EX-1.2 2 0002.txt ENGAGEMENT LETTER Exhibit 1.2 BIOVAIL CORPORATION 2488 Dunwin Drive Mississauga, Ontario L5L 1J9 September 25, 2000 Messrs. George Vesely, David Roffey, Thomas Higgins, and Joseph Shier c/o Maple Partners Financial Group Inc. Maritime Life Tower Toronto-Dominion Centre, Suite 3500 P.O. Box 328 Toronto, Ontario M5K 1K7 Dear Sirs: Re: Proposed Transaction We are currently in discussions with you regarding your proposed participation in a transaction to effect the acquisition of the common shares of Intelligent Polymers Limited ("IPL") through the exercise of an option attaching to the Special shares of IPL (the "Transaction"). We wish to confirm the following terms that apply to your review of and participation in the Transaction. 1. In consideration of your review and involvement in the negotiation of the Transaction for purposes of your proposed participation therein, to be carried out commencing today and continuing through September 25, 2000, we will pay on September 25, 2000 to you, or as you direct, US $250,000. 2. In the event that you commit to participation in the Transaction by providing us, not later than 5:00 p.m. (Toronto time) on September 25, 2000, with a signed term sheet consistent with the draft term sheet attached hereto or otherwise on terms acceptable to us, such participation to be conditional upon the execution of definitive documentation as provided in paragraph 4, we will pay to you, or as you direct, either: -2- (a) in the event that we complete the Transaction with your participation, an additional US$1,525,000 payable at the time of the advance by you of the funds to effect the acquisition of the common shares of IPL; and (i) if, prior to January 1, 2001, the voting common shares in Acquireco are redeemed by Acquireco or transferred under the option granted by the Equity Investor, an additional US$225,000 minus the amount received on such redemption or transfer in excess of the initial issue price of the voting common shares, payable at the time of such redemption or transfer, or (ii) in all other cases, an additional US$225,000, payable on January 1, 2001, or (b) on September 29, 2000, an additional US $250,000 in the event that on or prior to September 28, 2000 we do not complete the Transaction with your participation. 3. In addition to any amounts payable to you under paragraph 1 or 2, we agree to reimburse you for any reasonable legal expenses incurred by you in connection with the Transaction and your consideration thereof. 4. You and we acknowledge that the execution and delivery of this letter will not constitute any commitment by you or us to your participation in the Transaction or the payment of any amount other than as expressly set forth herein. You and we further acknowledge that the term sheet referred to above is subject to the negotiation and settlement of definitive documentation. -3- If the foregoing correctly reflects your understanding, please indicate your agreement by signing and returning a copy of this letter. Notwithstanding the date first written above, this agreement shall be treated as bearing an effective date of September 22, 2000, being the date of the commencement of our discussions with you. Yours very truely, /s/ Brian Crombie ------------------------------ Brian Crombie Senior Vice President and Chief Financial Officer Agreed and accepted by: /s/ George Vesely /s/ David Roffey ------------------------- ------------------------------ George Vesely David Roffey /s/ Thomas Higgins /s/ Joseph Shier ------------------------- ------------------------------ Thomas Higgins Joseph Shier -4- TERM SHEET ACQUIRECO IPL Acquireco 2000 Ltd., a special purpose corporation to be incorporated in the British Virgin Islands. Acquireco shall not be a resident of Canada for purposes of the Income Tax Act (Canada). The directors of Acquireco shall be appointed by Holdco and Holdco shall have the right to nominate and appoint the directors of IPL BIOVAIL Biovail Laboratories Inc. EQUITY HOLDER IPL Holdco 2000 Ltd., an Ontario business corporation, the shares of which shall be held by Andrew Gaspar, funding for which shall be provided by David Roffey, George Vesely, Thomas Higgins and Joseph Shier and/or any of their personal holding companies (the "Investor Group"). EQUITY COMMITMENT The Equity Commitment shall be 3% (net of any fees) of the total cost to Acquireco to exercise the option attaching to the Special shares of Intelligent Polymers Limited ("IPL") to acquire all but not less than all of the common shares of IPL, to a maximum of US $6,500,000. BIOVAIL The Biovail Commitment shall be 97% of COMMITMENT the total cost to Acquireco to exercise the option attaching to the IPL Special shares to acquire all but not less than all of the common shares of IPL. SPECIAL SHARES Special shares of IFL that under the bye-laws of IPL provide an irrevocable option to the holders of the Special shares to acquire all but not less than all of the issued and outstanding common shares of IPL at a price of U.S. $39.06 (provided the option is exercised prior to October 1, 2000). -5- CLOSING DATE A date on or before September 28, 2000 (the "First Closing Date") on which Acquireco shall acquire the Special shares and still be able to fund the exercise of the option to acquire all but not less than all of the common shares of IPL and complete the closing of such purchase on or before September 29, 2000 (the "Second Closing Date"). EQUITY INVESTMENT On the First Closing Date, the Equity Holder shall purchase voting common shares of Acquireco for an aggregate subscription price equal to the amount of the Equity Commitment (at a price of U.S. $1.00 per share). The voting common shares of Acquireco shall be voting in all circumstances except that the holders of the non-voting common shares shall have the sole right to vote to cause the voting common shares to be redeemed. The voting common shares shall be entitled to such dividends as the directors may determine. Acquireco, shall have the right to redeem at any time up to October 1, 2001 the voting common shares of Acquireco for a price of US. $1.00 per share plus 15% per annum from the First Closing Date if redeemed prior to January 1, 2WI, and U.S. $1.00 per share plus 35% per annum compounded daily from January 1, 2001 to the date of redemption if redeemed at any time on or after January 1, 2001 (the "redemption price"). Upon a liquidation or winding-up of Acquireco, the holders of the voting common shares shall be entitled to receive an amount equal to the redemption price in preference and priority to the non-voting common shares and after payment of any amounts owing in respect of the Class A shares. The holders of the voting common shares shall, at any time after February 1, 2001, be entitled to cause Acquireco to sell all of its property (including causing IPL to sell all of its property), to such persons and on such terms as the holders of the voting common shares may determine, after providing at least 15 days' prior written notice to all shareholders of its intention to do so. -6- BIOVAIL INVESTMENT On the First Closing Date, Biovail shall purchase Class A shares of Acquireco for an aggregate subscription price equal to the amount of the Biovail Commitment (at a price of U.S. $1.00 per share). The Class A shares shall be entitled to receive cumulative dividends in the amount of 8% per annum. The Class A shares shall not be entitled to vote, shall not be redeemable at the option of Acquireco and, upon a liquidation or winding up of Acquireco, shall be entitled to receive an amount equal to U.S. $1.00 per share plus accrued but unpaid dividends in preference and priority to the voting common shares and non-voting common shares. At any time after the date on which there are no voting common shares outstanding the holders of Class A shares shall be entitled to require Acquireco to redeem the whole or any part of their Class A shares. So long as there are any voting common shares outstanding, the holders of Class A shares shall agree (in a voting trust agreement/unanimous shareholder agreement) that the holders of voting common shares shall be entitled to cast all of the votes attaching to the Class A shares in connection with any vote required for a liquidation, dissolution or bankruptcy of Acquireco or IPL or in respect of any sale of all or substantially all of the property and assets of Acquireco or IPL. OPTION The Equity Holder shall grant an option to Biovail to permit it to purchase all of the voting common shares of Acquireco held by the Equity Holder such option to terminate on October 1, 2002. The option exercise price for this option shall be equal to the redemption price. The option shall be exercisable at any time after the First Closing Date upon giving reasonable notice. -7- PURCHASE OF On the First Closing Date, Acquireco SPECIAL SHARES shall acquire the Special shares of IPL from Biovail in return for the issuance to Biovail by Acquireco of 12,000 non-voting common shares of Acquireco. The non-voting common shares shall not be entitled to vote (except to cause the redemption of the voting common shares), shall be entitled to non-cumulative dividends in the amount of 8% per annum and shall be entitled to receive upon liquidation all of the remaining property of Acquireco after payment of any amounts owing in respect of the Class A shares and voting common shares, provided, however, that if there are no voting common shares outstanding, the non-voting common shares shall be entitled to vote, shall be entitled to dividends in the discretion of the directors and shall be entitled to receive (after payment of any amounts owing in respect of the Class A shares) all of the remaining property of Acquireco. So long as them are any voting common shares outstanding, the holders of non-voting common shares shall agree (in a voting trust agreement unanimous shareholder agreement) that the holders of voting common shares shall be entitled to cast all of the votes attaching to the non-voting shares in connection with any vote required for a liquidation, dissolution or bankruptcy of Acquireco or IPL or in respect of any sale of all or substantially all of the assets of Acquireco or IPL. Biovail agrees to take all steps within its power necessary to enable Acquireco to exercise the option attaching to the IPL Special Shares to acquire all but not less than all of the common shares of IPL on or before the Second Closing Date. Biovail shall agree that in the event that Acquireco does not exercise on or before the Second Closing Date for any reason the purchase option to acquire all but not less than all of the common shares of IPL, Acquireco shall immediately repay the amount of the Equity Commitment to the Equity Holder, failing which repayment Biovail shall immediately pay such amount to the Equity Holder. All of Biovail's obligations shall be guaranteed by Biovail Corporation. -8- CONSENT PROVISIONS Except as expressly provided herein, until February 1, 2001, no resolution or act of Acquireco to authorize or permit any of the following will be effective without the prior written approval of the holders of the Class A shares and the non-voting common shares: (i) the allotment or issue of shares or other securities or the creation of any right to such allotment or issue; (ii) the reduction of Acquireco's share capital; (iii) borrowings by Acquireco over an aggregate of $50,000 outstanding at any one time; (iv) the sale or other disposition of, or the creation of any lien or liens on, the whole or a material part of Acquireco's undertaking or assets; (v) the declaration or payment of dividends or the making of any other distribution by Acquireco to its shareholders; (vi) the amalgamation of Acquireco; and (vii) any amendment of Biovail's option to acquire voting common shares of Acquireco. Except as expressly provided herein, until February 1, 2001, no resolution or act of IPL to authorize or permit any of the following will be effective without the prior written approval of the holders of the Class A Shares and the non-voting common shares: (i) the allotment or issue of shares or other securities or the creation of any right to such allotment or issue; (ii) the reduction of IPL's share capital; (iii) borrowings by IPL over an aggregate of $1 million outstanding at any one time, (iv) the sale or other disposition of, or the creation of any lien or liens on. the whole or a material part of IPL's undertaking or assets; (v) the declaration or payment of dividends or the making of any other distribution by IPL to its shareholders; and (vi) the amalgamation of IPL. The holders of the voting common shares shall agree (in a voting trust agreement/unanimous shareholder agreement) that until February 1, 2001 they will vote their shares in a manner consistent with the business plan of IPL, as of the date of signing of this term sheet, as presented to the Equity Holder by Biovail Corporation, provided that the holders of the voting common shares shall not, in any event, be required to do anything which they reasonably determine would be prejudicial to them. -9- DOCUMENTATION This term sheet represents an outline of the basis on which the Equity Holder is prepared to provide the Equity Commitment. It is not exhaustive as to the terms and conditions which will govern the Equity Commitment and negotiation required to finalize the terms and conditions of the transaction. The transaction will be effected upon completion of documentation (referred to herein as "definitive documentation"), including a definitive agreement which will contain the terms and conditions set out herein, in addition to conditions precedent, representations and warranties (including as to (a) the ownership by IPL of drugs and/or related intellectual property and license rights to the reasonable satisfaction of the Equity Holder, and (b) the fairness of the financial information presentation provided to the Equity Holder by Biovail Corporation), covenants, events of default, rights of set-off, and indemnity provisions, and other conditions, terms and provisions, customary for transactions of this kind or as the Equity Holder may reasonably require. The definitive documentation shall be governed by the laws of Ontario. CONDITONS Without limiting the other terms of this PRECEDENT term sheet, the Equity Holder's obligation to make the Equity Investment will be subject to fulfillment of the following conditions on or prior to the First Closing Date: (a) The acquisition of the Special shares by Acquireco being completed pursuant to an agreement satisfactory to the Equity Holder, with all conditions of the agreement being satisfied or waived on a basis satisfactory to the Equity Holder, and there having been no material adverse change in the financial condition, business or prospects of Biovail Corporation or IPL; (b) The Equity Holder being satisfied as to the results of legal and financial due diligence concerning Biovail Corporation and the transaction (provided that nothing herein shall be deemed to impose an obligation on the Equity Holder to perform any specific due diligence); -10- (c) The Equity Holder having received acknowledgments from third parties relating to the transaction as reasonably required by the Equity Holder; (d) All costs, fees and expenses owing to the Equity Holder having been paid by Biovail; (e) Biovail having received all necessary shareholder, creditor, regulatory and other consents that may be required in connection with the transaction; (f) No material adverse change or proposed change in tax law or any other applicable law and an absence of litigation challenging the transaction; and (g) The delivery by Biovail Corporation to the Equity Holder of an irrevocable and perpetual indemnity, in form reasonably satisfactory to the Equity Holder, indemnifying the Equity Holder, Maple Partners Financial Group Inc., each member of the Investor Group and Acquireco and their respective shareholders, directors, officers and employees (each an "Indemnified Party") from any and all claims by Biovail Corporation, its affiliates or any third parties arising from or in connection with the participation by any of the Indemnified Parties in the Transaction, including without limitation (a) any statement made in or omitted from any publicly filed document in connection with the Transaction, with the exception of any statement made or omitted solely with respect to the Indemnified Parties, or (b) the purchase, holding or disposition of the shares of Acquireco, or (c) any taxes associated with the foregoing other than taxes related to any amount received upon a redemption or purchase in excess of the original subscription price or by way of a fee or similar payment. Without limiting the other terms of this term sheet, Biovail's obligation to proceed with this transaction is subject to, among other conditions, receipt of the approval of its principal banker of an additional funding of IPL and the conversion of IPL's banking arrangements to a term basis. -11- TRANSACTION The costs of the transaction will be COSTS borne by the party incurring them except that Biovail will reimburse the Equity Holder for its reasonable legal expenses. -12- REPORTING Biovail shall provide the Equity Holder REQUIREMENTS with such other information as the Equity Holder may reasonably request from time to time. /s/ George Vesely /s/ David Roffey ------------------------- ------------------------------ George Vesely David Roffey /s/ Thomas Higgins /s/ Joseph Shier ------------------------- ------------------------------ Thomas Higgins Joseph Shier Agreed and accepted by: BIOVAIL CORPORATION per /s/ Brian Crombie ---------------------- Brian Crombie Senior Vice President and Chief Financial Officer