
required pursuant to
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Subsection 7.2.5(c), then the Canadian Dollar amount of such
failed payment shall be deemed for all purposes of this
Agreement to be and shall be treated in all respects as a
Borrowing by way of a Prime Rate Loan as and from such maturity
date;
7.2.6 ACCEPTANCE FEE: the Borrower shall pay to each Lender the Acceptance Fee
in Canadian Dollars forthwith upon the acceptance hereunder by such
Lender of a Bankers' Acceptance issued by the Borrower. The Borrower
authorizes and directs the Lenders to deduct from the Discounted
Proceeds of Bankers' Acceptances purchased by them for their own
account, the amount of each such Acceptance Fee upon the issue of each
Bankers' Acceptance;
7.2.7 ALTERNATE BASIS OF BORROWING: if at any time during the term of this
Agreement, a Lender determines in good faith (which determination shall
be final, conclusive and binding upon the Borrower) that by reasons of
circumstances or changes affecting the market for Bankers' Acceptances:
(a) it is no longer possible to establish the Discount Rate in
respect of Bankers' Acceptances, or
(b) the market for Bankers' Acceptances no longer exists, is too
weak for its normal use or is not capable in the normal course
of business to absorb Bankers' Acceptances accepted hereunder,
then, such Lender shall immediately notify the Borrower of its
determination in writing. For so long as the circumstances referred to
in paragraphs (a) or (b) of this subsection shall continue, no further
Borrowings will be available by way of Bankers' Acceptances from such
Lender and thereafter, until notice to the contrary is given to the
Borrower by such Lender, the said Lender shall only be obligated to make
other forms of Borrowings available to the Borrower hereunder, and the
principal amount of all Borrowings outstanding by way of Bankers'
Acceptances shall, at the expiry of the related Bankers' Acceptances, be
converted without novation into such other form of Borrowing as the
Borrower may request by notice to the relevant Lender or failing such
notice, into Prime Rate Loans;
7.2.8 WAIVER OF CLAIM: the Borrower shall have no right to set up as against
either of the Lenders any defence or right of action, of indemnification
or of set-off or compensation or any similar claim of any nature
whatsoever which the Borrower may have had at any time or may have in
the future with respect to any holder of one or more Banker's
Acceptance(s) issued hereunder;
7.2.9 PAYMENT BY LENDER ON MATURITY: on the maturity date of each Bankers'
Acceptance issued by a Lender hereunder, such Lender will pay to the
redeeming holder, if any, of each Bankers' Acceptance, at the time of
presentment thereof, the face amount of such Bankers' Acceptance.
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ARTICLE VIII
CONDITIONS APPLICABLE TO FEF CONTRACTS
SECTION 8.1 - FEF CONTRACTS
- ------------------------------------------
Prior to effecting Borrowings by way of FEF Contract under this Agreement, the
Borrower shall make arrangements with the relevant Lender for the execution of
such FEF Contract and all documentation, agreements and master agreements
requested by such Lender in respect thereof, including appropriate confirmations
relating thereto. In the event of inconsistency between the terms contained in
such documentation and the terms contained herein, the former shall prevail.
Borrowings by way of FEF Contracts shall be made available by such Lender
entering into FEF Contracts with the Borrower provided, however, that the said
Lender shall have no obligation to make such Borrowing available to the Borrower
and to enter into any FEF Contract hereunder unless such Lender, in its absolute
discretion, is satisfied that the FEF Contracts Risk Amount for purposes of such
Borrowing, when taken together with the FEF Contracts Risk Amount of all other
outstanding FEF Contracts, does not exceed (a) Cdn$10,000,000 (with a maximum
spot settlement risk for all outstanding FEF Contracts not to exceed
Cdn$100,000,000) with respect to all FEF Contracts entered into with BNP and (b)
Cdn$4,000,000 (with a maximum spot settlement risk for all outstanding FEF
Contracts not to exceed Cdn$20,000,000) with respect to all FEF Contracts
entered into with Royal.
In addition, BNP accepts a delivery risk on the Borrower for an aggregate
maximum amount of Cdn$5,000,000 with respect to all FEF Contracts between the
Borrower and BNP, whereby BNP executes its obligations in respect of an FEF
Contract before receiving confirmation that the Borrower has delivered its
counterpart upon expiry of the same FEF Contract. Accordingly, for delivery
under an FEF Contract of any amount denominated in a currency other than
Canadian Dollars the Equivalent Amount of which exceeds Cdn$5,000,000, the
Borrower undertakes to deliver and pay its counterpart in respect of such FEF
Contract before BNP may be required to execute its own obligation with respect
to such FEF Contract.
Notwithstanding the foregoing, a Lender may in any event refuse to enter into
any particular FEF Contract if, acting reasonably, it is not satisfied with the
conditions of issue (including, without limitation, the duration thereof) the
currencies thereof or generally, the market risk relating to the issue of such
FEF Contract. Moreover, a Lender may, in its entire discretion, refuse to enter
into any FEF Contract, the purpose of which is to control, fix or regulate
currency exchange fluctuation in connection with a currency which, in the
opinion of such Lender, is not freely convertible. It is expressly understood
and agreed that unless otherwise acknowledged and agreed to in writing by a
Lender, all FEF Contracts entered into during the term of this Agreement between
the Borrower and such Lender shall, for so long as they remain outstanding,
constitute a Borrowing made by the Borrower under this Agreement and outstanding
under the BNP FEF Facility or the Royal FEF Facility, as applicable.
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SECTION 8.2 - INTEREST ON AMOUNTS PAYABLE UNDER FEF CONTRACTS
- ----------------------------------------------------------------------------
If the Borrower fails to pay to a Lender when due any and all amounts payable
under any FEF Contract or any and all other amounts payable hereunder by the
Borrower in respect of the cancellation or termination of any FEF Contract or
otherwise related to Borrowings outstanding under the BNP FEF Facility or the
Royal FEF Facility, as applicable, all such amounts not paid when due shall be
deemed to be converted into and to constitute a Prime Rate Loan in the case of
an amount owing in Canadian Dollars or in any currency other than US Dollars and
shall be deemed to constitute a US Base Rate Loan in the case of an amount owing
in US Dollars; any such Prime Rate Loan and US Base Rate Loan shall be payable
to the relevant Lender forthwith on demand and shall bear interest accordingly
from the date such amounts so become due until full payment to the Lender; if
the amount the Borrower has so failed to pay is denominated in a currency other
than Canadian Dollars or US Dollars, then upon the Borrower failing to pay such
amount, the indebtedness of the Borrower to the relevant Lender in respect
thereof shall, for the purposes of the foregoing, be converted into the
Equivalent Amount thereof in Canadian Dollars using the spot buying rate of the
said Lender as in effect on the date of such conversion.
SECTION 8.3 - DOCUMENTATION, FEES AND CHARGES
- ------------------------------------------------------------
The Borrower undertakes to execute and deliver to each Lender all such Lender's
standard documentation which the Lender may require from time to time in respect
of FEF Contracts, including all confirmations thereof when required.
The Borrower also undertakes to pay to each Lender, at its request, the said
Lender's usual fees and charges at the prevailing rates in respect of FEF
Contracts entered into hereunder.
ARTICLE IX
PAYMENT, TAXES, INCREASED COSTS, EVIDENCE
OF INDEBTEDNESS AND TIMING OF MATURITIES
SECTION 9.1 - PLACE OF PAYMENT OF PRINCIPAL, INTEREST AND CHARGES
- --------------------------------------------------------------------------------
All payments of principal, interest, additional interest, fees (other than the
standby fee, the set-up fees and the annual review fees pursuant to Sections 4.4
and 4.7 which shall be payable as provided in such Sections) and other charges
to be made by the Borrower pursuant to this Agreement shall be made in the
currency in which the Borrowing is outstanding for value on the day such amount
is due and if such day is not a Business Day, on the Business Day next
following, by payment or transfer of monies to the appropriate Account for
Payments. Any amounts received from the Borrower after 3:00 p.m., on any
Business Day, shall be applied to the appropriate payment, repayment or
prepayment due on such day, on the next following Business Day. Until so
applied, interest shall continue to accrue as provided in this Agreement on the
amount of such payment, repayment or prepayment.
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SECTION 9.2 - ACCOUNT DEBIT AUTHORIZATION
- --------------------------------------------------------
The Borrower authorizes and directs each Lender, in its discretion, to
automatically debit, by mechanical, electronic or manual means, the bank
accounts of the Borrower maintained with it for all amounts payable by the
Borrower under this Agreement, including but not limited to the repayment of
principal and the payment of interest, fees, expenses and all other charges for
the keeping of such bank accounts.
SECTION 9.3 - APPLICATION OF PAYMENTS
- ----------------------------------------------------
All payments received by a Lender from or on behalf of the Borrower pursuant to
this Agreement shall be applied prior to the occurrence of an Event of Default
to such liabilities of the Borrower as the Borrower shall indicate to such
Lender at the time such payment is made and, if no such indication is made or if
an Event of Default has occurred, to the liabilities of the Borrower hereunder
in such order as such Lender shall from time to time decide.
SECTION 9.4 - MANNER OF PAYMENT AND TAXES
- --------------------------------------------------------
The Borrower shall make all payments to the Lenders pursuant to this Agreement
without set-off, compensation or counterclaim, free and clear of, and exempt
from, and without deduction for or on account of, any Tax. If any Tax is
deducted or withheld from any payments, the Borrower shall promptly remit to the
affected Lender an amount which shall be equal to the Tax so deducted or
withheld, together with certified copies of the relevant official receipts or
other evidence satisfactory to the affected Lender, evidencing payment to the
appropriate taxing authority of each such Tax by the Borrower on behalf of the
affected Lender.
If the Borrower is prevented by operation of law or otherwise from paying,
causing to be paid or remitting such Tax, the Borrower shall pay to the affected
Lender such additional amounts as may be necessary to ensure that such Lender
receives a net amount in the appropriate currency equal to the full amount it
would have received had such Tax not been so deducted or withheld.
The obligations of the Borrower under this Section 9.4 to effect payments for
Taxes shall survive the repayment of the principal and interest on the
Borrowings and the payment of all other amounts due hereunder if such Taxes have
not been paid.
SECTION 9.5 - INCREASED COSTS
- --------------------------------------------
If after the date of execution hereof, any introduction of any Applicable Law or
any change or introduction of a change in any Applicable Law (whether or not
having the force of law but if not, compliance with which is generalized and
standard in the banking industry) or in the interpretation or application
thereof by any court or by any governmental agency, central bank or other
judicial, governmental, administrative or other authority or entity charged with
the administration thereof or any change in the compliance of a Lender
therewith, or if present or future compliance by a Lender with any new or
changed request or directive (compliance with
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which is in accordance with the practice of responsible banks or financial
institutions) from any central bank or other fiscal authority (whether or not
having the force of law), now or hereafter:
(a) subjects a Lender to, or causes the withdrawal or termination of a
previously granted exemption with respect to, any Tax or changes the
basis of taxation, or increases any existing Tax, on payments of
principal, interest, fees or other amounts payable by the Borrower to
such Lender under this Agreement (except for taxes on the overall net
income of such Lender and capital taxes payable by such Lender imposed
by the jurisdiction in which its principal or lending offices are
located),
(b) imposes, modifies or deems applicable any reserve, special deposit,
deposit insurance or similar requirements against assets held by, or
deposits in or for the account of or loans by or any other acquisition
of funds by, an office of such Lender or with respect to Bankers'
Acceptances, Letters of Credit, FEF Contracts or credit cards expense
account arrangements hereunder,
(c) imposes on such Lender or expects there to be maintained by such Lender
any capital adequacy or additional capital requirements in respect of
any Borrowing or the Commitment of such Lender hereunder or any other
condition with respect to this Agreement, or
(d) imposes any Tax or reserves or deemed reserves with respect to the
undrawn portion of the Commitment of a Lender;
and the result of any of the foregoing, in the sole determination of the
affected Lender acting reasonably, shall be to increase the cost to, or reduce
the amount of principal, interest or other amount received or receivable by such
Lender hereunder or its effective return hereunder in respect of making,
maintaining or funding Loans, Bankers' Acceptances, Letters of Credit, FEF
Contracts or credit cards expense account arrangements under this Agreement,
such Lender shall, acting reasonably, determine that amount of money which shall
compensate such Lender for such increase in cost or reduction in income (herein
referred to as "ADDITIONAL COMPENSATION"). Upon such Lender having determined
that it is entitled to Additional Compensation in accordance with the provisions
of this Section 9.5, such Lender shall promptly so notify the Borrower and the
other Lender. Such Lender shall provide to the Canadian Borrower a photocopy of,
or an extract from, the relevant law, rule, guideline, regulation, treaty or
official directive and a certificate of a duly authorized officer of such Lender
setting forth the Additional Compensation and the basis of calculation therefor,
which shall be conclusive evidence of such Additional Compensation in the
absence of manifest error. The Borrower shall pay to such Lender within ten
Business Days of the giving of such notice such Lender's Additional Compensation
calculated to the date of such notification. Such Lender shall be entitled to be
paid such Additional Compensation from time to time to the extent that the
provisions of this Section 9.5 are then applicable notwithstanding that such
Lender has previously been paid any Additional Compensation. Such Lender shall
make commercially reasonable efforts to limit the incidence of any such
Additional Compensation, including seeking recovery for the account of the
Borrower, by appealing any assessment at the expense of the Borrower upon the
Borrower's
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request, provided such Lender, in its sole determination, suffers no appreciable
economic, legal, regulatory or other disadvantage.
The obligation of the Borrower under this Section 9.5 shall survive the
repayment of the principal and interest on the Borrowings and the payment of all
other amounts due hereunder.
SECTION 9.6 - PAYMENT OF PORTION
- -----------------------------------------------
Notwithstanding the provisions hereof, if a Lender gives the notice provided for
in Section 9.5 with respect to any Borrowing (an "AFFECTED BORROWING"), the
Borrower may at its option, upon ten Business Days notice to that effect given
to such Lender (which notice shall be irrevocable), unless such prepayment or
assignment causes a Default to have occurred hereunder, prepay in full without
penalty such Affected Borrowing outstanding together with accrued and unpaid
interest on the principal amount so prepaid up to the date of such prepayment,
such Additional Compensation as may be applicable to the date of such payment
and all costs, losses and expenses incurred by such Lender by reason of the
liquidation or re-employment of deposits or other funds or for any other reason
whatsoever resulting from the repayment of such Affected Borrowing or any part
thereof on other than the last day of the applicable interest period or term.
Upon such payment being made, such Lender's obligations in respect of such
Affected Borrowing under this Agreement shall terminate.
SECTION 9.7 - COMMITMENT AND TIMING OF MATURITIES
- ----------------------------------------------------------------
The Borrower shall only be entitled to convert an outstanding Borrowing into
another form of Borrowing hereunder or to renew an outstanding Borrowing at the
maturity thereof if, immediately prior to the relevant Conversion Date or prior
to the expiry of the then current relevant Libor Interest Period or prior to the
maturity of the relevant Bankers' Acceptances or Letters of Credit , as
applicable, the total of all the Borrowings then outstanding under the relevant
Credit Facility (converted, if necessary, into the Equivalent Amount thereof in
Canadian Dollars) does not exceed the Commitment with respect to such Credit
Facility (or such applicable lesser amount if a portion thereof has been
cancelled or reduced pursuant to the terms of this Agreement). However, the
Borrower shall be entitled to effect the conversion or renewal if, concurrently
therewith, it pays to the relevant Lender an amount equal to the difference
between such outstanding total amount and the relevant Commitment.
The Borrower shall time the maturities of the Libor Interest Periods and the
Bankers' Acceptances so that they fall on or before the applicable date on which
principal is due to be paid in respect thereof under this Agreement in an amount
at least equal to the amount of such principal being repaid so as not to exceed
the relevant Commitment following such applicable date. If the Borrower fails to
time such maturities in such way in respect of a Libor Loan, the relevant Lender
will make the necessary arrangements for early termination of such Libor
Interest Periods, in an amount sufficient to effect the repayment of principal
in accordance with this Agreement, and the Borrower will pay to the relevant
Lender an amount equal to any loss or expense incurred by such Lender as a
result of such early termination, including but not limited to all reasonable
sums (whether in respect of principal, interest or otherwise) paid or payable by
a
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Lender for funds borrowed by such Lender in order to fund or maintain the amount
of any such unpaid amount, as well as any costs incurred in maintaining or
rearranging deposits as a result of early termination; a certificate of the
relevant Lender setting forth the basis for the determination of the amount
necessary to indemnify it is, in the absence of manifest error, conclusive and
binding upon the Borrower for all purposes. If the Borrower fails to time the
maturities of Bankers' Acceptances as set forth above, the Borrower will, on
demand by the Lender having accepted the said Bankers' Acceptances, pay to such
Lender an amount in Canadian Dollars equal to the face value of the relevant
unmatured Bankers' Acceptances or such lesser amount as will cover the
deficiency, and, upon such payment, the Borrower shall be released of its
liability to the said Lender in respect of such unmatured Bankers' Acceptances,
to the extent of the amount so paid.
SECTION 9.8 - EVIDENCE OF INDEBTEDNESS
- -----------------------------------------------------
Each Lender shall open and maintain in its books, accounts and records
evidencing the Borrowings made available by it under this Agreement. Each Lender
shall record therein the amount of each Borrowing made available by it, by way
of Loans and shall record therein each payment of principal on account thereof
and shall record the Bankers' Acceptances accepted, paid and cancelled by it,
the Letters of Credit and acceptances thereunder issued or accepted by it
hereunder and the payments and cancellations in respect thereof, the FEF
Contracts entered into by it with the Borrower hereunder and all payments in
respect thereof and the credit cards issued under the Royal Visa Facility and
all debits and credits in respect thereof, and all other amounts becoming due to
such Lender under this Agreement, including interest, fees and charges and all
payments on account thereof. Such accounts and records will constitute, in the
absence of manifest error, PRIMA FACIE evidence of the Indebtedness of the
Borrower owing to such Lender pursuant to this Agreement, the date of each
Borrowing made available by such Lender and the amount thereof and the amounts
which and the dates on which the Borrower has made payments from time to time on
account of the principal thereof and interest thereon, fees and charges and
Bankers' Acceptances accepted, paid and cancelled by such Lender, Letters of
Credit and acceptances thereunder issued, accepted and paid by or to such Lender
hereunder, FEF Contracts entered into and paid or terminated hereunder and
credit cards issued and cancelled under the Royal Visa Facility and payments in
respect thereof.
ARTICLE X
SUBSIDIARY GUARANTEE AND COLLATERAL DOCUMENTS
SECTION 10.1 - SUBSIDIARY GUARANTEES
- --------------------------------------------------
The Borrower shall deliver or cause to be delivered to the Lenders a Subsidiary
Guarantee duly authorized and executed by each of the Credit Parties (other than
the Borrower), the whole to serve as continuing guarantee for the payment and
performance of the Obligations of the Borrower to the Lenders, both present and
future, in respect of the Credit Facilities, the whole subject to the following:
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10.1.1 SUPPORTING DOCUMENTS: the execution of a Subsidiary Guarantee by a
Credit Party shall be accompanied by certified copies of such Credit
Party's constating documents, by-laws (or other equivalent document),
directors' resolution authorizing the execution of such Subsidiary
Guarantee, together with the legal opinion of Counsel, in form and
substance acceptable to the Lenders, as to the status of such Credit
Party, the due authorization and execution by it of such Subsidiary
Guarantee and the validity and enforceability thereof under the laws
applicable to such Credit Party; and
10.1.2 NO PREJUDICE TO OTHER DOCUMENTS: this Agreement and the other Credit
Documents shall not be prejudiced by any other guarantee, security or
Collateral Document, whether collateral or additional, now or hereafter
held by the Lenders or either of them in respect of the Obligations, or
by any exchange, release, substitution or variation of any such
guarantee, security or Collateral Document or by the taking of any
additional guarantee, security or Collateral Documents.
SECTION 10.2 - SECURITY
- -------------------------------------
The Borrower shall cause to be delivered to the Lenders, as general and
continuing collateral security for the payment and performance of all
Obligations to the Lenders, or either of them, both present or future, in
respect of the Credit Facilities, first-ranking security over all movable or
personal assets and all Real Property of the Credit Parties, subject only to
Permitted Liens, all of which security shall be in form and substance
satisfactory to the Lenders and shall include the documents listed below:
(a) documents creating security under Section 427 of the BANK ACT (Canada)
with respect to all present and future inventory of the Borrower,
(b) a hypothec granted by the Borrower in favour of the Lenders, jointly,
pursuant to which the Borrower grants to the Lenders a Lien on all the
Real Property of the Borrower located in the Province of Quebec and the
universality of all its present and future movable property, corporeal
or incorporeal, wherever located, including a Lien over all the present
and future outstanding Capital Stock of its Subsidiaries owned by or
registered in favour of the Borrower,
(c) security agreements granted by the Borrower in favour of the Lenders
pursuant to which the Borrower grants to the Lenders a Lien on all of
its personal or movable property, present and future, corporeal or
incorporeal, wherever located,
(d) a pledge agreement (which may be contained in the general security
agreements referred to in paragraph (c) of this Section) granted by the
Borrower in favour of the Lenders pursuant to which the Borrower pledges
in favour of the Lenders all the present and future outstanding Capital
Stock of the Credit Parties (other than the Borrower) owned by or
registered in favour of the Borrower, together with all stock
powers/powers of attorney
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endorsed in blank by the Borrower, all necessary or desirable
resolutions of the board of directors of the relevant corporation
authorizing the transfer and registration of such Capital Stock in the
name of the Lenders or their nominee and irrevocable proxies regarding
such Capital Stock,
(e) hypothecs granted by each Credit Party (other than the Borrower) located
in the Province of Quebec and security agreements and mortgages granted
by each Credit Party (other than the Borrower) having assets or doing
business outside the Province of Quebec, in favour of the Lenders,
pursuant to which such Credit Party grants to the Lenders a Lien on all
of its personal or movable property, present and future, corporeal and
incorporeal, wherever located (including a Lien over the shares of the
Capital Stock of any of its Subsidiaries which is a Credit Party to be
documented in a manner similar to that set forth in paragraph (d) of
this Section) and on all the Real Property of such Credit Party,
and all such Collateral Documents shall be supported by appropriate opinions of
Counsel as to matters required to be dealt with by the Lenders and, if required
by the Lenders, title opinions with respect to each Real Property charged under
the Collateral Documents.
SECTION 10.3 - ADDITIONAL COLLATERAL AND REGISTRATION
- -------------------------------------------------------------------
The Borrower shall also promptly execute and deliver, and cause to be executed
and delivered, to the Lenders, at the Borrower's own cost and expense, such
additional or complementary security documents or such confirmations or such
notices or documents containing such further description of properties
(including replacement and additions to the properties forming part of the
Collateral) charged or intended to be charged by the Collateral Documents as may
in the reasonable opinion of the Lenders or their Counsel be necessary or
advisable to create and maintain a first ranking security position on the assets
and revenues of the Credit Parties, as set forth in Section 10.2, subject to
Permitted Liens.
The Borrower shall cause to be promptly made all registrations and filings and
to be delivered all opinions, necessary, in the opinion of either of the Lenders
or their Counsel, to render the Collateral Documents fully effective as first
ranking security, subject to Permitted Liens (including registrations against
land and, if required by the Lenders, title opinions in respect thereof).
SECTION 10.4 - CONFLICT
- -------------------------------------
In the case of conflict, discrepancy or difference between the provisions of
this Agreement and any of the Collateral Documents, the provisions of this
Agreement shall govern provided, however, that nothing herein shall limit or
restrict the rights and remedies of the Lenders under any of the Collateral
Documents in the absence of actual conflict, discrepancy or difference.
SECTION 10.5 - NO PREJUDICE TO OTHER SECURITY
- -----------------------------------------------------------
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This Agreement and the Subsidiary Guarantees and Collateral Documents (which are
in addition to and not in substitution for any other security now or hereafter
held by the Lenders) shall not be prejudiced by any other guarantee or security,
whether collateral or additional, now or hereafter held by the Lenders in
respect of the Borrower's obligations to the Lenders, or by any exchange,
release, substitution or variation of any such guarantee or security or by
taking of any additional guarantee or security.
ARTICLE XI
CONDITIONS TO BE SATISFIED
SECTION 11.1 - CONDITIONS TO BE SATISFIED
- -------------------------------------------------------
The obligation of the Lenders to make available to the Borrower Borrowings
hereunder following the execution of this Agreement, is subject to and
conditional upon each of the following terms and conditions first having been
satisfied:
11.1.1 INITIAL CONDITIONS TO BORROWINGS: prior to the drawdown of such of the
Borrowings as are not outstanding on the date of execution hereof, there
shall have been delivered to each of the Lenders, in form and substance
satisfactory to the Lenders:
11.1.1.1 a duly executed copy of this Agreement,
11.1.1.2 a certified copy of the constating documents and by-laws of
each of the Credit Parties certified by a Responsible
Officer of the related Credit Party, accompanied by good
standing or equivalent certificates issued by the
appropriate Governmental Body of each relevant jurisdiction;
11.1.1.3 a duly certified copy of a resolution or resolutions of the
Board of Directors of each Credit Party relating to the
authority of each Credit Party to execute and deliver and to
perform its obligations under the Credit Documents to which
it is a party and all other instruments, agreements,
certificates and papers and other documents provided for or
contemplated by the said Credit Documents and the manner in
which and by whom the foregoing documents are to be executed
and delivered, certified by a Responsible Officer of the
relevant Credit Party as of the date of execution of the
relevant Credit Document or other relevant document,
11.1.1.4 a certificate of each Credit Party setting forth specimen
signatures of the individuals authorized to sign on its
behalf the Credit
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Documents to which it is a party and the instruments,
agreements, certificates, papers and other documents
provided for or contemplated by said Credit Documents,
11.1.1.5 a certificate of compliance of a Responsible Officer of the
Borrower relating to the Credit Parties in form and
substance substantially as attached as SCHEDULE "S",
11.1.1.6 evidence (i) of the due registration, recording or filing of
the Credit Documents in all jurisdictions necessary to
protect or perfect the security and rights created thereby
(including each jurisdiction, other than England and Italy,
wherein account debtors of the Borrower are located if the
aggregate amount of accounts receivable owing to the
Borrower by such account debtors located in the said
jurisdiction exceeds Cdn$500,000 or the Equivalent Amount in
currencies other than Canadian Dollars) and (ii) of the
delivery to the Lenders of the share certificates
representing the Capital Stock of Phoenix (USA) and IBRD,
duly endorsed in blank (or accompanied by duly executed
blank transfer certificates) and accompanied by duly
executed proxies in respect thereof,
11.1.1.7 evidence of appropriate insurance coverage as provided in
Section 12.1.6, showing the Lenders as loss payees thereof,
11.1.1.8 evidence that BNP (Los Angeles) has made available (i) to
Phoenix (USA) the Phoenix (USA) Term Facility and (ii) to
IBRD the IBRD Revolving Facility,
11.1.1.9 evidence that Phoenix (USA) has completed the Acquisition
Transaction,
11.1.1.10 evidence of the payment of all fees and expenses
contemplated herein, to the extent then owing,
11.1.1.11 a copy of the Laidlaw waste management contract,
11.1.1.12 evidence that all Governmental Approvals under Environmental
Laws have been obtained and are in effect with respect to
each of the Credit Parties,
11.1.1.13 (intentionally left blank),
11.1.1.14 evidence that each Credit Party has all necessary
Governmental Approvals to operate a contract research
organization (CRO),
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11.1.1.15 evidence (a) of the discharge of all Liens in favour of Bank
of Montreal affecting the assets of the Borrower, or (b) of
the full repayment and cancellation of all existing credit
facilities granted by Bank of Montreal to the Borrower,
including the termination or assignment of all outstanding
foreign exchange forward contracts between the Borrower and
Bank of Montreal,
11.1.1.16 (intentionally left blank),
11.1.1.17 evidence of the discharge of all Liens affecting the Credit
Parties which are not Permitted Liens,
11.1.1.18 execution between the Lenders and BNP (Los Angeles) of an
intercreditor and security sharing agreement in form and
substance acceptable to the Lenders,
11.1.1.19 the favourable opinion of Counsel to each of the Credit
Parties as to the status of each Credit Party, its power and
capacity to enter into and perform its obligations under all
Credit Documents to which it is to be a party, as to the due
authorization and execution by the relevant Credit Party of
such Credit Documents and as to the validity, binding effect
and enforceability of each such Credit Documents and of any
security intended to be created thereby and
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as to such other matters as the Lenders may reasonably
require, each such favourable opinion to be in form and
substance satisfactory to each of the Lenders,
11.1.1.20 the favourable opinions of Counsel in the States of
California, New Jersey, Ohio and Pennsylvania as to
registration and enforceability of the Liens and rights to
be created in each said jurisdictions pursuant to the
Collateral Documents, and
11.1.1.21 the favourable opinion of Lenders' Counsels as to such
matters as the Lenders may reasonably require;
11.1.2 CONDITIONS PRECEDENT TO EACH BORROWING: the obligation of the Lenders to
make any Borrowing available to the Borrower following the execution of
this Agreement is subject to the following conditions:
(a) the representations and warranties of the Borrower contained in
this Agreement shall be true and correct as at each Drawdown
Date, Conversion Date and date of renewal of a form of Borrowing
hereunder,
(b) the relevant Lender shall have received the timely notice of
Borrowing required pursuant to Section 3.5, 3.9, 5.1, 6.1 or
7.2.5, as applicable,
(c) with respect to Borrowings under the Royal Credit Line Facility,
a copy of the most recent Borrowing Base Report required by
Section 12.1.8(f), and
(d) no Default or Event of Default shall have occurred and be
continuing (provided that if such Default or Event of Default
shall have been waived as provided herein, such Default or Event
of Default shall not be deemed to exist or continue in respect
of the particular instance having been waived or during the
waiver period, as applicable).
SECTION 11.2 - WAIVER OF CONDITIONS PRECEDENT
- -----------------------------------------------------------
The terms and conditions of Section 11.1 are inserted for the sole benefit of
each Lender and may be waived by a Lender, in whole or in part, with or without
terms or conditions, in respect of all or any portion of the Borrowings without
prejudicing the rights of each of such Lender to assert such terms and
conditions in whole or in part in respect of any other Borrowing.
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ARTICLE XII
COVENANTS OF THE BORROWER
SECTION 12.1 - AFFIRMATIVE COVENANTS OF THE BORROWER
- ------------------------------------------------------------------
While any Obligations remain outstanding or either of the Lenders has any
obligations under any of the Credit Documents, the Borrower covenants and agrees
with each Lender that, unless each of the Lenders shall otherwise consent in
writing:
12.1.1 PAYMENT COVENANT: it will, and it will cause each of its Subsidiaries
to, duly and punctually pay all sums of money due and payable by it
under the terms of this Agreement and any other Credit Document at the
times and places, in the currencies, and in the manner specified;
12.1.2 CORPORATE EXISTENCE: it will, and it will cause each of its Subsidiaries
to, do or cause to be done all things necessary to keep in full force
and effect its corporate existence and all rights, franchises, licences,
approvals, privileges, consents and qualifications to carry on its
business or to own, lease or operate property in each jurisdiction in
which it carries on business or owns, leases or operates property where
the failure to do so would have a Material Adverse Effect;
12.1.3 CONDUCT OF BUSINESS: it will, and it will cause each of its Subsidiaries
to:
(a) conduct its business in a proper and efficient manner,
(b) diligently maintain, repair, use and operate its property and
premises in a proper and efficient manner, and
(c) maintain its physical assets in good condition such that each
asset may be used at all times for the purpose for which it was
intended;
12.1.4 COMPLIANCE WITH LAWS: it will, and will cause each of its Subsidiaries
to, comply in all material respects with all Applicable Laws including,
without limitation, Environmental Laws, ERISA and the RACKETEER
INFLUENCED AND CORRUPT ORGANIZATIONS Chapter of the ORGANIZED CRIME
CONTROL ACT OF 1970 of the United States of America, except to the
extent failure to comply with such laws does not have a Material Adverse
Effect;
12.1.5 PROMPT PAYMENT OF INDEBTEDNESS: it will, and it will cause each of its
Subsidiaries, to promptly pay and discharge when due:
(a) any Indebtedness outstanding,
(b) Taxes charged or attributable to it, and
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(c) obligations which may result in Liens (other than Permitted
Liens) on its assets;
unless the relevant payment, Tax or obligation is being actively and
diligently contested in good faith by appropriate proceedings and is
adequately reserved against on its books in accordance with GAAP, as
applicable, or unless failure to comply with this Section 12.1.5 would
not have a Material Adverse Effect;
12.1.6 INSURANCE: it will:
(a) maintain and will cause each of its Subsidiaries to maintain
with financially sound, independent and reputable insurers
insurance:
(A) upon all its buildings, plant and other property and
assets which are of an insurable nature against such
liabilities and risks including, without limitation, all
risk property damage, business interruption and third
party liability insurance, in such amounts, with such
deductibles and in such manner, that adequately protects
it and such subsidiaries and as is customary for
companies carrying on businesses similar that being
carried on by it or by such Subsidiaries, as the case
may be, and, if applicable, as may be required by
Applicable Law, or as otherwise may be reasonably
requested by any of the Lenders, and, in any event, in
amounts sufficient to prevent it or any of its
Subsidiaries from becoming a co-insurer, except to the
extent of the deductibles permitted above;
(B) (i) that names each of the Lenders, as an additional
insured under all liability coverages and as loss payee
under all property, casualty and business interruption
coverages and includes a mortgage clause acceptable to
each of the Lenders; (ii) that provides that all
insurance proceeds aggregating Cdn$500,000 or less per
occurrence, or the Equivalent Amount thereof in any
other currency, shall be payable to the Borrower or the
relevant Subsidiary, as the case may be, and that all
insurance proceeds aggregating more than Cdn$500,000 per
occurrence, or the Equivalent Amount thereof in any
other currency, shall be payable to the Lenders, and it
is agreed that any such proceeds received by the Lenders
shall be received as mandatary for the Borrower or the
relevant Subsidiary, as the case may be and, provided
that no Default or Event of Default has occurred and is
continuing, shall be paid forthwith by the Lenders to
the Borrower or Subsidiary, as the case may be, and, in
the case of insurance proceeds in respect of damage to
property, shall be used by the Borrower or Subsidiary,
as the case may be, to repair or replace such property;
PROVIDED HOWEVER, that after a Default or an
---------------- Event of Default has occurred and while
such Default or Event of Default is continuing, all
insurance proceeds shall be payable to the Lenders, and
a notice from the Lenders notifying an insurer of a
Default or an Event of Default shall be sufficient
evidence of a Default or an Event of Default for the
purpose of this provision; and (iii) that provides that
the insurers thereof will give to the Lenders at least
30 days prior written notice before any of the policies
evidencing such insurance is modified, terminated or
cancelled except that 15 days prior written notice shall
be given in the case of non-payment of any premium;
PROVIDED
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HOWEVER, that in respect of insurance to be maintained
by any Subsidiary of the Borrower this clause (B) shall
only be applicable to the extent that such Subsidiary is
required to grant to the Lenders collateral security
under or pursuant to this Agreement,
(b) duly and punctually pay or cause to be paid the premiums and
other sums of money payable in connection with such insurance,
(c) after a Default or an Event of Default has occurred and while
such Default or Event of Default is continuing, hold separate
from all other funds, as mandatary of the Lenders, and pay to
the Lenders promptly all insurance proceeds received and payable
to the Lenders, and cause each of its Subsidiaries to do so, and
(d) promptly deliver to each Lender from time to time upon request
such information relating to the insurance required to be
maintained under this Section 12.1.6, including insurers'
certificates of insurance addressed to the Lenders confirming
that such insurance is in effect and that the Lenders may rely
on such certificates;
12.1.7 CONTRACTS: it will, and will cause each of its Subsidiaries to:
(a) faithfully observe, perform and discharge the covenants,
conditions and obligations imposed on it by any contract,
agreement, lease, license or other instrument in which it has
any interest or to which it is a party, except to the extent and
for so long as its obligation to do so is contested in good
faith by it unless failure to comply with this Section 12.1.7
does not have a Material Adverse Effect, and
(b) do all other things necessary or expedient in order to preserve,
protect, maintain and renew any such contract, agreement, lease,
license or other instrument and all of its rights thereunder and
under each renewal or replacement thereof, to the extent
necessary for the conduct of the business
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of the Borrower or such Subsidiary, unless failure to comply
with this Section 12.1.7 does not have a Material Adverse
Effect;
12.1.8 FINANCIAL STATEMENTS AND INFORMATION: it will, and will cause each of
its Subsidiaries to, keep and maintain proper books of account and other
accounting records and it will furnish or cause to be furnished to each
Lender:
(a) as soon as available and, in any event, within 60 days after the
end of the first three quarterly accounting periods in each
fiscal year, copies of the Consolidated and unconsolidated
financial statements of the Borrower, and the unconsolidated
financial statements of each Subsidiary and Affiliate of the
Borrower, prepared in-house in accordance with GAAP as of the
close of such quarter, setting forth in each case in comparative
form the figures for the corresponding periods of the previous
fiscal year,
(b) as soon as available and, in any event, within 90 days after the
end of each fiscal year, copies of the Consolidated and
unconsolidated financial statements of the Borrower, and the
unaudited unconsolidated financial statements of each Subsidiary
and Affiliate of the Borrower, as of the end of such fiscal
year, together with comparative figures for the immediately
preceding fiscal year, all prepared in accordance with GAAP in
reasonable detail and accompanied, in the case of the Borrower,
by the unqualified opinion thereon of the Auditors, except with
respect to a qualification or exception relating to a change in
its application of accounting principles, which change shall be
concurred in by the Auditors,
(c) as soon as available and, in any event, within 120 days after
the end of each fiscal year, the Borrower's annual report to its
shareholders,
(d) within 90 days of its fiscal year end commencing with the fiscal
year ending on August 31, 1998 an Annual Budget for the current
fiscal year in form and substance acceptable to the Lenders,
(e) concurrently with the financial statements referred to in
Sections 12.1.8(a) and 12.1.8(b), a compliance certificate,
signed by a Responsible Officer of the Borrower, substantially
in the form of SCHEDULE "S", certifying (a) that the financial
and other information contained therein is true and correct in
all material respects as of the date the certificate is
delivered to the Lenders, (b) that the officer executing such
certificate has no knowledge of any Default or Event of Default,
which is continuing or, if such officer does have knowledge of
any such Default or Event of Default, describing the Default or
Event of Default, including the date of its commencement and any
remedial action taken, (c) that the officer executing such
certificate has no knowledge of any Material Adverse Effect
which has not been cured or waived in writing by the Lenders,
and
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(d) as to certain details and calculations, as specified
therein, with respect to compliance with the covenants set forth
in Section 12.1.28,
(f) within 60 days after the end of each quarterly accounting period
in each fiscal year, a report signed by a Responsible Officer of
the Borrower setting forth, as at the end of such quarterly
period, the Borrowing Base of the Borrower as well as the order
backlog of the Borrower, such report to be in the form and
substance of SCHEDULE "A",
(g) promptly after the same are sent, copies of all financial
statements, reports and other disclosure information which the
Borrower or any of its Subsidiaries makes public or sends to its
common or preferred stockholders as a class, and promptly after
the same are filed, copies of all regular or periodic reports or
similar materials filed by the Borrower or any of its
Subsidiaries with any securities exchange or securities
commission or similar governmental authority, and
(h) promptly following the request of a Lender therefor, such other
information relating to the Borrower or any of its Subsidiaries,
including without limitation, information relating to their
financial or other condition, business, assets, operations or
prospects, as a Lender may from time to time reasonably request,
in each case, in form and substance and certified in a manner
satisfactory to the requesting Lender;
12.1.9 CHANGE IN AUDITORS: it will promptly give notice to each Lender of a
change in its Auditors and the reasons underlying the change;
12.1.10 NOTICE OF DEFAULT AND OTHER EVENTS: it will promptly, after obtaining
knowledge thereof, give notice to each Lender of the occurrence of any
Default or Event of Default and of any event which constitutes a default
to comply with any of the terms and conditions of the Phoenix (USA) Term
Facility or the IBRD Revolving Facility, including the date of its
commencement and the action which it or its relevant Subsidiary proposes
to take with respect to the same and the estimated date when the same
will be remedied or resolved; it will also promptly after the occurrence
of any event which has had or is reasonably likely to have a Material
Adverse Effect notify each Lender of the details thereof;
12.1.11 NOTICE OF BREACH OF PERMIT: it will give prompt written notice to each
Lender of any breach of any certificate, approval, permit, consent,
order or direction concerning its operations or that of any of its
Subsidiaries or concerning the installation or operation of any of its
equipment or facility or machinery, equipment or facility of any of its
Subsidiaries or concerning any structure, activity, or facility on any
of its lands or premises or the lands or premises of any of its
Subsidiaries, which breach could have a Material Adverse Effect;
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12.1.12 NOTICE OF LITIGATION: it will promptly give notice to each Lender of the
occurrence of any litigation, proceeding or dispute affecting it or any
of its Subsidiaries if its result could have a Material Adverse Effect
and will from time to time provide all reasonable information requested
by any Lender concerning the status of any such litigation, proceeding
or dispute;
12.1.13 ACCESS: it will, and will cause each of its Subsidiaries to, permit each
Lender or representatives of any Lender, to inspect its properties, as
the case may be, and make abstracts from and copies of their books,
accounts and records and discuss their affairs with its management, all
at such reasonable times as such Person may desire upon giving prior
reasonable notice to whole at the expenses of the Borrower;
12.1.14 RELIANCE: it will permit each Lender to rely on the authority of the
individuals providing any certificate, report, notices and other
information delivered under any of the Credit Documents including,
without limitation, the certificate and reports delivered under Section
12.1.8, until notice to the contrary is received by each Lender;
12.1.15 CHANGE OF NAME, NEW LOCATIONS: it will advise each Lender or cause each
Lender to be advised in writing not less than 30 days before any of the
Credit Parties
(A) makes any change to its name or
(B) changes the location of its chief executive office or principal
place of business or acquires any new such locations, other than
those set forth in SCHEDULE "G";
before any such change of name or of location or before any acquisition
of another location (whether by purchase, lease or otherwise) by the
Borrower or any of its Subsidiaries, the Borrower shall provide the
Lenders with such financing statements, charges, assignments, hypothecs,
security interests, (and, on a best efforts basis, landlord agreements,
warehouseman/bailee agreements, mortgagee consents and agreements),
other Credit Documents and legal opinions as any of the Lenders may
reasonably require in order to assure and maintain the perfected, first
priority Lien on the Collateral, subject only to Permitted Liens, and to
assure access thereto;
12.1.16 MAINTENANCE OF, AND ADDITIONAL, SECURITY: it will fully and effectually
maintain and keep maintained and cause each of the other Credit Parties
having granted security to the Lenders pursuant to any of the Credit
Documents to fully and effectually maintain and keep maintained the
Liens granted pursuant to the Credit Documents as valid, effective and
perfected, first priority Liens at all times
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(subject to Permitted Liens) so long as any of the Obligations shall be
outstanding and will, in this respect, comply with the provisions of
Article X.
Without restricting the foregoing, within 60 days of a request therefor
by the Lenders, the Borrower shall, at its expense, cause additional
Liens to be granted to the Lenders and/or registrations, recordings or
filings to be made, in England and/or Italy and/or any other
jurisdiction (as the Lenders may reasonably designate in the said
request) so as to ensure that the Lenders shall have first priority
Liens (subject to Permitted Liens) over the accounts receivable owing to
the Borrower by account debtors located in the said jurisdiction for
aggregate amounts in excess of Cdn$500,000 or the Equivalent Amount in
currencies other than Canadian Dollars, the whole supported by legal
opinions satisfactory to the Lenders;
12.1.17 LIENS ON AFTER-ACQUIRED PROPERTY: it will promptly notify the Lenders of
any Real Property owned or acquired by the Borrower or any of the other
Credit Parties after the date hereof which is not listed on SCHEDULE "E"
and not then subject to a Lien in favour of the Lenders. It will, within
30 days after the request of the Lenders, execute or cause to be
executed by the relevant Credit Party in favour of and deliver to the
Lenders all agreements and other documentation necessary to establish in
favour of the Lenders perfected, first priority Liens (subject to
Permitted Liens) in all such Real Property, in form and substance
satisfactory to the Lenders, and opinions of counsel acceptable to the
Lenders, in form and substance satisfactory to the Lenders, as to, among
other things, the validity and perfection of such Liens and the
enforceability of such Liens, PROVIDED that the requirements of this
Section 12.1.17 shall not apply to Subsidiaries, if any, not required to
provide security to the Lenders pursuant to this Agreement;
12.1.18 INTELLECTUAL PROPERTY
it will, and it will cause each of its Subsidiaries to, make application
to register its material Intellectual Property, as is appropriate in its
best interests, and use its best efforts to preserve and maintain all of
its material Intellectual Property, as is appropriate in its best
interests; with respect to all options or licence rights constituting
material Intellectual Property in which security was granted to the
Lenders pursuant to any of the Credit Documents, it shall promptly
deliver or cause to be delivered to the Lenders, in form and substance
satisfactory to them, acting reasonably, an agreement duly executed by
each owner and (in the case of rights sub-licensed to any of the Credit
Parties) licensor of such Intellectual Property consenting to the grant
of security in such rights and Lenders' use of such rights on the
exercise of their rights and remedies under the Credit Documents;
12.1.19 DISTRIBUTIONS FROM SUBSIDIARIES: it shall cause all of its Subsidiaries
to make cash Distributions to or for the benefit of the Borrower so as
to ensure that the
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Borrower shall at all times remain Solvent and able to meet its payment
and other Obligations under all Credit Documents;
12.1.20 SUPPLEMENTAL DISCLOSURE. the Borrower will promptly supplement each
Schedule with respect to any matter arising after the date hereof which,
if existing on or before the date hereof, would have been required to be
set out or described in such Schedule or which is necessary to correct
any information in such Schedule which has been rendered inaccurate
after the date hereof; provided, however, that such supplemental
disclosure shall not constitute a cure or waiver of any Default or Event
of Default arising or existing as a result of the matter so disclosed;
12.1.21 CANADIAN BENEFIT AND PENSION PLANS:
(a) for each existing Canadian Pension Plan and Canadian Benefit
Plan and for any Canadian Pension Plan or Canadian Benefit Plan
hereafter adopted, it will, and will cause its Subsidiaries to,
perform, in a timely fashion, all obligations (including
fiduciary, funding, investment and administration obligations)
required to be performed in connection with such plan and the
funding media therefor in accordance with the terms of such plan
and all Applicable Laws,
(b) it will, and will cause its Subsidiaries to, deliver to the
Lenders (i) if requested by a Lender, acting reasonably,
promptly after the filing thereof by it or one of its
Subsidiaries with the appropriate authorities, copies of each
annual and other return, report or valuation with respect to
each Canadian Pension Plan, copies of any actuarial report with
respect to each Canadian Pension Plan and a copy of the audited
annual financial report with respect to each Canadian Pension
Plan and (ii) promptly after receipt thereof, a copy of any
direction, notice or other communication in respect of any
breach of Applicable Law relating to the Canadian Pension Plans
and Canadian Benefit Plans of the Borrower and its Subsidiaries
(a) which would have the effect of increasing the funding
obligation in respect of each such plan, or (b) which could
result in the imposition of any Lien on any of the properties or
assets of the Borrower or one of its Subsidiaries, as well as a
copy of any order or ruling that such Credit Party may receive
from any applicable authority with respect to any Canadian
Pension Plan or Canadian Benefit Plan;
12.1.22 ERISA REPORTING: the Borrower will make, or cause its Subsidiaries to
make, the following reporting to the Lenders:
(a) ERISA EVENTS AND ERISA REPORTS: (i) promptly and, in any event,
within ten days after the Borrower or any of its Subsidiaries or
any ERISA Affiliate knows or has reason to know that any ERISA
Event has occurred,
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a statement of a Responsible Officer of the Borrower describing
such ERISA Event and the action, if any, that the Borrower or
such Subsidiary or such ERISA Affiliate has taken and proposes
to take with respect thereto, and (ii) on the date any records,
documents or other information must be furnished to the PBGC
with respect to any Plan pursuant to Section 4010 of ERISA, a
copy of such records, documents and information;
(b) PLAN TERMINATIONS: promptly and, in any event, within two
Business Days after receipt thereof by the Borrower or any of
its Subsidiaries or any ERISA Affiliate, copies of each notice
from the PBGC stating its intention to terminate any Plan or to
have a trustee appointed to administer any Plan;
(c) ACTUARIAL REPORTS: promptly upon receipt thereof by the Borrower
or any of its Subsidiaries or any ERISA Affiliate, a copy of the
annual actuarial valuation report for each Plan the funded
current liability percentage (as defined in Section 302(d)(8) of
ERISA) of which is less than 90%;
(d) PLAN ANNUAL REPORTS: promptly and, in any event, within 30 days
after the filing thereof with the Internal Revenue Service of
the United States of America, copies of each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series)
with respect to each Plan; and
(e) MULTIEMPLOYER PLAN NOTICES: promptly and, in any event, within
five Business Days after receipt thereof by the Borrower or any
of its Subsidiaries or any ERISA Affiliate from the sponsor of a
Multiemployer Plan, copies of each notice concerning (i) the
imposition of Withdrawal Liability by any such Multiemployer
Plan, (ii) the reorganization or termination, within the meaning
of Title IV of ERISA, of any such Multiemployer Plan or (iii)
the amount of liability incurred, or that may be incurred, by
the Borrower or such Subsidiary or any ERISA Affiliate in
connection with any event described in clause (i) or (ii);
12.1.23 ENVIRONMENTAL MATTERS: it shall, and shall cause each of its
Subsidiaries to, comply strictly and in all respects with the
requirements of environmental protection laws, regulations, by-laws and
other requirements applicable to its property and activities and shall
notify the Lenders immediately in the event of any release or discovery
of any contaminant upon, under, over or within its property or any
continguous real property or any real property on or near which a
contaminant could reasonably be anticipated to be released that may
materially adversely affect its property and activities;
12.1.24 ENVIRONMENTAL PERMITS: it shall, and shall cause each of its
Subsidiaries to, promptly forward to the Lenders copies of all notices,
permits, orders, demands or other documents and reports in connection
with any release or the presence of any
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contaminant or any matters relating to environmental protection laws or
otherwise as they materially affect its property and activities;
12.1.25 ENVIRONMENTAL INFORMATION: it shall, and shall cause each of its
Subsidiaries to, provide the Lenders, upon demand and at the Borrower's
expense, with all the information that a Lender may reasonably require
regarding the environmental situation of the Borrower or any of its
Subsidiaries, notably concerning their respective activities, movable
and immovable property, including an environmental audit report prepared
by an environmental engineering firm acceptable to the Lenders.
The Borrower acknowledges that it will be reasonable for a Lender to
periodically request from the Borrower a confirmation that the
statements regarding the environment contained herein are still true and
that as of the date of such confirmation, no event occurred that may
materially affect in any way its property and activities or that of its
Subsidiaries insofar as environmental protection is concerned;
12.1.26 ENVIRONMENTAL ACCESS: it shall, and shall cause each of its Subsidiaries
to, allow each Lender and its agents reasonable access to its property
or to any information regarding its property or activities to enable
such Lender to assess the risk that the environmental situation of the
Borrower or any of its Subsidiaries represents to the Lenders, to
anticipate its effect or to take corrective action;
12.1.27 SAINT-LAURENT PROPERTY: within 30 days from the date of execution of
this Agreement, the Borrower shall deliver to the Lenders, in form and
substance satisfactory to the Lenders, a copy of a subdivision plan
dated no earlier than in 1995 and a copy of a title report (which need
not be addressed to the Lenders) with respect to the Real Property of
the Borrower located in Saint-Laurent described in SCHEDULE "E"; such
plan, if dated more than three months prior to the date of execution of
this Agreement, shall be accompanied by a certificate of a Responsible
Officer of the Borrower to the effect that the said Real Property has
not been subject to any structural change since the date of the said
plan and that such plan accurately sets forth the present state of the
said Real Property;
12.1.28 FINANCIAL RATIOS: the Borrower will maintain, on a Consolidated basis:
12.1.28.1 a Shareholders' Equity of not less than:
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- Cdn$110,000,000, as at February 28, 1998 through to
November 29, 1998,
- Cdn$115,000,000, as at November 30, 1998 through to
August 30, 1999,
- Cdn$120,000,000, as at August 31, 1999 and at all times
thereafter;
12.1.28.2 a Coverage Ratio, for each period of four consecutive fiscal
quarters, of not less than:
- for the period of four consecutive fiscal quarters
ending on February 28, 1998: 4.00:1.00,
- for the period of four consecutive fiscal quarters
ending on May 31, 1998: 3.25:1.00,
- commencing with the period of four consecutive fiscal
quarters ending August 31, 1998 and for each period of
four consecutive fiscal quarters thereafter: 1.75:1.00;
12.1.28.3 a Current Ratio of not less than:
- at all times during the fiscal year ending August 31,
1998: 1.00:1.00,
- at all times during the fiscal year ending August 31,
1999: 1.15:1.00, and
- at all times after August 31, 1999: 1.35:1.00; and
12.1.29 KEY MEN: the Borrower shall ensure that Dr. John W. Hooper and Dr.
Lucien Steru shall remain closely associated with the Borrower or its
Subsidiaries, either as employees, officers or directors, on a permanent
basis until the termination of this Agreement.
SECTION 12.2 NEGATIVE COVENANTS OF THE BORROWER
- -------------------------------------------------------------
While any Obligations remain outstanding or either of the Lenders have any
obligations under any of the Credit Documents, the Borrower covenants and agrees
with each of the Lenders that, unless the Lenders shall otherwise consent in
writing:
12.2.1 NEGATIVE PLEDGE: it will not, nor will it permit any of its Subsidiaries
to, create, incur, assume or suffer to exist any Lien upon any of its
undertaking, property,
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rights, revenues or assets, whether now owned or hereafter acquired,
save for Permitted Liens;
12.2.2 SALE OF ASSETS: it will not, and will not permit any of its Subsidiaries
to, sell, alienate, assign, lease or otherwise dispose of any of its
property and assets, whether now owned or possessed or hereafter
acquired or possessed, or enter into any sale and leaseback transaction
with respect to any such property or assets, save for sales,
alienations, assignments or leases of property and assets of the
Borrower and its Subsidiaries in the ordinary course of business and for
the purpose of carrying on the same and save for dispositions of assets
having a fair market value of less than five percent of the total assets
of the Borrower and all its Subsidiaries in any fiscal year, unless
otherwise consented to by the Lenders (which consent shall not be
unreasonably withheld or delayed);
12.2.3 INDEBTEDNESS, GUARANTEES, LOANS: it will not, nor will it permit the
other Credit Parties to, incur additional Indebtedness, or enter into or
assume any responsibility under any Guarantee, or make any additional
loans to or investments in any other Person, if the aggregate amount of
the foregoing additional indebtedness, guarantees and loans at any one
time outstanding would exceed US$1,600,000, including, for purposes of
clarification, the following:
(a) Guarantees outstanding on the date hereof in favour of Star
Bank, N.A. of Cincinnati in the principal amount of
US$1,300,000, and
(b) a Guarantee outstanding on the date hereof in favour of Human
Biologics International Inc. in the principal amount of
US$300,000;
12.2.4 REORGANIZATION AND AMALGAMATION: it will not, and will not permit any of
the other Credit Parties to, wind up, liquidate or dissolve its
business, affairs or assets or enter into any transaction of
reorganization, amalgamation, merger or consolidation, or convey, sell,
lease or otherwise dispose of (or agree to do any of the foregoing at
any future time) any substantial part of its property and assets, save
as permitted under Section 12.2.2, and except that IBRD may be
amalgamated with Phoenix (USA) (the continuing corporation from any such
amalgamation, the "CONTINUING CORPORATION"); provided that (i) the
Lenders have received 30 days' prior written notice of such
amalgamation, (ii) the Continuing Corporation shall have assumed all of
the obligations of the amalgamating corporations under all the Credit
Documents to which one or more amalgamating corporations are parties and
shall have agreed to be bound by all such Credit Documents in one or
more supplemental indentures in form and substance satisfactory to the
Lenders, acting reasonably, and shall have delivered such supplemental
indentures to the Lenders, (iii) no condition or event shall exist
either at the time of or immediately after any such amalgamation and
after giving full effect thereto or after the Continuing Corporation
complies with the provisions of clause (ii) above which constitutes a
Default or Event of Default,
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(iv) such amalgamation shall be carried out on such terms and in such
manner as will preserve and not impair or be prejudicial to the
interests of the Lenders, (v) after giving effect to such amalgamation,
the Lenders shall have a perfected, first priority Lien, subject only to
Permitted Liens, in all property rights and assets of the Continuing
Corporation and (vi) the Lenders shall have received such other
documents, instruments, agreements, waivers, consents, legal opinions
(including, without limitation, as to each amalgamation being on terms
as to preserve and not impair any of the rights and remedies of the
Lenders) and certificates as the Lenders may request in connection with
such transactions;
12.2.5 NO CHANGE IN NATURE OF BUSINESS: it will not, and it will ensure that
each of the other Credit Parties do not significantly change the nature
of its business;
12.2.6 DISTRIBUTIONS: it will not, and will not permit any of its Subsidiaries
to, make any Distribution other than as required by Section 12.1.19;
12.2.7 CAPITAL EXPENDITURES: it will not, and will not allow any of its
Subsidiaries to undertake any Capital Expenditures (including
investments) hereafter exceeding an aggregate amount of Cdn$15,000,000
in fiscal year 1998 and of Cdn$10,000,000 in fiscal year 1999; and
12.2.8 FINANCIAL YEAR: it will not, and it will cause each of its Subsidiaries
not to, change its financial year, except for a change thereof to a
financial year-end identical to that of the Borrower;
ARTICLE XIII
REIMBURSEMENT OF EXPENSES AND INDEMNITY
SECTION 13.1 - REIMBURSEMENT OF EXPENSES
- ------------------------------------------------------
All statements, reports, certificates, opinions and other documents or
information required to be furnished to the Lenders or either of the Lenders by
the Borrower or the other Credit Parties under this Agreement and the other
Credit Documents shall be supplied without cost to the Lenders. Furthermore, the
Borrower agrees to reimburse promptly to the Lenders or either of the Lenders on
demand, all of the Lenders' reasonable legal fees, costs and other out-of-pocket
expenses (and tax on goods and services in respect thereof) incurred from time
to time in the preparation, negotiation, execution, registration, if applicable,
and operation of this Agreement and the related documents, including the
Subsidiary Guarantees and the Collateral Documents. In addition, the Borrower
agrees to pay all of such legal fees, costs and expenses (and tax on goods and
services in respect thereof) of each of the Lenders incurred in the enforcement
of this Agreement and of any other document to be executed and issued as
provided herein, including the Subsidiary Guarantees and the Collateral
Documents.
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The Borrower will reimburse the Lenders and either of them promptly with
interest after written demand at a rate per annum equal to the applicable rate
set forth in Section 4.2 for any and all expenditures which the Lenders or
either of them may from time to time make, lay out or expend pursuant to this
Section 13.1 and in providing such protection in respect of insurance, discharge
of Liens, Taxes, dues, assessments, governmental charges, fines and penalties
lawfully imposed, repairs, attorney's fees and other matters as the Borrower or
any other Credit Party is obligated herein or in any other Credit Document to
provide, but fails to provide. Such reimbursement obligations shall be an
additional Indebtedness due from the Borrower and shall be payable by the
Borrower on demand. The Lenders though privileged so to do, shall be under no
obligation to the Borrower to make any such expenditure and the making thereof
by a Lender shall not relieve the Borrower or any other Credit Party of any
default in that respect.
SECTION 13.2 - INDEMNITY
- --------------------------------------
Whether or not a Default or an Event of Default has occurred, the Borrower
covenants and undertakes to indemnify, defend, protect and hold harmless each of
the Lenders and its directors, officers, employees, attorneys, trustees and
agents (collectively, the "INDEMNITEES") against and from all losses, damages
(including foreseeable and unforeseeable consequential damages and punitive
damages), expenses, liabilities, obligations, penalties, actions, judgements,
suits, claims, costs, expenses and disbursements (including reasonable
attorneys' and consultants' fees and disbursements) (hereinafter, "LOSSES")
which any Indemnitee may sustain or incur (including, without limitation, any
loss of profit and expenses a Lender may incur (a) by reason of the liquidation,
re-employment or re-deployment of deposits or other funds acquired by such
Lender to fund or to maintain the Borrowings, (b) by reason of any interest,
charges or other amounts paid or payable by a Lender to providers of funds
borrowed or acquired in order to make, to fund or to maintain the Borrowings or
any amount unpaid by the Borrower or other Credit Party hereunder or under any
of the other Credit Documents or (c) by reason of the termination, or otherwise
in connection with, any Letter of Credit or FEF Contract) as a consequence of or
in connection with (including without limitation, in connection with any
investigation, litigation or proceeding or preparation of a defence in
connection therewith):
13.2.1 the Acquisition Transaction,
13.2.2 the Credit Facilities and any use made or proposed to be made with the
proceeds thereof,
13.2.3 any failure of the Borrower to borrow in the amount and on the date
specified therefor in any notice of Borrowing pursuant to this
Agreement,
13.2.4 any failure of the Borrower to timely provide a conversion or renewal
notice when required in respect of any Borrowing pursuant to the terms
hereof,
13.2.5 any failure of the Borrower to make a payment, repayment, prepayment or
conversion specified in a notice of repayment, prepayment or conversion
hereunder, or when otherwise due hereunder,
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13.2.6 the payment by the Borrower of principal amounts in respect of a Libor
Loan or a Bankers' Acceptance on any day other than the last day of the
related Libor Interest Period or other than the date of maturity of such
Bankers' Acceptance, as the case may be,
13.2.7 the payment of amounts owing in respect of an FEF Contract on a day
other than the scheduled expiry thereof,
13.2.8 the issuance of any Letter of Credit as contemplated herein or any of
the matters contemplated by the provisions of Section 6.6,
13.2.9 the issuance of credit cards under the Royal Visa Facility and any use
of such credit cards or any claim made in respect thereof,
13.2.10 any misrepresentation by the Borrower or any other Credit Party
contained in or delivered in writing in connection with this Agreement,
the other Credit Documents or the Acquisition Transaction,
13.2.11 the occurrence of a Default or an Event of Default,
13.2.12 defending and/or counterclaiming or claiming over against third parties
in respect of any action or matter in connection with or relating to
this Agreement, or the other Credit Documents, or
13.2.13 the actual or alleged presence of Hazardous Materials on, under or in
any Properties or the escape, seepage, leakage, spillage, discharge,
emission or release from, any Property or into or upon any land, the
atmosphere, or any watercourse, body of water or wetland, of any
Hazardous Materials or any Environmental Claim relating to the Borrower,
any other Credit Party or any other Subsidiaries of the Borrower, or any
of the Properties or arising out of the use of any of the Properties;
and the provisions of and undertakings and indemnification set out in this
Section shall survive the satisfaction and release of the Subsidiary Guarantees,
the Collateral Documents and other security for, and payment and satisfaction of
the Indebtedness and liability of the Borrower to the Lenders pursuant to this
Agreement and the other Credit Documents.
Without restricting the foregoing provisions, in the event that BNP's Fixed Rate
Loan is repaid prior to the expiry of its term as agreed to at the time of the
granting thereof, the Borrower will pay to BNP an additional indemnity equal to
the surplus of (a) the interest which the repaid amount would have produced, at
the applicable interest rate on the date of reimbursement, for the period
beginning at such date and ending on the Maturity Date, over (b) the interest
which the repaid amount would have produced, for the same period, at BNP's then
prevailing rate for a term deposit of the same amount and period, as posted by
BNP.
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SECTION 13.3 - SURVIVAL OF INDEMNIFICATION OBLIGATIONS
- --------------------------------------------------------------------
Without prejudice to the survival or termination of any other agreement of the
Borrower under this Agreement, the obligations of the Borrower under Sections
13.1 and 13.2 shall survive the payment of principal and interest on all
Borrowings and the termination of the Commitments.
ARTICLE XIV
OTHER TAXES
SECTION 14.1 - OTHER TAXES
- ----------------------------------------
The Borrower covenants and agrees that it will pay any documentary, stamp or
other Taxes (including interest and penalties) which may be payable or
determined to be payable by any governmental or taxation authority in respect of
the execution and delivery of this Agreement, the other Credit Documents and the
related documents, including the Bankers' Acceptances, Letters of Credit or
acceptances thereunder, FEF Contracts and credit cards issued under the Royal
Visa Facility and transactions thereunder or the performance of the terms and
provisions hereof or thereof, and will save each of the Lenders harmless against
any loss or liability resulting from non-payment or delay in payment of any such
documentary, stamp or other Taxes.
SECTION 14.2 - SURVIVAL OF OBLIGATIONS
- ----------------------------------------------------
The obligation of the Borrower under Section 14.1 to pay the Taxes referred to
therein shall survive the payment of principal and interest on all Borrowings
and the termination of the Commitment if such Taxes have not been paid.
ARTICLE XV
EVENTS OF DEFAULT
SECTION 15.1 - EVENTS OF DEFAULT
- ----------------------------------------------
The occurrence of any one or more of the following events or circumstances shall
constitute an Event of Default under this Agreement:
15.1.1 FAILURE TO PAY: if the Borrower defaults (a) in the payment of any
principal sum payable hereunder when the same shall become due and
payable or (b) in the payment of any interest, fees or other sum payable
hereunder other than principal within three days of the time the same
shall become due and payable;
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15.1.2 BREACH OF FINANCIAL COVENANTS: if the Borrower breaches any financial
ratio set forth in Section 12.1.28 of this Agreement;
15.1.3 OTHER BREACHES: if the Borrower fails to carry out or observe any
covenant or condition contained in this Agreement (other than under
Sections 12.1.1 or 12.1.28) or in any other agreement with a Lender, to
be observed or performed by the Borrower and such failure, if capable of
being cured, shall remain uncured for a period of 10 days following
notice by a Lender;
15.1.4 BANKRUPTCY: the occurrence of any Act of Bankruptcy (as defined below);
for the purposes of this Section 15.1.4, an "ACT OF BANKRUPTCY" means
any of the following:
(a) any Credit Party admits in writing its inability to pay its
debts generally as they become due,
(b) any Credit Party makes a general assignment for the benefit of
creditors,
(c) any Credit Party becomes subject to any bankruptcy proceedings
which it is not contesting in good faith, diligently and by
appropriate means or which proceedings continue undischarged,
unstayed or undismissed for a period of 45 days,
(d) any Credit Party submits to or makes any application for the
purpose of suspension of payment of its liabilities,
(e) any Credit Party petitions to or applies to any tribunal or
authority for the appointment of any administrator, receiver,
trustee or intervenor for it or for any substantial part of its
property,
(f) any Credit Party commences or has commenced against it any
proceedings (including a notice of intention or a proposal under
the BANKRUPTCY AND INSOLVENCY ACT (Canada) and including any
proceeding under the COMPANIES CREDITORS' ARRANGEMENT ACT
(Canada)) under any domestic or foreign law, statute, regulation
or decree whether now or hereafter in effect, relating to it or
its debt, reorganization, arrangement, adjustment, dissolution
or liquidation, which proceedings it is not contesting in good
faith, diligently and by appropriate means or which proceedings
continue undischarged, unstayed or undismissed for a period of
45 days,
(g) any Credit Party becomes bankrupt within the meaning of the
BANKRUPTCY AND INSOLVENCY ACT (Canada), or any successor or
equivalent legislation in any jurisdiction,
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(h) any Credit Party by any act indicates its consent to, approval
of, or acquiescence in any bankruptcy, reorganization or
insolvency proceeding under any domestic or foreign law relating
to bankruptcy, insolvency or relief of debtors or any proceeding
for the appointment of a receiver or trustee for itself or for
any substantial part of its property or suffers any such
receivership or trustee to remain undischarged for a period of
45 days,
(i) the directors or shareholders of any Credit Party pass a
resolution for the winding-up or dissolution of such Credit
Party, or any Credit Party instigates proceedings for its
winding-up or dissolution or consents to, approves of or
acquiesces in, any filing or petition with respect to such
proceedings,
(j) either Lender receives a request, in respect of the Borrower,
from any relevant taxing authority as contemplated by Section
3.13;
15.1.5 SEIZURE: if an encumbrancer takes possession of any part of the assets
of any Credit Party having a book value or a fair value in excess of
Cdn$500,000 or the Equivalent Amount in other currencies, or if a
seizure, distress or execution or any similar process is levied or
enforced thereagainst and remains unsatisfied for such period as would
permit such part thereof, to be sold thereunder;
15.1.6 JUDGMENT: if a final judgment or order of a court for the payment of
money in excess of Cdn$500,000 or the Equivalent Amount in any other
currency is rendered against any Credit Party and is not paid or
discharged within 30 days;
15.1.7 INVALIDITY OR UNENFORCEABILITY: if at any time a court of competent
jurisdiction makes any judgment or order or any law, ordinance, decree
or regulation is enacted, the effect whereof is to render this Agreement
or any of the other Credit Documents or any material provision hereof or
thereof, invalid or unenforceable, and if within 30 days after the
making of such judgment, order, law, ordinance, decree or regulation,
the Borrower fails to furnish or cause to be furnished to the Lenders
replacement documents evidencing and, where applicable, guaranteeing or
securing its Indebtedness hereunder which are adequate in the opinion of
the Lenders;
15.1.8 CROSS-DEFAULT: if any Credit Party fails to pay upon demand, in the case
of monies payable on demand, or at maturity, or within any applicable
period of grace, any obligation for monies borrowed, raised or
guaranteed in an amount of Cdn$500,000 or more or the Equivalent Amount
in any other currency or fails to observe or perform any term, covenant
or agreement contained in any agreement by which it is bound evidencing
or securing monies borrowed, raised or guaranteed in an amount of
Cdn$500,000 or more or the Equivalent Amount in any other currency, and,
as a result, the holder or holders, or beneficiary or
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beneficiaries, thereof or of any such obligations issued thereunder
cause or are entitled to cause the acceleration of the maturity thereof
or of any such obligation;
15.1.9 PHOENIX (USA) TERM FACILITY AND IBRD REVOLVING FACILITY: if there occurs
an "event of default" within the meaning of the Phoenix (USA) Term
Facility or the IBRD Revolving Facility, PROVIDED that any requirement
for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied;
15.1.10 CEASING TO CARRY ON BUSINESS: if any Credit Party ceases or threatens to
cease to carry on in the ordinary course its business or a substantial
part thereof;
15.1.11 OWNERSHIP OF SUBSIDIARIES: if either of Phoenix (USA) or IBRD ceases at
any time to be Wholly-Owned Subsidiaries of the Borrower;
15.1.12 REPRESENTATIONS AND WARRANTIES: if any representation or warranty made
by any Credit Party in this Agreement, in any other Credit Document or
in any document or certificate furnished to the Lenders in connection
herewith or therewith shall prove at any time to have been incorrect in
any material respect, as at the date made or deemed to have been made;
15.1.13 SUBSIDIARY GUARANTEES AND COLLATERAL DOCUMENTS: if any of the Subsidiary
Guarantees and Collateral Documents ceases for any reason to be in full
force and effect at any time, with or without the Lenders being notified
thereof;
15.1.14 ENVIRONMENTAL MATTER: if there occurs a material breach of any law,
regulation, by-law or requirement, whether federal, provincial, state,
municipal or otherwise, concerning pollution of the environment, toxic
materials, or other environmental hazards, or public health and safety,
affecting any of the Credit Parties' property or activities; or
15.1.15 MATERIAL ADVERSE CHANGE AND DETRIMENTAL LEGAL PROCEEDINGS: if, in the
opinion, of either of
the Lenders:
(a) there occurs an event, act, circumstance or condition (financial
or other) which constitutes a Material Adverse Change, or
(b) any Credit Party is subject to legal proceedings detrimental to
the affairs of the Borrower,
and such act, circumstance or condition or such legal proceeding, if
capable of being remedied or terminated, has not been remedied or
terminated in a manner satisfactory to the Lenders within ten days
following written notice thereof by a Lender to the Borrower.
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SECTION 15.2 - ACCELERATION
Without in any way restricting the right of BNP, at its sole discretion, to
terminate at any time the BNP FEF Facility and of Royal, at its sole discretion,
to terminate at any time the Royal Credit Line Facility, the Royal FEF Facility
and the Royal Visa Facility, or any of them, and to require at any time the
payment of any Borrowings under demand facilities hereunder, upon the occurrence
and during the continuance of any Event of Default with respect to a Lender,
such Lender may declare its Commitment to be terminated and thereby terminate
the right of the Borrower to apply for further Borrowings from such Lender, and
in addition such Lender may, by written notice to the Borrower declare all
Indebtedness and liabilities of the Borrower outstanding to the said Lender
hereunder to be immediately due and payable without presentation, demand,
protest or other notice of any kind, all of which are expressly waived by the
Borrower, provided that the Commitments of both Lenders and the right of the
Borrower to apply for further Borrowings shall automatically be terminated and
all Indebtedness and liabilities of the Borrower to the Lenders outstanding
hereunder shall be immediately due and payable without any written notice to the
Borrower as provided above and without any other presentation, demand, protest
or other notice of any kind if an Event of Default has occurred in respect of a
Credit Party pursuant to Section 15.1.4. In such event, the Borrower shall pay
immediately to the Lender having given the written notice or to both Lenders (in
the case of an Event of Default under Section 15.1.4), as applicable, and the
Borrower hereby acknowledges that it shall then be indebted for the payment of
all amounts owing or payable under this Agreement to the Lender having given the
aforementioned written notice or to both Lenders (in the case of an Event of
Default under Section 15.1.4), as applicable, including, without limitation:
(a) all principal and interest owing in respect of outstanding Loans with
such Lender or Lenders, as applicable,
(b) the face amount of all Bankers' Acceptances accepted by the said Lender
or Lenders, as applicable, and outstanding, together with the Discount
and Acceptable Fees unpaid in respect thereof,
(c) an amount equal to the full outstanding amount of all Letters of Credit
issued hereunder by such Lender or Lenders, as applicable, together with
all fees and costs in respect thereof,
(d) an amount equal to all such amounts, if any, as would then have to be
paid by the Borrower to the said Lender or Lenders, as applicable, in
respect of any FEF Contracts then outstanding which are terminated as
provided herein or as provided in such FEF Contracts, and
(e) all fees, costs, expenses and indemnities payable by the Borrower under
this Agreement,
failing which all rights and remedies of the Lender having given the aforesaid
written notice or of both Lenders (in the case of an Event of Default under
Section 15.1.4), as applicable, shall
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thereupon become enforceable. The Borrower shall have no right to set up as
against either of the Lenders any defence or right of action, of indemnification
or of set-off or compensation or any similar claim of any nature whatsoever
which the Borrower may have had at any time or may have in the future with
respect to any holder of one or more Banker's Acceptance(s) issued hereunder or
to any beneficiary or other Person in connection with one or more Letter(s) of
Credit issued hereunder or FEF Contract(s) entered into as contemplated herein.
SECTION 15.3 - NO NOTICES
- -------------------------------------
Save as otherwise expressly provided for herein, no notice or mise en demeure of
any kind shall be required to be given to the Borrower by the Lenders for the
purpose of putting the Borrower in default, the latter being in default by the
mere lapse of time allowed for the performance of an obligation or by the mere
happening of an event or circumstance constituting an Event of Default.
ARTICLE XVI
REMEDIES
SECTION 16.1 - REMEDIES CUMULATIVE
- ------------------------------------------------
Subject to Section 17.1 and for greater certainty, it is expressly understood
and agreed that the rights and remedies of the Lenders under this Agreement are
cumulative and are in addition to and not in substitution for any rights or
remedies provided by law; any single or partial exercise by a Lender of any
right or remedy for a default or breach of any term, covenant, condition or
agreement herein contained, shall not be deemed to be a waiver of or to alter,
affect or prejudice any other right or remedy or other rights or remedies to
which a Lender may be lawfully entitled for the same default or breach, and any
waiver by a Lender of the strict observance, performance or compliance with any
term, covenant, condition or agreement herein contained, and any indulgence
granted by a Lender, shall be deemed not to be a waiver of that or any
subsequent default.
Each Lender may, to the extent permitted by Applicable Law, bring suit at law,
in equity or otherwise for any available relief or purpose including but not
limited to (A) the specific performance of any covenant or agreement contained
in this Agreement, or in any other Credit Document, (B) an injunction against a
violation of any of the terms hereof or thereof, (C) the exercise of any power
granted hereby or thereby or by law, or (D) obtaining and enforcing judgment for
any and all amounts due in respect of the Borrowings or amounts otherwise due
hereunder or under any other Credit Document.
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ARTICLE XVII
WAIVER OF DEFAULT
SECTION 17.1 - WAIVER OF DEFAULT
- ----------------------------------------------
(a) If at any time after the occurrence of an Event of Default concerning a
Lender, the Borrower offers to cure completely such Event of Default and
to pay all expenses, advances and damages to such Lender consequent to
such Event of Default, with interest at the rates or increased rates
then applicable to the respective outstanding Borrowings, then the said
Lender may, but shall not be obligated to, accept such offer and
payment, but such action shall not affect any subsequent Event of
Default or impair any rights consequent thereon;
(b) no waiver by a Lender of any Event of Default shall in any way be, or be
construed to be, a waiver by such Lender of any future or subsequent
Event of Default, to the extent permitted by Applicable Law; and
(c) no Event of Default may be waived or discharged orally by a Lender but
(in each case) only by an instrument in writing signed by such Lender.
ARTICLE XVIII
INTERLENDER AGREEMENTS
SECTION 18.1 - SEPARATE CREDIT FACILITIES
- -------------------------------------------------------
The parties hereto acknowledge (A) that the Royal Credit Facilities are made
available to the Borrower by Royal, and that the Royal Credit Facilities are to
be administered by Royal independently without any intervention of BNP except as
herein set forth and (B) that the BNP Credit Facilities are made available to
the Borrower by BNP, and that the BNP Credit Facilities are to be administered
by BNP independently without any intervention of Royal, except as herein set
forth.
Notwithstanding the foregoing, Royal and BNP will cooperate with each other and
exchange information in respect of the Credit Parties as deemed appropriate from
time to time, and the Borrower hereby consents to such exchange of information.
SECTION 18.2 - EVENT OF DEFAULT
- ---------------------------------------------
In the event that an officer or employee of a Lender familiar with the terms of
this Agreement learns of any Event of Default or receives any material
information from a Credit Party in respect thereof, such information shall be
promptly notified to the other Lender.
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SECTION 18.3 - INTERCREDITOR AND SECURITY SHARING AGREEMENT
- -------------------------------------------------------------------------
The Lenders agree that the provisions of the intercreditor and security sharing
agreement referred to in Section 11.1.1.18 shall apply in respect of their
dealings with the Credit Parties and the realization of the Liens on the
Collateral following an Event of Default.
SECTION 18.4 - DISCLAIMER
- ---------------------------------------
No Lender makes any representation or warranty, and accepts any responsibility,
with respect to the due execution, legality, validity, sufficiency or
enforceability of this Agreement and the other Credit Documents or any
instrument or document referred to herein or therein. No Lender assumes any
responsibility for the financial condition of the Credit Parties or for the
payment of any of the Borrowings. No Lender assumes any responsibility with
respect to the accuracy, authenticity, legality, validity, sufficiency or
enforceability of any documents, papers, materials or other information
furnished by the Borrower or any other Credit Party or Person to either Lender
in connection with the Credit Documents or any matter referred to herein or
therein.
No Lender shall be liable to the other Lender for any error in judgment or for
any action taken or omitted by it or with respect to anything which it may do or
refrain from doing in the reasonable exercise of its own judgment or which may
seem to it to be necessary or desirable in the circumstances, except for gross
negligence or wilful misconduct.
SECTION 18.5 - ACKNOWLEDGEMENT OF LENDERS
- -------------------------------------------------------
Each Lender acknowledges that it has been, and will continue to be, solely
responsible for making its own independent appraisal of and investigation into
the financial condition, creditworthiness, affairs, status and nature of the
Credit Parties and accordingly each Lender confirms to the other Lender that it
has not relied, and will not hereafter rely on the other Lender.
(a) to check or enquire on its behalf into the adequacy, accuracy or
completeness of any information provided by any Credit Party or in
connection with the Credit Documents (whether or not such information
has been or is hereafter circulated to such other Lender); or
(b) to assess or keep under review on its behalf the financial condition,
creditworthiness, affairs, status or nature of any Credit Party.
In addition, each Lender acknowledges that a copy of this Credit Agreement, of
the Schedules thereto and of the other Credit Documents have been made available
to it for its review and that it is satisfied with the form and substance
thereof.
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SECTION 18.6 - OTHER TRANSACTIONS
- -----------------------------------------------
Each Lender may, outside the scope of this Agreement, deal with the Borrower and
the other Credit Parties in all transactions and generally do any banking
business with the Credit Parties, without having any liability to account to the
other Lender therefor.
SECTION 18.7 - NO PREFERENCE
- ------------------------------------------
No Lender shall have, previous to this Agreement, entered into or, subsequent to
this Agreement, enter into any arrangement with the Credit Parties or any other
Person, without the prior written consent of the other Lender, which would have
the effect of giving such Lender preference or priority over the other Lender in
respect of the Indebtedness of the Borrower under this Agreement.
SECTION 18.8 - NO ASSOCIATION AMONG LENDERS
- ---------------------------------------------------------
Nothing contained in this Agreement and no action taken pursuant to it shall, or
shall be deemed to, constitute the Lenders a partnership, association, joint
venture or other similar entity.
SECTION 18.9 - AMENDMENT OF THIS ARTICLE XVIII
- ------------------------------------------------------------
The provisions of this Article XVIII may be amended or added to, from time to
time, by execution by the Lenders of an instrument in writing and such
instrument in writing shall validly and effectively amend or add to any or all
of the provisions of this Article XVIII without requiring the execution of such
instrument in writing by the Borrower provided such amendment or addition does
not adversely affect the rights or obligations of the Borrower.
ARTICLE XIX
SUCCESSORS AND ASSIGNS
SECTION 19.1 - BENEFIT AND BURDEN OF THIS AGREEMENT
- -----------------------------------------------------------------
This Agreement shall enure to the benefit of and be binding on the parties
hereto, their respective successors and any permitted assignees or transferees
of some or all of the parties' rights or obligations hereunder.
SECTION 19.2 - THE BORROWER
- -----------------------------------------
The Borrower shall not assign or transfer all or any part of its rights or
obligations hereunder without the prior written consent of both Lenders.
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SECTION 19.3 - THE LENDERS
- ----------------------------------------
A Lender (herein sometimes called an "ASSIGNING LENDER") may, with the prior
consent of the other Lender and the Borrower (such consent not to be
unreasonably withheld), assign all or part of its rights to, and may have its
obligations in respect of, the Credit Facilities in which it participates
assumed by any other person (the "ASSIGNEE") without cost to the Borrower. An
assignment shall be for a minimum amount of Cdn$5,000,000 or the Equivalent
Amount in US Dollars and shall become effective when the Borrower has been
notified of it by the Assigning Lender and has received from the Assignee an
undertaking (addressed to all the parties to this Agreement) to be bound by this
Agreement and to perform the obligations assigned to it, in form and substance
reasonably satisfactory to the Assigning Lender and the Borrower. Any such
Assignee shall be and be treated as a Lender for all purposes of this Agreement,
shall be entitled to the full benefit hereof, shall be subject to the
obligations hereunder to the same extent as if it were an original party in
respect of the rights or obligations assigned to it and shall have a Commitment
hereunder equal to that portion of the Assigning Lender's Commitment assumed by
it, and the Assigning Lender shall be released and discharged accordingly and to
the same extent.
In the event that BNP or Royal assigns all of its rights hereunder to an
Assignee, and thereby ceases to be a Lender, all references in this Agreement to
BNP or Royal, as the case may be, shall for all purposes be deemed to be
replaced by references to such Assignee.
SECTION 19.4 - DISCLOSURE
- ---------------------------------------
Each Lender may disclose to any serious prospective Assignee, on a confidential
basis, such information concerning the Credit Parties as it considers
appropriate.
SECTION 19.5 - FURTHER DOCUMENTS
- ----------------------------------------------
The Borrower will, at the expense of the Assigning Lender, execute such further
documents and instruments and do such other things as an Assigning Lender may
reasonably request for the purpose of any assignment pursuant to Section 19.3,
including without limitation all such documents, instruments and things as may
reasonably be required by the Assignee's Counsel to ensure that the Assignee may
benefit from the Collateral Documents.
SECTION 19.6 - EXPENSES
- -------------------------------------
A Lender which assigns all or any part of its rights hereunder as set forth in
Section 19.3 shall be responsible for, and pay on demand to the other Lender,
all expenses, including but not limited to legal fees (and value-added tax
thereon), incurred by the other Lender in connection with such assignment,
including all expenses relating to the documents, instruments and things
required to ensure that the Assignee may benefit from the Collateral Documents.
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ARTICLE XX
COMPENSATION
SECTION 20.1 - SET-OFF, COMPENSATION
- --------------------------------------------------
Each Lender is authorized (but not obligated) at any time or from time to time,
without notice to any Credit Party or to any other Person, any such notice being
expressly waived by the Credit Parties, to set off, compensate and to apply any
and all deposits (general or special) held for or in the name of a Credit Party
and any Indebtedness or liability at any time owing or payable by such Lender to
or for the credit of or the account of such Credit Party against and on account
of the obligations and liabilities of the said Credit Party owing or payable to
such Lender under this Agreement or the other Credit Documents, irrespective of
currency and of whether or not such Lender has made any demand under this
Agreement or the other Credit Documents and whether or not these obligations and
liabilities of the said Credit Party, or any of them, have matured. The
provisions of this Section 20.1 shall not restrict such rights as the Lenders
may be entitled to without relying upon the provisions of this Agreement. For
the purposes of the application of this Section 20.1, the Credit Parties and the
Lenders agree that the benefit of any term applicable to any Lender's deposit,
credit, Indebtedness, liability or obligation (collectively referred to in this
Section 20.1 as the "DEPOSIT") shall be lost immediately before the time when
such Lender shall exercise its rights under this Section 20.1 in respect of a
relevant Deposit of such Lender.
ARTICLE XXI
JUDGMENT CURRENCY
SECTION 21.1 - JUDGMENT CURRENCY
- ----------------------------------------------
If for the purpose of obtaining judgment in any court in any jurisdiction with
respect to the Credit Documents, it becomes necessary to convert into the
currency of such jurisdiction (herein called the "JUDGMENT CURRENCY") any amount
due under the Credit Documents in any currency other than the Judgment Currency,
then conversion shall be made at the rate of exchange prevailing on the Business
Day preceding (a) the date of actual payment of the amount due, in the case of
proceedings in the courts of any jurisdiction that will give effect to such
conversion being made on such day, or (b) the day on which the judgment is
given, in the case of proceedings in the courts of the Province of Quebec or of
any other jurisdiction (the applicable date as of which such conversion is made
pursuant to this Section being hereinafter called the "JUDGMENT CONVERSION
DATE"). For this purpose, "RATE OF EXCHANGE" means the rate at which the Lender
to which the relevant amount is owed would be prepared on the relevant date, to
sell the currency of the amount due under the Credit Documents at one of its
principal offices against the Judgment Currency. In the event that there is a
change in the rate of exchange prevailing between the Judgment Conversion Date
and the date of payment of the amount due, the relevant Credit Party will, on
the date of payment, pay such additional amounts (if any) as may be necessary to
ensure that the amount paid on such date is the amount in the Judgment Currency
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which, when converted at the rate of exchange prevailing on the date of payment,
is the amount then due under the Credit Documents in Canadian Dollars or US
Dollars, as the case may be. Any additional amount due under this Section 21.1
will be due as a separate debt and shall not be affected by judgment being
obtained for any other sums due under or in respect of the Credit Documents.
ARTICLE XXII
GOVERNING LAW
SECTION 22.1 - GOVERNING LAW
- ------------------------------------------
The parties agree that this Agreement is conclusively deemed to be made under,
and for all purposes to be governed by and construed in accordance with, the
laws of the Province of Quebec and federal laws of Canada applicable therein.
ARTICLE XXIII
NOTICE
SECTION 23.1 - ADDRESS FOR NOTICE
- -----------------------------------------------
Unless otherwise provided in this Agreement, any demand, request or notice to be
given under this Agreement shall be given by delivering the same or by mailing,
by registered mail, postage prepaid or by telexing by way of tested telex or by
telecopying the same, addressed as indicated opposite the names of the
signatories on the signature pages of this Agreement, or to such other address
as may be notified by any party to the others pursuant to Section 23.2.
SECTION 23.2 - NOTICE
- -----------------------------------
Any such demand, request or notice sent as aforesaid shall be deemed to have
been received by the party to whom it is addressed (a) upon receipt, if
delivered or sent by registered mail (b) on the Business Day next following the
date of transmission if telexed and the appropriate answerback is received and
(c) if telecopied before 3:00 p.m. on a Business Day, on that day and if
telecopied after 3:00 p.m. on a Business Day, on the Business Day next following
the date of transmission; provided, however, that in the event normal mail
service, telecopier service or telex service shall be interrupted by strike,
force majeure or other cause, then the party sending the demand, request or
notice, shall utilize any other mode of communication which shall ensure prompt
receipt of such demand, request or notice by the other party or parties.
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ARTICLE XXIV
MISCELLANEOUS
SECTION 24.1 - SEVERABILITY
- -----------------------------------------
Any provision of this Agreement which is or becomes prohibited or unenforceable
in any jurisdiction, does not invalidate, affect or impair the remaining
provisions thereof and any such prohibition or unenforceability in any
jurisdiction does not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 24.2 - INTEREST LIMITATION
- ------------------------------------------------
The parties agree that no provision of this Agreement shall have the effect of
imposing on the Borrower any obligation to pay interest (as such term is defined
in section 347 of the Criminal Code of Canada) to a Lender at a rate in excess
of 60% per annum, taking into account all other amounts which must be taken into
account for the purpose thereof; and, to such extent, the Borrower's obligation
to pay interest hereunder is so limited.
SECTION 24.3 - SURVIVAL OF REPRESENTATIONS AND UNDERTAKINGS
- -------------------------------------------------------------------------
The representations and warranties made by the Borrower in Article II of this
Agreement and the covenants, undertakings and agreements contained in this
Agreement survive the execution and delivery of this Agreement and continue in
full force and effect until the full payment and satisfaction of all liabilities
and obligations of the Borrower to the Lenders under this Agreement.
SECTION 24.4 - WHOLE AGREEMENT
- --------------------------------------------
This Agreement constitutes the whole and entire agreement between the parties
hereto with respect to the subject matter thereof and cancels and supersedes any
prior offers, agreements, undertakings, declarations and representations,
written or verbal in respect thereof.
SECTION 24.5 - AMENDMENTS
- ---------------------------------------
No amendment, modification or waiver of any provision of this Agreement or
consent to any departure by the Borrower from any provision of this Agreement
will in any event be effective unless it is signed by all parties hereto or
unless it is in conformity with Section 18.9 and then the amendment,
modification, waiver or consent will be effective only in the specific instance,
for the specific purpose and for the specific length of time for which it is
given.
Notwithstanding the foregoing paragraph, BNP and Royal are hereby authorized to
correct any typographical error or other error of an editorial nature in this
Agreement and to substitute such corrected text in the counterparts of this
Agreement, provided that such corrections do not modify in any manner the
meaning or the interpretation of this Agreement.
-99-
<PAGE>
SECTION 24.6 - COUNTERPARTS
- -----------------------------------------
This Agreement may be executed in any number of counterparts, each of which when
executed and delivered is an original but all of which taken together constitute
one and the same instrument; any party may execute this Agreement by signing any
counterpart of it and may communicate such signing by telecopier or otherwise.
SECTION 24.7 - FURTHER ASSURANCES
- -----------------------------------------------
The Borrower and the Lenders shall do all such further acts and execute and
deliver all such further documents as shall be reasonably required in order to
fully perform and carry out the terms of this Agreement.
SECTION 24.8 - RISKS OF FORCE MAJEURE
- ---------------------------------------------------
The Borrower expressly assumes all risks of superior force, such that it shall
be bound to timely execute each and every of its obligations under this
Agreement and the other Credit Documents notwithstanding the existence or
occurrence of any event or circumstance constituting a superior force within the
meaning of Article 1693 of the CIVIL CODE OF QUEBEC.
SECTION 24.9 - GOOD FAITH AND FAIR CONSIDERATION
- --------------------------------------------------------------
The Borrower acknowledges and declares that it has entered into this Agreement
freely and of its own will. In particular, the Borrower acknowledges that this
Agreement and the other Credit Documents were negotiated by it and the Lenders
in good faith, and that there was no exploitation of the Borrower by the
Lenders, nor is there any serious disproportion between the consideration
provided by the Lenders and that provided by the Borrower.
SECTION 24.10 - TERM OF AGREEMENT
- ----------------------------------------------
The term of this Agreement is until the later of the termination of all
Commitments and payment in full of all the obligations of the Borrower incurred
pursuant to this Agreement.
SECTION 24.11 - FORMAL DATE
- ----------------------------------------
This Agreement shall bear the formal date of February 5, 1998 notwithstanding
the actual date of execution thereof by the parties hereto and may be referred
to as bearing such date.
-100-
<PAGE>
SECTION 24.12 - LANGUAGE
- -------------------------------------
The Borrower and the Lenders confirm that they have requested that this
Agreement, the other Credit Documents and all documents and notices contemplated
hereby or thereby be drawn up in the English language. L'Emprunteur et les
Preteurs confirment avoir requis que cette convention, les autres documents de
credit et tous les documents et avis qui y sont envisages soient rediges en
langue anglaise.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly
executed at Montreal, Canada on the 13th day of March, 1998.
ADDRESS:
Phoenix International Life Sciences Inc.
2350 Cohen Street
Saint-Laurent, Quebec, Canada
H4R 2N6
ATTENTION: Senior Vice-President and Chief
Financial Officer
Telecopier: (514) 333-7306
Telephone: (514) 335-8323
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
(AS BORROWER)
By: /s/ Jean-Yves Caloz
Name: Jean-Yves Caloz, C.A.
Title: Senior Vice-President and Chief Financial
Officer
ADDRESS:
Royal Bank of Canada
Business Banking Centre
610 St-Jean Boulevard
Suite 201
Pointe-Claire, Quebec, Canada
H9R 3K2
ATTENTION: Assistant Manager
Telecopier: (514) 630-3453
Telephone: (514) 630-3459
ROYAL BANK OF CANADA
(AS LENDER)
By: /s/ Colin Marson
Name: Colin Marson
Title: Senior Account Manager
-101-
<PAGE>
ADDRESS:
Banque Nationale de Paris (Canada)
Tour BNP, 4th Floor
1981 McGill College Avenue
Montreal, Quebec, Canada
H3A 2W8
ATTENTION: Vice-President, Deputy Manager
Commercial and Export Banking
Telecopier: (514) 285-2955
Telephone: (514) 285-7509
BANQUE NATIONALE DE PARIS (CANADA)
(AS LENDER)
By: /s/ Bernard Kennepohl
---------------------------------
Name: Bernard Kennepohl
Title: Vice-President, Deputy Manager
Commercial and Export Banking
By: /s/ Richard Belzil
---------------------------------
Name: Richard Belzil
Title: Assistant Vice-President
Commercial and Export Banking
-102-
<PAGE>
Exhibit 10.23
UNCONDITIONAL GUARANTY
November 18, 1998
Chrysalis International Corporation
Chrysalis International Preclinical Services Corporation
Chrysalis DNX Transgenic Sciences Corporation
Chrysalis International Clinical Services Corporation
(Individually and collectively "Borrower")
Phoenix International Life Sciences Inc. ("Guarantor")
First Union National Bank ("Bank")
123 South Broad Street
Philadelphia, Pennsylvania 19109
To induce Bank to continue in financing arrangements with Borrower and to grant
forbearance to Borrower pursuant to that certain Forbearance Agreement of even
date herewith between Borrower and Bank (the "Forbearance Agreement), Guarantor
hereby absolutely, irrevocably and unconditionally guarantees to Bank and its
successors, assigns and affiliates the timely payment and performance of all
liabilities and obligations of Borrower to Bank and its affiliates, including,
but not limited to, all obligations under any notes, loan agreements, security
agreements, letters of credit, instruments, accounts receivable, contracts,
drafts, leases, chattel paper, indemnities, acceptances, repurchase agreements,
overdrafts, and the Loan Documents defined below, however and whenever incurred
or evidenced, whether primary, secondary, direct, indirect, absolute,
contingent, due or to become due, now existing or hereafter contracted or
acquired, and all modifications, extensions or renewals thereof, including
without limitation all principal, interest, charges, and costs and expenses
incurred thereunder (including attorneys' fees and other costs of collection
incurred, regardless of whether suit is commenced) (collectively, the
"Guaranteed Obligations").
Guarantor further covenants and agrees:
GUARANTOR'S LIABILITY. This Guaranty is a continuing and unconditional guaranty
of payment and performance and not of collection. The parties to this Guaranty
are jointly and severally obligated hereunder. This Guaranty does not impose any
obligation on Bank to extend or continue to extend credit or otherwise deal with
Borrower at any subsequent time. This Guaranty shall continue to be effective or
be reinstated, as the case may be, if at any time any payment of the Guaranteed
Obligations is rescinded, avoided or for any other reason must be returned by
Bank, and the returned payment shall remain payable as part of the Guaranteed
Obligations, all as though such payment had not been made. Except to the extent
the provisions of this Guaranty give the Bank additional rights, this Guaranty
shall not be deemed to supersede or replace any other guaranties given to Bank
by Guarantor; and the obligations guaranteed hereby shall be in addition to any
other obligations guaranteed by Guarantor pursuant to any other agreement of
guaranty given to Bank and other guaranties of the Guaranteed Obligations.
TERMINATION OF GUARANTY. Guarantor may terminate this Guaranty by written
notice, delivered personally to or received by certified or registered United
States Mail by an authorized officer of the Bank at the address for notices
provided herein. Such termination shall be effective with respect to Guaranteed
Obligations arising more than 15 days after the date such written notice is
received by said Bank officer. Guarantor may not terminate this Guaranty as to
Guaranteed Obligations (including any subsequent extensions, modifications or
compromises of the Guaranteed Obligations)
<PAGE>
then existing. Termination of this Guaranty by any single Guarantor will not
affect the existing and continuing obligations of any other guarantor hereunder.
APPLICATION OF PAYMENTS. Monies received from any source by Bank for application
toward payment of the Guaranteed Obligations may be applied to such Guaranteed
Obligations in any manner or order deemed appropriate by Bank.
CONSENT TO MODIFICATIONS. Guarantor CONSENTS AND AGREES THAT BANK MAY FROM TIME
TO TIME, IN ITS SOLE DISCRETION, WITHOUT AFFECTING, IMPAIRING, LESSENING OR
RELEASING THE OBLIGATIONS OF THE GUARANTOR HEREUNDER: permit any change in the
business or other dealings and relations of Borrower or any other guarantor with
Bank, all in such manner and upon such terms as Bank may deem appropriate, and
without notice to or further consent from Guarantor. No invalidity,
irregularity, discharge or unenforceability of, or action or omission by Bank
relating to any part of, the Guaranteed Obligations or any security therefor
shall affect or impair this Guaranty.
WAIVERS AND ACKNOWLEDGMENTS. Guarantor WAIVES AND RELEASES THE FOLLOWING RIGHTS,
DEMANDS, AND DEFENSES Guarantor may have with respect to Bank and collection of
the Guaranteed Obligations: (a) promptness and diligence in collection of any of
the Guaranteed Obligations from Borrower or any other person liable thereon, and
in foreclosure of any security interest and sale of any property serving as
collateral for the Guaranteed Obligations; (b) any law or statute that requires
that Bank make demand upon, assert claims against, or collect from Borrower or
other persons or entities, foreclose any security interest, sell collateral,
exhaust any remedies, or take any other action against Borrower or other persons
or entities prior to making demand upon, collecting from or taking action
against Guarantor with respect to the Guaranteed Obligations; (c) any law or
statute that requires that Borrower or any other person be joined in, notified
of or made part of any action against Guarantor; (d) that Bank preserve insure
or perfect any security interest in collateral or sell or dispose of collateral
in a particular manner or at a particular time; (e) notice of any new
transactions or other relationships between Bank, Borrower and/or any guarantor,
and of changes in the financial condition of, ownership of, or business
structure of Borrower or any other guarantor; (f) presentment, protest, notice
of dishonor, notice of default, demand for payment, notice of intention to
accelerate maturity, notice of acceleration of maturity, notice of sale, and all
other notices of any kind whatsoever; (g) the right to assert against Bank any
defense (legal or equitable), set-off, counterclaim, or claim that Guarantor may
have at any time against Borrower or any other party liable to Bank; (h) all
defenses relating to invalidity, insufficiency, unenforceability, enforcement,
release or impairment of Bank's lien on any collateral, of the Loan Documents,
or of any other guaranties held by Bank; (i) any claim or defense that
acceleration of maturity of the Guaranteed Obligations is stayed against
Guarantor because of the stay of assertion or of acceleration of claims against
any other person or entity for any reason including the bankruptcy or insolvency
of that person or entity; and (j) the benefit of any exemption claimed by
Guarantor. Guarantor acknowledges and represents that it has relied upon its own
due diligence in making its own independent appraisal of Borrower, Borrower's
business affairs and financial condition, and any collateral; Guarantor will
continue to be responsible for making its own independent appraisal of such
matters; and Guarantor has not relied upon and will not hereafter rely upon Bank
for information regarding Borrower or any collateral.
FINANCIAL CONDITION. Guarantor warrants, represents and covenants to Bank that
on and after the date hereof: (a) the fair saleable value of Guarantor's assets
exceeds its liabilities, Guarantor is meeting its current liabilities as they
mature, and Guarantor is and shall remain solvent; (b) all financial statements
of Guarantor furnished to Bank are correct and accurately reflect the financial
condition of Guarantor as of the respective dates thereof; (c) since the date of
such financial statements, there has not occurred a material adverse change in
the financial condition of Guarantor; (d) there are not now pending any court or
administrative proceedings or undischarged judgments against Guarantor, no
federal or state tax liens have been filed or threatened against Guarantor, and
Guarantor is not in default or claimed default under any agreement; and (e) at
such
<PAGE>
reasonable times as Bank requests, Guarantor will furnish Bank with such
financial information as Guarantor makes available to its shareholders,
generally.
INTEREST. Regardless of any other provision of this Guaranty or other Loan
Documents, if for any reason the effective interest on any of the Guaranteed
Obligations should exceed the maximum lawful interest, the effective interest
shall be deemed reduced to and shall be such maximum lawful interest, and any
sums of interest which have been collected in excess of such maximum lawful
interest shall be applied as a credit against the unpaid principal balance of
the Guaranteed Obligations.
DEFAULT. If any of the following events occur, a default ("Default") under this
Guaranty shall exist: (a) Failure of timely payment or performance of the
Guaranteed Obligations or a default under any Loan Document; (b) A breach of any
agreement or representation contained or referred to in the Guaranty, or any of
the Loan Documents, or contained in any other contract or agreement of Guarantor
with Bank or its affiliates, whether now existing or hereafter arising; (c) The
death of, appointment of a guardian for, dissolution of, termination of
existence of, loss of good standing status by, appointment of a receiver for,
assignment for the benefit of creditors of, or the commencement of any
insolvency or bankruptcy proceeding by or against, Guarantor or any general
partner of or the holder(s) of the majority ownership interests of Guarantor;
(d) the occurrence of a Terminating Event under the Forbearance Agreement;
and/or (e) The entry of any monetary judgment or the assessment against, the
filing of any tax lien against, or the issuance of any writ of garnishment or
attachment against any property of or debts due Guarantor.
If a Default occurs, the Guaranteed Obligations shall be due immediately and
payable without notice. Guarantor shall pay interest on the Guaranteed
Obligations from such Default at the highest rate of interest charged on any of
the Guaranteed Obligations, subject to the Pledge Agreement.
ATTORNEY'S FEES AND OTHER COSTS OF COLLECTION. Guarantor shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Guaranteed
Obligations, including, without limitation, reasonable arbitration, paralegals',
attorneys' and experts' fees and expenses, whether incurred without the
commencement of a suit, in any suit, arbitration, or administrative proceeding,
or in any appellate or bankruptcy proceeding.
MISCELLANEOUS. (a) ASSIGNMENT. This Guaranty and other Loan Documents shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Bank shall not, without
the prior written consent of Guarantor, assign this Guaranty, the Pledge and
Assignment and Agreement, or Bank's interest in the Loan Documents, or any
collateral securing the Loan Documents. (b) APPLICABLE LAW; CONFLICT BETWEEN
DOCUMENTS. This Guaranty and other Loan Documents shall be governed by and
construed under the laws of the state named in Bank's address shown above
without regard to that state's conflict of laws principles. If the terms of this
Guaranty should conflict with the terms of any commitment letter that survives
closing, the terms of this Guaranty shall control. (c) JURISDICTION. Guarantor
irrevocably agrees to non-exclusive personal jurisdiction in the state named in
Bank's address shown above. (d) SEVERABILITY. If any provision of this Guaranty
or of the other Loan Documents shall be prohibited or invalid under applicable
law, such provision shall be ineffective but only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Guaranty or other document. (e) NOTICES. Any
notices to Guarantor shall be sufficiently given, if in writing and mailed or
delivered to the Guarantor's address shown above or such other address as
provided hereunder, and to Bank, if in writing and mailed or delivered to Bank's
office address shown above or such other address as Bank may specify in writing
from time to time. In the event that Guarantor changes Guarantor's address at
any time prior to the date the Guaranteed Obligations are paid in full,
Guarantor agrees to promptly give written notice of said change of address by
registered or certified mail, return receipt requested, all charges prepaid. (f)
PLURAL; CAPTIONS. All references in the Loan Documents to borrower, guarantor,
<PAGE>
person, document or other nouns of reference mean both the singular and plural
form, as the case may be, and the term "person" shall mean any individual,
person or entity. The captions contained in the Loan Documents are inserted for
convenience only and shall not affect the meaning or interpretation of the Loan
Documents. (g) BINDING CONTRACT. Guarantor by execution of and Bank by
acceptance of this Guaranty agree that each party is bound to all terms and
provisions of this Guaranty. (h) AMENDMENTS, WAIVERS AND REMEDIES. No waivers,
amendments or modifications of this Guaranty and other Loan Documents shall be
valid unless in writing and signed by an officer of Bank and Guarantor. No
waiver by Bank of any Default shall operate as a waiver of any other Default or
the same Default on a future occasion. Neither the failure nor any delay on the
part of Bank in exercising any right, power, or privilege granted pursuant to
this Guaranty and other Loan Documents shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise or the exercise of any other right, power or privilege. All remedies
available to Bank with respect to this Guaranty and other Loan Documents and
remedies available at law or in equity shall be cumulative and may be pursued
concurrently or successively. (i) PARTNERSHIPS. If Guarantor is a partnership,
the obligations, liabilities and agreements on the part of Guarantor shall
remain in full force and effect an fully applicable notwithstanding any changes
in the individuals comprising the partnership. The term "Guarantor" includes any
altered or successive partnerships, and predecessor partnership(s) and the
partners shall not be released from any obligations or liabilities hereunder.
(j) LOAN DOCUMENTS. The term "Loan Documents" refers to all documents executed
by Borrower in favor of Bank including, but not limited to, documents identified
in the Forbearance Agreement, and includes the Forbearance Agreement
SECURITY; NO RECOURSE. Guarantor has granted Bank a security interest in the
collateral (the "Collateral") described in that certain Pledge and Assignment
Agreement of even date herewith (the "Pledge Agreement"). Notwithstanding
anything to the contrary set forth herein, Bank's recourse against Guarantor
upon the occurrence of a Default shall be limited to the Collateral and Bank's
other remedies set forth in the Pledge Agreement. Guarantor shall not be
responsible for the value of the Collateral afte its pledge to Bank. Bank shall
not assert or commence any legal or equitable proceeding before any court,
agency or other body against Guarantor on account of this Guaranty. Guarantor
shall have no liability to Bank under this Guaranty, except to the extent of
Guarantor's interest in the Collateral. Notwithstanding Bank's agreement to
limit recourse against the Guarantor to the Collateral, in the event Guarantor
disputes its liabilities and obligations under this Guaranty and/or the Pledge
Agreement, and/or opposes any application of the Collateral to the Guaranty
Obligations, in the event Bank prevails in any such dispute, Guarantor
acknowledges and agrees that Guarantor shall be liable to Bank for repayment of
Bank's reasonable fees and expenses (including attorneys' fees and
disbursements) incurred in connection with any such dispute or opposition, and
the obligation in respect of such expenses shall be a full recourse obligation
of Guarantor.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any claim or controversy arising out of
or relating to the Loan Documents between parties hereto (a "Dispute") shall be
resolved by binding arbitration conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and the Federal Arbitration Act. Disputes
may include, without limitation, tort claims, counterclaims, a dispute as to
whether a matter is subject to arbitration, claims brought as class actions, or
claims arising from documents executed in the future. A judgment upon the award
may be entered in any court having jurisdiction. Notwithstanding the foregoing,
this arbitration provision does not apply to disputes under or related to swap
agreements.
SPECIAL RULES. All arbitration hearings shall be conducted in the city named in
the address of Bank first stated above. A hearing shall begin within 90 days of
demand for arbitration and all hearings shall conclude within 120 days of demand
for arbitration. These time limitations may not be extended unless a party shows
cause for extension and then for no more than a total of 60
<PAGE>
days. The expedited procedures set forth in Rule 51 ET SEQ. of the Arbitration
Rules shall be applicable to claims of less than $1,000,000.00.
Arbitrators shall be licensed attorneys selected from the Commercial Financial
Dispute Arbitration Panel of the AAA. The parties do not waive applicable
Federal or state substantive law except as provided herein.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, the parties agree to preserve, without diminution,
certain remedies that any party may exercise before or after an arbitration
proceeding is brought. The parties shall have the right to proceed in any court
of proper jurisdiction or by self-help to exercise or prosecute the following
remedies, as applicable: (i) all rights to foreclose against any real or
personal property or other security by exercising a power of sale or under
applicable law by judicial foreclosure including a proceeding to confirm the
sale; (ii) all rights of self-help including peaceful occupation of real
property and collection of rents, set-off, and peaceful possession of personal
property; (iii) obtaining provisional or ancillary remedies including injunctive
relief, sequestration, garnishment, attachment, appointment of receiver and
filing an involuntary bankruptcy proceeding; and (iv) when applicable, a
judgment by confession of judgment. Any claim or controversy with regard to any
party's entitlement to such remedies is a Dispute.
The parties agree that they shall not have a remedy of punitive or exemplary
damages against other parties in any Dispute and hereby waive any right or claim
to punitive or exemplary damages they have now or which may arise in the future
in connection with any Dispute whether the Dispute is resolved by arbitration or
judicially.
WAIVER OF JURY TRIAL. THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING
ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL
WITH REGARD TO A DISPUTE.
IN WITNESS WHEREOF, Guarantor, on the day and year first written above, has
caused this Unconditional Guaranty to be executed under seal.
PHOENIX INTERNATIONAL LIFE SCIENCES INC.
CORPORATE By: /s/ Jean-Yves Caloz
SEAL ---------------------------------------------------
Name: Jean-Yves Caloz
Title: Senior Vice President and Secretary
<PAGE>
Exhibit 10.24
PLEDGE AND ASSIGNMENT AGREEMENT
[LOGO]
This Pledge and Assignment Agreement, dated November 18, 1998, is executed
and delivered by Phoenix International Life Sciences Inc. ("Debtor"), a
Delaware corporation, in favor of First Union National Bank ("Bank"), a
national bank having offices at 123 South Broad Street, Philadelphia,
Pennsylvania 19109.
For value received and in order to secure payment and performance of the
obligations under the Unconditional Guaranty (the "Guaranty") of even date
herewith given by Debtor to Bank, pursuant to which Debtor guaranties, as a
surety, the existing and future debts, liabilities and obligations of
Chrysalis International Corporation, a Delaware corporation, Chrysalis
International Preclinical Services Corporation, a Pennsylvania corporation,
Chrysalis DNX Transgenic Sciences Corporation, an Ohio corporation and
Chrysalis International Clinical Services Corporation, a Delaware Corporation
(severally and collectively, "Borrower") including, without limitation, the
indebtedness under the Loan Documents as defined in the Guaranty and
evidenced by that certain Term Note dated August 29, 1997 in the principal
sum of Five Million ($5,000,000.00) Dollars executed and delivered by
Borrower to CoreStates Bank, N.A. (predecessor-in-interest to Bank) and held
by Bank (the "Note"), and all other Obligations (as defined herein), Debtor
hereby executes and delivers this Pledge and Assignment Agreement (the
"Assignment") and sells, pledges, assigns, transfers and grants to Bank a
continuing security interest in the Collateral (as defined herein), as
security for the Obligations. Debtor and Bank further covenant and agree:
COLLATERAL: "Collateral" means all right, title and interest in, to and under
Chrysalis International Pledged Collateral Account No. 2000002575049, and all
cash and non-cash proceeds thereof.
OBLIGATIONS: "Obligations" mean the existing and future debts, liabilities
and obligations of Debtor to Bank in accordance with the Guaranty; provided,
however, that Debtor's liability to Bank shall not exceed the value of the
Collateral.
POWER OF ATTORNEY. Debtor irrevocably constitutes and appoints Bank as its
true and lawful attorney-in-fact, with full power and authority in the place
and name of Debtor, to take any and all appropriate action and to execute any
and all documents and instruments that may be necessary or desirable to
accomplish the purpose and carry out the terms of this Assignment
endorsements desirable for transfer or delivery of any Collateral,
registration of any Collateral under applicable laws, retitling any
Collateral, and the filing of financing statements, or a copy of this
Assignment as such. This power of attorney is coupled with an interest and
shall be irrevocable. Neither Bank nor anyone acting on its behalf shall be
liable for acts, omissions, errors in judgment, or mistakes in fact in such
capacity as attorney-in-fact. The Debtor ratifies all acts of Bank as its
attorney-in-fact.
DEBTOR'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Debtor represents,
warrants and agrees: (i) Debtor is the owner of the Collateral free and clear
of any liens, security interests, and claims, and has full power and
authority to use and encumber the same as Collateral, and as long as any of
the Obligations remain outstanding, Debtor will not grant a security interest
or lien in, or otherwise encumber, sell, transfer or assign, the Collateral
to any other person, and will keep the Collateral free from all adverse
claims or encumberances; will otherwise preserve and protect by whatever
means necessary the respective rights of the Debtor and Bank in the
Collateral, and will promptly notify Bank of any claims against or notices
asserting an interest in the Collateral. All securities and security
entitlements pledged as Collateral are fully paid and non-assessable and if
certificated, have been delivered to Bank with unrestricted endorsements.
(ii) All income, dividends, earnings and profits with respect to the
Collateral shall be reported for state and federal income tax purposes as
attributable to the Debtor and not Bank, and Bank or any other person
authorized to report income distributions, are
<PAGE>
authorized to issue IRS Forms 1099 indicating Debtor as the recipient of such
income, earnings and profits. (iii) If Debtor fails to pay any tax or
assessment relating to the Collateral or this Assignment as required and when
due, Bank may, at its option, pay or discharge same, although it is not
required to do so. (iv) Debtor shall reimburse Bank immediately upon demand
for and indemnify and hold it harmless from and against all claims,
liabilities, losses, costs and expenses, including reasonable attorneys' fees
and disbursements, incurred or suffered by the Bank in connection with the
Collateral, this Assignment or any Collateral Agreement; such claims,
liabilities, losses, costs and expenses shall include, but not be limited to,
all those in connection with the exercise of any right or remedy granted
hereunder, any claim and the prosectuion or defence thereof arising out of or
in any way connected with this Assignment, the collection or enforcement of
the Obligations, the sale or purchase or attempted sale or purchase of any
part of the Collateral, and any payments for whatever reason made to Third
Party. All amounts payable by Debtor under this subsection shall be a part of
the Obligations and secured by the Collateral. (v) Debtor's principal place
of business and/or residence is the address set forth herein; Debtor
maintains its books and records at such location.
COLLATERAL VALUE. The Fiar Market Value of the Collateral shall at all times
be not less than the outstanding balance of the Note and an amount equal to
the interest which would accrue on such principal Obligations for thirty (30)
days at the non-default rate of interest set forth in the Loan Documents.
NO TRADING OF COLLATERAL. Until a Default occurs, Debtor shall have the right
to collect and receive all interest with respect to the Collateral; provided,
however, Debtor may not sell, transfer, exchange for other property or cash
("Trade") or otherwise exercise rights with respect to the Collateral or
receive any distributions or proceeds from the Collateral without the prior
written consent of the Bank, and any such distributions or proceeds received
shall be held in trust for, and immediately delivered to, Bank. Any consent
pursuant to this paragraph shall be in Bank's sole discretion.
COLLATERAL DUTIES. Debtor agrees that Bank shall be under no duty to: (i)
sell, realize upon, collect or protect the Collateral or give any notice with
respect thereto; (ii) preserve the rigths of the Debtor with respect to the
Collateral against third parties; (iii) seek payment from any particular
source; or (iv) perform or fulfill any obligation of Debtor hereunder or
under any other agreement. Without limiting the generality of the foregoing,
Bank shall not be obligated to ascertian, notify Debtor of, or take any
action in connection with any conversion, call, redemption, retirement or any
other event relating to any of the Collateral. Debtor acknowledges Bank is
not an investment advisor or insurer with respect to the Collateral; and Bank
has no duty to advise the Debtor of any actual or anticipated changes in the
value of the Collateral.
DEFAULT. A default ("Default") under this Assignment occurs upon: (i) the
failure of timely payment or performance of any of the Obligations; (ii) any
default under, or any breach of any representation or agreement contained or
referred to in this Assignment or in any other Loan Document; (iii) any
attempt to terminate, revoke, rescind, modify or violate the terms of this
Assignment without the prior written consent of Bank; or (iv) the making of
any levy, seizure or attachment upon any Collateral; and/or (vi) the death
of, appointment of a guardian for, dissolution of, termination of existence
of, loss of good standing status by, appointment of a receiver for,
assignment for the benefit of creditors of, or commencement of any insolvency
or bankruptcy proceeding by or against, an Debtor.
RIGHTS AND REMEDIES. Upon the occurrence of a Default, and while such Default
continues:
Bank may deal with any and all of the Collateral as it deems fit, and/or may
liquidate all or a portion of the Collateral, applying the proceeds to the
Obligations in any manner it deems appropriate. Such rights include, but are
not limited to, the right, at Bank's option and without prior written notice
to Debtor or any obligor under the Obligations, to (i) transfer into Bank's
name or the name of its nominee, all or any part of the Collateral; (ii)
receive all interest, dividends, and other proceeds of the Collateral; (iii)
notify any person obligated on any Collateral of the security interest of
Bank therein and require
2
<PAGE>
such person to make payment directly to Bank; (iv) demand, sue for, collect
or receive the Collateral and any proceeds thereof, and/or make any
settlement or compromise as Bank deems desirable with respect to any
Collateral; and (v) exercise any voting, conversion, registration, purchase
or other rights of an owner, holder or entitlement holder of the Collateral.
Debtor agrees that Bank may exercise its rights under this Assignment
without regard for the actual or potential tax consequences to Debtor under
federal or state law and without regard to any instructions or directives
given Bank by Debtor.
DEBTOR'S RIGHTS UPON EXERCISE OF REMEDIES. Upon the Bank's application of the
Collateral to satisfy the Obligations, Bank shall immediately assign,
endorse, convey and deliver to Debtor all of its right, title and interest in
and to all Loan Documents and any mortgages, liens and security interests
which secure or evidence Borrower's obligations under the Loan Documents, free
and clear of liens, claims and encumbrances.
Bank shall have all of the rights and remedies of a secured party under the
applicable law. Notwithstanding anything herein, in the Loan Documents, or in
the applicable law to the contrary. Debtor waives any and all requirements
that the Bank sell or dispose of all or part of the Collateral at any
particular time, regardless of whether Debtor has requested such sale or
disposition.
Upon Bank's request, Debtor will, at its own expense, do or cause to be done
all other acts and things as may be necessary to make the sale of the
Collateral valid, binding and in compliance with applicable law.
REMEDIES ARE CUMULATIVE. No failure on the part of Bank to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by Bank or any
right, power or remedy hereunder preclude any other or further exercise
thereof of the exercise of any other right, power or remedy. The remedies
herein provided are cumulative and are not exclusive of any remedies provided
by law or in equity.
DISCHARGE. All rights and obligations of the Bank and security interests
hereunder, and all obligations of the Debtor hereunder, shall be absolute and
unconditional, not discharged or impaired irrespective of any lack of
validity or enforceability of any Loan Document. To the extent permitted by
law, the Debtor hereby waives any rights under any valuation, stay,
appraisement, extension redemption laws now existing or which may hereafter
exist and which, but for the provision, might be applicable to any sale or
disposition or the Collateral by the Bank; and any other circumstance which
might otherwise constitute a defense available to, or a discharge of, the
Borrower, any guarantor, other obligor or the Debtor in respect of the
Obligations.
DEFINITIONS. The terms set forth below shall be defined as follows:
"AFFILIATE" means First Union Corporation and any of its direct and indirect
affiliates and subsidiaries; "ISSUER" means a person who creates a share,
participation or other interest in its property or in an enterprise, or
undertakes an obligation that is an uncertificated security, including a
mutual fund or who directly or indirectly creates a fractional interest in
its rights or property which is represented by a security certificate: "LOAN
DOCUMENTS" has the meaning set forth in the Guaranty.
MISCELLANEOUS PROVISIONS. TITLE; ASSIGNMENT. Bank represents and warrants
that it is the owner and holder of the Loan Documents, that it has full power
and authority to enter into this Agreement and convey the Loan Documents and
other rights provided for herein to Debtor, that it will not sell, assign,
encumber, transfer, convey, hypothecate or alienate the Loan Documents or any
mortgages, liens or security interests which secure the obligations under the
Loan Documents without Debtor's prior written consent in its sole discretion.
Notwithstanding anything to the contrary set forth herein or in the Guaranty,
Bank shall not amend, modify, waive, terminate, extinguish, release or
alienate the Loan Documents, any mortgages, liens or security interests which
secure obligations under the Loan Documents or any rights against the
Borrower. The Assignment and other Loan Documents shall inure to the benefit
of and be binding upon the parties and their respective heirs, legal
representatives.
3
<PAGE>
successors and assigns. Any attempt by Debtor to assign its interests and
obligations hereunder without Bank's prior written consent is null and void.
APPLICABLE LAW; CONFLICT BETWEEN DOCUMENTS. This Assignment and other Loan
Documents shall be governed by and construed under the laws of the state
named in Bank's address shown above without regard to that state's conflict
of laws principles.
JURISDICTION. Debtor irrevocably agrees to a non-exclusive personal
jurisdiction in the state named in Bank's address shown above.
SEVERABILITY. If any provision of this Assignment or of the other Loan
Documents shall be prohibited or invalid under applicable law, such provision
shall be ineffective but only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Assignment or other such document.
NOTICES. Any notices to Debtor shall be sufficiently given, if in writing and
mailed or delivered to the Debtor's address shown above or such other address
as provided hereunder, and to Bank, if in writing and mailed or delivered to
Bank's office address shown above or such other address as Bank may specify
in writing from time to time. In the event that Debtor changes Debtor's
address at any time prior to the date the Obligations are paid in full,
Debtor agrees to promptly give written notice of said change of address by
registered or certified mail, return receipt requested, all charges prepaid.
PLURAL: CAPTIONS. All references in the Loan Documents to Debtor, guarantor,
person, document or other nouns of reference mean both the singular and
plural form, as the case may be, and the terms "Debtor" or "person" shall
mean any individual, person or entity, and if more than one shall be joint
and several. The captions contained in the Loan Documents are inserted for
convenience only and shall not affect the meaning or interpretation of the
Loan Documents.
BINDING CONTRACT. Debtor and Bank by execution of this Assignment agree that
each party is bound to all terms and provisions of this Assignment.
IN WITNESS WHEREOF, the Debtor and Bank have caused this Assignment to be
duly executed as of the day and year first above written.
<TABLE>
<S> <C>
DEBTOR:
(CORPORATE SEAL) PHOENIX INTERNATIONAL LIFE SCIENCES INC.
ATTEST: BY: /s/ Jean-Yves Caloz
------------------------ --------------------------------
Name: Name: Jean-Yves Caloz
Title: Title: Senior Vice President
and Secretary
BANK:
FIRST UNION NATIONAL BANK
By: /s/ Elizabeth B. Styer
--------------------------------
Name: Elizabeth B. Styer
Title: Senior Vice President
</TABLE>
(SIGNATURES CONTINUED ON THE FOLLOWING PAGE)
4
<PAGE>
ACKNOWLEDGEMENT AND AGREEMENT OF BORROWER
Borrower acknowledges that Debtor agreed that the foregoing Assignment and
related Guaranty in favor of Bank as an accommodation to Borrower. Borrower
agreed that in the event Bank exercises its rights against the
Collateral, Debtor shall have, and shall be entitled to enact all rights
and remedies against Borrower under the Loan Documents.
CHRYSALIS INTERNATIONAL
CORPORATION
By: /s/ PAUL J. SCHMITT
---------------------------------------
Name: Paul J. Schmitt
Title: Chairman, President & CEO
CHRYSALIS INTERNATIONAL PRECLINICAL
SERVICES CORPORATION
By: /s/ PAUL J. SCHMITT
---------------------------------------
Name: Paul J. Schmitt
Title: Chairman & CEO
CHRYSALIS DNX TRANSGENIC SCIENCES
CORPORATION
By: /s/ PAUL J. SCHMITT
---------------------------------------
Name: Paul J. Schmitt
Title: President & CEO
CHRYSALIS INTERNATIONAL CLINICAL
SERVICES CORPORATION
By: /s/ PAUL J. SCHMITT
---------------------------------------
Name: Paul J. Schmitt
Title: Chairman
5
<PAGE>
Exhibit 10.25
Phoenix International Life Sciences Inc.
November 18, 1998
Page 1
November 18, 1998
Phoenix International Life Sciences Inc.
c/o Paul DeFilippo, Esquire
GIBBONS, DEL DEO, DOLAN, GRIFFINGER & VECCHIONE
One Riverfront Plaza
Newark, NJ 07102-5497
RE: CHRYSALIS INTERNATIONAL CORPORATION AND ITS AFFILIATED COMPANIES
("BORROWER") WITH FIRST UNION NATIONAL BANK ("BANK")
Gentlemen:
On this date, Phoenix International Life Sciences Inc. ("Phoenix"), a
Canadian corporation, has executed and delivered to Bank its Unconditional
Guaranty.
To secure its liabilities and obligations under the Unconditional
Guaranty, Phoenix has executed and delivered to Bank its Pledge and Assignment
Agreement.
In consideration of the execution and delivery by Phoenix to Bank of
the Unconditional Guaranty and the Pledge and Assignment Agreement, Phoenix
shall have the right, at its option, exercisable on five (5) days' prior written
notice to Bank, to acquire from Bank all right, title and interest of Bank in
and to the Loan Documents (as defined in the Unconditional Guaranty), and all
mortgages, liens and security interests which secure any obligations under the
Loan Documents. At closing, Bank shall transfer, convey, assign, endorse and
deliver to Phoenix all of its right, title and interest in the Loan Documents
and all mortgages, liens and security interests securing or evidencing same,
free and clear of all liens, claims and encumbrances.
The consideration payable for the acquisition by Phoenix of Bank's
rights as set forth herein shall be the outstanding principal indebtedness under
the Term Note, all accrued and unpaid interest thereon and all sums reimbursable
to Bank in connection therewith (including, without limitation, reasonable
attorneys' fees). Payment of such consideration may be made by Phoenix's
irrevocable direction to liquidate the Collateral for the Unconditional
Guaranty.
The sale and assignment by Bank to Phoenix hereunder shall be without
warranty, representation or recourse of any kind or of any nature whatsoever,
except (1) that Bank shall warrant and represent that Bank has not previously
sold, assigned
<PAGE>
Phoenix International Life Sciences Inc.
November 18, 1998
Page 2
or transferred such indebtedness or any rights attendant thereto, (2) that
Bank has free and clear title to and the power and authority to sell and
assign such indebtedness and rights to Phoenix, and (3) that the
consideration payable by Phoenix represents the amount due to Bank from
Borrower.
It shall be a condition precedent to the exercise by Phoenix of the
option to acquire the indebtedness evidenced by the Term Note that the
Unconditional Guaranty of the indebtedness of Borrower owing Bank and the Pledge
and Assignment Agreement to secure such liabilities and obligations be in full
force and effect, and that Bank shall have a perfected interest in the
collateral described in the Pledge and Assignment Agreement.
If the foregoing accurately sets forth our agreement and understanding
concerning the subject matter of this letter, please execute this letter in the
space provided below and return it to the undersigned.
Very truly yours,
FIRST UNION NATIONAL BANK
By: /s/ Elizabeth B. Styer
------------------------------------------
Elizabeth B. Styer, Senior Vice President
The undersigned, intending to be legally bound, hereby acknowledges and consents
to the terms set forth in the foregoing letter this 18th day of November, 1998.
PHOENIX INTERNATIONAL LIFE
SCIENCES INC.
By: /s/ Jean-Yves Caloz
-----------------------------------
Name: Jean Yves Caloz
Title: Senior Vice President
and Secretary
<PAGE>
Exhibit 10.26
LOAN AGREEMENT
THIS LOAN AGREEMENT made and entered into as of June 12, 1995 between the
Director of Development of the State of Ohio (the "Director"), and Phoenix
International Life Sciences (U.S.) Inc., a Delaware corporation (the "Company"),
under the circumstances summarized in the following recitals (the capitalized
terms used in the recitals being used therein as defined in Article I hereof):
A. Pursuant to the Act, the Director is authorized, among other things, to make
loans to assist in the financing of an Eligible Project.
B. The Company has requested that the Director provide the financial assistance
for the Project hereinafter described.
C. The Director has determined that the Project constitutes an Eligible Project
and that the financial assistance to be provided pursuant to this Agreement is
appropriate under the Act and will be in furtherance and in implementation of
the public policy set forth in the Act.
D. The financial assistance to be provided pursuant to this Agreement has been
reviewed and approved by the Development Financing Advisory Board and the
Controlling Board, pursuant to the Act.
NOW, THEREFORE, in consideration of the premises and the representations and
agreements hereinafter contained, the Director and the Company agree as follows:
ARTICLE 1 DEFINITIONS
Section 1.1. USE OF DEFINED TERMS. In addition to the words and terms elsewhere
defined in this Agreement or by reference to the Security Document or other
instruments, the words and terms set forth in Section 1.2 hereof shall have the
meanings therein set forth unless the context or use expressly indicates
different meaning or intent. Such definitions shall be equally applicable to
both the singular and plural forms of any of the words and terms therein
defined.
Section 1.2. DEFINITIONS. As used herein:
"Act" means Chapter 166, Ohio Revised Code, as from time to time enacted and
amended.
"Agreement" means this Loan Agreement, as from time to time amended or
supplemented.
"Allowable Costs" means "allowable costs" of the Project within the meaning of
the Act.
<PAGE>
"Application" means the Application of the Company, dated November 10, 1994,
submitted to the Director requesting assistance under the Act.
"City" means the City of Cincinnati, Hamilton County, Ohio.
"Closing Date" means June 12, 1995, the date of execution and delivery of the
Loan Documents.
"Commitment" means the Commitment Letter between the Director and the Company
dated February 23, 1995.
"Completion Date" means the date of completion of the Project, as certified by
the Company pursuant to Section 3.5 hereof.
"Controlling Board" means the Controlling Board of the State.
"Cost Certification" means a certification of the Company, as of a specified
date, setting forth in reasonable detail the costs incurred and, if appropriate,
to be incurred by the Company in completing the provision of the Project,
including a detail by category of all Allowable Costs.
"Development Financing Advisory Board" means the Development Financing Advisory
Board of the State.
"Disbursement Date" means on or before June 12, 1995, or such subsequent date as
may be established by the Director in writing in accordance with Section 3.7
hereof for the Disbursement of the Loan.
"Eligible Project" means an "eligible project" within the meaning of the Act.
"Environmental Laws" means all federal, state, local and foreign laws relating
to pollution or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment (including without limitation ambient air, surface water,
ground water, or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes, and any and all regulations, codes, plans, orders,
decrees, judgments, injunctions, notices or demand letters issued, entered,
promulgated or approved thereunder.
"Event of Default" means any of the events described as an event of default in
Section 5.1 hereof.
"Final Cost Certification" means the cost certification dated as of the
Completion Date.
<PAGE>
"Governing Instruments" means the certificate of incorporation and by-laws of
the Company.
"Governmental Authority" means, collectively, the State, any political
subdivision thereof, any municipality, and any agency, department, commission,
board or bureau of any of the foregoing having jurisdiction over the Project.
The terms "Hazardous Substance", "Release", "Owner", "Operator", "Environment",
and "Natural Resources" shall have the same meanings and definitions as set
forth in the Comprehensive Environmental Response Compensation and Liability
Act, as amended, 42 U.S.C. Section 9601 ET SEQ. and regulations promulgated
thereunder (collectively "CERCLA") and any corresponding state or local law or
regulation, provided, however, that as used herein the term Hazardous Substance
shall also include: (i) any Pollutant or Contaminant as defined by CERCLA or by
any other Environmental Law (ii) any Solid Waste, Hazardous Constituent or
Hazardous Waste as defined by, or as otherwise identified by, the Resource
Conservation and Recovery Act as amended 42 U.S.C. Section 6901 ET SEQ. or
regulations promulgated thereunder (collectively "RCRA") or by any other
Environmental Law; and (iii) crude oil, petroleum, and fractions or distillates
thereof.
"Letter of Credit Issuer" means Star Bank, National Association.
"Letter of Credit" means the one hundred percent (100%) irrevocable Letter of
Credit in the stated amount of $1,353,000.00 issued to the Director for the
account of the Company.
"Letter of Credit Documents" means all documents evidencing or securing the
Letter of Credit.
"Loan" means the loan by the Director to the Company in the total sum of the
Loan Amount, to be disbursed pursuant to Section 3.8 hereof.
"Loan Amount" means the lesser of (i) One Million Three Hundred Fifty Three
Thousand and 00/100 Dollars ($1,353,000.00) or (ii) thirty-three percent (33%)
of the Allowable Costs of the Project, as determined by the Director in his sole
discretion pursuant to this Agreement.
"Loan Approval Documents" means, with respect to the Loan, the Recommendation of
the Director to the Development Financing Advisory Board dated December 8, 1994,
the Resolution of the Development Financing Advisory Board dated December 8,
1994, the Approval of the Controlling Board dated January 23, 1995, and the
Commitment.
"Loan Documents" means all documents and instruments delivered to or required by
the Director to evidence or secure the Loan, including this Agreement, as
required by the Commitment and this Agreement.
"Note" means the promissory note, in the form attached hereto as Exhibit A,
evidencing the obligation of the Company to repay the Loan.
<PAGE>
"Notice Address" means:
(a) As to the Director: Department of Development
77 South High Street
P.O. Box 1001
Columbus, Ohio 43216-1001
Attn: Director
(b) As to the Company: Phoenix International Life Sciences (U.S.) Inc.
4625 Dobrin Street
Saint-Laurent (Montreal), Quebec
Canada H4R 2P7
Attn: Jean-Yves Caloz
Treasurer
or such additional or different address, notice of which is given under Section
6.2 hereof.
"Plans and Specifications" means the plans and specifications or other
appropriate documents describing the Project prepared by or at the direction of
the Company.
"Project" means the Project Site and the Project Facilities, together
constituting an Eligible Project.
"Project Facilities" means the buildings, structures, additions and improvements
described in Exhibit B attached hereto and more particularly described in the
Plans and Specifications.
"Project Purposes" means to pay certain costs incurred by the Company in
connection with (i) the acquisition of a parcel of real estate containing
approximately twenty-six (26) acres, together with the appurtenances thereto
located in Cincinnati, Hamilton County, Ohio, and (ii) the acquisition of
Emerson North Hospital, containing approximately 75,000 square feet.
"Project Site" means the real estate described in Exhibit C attached hereto.
"Provision" means the acquisition of the Project.
"Security Document" means the Letter of Credit, of even date herewith, as the
same may be from time to time amended or supplemented.
"State" means the State of Ohio.
Section 1.3. CERTAIN WORDS AND REFERENCES. Any reference herein to the Director
shall include those succeeding to his functions, duties or responsibilities
pursuant to or by operation of law or lawfully performing such functions. Any
reference to a section or provision of the Constitution
<PAGE>
of the State or to the Act or to a section, provision or chapter of the Ohio
Revised Code shall include such section, provision or chapter as from time to
time amended, modified, revised, supplemented or superseded.
The terms "hereof," "hereby," "herein," "hereto," "hereunder" and similar terms
refer to this Agreement; and the term "heretofore" means before, and the term
"hereafter" means after, the Closing Date.
ARTICLE 2 DETERMINATIONS AND REPRESENTATIONS
Section 2.1. DETERMINATIONS OF THE DIRECTOR. Pursuant to the Act and on the
basis of the representations and other information provided by the Company, the
Director has heretofore made certain determinations, as set forth in the Loan
Approval Documents, which are hereby confirmed, and the Director hereby
determines that the financial assistance to be provided by the State pursuant to
this Agreement will conform to the requirements of the Act, including Section
166.07 thereof, and will further and implement the purposes of the Act by
creating new jobs or preserving existing jobs and employment opportunities and
improving the economic welfare of the people of the State.
Section 2.2. REPRESENTATIONS OF THE COMPANY. The Company hereby represents and
warrants that:
(a) It is a corporation for profit duly organized, validly existing and in good
standing under the laws of the State of Delaware and is qualified and licensed
to do business and own property in the State of Ohio.
(b) It has full power and authority to execute, deliver and perform the Loan
Documents and the Letter of Credit Documents, and to enter into and carry out
the transactions contemplated thereby. Such execution, delivery and performance
do not, and will not, violate any provision of law applicable to the Company or
the Governing Instruments of the Company and do not, and will not, conflict with
or result in a default under any agreement or instrument to which the Company is
a party or by which it or any of its property or assets is or may be bound. The
Loan Documents and the Letter of Credit Documents have, by proper action, been
duly authorized, executed and delivered and all necessary actions have been
taken to constitute the Loan Documents and the Letter of Credit Documents legal,
valid and binding obligations of the Company.
(c) The provision of financial assistance pursuant to the Loan Approval
Documents and this Agreement induced the Company to provide the Project, thereby
creating new jobs or preserving existing jobs and employment opportunities and
improving the economic welfare of the people of the State.
<PAGE>
(d) The provision of the Project will be completed and the Project will be
operated and maintained in such manner as to conform with all applicable zoning,
planning, building, environmental and other applicable governmental regulations
imposed by Governmental Authority and as to be consistent with the purposes of
the Act.
(e) It presently intends that the Project will be used and operated in a manner
consistent with the Project Purposes until the date on which the Loan has been
fully repaid, and the Company knows of no reason why the Project will not be so
operated.
(f) There are no actions, suits or proceedings pending or threatened against or
affecting the Company or the Project which, if adversely determined, would
individually or in the aggregate materially impair the ability of the Company to
perform any of its obligations under the Loan Documents or the Letter of Credit
Documents or adversely affect the financial condition of the Company.
(g) The Company is not in default under any of the Loan Documents or the Letter
of Credit Documents, or in the payment of any indebtedness for borrowed money or
under any agreement or instrument evidencing any such indebtedness, and no event
has occurred which by notice, the passage of time or otherwise would constitute
any such event of default.
(h) The Project Site is zoned by the City under a zoning ordinance which permits
the Provision of the Project thereon in accordance with the Plans and
Specifications and the operation of the Company's business; and all utilities,
including water, storm and sanitary sewer, gas, electric and telephone, and
rights of access to public ways shall be available or will be provided to the
Project Site in sufficient locations and capacities to meet the requirements of
operating the Project and of any applicable Governmental Authority.
(i) No representation or warranty of the Company contained in any of the Loan
Approval Documents, Loan Documents or Letter of Credit Documents, and no
statement contained in any certificate, schedule, list, financial statement or
other instrument furnished to the Director or the Letter of Credit Issuer by or
on behalf of the Company (including, without limitation, the Application)
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading.
(j) The financial statements of the Company heretofore delivered to the Director
are true and correct, in all respects, have been prepared in accordance with
generally accepted accounting principles consistently applied, and fairly
present the financial condition and the results of operation of the Company as
of the dates thereof. No materially adverse change has occurred in the financial
condition of the Company reflected therein since the respective dates thereof.
(k) All proceeds of the Loan shall be used for the payment of Allowable Costs
relating to Provision of the Project. No part of any such proceeds shall be
knowingly paid to or retained by the Company or any partner, officer,
shareholder, director or employee of the Company as a fee,
<PAGE>
kick-back or consideration of any type. The Company has no identity of interest
with the general contractor or any architect, subcontractor, laborer or
materialman performing work or services or supplying materials in connection
with the provision of the Project.
(1) The Company has a good and marketable title to a fee simple interest in the
Project Site and Project Facilities, subject in all cases to no lien, charge,
easement, condition, restriction or encumbrance except as set forth on Schedule
2.2(l).
(m) The Project Site has never, and does not currently contain, nor is it
contaminated by, any hazardous or toxic waste materials in violation of any
applicable environmental laws or regulations, including, but not limited to,
Section 103 of the Comprehensive Environmental Response, Compensation and
Liability Act, 42 USC Section 9601 et seq. and Chapter 3734 of the Ohio Revised
Code; and no "clean-up" of the Project Site has occurred pursuant to any
applicable federal or state environmental laws or regulations which would give
rise to (i) liability on the part of any person, entity or association to
reimburse any governmental authority for the costs of any such "clean-up," or
(ii) a lien or encumbrance on the Project Site.
(n) The Company is Solvent and upon consummation of the transactions
contemplated by this Agreement will be Solvent. "Solvent" means that: (a) the
present fair salable value of the Company's assets is in excess of the total
amount of its liabilities (including contingent liabilities); (b) the Company
does not have unreasonably small capital and is able to pay its debts as they
become due; and (c) the Company does not intend to or believe it will incur
obligations beyond its ability to pay as they mature.
ARTICLE 3 LOAN; PROVISION OF PROJECT; CONDITIONS TO DISBURSEMENT DATE
Section 3.1. LOAN AND REPAYMENT. On the terms and conditions of this Agreement
and the Commitment, the Director shall lend to the Company the Loan Amount to
assist in the financing of the Project. The Loan shall be evidenced by this
Agreement and the Note and secured by the Security Document and other Loan
Documents, as applicable. Those instruments shall be executed and delivered by
the Company to the Director on the Closing Date, concurrently with the execution
and delivery of this Agreement and the delivery of all other documents and the
satisfaction of all other closing conditions required by this Agreement and the
Commitment. The Loan shall be disbursed on the Disbursement Date pursuant to
Section 3.8 hereof upon the satisfaction of the conditions set forth in Section
3.6 hereof. The Loan shall be disbursed only from, and only to the extent that
on the Disbursement Date funds not heretofore committed are available to make
the Loan from moneys in, the "Facilities Establishment Fund" created by the Act.
The terms of repayment of the Loan shall be as set forth in the Note and the
Company shall make all payments required to be made under the Note as and when
due.
<PAGE>
Section 3.2. PROVISION OF PROJECT. The Company (a) has commenced the Provision
of the Project; (b) shall pay all expenses incurred in such Provision from funds
made available therefor in accordance with this Agreement or otherwise; and (c)
shall demand, sue for, levy and recover all sums of money and debts which may be
due and payable under the terms of any contract, order, receipt, guaranty,
warranty, writing or instruction in connection with the Provision of the Project
and will enforce the terms of any contract, agreement, obligation, bond or other
performance security with respect thereto. The Company confirms its agreement in
the Commitment that all wages paid to laborers and mechanics employed on the
Provision of the Project shall be paid at not less than the prevailing rates of
wages for laborers and mechanics for the class of work called for by the
Project, which wages shall be determined in accordance with the requirements of
Chapter 4115, Ohio Revised Code, for determination of prevailing wage rates;
provided that if the Company undertakes, as part of the Project, work to be
performed by its regular bargaining unit employees who are covered under a
collective bargaining agreement which was in existence prior to the date of the
Commitment, the rate of pay provided under the applicable collective bargaining
agreement may be paid to such employees.
Section 3.3. PLANS AND SPECIFICATIONS: INSPECTIONS. At his option, the Director
may retain, at the Company's expense, an architect, engineer, appraiser or other
consultant for the purpose of approving the Plans and Specifications, verifying
costs and performing inspections as Provision of the Project progresses. Such
inspections or approvals of Plans and Specifications or the Project Facilities
shall impose no responsibility or liability of any nature upon the Director, the
State, their agents, representatives or designees nor, without limitation, carry
any warranty or representation as to the adequacy or safety of the structures or
any of their component parts or any other physical condition or feature
pertaining to the Project Facilities. The Company shall, at the request of the
Director, make periodic reports (including, if required, submission of updated
Cost Certifications) to the Director concerning the status of completion and the
expenditure of costs in respect thereof.
The Company may revise the Plans and Specifications from time to time; provided
that no revision shall be made (a) which would change the Project Purposes to
purposes other than those permitted by the Act; (b) without obtaining, to the
extent required by law, the approval of any applicable Governmental Authority;
and (c) without the prior written approval of the Director if such revision
would change the amounts set forth in the most recently furnished Cost
Certification. In any event, all revisions to the Plans and Specifications shall
be promptly filed with the Director.
Section 3.4. COMPANY REQUIRED TO PAY COSTS IN EVENT PROCEEDS INSUFFICIENT. In
the event that the proceeds of the Loan are not sufficient to pay all costs of
the Project, the Company will, nonetheless and irrespective of the cause of such
deficiency, complete the Project in accordance with the Plans and Specifications
and pay all costs of such completion in full from its own funds or other equity
sources.
<PAGE>
Section 3.5. COMPLETION DATE. The Completion Date shall occur not later than
June 12, 1995, and shall be evidenced to the Director by a certificate of the
Company substantially in the form of Exhibit 3.5 attached hereto and made a part
hereof stating the Completion Date, that all licenses, permits and approvals,
including a certificate of occupancy, required by any Governmental Authority
have been procured and/or obtained, that all improvements and additions
reflected in the Plans and Specifications have been made, that all costs of
providing the Project have been paid and the date as of which operation of the
Project shall commence, which certificate shall be accompanied by the Final Cost
Certification, and if Provision of the Project entailed construction, by a
completed Forms AIA-G702 and G703.
Section 3.6. CONDITIONS TO DISBURSEMENT. The disbursement of the Loan shall be
made on or before the Disbursement Date, provided the Director shall have
received the following on or before the Disbursement Date:
(a) the executed Note;
(b) the items required by Section 3.5 hereof;
(c) certification by the Company that its representations and warranties made in
the Loan Approval Documents, the Loan Documents and the Letter of Credit
Documents remain true, accurate and complete as of the Disbursement Date and no
default or event which, by notice, the passage of time or otherwise, would
constitute a default, exists under the Loan Documents or the Letter of Credit
Documents;
(d) certificate of occupancy;
(e) evidence of the liability and property insurance for the Project;
(f) evidence of zoning compliance;
(g) evidence of availability and adequacy of utilities;
(h) copies of all building permits;
(i) Cost Certifications;
(j) the duly executed Security Document;
(k) the Company's Certificates of Corporate Good Standing issued by the
Secretaries of the States of Delaware and Ohio, dated within ten (10) days of
the Disbursement Date;
(1) certified copies of the resolutions of the Company authorizing execution and
delivery of all documents with respect to the Loan and the Letter of Credit;
<PAGE>
(m) certificate of incumbency as to the Company;
(n) copies, certified by the Company to be true, correct and complete, of the
following:
(i) the Governing Instruments of the Company; and
(ii) the Letter of Credit Documents;
(o) an opinion of the Company's counsel, which sets forth the following:
(i) that the Company is a corporation duly organized and validly existing under
the laws of, and in good standing with, the State of Delaware, and is qualified
and licensed to do business in the State of Ohio;
(ii) that the Company has power and authority to own its properties and conduct
its business;
(iii) that the execution of the Loan Documents by the Company does not conflict
with the Governing Instruments of the Company;
(iv) that the Agreement, the Loan Documents, the Note, Security Document and the
Letter of Credit Documents have been duly authorized, executed and delivered by
the Company or the Letter of Credit Issuer, as the case may be, and are valid
and binding instruments, enforceable against the Company in accordance with
their respective terms, except as such enforcement may be limited by bankruptcy,
insolvency or other laws or equitable principles affecting the enforcement of
creditor's rights generally; and that the Company or the Letter of Credit
Issuer, as the case may be, has taken all actions necessary to authorize the
execution and delivery of the same;
(v) that there are no actions, suits or proceedings, at law or in equity, or
before or by any court, public board or body, pending or threatened or affecting
the Company or the Project which, if adversely determined, would individually or
in the aggregate materially impair the ability of the Company to perform any of
its obligations under the Loan Documents, or would materially adversely affect
the financial condition of the Company;
(vi) that the use and operation of the Project for its intended purposes comply
with all applicable zoning ordinances, regulations and Environmental Laws
affecting the Project, and all requirements for such use and operation have been
satisfied;
(vii) that all authorizations, certificates, licenses and permits which are
required by any governmental authority and which are necessary for the lawful
use, occupancy and operation of the Project have been obtained;
<PAGE>
(viii) that the execution of the Loan Documents and consummation of the
transactions contemplated in this Agreement will not result in a breach or
violation or default under any judgment, decree, loan, mortgage, agreement,
indenture or other instrument applicable to the Company;
(ix) that the Company is not in default under any contract, agreement or other
instrument by which it is bound, in the payment of any monetary obligation, or
with respect to any judgment, order, injunction or regulation of any court or
governmental authority, and there exists no condition or event which after
notice or lapse of time or both would constitute any such default.
(p) All licenses and permits required by Governmental Authority;
(q) such other certifications, documents or opinions as the Director may
reasonably request.
Section 3.7. POSTPONEMENT OF DISBURSEMENT DATE. At the written request of the
Company setting forth the reasons therefor and received at least twenty (20)
days prior to the Disbursement Date, the Director may, but shall be under no
obligation to, postpone the Disbursement Date to a later date. No such
postponement will be deemed to have been granted unless stated in a writing
signed by the Director specifying the length of the extension given. If for any
reason the Loan shall not have been disbursed on or before the Disbursement Date
or such subsequent date as the Director shall have specified in writing pursuant
to the preceding sentence, this Agreement shall automatically terminate and,
subject to the provisions of Section 3.9 hereof, be of no further force and
effect. For purposes of this Section, time is of the essence.
Section 3.8. DISBURSEMENT OF LOAN. The Director shall disburse the Loan by
delivering funds in the Loan Amount to the Company upon confirmation by the
Director, exercising his sole discretion, that the conditions specified in
Section 3.6 hereof have been satisfied and the confirmation by the Director that
the applicable Security Document has been duly executed and delivered by the
Company.
Section 3.9. PAYMENT OF COSTS; INDEMNIFICATION. The Company shall pay all costs
incident to the Loan, including, without limitation as applicable, recording and
title fees, title examination and insurance fees, escrow fees, all costs and
expenses incurred by the Director and the fees and expenses of the counsel and
accountants assisting in this matter at the request of the Director or his
representative. The Company shall defend, indemnify and hold the Director and
any officials of the State harmless against any and all loss, cost, expense,
claims or actions arising out of or connected with the execution and delivery of
this Agreement or any other Loan Documents and the preparation of documents
relating to the disbursement of the Loan, including all aforementioned costs and
expenses, regardless of whether or not the disbursement of the Loan shall
actually occur. The provisions of this Section will survive the termination of
this Agreement.
<PAGE>
ARTICLE 4 ADDITIONAL COVENANTS AND AGREEMENTS
Section 4.1. INFORMATION CONCERNING OPERATIONS. At the request of the Director
and, in any event, within seventy-five (75) days after the last day of each
fiscal year of the Company beginning with the fiscal year in which the
Completion Date occurs, the Company shall furnish to the Director a report on
Project operations setting forth the total number of employees then employed on
the Project and such other employment, economic and statistical data concerning
the Project as may reasonably be requested by the Director.
Section 4.2. AFFIRMATIVE COVENANTS OF THE COMPANY. Throughout the term of this
Agreement, the Company shall:
(a) Taxes and Assessments. Pay and discharge promptly, or cause to be paid and
discharged promptly, when due and payable, all taxes, assessments and
governmental charges or levies imposed upon it, its income or any of its
property, or upon any part thereof, as well as all claims of any kind (including
claims for labor, materials and supplies) which, if unpaid, might by law become
a lien or charge upon its property.
(b) Maintain Existence. Do or cause to be done all things necessary to preserve
and keep in full force and effect its existence and its material rights and
franchises.
(c) Maintain Property. Maintain and keep its property in good repair, working
order and condition, and from time to time make all repairs, renewals and
replacements which, in the opinion of the Company, are necessary and proper so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
subsection (c) shall prevent the Company from selling or otherwise disposing of
any property whenever, in the good faith judgment of the Company, such property
is obsolete, worn out, without economic value or unnecessary for the conduct of
the business of the Company.
(d) Maintain Insurance. Keep all of its insurable property insured against loss
or damage by fire and other risks, maintain public liability insurance against
claims for personal injury, death, or property damage suffered by others upon,
in or about any premises occupied by the Company; and maintain all such worker's
compensation or similar insurance as may be required under the laws of any state
or jurisdiction in which it may be engaged in business. All insurance for which
provision has been made in this subsection (d) shall be maintained against such
risks and in at least such amounts as such insurance is usually carried by
persons engaged in the same or similar businesses, and all insurance herein
provided for shall be effected and maintained in force under a policy or
policies issued by insurers of recognized responsibility, except that it may
effect worker's compensation or similar insurance in respect of operations in
any state or other jurisdiction either through an insurance fund operated by
such state or other jurisdiction or by causing to be maintained a system or
systems of self-insurance which is in accordance with applicable law.
<PAGE>
(e) Furnish Information. Furnish to the Director:
(i) Quarterly Reports. Within thirty (30) days after the end of each quarterly
period of each fiscal year of the Company, the balance sheet of the Company as
at the end of such quarterly period, together with related statements of income
and retained earnings (or accumulated deficit) and changes in financial position
for such quarterly period, setting forth in comparative form the corresponding
figures as at the end of or for the corresponding quarter of the previous fiscal
year, all in reasonable detail, prepared in accordance with generally accepted
accounting principles applied on a consistent basis, subject to usual year-end
audit adjustments.
(ii) Annual Reports. Within seventy-five (75) days after the last day of each
fiscal year of the Company, a copy of its audit report containing a balance
sheet of the Company as at the end of such fiscal year, together with related
statements of income and retained earnings (or accumulated deficit) and changes
in financial position for such fiscal year, setting forth in comparative form
the corresponding figures as at the end of or for the previous fiscal year, all
in reasonable detail and all examined by and accompanied by a review letter or
opinion of its independent certified public accountants to the effect that such
financial statements were prepared in accordance with generally accepted
accounting principles consistently applied and present fairly the Company's
financial position at the close of such periods and the results of its
operations for such periods and that the Company is not in default under any of
its material financial obligations.
(iii) Certificate; No Default. With the financial reports required to be
furnished under this Section, a certificate of the Company's chief executive
officer or chief financial officer stating that (a) no Event of Default has
occurred and is continuing and no event or circumstance which would constitute
an Event of Default, but for the requirement that notice be given or time elapse
or both, has occurred and is continuing, or, if such an Event of Default or such
event or circumstance has occurred and is continuing, a statement as to the
nature thereof and the action which the Company proposes to take with respect
thereto, and that (b) no action, suit or proceeding by it or against it at law
or in equity, or before any governmental instrumentality or agency, is pending
or threatened, which, if adversely determined, would materially impair the right
or ability of the Company to carry on the business which is contemplated in
connection with the Project or would materially impair the right or ability of
the Company to perform the transactions contemplated by this Agreement or the
other Loan Documents or would materially and adversely affect its business,
operations, properties, assets or condition, all as of the date of such
certificate, except as disclosed in such certificate.
(iv) Other Information. Such other information respecting the business,
properties or the condition or operations, financial or otherwise, of the
Company as the Director may reasonably request, Including, without limitation,
annually, a certificate executed by an officer of the Company certifying the
number of employees of the Company employed at the Project Site at the time of
the closing of the Loan, the number of employees of the Company employed at the
<PAGE>
Project Site added during the immediately preceding year, and the total number
of current employees of the Company employed at the Project Site.
(f) Deliver Notice. Forthwith upon learning of any of the following, deliver
written notice thereof to the Director, describing the same and the steps being
taken by the Company with respect thereto:
(i) the occurrence of an Event of Default or an event or circumstance which
would constitute an Event of Default, but for the requirement that notice be
given or time elapse or both, or
(ii) any action, suit or proceeding by it or against it at law or in equity, or
before any governmental instrumentality or agency, instituted or threatened
which, if adversely determined, would materially impair the right or ability of
the Company to carry on the business which is contemplated in connection with
the Project or would materially impair the right or ability of the Company to
perform the transactions contemplated by the Loan Documents, or would materially
and adversely affect its business, operations, properties, assets or condition,
or
(iii) the occurrence of a Reportable Event, as defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), under, or the
institution of steps by the Company to withdraw from, or the institution of any
steps to terminate, any employee benefit plan as to which the Company may have
liability.
(g) Inspection Rights. At any reasonable time and from time to time, permit the
Director, or any agents or representatives thereof, to examine and make copies
of and abstract from the records and books of account of, and visit the
properties of, the Company and discuss the general business affairs of the
Company with any of its officers; provided, however, that the Company reserves
the right to restrict access to any of its facilities in accordance with
reasonably adopted procedures relating to safety and security.
Section 4.3. NEGATIVE COVENANTS OF THE COMPANY. Throughout the term of this
Agreement, the Company shall not:
(a) Maintain Existence. Sell, transfer or otherwise dispose of all, or
substantially all, of its assets, consolidate with or merge into any other
entity, or permit one or more entities to consolidate with or merge into it;
provided, however, that the Company may, without violating the agreement
contained in this subsection (a), consolidate with or merge into another entity,
or permit one or more other entities to consolidate with or merge into it, or
sell, transfer or otherwise dispose of all, or substantially all, of its assets
and thereafter dissolve if: (i) the prior written consent of the Director is
obtained; (ii) the surviving, resulting or transferee entity, as the case may
be, assumes in writing all of the obligations of the Company hereunder (if such
surviving, resulting or transferee entity is other than the Company); and (iii)
the surviving, resulting or transferee entity, as the case may be, is an entity
duly organized and validly existing under the laws of the State or duly
qualified to do business therein, and has a net worth of not less than that
<PAGE>
of the Company immediately prior to such disposition, consolidation or merger,
transfer or change of form.
(b) ERISA. Voluntarily terminate any employee benefit plan or other plan (a
"Plan") maintained for employees of the Company and covered by Title IV of
ERISA, so as to result in any material liability of the Company to the Pension
Benefit Guaranty Corporation ("PBGC"), enter into any Prohibited Transaction (as
defined in Section 4975 of the Internal Revenue Code of 1954, as amended, and in
ERISA) involving any Plan which results in any material liability of the Company
to the PBGC, cause any occurrence of any Reportable Event (as defined in Title
IV of ERISA) which results in any material liability of it to the PBGC, or allow
or suffer to exist any other event or condition which results in any material
liability of the Company to the PBGC.
(c) Agreements. Enter into any agreement containing any provision which would be
violated or breached by the performance of its obligations hereunder or under
any instrument or document delivered or to be delivered by it hereunder or in
connection herewith.
(d) Assignment or Lease. In whole or in part, assign this Agreement or lease or
grant the right to occupy or use the Project to others, without the prior
written consent of the Director.
(e) Operation of Project. Without the prior written consent of the Director,
suspend or discontinue operation of the Project.
Section 4.4. ENVIRONMENTAL MATTERS. Throughout the term of this Agreement, the
Company shall:
(a) ensure that the Project Site remains in compliance with all Environmental
Laws and will not place or permit to be placed any Hazardous Substances on the
Project Site except as not prohibited by applicable law or appropriate
governmental authorities;
(b) maintain a system to assure and monitor continued compliance with all
applicable Environmental Laws which system shall Include periodic reviews of
such compliance;
(c) (i) employ in connection with its use of the Project Site appropriate
technology necessary to maintain compliance with any applicable Environmental
Laws and (ii) dispose of any and all Hazardous Waste generated at the Project
Site only at facilities and with carriers that maintain valid permits under RCRA
and any other applicable Environmental Laws; use its best efforts to obtain
certificates of disposal, such as hazardous waste manifest receipts, from all
treatment, transport, storage or disposal facilities or operators employed by
the Company in connection with the transport or disposal of any Hazardous Waste
generated at the Project Site;
(d) In the event the Company obtains, gives or receives notice of any Release or
threat of Release of a reportable quantity of any Hazardous Substances at the
Project Site (any such event being hereinafter referred to as a "Hazardous
Discharge") or receives any notice of violation,
<PAGE>
request for information or notification that it is potentially responsible for
investigations or cleanup of environmental conditions at the Project Site,
demand letter or complaint, order, citation, or other written notice with regard
to any Hazardous Discharge or violation of Environmental Laws affecting the
Project Site or Company's interest therein (any of the foregoing is referred to
herein as an "Environmental Complaint") from any Person or entity, including any
state agency responsible in whole or in part for environmental matters in the
state in which the Project Site is located or the United States Environmental
Protection Agency (any such person or entity hereinafter the "Authority"), then
the Company shall, within five (5) business days, given written notice of same
to the Director detailing facts and circumstances of which the Company is aware
giving rise to the Hazardous Discharge or Environmental Complaint. Such
information is to be provided to allow the Director to protect his security
interest in the Project Site and is not intended to create nor shall it create
any obligation upon the Director with respect thereto;
(e) promptly forward to the Director copies of any request for information,
notification of potential liability, demand letter relating to potential
responsibility with respect to the investigation or cleanup of Hazardous
Substances at any other site owned, operated or used by Company to dispose of
Hazardous Substances and shall continue to forward copies of correspondence
between the Company and the Authority regarding such claims to the Director
until the claim is settled. The Company shall promptly forward to the Director
copies of all documents and reports concerning a Hazardous Discharge at the
Project Site that the Company is required to file under any Environmental Laws;
(f) respond promptly to any Hazardous Discharge or Environmental Complaint and
take all necessary action in order to safeguard the health of any Person and to
avoid subjecting the Project Site to any lien. If Company shall fail to respond
promptly to any Hazardous Discharge or Environmental Complaint or Company shall
fail to comply with any of the requirements of any Environmental Laws, the
Director may, but without the obligation to do so, for the sole purpose of
protecting the Director's interest hereunder: (A) give such notices or (B) enter
onto the Project Site (or authorized third parties to enter onto the Project
Site) and take such actions as the Director (or such third parties as directed
by the Director) deem reasonably necessary or advisable, to clean up, remove,
mitigate or otherwise deal with any Hazardous Discharge or Environmental
Complaint. All reasonable costs and expenses incurred by the Director (or such
third parties) in the exercise of any such rights, including any sums paid In
connection with any judicial or administrative investigation or proceedings,
fines and penalties, together with interest thereon from the date expended at
the Default Rate shall be paid upon demand by the Company and until paid shall
be added to and become a part of the obligations created by the terms of this
Agreement or the Note or any other agreement between the Director and Company;
(g) Promptly upon the written request of the Director from time to time, provide
Director, at the Company's expense, with an environmental site assessment or
environmental audit report prepared by an environmental engineering firm
acceptable in the reasonable opinion of the Director, to assess with a
reasonable degree of certainty the existence of a Hazardous Discharge and the
potential costs in connection with abatement, cleanup and removal of any
Hazardous
<PAGE>
Substances found on, under, at or within the Project Site. Any report or
investigation of such Hazardous Discharge proposed and acceptable to an
appropriate Authority that is charged to oversee the clean-up of such Hazardous
Discharge shall be acceptable to the Director. If such estimates, individually
or in the aggregate, exceed $100,000, the Director shall have the right to
require the Company to post a bond, letter of credit or other security
reasonably satisfactory to the Director to secure payment of these costs and
expenses;
(h) defend and indemnify the Director and hold the Director harmless from and
against all loss, liability, damage and expense, claims, costs, fines and
penalties, including reasonable attorney's fees, suffered or incurred by the
Director under or on account of any Environmental Laws, including, without
limitation, the assertion of any lien thereunder, with respect to any Hazardous
Discharge, the presence of any Hazardous Substances affecting any of the Project
Site, whether or not the same originates or emerges from the Project Site or any
contiguous real estate, including any loss of value of the Project Site as a
result of the foregoing except to the extent such loss, liability, damage and
expense is attributable to any Hazardous Discharge resulting from actions on the
part of the Director.
(i) The Company's obligations under this Section 4.4 shall arise upon the
discovery of the presence of any Hazardous Substances at the Project Site,
whether or not any federal, state, or local environmental agency has taken or
threatened any action in connection with the presence of any Hazardous
Substances. The Company's obligation and the indemnifications hereunder shall
survive the termination of this Agreement.
ARTICLE 5 EVENTS OF DEFAULT AND REMEDIES; TERMINATION
Section 5.1. EVENTS OF DEFAULT. Each of the following shall be an "Event of
Default":
(a) The Company shall fail to pay any amount payable pursuant to this Agreement
on the date on which such payment is due and payable or under the Note within
ten (10) days after the date on which such payment is due and payable; or
(b) The Company shall fail to observe and perform any agreement, term or
condition contained in this Agreement other than as required pursuant to
subsection (a) above, and such failure continues for a period of thirty (30)
days after notice of such failure is given to the Company by the Director, or
for such longer period as the Director may agree to in writing; provided, that
if the failure is of such nature that it can be corrected but not within the
applicable period, such failure shall not constitute an Event of Default so long
as the Company institutes curative action within the applicable period and
diligently pursues such action to completion; or
(c) Any representation or warranty made by the Company (or any of its officers)
herein or in any other Loan Documents, Loan Approval Documents or Letter of
Credit Documents or in connection herewith or therewith shall prove to have been
incorrect in any material respect when made; or
<PAGE>
(d) The Company shall fail to pay any indebtedness of the Company, or any
interest or premium thereon, when due (whether by scheduled maturity, required
prepayment, by acceleration, on demand or otherwise) and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such indebtedness; or any other default under any
agreement or instrument relating to any such indebtedness, or any other event,
shall occur and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such default or
event is to accelerate, or to permit the acceleration of, the maturity of such
indebtedness; or any such indebtedness shall be declared to be due and payable,
or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; or
(e) The Company commences a voluntary case concerning it under titles of the
United States Code entitled "Bankruptcy" as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against the Company under the Bankruptcy Code and relief is ordered against the
Company, or the petition is controverted but is not dismissed within sixty (60)
days after the commencement of the case; or the Company is not generally paying
its debts as such debts become due; or a custodian (as defined in the Bankruptcy
Code) is appointed for, or takes charge of, all or substantially all of the
property of the Company; or the Company commences any other proceeding under any
reorganization, arrangement, readjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect; or there is commenced against the Company
any such proceeding which remains undismissed for a period of sixty (60) days;
or the Company is adjudicated insolvent or bankrupt; or the Company fails to
controvert in a timely manner any such case under the Bankruptcy Code or any
such proceeding or any order of relief or other order approving any such case or
proceeding or in the appointment of any custodian or the like of or for it or
any substantial part of its property or suffers any such appointment to continue
undischarged or unstayed for a period of sixty (60) days; or the Company makes a
general assignment for the benefit of creditors; or any action is taken by the
Company for the purpose of effecting any of the foregoing; or a receiver or
trustee or any other officer or representative of the court or of creditors, or
any court, governmental officer or agency, shall under color of legal authority,
take and hold possession of any substantial part of the property or assets of
the Company for a period in excess of sixty (60) days; or
(f) A judgment or order for the payment of money in excess of Ten Thousand
Dollars ($10,000.00) shall be rendered against the Company and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order or (ii) there shall be any period of thirty (30) consecutive
days during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; or
(g) Any default under the Note, the Security Document, any other Loan Document
or the Letter of Credit Documents shall have occurred and be continuing; or
<PAGE>
(h) The Company fails to meet its minimum funding requirements under Section 301
et seq. of ERISA, with respect to any of its Plans.
Section 5.2. REMEDIES ON DEFAULT. Whenever an Event of Default shall have
happened and be subsisting, any one or more of the following remedial steps may
be taken:
(a) If the Loan has not been disbursed, the Director may terminate any and all
of its obligations under this Agreement and the Commitment;
(b) The Director may declare all payments under the Note to be immediately due
and payable, whereupon the same shall become immediately due and payable;
(c) The Director may have access to, inspect, examine and make copies of the
books and records accounts and financial data of the Company; or
(d) The Director may pursue all remedies now or hereafter existing at law or in
equity to collect all amounts then due and thereafter to become due under this
Agreement, the Security Document, the Note or any other Loan Documents, or to
enforce the performance and observance of any other obligation or agreement of
the Company under the Loan Documents.
Section 5.3. NO REMEDY EXCLUSIVE. No remedy conferred upon or reserved to the
Director by this Agreement is intended to be exclusive of any other available
remedy or remedies, but each and every such remedy shall be cumulative and shall
be in addition to every other remedy given under this Agreement, each other Loan
Document, or now or hereafter existing at law, in equity or by statute. No delay
or omission to exercise any right or power accruing upon any default shall
impair any such right or power or shall be construed to be a waiver thereof, but
any such right and power may be exercised from time to time and as often as may
be deemed expedient. In order to entitle the Director to exercise any remedy
reserved to it in this Article, it shall not be necessary to give any notice,
other than such notice as may be expressly provided for herein or required by
law.
Section 5.4. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. If an Event of
Default shall occur and the Director should incur expenses, including attorney's
fees, in connection with the enforcement of this Agreement, or any other Loan
Document, or the collection of sums due thereunder, the Company shall reimburse
the Director for the expenses so incurred upon demand. If any such expenses are
not so reimbursed, the amount thereof, together with interest thereon from the
date of demand for payment at 5% in excess of the then applicable rate under the
Note (the "Default Rate"), shall constitute indebtedness under this Agreement
and the Note and in any action brought to collect such indebtedness or to
enforce this Agreement or the Note, the Director shall be entitled to seek the
recovery of such expenses in such action.
Section 5.5. NO WAIVER. No failure by the Director to insist upon the strict
performance by the Company of any provision hereof shall constitute a waiver of
his right to strict performance and
<PAGE>
no express waiver shall be deemed to apply to any other existing or subsequent
right to remedy the failure by the Company to observe or comply with any
provision hereof.
ARTICLE 6 MISCELLANEOUS
Section 6.1. TERM OF AGREEMENT. This Agreement shall be and remain in full force
and effect from the date of its delivery until (a) the termination of this
Agreement pursuant to Section 5.2(a) hereof or (b) such time as the Loan shall
have been fully repaid and all other sums payable by the Company under this
Agreement, the Security Document, the Note and the other Loan Documents shall
have been paid.
Section 6.2. NOTICES. All notices, certificates, requests or other
communications hereunder shall be in writing and shall be deemed to be
sufficiently given when mailed by registered or certified mail, postage prepaid,
and addressed to the appropriate Notice Address. The Company or the Director
may, by notice given hereunder, designate any further or different addresses to
which subsequent notices, certificates, requests or other communications shall
be sent.
Section 6.3. EXTENT OF COVENANTS OF THE DIRECTOR; NO PERSONAL LIABILITY. All
covenants, obligations and agreements of the Director contained in this
Agreement shall be effective to the extent authorized and permitted by
applicable law. No such covenant, obligation or agreement shall be deemed to be
a covenant, obligation or agreement of any present or future Director in other
than his official capacity acting pursuant to the Act.
Section 6.4. BINDING EFFECT. This Agreement shall inure to the benefit of and
shall be binding in accordance with its terms upon the Director, the Company and
their respective successors and assigns.
Section 6.5. AMENDMENTS AND SUPPLEMENTS. This Agreement may not be amended or
supplemented except by an instrument in writing executed by the Director and the
Company.
Section 6.6. EXECUTION COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be regarded as an original and all
of which shall constitute but one and the same instrument.
Section 6.7. SEVERABILITY. If any provision of this Agreement, or any covenant,
obligation or agreement contained herein is determined by a court to be invalid
or unenforceable, such determination shall not affect any other provision,
covenant, obligation or agreement, each of which shall be construed and enforced
as if such invalid or unenforceable portion were not contained herein. Such
invalidity or unenforceability shall not affect any valid and enforceable
application thereof, and each such provision, covenant, obligation or agreement,
shall be deemed to be effective, operative, made, entered into or taken in the
manner and to the full extent permitted by law.
<PAGE>
Section 6.8. CAPTIONS. The captions and headings in this Agreement shall be
solely for convenience of reference and shall in no way define, limit or
describe the scope or intent of any provisions or Sections of this Agreement.
Section 6.9. GOVERNING LAW: JURISDICTION. This Agreement shall be deemed to be a
contract made under the laws of the State and for all purposes shall be governed
by and construed in accordance with the laws of the State. The Company agrees
that the state and federal courts in Hamilton County, Ohio or any other court in
which the Director initiates proceedings have exclusive jurisdiction over all
matters arising out of this Agreement, and that service of process in any such
proceeding shall be effective if mailed to the Company at its Notice Address.
THE COMPANY HEREBY WAIVES THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT
OF THIS AGREEMENT. THE COMPANY HEREBY WAIVES ANY CONFLICT OF INTEREST WHICH MAY
EXIST AS THE RESULT OF DIRECTOR'S ATTORNEY CONFESSING JUDGMENT AND CONSENTS TO
THE DIRECTOR'S ATTORNEY RECEIVING A LEGAL FEE FROM THE DIRECTOR FOR HIS SERVICES
IN CONFESSING JUDGMENT.
Section 6.10. CONFESSION OF JUDGMENT. The Company authorizes any attorney of
record to appear for it in any court of record in the State of Ohio, after any
amount hereunder becomes due and payable whether by its terms or upon default,
waive the issuance and services of process, and release all errors, and confess
a judgment against it in favor of the holder of the Note, for the principal
amount of such amount due hereunder or under the Note plus interest thereon,
together with court costs and attorneys' fees. Stay of execution and all
exemptions are hereby waived. If an amount due hereunder is referred to an
attorney for collection, and the payment is obtained without the entry of a
judgment, the Company shall pay to the holder of the Note its attorneys' fees.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered all as of the
date hereinbefore written.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
PHOENIX INTERNATIONAL LIFE DIRECTOR OF DEVELOPMENT OF THE
SCIENCES (U.S.) INC. STATE OF OHIO, ACTING ON
BEHALF OF THE STATE
By: /s/ Jean-yves Caloz By: /s/ Donald E. Jakeway
---------------------------- -----------------------------
Jean-Yves Caloz, Donald E. Jakeway,
Treasurer Director
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$1,353,000.00 June 12, 1995
For value received, PHOENIX INTERNATIONAL LIFE SCIENCES (U.S.) INC., a
Delaware Corporation (the "Company"), promises to pay to the order of THE
DIRECTOR OF DEVELOPMENT OF THE STATE OF OHIO (the "Director"), at 77 South
High Street, P.O. Box 1001, Columbus, Ohio 43216-1001, or at such other
address as may be designated in writing by the Director, the principal sum of
One Million Three Hundred Fifty-Three Thousand and 00/100 Dollars
($1,353,000.00) with interest on the amount of principal from time to time
outstanding from the Disbursement Date as specified under and defined in the
Loan Agreement between the Director and the Company of even date (the "Loan
Agreement"), at the rate of two percent (2%) per annum until paid. Accrued
interest on this Note shall be due and payable monthly on the first day of
each calendar month commencing on the first day of August, 1995. The
principal amount of this Note shall be paid in sixty (60) consecutive monthly
installments of Twenty-Three Thousand Seven Hundred Fifteen and 06/100
Dollars ($23,715.06) each, which shall be due and payable on the first day of
each calendar month commencing on the first day of August, 1997 (the "First
Installment Date") and ending on the first day of July, 2002 (the "Last
Installment Date"); provided that the amount of the installment payable on
the Last Installment Date shall be equal to the balance of the principal sum
outstanding, together with interest accrued thereon and any other amounts
outstanding hereunder or under the Loan Agreement. In addition, the Company
promises to pay to the order of the Director a monthly service fee equal to
one twelfth (1/12) of one-quarter (1/4) of one percent (1%) of the principal
balance from time to time outstanding under this Note.
The annual rate of interest stated herein shall apply to a 360-day period, and
amounts of interest due hereunder shall be computed upon the basis of 30-day
months. Installments of principal and interest shall be applied first to
interest as provided herein and the balance to principal due hereunder.
The Company may prepay all or any portion of the principal sum hereof at any
time without penalty. All such prepayments shall be applied to the payment of
the principal installments due hereon in the inverse order of their maturity,
and shall be accompanied by the payment of accrued interest on the amount of the
prepayment to the date thereof.
This Note does not of itself constitute a commitment by the Director to make any
disbursement of the Loan (as defined in the Loan Agreement) to the Company. The
conditions for making such a disbursement are set forth in the Loan Agreement.
The disbursements made by the Director to the Company shall not exceed the face
amount of this Note and the total amount of such disbursement
<PAGE>
is limited by and subject to the conditions for making disbursement of the Loan
as set forth in the Loan Agreement.
For the period during which a default shall exist in the payment of any
installment of principal, interest and monthly service fee due and payable
hereunder, whether by acceleration or otherwise, a late charge equal to five
percent (5%) of each such installment shall be assessed, in addition to all
other sums due hereunder, for each month during which the default exists.
If any provision hereof is in conflict with any statute or rule of law of the
State of Ohio or is otherwise unenforceable for any reason whatsoever, then such
provision shall be deemed separable from and shall not invalidate any provision
of this Note.
The payment of this Note and all interest hereon is secured by a one hundred
percent (100%) Irrevocable Letter of Credit in the stated amount of
$1,353,000.00 issued by Star Bank, National Association to the Director for the
account of the Company. The covenants, conditions and agreements contained in
the Letter of Credit Documents (as defined in the Loan Agreement) and the Loan
Agreement are hereby made a part of this Note.
If default be made in the payment of any installment of interest, or of
principal and interest, under this Note, in either case continuing for a period
of ten (10) days after any such payment shall have become due and payable, or if
an "Event of Default," as defined in the Loan Agreement or the Letter of Credit
Documents, shall have occurred and be subsisting, then, at the option of the
Director, the entire principal sum payable hereunder and all interest accrued
thereon shall become due and payable at once, without demand or notice.
This Note was executed in Cincinnati, Ohio, and shall be construed in accordance
with the laws of Ohio.
THE COMPANY HEREBY WAIVES THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT
OF THIS NOTE. THE COMPANY HEREBY WAIVES ANY CONFLICT OF INTEREST WHICH MAY EXIST
AS THE RESULT OF DIRECTOR'S ATTORNEY CONFESSING JUDGMENT AND CONSENTS TO THE
DIRECTOR'S ATTORNEY RECEIVING A LEGAL FEE FROM THE DIRECTOR FOR HIS SERVICES IN
CONFESSING JUDGMENT.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
<PAGE>
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
PHOENIX INTERNATIONAL LIFE
SCIENCES (U.S.) INC.
By:/s/ Jean-yves Caloz
----------------------------------------
Jean-Yves Caloz,
Treasurer
STATE OF OHIO )
) SS.
COUNTY OF HAMILTON )
The foregoing instrument was acknowledged before me this_____ day of
________________, 1995 by Jean-Yves Caloz, Treasurer of Phoenix International
Life Sciences (U.S.) Inc., a Delaware corporation.
-----------------------------
Notary Public
<PAGE>
Exhibit 21
<TABLE>
<CAPTION>
COMPANY LEGAL NAME: LOCATION:
<S> <C>
PHOENIX INTERNATINAL LIFE SCIENCES INC. MONTREAL, CANADA
PHOENIX INTERNATIONAL LIFE SCIENCES (U.S.) INC. CINCINNATI, US
PHOENIX INTERNATIONAL LIFE SCIENCES (IBRD) INC. IRVINE, CA, USA
PHOENIX INTERNATIONAL LIFE SCIENCES (ICCR) INC. NEPTUNE, NEW JERSEY
PHOENIX INTERNATIONAL FRANCE SA FRANCE, EUROPE
PHOENIX INTERNATIONAL PHARMACOLOGY SA FRANCE, EUROPE
PHOENIX INTERNATIONAL EUROPE BELGIUM, EUROPE
ITEM HOLDING SA FRANCE, EUROPE
ITEM INTERNATIONAL SARL FRANCE, EUROPE
PHOENIX INTERNATIONAL LIFE SCIENCES ESPANA SA SPAIN, EUROPE
METI MADRID SA SPAIN, EUROPE
PHOENIX INTERNATIONAL GB LIMITED UK, EUROPE
PHOENIX INTERNATIONAL LIFE SCIENCES WUPPERTAL GmBH WUPPERTAL, EUROPE
PHOENIX INTERNATIONAL ITALIA SRL ITALY, EUROPE
PHOENIX INTERNATIONAL ROMANIA SRL ROMANIA, EUROPE
PHOENIX INTERNATIONAL MUNCHEN GmbH
MCKNIGHT LABORATORIES GmbH GERMANY, EUROPE
INSTITUT FUR KLINISHE PHARMAKOLOGIE GmbH (IPHAR) GERMANY, EUROPE
PHOENIX INTERNATIONAL SWITZERLAND AG WANGEN, EUROPE
ANAWA TRADING AG WANGEN, EUROPE
ANAWA HOLDING AG SWITZERLAND, EUROPE
CLINSERVE AG FRIBOURG, EUROPE
CLINSERVE GmbH HAMBURG, EUROPE
HUMAN BIOLOGICS INTERNATIONAL INC. NEVEDA, USA
CLINIC D'ENCRONOLOGIE GODIN & ST.PIERRE MTL, CANADA
INSTITUTE FUR PHARMAKODYNAMISCHE FORSCHUNG MUNICH, GERMAY
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary
Consolidated Financial Information of Phoenix", "Selected Consolidated
Financial Information of Phoenix" and "Experts" and to the use of our report
dated October 9, 1998, except for Note 18 which is as of December 18, 1998,
with respect to the consolidated financial statements of Phoenix
International Life Sciences Inc. ("Phoenix") in the Registration Statement on
form F-4 for the registration of common shares and options to purchase common
shares of Phoenix in connection with the proposed merger of Phoenix and
Chrysalis International Corporation contemplated therein.
Montreal, Canada, Ernst & Young LLP
April 5, 1999 Chartered Accountants
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 10, 1998, with respect to the
consolidated financial statements of IBRD-Rostrum Global Inc. in to the
Registration Statement on Form F-4 for the registration of common shares and
options to purchase Common Shares of Phoenix International Life Sciences Inc.
("Phoenix") in connection with the proposed merger of Phoenix and Chrysalis
International Corporation contemplated therein.
Irvine, California Ernst & Young LLP
April 5, 1999 Chartered Accountants
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Registration Statement of Phoenix
International Life Sciences, Inc. on Form F-4 of our report related to
IBRD-Rostrum Global Inc. and subsidiaries, dated March 4, 1997, and to the
reference to us under the heading "Experts" in the proxy
statement/prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Costa Mesa, California
April 5, 1999
- ---------------------------
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chrysalis International Corporation
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in this Registration Statement on Form F-4
of Phoenix International Life Sciences Inc.
Our report dated February 5, 1999 contains an explanatory paragraph that states
that Chrysalis International Corporation has suffered recurring losses from
operations, has a net working capital deficiency and is in default of its debt
covenants which raise substantial doubt about its ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of that uncertainty.
KPMG LLP
Philadelphia, Pennsylvania
April 5, 1999
<PAGE>
EXHIBIT 23.6
CONSENT OF VECTOR SECURITIES INTERNATIONAL, INC.
April 6, 1999
PERSONAL AND CONFIDENTIAL
Board of Directors Board of Directors
Chrysalis International Corporation Phoenix International
575 Route 28 Life Sciences Inc.
Raritan, New Jersey 08869 2350 Cohen Street
Saint-Laurent (Montreal)
Quebec H4R 2N6
Canada
Re: Proxy Statement of Chrysalis International Corporation on Schedule
14A Pursuant to Section 14(a) of the Securities Exchange Act of 1934
and Registration Statement on Form F-4 under the Securities Act of
1933
--------------------------------------------------------------------
Ladies and Gentlemen:
Reference is made to our opinion letter dated November 13,
1998 as to the fairness from a financial point of view as of the date of the
opinion letter to the holders of common stock, par value $0.01 per share, of
Chrysalis International Corporation, a Delaware corporation (the "Company") of
the consideration to be received by such stockholders pursuant to the terms of
the draft Agreement and Plan of Merger, dated November 12, 1998, among (i)
Phoenix International Life Sciences Inc., a public corporation constituted under
the laws of Canada ("Phoenix"), (ii) Phoenix Merger Sub Corp., a Delaware
corporation and a wholly-owned subsidiary of Phoenix and (iii) the Company.
The foregoing opinion letter is provided for the information
and assistance of the Board of Directors of the Company in connection with its
consideration of the transaction contemplated therein and is not to be used,
circulated, quoted or otherwise referred to for any other purpose, nor is it to
be filed with, included in or referred to in whole or in part in any
registration statement, proxy statement or any other document, except in
accordance with our prior written consent. We understand that the Company has
determined to include our opinion in the above-referenced Proxy Statement and
Registration Statement on Form F-4.
In that regard, we hereby consent to the reference to the
opinion of our Firm under the captions "Summary-The Merger-Opinion of
Chrysalis' Financial Advisor," "The Merger-Background of the Merger," "The
Merger-Reasons for the Merger," "The Merger-Opinion of the Financial Advisor
to the Chrysalis Board" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Chrysalis-Liquidity and
Capital Requirements-Capital Requirements" and to the inclusion of the
foregoing opinion in the above referenced Proxy Statement and Registration
Statement on Form F-4. In giving such consent, we do not thereby admit that
we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Vector Securities International, Inc.
Vector Securities International, Inc.
----------------------------------------
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION
BOARD OF DIRECTORS PROXY FOR SPECIAL MEETING, APRIL 30, 1999
The undersigned, having received the Notice of Meeting and Joint Proxy
Statement/Prospectus, hereby makes, constitutes and appoints Desmond H.
O'Connell, Paul J. Schmitt and John G. Cooper, and each of them (each with
full power of substitution respectively), trust and lawful attorneys and
proxies for the undersigned to represent and vote, as indicated on the other
side, all shares of Common Stock, $.01 par value, of CHRYSALIS INTERNATIONAL
CORPORATION held of record by the undersigned on March 1, 1999 at the Special
Meeting of Stockholders of Chrysalis International Corporation to be held on
April 30, 1999 at the Somerset Hills Hotel, 200 Liberty Corner Road, Warren,
New Jersey, and all postponements and adjournments thereof.
(CONTINUED ON THE REVERSE SIDE)
SEE REVERSE
SIDE
<PAGE>
Please mark your
A /X/ votes as in this
example
FOR AGAINST ABSTAIN
1. The adoption of the Agreement and Plan of / / / / / /
Merger, dated as of November 18, 1998, as
amended by Amendment No. 1 dated as of
March 24, 1999, which provides for the
merger of a wholly owned subsidiary of
Phoenix International Life Sciences Inc.
with and into Chrysalis.
2. In their discretion, to transact such other matters as may arise
relating to the conduct of the Special Meeting of stockholders or any
adjournments or postponements thereof.
This proxy when property executed will be voted in the manner
directed, if no discretion is made this proxy will be voted FOR proposal No. 1.
Do you plan to attend the Special Meeting? Yes / / No / /
Signature _________________________________________________ Date ________, 1999
NOTE: Please sign this proxy as the name(s) appear above. When signing as
attorney, executor, administrator, trustee or guardian, please sign full title
as such.
<PAGE>
Exhibit 99.3
CHRYSALIS INTERNATIONAL CORPORATION
575 Route 28
Rariton, New Jersy 08869
LETTER TO PARTICIPANTS
IN THE CHRYSALIS EMPLOYEE SAVINGS PLAN
SHAREHOLDER VOTE TO ADOPT MERGER AGREEMENT
We are enclosing materials being sent to all of the
stockholders of Chrysalis International Corporation, a Delaware corporation (the
"Company"), relating to a special meeting (the "Special Meeting") of the
stockholders of the Company to be held at 9:00 a.m., local time, on
April 30, 1999 at the Somerset Hills Hotel, 200 Liberty Corner Road, Warren,
New Jersey. At the Special Meeting, the stockholders of
the Company will be asked to vote on a proposal to adopt the merger agreement
(the "Merger Agreement") among the Company, Phoenix International Life Sciences
Inc., a company constituted under the laws of Canada ("Phoenix"), and Phoenix
Merger Sub Corp., a Delaware corporation and a newly formed wholly owned
subsidiary of Phoenix. The merger is described more fully in the Proxy Statement
/Prospectus, a copy of which is enclosed for your information.
- -------------------------------------------------------------------------------
PLEASE NOTE THAT PURSUANT TO THE PLAN (AS DEFINED BELOW), THESE MATERIALS ARE
BEING DELIVERED TO PERSONS PARTICIPATING IN THE PLAN AS OF MARCH 1, 1999. IF YOU
NO LONGER PARTICIPATE IN THE PLAN AND HAVE RECEIVED THE ENTIRE BALANCE OF YOUR
ACCOUNT (AS DEFINED BELOW), PLEASE DISREGARD THESE MATERIALS. IF YOU HAVE ANY
QUESTIONS REGARDING YOUR STATUS AS A PARTICIPANT IN THE PLAN, PLEASE CONTACT
KENDRA RUSSANO AT THE COMPANY AT (908) 722-7900 ext. 22.
- -------------------------------------------------------------------------------
Under the terms of the Chrysalis Employee Savings Plan (the
"Plan"), shares of Chrysalis Common Stock owned by the Plan under the Company
Stock Fund (the "Fund") are held by Scudder Trust Company, the Trustee under the
Plan ("Trustee"), for the benefit of participants who have a portion of their
account ("Account") under the Plan invested in shares of Chrysalis Common Stock.
This means that instead of direct ownership of shares of Chrysalis Common Stock,
you have an undivided interest in the shares of Chrysalis Common Stock owned by
the Trustee, that is, you are a "beneficial" stockholder. Since you are a
beneficial owner of shares of Chrysalis Common Stock, a copy of the Proxy
Statement/Prospectus is being sent to you. You are urged to examine it
carefully. YOU CANNOT VOTE THE SHARES OF CHRYSALIS COMMON STOCK ALLOCATED TO
YOUR ACCOUNT AT THE SPECIAL MEETING. YOU CAN ONLY VOTE THESE SHARES AS DESCRIBED
BELOW.
If you are also a direct stockholder of the Company, you will
receive under separate cover another copy (or copies) of the Proxy
Statement/Prospectus and proxy card which should be used to vote the shares of
Chrysalis Common Stock you own directly.
Only the Trustee can vote shares of Chrysalis Common Stock
owned by the Plan (the "Plan Shares"). The Plan provides for a pass through to
participants of the decision regarding how to vote, or whether to abstain from
voting, Plan Shares. This letter describes how the merger affects your interest
under the Plan and sets forth the special procedures that must be followed in
order for you to give valid and timely voting instructions to the Trustee (or
its agent). AS A PARTICIPANT IN THE PLAN, YOU CAN VOTE SHARES OF CHRYSALIS
COMMON STOCK BENEFICIALLY OWNED BY YOU UNDER THE PLAN ONLY BY FOLLOWING THESE
INSTRUCTIONS. IF THE MERGER AGREEMENT IS ADOPTED BY THE HOLDERS OF THE MAJORITY
OF THE SHARES OF CHRYSALIS COMMON STOCK AND THE MERGER IS CONSUMMATED, PAYMENT
OF THE MERGER CONSIDERATION WILL NOT BE PAID DIRECTLY TO YOU; RATHER, PAYMENT
WILL BE RECEIVED BY THE TRUSTEE ON YOUR BEHALF AND WILL AFFECT YOUR INTEREST IN
THE PLAN, AS DESCRIBED BELOW.
<PAGE>
Under the Plan, as a participant, you may direct the Trustee
(or its agent) how to vote the shares of Chrysalis Common Stock allocated to
your Account by following the procedures described in this Letter to
Participants. You also may direct the Trustee (or its agent) not to vote the
shares of Chrysalis Common Stock allocated to your Account or to withdraw any
voting instruction you have directed it to make. Before making a decision you
should read carefully the enclosed Proxy Statement/Prospectus and Voting
Instruction Form. The Trustee makes no recommendation as to whether or how to
vote the shares of Chrysalis Common Stock allocated to your Account.
The merger is conditioned upon, among other things, the
adoption of the Merger Agreement by the holders of at least a majority of the
outstanding shares of Chrysalis Common Stock. See the Proxy Statement/Prospectus
for more details and for a description of the other conditions to the merger. If
the conditions to the merger are satisfied, Phoenix Merger Sub Corp will be
merged with and into the Company with the Company as the surviving corporation.
In connection with the merger, each share of Chrysalis Common Stock will be
converted into the right to receive the consideration described in the Proxy
Statement/Prospectus. Please see the Proxy Statement/Prospectus regarding
whether or not, pursuant to Delaware law, shareholders will be entitled to
appraisal rights in connection with the merger.
The Trustee (or its agent) will vote the Plan Shares of
Chrysalis Common Stock in accordance with the directions of Plan participants on
the enclosed Voting Instruction Form. If the Trustee (or its agent) has not
received your completed voting instructions before five full business days prior
to the Special Meeting, the Trustee will abstain from voting the shares of
Chrysalis Common Stock allocated to your Account, which will have the same
effect as a vote against the Merger Agreement. You may withdraw or change any
voting instructions you give to the Trustee by submitting a revised Voting
Instruction Form, marked to show that the form is a revised form, to the Trustee
before five full business days prior to the Special Meeting.
It is very important that you read all of the enclosed
materials and follow the instructions carefully if you wish to direct the
Trustee how to vote, or to abstain from voting, the shares of Chrysalis Common
Stock allocated to your Account. THE TRUSTEE (OR ITS AGENT) WILL TREAT YOUR
VOTING DIRECTIONS CONFIDENTIALLY AND WILL NOT DISCLOSE THEM TO THE COMPANY.
Whether or not you return a Voting Instruction Form to the
Trustee (or its agent), if the Merger Agreement is adopted and the merger is
consummated, the Merger Consideration that is delivered or paid for the shares
of Chrysalis Common Stock will be held by the Trustee in the Fund and will be
held therein until you direct the Trustee otherwise by calling (800) 541-7705.
If you choose to direct the Trustee (or its agent) to vote,
or to abstain from voting, shares of Chrysalis Common Stock allocated to your
Account, the enclosed Voting Instruction Form must be returned to the Trustee
(or its agent). The address to which the Form can be mailed or delivered is
shown on the enclosed reply envelope. PLEASE NOTE THAT THE DEADLINE FOR THE
TRUSTEE TO VOTE SHARES OF CHRYSALIS COMMON STOCK IS ARPIL 30, 1999. YOUR
VOTING INSTRUCTION FORM MUST BE RECEIVED BY THE TRUSTEE (OR ITS AGENT)
BEFORE APRIL 23, 1999. All questions and requests for assistance should be
addressed to Kendra Russano at the Company at (908) 722-7900 ext. 22. IF YOU
DO NOT SIGN THE FORM OR IF YOU DO NOT PROPERLY FILL IT OUT, YOUR DIRECTIONS
WILL NOT BE ACCEPTED AND THE VOTING INSTRUCTION FORM, AS WELL AS YOUR
DIRECTIONS, WILL BE VOID AND YOUR SHARES WILL NOT BE VOTED.
2
<PAGE>
CHRYSALIS INTERNATIONAL CORPORATION
575 Route 28
Rariton, New Jersy 08869
VOTING INSTRUCTION FORM
FOR SHARES IN THE
CHRYSALIS EMPLOYEE SAVINGS PLAN ("PLAN")
TO SCUDDER TRUST COMPANY:
I am a participant in the above-referenced Plan who
beneficially owns shares of Common Stock of Chrysalis International Corporation
("Shares"), and, as such, I received a copy of the Letter to Participants. I
wish to direct you as follows with respect to Shares allocated to my Account:
VOTING INSTRUCTIONS
____ By checking this space, I direct the Trustee to vote the Shares
allocated to my Account under the Plan FOR the adoption of the
Agreement and Plan of Merger, dated as of November 18, 1998,
as amended by Amendment No. 1 dated as of March 24, 1999, which
provides for the merger of a wholly owned subsidiary of Phoenix
International Life Sciences Inc. with and into the Company.
____ By checking this space, I direct the Trustee to vote the Shares
allocated to my Account under the Plan AGAINST the approval and
adoption of the Agreement and Plan of Merger, dated as of November 18,
1998, as amended by Amendment No. 1 dated as of March 24, 1999, which
provides for the merger of a wholly owned subsidiary of Phoenix
International Life Sciences Inc. with and into the Company.
____ By checking this space, I direct the Trustee NOT to vote any Shares
allocated to my Account under the Plan.
I have read and understand the Proxy Statement/Prospectus and
the Letter to Participants. I hereby direct Scudder Trust Company, as Plan
Trustee, to follow the direction set forth above. Whether or not I have directed
the Trustee (or its agent) to vote Shares allocated to my Account on my behalf,
if the Merger Agreement is adopted and the merger is consummated, I understand
that the Trustee will hold the Merger Consideration payable for Shares allocated
to my Account in the Fund and that the Merger Consideration will be held therein
until I direct the Trustee otherwise by calling (800) 541-7705.
- --------------------------------- -----------------------------------
DATE SIGNATURE OF PARTICIPANT
- --------------------------------- -----------------------------------
SOCIAL SECURITY NUMBER PLEASE PRINT NAME AND ADDRESS
-----------------------------------
-----------------------------------
-----------------------------------
TELEPHONE NO.
NOTE: THIS VOTING INSTRUCTION FORM MUST BE PROPERLY COMPLETED AND SIGNED IF IT
IS TO BE FOLLOWED. IF THE FORM IS NOT SIGNED, THE DIRECTIONS INDICATED WILL NOT
BE ACCEPTED. PLEASE RETURN THIS VOTING INSTRUCTION FORM TO THE TRUSTEE (OR ITS
AGENT) USING THE PREADDRESSED REPLY ENVELOPE PROVIDED WITH YOUR VOTING
INSTRUCTION MATERIALS, BEFORE APRIL 23, 1999.
YOUR DIRECTION HOW TO HAVE SHARES OF CHRYSALIS COMMON STOCK ALLOCATED TO YOUR
ACCOUNT VOTED, OR TO HAVE SUCH SHARES OF CHRYSALIS COMMON STOCK NOT VOTED, WILL
BE KEPT CONFIDENTIAL. IF YOU DO NOT RETURN THIS FORM BY THE DEADLINE, PLAN
SHARES OF CHRYSALIS COMMON STOCK ALLOCATED TO YOUR ACCOUNT WILL NOT BE VOTED.
