**Exhibit 2.1**

 

**EXECUTION COPY**

 

AGREEMENT AND PLAN OF MERGER

 

DATED AS OF JULY 9, 2008,

 

BY AND AMONG

 

 ACCESS PHARMACEUTICALS, INC.,

 

MACM ACQUISITION CORP.

 

AND

 

MACROCHEM CORPORATION

 

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TABLE OF CONTENTS

 
|             | ** **                                                    | ** **                                                                                       | ** ** | **Page**   |   |
|------------------|---------------------------------------------------------------|--------------------------------------------------------------------------------------------------|------------|------------|--------|
|             |                                                          |                                                                                             |       |       |   |
|             | **ARTICLE  I**                                                | **THE  MERGER**                                                                                  |       |       |   |
|             |                                                          |                                                                                             |       |       |   |
|             | 1.01                                                          | The Merger                                                                                       |       |       |   |
|             | 1.02                                                          | Closing                                                                                          |       |       |   |
|             | 1.03                                                          | Effective Time of the  Merger                                                                    |       |       |   |
|             | 1.04                                                          | Effects of the Merger                                                                            |       |       |   |
|             | 1.05                                                          | Certificate of  Incorporation; By-Laws; Purposes                                                 |       |       |   |
|             | 1.06                                                          | Directors                                                                                        |       |       |   |
|             | 1.07                                                          | Officers                                                                                         |       |       |   |
|             |                                                          |                                                                                             |       |       |   |
|             | **ARTICLE  II**                                               | **EFFECT OF THE MERGER ON THE CAPITAL STOCK AND MEMBERSHIP  UNITS OF THE CONSTITUENT COMPANIES** |       |       |   |
|             |                                                          |                                                                                             |       |       |   |
|             | 2.01                                                          | Effect on Capital Stock  and Membership Units                                                    |       |       |   |
|             | 2.02                                                          | Exchange of  Certificates                                                                        |       |       |   |
|             | 2.03                                                          | Treatment of Company  Warrants                                                                   |       |       |   |
|             | 2.04                                                          | Company Notes                                                                                    |       |       |   |
|             | 2.05                                                          | Withholding Rights                                                                               |       |       |   |
|             |                                                          |                                                                                             |       |       |   |
|             | **ARTICLE  III**                                              | **REPRESENTATIONS  AND WARRANTIES**                                                              |       |       |   |
|             |                                                          |                                                                                             |       |       |   |
|             | 3.01                                                          | Representations and  Warranties of the Company                                                   |       |       |   |
|             | 3.02                                                          | Representations and  Warranties of Parent and Merger Sub                                         |       |       |   |
|             |                                                          |                                                                                             |       |       |   |
|             | **ARTICLE  IV**                                               | **ADDITIONAL  AGREEMENTS**                                                                       |       |       |   |
|             |                                                          |                                                                                             |       |       |   |
|             | 4.01                                                          | Company Financial  Statements                                                                    |       |       |   |
|             | 4.02                                                          | Access to Information;  Confidentiality                                                          |       |       |   |
|             | 4.03                                                          | Reasonable Best Efforts                                                                          |       |       |   |
|             | 4.04                                                          | Indemnification of  Company Directors and Officers                                               |       |       |   |
|             | 4.05                                                          | Public Announcements                                                                             |       |       |   |
|             | 4.06                                                          | Shareholder Rights Plan                                                                          |       |       |   |
|             | 4.07                                                          | Tax Free Reorganization  Treatment                                                               |       |       |   |
|             |                                                          |                                                                                             |       |       |   |
|             | **ARTICLE  V**                                                | **CONDITIONS  PRECEDENT**                                                                        |       |       |   |
|             | ** **                                                    | ** **                                                                                       | ** ** | ** ** |   |
|             | 5.01                                                          | Conditions to each  Party’s Obligation to Effect the Merger                                 |       |       |   |
|             | 5.02                                                          | Conditions to  Obligations of Parent and Merger Sub                                              |       |       |   |
|             | 5.03                                                          | Conditions to  Obligations of the Company                                                        |       |       |   |
|             |                                                          |                                                                                             |       |       |   |
| **ARTICLE  VI**  | **TERMINATION,  AMENDMENT, AND WAIVER**                       |                                                                                             |       |
|             |                                                          |                                                                                             |       |
| 6.01             | Termination                                                   |                                                                                             |       |
| 6.02             | Effect of Termination                                         |                                                                                             |       |
| 6.03             | Amendment                                                     |                                                                                             |       |
| 6.04             | Extension; Waiver                                             |                                                                                             |       |
| 6.05             | Procedure for  Termination, Amendment, Extension or Waiver    |                                                                                             |       |
|             |                                                          |                                                                                             |       |
| **ARTICLE  VII** | **GENERAL  PROVISIONS**                                       |                                                                                             |       |
| ** **       | ** **                                                    | ** **                                                                                       | ** ** |
| 7.01             | Nonsurvival of  Representations and Warranties                |                                                                                             |       |
| 7.02             | Notices                                                       |                                                                                             |       |
| 7.03             | Definitions                                                   |                                                                                             |       |
| 7.04             | Interpretation                                                |                                                                                             |       |
| 7.05             | Counterparts                                                  |                                                                                             |       |
| 7.06             | Entire Agreement; No  Third-Party Beneficiaries               |                                                                                             |       |
| 7.07             | Governing Law; Consent  to Jurisdiction; Waiver of Jury Trial |                                                                                             |       |
| 7.08             | Assignment                                                    |                                                                                             |       |
| 7.09             | Remedies                                                      |                                                                                             |       |
|                  |                                                               |                                                                                                  |            |            |        |  |  |  |  |

 

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**EXECUTIONCOPY**

 

AGREEMENTAND PLAN OF MERGER (this “**Agreement**”),dated as of July 10, 2008, by and among Access Pharmaceuticals, Inc.(“**Parent**”), MACM Acquisition Corp., aDelaware corporation and a direct wholly-owned subsidiary of Parent (“**Merger Sub**”) and MacroChemCorporation, a Delaware corporation (the “**Company**”).  Certain capitalized terms used herein aredefined in Section 7.03 of this Agreement.

 

WHEREAS,each of the respective Boards of Directors of Parent, Merger Sub and theCompany has (i) determined it advisable and in the best interests of eachcorporation and their respective stockholders that Parent acquire the Companyupon the terms and subject to the conditions set forth in this Agreement and (ii) approvedthis Agreement and the transactions contemplated hereby on the terms and subjectto the conditions set forth herein;

 

WHEREAS,the acquisition of the Company shall be effected through the merger (the “**Merger**”) of Merger Sub with andinto the Company, upon the terms and subject to the conditions set forth inthis Agreement and in accordance with the Delaware General Corporation Law (the“**DGCL**”), as a result of which theCompany shall become a wholly-owned Subsidiary of Parent;

 

WHEREAS,Parent, Merger Sub and the Company desire to make certain representations,warranties, covenants and agreements in connection with the Merger and also toprescribe various conditions to the Merger; and

 

WHEREAS,for federal income Tax purposes, it is intended that the Merger shall qualifyas a reorganization under the provisions of Section 368(a) of theInternal Revenue Code of 1986, as amended (the “**Code**”)and this Agreement is intended to be a “plan of reorganization” within themeaning of the regulations promulgated under Section 368 of the Code.

 

NOW,THEREFORE, in consideration of the representations, warranties, covenants andagreements contained in this Agreement, and for other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged,Parent, Merger Sub and the Company agree as follows:

 

ARTICLE I.

 

THE MERGER

 

1.01                           The Merger. Upon the terms and subject to the conditions set forth in this Agreement, andin accordance with the DGCL, Merger Sub shall be merged with and into theCompany at the Effective Time.  Upon the Effective Time, the separateexistence of Merger Sub shall cease, and the Company shall continue as thesurviving corporation and a wholly-owned Subsidiary of Parent (the “**Surviving Corporation**”).

 

1.02                           Closing. Unless this Agreement shall have been terminated and the transactions hereincontemplated shall have been abandoned pursuant to Section 7.01, andsubject to the satisfaction or waiver of the conditions set forth in Article VI,the closing of the Merger (the “Closing”) shall take place at 10:00 a.m.(New York time) on a date to be specified by the parties hereto, such date tobe no later than the second business day following satisfaction or waiver ofall of the conditions set forth in Article VI capable of satisfactionprior to Closing (the “**Closing Date**”),at the offices of Bingham McCutchen, LLP, 399 Park Avenue, New York, New York10019, unless another date, time or place is agreed to in writing by theparties hereto.

 

1.03                           Effective Time. Upon the Closing, the parties shall file with the Secretary of State of theState of Delaware a certificate of merger (the “**Certificateof Merger**”) in such form as required by, and executed andacknowledged in accordance with, the relevant provisions of the DGCL and shall,in each 

 

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case,make all other filings or recordings required thereby.  The Merger shallbecome effective at such time as the Certificate of Merger is duly filed withthe Secretary of State of the State of Delaware, or at such other time as ispermissible in accordance with the DGCL and as Merger Sub and the Company shallagree should be specified in the Certificate of Merger (the time the Mergerbecomes effective being the “**Effective Time**”).

 

1.04                           Effects of the Merger. The Merger shall have the effects set forth in the applicable provisions of theDGCL.  Without limiting the generality ofthe foregoing, and subject thereto, at the Effective Time, all the properties,rights, privileges, powers and franchises of the Company and Merger Sub shallvest in the Surviving Corporation, and all debts, liabilities and duties of theCompany and Merger Sub shall become the debts, liabilities and duties of theSurviving Corporation.

 

1.05                           Certificate of Incorporation; By-Laws; Purposes.

 

(a)                                  At the Effective Time, and without anyfurther action on the part of the Company or Merger Sub, the certificate ofincorporation of Merger Sub as in effect at the Effective Time shall be thecertificate of incorporation of the Surviving Corporation until thereafteramended as provided therein or by applicable law.

 

(b)                                 At the Effective Time, and without any furtheraction on the part of the Company or Merger Sub, the by-laws of Merger Sub asin effect at the Effective Time shall be the by-laws of the SurvivingCorporation until thereafter changed or amended as provided therein or byapplicable law.

 

1.06                           Directors. From and after the Effective Time, the directors of the Surviving Corporationshall be Jeffrey B. Davis and David P. Luci, until the earlier of theirrespective resignation or removal or until their successors are duly electedand qualified, as the case may be.

 

1.07                           Officers.  Fromand after the Effective Time, the officer of the Surviving Corporation shall beJeffrey B. Davis and David Luci, until the earlier of their resignation orremoval or until their respective successors are duly elected or appointed andqualified, as the case may be.

 

ARTICLE II.

 

EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT COMPANIES

 

2.01                           Effect on Capital Stock and Company Notes.  As of the Effective Time, by virtueof the Merger and without any action on the part of the Company, Merger Sub orany holder of any shares of Company Common Stock, Company Notes, CompanyWarrants, In the Money Company Warrants or any common stock of Merger Sub:

 

(a)                                  Common Stock of Merger Sub.  Each share of common stock of MergerSub outstanding immediately prior to the Effective Time shall be converted intoone share of the common stock, par value $0.001 per share, of the SurvivingCorporation.

 

(b)                                 Cancellation of Treasury Stock andParent-Owned Company Stock. Each share of Company Common Stock that is owned by the Company, and each shareof Company Common Stock that is owned by Parent, Merger Sub or any otherSubsidiary of Parent shall automatically be cancelled and retired and shallcease to exist, and no cash, Parent Capital Stock or other consideration shallbe delivered or deliverable in exchange therefor.

 

(c)                                  Conversion of Company Common Stock and In theMoney Company Warrants.

 

(i)                                     Each issued and outstanding share of CompanyCommon Stock (excluding shares 

 

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cancelledpursuant to Section 2.01(b) and any Dissenting Shares to theextent provided in Section 2.04 but including all shares of CompanyCommon Stock issued upon exercise of Company Options or Company Warrantsoccurring after the date of this Agreement and including all shares issuableupon conversion of any of the In the Money Company Warrants) shall be convertedinto the right to receive a number of shares of Parent Common Stock equalto:  (A) 2,500,000, divided by (B) thesum of (1) the total number of shares of Company Common Stock outstandingat the Effective Time, and (2) the total number of shares of CompanyCommon Stock issuable upon conversion of the In the Money Company Warrantsassuming a cashless conversion at the closing price of Company Common Stock onthe date of this Agreement, such quotient to be carried out to eight decimalpoints (the “**Common Stock Exchange Ratio**”);provided, however, that in no event shall Parent be required to issue more thanan aggregate of 2,500,000 shares of Parent Common Stock as consideration forthe Merger and the transactions contemplated thereby;

 

(ii)                                  The total number of shares of Parent CommonStock issuable in exchange for the Company Common Stock and shares underlyingthe In the Money Company Warrants shall be referred to herein collectively asthe “**Merger Consideration**.”  In noevent shall the aggregate number of shares of Parent Common Stock to be issuedor issuable hereunder in exchange for Company Common Stock and/or In the MoneyCompany Warrants exceed, in the aggregate, 2,500,000 (or such lesser number ifdecreased in accordance with Section 2.04).  Except as set forth in this Article II,no other amounts shall be payable with respect to such Company Common Stock orIn the Money Company Warrants.

 

(d)                                 Cancellation and Retirement of Company CommonStock.  As of theEffective Time, all shares of Company Common Stock issued and outstandingimmediately prior to the Effective Time shall no longer be outstanding andshall automatically be cancelled and retired and shall cease to exist, and eachholder of a certificate representing any such shares of Company Common Stock(collectively, the “**Certificates**”)shall, to the extent such Certificate represents such shares, cease to have anyrights with respect thereto, except the right to receive the MergerConsideration (and cash in lieu of fractional shares of Parent Common Stock) tobe issued or paid in consideration therefor upon surrender of such Certificatein accordance with Section 2.02.

 

(e)                                  Cancellation and Retirement of In the MoneyCompany Warrants.  As of the Effective Time, all of the In theMoney Company Warrants outstanding immediately prior to the Effective Timeshall no longer be outstanding and shall be cancelled and retired and shallcease to exist, and each holder of an In the Money Warrant shall cease to haveany rights with respect thereto, except the right to receive the MergerConsideration (and cash in lieu of fractional shares of Parent Common Stock) tobe issued or paid in consideration therefor upon surrender of such In the MoneyWarrant in accordance with Section 2.02.

 

(f)                                    Company Notes. At the Effective Time, Parent shall assumethe due and punctual performance of all of the terms and conditions of eachoutstanding Company Note and each such Company Note shall, unless theconversion rights thereunder have previously expired, become convertible intothe number of New Securities (as defined in the Company Notes) of Parent and atsuch Conversion Price (as defined in the Company Notes) as set forth therein. The“**Company Notes**” shall be theconvertible promissory notes made by the Company listed in Section 2.01(f) ofthe Company Disclosure Schedule. The parties acknowledge that certain of theCompany Notes automatically will convert, at the closing price of Parent CommonStock on the date hereof, to the right to receive Parent Common Stock at theEffective Time.

 

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2.02                           Exchange of Certificates.

 

(a)          Exchange Agent.  As of theEffective Time, Parent shall enter into an agreement with such bank or trustcompany as may be designated by Parent (the “**Exchange Agent**”) which shall provide that Parent shalldeposit with the Exchange Agent, for the benefit of the holders of Certificatesand In the Money Company Warrants, for exchange in accordance with this Article II,certificates representing the shares of Parent Common Stock (such shares ofParent Common Stock, together with any dividends or distributions with respectthereto with a record date after the Effective Time and any cash payable inlieu of any fractional shares of Parent Common Stock being hereinafter referredto as the “**Exchange Fund**”)issuable pursuant to Section 2.01 in exchange for outstandingshares of Company Common Stock and In the Money Company Warrants.

 

### **(i)**             ExchangeProcedures.  Promptly after theEffective Time, the Exchange Agent shall mail to each holder of record ofCertificates and In the Money Company Warrants immediately prior to theEffective Time whose shares of Company Common Stock and/or In the Money CompanyWarrants were converted into shares of Parent Common Stock pursuant to Section 2.01(c) aletter of transmittal (which shall specify that delivery shall be effected, andrisk of loss and title to the Certificates and/or In the Money Company Warrantsshall pass only upon delivery of the Certificates and/or In the Money CompanyWarrants, as applicable, to the Exchange Agent, and which shall be in such formand have such other provisions as Parent may reasonably specify) and (ii) instructionsfor use in effecting the surrender of the Certificates and/or In the MoneyCompany Warrants in exchange for certificates representing shares of ParentCommon Stock.  Upon surrender of aCertificate and/or In the Money Company Warrants for cancellation (or indemnityreasonably satisfactory to Parent and the Exchange Agent, if any of suchCertificates and/or In the Money Company Warrants are lost, stolen ordestroyed) to the Exchange Agent together with such letter of transmittal, dulyexecuted, the holder of such Certificate and/or In the Money Company Warrantsshall be entitled to receive in exchange therefor a certificate representingthat number of whole shares of Parent Common Stock which such holder has theright to receive in respect of all Certificates and/or In the Money CompanyWarrants surrendered by such holder pursuant to the provisions of this Article II(after taking into account all shares of Company Common Stock than held by suchholder either directly or upon conversion of the In the Money Company Warrantsin a cashless conversion), and the Certificates and/or In the Money CompanyWarrants, as applicable, so surrendered shall forthwith be cancelled.  In the event of a transfer of ownership ofshares of Company Common Stock and/or In the Money Company Warrants which isnot registered in the transfer records of the Company, a certificaterepresenting the proper number of shares of Parent Common Stock may be issuedto a transferee if the Certificate and/or In the Money Company Warrants, asapplicable, is presented to the Exchange Agent, accompanied by all documentsrequired to evidence and effect such transfer and by evidence that anyapplicable stock transfer Taxes have been paid. Until surrender as contemplated by this Section 2.02(b),subject to the provisions of Section 6.02(h) (Dissenters Rights)each Certificate and In the Money Company Warrants, in each case, shall bedeemed at any time after the Effective Time to represent only the Parent CommonStock into which the shares of Company Common Stock represented by suchCertificate or In the Money Company Warrants have been converted as provided inthis Article II and the right to receive upon such surrender cash in lieuof any fractional shares of Parent Common Stock as contemplated by this Section 2.02(b).

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### **(ii)**                                  Distributions with Respect to UnexchangedShares.  No dividends or other distributions withrespect to Parent Common Stock with a record date after the Effective Timeshall be paid to the holder of any unsurrendered Certificate with respect tothe shares of Parent Common Stock represented thereby, and no cash payment inlieu of fractional shares shall be paid to any such holder pursuant to this Section 2.02until the surrender of such Certificate and/or In the Money Company Warrants,as applicable, in accordance with this Article II.  Subject to the effect of applicable laws,following surrender of any such Certificate and/or In the Money CompanyWarrants, as applicable, there shall be paid to 

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### **the holder of the certificate representing the wholeshares of Parent Common Stock issued in exchange therefor without interest, (i) atthe time of such surrender, the amount of any cash payable in lieu of anyfractional share of Parent Common Stock to which such holder is entitledpursuant to this Section 2.02 and the amount of any dividends orother distributions with a record date after the Effective Time and a paymentdate subsequent to such surrender payable with respect to such whole shares ofParent Common Stock.**

### ** **

### **(iii)**                               No further Ownership Rights in Company CommonStock.  All shares of Parent Common Stock issued uponconversion of shares of Company Common Stock and In the Money Company Warrantsin accordance with the terms hereof, and all cash paid pursuant to this Section 2.02in lieu of fractional shares, shall be deemed to have been issued in fullsatisfaction of all rights pertaining to such Company Common Stock and/or Inthe Money Company Warrants, and there shall be no further registration oftransfers on the stock transfer books of the Surviving Corporation of theCompany Common Stock and In the Money Company Warrants which were outstandingprior to the Effective Time.  If, afterthe Effective Time, Certificates are presented to the Surviving Corporation forany reason, they shall be cancelled and exchanged as provided in this Article II.

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### **(iv)**                              No Fractional Shares.  (i) No certificate or scrip representingfractional shares of Parent Common Stock shall be issued upon the surrender forexchange of Certificates and/or In the Money Company Warrants, and suchfractional share interests shall not entitle the owner thereof to vote or toany rights of a stockholder of Parent. In lieu of such issuance of fractional shares, Parent shall pay eachholder of Certificates and In the Money Company Warrants an amount in cashequal to the product obtained by multiplying (a) the fractional shareinterest to which such holder would otherwise be entitled (after taking intoaccount all shares of Company Common Stock held immediately prior to theEffective Time by such holder) by (b) the average of the closing saleprices for a share of Parent Common Stock on the OTC Bulletin Board for the tentrading days immediately preceding the date of the Effective Time.

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### **(b)**         As soon as reasonably practicable after the determination of the amountof cash, if any, to be paid to holders of Certificates and/or In the MoneyCompany Warrants, as applicable, with respect to any fractional shareinterests, the Exchange Agent shall make available such amounts to such holdersof Certificates and/or In the Money Company Warrants, subject to and inaccordance with the terms of this Section 2.02.

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### **(c)**          Termination of Exchange Fund.  Any portion of the Exchange Fund depositedwith the Exchange Agent pursuant to this Section 2.02 which remainsundistributed to the holders of the Certificates and/or In the Money CompanyWarrants six months after the Effective Time shall be delivered to Parent, upondemand, and any holders of Certificates and/or In the Money Company Warrantswho have not theretofore complied with this Article II shall thereafterlook only to Parent and only as general creditors thereof for payment of theirclaim for Parent Common Stock, cash in lieu of fractional shares of ParentCommon Stock and any dividends or distributions with respect to Parent CommonStock to which such holders may be entitled pursuant to this Article II.

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### **(d)**         No Liability. None of Parent, Merger Sub, the Company or the Exchange Agent shall beliable to any Person in respect of any shares of Parent Common Stock (ordividends or distributions with respect thereto) or cash from the Exchange Funddelivered to a public official pursuant to any applicable abandoned property,escheat or similar law.  If anyCertificates and/or In the Money Company Warrants shall not have beensurrendered prior to three years after the Effective Time of the Merger, orimmediately prior to such earlier date on which any Merger Consideration, anycash in lieu of fractional shares of Parent Common Stock or any dividends ordistributions with respect to Parent Common Stock would otherwise escheat to orbecome the property of any Governmental Entity, any such Merger Considerationor cash shall, to the extent permitted by applicable law, 

 

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### **become the property of the Surviving Corporation, free andclear of all claims or interest of any Person previously entitled thereto.**

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### **(e)**          Investment of Exchange Fund.  The Exchange Agent shall invest any cashincluded in the Exchange Fund, as directed by Parent on a daily basis. Anyinterest and other income resulting from such investments shall be paid toParent.

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### **(f)**            Adjustment Provisions.  In theevent Parent changes (or establishes a record date for changing) the number ofshares of Parent Common Stock issued and outstanding prior to the EffectiveTime as a result of, including, without limitation, a forward or reverse stocksplit, stock dividend, recapitalization or similar transaction with respect tothe outstanding Parent Common Stock and the record date therefor shall be priorto the Effective Time, the Common Stock Exchange Ratio shall be proportionatelyadjusted.  If between the date hereof andthe Effective Time, Parent shall merge, be acquired or consolidated with, by orinto any other corporation (a “Business Combination”) and the terms thereofshall provide that Parent Common Stock shall be converted into or exchanged forthe shares of any other corporation or entity, then provision shall be made aspart of the terms of such Business Combination so that security holders of theCompany who would be entitled to receive shares of Parent Common Stock pursuantto this Agreement shall be entitled to receive, in lieu of each share of ParentCommon Stock issuable to such security holders as provided herein, the samekind and amount of securities or assets as shall be distributable upon suchBusiness Combination with respect to one share of Parent Common Stock (providedthat nothing herein shall be construed so as to release the acquiring entity inany such Business Combination from its obligations under this Agreement as thesuccessor to Parent).

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2.03         Treatment of Company Options andCompany Warrants.    Parentshall not assume any options to purchase shares of Company Common Stock (the “**Company Options**”), even if suchCompany Options are outstanding immediately prior to the Effective Time and arefully vested and exercisable immediately prior to the Effective Time.  All Company Options shall have been exercisedor terminated prior to the Closing Date. The Company shall have taken all necessary action to implement and carryout the provisions of this Section 2.03, including, withoutlimitation, taking the actions described in Section 6.02(e).

 

Section 2.03 of the Company Disclosure Letter sets fortha list of the outstanding “in the money” warrants to purchase shares of CompanyCommon Stock (the “**In the Money CompanyWarrants**”).  At theEffective Time, the In the Money Company Warrants shall automatically convertinto the right to receive a portion of the Merger Consideration as provided in Section 2.01above.  Except for the obligation to granta portion of the Merger Consideration to holders of the In the Money CompanyWarrants, Parent shall not assume either the In the Money Company Warrants orother warrants to purchase shares of Company Common Stock (the “**Company Warrants**”), even if such CompanyWarrants are outstanding immediately prior to the Effective Time and are fullyvested and exercisable immediately prior to the Effective Time.  The Company shall have taken all necessaryaction to implement and carry out the provisions of this Section 2.03,including, without limitation, taking the actions described in Section 6.02(e).

 

2.04         Dissenting Shares.

 

(a)           Subjectto the provisions of Section 6.02(g) and notwithstanding anyprovision of this Agreement to the contrary, the shares of any holder ofCompany Common Stock who has demanded and perfected appraisal rights of suchshares in accordance with Delaware Law and who, as of the Effective Time of theMerger, has not effectively withdrawn or lost such appraisal rights (“**Dissenting Shares**”) shall not beconverted into or represent a right to receive Parent Common Stock pursuant to Section 2.01(c),but the holder thereof shall only be entitled to such rights as are granted byDelaware Law, and the total number of shares of Parent Common Stock issuable asMerger Consideration as provided in Section 2.01(c) shall beproportionately decreased.

 

(b)           Notwithstandingthe foregoing, if any holder of shares of Company Common Stock who demandsappraisal of such shares under Delaware Law shall effectively withdraw theright to appraisal, then, 

 

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as of the later of theEffective Time and the occurrence of such event, such holder’s shares shallautomatically be converted into and represent only the right to receive ParentCommon Stock, without interest thereon, upon surrender of the Certificaterepresenting such shares as provided in Section 2.01(c), and thetotal number of shares of Parent Common Stock issuable as Merger Considerationas provided in Section 2.01(c) shall be proportionallyincreased to the extent such number was previously decreased pursuant to Section 2.05(a) abovewith respect to such shares.

 

(c)           TheCompany shall give Parent (i) prompt notice of any written demands forappraisal of any shares of Company Common Stock, withdrawals of such demands,and any other instruments served pursuant to Delaware Law and received by theCompany which relate to any such demand for appraisal and (ii) theopportunity to participate in all negotiations and proceedings which take placeprior to the Effective Time with respect to demands for appraisal underDelaware Law.  The Company shall not,except with the prior written consent of Parent or as may be required byapplicable law, voluntarily make any payment with respect to any demands forappraisal of the Company Common Stock or offer to settle or settle any suchdemands.

 

2.05         Withholding Rights.  Each of Parent and the Surviving Corporationshall be entitled to deduct and withhold from the consideration otherwisepayable pursuant to this Agreement to any holder of Company Common Stock suchamounts as it is required to deduct and withhold with respect to the making ofsuch payment under the Code, or any provision of state, local or foreign Taxlaw.  To the extent that amounts are sowithheld by Parent or the Surviving Corporation, as the case may be, suchwithheld amounts shall be treated for all purposes of this Agreement as havingbeen paid to such holder in respect of which such deduction and withholding wasmade by Parent or the Surviving Corporation, as the case may be.

 

ARTICLE III.

 

REPRESENTATIONSAND WARRANTIES

 

3.01                           Representations and Warranties of the Company and its Subsidiaries. Except as may be set forth in a disclosureletter (to the extent each disclosure item therein is clearly marked to indicatethe section, paragraph or subparagraph of this Agreement to which suchdisclosure is an exception, referencing the same section, paragraph andsubparagraph as used in this Agreement, in each case, except to the extent thatany such disclosure is reasonably discernable to apply to more than onesection, paragraph or subparagraph of this Agreement) delivered by the Companyto Parent and Merger Sub at the time of execution of this Agreement (the “**Company Disclosure Letter**”), theCompany hereby represents and warrants to Parent and Merger Sub as follows:

 

(a)                                  Organization; Standing and Corporate Power. The Company is duly organized, validlyexisting and in good standing under the laws of the State of Delaware and hasthe requisite corporate power and authority to carry on its business as it isnow being conducted.  The Company is duly qualified or licensed to dobusiness and is in good standing in each jurisdiction (domestic or foreign) inwhich the nature of its business or the ownership or leasing of its propertiesmakes such qualification or licensing necessary, other than in suchjurisdictions where the failure to be so qualified or licensed (individually orin the aggregate) would not have a Material Adverse Effect with respect to theCompany.  The Company has delivered to Parent complete and correct copiesof each of (i) the certificate of incorporation (including any Certificateof Designations thereto) (the “**Company Certificate**”)and by-laws (the “**CompanyBy-laws**”)of the Company, in each case as amended and as currently in effect and (ii) theminute books of the Company which contain records of all meetings held of, andother corporate actions taken by, its stockholders, board of directors and anycommittees appointed by its board of directors.

 

(b)                                 Subsidiaries. Except as set forth in Section 3.01(b) ofthe Company Disclosure Letter, the Company does not own, directly orindirectly, any capital stock or other ownership interest in any Person.

 

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(c)                                  CapitalStructure.  The authorized capitalstock of the Company consists of (x) 100,000,000 shares of Company CommonStock and (y) 6,000,000 shares of Company Preferred Stock.  As of thedate hereof, there were:  (i) 45,798,412 shares of Company CommonStock issued and outstanding; (ii) 0 shares of Company Preferred Stockissued and outstanding, (iii) 299 shares of Company Common Stock held inthe treasury of the Company; (iv) 1,784,584 shares of Company Common Stockreserved for issuance upon exercise of options available for grant pursuant tothe Company’s stock option plans; (v) 7,376,488 shares of Company CommonStock issuable upon exercise of awarded but unexercised stock options; and (vi) warrantsrepresenting the right to purchase 20,445,984 shares of Company CommonStock.  Except as set forth above, as of the date hereof, there were noshares of capital stock or other equity securities of the Company issued,reserved for issuance or outstanding.  All outstanding shares of capitalstock of the Company are, and all shares which may be issued as described abovewill be, when issued, duly authorized, validly issued, fully paid andnonassessable and not subject to preemptive rights.  The shares of CompanyCommon Stock to be issued in connection with the Merger (x) will, whenissued, be duly authorized, validly issued, fully paid and nonassessable andnot subject to preemptive rights and (y) will be issued in compliance inall material respects with all applicable federal and state securities laws andapplicable rules and regulations promulgated thereunder.  Except asset forth above and in (i) Section 3.01(c) of the CompanyDisclosure Letter and (ii) the Rights Agreement dated as of August 13,1999, between the Company and American Stock Transfer & Trust Companyas Rights Agent (the “**Shareholder Rights Plan**”),there are no outstanding securities, options, warrants, calls, rights,commitments, agreements, arrangements or undertakings of any kind to which theCompany is a party or by which it is bound obligating the Company to issue,deliver or sell, or cause to be issued, delivered or sold, additional shares ofcapital stock or other equity or voting securities of the Company or obligatingthe Company to issue, grant, extend, accelerate the vesting of or enter intoany such security, option, warrant, call, right, commitment, agreement,arrangement or undertaking.  There are no outstanding contractualobligations, commitments, understandings or arrangements of the Company torepurchase, redeem or otherwise acquire or make any payment in respect of anyshares of capital stock of the Company.  As of the date hereof, all of theissued and outstanding shares of common stock in Virium Pharmaceuticals Inc., aSubsidiary of the Company, are owned by the Company, free and clear of anyLien, and as of the Closing Date, all of the common stock of ViriumPharmaceuticals Inc. will be owned by the Company free and clear of any Lien.

 

(d)                                 Authority; Noncontravention. The Company has the requisite corporatepower and authority to enter into this Agreement and to consummate the transactionscontemplated hereby.  The execution and delivery of this Agreement by theCompany and the consummation by the Company of the transactions contemplatedhereby have been duly authorized by all necessary corporate action on the partof the Company.  This Agreement has been duly executed and delivered bythe Company and (assuming due authorization, execution and delivery by Parentand Merger Sub) constitutes a legal, valid and binding obligation of theCompany, enforceable against the Company in accordance with its terms, subjectto the effects of bankruptcy, insolvency, fraudulent conveyance,reorganization, moratorium and other similar laws affecting creditors’ rightsgenerally and general equitable principles (whether considered in a proceedingin equity or at law).  The execution and delivery of this Agreement doesnot, and the consummation by the Company of the transactions contemplated bythis Agreement and compliance by the Company with the provisions hereof willnot, conflict with, or result in any breach or violation of, or any default(with or without notice or lapse of time, or both) under, or give rise to aright of termination, cancellation or acceleration of, or a “put” right withrespect to any obligation under, or to a loss of a material benefit under, orresult in the creation of any pledge, claim, lien, charge, encumbrance orsecurity interest of any kind or nature whatsoever except for a Permitted Lien(collectively, “Liens”) upon any of the properties or assets of theCompany under, (i) the Company Certificate or Company By-laws, (ii) anyagreement, contract, license, loan or credit agreement, note, note purchaseagreement, bond, mortgage, indenture, 

 

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leaseor other agreement, instrument, permit, concession, franchise or license applicableto the Company or its properties or assets or (iii) subject to thegovernmental filings and other matters referred to in the last sentence of thisSection 3.01(d), any judgment, order, decree, statute, law, ordinance,rule, regulation or arbitration award applicable to the Company or itsproperties or assets. Each Lien of the Company in excess of $5,000 is set forthin Section 3.01(d) of the Company Disclosure Letter. No consent,approval, order or authorization of, or registration, declaration or filingwith, or notice to, any federal, state or local government or any court,administrative agency or commission or other governmental authority or agency,domestic or foreign (a “**Governmental Entity**”)is required by or with respect to the Company in connection with the executionand delivery of this Agreement by the Company or the consummation by theCompany of any of the transactions contemplated hereby or the performance bythe Company of its obligations hereunder, except for the filing of the DelawareCertificate of Merger with the Secretary of State of the State of Delaware andappropriate documents with the relevant authorities of other states in whichthe Company is qualified to do business.

 

(e)                                  Company SEC Documents; UndisclosedLiabilities.  Since January 1,2005, the Company has filed with the SEC all reports, schedules, forms,statements and other documents required pursuant to the Securities Act and theExchange Act (collectively, and in each case including all exhibits andschedules thereto and documents incorporated by reference therein, the “**Company SEC Documents**”).  Asof their respective dates, the Company SEC Documents complied in all materialrespects with the requirements of the Securities Act or the Exchange Act, asthe case may be, and the rules and regulations of the SEC promulgatedthereunder applicable to such Company SEC Documents.  Except to the extentthat information contained in any Company SEC Document has been revised orsuperseded by a later filed Company SEC Document, none of the Company SECDocuments (including any and all Company SEC Financial Statements includedtherein) contains any untrue statement of a material fact or omits to state amaterial fact required to be stated therein or necessary in order to make thestatements therein, in the light of the circumstances under which they weremade, not misleading.  The financial statements of Company included in theCompany SEC Documents (the “**Company SEC FinancialStatements**”) comply as to form in all material respects withapplicable published accounting requirements and the published rules andregulations of the SEC with respect thereto, have been prepared in accordancewith GAAP, applied on a consistent basis during the periods involved (except asmay be indicated in the notes thereto) and fairly present the financialposition of the Company as of the dates thereof and the results of itsoperations and cash flows for the periods then ended (subject, in the case ofunaudited quarterly statements, to normal recurring year-end auditadjustments).  The Company has no liabilities or obligations of any nature(whether accrued, absolute, contingent or otherwise) required by GAAP to berecognized or disclosed on a balance sheet of the Company or in the notesthereto, except (i) liabilities reflected in the audited balance sheet ofthe Company as of March 31, 2008, (ii) liabilities incurred since March 31,2008, in the ordinary course of business consistent with past practice and (iii) liabilitiesthat would not be reasonably likely to have a Material Adverse Effect withrespect to the Company.

 

(f)                                    Disclosure Controls and Procedures.  The Company maintains disclosurecontrols and procedures required by Rule 13a-15 and 15d-15 under theExchange Act.  Such disclosure controls and procedures are designed toensure that all material information relating to the Company is made known tothe Company’s chief executive officer and chief financial officer by otherswithin the Company, particularly during the period in which the Company’sapplicable Exchange Act report is being prepared, and effective, in that theyprovide reasonable assurance that information required to be disclosed by theCompany in the reports that it files or submits under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms.  The Company’s management assessmentwas that disclosure controls and procedures were effective as of March 31,2008.

 

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(g)           Information Supplied.  Noneof the information supplied or to be supplied by the Company in writing forinclusion or incorporation by reference in (i) the registration statementon Form S-4 to be filed with the SEC by Parent in connection with the issuanceof Parent Common Stock in the Merger (the “**Form S-4**”)shall, at the time the Form S-4 becomes effective under the SecuritiesAct, contain any untrue statement of a material fact or omit to stateanymaterial fact required to be stated therein or necessary to make thestatements therein not misleading or (ii) the Information Statement shall,at (A) the date it is first mailed to the Company’s stockholders and/or (B) atthe time of the Stockholder Meeting, contain any untrue statement of a materialfact or omit to state any material fact required to be stated therein ornecessary in order to make the statements therein, in the light of thecircumstances under which they are made, not misleading.  The Information Statement shall comply as toform in all material respects with the requirements of the Exchange Act and therules and regulations promulgated thereunder, except that norepresentation is made by the Company with respect to statements made orincorporated by reference therein based on information supplied in writing byParent or Merger Sub specifically for inclusion or incorporation by referencetherein.

 

(h)           Absence of Certain Changes or Events.  Since March 31, 2008, there isnot and has not been:  (i) any Material Adverse Change with respectto the Company; (ii) any condition, event or occurrence which,individually or in the aggregate, could reasonably be expected to have aMaterial Adverse Effect or give rise to a Material Adverse Change with respectto the Company; (iii) any condition, event or occurrence which,individually or in the aggregate, could reasonably be expected to prevent ormaterially delay the ability of the Company to consummate the transactionscontemplated by this Agreement or perform its obligations hereunder.

 

(i)            Litigation; Labor Matters; Compliance withLaws.

 

(i)            Except as set forth in Section 3.01(i)(i) ofthe Company Disclosure Letter, there is no suit, action, claim, charge,arbitration, investigation or proceeding pending before or, to the knowledge ofthe Company, threatened by, a Governmental Entity, in each case with respect tothe Company that, individually or in the aggregate, could reasonably beexpected to have a Material Adverse Effect with respect to the Company orprevent or materially delay the ability of the Company to consummate thetransactions contemplated by this Agreement or to perform its obligationshereunder. There is no judgment, decree, citation, injunction, rule ororder of any Governmental Entity or arbitrator outstanding against the Companywhich, individually or in the aggregate, could reasonably be expected to have aMaterial Adverse Effect with respect to the Company.

 

(ii)           Except as set forth in Section 3.01(i)(ii) ofthe Company Disclosure Letter (1) the Company is not a party to, or boundby, any collective bargaining agreement, contract or other agreement orunderstanding with a labor union or labor organization; (2) the Company isnot the subject of any strike, grievance or other proceeding asserting that theCompany has committed an unfair labor practice or seeking to compel it tobargain with any labor organization as to wages or conditions of employment; (3) thereis no strike, work stoppage or other labor dispute involving the Companyor, to its knowledge, threatened; (4) no grievance is pending or, to theknowledge of the Company, threatened against the Company which, individually orin the aggregate, could reasonably be expected to have a Material AdverseEffect with respect to the Company; (5) the Company is in materialcompliance with all applicable laws (domestic and foreign), agreements,contracts and policies relating to employment, employment practices, wages,hours, immigration matters and terms and conditions of employment; (6) theCompany has paid in full to all employees of the Company all wages, salaries,commissions, bonuses, benefits and other compensation due and payable to suchemployees under any policy, practice, agreement, plan, program, statute orother law; (7) the Company is not liable for any severance pay or other paymentsto any employee or former employee arising from the termination of employmentunder any benefit or severance policy, 

 

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practice, agreement, plan orprogram of the Company, nor will the Company have any liability which exists orarises, or may be deemed to exist or arise, under any applicable law, contractor otherwise, as a result of or in connection with the transactionscontemplated hereunder or as a result of the termination by the Company of anyPersons employed by the Company on or prior to the Effective Time; and (8) theCompany is in compliance with its obligations pursuant to the Worker Adjustmentand Retraining Notification Act of 1988 (“**WARN**”) andany similar state or local laws, and all other employee notification andbargaining obligations arising under any statute or otherwise.

 

(iii)          The business of the Company is not beingconducted in violation of any law (domestic or foreign), ordinance orregulation of any Governmental Entity in any material respect.

 

(j)            Employee Benefit Plans.

 

(i)            Section 3.01(j)(i) of the Company Disclosure Letter contains atrue and complete list of each “employee benefit plan” (within the meaning of Section 3(3) ofERISA) (including, without limitation, multiemployer plans within the meaningof Section 3(37) of ERISA or any of its foreign equivalents)), stockpurchase, stock option, severance, employment, change-in-control, fringebenefit, collective bargaining, bonus, incentive, deferred compensation and allother employee benefit plans, agreements, programs, policies or otherarrangements relating to employment, benefits or entitlements, whether or notsubject to ERISA (including any funding mechanism therefor now in effect orrequired in the future as a result of the transactions contemplated by thisAgreement or other activities taken by the Company on or prior to the date ofthis Agreement), sponsored by the Company or any other entity such as aco-employer, whether formal or informal, oral or written, legally binding ornot under which any employee or former employee of the Company has any presentor future right to benefits based on such employee’s employment with theCompany and under which the Company has any present or future liability. All such plans, agreements, programs, policies and arrangements areherein collectively referred to as the “**Company Plans**.”

 

(ii)           With respect to each Company Plan, theCompany has delivered to the Parent a current, accurate and complete copy (or,to the extent no such copy exists, an accurate description) thereof and, to theextent applicable, (A) any related trust agreement, annuity contract orother funding instrument; (B) the most recent determination letter issuedby the IRS; (C) any summary plan description and other material writtencommunications (or a description of any material oral communications) by theCompany to its employees concerning the extent of the benefits provided under aCompany Plan; and (D) for the three most recent years (I) the Form 5500and attached schedules; (II) audited financial statements; (III) actuarialvaluation reports; and (IV) attorney’s response to an auditor’s requestfor information.

 

(iii)          (A) Neither the Company nor any memberof its Controlled Group has or shall have, as of the Effective Time, anyobligation to any multiemployer plan (within the meaning of 4001(a)(3) ofERISA) or any collective bargaining agreement; (B) neither the Company norany member of its Controlled Group has incurred any material withdrawalliability under Title IV of ERISA; and (C) neither the Company nor anymember of its Controlled Group has engaged in a transaction which could subjectit to liability under ERISA Section 4212(c).

 

(iv)          (A) Each Company Plan which is intendedto meet the requirements for Tax-favored treatment under Subchapter B ofChapter 1 of Subtitle A of the Code meets such requirements; and (B) theCompany has received a favorable determination from the IRS with respect to anytrust intended to be qualified within the meaning of Code Section 501(c)(9).

 

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(v)           The Company has complied and currentlycomplies in all material respects with the applicable continuation requirementsfor its welfare benefit plans, including Section 4980B of the Code andSections 601 through 608, inclusive, of ERISA and any applicable state statutesmaintaining health insurance continuation coverage for employees andbeneficiaries.

 

(vi)          Except as otherwise disclosed in Section 3.01(j)(vi) ofthe Company Disclosure Letter, none of the terms of the Company Plans providesthat the consummation of the transactions contemplated by this Agreement will,either alone or in combination with another event, (A) entitle any of theCompany’s employees or current or former officers or directors to severancepay, unemployment compensation or any other payment, except as expresslyprovided in this Agreement, or (B) accelerate the time of payment orvesting, or increase the amount of compensation due any such employee orofficer.

 

(vii)         Except as otherwise disclosed in Section 3.01(j)(vii) ofthe Company Disclosure Letter, no payment that is owed or may become dueto any director, officer, employee or agent of the Company will benon-deductible or subject to tax under Section 280G, Section 4999 or Section 162(m) ofthe Code; nor will the Company be required to “gross up” or otherwisecompensate any such person because of the imposition of any excise tax on apayment to such person.

 

(viii)        EachCompany Plan is amendable and terminable at the sole discretion of the sponsorthereof without notice to any participant or beneficiary.

 

(ix)        Thereis no suit, action, claim, charge, arbitration, investigation or proceeding(except with respect to benefits payable in the normal operation of CompanyPlans and qualified domestic relations orders) against or involving any CompanyPlan or asserting any rights or claims to benefits under any Company Plan thatcould give rise to any material liability.

 

(x)            Exceptas disclosed in Section 3.01(j)(x) of the Company DisclosureLetter, there are no obligations or potential liability under any Company Planfor providing welfare benefits after termination of employment to any employee(or any beneficiary of an employee), including, but not limited to, retireehealth and life insurance coverage, but excluding continuation of healthcoverage required to be continued under Section 4980B of the Code or otherapplicable law and insurance conversion privileges under state law. The assetsof each Company Plan which is funded are reported on their fair market value onthe books and records of such Company Plan.

 

(xi)           Noindividuals are currently providing, or have ever provided, services to theCompany pursuant to a leasing arrangement or similar type of arrangement. TheCompany has no obligation to provide benefits under any Company Plan maintainedfor its employees to or for the benefit of any individual who has been treatedas an independent contractor by the Company.

 

(k)           Taxes.

 

(i)            The Company has timely filed with theappropriate Governmental Entity all Tax Returns required to be filed by it,each such Tax Return has been prepared in compliance with all applicable lawsand regulations and all such Tax Returns are true, accurate and complete in allmaterial respects. The Company has (A) timely paid in full all Taxesrequired to have been paid by it (whether or not such Taxes were shown to bedue on such Tax Returns); and (B) made adequate provision for all accruedTaxes not yet due.  The Company has madeaccruals for Taxes on the Company SEC Financial Statements that are adequate tocover any Tax liability of the Company determined in accordance with GAAPthrough the date of the applicable Company SEC Financial Statements, and anyTaxes of the Company arising after the date of the most recent Company SECFinancial Statements and at or before the Effective Time have been or will beincurred in the ordinary course of the Company’s business.

 

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(ii)           As of the date of this Agreement, no federal,state, local or foreign audits, suits or other administrative proceedings orcourt proceedings are presently pending with regard to any Taxes or Tax Returnsof Parent, and the Company has not received a written notice of any materialpending or proposed claims, audits or proceedings with respect to Taxes. TheCompany has not granted any outstanding extensions of the time in which any Taxmay be assessed or collected by any Tax authority. There is no action,suit, proceeding or audit with respect to any Tax or, to the knowledge of theCompany, threatened against or with respect to the Company.  The Company has not received any notice ofdeficiency or assessment from any Governmental Entity for any amount of Taxthat has not been fully settled or satisfied, and to the knowledge of theCompany no such deficiency or assessment is proposed.

 

(iii)          No claim has been made in writing by anyGovernmental Entity in a jurisdiction where the Company does not file TaxReturns that any such entity is, or may be, subject to taxation by thatjurisdiction.

 

(l)            Properties. The Company (i) has good and marketable title to all theproperties and assets (A) reflected in the Company Financial Statements asbeing owned by the Company (other than any such properties or assets sold ordisposed of since such date in the ordinary course of business consistent withpast practice) or (B) acquired after March 31, 2008 which arematerial to the Company’s business, free and clear of all Liens. The Companyhas good and valid leasehold interests in all real property leases, subleasesand occupancy agreements to which the Company is a party (the “Company Leases”)and is in sole possession of the properties purported to be leasedthereunder.  Section 3.01(l) ofthe Company Disclosure Letter lists and describes briefly all CompanyLeases. Each Company Lease is in full force and effect and constitutes alegal, valid and binding obligation of, and is legally enforceable against, therespective parties thereto. There is no uncured breach, and no default exists,on the part of landlord under any of the Company Leases, and the Companyhas no knowledge of breach or default or any event, condition or state offacts, which with the giving of notice or the passage of time, or both, wouldconstitute a breach or default by the Company under any Company Lease. There isno suit, action, arbitration or other proceeding with respect to the CompanyLeases or the premises leased under the Company Leases. The Company has notreceived notice and does not otherwise have knowledge of any pending,threatened or contemplated condemnation proceeding affecting any premisesleased by the Company or any part thereof or of any sale or otherdisposition of any such leased premises or any part thereof in lieu ofcondemnation. The real property leased to the Company under the Company Leasesencompasses all real property used by the Company, and the Company does not ownany real property and does not have any options to purchase real property. Thelandlord under each of the Company Leases has performed all initialimprovements required to be performed by it under such Company Lease and alltenant improvements allowances have been paid to the Company as tenant undersuch Company Lease. All insurance required to be maintained by the Companyunder each of the Company Leases is in full force and effect.

 

(m)          Environmental Matters.

 

(i)            The Company holds andis in compliance in all material respects with all Environmental Permits andthe Company is, and has been, otherwise in compliance with all EnvironmentalLaws in all material respects and, to the knowledge of the Company, there areno conditions that might prevent or interfere with such compliance in thefuture.

 

(ii)           The Company has notreceived any Environmental Claim, and to the knowledge of the Company there isno threatened Environmental Claim.

 

(iii)          The Company has notentered into any consent decree, order or agreement under any EnvironmentalLaw.

 

(iv)          There are no (A) undergroundstorage tanks, (B) polychlorinated biphenyls, (C) friable asbestos orasbestos-containing materials, (D) sumps, (E) surface impoundments, (F) landfillsor (G) sewers or septic systems 

 

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present at any facility currently leased, operated orotherwise used by the Company that could reasonably be expected to give rise toliability of the Company under any Environmental Laws.

 

(v)           There are no past(including, without limitation, with respect to assets or businesses formerlyowned, leased or operated by the Company) or present actions, activities,events, conditions or circumstances, including, without limitation, therelease, threatened release, emission, discharge, generation, treatment,storage or disposal of Hazardous Materials, that could reasonably be expectedto give rise to liability of the Company under any Environmental Laws.

 

(vi)          No modification,revocation, reissuance, alteration, transfer or amendment of the EnvironmentalPermits, or any review by, or approval of, any third party of the EnvironmentalPermits is required in connection with the execution or delivery of thisAgreement or the consummation of the transactions contemplated hereby or thecontinuation of the business of the Company following such consummation.

 

(vii)         Hazardous Materials havenot been generated, transported, treated, stored, disposed of, arranged to bedisposed of, released or threatened to be released at, on, from or under any ofthe properties or facilities currently leased or otherwise used by the Company,in violation of or so as could result in liability under, any EnvironmentalLaws.

 

(viii)        The Company has notcontractually assumed any liabilities or obligations under any EnvironmentalLaws.

 

(n)           Contracts; DebtInstruments.

 

(i)            The Company is not,and has not received any notice and has no knowledge that any other party is,in default in any material respect under any contract, agreement, commitment,arrangement, lease, policy or other instrument to which it is a party or bywhich it is bound; and, to the knowledge of the Company, there has not occurredany event that with the lapse of time or the giving of notice or both wouldconstitute such a default.

 

(ii)           The Company has deliveredto Parent and Merger Sub (x) true, complete and correct copies of all loanor credit agreements, notes, bonds, mortgages, indentures and other agreementsand instruments pursuant to which any Indebtedness of the Company isoutstanding and (y) accurate information regarding the respectiveprincipal amounts currently outstanding thereunder.

 

(iii)          The Company hasdelivered to Parent and Merger Sub true, complete and correct copies of allother contracts, agreements, commitments, arrangements, leases, policies orother instruments that are material to the business of the Company, including,without limitation, any non-compete agreement or any other agreement requiringexpenditures above $25,000.

 

(o)           No Brokers.  No broker,investment banker, financial advisor or other Person (including, withoutlimitation, SCO Capital Partners LLC and/or its affiliates) is entitled to anybroker’s finder’s, financial advisor’s or other similar fee or commission inconnection with the transactions contemplated by this Agreement based uponarrangements made by or on behalf of the Company.

 

(p)           IntellectualProperty.

 

(i)            Section 3.01(p)(i) ofthe Company Disclosure Letter sets forth all Intellectual Property owned by theCompany, which is registered or filed with, or has been submitted to, anyGovernmental Entity, and all Intellectual Property licensed from third partiesby the Company, and the nature of the Company’s rights therein.

 

(ii)           The Company owns or hasthe right to use all Intellectual Property necessary for the Company to conductits business as it is currently conducted and consistent with past practice.

 

(iii)          All of the Intellectual Property used by the Company issubsisting and unexpired, free of all Liens, has not been abandoned and, to theknowledge of the Company, does not infringe the intellectual property rights ofany third party. None of the Intellectual Property to the extent used by theCompany is the subject of any license, security interest or other agreement towhich the Company is a party granting rights therein to any third party. Nojudgment, decree, injunction, rule or order has been rendered by any U.S.federal or state or foreign Governmental Entity which would limit, cancel orquestion the validity of, or the Company’s rights in and to any IntellectualProperty in any material respect. The Company has not received notice of anypending or threatened suit, action or proceeding that seeks to limit, cancel orquestion the validity of, or the Company’s rights in and to any IntellectualProperty. The Company takes reasonable steps to protect, maintain and safeguardits Intellectual Property, including any Intellectual Property for whichimproper or unauthorized disclosure would impair its value or validity, andhave executed appropriate agreements and 

 

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made appropriate filings and registrations inconnection with the foregoing.

 

(q)           Government Licenses; Compliance With FDC Actand Other Regulatory Requirements.

 

(i)            The Company holds all materialauthorizations, consents, approvals, franchises, licenses and permits requiredunder applicable law or regulation for the operation of the business of theCompany as presently operated (the “**Company Permits**”). All the Company Permits have been duly issued or obtained and are in full forceand effect, and the Company is in material compliance with the terms of all theCompany Permits.  The Company has not engaged in any activity that wouldcause revocation or suspension of any such Company Permits.  Neither theexecution, delivery nor performance of this Agreement shall adversely affectthe status of any of the Company Permits.

 

(ii)           Without limiting the generality of therepresentations and warranties made in sub-paragraph (i) above, theCompany represents and warrants that (i) all Pharmaceutical Products thatare subject to the jurisdiction of the United States Food and DrugAdministration (the “**FDA**”) arebeing developed, labelled, stored, tested and distributed directly by theCompany in substantial compliance with all applicable requirements under theFederal Food, Drug and Cosmetic Act of 1938 (the “**FDCA**”),the Public Health Service Act of 1944 (the “**PHSA**”)and all applicable similar state and foreign Legal Requirements, includingthose relating to investigational use, premarket clearance and applications orabbreviated applications to market a new Pharmaceutical Product.  “**Pharmaceutical Products**” shall meanall biological and drug candidates, compounds or products being researched,tested, developed, manufactured or distributed by the Company, (ii) all preclinicalstudies and clinical trials conducted by the Company have been, and are being,conducted in substantial compliance with the requirements of Good LaboratoryPractice and Good Clinical Practice and all requirements relating to protectionof human subjects contained in Title 21, Parts 50, 54, and 56 of the UnitedStates Code of Federal Regulations (“**C.F.R**.”),in each case, to the extent required by applicable law and regulations, (iii) noPharmaceutical Product has been recalled, suspended, or discontinued as aresult of any action by the FDA or any other similar foreign GovernmentalEntity by the Company, or (iv) since December 31, 2005, neither theCompany nor, to the knowledge of the Company, any of its officers, keyemployees or agents has been convicted of any crime or engaged in any conductthat has resulted, or would reasonably be expected to result, in debarmentunder 21 U.S.C. Section 335a or any similar state law or regulationunder 42 U.S.C. Section 1320a-7.

 

(r)            Insurance. The Company maintains insurance policies (each, a “**Company Insurance Policy**”) withreputable insurance carriers against all risks of a character and in suchamounts as are usually insured against by similarly situated companies in thesame or similar businesses. Each Company Insurance Policy is in full force andeffect and is set forth in Section 3.01(q) of the CompanyDisclosure Letter.

 

(s)                                  Disclaimer of Other Representations andWarranties.  Therepresentations and warranties contained in this Section 3.01, andin the Officer’s Certificate and Secretary’s Certificate to be delivered by theCompany under this Agreement, do not contain any untrue statement of materialfact or omit to state any material fact necessary in order to make thestatements and information contained therein not misleading.  Parent andMerger Sub acknowledge and agree that the Company has made no representation orwarranty in connection with this Agreement or the transactions contemplatedhereby other than as set forth in this Section 3.01.

 

3.02        Representations and Warranties of Parent andMerger Sub.  Except asset forth in the disclosure letter (to the extent each disclosure item thereinis clearly marked to indicate the section, paragraph or subparagraph of thisAgreement to which such disclosure is an exception, referencing the samesection, paragraph and subparagraph as used in this Agreement, in each case,except to the extent that any such 

 

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disclosure is reasonablydiscernable to apply to more than one section, paragraph or subparagraph of thisAgreement) delivered by Parent and Merger Sub to Holdings and the Company atthe time of execution of this Agreement (the “**ParentDisclosure Letter**”) or in the Parent SEC Documents filed on orafter January 1, 2007, Parent and Merger Sub represent and warrant toHoldings and the Company as follows:

 

(a)           Organization, Standing and Corporate Power.  Eachof Parent and Merger Sub is duly organized, validly existing and in goodstanding under the laws of the jurisdiction in which it is organized and has therequisite corporate power and authority to carry on its business as now beingconducted.  Each of Parent and Merger Subis duly qualified or licensed to do business and is in good standing in eachjurisdiction (domestic or foreign) in which the nature of its business or theownership or leasing of its properties makes such qualification or licensingnecessary, other than in such jurisdictions where the failure to be soqualified or licensed (individually or in the aggregate) would not have aMaterial Adverse Effect with respect to Parent. Parent has made available to the Company complete and correct copies ofits certificate of incorporation and by-laws and the certificate ofincorporation and by-laws of Merger Sub.

 

(b)           Capital Structure.  Asof the date of this Agreement, the authorized capital stock of Parent consistsof (i) 100,000,000,000 shares of Parent Common Stock and (ii) 2,000,000shares of Parent Preferred Stock.  As ofthe close of business on June 30, 2008, there were: (i) 5,648,781shares of Parent Common Stock issued and outstanding, (ii) 11,666,195shares of Parent Common Stock issuable upon conversion of 3,227.3617 shares ofParent Preferred Stock, (iii) 163 shares of Parent Common Stock held inthe treasury of Parent; (iv) 52,818 shares of Parent Common Stock reservedfor issuance pursuant to Parent’s stock option plans (collectively, the “**Parent Stock Plans**”); (v) 1,293,820shares of Parent Common Stock issuable upon exercise of awarded but unexercisedstock options; and (vi) warrants representing the right to purchase9,461,725 shares of Parent Common Stock; Except as set forth above, as of the close of business on June 30,2008 there were no shares of capital stock or other equity securities of Parentissued, reserved for issuance or outstanding. All outstanding shares of capital stock of Parent are, and all shareswhich may be issued as described above shall be, when issued, duly authorized,validly issued, fully paid and nonassessable and not subject to preemptiverights.  The shares of Parent CommonStock to be issued in connection with the Merger (x) shall, when issued,be duly authorized, validly issued, fully paid and nonassessable and notsubject to preemptive rights, and (y) shall be issued in compliance in allmaterial respects with all applicable federal and state securities laws andapplicable rules and regulations promulgated thereunder.  As of the Effective Time of the Merger, theBoard of Directors of Parent shall have reserved for issuance a number ofshares of Parent Common Stock as is required by the Company Warrants to beassumed by Parent pursuant to Section 2.03.  Except as set forth above and in the RightsAgreement, dated as of October 31, 2001, between Parent and the AmericanStock Transfer & Trust Company, there are no outstanding securities,options, warrants, calls, rights, commitments, agreements, arrangements orundertakings of any kind to which Parent is a party or by which it is boundobligating Parent to issue, deliver or sell, or cause to be issued, deliveredor sold, additional shares of capital stock or other equity or votingsecurities of Parent or obligating Parent to issue, grant, extend, acceleratethe vesting of or enter into any such security, option, warrant, call, right,commitment, agreement, arrangement or undertaking.  There are no outstanding contractualobligations, commitments, understandings or arrangements of Parent torepurchase, redeem or otherwise acquire or make any payment in respect of anyshares of capital stock of Parent.

 

Asof the date hereof, the authorized capital stock of Merger Sub consists of1,000 shares of common stock, par value $0.01 per share, 100 of which have beenvalidly issued, are fully paid and nonassessable and are owned by Parent, freeand clear of any Lien, and as of the Closing Date, all the issued andoutstanding shares of the common stock of Merger Sub shall be owned by Parentfree and clear of any Lien.

 

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(c)                                  Authority; Noncontravention. Parent and Merger Sub have all requisite corporate power and authorityto enter into this Agreement and to consummate the transactions contemplatedhereby.  The execution and delivery ofthis Agreement by Parent and Merger Sub and the consummation by Parent andMerger Sub of the transactions contemplated hereby have been duly authorized byall necessary corporate action on the part of Parent and Merger Sub.  This Agreement has been duly executed anddelivered by each of Parent and Merger Sub, as applicable, and (assuming dueauthorization, execution and delivery by the Company) constitute valid andbinding obligations of Parent and Merger Sub, as applicable, enforceableagainst them in accordance with their terms, subject to the effects ofbankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium andother similar laws affecting creditors’ rights generally, general equitableprinciples (whether considered in a proceeding in equity or at law) and animplied covenant of good faith and fair dealing.  The execution and delivery of this Agreementdoes not, and the consummation by Parent and Merger Sub of the transactionscontemplated by this Agreement and compliance by Merger Sub with the provisionsof this Agreement shall not, conflict with, or result in any breach orviolation of, or default (with or without notice or lapse of time, or both)under, or give rise to a right of termination, cancellation or acceleration of,or a “put” right with respect to any obligation under, or to a loss of amaterial benefit under, or result in the creation of any Lien upon any of theproperties or assets of Parent or Merger Sub under (i) the certificate ofincorporation or by-laws of Parent or Merger Sub, (ii) any loan or creditagreement, note, bond, mortgage, indenture, lease or other agreement,instrument, permit, concession, franchise or license applicable to Parent orMerger Sub or any of their respective properties or assets or (iii) subjectto the governmental filings and other matters referred to in the followingsentence, any judgment, order, decree, statute, law, ordinance, rule,regulation or arbitration award applicable to Parent or Merger Sub or theirrespective properties or assets, other than, in the case of clauses (ii) and(iii), any such conflicts, breaches, violations, defaults, rights, losses orLiens that individually or in the aggregate would not have a Material AdverseEffect with respect to Parent or prevent or materially delay the ability ofParent and Merger Sub to consummate the transactions contemplated by thisAgreement or perform their respective obligations hereunder.  No consent, approval, order or authorizationof, or registration, declaration or filing with, or notice to, any GovernmentalEntity is required by or with respect to Parent or Merger Sub in connectionwith the execution and delivery of this Agreement by Parent and Merger Sub orthe consummation by Parent and Merger Sub of any of the transactionscontemplated hereby, except for (i) such filings, if any, may be requiredunder the HSR Act and the filing of any required applications, if any, byParent and Merger Sub pursuant to antitrust or similar laws in such foreignjurisdictions as necessary, (ii) the filing with the SEC of (A) the Form S-4and (B) such reports under the Exchange Act as may be required inconnection with this Agreement and the transactions contemplated hereby, (iii) thefiling of the Certificate of Merger with the Secretary of State of the State ofDelaware and appropriate documents with the relevant authorities of otherstates in which Parent is qualified to do business, (iv) such otherconsents, approvals, orders, authorizations, registrations, declarations,filings or notices as may be required under the “takeover” or “blue sky” lawsof various states and (v) such other consents, approvals, orders,authorizations, registrations, declarations, filings or notices the failure ofwhich to make or obtain, individually or in the aggregate, could not reasonablybe expected to (x) prevent or materially delay consummation of the Mergeror the other transactions contemplated hereby or performance of Parent’s andMerger Sub’s obligations hereunder or (y) have a Material Adverse Effectwith respect to Parent.

 

(d)                                 Parent SEC Documents; Undisclosed Liabilities. Parent has filed with the SEC all reports, schedules, forms, statementsand other documents required pursuant to the Securities Act and the ExchangeAct since January 1, 2005 (collectively, and in each case including allexhibits and schedules thereto and documents incorporated by reference therein,the “**Parent SEC Documents**”).  As of their respective dates, the Parent SECDocuments (other than the Parent SEC Financial Statements) complied in allmaterial respects with the requirements of the Securities Act or the ExchangeAct, as the case may be, and the rules and regulations of the SEC 

 

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promulgatedthereunder applicable to such Parent SEC Documents.  Except to the extent that informationcontained in any Parent SEC Document has been revised or superseded by a laterfiled Parent SEC Document, none of the Parent SEC Documents (including anyParent SEC Financial Statements included therein) contains any untrue statementof a material fact or omits to state a material fact required to be statedtherein or necessary in order to make the statements therein, in the light ofthe circumstances under which they were made, not misleading.  The consolidated financial statements ofParent included in all Parent SEC Documents filed since January 1, 2005(the “**Parent SEC Financial Statements**”)comply as to form in all material respects with applicable published accountingrequirements and the published rules and regulations of the SEC withrespect thereto, have been prepared in accordance with generally acceptedaccounting principles as applied in the United States (except, in the case ofunaudited consolidated quarterly statements, as permitted by Form 10-Q ofthe SEC), applied on a consistent basis during the periods involved (except asmay be indicated in the notes thereto) and fairly present the consolidatedfinancial position of Parent and its consolidated subsidiaries as of the datesthereof and the consolidated results of their operations and cash flows for theperiods then ended (subject, in the case of unaudited quarterly statements, tonormal recurring year-end audit adjustments). Neither Parent nor any of its Subsidiaries has any liabilities orobligations of any nature (whether accrued, absolute, contingent or otherwise)required by generally accepted accounting principles as applied in the UnitedStates to be recognized or disclosed on a consolidated balance sheet of Parentand its Subsidiaries or in the notes thereto, except (i) liabilitiesreflected in the audited consolidated balance sheet of Parent as of December 31,2006 and (ii) liabilities incurred since December 31, 2006, in theordinary course of business consistent with past practice.

 

(e)                                  Information Supplied.  Noneof the information supplied or to be supplied by Parent or Merger Sub inwriting for inclusion or incorporation by reference in (i) the Form S-4shall, at the time the Form S-4 becomes effective under the SecuritiesAct, contain any untrue statement of a material fact or omit to state anymaterial fact required to be stated therein or necessary to make the statementstherein not misleading or (ii) the Information Statement shall, (A) atthe date it is first mailed to the Company’s stockholders and/or (B) atthe time of the Stockholder Meeting, contain any untrue statement of a materialfact or omit to state any material fact required to be stated therein ornecessary to make the statements therein, in the light of the circumstancesunder which they are made, not misleading. The Form S-4 shall comply as to form in all material respects withthe requirements of the Securities Act and the rules and regulationspromulgated thereunder, except that no representation is made by Parent orMerger Sub with respect to statements made or incorporated by reference thereinbased on information supplied in writing by the Company specifically forinclusion or incorporation by reference therein.

 

(f)                                    Absence of Certain Changes or Events. Since March 31, 2008, there is not and has not been: (i) anyMaterial Adverse Change with respect to Parent; (ii) any condition, eventor occurrence which, individually or in the aggregate, could reasonably beexpected to have a Material Adverse Effect or give rise to a Material AdverseChange with respect to Parent; (iii) any condition, event or occurrencewhich, individually or in the aggregate, could reasonably be expected toprevent or materially delay the ability of Parent and Merger Sub to consummatethe transactions contemplated by this Agreement or perform their respectiveobligations hereunder.

 

(g)                                 Litigation; Compliance with Laws.

 

Except as set forth on Schedule3.02(g) of the Parent Disclosure Schedules, there is no suit, action,claim, charge, arbitration, investigation or proceeding pending before aGovernmental Entity, and, to the knowledge of Parent, no suit, action, claim,charge, arbitration, investigation or proceeding pending, in each case withrespect to Parent or any of its Subsidiaries that, individually or in theaggregate, could reasonably be expected to have a Material Adverse Effect withrespect to Parent or prevent or materially delay the ability of Parent andMerger Sub to 

 

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consummate the transactionscontemplated by this Agreement or to perform their respective obligationshereunder, nor is there any judgment, decree, citation, injunction, rule ororder of any Governmental Entity or arbitrator outstanding against Parent orany of its Subsidiaries which, individually or in the aggregate, couldreasonably be expected to have, a Material Adverse Effect with respect toParent.  The businesses of Parent and itsSubsidiaries are not being conducted in violation of any law (domestic orforeign), ordinance or regulation of any Governmental Entity, except forpossible violations which, individually or in the aggregate, do not and wouldnot have a Material Adverse Effect with respect to Parent.

 

(h)                                 Interim Operations of Merger Sub. Merger Sub was formed on July 10, 2008 solely for the purpose ofengaging in the transactions contemplated hereby, has engaged in no otherbusiness activities and has conducted its operations only as contemplatedhereby.

 

(i)                                     Required Vote.  ThisAgreement has been approved by Parent, as the sole stockholder of Merger Sub.No other vote of holders of any class or series of securities of Parent orMerger Sub is necessary to approve this Agreement, the Merger and thetransactions contemplated hereby.

 

(j)                                     Taxes.  Parent has timely filed allTax Returns required to be filed by it, each such Tax Return has been preparedin compliance with all applicable laws and regulations, and all such TaxReturns are true, accurate and complete in all respects.  Parent has paid all Taxes shown to be due onsuch Tax Returns.  Parent has madeaccruals for Taxes on the Parent SEC Financial Statements that are adequate tocover any Tax liability of Parent determined in accordance with generallyaccepted accounting principles through the date of the applicable Parent SECFinancial Statements, and any Taxes of Parent arising after the date of themost recent Parent SEC Financial Statements and at or before the Effective Timeof the Merger have been or will be incurred in the ordinary course of Parent’sbusiness.  Parent has timely withheld andtimely paid all Taxes that are required to have been withheld and paid by it inconnection with amounts paid or owing to any employee, independent contractor,creditor or other person.  No outstandingdeficiency or adjustment in respect of Taxes has been proposed, asserted orassessed by any Tax authority against Parent. Parent has not granted any outstanding extensions of the time in whichany Tax may be assessed or collected by any Tax authority.  There is no action, suit, proceeding, oraudit with respect to any Tax now in progress, pending or, to the knowledge ofParent, threatened against or with respect to Parent.  Neither Parent nor any of its Subsidiarieshas ever been a member of any affiliated group of corporations (as defined in Section 1504(a) ofthe Code) other than a group of which Parent was the common parent.  Neither Parent nor any of its Subsidiarieshas ever filed or been included in a combined, consolidated or unitary TaxReturn other than with respect to a group of which Parent was the commonparent.  Parent is neither a party to norbound by any Tax sharing agreement or Tax allocation agreement.  Neither Parent nor any of its Subsidiaries ispresently liable, nor does Parent or any of its Subsidiaries have any potentialliability, for the Taxes of another person (i) under Treasury Regulations Section 1.1502-6or comparable provision of state, local or foreign law, except with respect toa group of which Parent was the common parent, (ii) as transferee orsuccessor, or (iii) by contract or indemnity or otherwise (other thanpursuant to contracts entered into with customers, vendors, real propertylessors, or other third parties the principal purpose of which is not toaddress Tax matters).  Parent has not participated, within the meaningof Treasury Regulations Section 1.6011-4(c), in (i) any “reportabletransaction” within the meaning of Section 6011 of the Code and theTreasury Regulations thereunder, (ii) any “confidential corporate taxshelter” within the meaning of Section 6111 of the Code and the TreasuryRegulations thereunder, (iii) any “potentially abusive tax shelter” withinthe meaning of Section 6112 of the Code and the Treasury Regulationsthereunder, or (iv) any transaction identified as a “transaction ofinterest” within the meaning of proposed Treasury Regulations Section 1.6011-4(b)(6).  Parent will not be required, as a result of achange in method of accounting for any period ending on or before or includingthe Effective Time of the Merger, to include any adjustment under Section 481(c) ofthe Code (or any similar or corresponding provision or requirement under anyother Tax law) in 

 

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Taxableincome for any period ending on or after the Effective Time of the Merger.  Parent will not be required to include anyitem of income in Taxable income for any Taxable period (or portion thereof)ending after the Closing Date as a result of any (i) prepaid amountreceived on or prior to the Closing Date, or (ii) “closing agreement”described in Section 7121 of the Code (or any similar or correspondingprovision of any other Tax law).  Parenthas never been either a “distributing corporation” or a “controlled corporation”in connection with a distribution of stock qualifying for Tax-free treatment,in whole or in part, pursuant to Section 355 of the Code.  Parent is not and has not been a UnitedStates real property holding corporation within the meaning of Code Section 897(c)(2),during the applicable period specified in Code Section 897(c)(1)(A)(ii).  For purposes of this Section 3.02(j),references to Parent shall be deemed to include Parent and all of itsSubsidiaries except where the context indicates otherwise.

 

(k)                                  No Brokers.  No broker, investment banker,financial advisor or other Person (including, without limitation, SCO CapitalPartners LLC and its affiliates) is entitled to any broker’s finder’s,financial advisor’s or other similar fee or commission in connection with thetransactions contemplated by this Agreement based upon arrangements made by oron behalf of Parent.  Parent herebyindemnifies the Company and holds the Company harmless from and against any andall claims, liabilities or obligations with respect to any other fee,commission or expense asserted by any Person on the basis of any act orstatement alleged to have been made by Parent or its affiliates.

 

(l)                                     Disclaimer of Other Representations and Warranties.  The representations and warrantiescontained in this Section 3.02, and in the Officer’s Certificateand Secretary’s Certificate to be delivered by the Parent under this Agreement,do not contain any untrue statement of material fact or omit to state anymaterial fact necessary in order to make the statements and informationcontained therein not misleading.  The Company acknowledges and agreesthat the Parent and Merger Sub have made no representation or warranty inconnection with this Agreement or the transactions contemplated hereby otherthan as set forth in this Section 3.02.

 

ARTICLE IV.

 

COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TOMERGER

 

4.01                           Conduct of Business by the Company.

 

(a)          During the period from the date of thisAgreement to the Effective Time (except as otherwise expressly contemplated bythe terms of this Agreement or agreed to in writing by Parent), the Companyshall, and shall cause its Subsidiaries to, act and carry on their respectivebusinesses in the ordinary course of business consistent with past practice anduse its and their respective reasonable best efforts to preserve substantiallyintact their current business organizations, keep available the services oftheir current officers and employees and preserve their relationships withcustomers, supplies, licensors, licensees, advertisers, distributors and othershaving significant business dealings with them. Without limiting the generality of the foregoing, during the period fromthe date of this Agreement to the Effective Time, except as otherwise expresslycontemplated by the terms of this Agreement, the Company Disclosure Schedule oragreed to in writing by Parent, the Company shall not, and shall not permit anyof its Subsidiaries to:

 

(i) (x) declare, set aside or pay any dividends on, or make any otherdistributions in respect of, any of its capital stock, other than dividends anddistributions by a direct or indirect wholly-owned domestic Subsidiary of theCompany to its parent, (y) split, combine or reclassify any capital stockof the Company or any Subsidiary or issue or authorize the issuance of anyother securities in respect of, in lieu of or in substitution for shares ofcapital stock of the Company or any Subsidiary, or (z) purchase, redeem or

 

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otherwiseacquire any shares of capital stock of the Company or any of its Subsidiariesor any other securities thereof or any rights, warrants or options to acquireany such shares or other securities;

 

(ii) authorize for issuance, issue, deliver, sell, pledge or otherwise encumber anysuch shares of its capital stock or the capital stock of any of itsSubsidiaries, any other voting securities or any securities convertible into,or any rights, warrants or options to acquire, any shares, voting securities orconvertible securities or any other securities or equity equivalents(including, without limitation, stock appreciation rights), other than theissuance of Company Common Stock upon (a) the exercise of Company StockOptions awarded but unexercised on the date of this Agreement in accordancewith their present terms, or (b) the conversion of the Company Warrantsawarded but unexercised on the date of this Agreement in accordance with theirpresent terms;

 

(iii) amend the Certificate of Incorporation, By-laws or other comparable charter ororganizational documents of the Company or any Subsidiary;

 

(iv) acquireor agree to acquire by merging or consolidating with, or by purchasing asubstantial portion of the stock or assets of, or by any other manner, any businessor any corporation, partnership, joint venture, association or other businessorganization or division thereof;

 

(v) sell,lease, license, mortgage or otherwise encumber or subject to any Lien orotherwise dispose of any of its properties or assets, except sales of inventoryand receivables in the ordinary course of business consistent with pastpractice;

 

(vi) (A) incur any Indebtedness or guarantee any Indebtedness of another Personor amend, terminate or seek a waiver with respect to any existing agreement ofthe Company evidencing Indebtedness of the Company, issue or sell any debtsecurities or warrants or other rights to acquire any debt securities of theCompany or any of its Subsidiaries, guarantee any debt securities of anotherPerson, enter into any “keep well” or other agreement to maintain any financialstatement condition of another Person or enter to any arrangement having theeconomic effect of any of the foregoing, except for intercompany Indebtednessbetween the Company and its wholly-owned Subsidiaries or between suchwholly-owned Subsidiaries, or (B) make any loans, advances or capitalcontributions to, or investments in, any other Person;

 

(vii) acquire or agree to acquire any assets, other than inventory in the ordinarycourse of business consistent with past practice, or make or agree to make anycapital expenditures;

 

(viii) pay, discharge or satisfy any claims (including claims of stockholders),liabilities or obligations (absolute, accrued, asserted or unasserted,contingent or otherwise), except for the payment, discharge or satisfaction of (x) liabilitiesor obligations in the ordinary course of business consistent with past practiceor in accordance with their terms as in effect on the date hereof or (y) claimssettled or compromised to the extent permitted by Section 4.01(a)(xii),or, except as set forth in the Company Disclosure Letter, waive, release,grant, or transfer any rights of material value or modify or change in anymaterial respect any existing material license, lease, contract or otherdocument;

 

(ix) adopt a plan of complete or partial liquidation or resolutions providing for orauthorizing such a liquidation or a dissolution, merger, consolidation,restructuring, recapitalization or reorganization;

 

(x) enter into or amend any collective bargaining agreement;

 

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(xi)change any material accounting principle used by it, except as required bygenerally accepted accounting principles as applied in the United States;

 

(xii)  settle or compromise any litigation (whetheror not commenced prior to the date of this Agreement);

 

(xiii)engage in any transaction with, or enter into any agreement, arrangement, orunderstanding with, directly or indirectly, any of the Company’s affiliates(other than Subsidiaries of the Company);

 

(xiv)  transfer to any Person any rights to itsIntellectual Property;

 

(xv)  enter into or amend any agreement pursuant towhich any other party is granted exclusive marketing or other exclusive rightsof any type or scope with respect to any of its products or technology;

 

(xvi)  make any material Tax election or settle orcompromise any material federal, state, local or foreign Tax liability; or

 

(xvii)  authorize, or commit or agree to take, any ofthe foregoing actions.

 

(b)                           Changes in Employment Arrangements. Except as otherwise agreed to in writing by Parent, neither the Companynor any of its Subsidiaries shall adopt or amend (except as may be required bylaw) any bonus, profit sharing, compensation, stock option, pension,retirement, deferred compensation, employment or other employment benefit plan,agreement, trust, fund or other arrangement for the benefit or welfare of anyemployee, director or former director or employee or increase the compensationor fringe benefits of any director, employee or former director or employee orpay any benefit not required by any existing plan, arrangement or agreement.

 

(c)                            Severance.  Except as setforth in Section 3.01(i)(ii) and/or 3.01(j)(vi) or (x) ofthe Company Disclosure Schedule, neither the Company nor any of itsSubsidiaries shall grant any new or modified severance or terminationarrangement or increase or accelerate any benefits payable under its severanceor termination pay policies in effect on the date hereof.

 

(d)                           WARN.  Neither theCompany nor any of its Subsidiaries shall effectuate a “plant closing” or “masslayoff,” as those terms are defined in WARN, affecting in whole or in part anysite of employment, facility, operating unit or employee of the Company or anySubsidiary, without notifying Parent in advance and without complying with thenotice requirements and other provisions of WARN and any similar state or locallaw.

 

(e)                            Tax Free Reorganization Treatment. The Company and Parent shall not, and shall not permit any of their respectiveSubsidiaries to, intentionally take or cause to be taken any action nototherwise consistent with the transactions contemplated by this Agreement whichcould reasonably be expected to prevent the Merger from qualifying as a “reorganization”within the meaning of Section 368(a) of the Code.

 

(f)                              Other Actions. Neither the Company nor Parent shall, or shall permit any of itsSubsidiaries to, intentionally take any action that could reasonably beexpected to result in any of its representations and warranties set forth inthis Agreement being or becoming untrue in any material respect, or in any ofthe conditions to the Merger set forth in Article VI not being satisfied;provided that the Company and its Board of Directors shall not be required totake or be prohibited from taking any action to the extent that such action isnot required to be taken or is permitted, as applicable, pursuant to Section 5.06of this Agreement.  The Company andParent shall promptly advise the other party orally and in writing of (i) anyrepresentation or warranty becoming untrue, (ii) the failure by such partyto comply with any covenant, condition or agreement hereunder and (iii) anyevent which could reasonably be expected to cause the 

 

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conditions set forth in Article VI not beingsatisfied; provided, however, that no such notice shall affect therepresentations, warranties, covenants and agreement of the parties or theconditions to their obligations hereunder.

 

ARTICLE V.

 

ADDITIONALAGREEMENTS

 

5.01                           Preparation of Form S-4 and InformationStatement; Company Financial Statements.

 

(a)          As soon as practicable following the date of this Agreement, Parent andthe Company shall prepare the Information Statement and the Form S-4, andParent shall file with the SEC the Form S-4, in which the InformationStatement shall be included. Each party shall notify the other party promptlyupon the receipt of any comments from the SEC or its staff and of any requestby the SEC or its staff or any government officials for amendments or supplementsto the Form S-4 or the Information Statement, or for any other filing orfor additional information and shall supply the other party with copies of allcorrespondence between such party or any of its representatives, on the onehand, and the SEC, or its staff or any other government officials, on the otherhand, with respect to the Form S-4, the Information Statement, the Mergeror any other filing.  Parent and theCompany shall each use its reasonable best efforts to have the Form S-4declared effective under the Securities Act as promptly as practicable aftersuch filing.  The Company shall use itsreasonable best efforts to cause the Information Statement to be mailed to theCompany’s stockholders as promptly as practicable after the Form S-4 isdeclared effective under the Securities Act. Parent shall also take any action (other than qualifying to do businessin any state in which it is not now so qualified or filing a general consent toservice of process) required to be taken under any applicable state securitieslaws in connection with the registration and qualification of the Parent CommonStock to be issued in the Merger, and the Company shall furnish all informationrelating to the Company and its stockholders as may be reasonably requested inconnection with any such action.

 

(b)         The Company’s Board of Directors may withdraw or modify suchrecommendation if the Board of Directors of the Company shall have concluded ingood faith on the basis of advice from outside counsel that such action isrequired in order to satisfy its fiduciary duties to the stockholders of theCompany under applicable law.  Any suchrecommendation shall be included in the Information Statement.

 

(c)          The Company shall use its reasonable best efforts to promptly (i) prepareall financial statements of the Company required for the Parent to timely filewith the SEC the financial statements required under Items 2.01 and 9.01 of Form 8-Kincluding, without limitation, the Company Financial Statements in compliancewith Regulation S-X promulgated under the Securities Act and (ii) obtainthe consent of Vitale, Caturano & Company, Ltd. and any other requiredconsents of accountants to use their opinion with respect to the CompanyFinancial Statements in any SEC filings that may be necessary inconnection with the transactions contemplated by this Agreement.

 

5.02                           Access to Information; Confidentiality.

 

Each of the Company andParent shall, and shall cause its officers, employees, counsel, financialadvisors and other representatives to afford to the other party and itsrepresentatives reasonable access during normal business hours, during theperiod prior to the Effective Time to its properties, books, contracts,commitments, personnel and records, and, during such period, each of theCompany and Parent shall, and shall cause its officers, employees andrepresentatives to furnish promptly to the other documents filed by it duringsuch period pursuant to the requirements of federal or state securities lawsand (ii) all other information concerning its business, properties,financial condition, operations and personnel as such other party may fromtime to time reasonably request. Each of the Company and 

 

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Parent shall hold, and shallcause its respective directors, officers, employees, accountants, counsel,financial advisors and other representatives and Affiliates to hold, anynonpublic information in confidence to the extent required by, and inaccordance with, the provisions of the confidentiality agreement between Parentand the Company (the “**Confidentiality Agreement**”).No investigation pursuant to this Section 5.02 shall affect anyrepresentations or warranties of the parties herein or the conditions to theobligations of the parties hereto.

 

5.03                           Reasonable Best Efforts. Upon the terms and subject to theconditions set forth in this Agreement, each of the parties agrees to use itsreasonable best efforts to take, or cause to be taken, all actions, and to do,or cause to be done, and to assist and cooperate with the other parties indoing, all things necessary, proper or advisable under applicable laws andregulations to consummate and make effective, in the most expeditious mannerpracticable, the Merger and the other transactions contemplated by thisAgreement, including (i) obtaining all consents, approvals, waivers,licenses, permits or authorizations as are required to be obtained (or, whichif not obtained, would result in an event of default, termination oracceleration of any agreement or any put right under any agreement) under anyapplicable law or regulation or from any Governmental Entities or third partiesin connection with the transactions contemplated by this Agreement, (ii) defendingany lawsuits or other proceedings challenging this Agreement, (iii) acceptingand delivering additional instruments necessary to consummate the transactioncontemplated by this Agreement, and (iv) satisfying the conditions toclosing set forth under Article V hereof.

 

5.04                           Indemnification of Company Directors andOfficers.

 

(a)                                  From and after the Effective Time, Parent andthe Surviving Corporation shall jointly and severally indemnify, defend andhold harmless each person who is now, or has been at any time prior to the datehereof or who becomes prior to the Effective Time eligible for indemnificationpursuant to the Company Certificate and Company By-laws (or comparableorganizational documents) of the Company or any agreement of indemnificationwith the Company, in each case as the same existed on the date of thisAgreement (the “**Indemnified Parties**”)against (i) all losses, claims, fines, damages, costs, expenses(including, without limitation, reasonable attorneys’ fees), liabilities orjudgments, or amounts that are paid in settlement of or in connection with anyclaim, action, suit, proceeding or investigation (whether civil, criminal oradministrative) based in whole or in part on or arising in whole or inpart out of the fact that such person is or was a director, officer oremployee of the Company, pertaining to any matter existing or occurring at orprior to the Effective Time, whether asserted or claimed prior to, or at orafter, the Effective Time (“**Indemnified Liabilities**”)and (ii) all Indemnified Liabilities based in whole or in part on, orarising in whole or in part out of, or pertaining to this Agreement or thetransaction contemplated hereby, in each case to the extent the Company wouldhave been permitted under the Company Certificate and Company By-laws (orcomparable organizational documents) or any agreement of indemnification withthe Company to indemnify such person, in each case as the same existed on thedate of this Agreement. In the event any such claim, action, suit, proceedingor investigation is brought against any Indemnified Parties (whether arising beforeor after the Effective Time), (i) any counsel retained by the IndemnifiedParties for any period after the Effective Time shall be reasonablysatisfactory to Parent; (ii) after the Effective Time, Parent or theSurviving Corporation shall pay all reasonable fees and expenses of suchcounsel for the Indemnified Parties promptly as statements therefor arereceived; and (iii) after the Effective Time, Parent and the SurvivingCorporation shall cooperate in the defense of any such matter, provided thatneither Parent nor the Surviving Corporation shall be liable for any settlementof any claim effected without its written consent, which consent shall not beunreasonably withheld. Any Indemnified Party wishing to claim indemnificationunder this Section 5.04, upon learning of any such claim, action,suit, proceeding or investigation, shall notify Parent and the SurvivingCorporation (but the failure so to notify Parent and the Surviving Corporationshall not relieve either from any liability which it may have under this Section 5.04except to the extent such failure prejudices Parent and the SurvivingCorporation). Parent and the 

 

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Surviving Corporation shallbe liable for the fees and expenses hereunder with respect to only one law firmto represent the Indemnified Parties as a group with respect to each suchmatter unless there is, under applicable standards of professional conduct, aconflict between the positions of any two or more Indemnified Parties thatwould preclude or render inadvisable joint or multiple representation of suchparties.

 

(b)                                 If Parent or the Surviving Corporation or anyof their respective successors or assigns (i) shall consolidate with ormerge into any other corporation or entity and shall not be the continuing orsurviving corporation or entity of such consolidation or merger or (ii) shalltransfer all or substantially all of its properties and assets to anyindividual, corporation or other entity, then, and in each such case, properprovisions shall be made so that the successors and assigns of Parent or theSurviving Corporation shall assume all of the obligations set forth in this Section 5.04.

 

(c)                                  The provisions of this Section 5.04are intended to be for the benefit of, and shall be enforceable by, each of theIndemnified Parties.

 

(d)                                 The rights of the Indemnified Parties underthis Section 5.04 shall be in addition to any rights suchIndemnified Parties may have under the Company Certificate or CompanyBy-laws, or under any applicable contracts or laws.

 

(e)                                  No Circular Recovery. The obligations of the Parent and theSurviving Corporation in this Section 5.04 are subject to thecondition that each Indemnified Party will not make any claim forindemnification against the Parent, the Surviving Corporation or the Company byreason of the fact that such Indemnified Party was a controlling person,director, employee or representative of the Company or the SurvivingCorporation or was serving as such for another Person at the request of theCompany (whether such claim is for losses of any kind or otherwise and whethersuch claim is pursuant to any statute, organizational document, contractualobligation or otherwise) with respect to any claim brought by the Parent or itsaffiliates relating to this Agreement that is finally and successfullyadjudicated against such Indemnified Party. With respect to any claim broughtby the Parent or its affiliates against any Indemnified Party relating to thisAgreement that is finally and successfully adjudicated against such IndemnifiedParty, the obligations of the Parent and the Surviving Corporation in this Section 5.04are subject to the condition that any right of subrogation, contribution,advancement, indemnification or other claim against the Company with respect toany amounts owed by any Indemnified Party shall not be applicable.

 

5.05                           Public Announcements. Neither Parent and Merger Sub, on the onehand, nor the Company, on the other hand, shall issue any press release orpublic statement with respect to the transactions contemplated by thisAgreement, including the Merger, without the other party’s prior consent (suchconsent not to be unreasonably withheld or delayed), except as may berequired by applicable law, court process or by obligations pursuant to anyagreement with any securities exchange or quotation system on which securitiesof the disclosing party are listed or quoted. In addition to the foregoing,Parent, Merger Sub and the Company shall consult with each other beforeissuing, and provide each other the opportunity to review and comment upon, anysuch press release or other public statements with respect to suchtransactions. The parties agree that the initial press release or releases tobe issued with respect to the transactions contemplated by this Agreement shallbe mutually agreed upon prior to the issuance thereof.

 

5.06                           No Solicitation.  TheCompany shall not (whether directly or indirectly through advisors, agents orother intermediaries), nor shall the Company authorize or permit any of its ortheir officers, directors, agents, representatives or advisors to, (a) solicit,initiate or take any action knowingly to facilitate the submission ofinquiries, proposals or offers from any Person (other than Merger Sub orParent) relating to (i) any acquisition or purchase of 33.33% or more ofthe assets of the Company or of over 33.33% of any class of equity securitiesof the Company, (ii) any tender offer (including a self tender offer) or 

 

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exchange offer that ifconsummated would result in any Person beneficially owning 33.33% or more ofany class of equity securities of the Company, (iii) any merger,consolidation, business combination, sale of substantially all assets,recapitalization, liquidation, dissolution or similar transaction involving theCompany whose assets, individually or in the aggregate, constitute more than33.33% of the consolidated assets of the Company other than the transactionscontemplated by this Agreement, or (iv) any other transaction theconsummation of which would or could reasonably be expected to impede,interfere with, prevent or materially delay the Merger (collectively, “TransactionProposals”), or agree to or endorse any Transaction Proposal, or (b) enterinto or participate in any discussions or negotiations regarding any of theforgoing, or furnish to any other Person any information with respect to itsbusiness, properties or assets or any of the foregoing, or otherwise cooperatein any way with, or knowingly assist or participate in, facilitate orencourage, any effort or attempt by any other Person (other than Merger Sub orParent) to do or seek any of the foregoing; provided, however, that theforegoing shall not prohibit the Company (either directly or indirectly throughadvisors, agents or other intermediaries) from (i) furnishing informationpursuant to an appropriate confidentiality letter (which letter shall not beless favorable to the Company in any material respect than the ConfidentialityAgreement, a copy of which shall be provided for informational purposes only toParent) concerning the Company and its businesses, properties or assets to athird party who has made a bona fide Transaction Proposal, (ii) engagingin discussions or negotiations with such a third party who has made a bona fideTransaction Proposal, (iii) following receipt of a bona fide TransactionProposal, taking and disclosing to its stockholders a position contemplated by Rule 14d-9or Rule 14e-2(a) under the Exchange Act or otherwise makingdisclosure to its stockholders, (iv) following receipt of a bona fide TransactionProposal, failing to make or withdrawing or modifying its recommendationreferred to in Section 3.01, and/or (v) taking any actionrequired to be taken by the Company pursuant to a non-appealable, final orderby any court of competent jurisdiction, but in each case referred to in theforegoing clauses (i) through (iv) only to the extent that the Boardof Directors of the Company shall have concluded in good faith on the basis ofadvice from outside counsel that such action is required in order to satisfyits fiduciary duties to the stockholders of the Company under applicable law;provided, further, that the Board of Directors of the Company shall not takeany of the foregoing actions referred to in clauses (i) through (iv) untilafter prompt advance notice to Parent (which notice shall in no event be givenless than two (2) business day prior to furnishing such information orentering into such discussions) with respect to such action and that such Boardof Directors shall, to the extent consistent with its fiduciary duties,continue to advise Parent after taking such action and, in addition, if suchBoard of Directors receives a Transaction Proposal, then the Company shallpromptly inform Parent of the terms and conditions of such proposal and the identityof the Person making it. The Company shall immediately cease and cause itsadvisors, agents and other intermediaries to cease any and all existingactivities, discussions or negotiations with any parties conducted heretoforewith respect to any of the foregoing, and shall use its reasonable best effortsto cause any such parties in possession of confidential information about theCompany that was furnished by or on behalf of the Company to return or destroyall such information in the possession of any such party or in the possessionof any agent or advisor of any such party.

 

5.06                           Shareholder Rights Plan. The Parent shall take all action necessaryto render the Shareholder Rights Plan inapplicable to the execution, deliveryand performance of this Agreement and the transactions contemplated hereby.

 

5.07                           Tax Free Reorganization Treatment. The Company, Parent and Merger Sub shallnot intentionally take or cause to be taken any action not consistent with thetransactions contemplated by this Agreement or which could reasonably beexpected to prevent the Merger from qualifying as a “reorganization” within themeaning of Section 368(a) of the Code.

 

5.08                           Termination of Company Plans.  Effective nolater than the day immediately preceding the Closing Date but contingent uponthe Closing, the Company shall terminate any and all Company Plans intended toinclude a Code Section 401(k) arrangement (collectively, the “**Terminated Company Plans**”).  The Company shall provide Parent withevidence that such Terminated Company Plan(s) have been 

 

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terminated (effective no later than the dayimmediately preceding the Closing Date) in accordance with each such TerminatedCompany Plan’s respective terms.  TheCompany also shall take such other actions in furtherance of terminating suchTerminated Company Plan(s) as Parent may reasonably require.

 

ARTICLE VI.

 

CONDITIONS PRECEDENT

 

6.01                           Conditions to each Party’s Obligation toEffect the Merger. Therespective obligation of each party to effect the Merger is subject to thesatisfaction or waiver on or prior to the Closing Date of the followingconditions:

 

(a)                                  No Injunctions or Restraints. No temporary restraining order, preliminaryor permanent injunction or other order issued by any court of competentjurisdiction or other legal restraint or prohibition preventing theconsummation of the Merger shall be in effect; provided, however, that theparties hereto shall use their reasonable best efforts to have any suchinjunction, order, restraint or prohibition vacated;

 

(b)                                 Governmental Approvals. Other than the filing of the DelawareCertificate of Merger, all authorizations, consents, orders or approvals of, ordeclarations or filings with, or expirations of waiting periods imposed by, anyGovernmental Entity in connection with the Merger and the consummation of theother transactions contemplated by this Agreement, the failure of which tofile, obtain or occur is reasonably likely to have a Material Adverse Effectwith respect to Parent or a Material Adverse Effect with respect to theCompany, shall have been filed, been obtained or occurred on terms andconditions which would not reasonably be likely to have a Material AdverseEffect with respect to Parent or a Material Adverse Effect with respect to theCompany;

 

(c)                                  Form S-4.  The Form S-4shall have become effective under the Securities Act and shall not be thesubject of any stop order or proceedings seeking a stop order, and any material“blue sky” and other state securities laws applicable to the registration andqualification of Parent Common Stock issuable or required to be reserved forissuance pursuant to this Agreement shall have been complied with;

 

(d)         Information Statement.  Nostop order suspending the use of the Information Statement shall have beenissued and no proceeding for that purpose shall have been initiated orthreatened in writing by the SEC or its staff;

 

(e)                                  Flow of Funds Memorandum. Parent and the Company shall have executed and delivered a mutuallyagreeable Flow of Funds Memorandum setting forth certain payments to be made byParent concurrently with the Closing (the “**Flow of Funds Memorandum**”);

 

(f)                                    Stockholder Approval. The Merger and this Agreement shall have been approved and adopted bythe requisite vote of the holders of shares of Company Common Stock to theextent required pursuant to the requirements of the certificate ofincorporation and the DGCL;

 

6.02                           Conditionsto Obligations of Parent and Merger Sub. The obligations of Parent andMerger Sub to effect the Merger are further subject to the followingconditions:

 

(a)                                  Representationsand Warranties. The representations and warranties of the Company containedin this Agreement shall be true and correct in all material respects on and asof the Closing Date, with the same force and effect as if made on and as of theClosing Date, except for (i) changes contemplated by this Agreement or inthe Company Disclosure Letter, (ii) representations and warranties thatare qualified by materiality or Material Adverse Effect, in which case suchrepresentations and warranties shall be true and correct in all respects, and (iii) representations

 

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and warranties which address matters only as of aparticular date, in which case such representations and warranties qualified asto materiality or Material Adverse Effect shall be true and correct in allrespects, and those not so qualified shall be true and correct in all materialrespects, on and as of such particular date; and Parent shall have received acertificate to such effect signed by the president of the Company.

 

(b)                                 Performance of Obligations of theCompany. The Company shall have performed in all material respects allobligations required to be performed by it under this Agreement at or prior tothe Closing Date. Parent shall have received a certificate dated as of theClosing Date signed on behalf of the Company by the president of the Company tothe effect set forth in this paragraph.

 

(c)                                  Consents, Etc.  Parent and Merger Sub shall havereceived evidence, in form and substance reasonably satisfactory to Parent,that such licenses, permits, consents, approvals, authorizations,qualifications and orders of governmental authorities and other third partiesas are necessary in connection with the transactions contemplated hereby havebeen obtained, except where the failure to obtain such licenses, permits,consents, approvals, authorizations, qualifications and orders would not,individually or in the aggregate with all other failures, have a MaterialAdverse Effect with respect to the Company.

 

(d)                                 No Litigation.  There shall not be pending by anyGovernmental Entity or any other Person or solely with respect to anyGovernmental Entity, threatened by any suit, action or proceeding, (i) challengingor seeking to restrain or prohibit the consummation of the Merger or any of theother transactions contemplated by this Agreement or seeking to obtain from anyparty hereto or any of their Affiliates any damages that are material inrelation to the Company; (ii) seeking to prohibit or limit the ownershipor operation by the Company of any material portion of the business or assetsof the Company or to dispose of or hold separate any material portion of thebusiness or assets of the Company, as a result of the Merger or any of theother transactions contemplated by this Agreement; (iii) seeking to imposelimitations on the ability of Parent to acquire or hold, or exercise fullrights of ownership of, any shares of the common stock of the SurvivingCorporation, including, without limitation, the right to vote such common stockon all matters properly presented to the stockholders of the SurvivingCorporation; or seeking to prohibit Parent or any of its Subsidiaries fromeffectively controlling in any material respect the business or operations ofthe Company.

 

(e)                                  Termination of Company Options and certain CompanyWarrants. The Company shall have complied with the requirements of the 1994 EquityIncentive Plan and the 2001 Incentive Plan (together, the “**CompanyOption Plans**”) in connection with offering holders of theCompany Options and Company Warrants (other than the In the Money CompanyWarrants) the opportunity to exercise all such Company Options and CompanyWarrants held by such holder prior to the Effective Time.  At the Effective Time, all outstanding CompanyOptions and Company Warrants not exercised (other than the In the Money CompanyWarrants) shall be terminated and each such holder shall have no further rightsthereunder to purchase shares of Company Common Stock.  At the Effective Time, the In the MoneyCompany Warrants shall automatically convert into the right to receive MergerConsideration as provided in Article II above.

 

(f)                                    Directors and Officers. As of the Effective Time:

 

(i)                                     Consulting and Transition Agreement. Parent and the Company’s President &Chief Business Officer shall have mutually agreed on terms to discharge theCompany’s obligations and agree upon the terms of that certain Consulting andTransition Agreement, in the form attached as **Exhibit A**hereto; and

 

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(g)                                 NoMaterial Adverse Effect. Since the date of this Agreement, there shall nothave occurred any Material Adverse Effect or Material Adverse Change withrespect to the Company.

 

(h)                                 Dissenters’ Rights.  Any applicable period during which stockholders of the Company havethe right to exercise appraisal, dissenters’ or other similar rights under Section 262of the DGCL or other applicable law shall have expired and stockholders of theCompany holding in the aggregate more than five percent (5%) of the outstandingshares of Company Common Stock shall not have exercised appraisal, dissenters’or similar rights under Section 262 of the DGCL or other applicable lawwith respect to such shares by virtue of the Merger.

 

(i)                                     Resignation of Directors and Officers. Except as set forth in Sections 1.06 and 1.07, the directors andofficers of the Company, in office immediately prior to the Effective Timeshall have resigned as directors and officers of the Surviving Corporationeffective as of the Effective Time.

 

(f)                                    FIRPTA Certificate.  TheCompany shall have delivered a properly executed statement, dated as of theClosing Date, in a form reasonably acceptable to Parent, conforming to therequirements of Treasury Regulations Section 1.1445-2(c)(3).

 

6.03                           Conditions to Obligations of the Company.  The obligation of the Company toeffect the Merger is further subject to the following conditions:

 

(a)                                  Representations and Warranties.  The representations and warranties ofthe Parent and Merger Sub contained in this Agreement shall be true and correctin all material respects on and as of the Closing Date, with the same force andeffect as if made on and as of the Closing Date, except for (i) changescontemplated by this Agreement or in the Parent Disclosure Letter, (ii) representationsand warranties that are qualified by materiality or Material Adverse Effect, inwhich case such representations and warranties shall be true and correct in allrespects, and (iii) representations and warranties which address mattersonly as of a particular date, in which case such representations and warrantiesqualified as to materiality or Material Adverse Effect shall be true andcorrect in all respects, and those not so qualified shall be true and correctin all material respects, on and as of such particular date; and the Companyshall have received a certificate to such effect signed by an authorizedofficer of Parent and Merger Sub.

 

(b)                                 Performance of Obligations of Parent andMerger Sub.  Parent andMerger Sub shall have performed in all material respects all obligationsrequired to be performed by each of them under this Agreement at or prior tothe Closing Date. Holdings and the Company shall have received a certificatedated as of the Closing Date signed on behalf of Parent and Merger Sub by anauthorized officer of Parent and Merger Sub to the effect set forth in thisparagraph.

 

(c)                                  No Litigation. There shall not be pending by anyGovernmental Entity or any other Person or solely with respect to anyGovernmental Entity, threatened by any suit, action or proceeding, challengingor seeking to restrain or prohibit the consummation of the Merger or any of theother transactions contemplated by this Agreement.

 

(d)                                 Parent Consents, Etc. The Company shall have received evidence,in form and substance reasonably satisfactory to the Company, that suchlicenses, permits, consents, approvals, authorizations, qualifications andorders of governmental authorities and other third parties as are necessary inconnection with the transactions contemplated hereby have been obtained, exceptwhere the failure to obtain such licenses, permits, consents, approvals,authorizations, qualifications and orders would not, individually or in theaggregate with all other failures, have a Material Adverse Effect with respectto the Parent.

 

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ARTICLE VII.

 

TERMINATION, AMENDMENT,AND WAIVER

 

7.01         Termination.  This Agreement may beterminated and abandoned at any time prior to the Effective Time:

 

(a)         by mutual written consent of Parent and the Company;

 

(b)         by either Parent or the Company if any GovernmentalEntity shall have issued an order, decree, or ruling or taken any other actionpermanently enjoining, restraining, or otherwise prohibiting the Merger andsuch order, decree, ruling, or other action shall have become final andnonappealable;

 

(c)         by either Parent or the Company if the Merger shallnot have been consummated on or before October 31, 2008 (other than due tothe failure of the party seeking to terminate this Agreement to perform in anymaterial respect its obligations under this Agreement required to be performedat or prior to the Effective Time);

 

(d)         by either Parent or the Company if the CompanyStockholder Approval shall not have been obtained;

 

(e)   by Parent, if the Company or its Board ofDirectors shall have (1) failed to approve, withdrawn, modified, oramended in any respect adverse to Parent its approval or recommendation of thisAgreement or any of the transactions contemplated herein; (2) failed aspromptly as reasonably practicable after the Form S-4 is declared effectiveto mail the Information Statement to its stockholders or failed to include insuch statement such recommendation; (3) recommended any TransactionProposal from a Person other than Parent or any of its affiliates; (4) resolvedto do any of the foregoing; or (5) in response to the commencement of anytender offer or exchange offer for more than 10% of the outstanding shares ofCompany Common Stock, not recommended rejection of such tender offer orexchange offer at the time of filing of the requisite Schedule 14d-9 with theSEC;

 

(f)    by the Company, if the Company hasreceived a Superior Proposal, which the Company’s Board of Directors determinesin good faith (after consultation with its financial advisors) continues toconstitute a Superior Proposal.  Forpurposes of this Agreement, a “Superior Proposal” is an Acquisition Proposalfor 100% of the Company Common Stock that involves consideration to the holdersof shares of Company Common Stock that is superior to the consideration offeredto such holders pursuant to the Merger and that otherwise represents a superiortransaction to the Merger in the reasonable discretion of the Company’s Boardof Directors;

 

(g)   by Parent, upon a breach of anyrepresentation, warranty, covenant or agreement on the part of the Company setforth in this Agreement, or if any representation or warranty of the Companyshall have become untrue, in either case such that the conditions set forth in Section 6.02(a) orSection 6.02(b) (other than with respect to the delivery ofthe officers’ certificates required thereunder) would not be satisfied at thetime of such breach or as of the time such representation or warranty shallhave become untrue; provided that if such inaccuracy in the Company’srepresentations and warranties or breach by the Company is curable by theCompany through the exercise of its commercially reasonable efforts within ten (10) businessdays of the time such representation or warranty shall have become untrue orsuch breach, Parent may not terminate this Agreement under this Section 6.01(g) duringsuch ten-day period, provided Company continues to exercise such commerciallyreasonable efforts; or

 

(h)   by the Company, upon a breach of anyrepresentation, warranty, covenant or agreement on the part of Parent or MergerSub set forth in this Agreement, or if any representation or warranty of Parentshall have become untrue, in either case such that the conditions set forth in Section 6.03(a) orSection 6.03(b) (other than with respect to the delivery ofthe officers’ certificates required thereunder) would not be satisfied at thetime of such breach or as of the time such representation or warranty shallhave become untrue; provided that if such inaccuracy in Parent’srepresentations and 

 

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warrantiesor breach by Parent is curable by Parent through the exercise of itscommercially reasonable efforts within ten (10) business days of the timesuch representation or warranty shall have become untrue or such breach, theCompany may not terminate this Agreement under this Section 6.01(h) duringsuch ten-day period provided Parent continues to exercise such commerciallyreasonable effort.

 

7.02         Effect of Termination.  Inthe event of termination of this Agreement by either the Company or Parent asprovided in Section 7.01, this Agreement shall forthwith becomevoid and have no effect, without any liability or obligation on the part ofParent, Merger Sub, or the Company, provided that (a) any such terminationshall not relieve a party from liability for any willful breach of thisAgreement and (b) the last sentence of Section 4.02(a), this Section 7.02,Section 8.07 and the Confidentiality Agreement shall remain in fullforce and effect and survive any such termination. Nothing contained in thisparagraph shall relieve any party for any breach of the covenants or agreementsset forth in this Agreement or the Confidentiality Agreement.

 

7.03         Amendment.  This Agreement may be amendedby the parties at any time before or after any required approval of matterspresented in connection with the Merger by the stockholders of the Company;provided, however, that after any such approval, there shall be made noamendment that by law requires further approval by such stockholders withoutthe further approval of such stockholders. This Agreement may not be amendedexcept by an instrument in writing signed on behalf of each of the parties.

 

7.04         Extension; Waiver.  Atany time prior to the Effective Time, the parties may (a) extend the timefor the performance of any of the obligations or other acts of the otherparties; (b) waive any inaccuracies in the representations and warrantiescontained in this Agreement or in any document delivered pursuant to thisAgreement; or (c) subject to the provisions of Section 7.03,waive compliance with any of the agreements or conditions contained in thisAgreement. Any agreement on the part of a party to any such extension or waivershall be valid only if set forth in an instrument in writing signed on behalfof such party. The failure of any party to this Agreement to assert any of itsrights under this Agreement or otherwise shall not constitute a waiver of suchrights.

 

7.05         Procedure for Termination, Amendment,Extension or Waiver.  A termination of this Agreement pursuant to Section 7.01,an amendment of this Agreement pursuant to Section 7.03 or anextension or waiver pursuant to Section 7.04 shall, in order to beeffective, require in the case of any party hereto an action by its Board ofDirectors or a duly-authorized designee of its Board of Directors.

 

VIII.GENERAL PROVISIONS

 

8.01         Nonsurvival of Representations andWarranties.  None of the representations and warranties inthis Agreement or in any instrument delivered pursuant to this Agreement shallsurvive the Effective Time and all such representations and warranties shall beextinguished on consummation of the Merger and no party hereto nor any officer,director or employee or stockholder of any of them shall be under any liabilitywhatsoever with respect to any such representation or warranty after suchtime.  This Section 8.01shall not limit any covenant or agreement of the parties which by its termscontemplates performance after Effective Time.

 

8.02  Fees and Expenses.

 

Except as setforth in this Section 8.02, all fees and expenses incurred inconnection with this Agreement and the transactions contemplated hereby shallbe paid by the party incurring such fees and expenses, whether or not theMerger is consummated; provided however, that the Company and Parent shallshare equally all fees and expenses, other than accountants’ and attorneys’fees, incurred with respect to the 

 

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printing, filingand mailing of the S-4 and the Information Statement (including any relatedpreliminary materials) and any amendments or supplements thereto.

 

8.03       Notices.  All notices,requests, claims, demands and other communications under this      Agreement shall be in writing and shallbe deemed given if delivered personally or sent by overnight courier (providingproof of delivery) to the parties at the following addresses (or at such otheraddress for a party as shall be specified by like notice):

 

(a)           if to Parent or Merger Sub, to

 

Access Pharmaceuticals, Inc.

2600 Stemmons Freeway, Suite 176

Dallas, Texas 75207

Attention:  Jeffrey B. Davis

Telecopier No.:  (214) 905-5101

 

with a copy to:

 

Bingham McCutchen LLP

One Federal Street

Boston, MA  02110

Attention:  John J. Concannon III, Esq.

Telecopier No.:  (617) 951-8736

 

(b)           if to the Company or its Subsidiaries, to

 

MacroChemCorporation

80 Broad Street, 22ndFloor

New York, New York 10004

Attention:  President

Telecopier No.:  (212) 514-8613

 

with a copy to:

 

Hiscock & Barclay LLP

258 Genesee Street, Suite 305

Utica, New York 13502

Attention:  John A. Jadhon, Esq.

TelecopierNo.:  (315) 624-7359

 

8.04         Definitions.  For purposes of this Agreement:

 

(a)   “Acquisition Proposal” means any solicitation, initiation,encouragements, discussions, negotiations and communications regarding asimilar transaction with any third party involving:

 

1.     Any acquisition or purchase from the Company by any person or “group”as defined under Section 13(d) of the Exchange Act of more than a 20%interest in the Company Common Stock or any tender offer or exchange offer thatif consummated would result in any person or “group” (as defined in Section 13(d) ofthe Exchange Act) beneficially owning 20% or more of the total outstandingvoting securities of the Company;

 

2.     any consolidation, business combination, merger or similar transactioninvolving the Company;

 

3.     any sale, lease, exchange, transfer, license, acquisition ordisposition of assets of the 

 

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Companyor its Subsidiaryfor consideration equal to 20% or more of the market value ofall of the outstanding shares of Company Common Stock on the last trading dayprior to the date of this Agreement; or

 

4.     Any recapitalization, restructuring, liquidation or dissolution of theCompany.

 

(b)           “Affiliate” of any Person means another Person that directly orindirectly, through one or more intermediaries, controls, is controlled by, oris under common control with, such first Person;

 

(c)           “Agreement” has the meaning set forth in the preamble;

 

(d)           “Certificates” shall have the meaning ascribed thereto in Section 2.01(d);

 

(e)           Certificate of Merger” shall have the meaning ascribed thereto in Section 1.03;

 

(f)            “C.F.R.” shall have meaning ascribed theretoin Section 3.01(p)(ii);

 

(g)           “Closing” shall have meaning ascribed thereto in Section 1.02;

 

(h)           “Closing Date” shall have meaning ascribed thereto in Section 1.02;

 

(i)            “Code” shall have meaning ascribed thereto inthe fourth recital to this Agreement;

 

(j)            “Common Stock Exchange Ratio” shall havemeaning ascribed thereto in Section 2.01(c)(i);

 

(k)           “Company” shall have meaning ascribed thereto in the preamble to thisAgreement;

 

(l)            “Company By-laws” shall have the meaning setforth in Section 3.01(a);

 

(m)          “Company Certificate” shall have meaning ascribed thereto in Section 3.01(a);

 

(n)           “Company Common Stock” means the common stock, par value $0.001 pershare, of the Company;

 

(o)           “Company Disclosure Letter” shall have meaning ascribed thereto in Section 3.01;

 

(p)           “Company Financial Statements” shall have meaning ascribed thereto in Section 3.01(e);

 

(q)           “Company Insurance Policy” shall have meaning ascribed thereto in Section 3.01(q);

 

(r)            “Company Leases” shall have meaning ascribedthereto in Section 3.01(j);

 

(s)           “Company Note” or “Company Notes” shall have the meaning ascribedthereto in Section 2.01(e);

 

(t)            “Company Options” means the options topurchase shares of Company Common Stock listed in Section 3.01(c) ofthe Company Disclosure Letter;

 

(u)           “Company Option Plans” shall have the meaning set forth in Section 6.02(e);

 

(v)           “Company Plans” shall have the meaning set forth in Section 3.01(i)(i);

 

(w)          “Company Permits” shall have meaning ascribed thereto in Section 3.01(p)(i);

 

(x)            “Company SEC Documents” shall have themeaning ascribed thereto in Section 3.01(e);

 

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(y)           “Company Warrants” means warrants to purchase shares of Company CommonStock as listed in Section 3.01(c) of the Company DisclosureLetter;

 

(z)            “Confidentiality Agreement” shall havemeaning ascribed thereto in Section 4.02(a);

 

(aa)         “Controlled Group” shall have meaning ascribed thereto in Section 3.01(h)(iii);

 

(bb)         “Delaware Certificate of Merger” shall have meaning ascribed thereto inSection 1.03;

 

(cc)         “Dissenting Shares” shall have the meaning set forth in Section 2.04;

 

(dd)         “DGCL” shall have meaning ascribed thereto in the second recital tothis Agreement;

 

(ee)         “Effective Time” shall have meaning ascribed thereto in Section 1.03;

 

(ff)           “Environmental Claim” means any written or oral notice, claims, demand,action, suit, complaint, proceeding or other communication by any Personalleging liability or potential liability (including without limitation liabilityor potential liability for investigatory costs, cleanup costs, governmentalresponse costs, natural resource damages, property damage, personal injury,fines or penalties) arising out of, relating to, based on or resulting from (A) thepresence, discharge, emission, release or threatened release of any HazardousMaterials at any location, whether or not owned, leased or operated by theCompany or Parent (as applicable) or (B) circumstances forming the basisof any violation or alleged violation of any Environmental Law or EnvironmentalPermit or (C) otherwise relating to obligations or liabilities under anyEnvironmental Laws;

 

(gg)         “Environmental Permits” means all permits, licenses, registrations andother governmental authorizations required under Environmental Laws for theCompany or Parent (as applicable) to conduct its operations and business on thedate hereof and consistent with past practices;

 

(hh)         “Environmental Laws” means all applicable federal, state and localstatutes, rules, regulations, ordinances, orders, decrees and common lawrelating in any manner to contamination, pollution or protection of theenvironment, including, without limitation, the Comprehensive EnvironmentalResponse, Compensation and Liability Act of 1980, the Solid Waste Disposal Actof 1976, the Clean Air Act, the Clean Water Act, the Toxic Substances ControlAct of 1976, the Occupational Safety and Health Act of 1970, the EmergencyPlanning and Community-Right-to-Know Act, the Safe Drinking Water Act, all asamended, and similar state laws;

 

(ii)           “ERISA” shall mean the Employee Retirement Income Security Act of 1974or any successor law, and regulations and rules issued pursuant to thatAct or any successor law;

 

(jj)           “Exchange Act” shall mean the Exchange Act of 1934, as amended;

 

(kk)         “Exchange Agent” shall have the meaning set forth in Section 2.02;

 

(ll)           “Exchange Fund” shall have the meaning set forth in Section 2.02;

 

(mm)       “FDA” shall have meaning ascribed thereto in Section 3.01(p)(ii);

 

(nn)         “FDCA” shall have meaning ascribed thereto in Section 3.01(q)(ii);

 

(oo)         “Flow of Funds” shall have the meaning set forth in Section 6.01(e);

 

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(pp)         “Form S-4” shall have the meaning set forth in Section 3.01(g);

 

(qq)         “GAAP” shall have meaning ascribed thereto in Section 3.01(e);

 

(rr)           “Governmental Entity” shall have meaning ascribed thereto in Section 3.01(d);

 

(ss)         “Hazardous Materials” means all hazardous or toxic substances, wastes,materials or chemicals, petroleum (including crude oil or any fraction thereof)and petroleum products, friable asbestos and asbestos-containing materials,pollutants, contaminants and all other materials, and substances regulatedpursuant to, or that could reasonably be expected to provide the basis ofliability under, any Environmental Law;

 

(tt)           “Indebtedness” means, with respect to any Person, without duplication, (A) allobligations of such Person for borrowed money, (B) all obligations of suchPerson evidenced by bonds, debentures, notes or similar instruments, (C) allobligations of such Person under conditional sale or other title retentionagreements relating to property purchased by such Person, (D) allobligations of such Person issued or assumed as the deferred purchase price ofproperty or services (excluding obligations of such Person to creditors for rawmaterials, inventory, services and supplies incurred in the ordinary course ofsuch Person’s business), (E) all capitalized lease obligations of suchPerson, (F) all obligations of others secured by any Lien on property orassets owned or acquired by such Person, whether or not the obligations securedthereby have been assumed, (G) all obligations of such Person underinterest rate or currency hedging transactions (valued at the termination valuethereof), (H) all letters of credit issued for the account of such Person,(I) all guarantees and arrangements having the economic effect of aguarantee of such Person of any Indebtedness of any other Person and (K) allobligations with respect to compensation or other employee arrangements whichbecome due or payable as a result of this Agreement or the transactionscontemplated hereby;

 

(uu)         “Indemnified Liabilities” shall have meaning ascribed thereto in Section 4.04(a);

 

(vv)         “Indemnified Parties” shall have meaning ascribed thereto in Section 4.04(a);

 

(ww)       “Intellectual Property” means all rights, privileges and prioritiesprovided under federal, state, foreign and multinational law relating tointellectual property, including, without limitation, all (i)(a) inventions,discoveries, processes, formulae, designs, methods, techniques, procedures,concepts, developments, research, works, technology, new and usefulimprovements thereof and know-how relating thereto, whether or not patented oreligible for patent protection; (b) copyrights and copyrightable works,including computer applications, programs, software, databases and relateditems (except for off-the-shelf commercial software); (c) trademarks,service marks, trade names, brand names, corporate names, logos and tradedress, the goodwill of any business symbolized thereby and all common-lawrights relating thereto; and (d) trade secrets and other confidentialinformation; and (ii) all registrations, applications, recordings andlicenses or other similar agreements related to the foregoing;

 

(xx)          “In the Money Company Warrants” shall have the meaning set forth in Section 2.03;

 

(yy)         “IRS” shall mean the U.S. Internal Revenue Service;

 

(zz)          “knowledge of the Company” means the actual knowledge of any officer ofthe Company, including James Pachence as President of the Company, assuming dueinquiry, or those facts which, taking into account the scope and nature of theresponsibilities of the individual in question, should have been known to suchindividual;

 

(aaa)       “knowledge of Parent” means the actual knowledge of any officer ofParent, assuming due 

 

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inquiry, or those factswhich, taking into account the scope and nature of the responsibilities of theindividual in question, should have been known to such individual;

 

(bbb)      “Licenses” shall have meaning ascribed thereto in Section 3.01(o)(ii);

 

(ccc)       “Lien” or “Liens” shall have meaning ascribed thereto in Section 3.01(d);

 

(ddd)      “Material Adverse Change” or “Material Adverse Effect” means, when usedin connection with the Company or Parent, any change, effect, event oroccurrence that either individually or in the aggregate with all other suchchanges, effects, events and occurrences has been or is reasonably likely to bematerially adverse to the business, properties, financial condition or resultsof operations of the Company or Parent, as the case may be, and itsSubsidiaries taken as a whole, provided that (i) with respect to Section 3.01(h)(i) and(ii), shall exclude any material adverse change in the Company’s results ofoperations for any fiscal period prior to the Closing Date that is directlyattributable to a disruption in the conduct of the Company’s business arisingfrom the transactions contemplated by this Agreement or the public announcementthereof and (ii) with respect to Section 3.02(f)(i) and (ii),shall exclude any material adverse change in Parent’s results of operations forany fiscal period prior to the Closing Date that is directly attributable to adisruption in the conduct of Parent’s business arising from the transactionscontemplated by this Agreement or the public announcement thereof; andprovided, further, that Material Adverse Effect and Material Adverse Changeshall not be deemed to include the impact of (a) any change in laws andregulations or interpretations thereof by courts or governmental authoritiesgenerally applicable to the Company and Parent, (b) any change in GAAP orregulatory accounting principles generally applicable to the Company andParent, (c) any change arising or resulting from general industry,economic or capital market conditions or conditions in markets relevant to theCompany or Parent, as applicable, that affects Parent or the Company, asapplicable (or the markets in which Parent or the Company, as applicable,compete) in a manner not disproportionate to the manner in which suchconditions affect comparable companies in the industries or markets in whichCompany or Parent, as applicable, compete, (d) any act or omission of theCompany taken with the prior written consent of Parent or (e) the expensesreasonably incurred by the Company in entering into this Agreement andconsummating the transactions contemplated by this Agreement;

 

(eee)       “Merger” shall have meaning ascribed thereto in second recital to thisAgreement;

 

(fff)         “Merger Consideration” shall have meaning ascribed thereto in Section 2.01(c)(ii);

 

(ggg)      “Merger Sub” shall have meaning ascribed thereto in the preamble tothis Agreement;

 

(hhh)      “Parent” shall have meaning ascribed thereto in the preamble to thisAgreement;

 

(iii)          “Parent Common Stock” means the common stock, par value $0.01 pershare, of Parent;

 

(jjj)          “Parent Disclosure Letter” shall have meaning ascribed thereto in Section 3.02;

 

(kkk)       “Parent Capital Stock” means the Parent Common Stock and the ParentPreferred Stock;

 

(lll)          “Parent Common Stock” means the common stock, par value $0.01 pershare, of Parent;

 

(mmm)    “Parent Preferred Stock” means the preferred stock, par value $0.01 pershare, of Parent;

 

(nnn)      “Parent SEC Documents” shall have meaning ascribed thereto in Section 3.02(d);

 

(ooo)      “Parent SEC Financial Statements” shall have meaning ascribed theretoin Section 3.02(d);

 

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(qqq)      “Permitted Lien” means statutory Liens securing payments not yet dueand such Liens as do not materially affect the use of the properties or assetssubject thereto or affected thereby or otherwise materially impair businessoperations at such properties;

 

(rrr)         “Person” means an individual, corporation, partnership, joint venture,association, trust, unincorporated organization or other entity;

 

(sss)       “Pharmaceutical Products” shall have meaning ascribed thereto in Section 3.01(p)(ii);

 

(ttt)         “PHSA” shall have meaning ascribed thereto in Section 3.01(p)(ii);

 

(uuu)      “SEC” means the United States Securities and Exchange Commission;

 

(vvv)      “Securities Act” shall mean the Securities Act of 1933, as amended;

 

(www)    “Shareholder Rights Plan” shall have meaning ascribed thereto in Section 3.02(b);

 

(xxx)        “Subsidiary” of any Person means another Person, who holds an amount ofthe voting securities, other voting ownership or voting partnership interestswhich is sufficient to elect at least a majority of its Board of Directors orother governing body (or, if there are no such voting interests, 50% or more ofthe equity interests of which) or is owned directly or indirectly by suchPerson;

 

(yyy)      “Superior Proposal” shall have the meaning ascribed thereto in Section 7.1(f);

 

(zzz)        “Surviving Corporation” shall have meaning ascribed thereto in Section 1.01;

 

(aaaa)     “Tax” or “Taxes” (and with correlative meaning, “Taxable” and “Taxing”and “Tax Law”) means any United States federal, state or local, or non-UnitedStates, income, gross receipts, franchise, estimated, alternative minimum,add-on minimum, sales, use, transfer, registration, value added, excise,natural resources, severance, stamp, withholding, occupation, premium, windfallprofit, environmental, customs, duties, real property, personal property,capital stock, net worth, intangibles, social security, unemployment,disability, payroll, license, employee or other tax or similar levy, of anykind whatsoever, including any interest, penalties or additions to tax inrespect of the foregoing;

 

(bbbb)    “Tax Return” means any return, declaration, report, claim for refund,information return or other document (including any related or supportingestimates, elections, schedules, statements or information) filed or requiredto be filed in connection with the determination, assessment or collection ofany Tax or the administration of any laws, regulations or administrativerequirements relating to any Tax;

 

(cccc)     “Technology” means all inventions, works, discoveries, innovations,know-how, information (including ideas, research and development, know-how,formulas, compositions, processes and techniques, data, designs, drawings,specifications, customer and supplier lists, pricing and cost information,business and marketing plans and proposals, documentation and manuals),computer software, firmware, computer hardware, integrated circuits and integratedcircuit masks, electronic, electrical and mechanical equipment and all otherforms of technology, including improvements, modifications, works in process,derivatives or changes, whether tangible or intangible, embodied in any form,whether or not protectible or protected by patent, copyright, mask work right,trade secret law or otherwise, and all documents and other materials recordingany of the foregoing;

 

(dddd)    “WARN” shall have meaning ascribed thereto in Section 3.01(i)(ii).

 

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8.05         Interpretation.  When reference is made in thisAgreement to an Article or a Section, such reference shall be to an Article orSection of this Agreement, unless otherwise indicated.  The table ofcontents, table of defined terms and headings contained in this Agreement arefor convenience of reference only and shall not affect in any way the meaningor interpretation of this Agreement.  The language used in this Agreementshall be deemed to be the language chosen by the parties hereto to expresstheir mutual intent, and no rule of strict construction shall be appliedagainst any party.  Whenever the context may require, any pronouns used inthis Agreement shall include the corresponding masculine, feminine or neuterforms, and the singular form of nouns and pronouns shall include the plural,and vice versa.  Any reference to any federal, state, local or foreignstatute or law shall be deemed also to refer to all rules and regulationspromulgated thereunder, unless the context requires otherwise.  Wheneverthe words “include,” “includes” or “including” are used in this Agreement, theyshall be deemed to be followed by the words “without limitation.”  Nosummary of this Agreement prepared by any party shall affect the meaning orinterpretation of this Agreement.

 

8.06         Counterparts.  This Agreement may be executed in twoor more counterparts, all of which shall be considered one and the sameagreement and shall become effective when one or more counterparts have beensigned by each of the parties and delivered to the other parties.  Thedelivery of a signature page of this Agreement by one party to the othervia facsimile or other electronic transmission shall constitute the executionand delivery of this Agreement by the transmitting party.

 

8.07         Entire Agreement; No Third-PartyBeneficiaries.  ThisAgreement (including the Company Disclosure Letter and the Parent DisclosureLetter, and the Schedules and Exhibits attached hereto) and the otheragreements and instruments referred to herein constitute the entire agreement,and supersede all prior agreements and understandings, both written and oral,among the parties with respect to the subject matter of this Agreement. This Agreement, other than Section 5.04 (with respect to which theIndemnified Parties shall be third-party beneficiaries), is not intended toconfer upon any Person other than the parties any rights or remedies.

 

8.08         Governing Law; Consent to Jurisdiction;Waiver of Jury Trial. This Agreement shall be governed by, and construed in accordance with,the laws of the State of New York, regardless of the laws that might otherwisegovern under applicable principles of conflicts of laws.  Each of theparties to this Agreement (a) consents to submit itself to the personaljurisdiction of any state or federal court sitting in the State of New York inany action in any action or proceeding arising out of or relating to thisAgreement or any of the transactions contemplated by this Agreement, (b) agreesthat all claims in respect of such action or proceeding may be heard anddetermined in any such court, (c) agrees that it shall not attempt to denyor defeat such personal jurisdiction by motion or other request for leave fromany such court and (d) agrees not to bring any action or proceedingarising out of or relating to this Agreement or any of the transactioncontemplated by this Agreement in any other court.  Each of the partieshereto waives any defense of inconvenient forum to the maintenance of anyaction or proceeding so brought and waives any bond, surety or other securitythat might be required of any other party with respect thereto.  Any partyhereto may make service on another party by sending or delivering a copy of theprocess to the party to be served at the address and in the manner provided forthe giving of notices in Section 7.02.  Nothing in this Section 7.07,however, shall affect the right of any party to serve legal process in anyother manner permitted by law**.  Eachparty hereto hereby irrevocably waives all right to trial by jury in anyaction, proceeding or counterclaim (whether based on contract, tort orotherwise) arising out of or relating to this Agreement or the transactionscontemplated hereby or the actions of any party hereto in the negotiation,administration, performance and enforcement of this Agreement.**

 

8.09         Assignment.  Neither this Agreement nor any of the rights, interests orobligations under this Agreement shall be assigned, in whole or in part, byoperation of law or otherwise by any of the parties without the prior writtenconsent of the other parties.  Subject to the preceding sentence, thisAgreement shall be binding upon, inure to the benefit of and be enforceable bythe parties and their respective successors and assigns.

 

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8.10         Remedies.  Except as otherwise provided herein, any and all remediesherein expressly conferred upon a party shall be deemed cumulative with and notexclusive of any other remedy conferred hereby, or by law or equity upon suchparty, and the exercise by a party of any one remedy shall not preclude theexercise of any other remedy.  The parties hereto agree that irreparabledamage would occur in the event that any of the provisions of this Agreementwere not performed in accordance with their specific terms or were otherwisebreached.  It is accordingly agreed that the parties hereto shall beentitled to an injunction or injunctions to prevent breaches of this Agreementand to enforce specifically the terms and provisions of this Agreement, thisbeing in addition to any other remedy to which they are entitled at law or inequity.

 

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IN WITNESS WHEREOF, the parties have caused thisAgreement to be signed by their respective officers thereunto duly authorized,all as of the date first written above.

 

 
| ACCESS PHARMACEUTICALS, INC. |
|------------------------------|
|                         |
| By:                          | /s/ Jeffrey B. Davis |   |
|                         | Name: | Jeffrey B. Davis |
|                         | Title: | Chief Executive Officer |
|                         |   |   |
|                         |   |   |
| MACM ACQUISITION CORP.       |
|                         |   |
| By:                          | /s/ Jeffrey B. Davis |   |
|                         | Name: | Jeffrey B. Davis |
|                         | Title: | President |
|                         |   |   |
|                         |   |   |
| MACROCHEM CORPORATION        |
|                         |   |
| By:                          | /s/ David P. Luci |   |
|                         | Name: | David P. Luci |
|                         | Title: | President & Chief  Business Officer |
|                              |  |  |  |

 

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