-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TOewd6MUUV9mwZSvq6B2zjHYlswST4LZR0ZJYwUaLBo7qdbZ4J8qsOk361egLcZy xbwYul6sQLOX8N6m8K3bJg== 0000940180-99-001549.txt : 19991215 0000940180-99-001549.hdr.sgml : 19991215 ACCESSION NUMBER: 0000940180-99-001549 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19991214 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ALGOS PHARMACEUTICAL CORP CENTRAL INDEX KEY: 0000924862 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 223142274 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-48097 FILM NUMBER: 99774379 BUSINESS ADDRESS: STREET 1: 1333 CAMPUS PARKWAY CITY: NEPTUNE STATE: NJ ZIP: 07753 BUSINESS PHONE: 9089385959 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ENDO PHARMACEUTICALS HOLDINGS INC CENTRAL INDEX KEY: 0001100962 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 134022871 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 223 WILMINGTON-WEST CHESTER PIKE CITY: CHADDS FORD STATE: PA ZIP: 19317 BUSINESS PHONE: 6105589800 MAIL ADDRESS: STREET 1: 223 WILMINGTON-WEST CHESTER PIKE CITY: CHADDS FORD STATE: PA ZIP: 19317 SC 13D 1 SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 Algos Pharmaceutical Corporation ------------------------------------------------------------ (Name of Issuer) Common Stock $.01 par value per share ------------------------------------------------------------ (Title of Class and Securities) 015869100 ------------------------------------------------------------ (CUSIP Number) Carol A. Ammon President and Chief Executive Officer Endo Pharmaceuticals Holdings Inc. 223 Wilmington - West Chester Pike Chadds Ford, Pennsylvania 19317 (610) 558-9800 with a copy to: Eileen Nugent, Esq. Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York, 10022-3897 (212) 735-3000 ------------------------------------------------------------ (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) November 26, 1999 ------------------------------------------------------------ (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rules 13d-1(e), 13d-1(f) or 13d-1(g), check the following box. [ ] Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. (Continued on following pages) Page 1 of 16 SCHEDULE 13D CUSIP No. 015869100 ------------------------------------------------------------------- 1. NAMES OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (entities only) Endo Pharmaceuticals Holdings Inc. 13-4022871 ------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) ( ) (b) (X) ------------------------------------------------------------------- 3. SEC USE ONLY ------------------------------------------------------------------- 4. SOURCE OF FUNDS OO ------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ( ) ------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware ------------------------------------------------------------------- 7. SOLE VOTING POWER NUMBER OF 4,176,022 SHARES _____________________________________ BENEFICIALLY 8. SHARED VOTING POWER OWNED BY None EACH _____________________________________ REPORTING 9. SOLE DISPOSITIVE POWER PERSON None WITH _____________________________________ 10. SHARED DISPOSITIVE POWER None ------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 4,176,022 ------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES ( ) ------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 23.995% ------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON CO ------------------------------------------------------------------- Page 2 of 16 This statement on Schedule 13D ("Schedule 13D") is being filed pursuant to Rule 13d-1 of the Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), by Endo Pharmaceuticals Holdings Inc., a Delaware corporation ("Endo"), with respect to the common stock, par value $.01 per share (the "Common Stock"), of Algos Pharmaceutical Corporation (the "Issuer" or "Algos"). Item 1. Security and Issuer. -------------------- This Schedule 13D relates to the Common Stock of the Issuer. The principal executive offices of the Issuer are located at 1333 Campus Parkway, Neptune, New Jersey 07753-6815. Item 2. Identity and Background. ------------------------ (a) This Schedule 13D is being filed by Endo. A majority of the outstanding capital stock of Endo is beneficially owned by Kelso Investment Associates V, L.P., a Delaware limited partnership ("KIA V"), and Kelso Equity Partners V, L.P., a Delaware limited partnership ("KEP V"). The general partner of KIA V is Kelso Partners V, L.P. ("KPV"). The general partners of KPV and KEP V are Frank T. Nickell, Thomas R. Wall, IV, George E. Matelich, David I. Wahrhaftig, Frank K. Bynum, Jr., Philip E. Berney and Joseph S. Schuchert (such individuals, collectively, the "Principals"). Endo, KIA V, KEP V, KPV and the Principals are hereinafter sometimes collectively referred to as the "Item 2 Persons." Endo, KIA V, KEP V, KPV and the Principals hereby disclaim beneficial ownership of any shares of the Common Stock which may be voted by Endo, and the filing of this statement shall not be construed as an admission that the Item 2 Persons are, for purposes of Section 13(d) of the Exchange Act, the beneficial owners of any such shares of Common Stock. (b)-(c), (f) Endo ---- Endo is principally engaged in the business of researching, developing, manufacturing, marketing and selling both branded and generic pharmaceuticals primarily for the treatment of pain. The principal business address of Endo, which also serves as its principal office, is 223 Wilmington-West Chester Pike, Chadds Ford, Pennsylvania 19317. The name, business address, present principal occupation (including the name and address of the corporation or organization in which such employment is conducted) and citizenship of each executive officer and director of Endo are set forth in Schedule A hereto, which is incorporated herein by reference. Page 3 of 16 KIA V ----- KIA V, is a Delaware limited partnership, the principal business of which is private investing. The principal business address of KIA V, which also serves as its principal office, is 320 Park Avenue, 24/th/ Floor, New York, New York 10022. Information with respect to KPV, the general partner of KIA V, and the Principals, the general partners of KPV, is set forth below. KEP V ----- KEP V, is a Delaware limited partnership, the principal business of which is co-investing with KIA V. The principal business address of KEP V, which also serves as its principal office, is 320 Park Avenue, 24/th/ Floor, New York, New York 10022. Information with respect to the Principals, the general partners of KEP V, is set forth below. KPV and the Principals ---------------------- KPV, is a Delaware corporation, the principal business of which is being the general partner of KIA V. The principal business address of KPV, which also serves as its principal office is 320 Park Avenue, 24/th/ Floor, New York, New York 10022. The name, business address, present principal occupation (including the name and address of the corporation or organization in which such employment is conducted) and citizenship of the Principals, the general partners of KPV and KEP V, are set forth in Schedule A hereto, which is incorporated herein by reference. (d)-(e) During the last five years, none of the Item 2 Persons and to the best of each of the Item 2 Persons' knowledge, any of their respective executive officers, controlling persons or directors has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction resulting in a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws, or finding any violation with respect to such laws. Item 3. Source and Amount of Funds or Other Consideration. -------------------------------------------------- Endo may be deemed to have acquired beneficial ownership of 4,176,022 shares of Algos Common Stock pursuant to certain voting agreements. In accordance with the terms and conditions of Page 4 of 16 such voting agreements, dated as of November 26, 1999 (the "Voting Agreements"), by and among Endo, Endo Inc., a wholly-owned subsidiary of Endo, and each of the following stockholders of the Issuer: (i) Karen B. Lyle, (ii) Michael Hyatt, (iii) Michael Hyatt, as Trustee for the Trust Under the Will of Inez Kimmel, (iv) Michael Hyatt, as Trustee for The Todd Kimmel Trust, (v) Michael Hyatt, as Trustee for The Melissa Kimmel Trust, (vi) Michael Hyatt, as Trustee for The Anita Hyatt Family Trust, (vii) Frank S. Caruso ("Caruso"), (viii) John W. Lyle ("Lyle"), (ix) Roger H. Kimmel, as Trustee for The Hyatt Family Trust, (x) Roger H. Kimmel, (xi) Frank S. Caruso, as Trustee for The Frank S. Caruso Irrevocable Trust, (xii) James R. Ledley, (xiii) Donald G. Drapkin, (xiv) Donald Drapkin and (xv) Patricia Caruso (each a "Stockholder," and collectively, the "Stockholders"), Endo has been granted an irrevocable proxy, coupled with an interest, from each of the Stockholders to vote the respective shares of Common Stock for the following registered holders, solely in the certain circumstances described below: Registered Holder Number of Shares - ----------------- ---------------- Karen B. Lyle 1,344,416 Michael Hyatt(1) 829,551 Trust Under the Will of Inez Kimmel 657,193 Todd Kimmel Trust 171,530 Melissa Kimmel Trust 155,000 Anita Hyatt Family Trust 20,750 Frank S. Caruso 370,200 John W. Lyle 224,100 Hyatt Family Trust 221,332 Roger H. Kimmel(2) 30,000 Frank S. Caruso Irrevocable Trust 24,900 James R. Ledley 109,450 Donald G. Drapkin 8,300 Donald Drapkin 8,300 Patricia Caruso 1,000 - -------------------------------------------------------- (1) Does not include shares owned by the Kimmel Trusts listed below. (2) Does not include shares owned by the Hyatt Trusts listed above. Upon the terms and subject to the conditions of the Voting Agreements, Endo may vote the shares of Common Stock held by the Stockholders: (A) In favor of the merger of the Issuer with and into Endo Inc. (the "Merger"), the execution and delivery by the Issuer Page 5 of 16 of the Agreement and Plan of Merger, dated as of November 26, 1999 (the "Merger Agreement"), by and among Endo, Endo Inc. and the Issuer and the approval of the terms thereof and each of the other actions contemplated by the Merger Agreement and the Voting Agreements and any actions required in furtherance of the Merger Agreement and the Voting Agreements; and (B) Against the following actions (other than the Merger and the transactions contemplated by the Merger Agreement): (1) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Issuer; (2) a sale, lease or transfer of a material amount of assets of the Issuer or a reorganization, recapitalization, dissolution or liquidation of the Issuer; (3)(a) any change in the majority of the board of directors of the Issuer; (b) any material change in the present capitalization of the Issuer or any of its subsidiaries or any amendment of the certificate of incorporation or similar governing document of the Issuer; (c) any other material change in the corporate structure or business of the Issuer; or (d) any other action, which, in the case of each of the matters referred to in clauses (a), (b) or (c) above, is intended, or could reasonably be expected, to impede, interfere with, delay, postpone, discourage or materially adversely affect the contemplated economic benefits to Endo and Endo Inc. of the Merger or the transactions contemplated by the Merger Agreement or the Voting Agreements. The foregoing voting rights granted to Endo pursuant to the terms of the Voting Agreements may hereinafter be referred to collectively as the "Voting Rights." Other than as set forth above, the Item 2 Persons possess no right or power to vote, direct the voting of, dispose or direct the disposition of, the Common Stock. Reference is hereby made to the Voting Agreements, a form of which is attached as Exhibit 1 hereto, for the full text of the terms thereof. Item 4. Purpose of Transaction. ----------------------- (a) Under the Voting Agreements, each of the Stockholders has agreed to: (1) not transfer (sale, gift, pledge or dispose), consent to any transfer or enter into any contract or option with respect to any such transfer of any Common Stock that would result in that Stockholder no longer having the power to vote or cause to be voted the Common Stock; (2) not grant any proxy or power-of-attorney with respect to the Common Stock; (3) not deposit the Common Stock into a voting trust or enter into a voting agreement; (4) not request that the Issuer register the transfer of Common Stock interests; (5) waive appraisal rights; and (6) not to take any action that would restrict, limit or interfere with the Page 6 of 16 performance of that Stockholder's obligations under the Voting Agreements or the Merger Agreement. Pursuant to the terms of a certain letter agreement, dated as of November 26, 1999 ("Letter Agreement"), by and among Lyle, Caruso and Endo, Lyle and Caruso are permitted to sell an aggregate of 290,500 shares of Algos Common Stock, representing (i) 224,100 shares that Lyle owns and (ii) 66,400 shares that Caruso owns, on the open market after December 20, 1999 in the event either (a) a proxy statement has been filed with the Securities and Exchange Commission ("SEC") and made publicly available on or prior to December 20, 1999 or (b) a press release relating to the Merger and the Merger Agreement has been released to the general public on or prior to December 20, 1999 such that Endo, on the one hand, and Lyle and Caruso, on the other hand, each after consultation with outside counsel, reasonably believe that such sales may be made in accordance with the federal securities laws. If neither of the actions contemplated by the prior sentence occur on or prior to December 20, 1999, then Endo shall, or shall cause an Affiliate (as defined in the Merger Agreement) of Endo, to purchase such shares from Lyle and Caruso on or before December 31, 1999 at a price equal to the average closing price of the Algos Common Stock as reported on NASDAQ for the five-trading-day period immediately preceding such purchase (ending on the day immediately prior to such purchase). The closing and settlement of any such sale to Endo, or an Affiliate thereof, shall occur on or before December 31, 1999 and payment for the shares shall be made by wire transfer of immediately available funds. (b)-(c) As discussed in Item 3 above, the Voting Agreements were entered into as a condition to, and in consideration for, the Merger Agreement. The purpose of entering into the Voting Agreements was to facilitate the Merger. In the Merger, the Issuer will merge with and into Endo Inc., and the Issuer will cease to exist as a separate corporate entity. Immediately after the Merger, current Endo stockholders will own 80% of the combined public company's approximately 89.5 million pro forma fully-diluted outstanding shares, while the Issuer's stockholders will own 20%. Each Algos stockholder will receive (i) one share of Endo common stock for each share of Algos Common Stock held by them and (ii) one Endo warrant for each of their shares of Common Stock of the Issuer. These Endo warrants will be exercisable for $0.01 per share into a specified number of shares of Endo common stock depending on the timing of approval by the U.S. Food and Drug Administration ("FDA") of MorphiDex/(R)/, an Algos product designed to Page 7 of 16 treat moderate-to-severe pain arising from cancer, for one or more pain indications. If FDA approval of MorphiDex/(R)/ is obtained on or before December 31, 2001, holders of these warrants will, upon exercise of these warrants, receive, in the aggregate, an additional 15% of the pro forma combined company (to be calculated as if all of such warrants had been exercised at the completion of the Merger). This percentage will be reduced by an amount that represents 5 percentage points for each six months after December 31, 2001 that MorphiDex/(R)/ is not approved. If FDA approval of MorphiDex/(R)/ is not attained by December 31, 2002, these warrants will expire unexercised. If Endo does not meet or exceed a specified gross profit target, based on current Endo products and products currently under development by Endo, of $147.4 million for fiscal year 2000, shares held by Endo stockholders who held such shares prior to the Merger will be returned to treasury, thereby increasing current Algos stockholders' ownership of Endo by an additional 5 percentage points. In addition, immediately prior to the Merger, each current Endo stockholder will receive one warrant for each of its Endo shares to be exercised for $0.01 per share into Endo common stock if FDA approval of MorphiDex/(R)/ is not attained by December 31, 2002. If FDA approval of MorphiDex/(R)/ is not attained by this date, then, upon exercise of these warrants, holders of these warrants will receive an additional 5% of the pro forma combined company (to be calculated as if all of these warrants had been exercised at the closing of the Merger). If FDA approval of MorphiDex/(R)/ is attained by December 31, 2002, these warrants will expire unexercised. Pursuant to the Voting Agreements, the Stockholders have agreed to: (1) not transfer (sale, gift, pledge or dispose), consent to any transfer or enter into any contract or option with respect to any such transfer of any Common Stock that would result in the member of the stockholder party not to have the power to vote or cause to be voted the Common Stock; (2) not grant any proxy or power-of-attorney with respect to the Common Stock; (3) not deposit the Common Stock into a voting trust or enter into a voting agreement; (4) not request that the Issuer register the transfer of Common Stock interests; (5) waive appraisal rights; and (6) not to take any action that would restrict, limit or interfere with the performance of their obligations under the Voting Agreements or the Merger Agreement. On November 26, 1999, Endo Pharmaceuticals Inc., a Delaware corporation and operating subsidiary of Endo, and the Issuer entered into a collaboration agreement (the "Collaboration Page 8 of 16 Agreement") under which the parties will co-develop oxycodone-based products using the Issuer's proprietary technology. Endo will be the exclusive worldwide marketer of these products. In the event that the Merger is not consummated, this collaboration agreement will survive. (d)-(g) As discussed in Item 4(b) above, the Issuer will be merging with and into Endo. As a result of the Merger, the Algos stockholders will become stockholders of Endo and will be governed by Endo's amended and restated certificate of incorporation ("Amended Certificate") and amended and restated by-laws ("Amended By-Laws") and the laws of the State of Delaware. The Amended Certificate and Amended By-Laws will differ from Algos' amended and restated certificate of incorporation and amended and restated by-laws in certain respects, including, but not limited to: (1) The number of directors will be at least seven but not more than eleven persons. The exact number of directors are to be fixed (x) by the resolution of the board, (y) by resolution adopted by the vote of a majority of the stockholders of common stock or (z) by consent executed on behalf of the stockholders. The board of directors (the "Board") immediately after the Merger will consist of 9 directors. (2) The Board will not be classified. (3) The total number of shares of authorized capital stock is currently anticipated to be 175,078,160, consisting of (x) 142,656,279 shares of common stock, par value $.01 per share, and (y) 32,421,881 shares of preferred stock, par value $.01 per share. (4) Vacancies in the Board may be filled by a vote of a majority of the remaining Board, though less than a quorum, or even by a sole remaining director. Algos will possess the right to appoint three directors of Endo following the Merger and for a period of three years, these three Algos directors on the Board will fill any vacancies created by them for other than cause with a nominee of the remaining Algos-nominated directors. (5) Actions permitted to be taken at the meeting of the stockholders may be taken without (x) a meeting, (y) prior notice and (z) a vote, if a consent in writing is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take actions at the stockholder meeting. Page 9 of 16 (6) When dividends are declared, the holders of the common stock will be entitled to share equally, share for share, in the dividends. The Board may declare dividends at regular or special meetings and may decide to pay in cash, in property, or in shares of capital stock. Before payment of the dividend, the board can set aside out of funds of Endo available for dividends, sums that in its absolute discretion, the board deems necessary for the purpose of a reserve of funds to meet contingencies, or for equalizing dividends, or for repairing or maintaining the property of Endo. (h)-(i) When the Merger is completed pursuant to the Merger Agreement and the Voting Agreements, the Common Stock of the Issuer will be delisted from the NASDAQ National Market and will be deregistered under Section 12(g)(4) of the Exchange Act. (j) Not applicable. The descriptions herein of the Voting Agreements, the Letter Agreement, the Merger Agreement, the Amended Certificate and the Amended By-Laws do not purport to be complete and are qualified in their entirety by reference to the form of Voting Agreement; Letter Agreement, Merger Agreement, the form of Amended Certificate and the form of Amended By-Laws, copies of which are attached hereto as Exhibits 1-5, respectively. Item 5. Interest in Securities of the Issuer. - ---------------------------------------------- (a)-(b) Endo ---- As a result of the Voting Agreements, the aggregate number of shares of the Common Stock of Algos that Endo has the sole power to vote or to direct the vote of (and as a result, may, under Rule 13d-3 under the Exchange Act, be deemed the beneficial owner of) is 4,176,022, which constitutes approximately 23.995% of the 17,403,895 shares of such Common Stock outstanding as of November 22, 1999, as disclosed in the Merger Agreement. Endo hereby disclaims beneficial ownership of any shares of Algos Common Stock which it may vote, and the filing of this Schedule 13D shall not be construed as an admission that Endo is, for purposes of Section 13(d) of the Exchange Act, the beneficial owner of any such shares of Common Stock. All Other Item 2 Persons Page 10 of 16 As a result of the Voting Agreements, because of their direct or indirect ownership of the majority of the capital stock of Endo, all other Item 2 Persons may be deemed as possessing the sole power to vote or to direct the vote of (and as a result, may, under Rule 13d-3 under the Exchange Act, be deemed the beneficial owner of) 4,176,022 shares of Common Stock, which constitutes approximately 23.995% of the 17,403,895 shares of such Common Stock outstanding as of November 22, 1999, as disclosed in the Merger Agreement. However, all such Item 2 Persons (including Endo) disclaim beneficial ownership of such shares of Common Stock. (c) As described in Items 3 and 4 of this Schedule 13D, Endo entered into the Voting Agreement, the Merger Agreement and the Letter Agreement within the last sixty (60) days. (d) Other than with respect to the Voting Rights, the Item 2 Persons possess no powers, rights or privileges with respect to the Algos Common Stock. All other powers, rights and privileges with respect to the Algos Common Stock remain with the Stockholders, including, but not limited to, the right to receive, or the power to direct, the receipt of dividends from, or the proceeds from the sale of, such shares of Algos Common Stock. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships -------------------------------------------------------- With Respect to Securities of the Issuer. ----------------------------------------- Except for the Voting Agreements, the Merger Agreement and the Letter Agreement into which Endo has entered, as described in Items 3 and 4 above, none of the Item 2 Persons and to the best of each of the Item 2 Persons' knowledge, any of their respective executive officers, controlling persons or directors named in Schedule A hereto has any contracts, arrangements, understandings or relationships (legal or otherwise) with any persons with respect to any securities of the Issuer, including, but not limited to, transfers or voting of any securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. Item 7. Materials to be Filed as Exhibits. ---------------------------------- Exhibit Description ------- ----------- 1 Form of Voting Agreement, dated as of November __, 1999, by and among Endo Page 11 of 16 Pharmaceuticals Holdings Inc., Endo Inc. and the stockholders party thereto. 2 Letter Agreement, dated as of November 26, 1999, by and among John W. Lyle, Frank S. Caruso and Endo Pharmaceuticals Holdings Inc. 3 Agreement and Plan of Merger, dated as of November 26, 1999, by and among Endo Pharmaceuticals Holdings Inc., Endo Inc. and Algos Pharmaceutical Corporation. 4 Form of Amended and Restated Certificate of Incorporation of Endo Pharmaceuticals Holdings Inc. 5 Form of Amended and Restated By-laws of Endo Pharmaceuticals Holdings Inc. Page 12 of 16 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: December 14, 1999 ENDO PHARMACEUTICALS HOLDINGS INC. By: /s/ Carol A. Ammon ----------------------------------- Name: Carol A. Ammon Title: President & Chief Executive Officer Schedule A ---------- DIRECTORS AND EXECUTIVE OFFICERS OF ENDO PHARMACEUTICALS HOLDINGS INC. The name, business address, title and present principal occupation or employment of each of the current directors and executive officers of Endo Pharmaceuticals Holdings Inc. ("Endo") are set forth below. If no business address is given, the director's or officer's business address is 223 Wilmington-West Chester Pike, Chadds Ford, Pennsylvania 19317. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to Endo, and each person is a citizen of the United States of America.
Name and Business Address Title - ------------------------- ----- Directors Carol A. Ammon................................. President and Chief Executive Officer Michael B. Goldberg............................ Managing Director of Kelso & Co. Kelso & Co. 320 Park Avenue New York, NY 10022 David I. Wahrhaftig ........................... Managing Director of Kelso & Co. Kelso & Co. 320 Park Avenue New York, NY 10022 Executive Officers (Who Are Not Directors) Jeffrey R. Black................................ Senior Vice President, Chief Financial Officer and Treasurer Mariann T. MacDonald............................ Executive Vice President-Operations Louis J. Vollmer................................ Executive Vice President-Sales and Marketing
Page 14 of 16 David A. H. Lee, M.D., Ph.D..................... Senior Vice President-Research and Development (Citizen of the United Kingdom) Osagie O. Imasogie.............................. Senior Vice President-Business Development, General Counsel and Secretary
DIRECTORS AND EXECUTIVE OFFICERS OF KELSO & COMPANY The name, business address, title and present principal occupation or employment of each of the current general partners of KPV, the general partners of KIAV, and of KEPV are set forth below. Each individual is both a general partner of KPV and KEPV. If no business address is given, the individual's business address is 320 Park Avenue, 24/th/ Floor, New York, New York 10022. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to Kelso & Company, L.P., a New York based private investment firm that manages KIAV, and each person is a citizen of the United States of America. Name and Business Address Present Principal Occupation - ------------------------- ---------------------------- Frank T. Nickell President & Chief Executive Officer Thomas R. Wall, IV Managing Director George E. Matelich Managing Director Michael B. Goldberg Managing Director David I. Wahrhaftig Managing Director Frank K. Bynum, Jr. Managing Director Philip E. Berney Managing Director Joseph S. Schuchert Chairman Page 15 of 16 EXHIBIT INDEX Exhibit Description ------- ----------- 1 Form of Voting Agreement, dated as of November , 1999, by and among Endo Pharmaceuticals Holdings Inc., Endo Inc. and the stockholders party thereto. 2 Letter Agreement, dated as of November 26, 1999, by and among John W. Lyle, Frank S. Caruso and Endo Pharmaceuticals Holdings Inc. 3 Agreement and Plan of Merger, dated as of November 26, 1999, by and among Endo Pharmaceuticals Holdings Inc., Endo Inc. and Algos Pharmaceutical Corporation. 4 Form of Amended and Restated Certificate of Incorporation of Endo Pharmaceuticals Holdings Inc. 5 Form of Amended and Restated By-laws of Endo Pharmaceuticals Holdings Inc. Page 16 of 16 EX-1 2 FORM OF VOTING AGREEMENT DATED 11/99. EXHIBIT 1 FORM OF VOTING AGREEMENT VOTING AGREEMENT (this "Agreement"), dated as of November __, 1999, by --------- and among ENDO PHARMACEUTICALS HOLDINGS INC., a Delaware corporation ("Parent"), ------ ENDO INC., a Delaware corporation and a newly-formed wholly-owned subsidiary of Parent ("Sub"), and the stockholder party hereto (the "Stockholder"). --- ----------- W I T N E S S E T H: - - - - - - - - - - WHEREAS, concurrently with the execution and delivery of this Agreement, an Agreement and Plan of Merger (as such agreement may be amended from time to time, the "Merger Agreement") is being entered into by and among ---------------- Parent, Sub and ALGOS PHARMACEUTICAL CORPORATION, a Delaware corporation (the "Company"), pursuant to which Company has agreed to merge with and into Sub, ------- with Sub continuing as the surviving corporation (the "Merger"); and ------ WHEREAS, as a condition to, and in consideration for, Parent's and Sub's willingness to enter into the Merger Agreement and to consummate the transactions contemplated thereby, Parent and Sub have required that the Stockholder enter into this Agreement and certain other stockholders to enter into similar agreements. NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Definitions. For purposes of this Agreement: ----------- "Company Securities" shall mean the Company's common stock, par value ------------------ $.01 per share. "Stockholder Shares" shall mean (i) the Existing Securities (as ------------------ defined in Section 5(a)(i) hereof) set forth on Schedule I hereto, (ii) any shares of Company Securities distributed prior to the termination of this Agreement in respect of the Stockholder Shares by reason of a stock dividend, split-up, recapitalization, reclassification, combination, merger, exchange of shares or otherwise and (iii) any other shares of the Company Securities of which the Stockholder acquires ownership, either directly or indirectly, after the date of this Agreement and prior to the Effective Time. "Person" shall mean an individual, corporation, partnership, limited ------ liability company, joint venture, association, trust, unincorporated organization or other entity. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Merger Agreement. 2. Agreement to Vote Shares. The Stockholder shall, at any meeting ------------------------ of the holders of any class or classes of Company Securities, however such meeting is called and regardless of whether such meeting is a special or annual meeting of the stockholders of the Company, or in connection with any written consent of the stockholders of the Company, vote (or cause to be voted) the Stockholder Shares, (i) in favor of the Merger, the execution and delivery by the Company of the Merger Agreement and the approval of the terms thereof and each of the other actions contemplated by the Merger Agreement and this Agreement and any actions required in furtherance thereof and hereof and (ii) against the following actions (other than the Merger and the transactions contemplated by the Merger Agreement): (1) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company; (2) a sale, lease or transfer of a material amount of assets of the Company or a reorganization, recapitalization, dissolution or liquidation of the Company; (3) (a) any change in the majority of the board of directors of the Company; (b) any material change in the present capitalization of the Company or any amendment of the certificate of incorporation or similar governing document of the Company; (c) any other material change in the corporate structure or business of the Company; or (d) any other action, which, in the case of each of the matters referred to in clauses (a), (b) and (c) above, is intended, or could reasonably be expected, to impede, interfere with, delay, postpone, discourage or materially adversely affect the contemplated economic benefits to Parent or Sub of the Merger or the transactions contemplated by the Merger Agreement or this Agreement. 2 3. Grant of Irrevocable Proxy; Appointment of Proxy. ------------------------------------------------ (a) The Stockholder hereby irrevocably grants to, and appoints, Carol Ammon, Jeffrey Black and Osagie Imasogie, or any one of them, in their respective capacities as officers of Parent, and any individual who shall hereafter succeed to any such office of Parent, and each of them individually, the Stockholder's proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of the Stockholder, to vote the Stockholder Shares held at the time of the relevant stockholder vote as set forth in Section 2 hereof. The Stock holder will cause any record holder of Stockholder Shares to grant substantially similar proxies as requested in accordance with Section 8(e) hereof. (b) The Stockholder represents that any proxies heretofore given in respect of the Stockholder Shares are not irrevocable, and that any such proxies are hereby revoked. (c) The Stockholder understands and acknowledges that Parent and Sub are entering into the Merger Agreement in reliance upon the Stockholder's execution and delivery of this Agreement. The Stockholder hereby affirms that the irrevocable proxy set forth in this Section 3 is given in connection with the execution of the Merger Agreement, and that such irrevocable proxy is given to secure the performance of the duties of the Stockholder under this Agreement. The Stockholder hereby further affirms that the irrevocable proxy is coupled with an interest and may under no circumstances be revoked. Such irrevocable proxy is executed and intended to be irrevocable in accordance with the provisions of Section 212(e) of the Delaware General Corporation Law. 4. Covenants of the Stockholders. The Stockholder hereby agrees ----------------------------- and covenants that: (a) Restriction on Transfers. Except as may otherwise be agreed ------------------------ by Parent and as contemplated by those agreements or understandings set forth on Schedule II hereto, the Stockholder shall not (i) transfer (which term shall include, without limitation, any sale, gift, pledge or other disposition), or consent to any transfer of, any or all of the Stockholder Shares, or any interest therein if such transfer would result in the Stockholder no longer having the power to vote or cause to be voted the Stockholder Shares or (ii) enter into any contract, option or other agreement or understanding with respect to any such transfer of any or all of the Stockholder Shares, or any interest therein. 3 (b) Restrictions on Proxies and Voting Arrangements. Except as ----------------------------------------------- otherwise provided herein, the Stockholder shall not (i) grant any proxy, power- of-attorney or other authorization in or with respect to the Stockholder Shares or (ii) deposit the Stockholder Shares into a voting trust or enter into a voting agreement or arrangement with respect to the Stockholder Shares. (c) Stop Transfer. The Stockholder shall not request that the ------------- Company register the transfer (book-entry or otherwise) of any certificate or uncertificated interest representing any of the Stockholder's Existing Securities (as defined in Section 6(a)(i) hereof), unless such transfer is made in compliance with this Agreement. In the event of any dividend or distribution, or any change in the capital structure of the Company by reason of any non-cash dividend, split-up, recapitalization, combination, exchange of securities or the like, the term "Existing Securities" shall refer to and include the Existing Securities as well as all such dividends and distributions of securities and any securities into which or for which any or all of the Existing Securities may be changed, exchanged or converted. (d) Waiver of Appraisal Rights. The Stockholder hereby waives -------------------------- any rights of appraisal or rights to dissent from the Merger that the Stockholder may have. (e) No Inconsistent Arrangements. The Stockholder shall not ---------------------------- take any other action that would in any way restrict, limit or interfere with the performance of the Stockholder's obligations hereunder or the transactions contemplated hereby or by the Merger Agreement. 5. Representations and Warranties. ------------------------------ (a) The Stockholder hereby represents and warrants to Parent and Sub as follows: (i) Ownership of Securities. On the date hereof, the ----------------------- Stockholder owns, directly or indirectly, or has the power to direct the voting of, the Company Securities set forth next to the Stockholder's name on Schedule I hereto (the "Existing Securities"), ------------------- and the Existing Securities are owned of record by the Stockholder or certain of the Stockholder's subsidiaries or nominees (together, the "Record Holders"). On the date hereof, the Existing Securities --------------- constitute all of the shares of voting capital stock of the Company owned of record or otherwise by such Stockholder or as to which such Stockholder has the power to direct the voting of the shares. Each Record has 4 sole voting power and sole power to issue instructions with respect to the matters set forth in Section 2 hereof, sole power of disposition, sole power of conversion, sole power (if any) to demand appraisal rights and sole power to agree to all of the matters set forth in this Agreement, in each case with respect to all of such Record Holder's Existing Securities with no limitations, qualifications or restrictions on such rights, subject to applicable securities laws and the terms of this Agreement. (ii) Power; Binding Agreement. The Stockholder has the power ------------------------ (or, if applicable, corporate power) and authority to enter into and perform all of the Stockholder's obligations under this Agreement. The execution, delivery and performance of this Agreement by the Stockholder will not violate any other agreement to which the Stockholder is a party including, without limitation, any voting agreement, proxy arrangement, pledge agreement, shareholders agreement, voting trust or trust agreement. This Agreement has been duly and validly executed and delivered by the Stockholder and constitutes a valid and binding agreement of the Stockholder, enforceable against the Stockholder in accordance with its terms, except as the enforceability thereof may be limited by (a) applicable bankruptcy, insolvency, moratorium, reorganization or similar laws in effect that affect the enforcement of creditors rights generally or (b) general principles of equity, whether considered in a proceeding at law or in equity. There is no beneficiary or holder of a voting trust certificate or other interest of any trust of which the Stockholder is a trustee whose consent is required for the execution and delivery of this Agreement or the compliance by the Stockholder with the terms hereof. (iii) No Conflicts. No filing with, and no permit, ------------ authorization, consent or approval of, any Governmental Entity is required for the execution of this Agreement by the Stockholder and the consummation by the Stockholder of the transactions contemplated hereby, except in connection, or in compliance, with the provisions of (i) Section 16 and Section 13D or 13G of the Exchange Act and (ii) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), none of the execution and delivery of this Agreement by ------- the Stockholder, the consummation by the Stockholder of the transactions contemplated hereby or compliance by the Stockholder with any of the provisions hereof shall (A) conflict with, or result in any breach of, any organizational documents applicable to 5 the Stockholder, (B) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, loan agreement, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which the Stockholder is a party or by which the Stockholder or any of the Stockholder's properties or assets may be bound, or (C) violate any order, writ, injunction, decree, judgment, order, statute, arbitration award, rule or regulation applicable to the Stockholder or any of the Stockholder's properties or assets. (iv) No Liens. Except as established hereby, the Existing -------- Securities are now and, at all times during the term hereof, will be held by the Stockholder, or by a nominee or custodian for the benefit of the Stockholder, free and clear of all liens, claims, security interests, proxies, voting trusts or agreements, understandings or arrangements or any other encumbrances whatsoever. (v) No Solicitation. The Stockholder hereby agrees, in the --------------- Stockholder's capacity as stockholder of the Company, that neither the Stockholder nor any of the Stockholder's subsidiaries, if applicable, shall (and the Stockholder shall use best efforts to cause the Stockholder's officers, directors, employees, investment bankers, consultants, attorneys, accountants, agents, advisors or representatives not to), directly or indirectly, take any action to solicit, initiate, encourage, facilitate, participate in or initiate discussions or negotiations with, or provide any information to, any Person (other than Parent, Sub or any of their Affiliates or representatives) concerning any Company Take over Proposal; provided -------- that nothing contained in this Section 5(a)(v) shall restrict any ---- officer, director or employee of the Stockholder or the Stockholder's subsidiaries, if applicable, from taking any action in his or her capacity as a director, officer or employee of the Company which is permitted to be taken pursuant to Section 4.2 of the Merger Agreement. 6 (b) Parent and Sub jointly and severally hereby represent and warrant to the Stockholder as follows: (i) Power; Binding Agreement. Each of Parent and Sub has the ------------------------ corporate power and authority to enter into and perform all of its obligations under this Agreement. The execution, delivery and performance of this Agreement by each of Parent and Sub will not violate any material agreement to which Parent or Sub, as the case may be, is a party. This Agreement has been duly and validly executed and delivered by each of Parent and Sub and constitutes a valid and binding agreement of each of Parent and Sub, enforceable against each of them in accordance with its terms, except as the enforceability thereof may be limited by (a) applicable bankruptcy, insolvency, moratorium, reorganization or similar laws in effect that affect the enforcement of creditors rights generally or (b) general principles of equity, whether considered in a proceeding at law or in equity. (ii) No Conflicts. No filing with, and no permit, ------------ authorization, consent or approval of, any Governmental Entity is required for the execution of this Agreement by each of Parent and Sub and the consummation by each of them of the transactions contemplated hereby, except in connection, or in compliance, with the provisions of (i) Section 16 and Section 13D or 13G of the Exchange Act and (ii) the HSR Act, and none of the execution and delivery of this Agreement by each of Parent and Sub, the consummation by each of them of the transactions contemplated hereby or compliance by each of them with any of the provisions hereof shall (A) conflict with or result in any breach of any organizational documents applicable to Parent or Sub, respectively, (B) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any material note, loan agreement, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which Parent or Sub is a party or by which Parent or Sub or any of their respective properties or assets may be bound, or (C) violate any order, writ, injunction, decree, judgment, order, statute, arbitration award, rule or regulation applicable to Parent or Sub or any of their respective properties or assets. 7 6. Best Efforts. Subject to the terms and conditions of this ------------ Agreement, each of the parties hereto agrees to use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement and the Merger Agreement; provided that nothing contained in this Section 6 -------- ---- shall restrict any officer, director or employee of the Stockholder or the Stockholder's Subsidiaries from taking any action in his or her capacity as a director, officer or employee of the Company which is permitted to be taken pursuant to Section 4.2 of the Merger Agreement. 7. Termination. Other than Section 8 hereof (which shall survive ----------- in any event), this Agreement and the covenants, representations and warranties, agreements and irrevocable proxy or proxies contained herein or granted pursuant hereto shall terminate upon the earlier to occur of (i) the termination of the Merger Agreement in accordance with Article VII thereof and (ii) the consummation of the transactions contemplated by the Merger Agreement. Upon any termination of this Agreement, this Agreement shall thereupon become void and of no further force and effect, and there shall be no liability in respect of this Agreement or of any transactions contemplated hereby or by the Merger Agreement on the part of any party hereto or any of its directors, officers, partners, stockholders, employees, agents, advisors, representatives or Affiliates; provided, however, that nothing herein shall relieve any party from any - -------- ------- liability for such party's willful breach of this Agreement; and provided, -------- further, that nothing herein shall limit, restrict, impair, amend or otherwise - ------- modify the rights, remedies, obligations or liabilities of any person under any other contract or agreement, including, without limitation, the Merger Agreement. 8. Miscellaneous. ------------- (a) Specific Performance. Each party hereto recognizes and -------------------- agrees that if for any reason any of the provisions of this Agreement are not performed by the other parties in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused to the non-breaching parties for which money damages would not be an adequate remedy. Accordingly, the parties agree that, in addition to any other available remedies, the non-breaching parties shall be entitled to an injunction restraining any violation or threatened violation of the provisions of this Agreement without the necessity of the non-breaching parties posting a bond or other form of security. In the event that any action should be brought in equity to enforce the provisions of this Agreement, the breaching party will not allege, and the breaching party hereby waives the defense, that there is an adequate remedy at law. 8 (b) Severability. Any term or provision of this Agreement which ------------ is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. Without limiting the foregoing, with respect to any provision of this Agreement, if it is determined by a court of competent jurisdiction to be excessive as to duration or scope, it is the parties' intention that such provision nevertheless be enforced to the fullest extent which it may be enforced. (c) Attorneys' Fees. If any action at law or equity, including --------------- an action for declaratory relief, is brought by a party to this Agreement to enforce or interpret any provision of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees and expenses from the other party, which fees and expenses shall be in addition to any other relief which may be awarded. (d) Governing Law. This Agreement shall be governed by, and ------------- construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, THE COMPANY, OR SUB IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF. (e) Further Assurances. From time to time, at the request of ------------------ Parent or Sub, the Stockholder shall execute and deliver to Parent and Sub or cause other Record Holders to execute and deliver to Parent and Sub such additional instruments containing grants of proxy with respect to the Stockholder Shares (which grants of proxy will be in substantially the form of Section 3(a) hereof) as Parent or Sub may reasonably request in connection with the Stockholder's obligations under this Agreement. (f) Entire Agreement. This Agreement constitutes the entire ---------------- agreement among the parties hereto with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, among the parties or any of them with respect to the subject matter hereof. 9 (g) Consent to Jurisdiction, Etc. Each party hereto hereby ----------------------------- irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the United States District Court located in the State of Delaware (unless such courts assert no jurisdiction, in which case the parties hereto consent to the exclusive jurisdiction of the courts of the State of Delaware) for any actions, suits or proceedings arising out of or relating to this Agreement and the transactions contemplated hereby (and each party hereto agrees not to commence any action, suit or proceeding relating thereto except in such courts), and further agrees that service of any process, summons, notice or document by U.S. registered mail to the addresses set forth herein shall be effective service of process for any such action, suit or proceeding brought against each party in such court. Each party hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby, in the United States District Courts located in the State of Delaware (unless such courts assert no jurisdiction, in which case each party consents to the exclusive jurisdiction of the courts of the State of Delaware). Each party hereby further irrevocably and unconditionally waives and agrees not to plead or to claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. (h) Notices. All notices, requests, claims, demands and other ------- communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by overnight courier, by facsimile (which is confirmed), or by registered or certified mail (postage prepaid, return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to the Stockholder, to the addresses set forth next to the Stockholder's name on Schedule II hereto and (b) if to Parent or Sub, to: Endo Pharmaceuticals Holdings Inc. 223 Wilmington-West Chester Pike Chadds Ford, PA 19317 10 Attn.: Carol A. Ammon Fax No.: (610) 558-9683 with copies to: Kelso & Company 320 Park Avenue, 24/th/ Floor New York, NY 10022 Attn.: James J. Connors, II Fax No.: (212) 223-2379 and Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, NY 10022 Attn.: Eileen Nugent Simon, Esq. Fax No.: (212) 735-2000 and (c) if to the Company, to: Algos Pharmaceuticals Corporation 1333 Campus Parkway Neptune, NJ 07753-6815 Attn.: General Counsel Fax No.: (732) 938-2825 with copies to: Latham & Watkins 885 Third Avenue New York, New York 10022 Attn.: Raymond Y. Lin, Esq. Fax No.: (212) 751-4864 (i) Descriptive Headings; Interpretation. The descriptive headings ------------------------------------ herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 11 (j) Assignment; Binding Agreement. Neither this Agreement nor any of ----------------------------- the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the other party hereto; provided, however, that Parent and Sub shall be permitted to assign, in whole or - -------- ------- in part, this Agreement or any of the rights, interests or obligations hereunder to any of their Subsidiaries or Affiliates. (k) Amendment, Modification and Waiver. This Agreement may not be ---------------------------------- amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of the party hereto against whom such amendment, modification or waiver is sought to be entered. (l) Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 12 IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this Agreement to be duly executed as of the day and year first above written. ENDO PHARMACEUTICAL HOLDINGS INC. By:_____________________________ Name: Title: ENDO INC. By:_____________________________ Name: Title: [STOCKHOLDER] By:_____________________________ Name: Title: Schedule I ---------- List of Existing Securities Stockholders' Holdings of Company Common Stock - ---------------------------------------------------------------------- Registered Holder Number of Shares Held - ---------------------------------------------------------------------- Karen B. Lyle 1,344,416 - ---------------------------------------------------------------------- Michael Hyatt (N.B. does not include 829,551 shares owned by the Kimmel Trusts listed below) - ---------------------------------------------------------------------- Trust Under the Will of Inez Kimmel 657,193 - ---------------------------------------------------------------------- Todd Kimmel Trust 171,530 - ---------------------------------------------------------------------- Melissa Kimmel Trust 155,000 - ---------------------------------------------------------------------- Anita Hyatt Family Trust 20,750 - ---------------------------------------------------------------------- Frank S. Caruso 370,200 - ---------------------------------------------------------------------- John W. Lyle 224,100 - ---------------------------------------------------------------------- Hyatt Family Trust 221,332 - ---------------------------------------------------------------------- Roger H. Kimmel (N.B. does not include 30,000 shares owned by the Hyatt Trusts listed above) - ---------------------------------------------------------------------- Frank S. Caruso Irrevocable Trust 24,900 - ---------------------------------------------------------------------- James R. Ledley 109,450 - ---------------------------------------------------------------------- Donald G. Drapkin 8,300 - ---------------------------------------------------------------------- Donald Drapkin 8,300 - ---------------------------------------------------------------------- Patricia Caruso 1,000 - ---------------------------------------------------------------------- Total 4,176,022 - ---------------------------------------------------------------------- 14 Schedule II ----------- Notices - -------------------------------------------------------------------------------- Stockholder Party Notice To: With A Copy To: - -------------------------------------------------------------------------------- Michael Hyatt Michael Hyatt Michael Hyatt Bear Stearns & Co. Inc. Bear Stearns & Co. Inc. 245 Park Avenue 245 Park Avenue New York, NY 10167 New York, NY 10167 - -------------------------------------------------------------------------------- Michael Hyatt as Michael Hyatt Michael Hyatt Trustee for the Bear Stearns & Co. Inc. Bear Stearns & Co. Inc. Trust Under the Will 245 Park Avenue 245 Park Avenue of Inez L. Kimmel New York, NY 10167 New York, NY 10167 - -------------------------------------------------------------------------------- Michael Hyatt as Michael Hyatt Michael Hyatt Trustee for The Todd Bear Stearns & Co. Inc. Bear Stearns & Co. Inc. Kimmel Trust 245 Park Avenue 245 Park Avenue New York, NY 10167 New York, NY 10167 - -------------------------------------------------------------------------------- Michael Hyatt as Michael Hyatt Michael Hyatt Trustee for the Bear Stearns & Co. Inc. Bear Stearns & Co. Inc. Melissa Kimmel Trust 245 Park Avenue 245 Park Avenue New York, NY 10167 New York, NY 10167 - -------------------------------------------------------------------------------- Michael Hyatt as Michael Hyatt Michael Hyatt Trustee for the Bear Stearns & Co. Inc. Bear Stearns & Co. Inc. Anita Hyatt Family 245 Park Avenue 245 Park Avenue Trust New York, NY 10167 New York, NY 10167 - -------------------------------------------------------------------------------- Roger H. Kimmel Roger H. Kimmel Roger H. Kimmel Latham & Watkins Latham & Watkins 885 Third Avenue, Suite 1000 885 Third Avenue, Suite 1000 New York, NY 10022 New York, NY 10022 - -------------------------------------------------------------------------------- 1 - -------------------------------------------------------------------------------- Roger H. Kimmel as Roger H. Kimmel Roger H. Kimmel Trustee for the Hyatt Latham & Watkins Latham & Watkins Family Trust 885 Third Avenue, Suite 1000 885 Third Avenue, Suite 1000 New York, NY 10022 New York, NY 10022 - -------------------------------------------------------------------------------- James R. Ledley James R. Ledley James R. Ledley 26 Hardscrabble Hill 26 Hardscrabble Hill Chappaqua, NY 10514 Chappaqua, NY 10514 - -------------------------------------------------------------------------------- Donald Drapkin Donald Drapkin Donald Drapkin 35 East 62/nd/ 35 East 62/nd/ New York, NY 10021 New York, NY 10021 - -------------------------------------------------------------------------------- Donald G. Drapkin Donald Drapkin Donald Drapkin 35 East 62/nd/ 35 East 62/nd/ New York, NY 10021 New York, NY 10021 - -------------------------------------------------------------------------------- John W. Lyle John Lyle John Lyle 28 Inlet Terrace 28 Inlet Terrace Belmar, NJ 07719 Belmar, NJ 07719 - -------------------------------------------------------------------------------- Karen B. Lyle Karen Lyle Karen Lyle 4 Dayna Lane 4 Dayna Lane Lawrenceville, NJ 08648 Lawrenceville, NJ 08648 - -------------------------------------------------------------------------------- Frank S. Caruso Frank S. Caruso, Ph. D. Frank S. Caruso, Ph. D. 2 Bowling Green 2 Bowling Green Colts Neck, NJ 07722 Colts Neck, NJ 07722 - -------------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- Frank S. Caruso, Jr. as Trustee Frank S. Caruso, Jr. Frank S. Caruso, Ph. D. for the Frank S. Caruso USA Datanet 2 Bowling Green Irrevocable Trust 318 South Clinton St. Colts Neck, NJ 07722 Suite 300 Syracuse, NY 13202 - -------------------------------------------------------------------------------- Patricia Caruso Patricia Caruso Patricia Caruso 2 Bowling Green 2 Bowling Green Colts Neck, NJ 07722 Colts Neck, NJ 07722 - -------------------------------------------------------------------------------- 3 EX-2 3 LETTER AGREEMENT DATED 11/26/99. EXHIBIT 2 Endo Pharmaceuticals Holdings Inc. 233 Wilmington West Chester Pike Chadds Ford, Pennsylvania 19317 November 26, 1999 John W. Lyle and Frank S. Caruso c/o Algos Pharmaceutical Corporation 1333 Campus Parkway Neptune, New Jersey 07753-6815 Gentlemen: This letter agreement (the "Letter Agreement") will confirm the ---------------- understanding and agreement among John W. Lyle and Frank S. Caruso (collectively, the "Executives") and Endo Pharmaceuticals Holdings Inc., a ---------- Delaware corporation ("Endo"), in connection with the possible purchase by Endo ---- or an Affiliate of Endo from each of the Executives of the number of shares of common stock of Algos Pharmaceutical Corporation, a Delaware corporation (the "Company"), owned by them and set forth on Annex I hereto (the "Algos Shares"). - -------- ------------ Capitalized terms used in this Letter Agreement but not otherwise defined herein shall have the meanings ascribed to them in that certain Agreement and Plan of Merger, dated as of November 26, 1999, by and among Endo, the Company and Endo Inc., a Delaware corporation and wholly owned subsidiary of Endo (the "Merger ------ Agreement"). - --------- The parties hereto agree that the Executives may sell the Algos Shares on the open market after December 20, 1999 in the event either (a) the Proxy Statement has been filed with the SEC and made publicly available on or prior to December 20, 1999 or (b) a press release relating to the Merger and the Merger Agreement has been released to the general public on or prior to December 20, 1999 such that Endo and the Executives, each after consultation with outside counsel, reasonably believe that such sales may be made in accordance with the federal securities laws. If neither of the actions contemplated by the prior sentence occur on or prior to December 20, 1999, then Endo shall or shall cause an Affiliate of Endo to purchase the Algos Shares from the Executives on or before December 31, 1999 at a price equal to the average closing price of the Algos Common Stock as reported on NASDAQ for the five-trading-day period immediately preceding such purchase (ending on the day immediately prior to such purchase); provided, however that if the purchase price for the Algos Shares -------- ------- exceeds $5.5 million in the aggregate, then Endo or an Affiliate of Endo shall pay any such excess in the form of a promissory note which will become payable on January 31, 2000. The closing and settlement of any such sale to Endo or an Affiliate thereof shall occur on or before December 31, 1999 and payment for the Algos Shares shall be made by wire transfer of immediately available funds. Please confirm that the foregoing is in accordance with your understanding by signing and returning to the Company the enclosed copy of this Letter Agreement, whereupon this Letter Agreement will become a binding agreement among us. Very truly yours, ENDO PHARMACEUTICALS HOLDINGS INC. /s/ Carol A. Ammon By:___________________________________ Name: Carol A. Ammon Title: President & Chief Executive Officer Confirmed as of the date above: /s/ John W. Lyle ____________________________ John W. Lyle /s/ Frank S. Caruso ____________________________ Frank S. Caruso 2 Annex I _______ Holders Number of Algos Shares owned - ------- ---------------------------- John W. Lyle 224,100 Frank S. Caruso 66,400 EX-3 4 AGREEMENT AND PLAN OF MERGER DATED 11/26/99. EXHIBIT 3 AGREEMENT AND PLAN OF MERGER by and among ENDO PHARMACEUTICALS HOLDINGS INC., ENDO INC. and ALGOS PHARMACEUTICAL CORPORATION __________________ Dated as of November 26, 1999 __________________ TABLE OF CONTENTS
Page ---- ARTICLE I THE MERGER Section 1.1 The Merger.............................. Section 1.2 Effective Time.......................... Section 1.3 Effects of the Merger................... Section 1.4 Directors of the Surviving Corporation.. Section 1.5 Officers of the Surviving Corporation... Section 1.6 Charter and By-Laws..................... Section 1.7 Conversion of Securities................ Section 1.8 Parent to Make Certificates Available... Section 1.9 Dividends; Transfer Taxes; Withholding.. Section 1.10 [Intentionally Omitted.]................ Section 1.11 Return of Exchange Fund................. Section 1.12 Adjustment of Conversion Number......... Section 1.13 No Further Ownership Rights in Company Common Stock............................ Section 1.14 Closing of Company Transfer Books....... Section 1.15 Lost Certificates....................... Section 1.16 Affiliates.............................. Section 1.17 Further Assurances...................... Section 1.18 Closing................................. ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Section 2.1 Organization, Standing and Power............ Section 2.2 Capital Structure........................... Section 2.3 Authority................................... Section 2.4 Consents and Approvals; No Violation........ Section 2.5 Financial Statements........................ Section 2.6 Registration Statement and Proxy Statement.. Section 2.7 Absence of Certain Changes or Events........ Section 2.8 Permits and Compliance...................... Section 2.9 Tax Matters................................. Section 2.10 Actions and Proceedings..................... Section 2.11 Certain Agreements.......................... Section 2.12 ERISA....................................... Section 2.13 Compliance with Certain Laws................ Section 2.14 Liabilities................................. Section 2.15 Labor Matters...............................
Section 2.16 Intellectual Property....................... Section 2.17 Ownership of Shares......................... Section 2.18 Operations of Sub........................... Section 2.19 Brokers..................................... Section 2.20 State Takeover Statutes..................... Section 2.21 Year 2000................................... Section 2.22 Accuracy of Information Furnished........... Section 2.23 Required Vote of Parent and Sub Stockholders................................ Section 2.24 Interests in Other Entities................. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY Section 3.1 Organization, Standing and Power............ Section 3.2 Capital Structure; Subsidiaries............. Section 3.3 Authority................................... Section 3.4 Consents and Approvals; No Violation........ Section 3.5 SEC Documents and Other Reports............. Section 3.6 Registration Statement and Proxy Statement.. Section 3.7 Absence of Certain Changes or Events........ Section 3.8 Permits and Compliance...................... Section 3.9 Tax Matters................................. Section 3.10 Actions and Proceedings..................... Section 3.11 Certain Agreements.......................... Section 3.12 ERISA....................................... Section 3.13 Compliance with Certain Laws................ Section 3.14 Liabilities................................. Section 3.15 Labor Matters............................... Section 3.16 Intellectual Property....................... Section 3.17 Opinion of Financial Advisor................ Section 3.18 Required Vote of Company Stockholders....... Section 3.19 Ownership of Shares......................... Section 3.20 Brokers..................................... Section 3.21 State Takeover Statutes..................... Section 3.22 Year 2000................................... Section 3.23 Interests in Other Entities................. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS Section 4.1 Conduct of Business Pending the Merger......
ii Section 4.2 No Solicitation................................... Section 4.3 Tax Representation Letters........................ ARTICLE V ADDITIONAL AGREEMENTS Section 5.1 Stockholder Meeting.............................. Section 5.2 Preparation of the Registration Statement and the Proxy Statement.......................... Section 5.3 Access to Information; Regulatory Communications................................... Section 5.4 Compliance with the Securities Act............... Section 5.5 Designation of Directors......................... Section 5.6 NASDAQ Listing................................... Section 5.7 Fees and Expenses................................ Section 5.8 Company Stock Options............................ Section 5.9 Parent Options................................... Section 5.10 Reasonable Efforts............................... Section 5.11 Public Announcements............................. Section 5.12 State Takeover Laws.............................. Section 5.13 Indemnification; Directors and Officers Insurance........................................ Section 5.14 Notification of Certain Matters.................. Section 5.15 Employee Matters................................. Section 5.16 Tax Treatment.................................... Section 5.17 Conveyance Taxes................................. Section 5.18 Ownership of Shares.............................. Section 5.19 Additional Agreements............................ Section 5.20 Issuance of Warrants to Parent................... Section 5.21 Formation of Parent LLC.......................... Section 5.22 Effect of Parent Recapitalization................
iii ARTICLE VI CONDITIONS PRECEDENT TO THE MERGER Section 6.1 Conditions to Each Party's Obligation to Effect the Merger............................................ Section 6.2 Conditions to Obligation of the Company to Effect the Merger........................................ Section 6.3 Conditions to Obligations of Parent and Sub to Effect the Merger................................. ARTICLE VII TERMINATION, AMENDMENT AND WAIVER Section 7.1 Termination......................................... Section 7.2 Effect of Termination............................... Section 7.3 Amendment........................................... Section 7.4 Waiver.............................................. Section 7.5 Procedure for Termination, Amendment, Extension or Waiver......................................... ARTICLE VIII GENERAL PROVISIONS Section 8.1 Non-Survival of Representations and Warranties...... Section 8.2 Notices............................................. Section 8.3 Interpretation...................................... Section 8.4 Counterparts........................................ Section 8.5 Entire Agreement; No Third-Party Beneficiaries...... Section 8.6 Governing Law....................................... Section 8.7 Assignment.......................................... Section 8.8 Severability........................................ Section 8.9 Enforcement of this Agreement....................... List of Exhibits - ---------------- Exhibit A-1 Form of Charter Amendment Exhibit A-2 Summary of Parent Recapitalization Exhibit B Form of Stockholder Voting Agreement Exhibit C Form of Algos Warrant Exhibit D-1 Parent's Year 2000 Representation Exhibit D-2 Company's Year 2000 Representation Exhibit E-1 Form of Representation Letter (Parent's) Exhibit E-2 Form of Representation Letter (the Company's) Exhibit F-1 Form of Affiliate Letter (the Company's) Exhibit F-2 Form of Affiliate Letter to the Agreement and Plan of Merger iv Exhibit G Form of Tax Sharing Agreement Exhibit H Form of Lyle Agreement Exhibit I Form of Endo Warrant v Index of Defined Terms
Term Page - ---- ---- Adjustment Event............................................ Affiliates.................................................. Agreement................................................... Applicable Laws............................................. Cash Cost of Sales.......................................... Cash Gross Profit of Parent................................. Certificate of Merger....................................... Certificates................................................ Change in the Company Recommendation........................ Charter Amendment........................................... Closing..................................................... Closing Date................................................ COBRA....................................................... Code........................................................ Company..................................................... Company Business Personnel.................................. Company By-Laws............................................. Company Charter............................................. Company Common Stock........................................ Company Copyrights.......................................... Company Designees........................................... Company Disclosure Schedule................................. Company Intellectual Property............................... Company License Agreements.................................. Company Multiemployer Plan.................................. Company Patents............................................. Company Permits............................................. Company Plan................................................ Company Preferred Stock..................................... Company SEC Documents....................................... Company Software............................................ Company Stock Options....................................... Company Stock Plans......................................... Company Stockholder Approvals............................... Company Takeover Proposal................................... Company Technology.......................................... Company Trademarks..........................................
vi Constituent Corporations..................................... Conversion Number............................................ Credit Agreement............................................. Current Endo Options......................................... D&O Insurance................................................ DEA.......................................................... DGCL......................................................... Effective Time............................................... Endo Products................................................ Endo Warrant Agreement....................................... Endo Warrants................................................ Environmental Laws........................................... ERISA........................................................ Exchange Act................................................. Exchange Agent............................................... Exchange Fund................................................ FDA.......................................................... FDCA......................................................... GAAP......................................................... Governmental Entity.......................................... hazardous materials.......................................... HSR Act...................................................... IND.......................................................... Independent Accounting Firm.................................. IRS.......................................................... Knowledge of Parent.......................................... Knowledge of the Company..................................... Lyle Agreement............................................... Material Adverse Change...................................... Material Adverse Effect...................................... Merger....................................................... Merger Consideration......................................... MorphiDex(R) Application..................................... NASDAQ....................................................... NDA.......................................................... Net Sales.................................................... NOLs......................................................... Non-Transferable Warrants.................................... Parent....................................................... Parent Business Personnel.................................... Parent By-Laws............................................... Parent Charter...............................................
vii Parent Class A Common Stock................................. Parent Common Stock......................................... Parent Copyrights........................................... Parent Disclosure Schedule.................................. Parent Financial Statements................................. Parent Incentive Plans...................................... Parent Intellectual Property................................ Parent License Agreements................................... Parent LLC.................................................. Parent LLC Agreement........................................ Parent Material Contracts................................... Parent Multiemployer Plan................................... Parent Patents.............................................. Parent Permits.............................................. Parent Plan................................................. Parent Preferred Stock...................................... Parent Recapitalization..................................... Parent Software............................................. Parent Stock Options........................................ Parent Stock Plans.......................................... Parent Stock Purchase Plan.................................. Parent Technology........................................... Parent Trademarks........................................... Permits..................................................... Person...................................................... Position Paper.............................................. Proxy Statement............................................. Registration Statement...................................... SEC......................................................... Securities Act.............................................. State Takeover Approvals.................................... Stockholder Meeting......................................... Stockholder Voting Agreement................................ Stockholder Voting Agreements............................... Sub......................................................... Subsidiary.................................................. Superior Company Proposal................................... Surviving Corporation....................................... Tax Representation Letters.................................. Tax Returns................................................. Tax Sharing Agreement....................................... Taxes.......................................................
viii Termination Date............................................ Transaction Agreements...................................... Warrant Agreement...........................................
AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of November 26, 1999 (this "Agreement"), by and among ENDO PHARMACEUTICALS HOLDINGS INC., a Delaware - ---------- corporation ("Parent"), ENDO INC., a Delaware corporation and a newly-formed ------ wholly-owned subsidiary of Parent ("Sub"), and ALGOS PHARMACEUTICAL CORPORATION, --- a Delaware corporation (the "Company") (Sub and the Company being hereinafter ------- collectively referred to as the "Constituent Corporations"). ------------------------ WITNESSETH: WHEREAS, the respective Boards of Directors of Parent, Sub and the Company have each determined that the Merger is advisable and in the best interest of their respective stockholders and is in furtherance of and consistent with their respective long-term business strategies; WHEREAS, the respective Boards of Directors of Parent, Sub and the Company have each (a) approved and declared advisable the merger of the Company with and into Sub (the "Merger"), upon the terms and subject to the conditions set forth ------ herein, whereby each issued and outstanding share of common stock, par value $.01 per share, of the Company ("Company Common Stock") not owned directly or -------------------- indirectly by Parent or the Company will be converted into the Merger Consideration (as defined in Section 1.7(c) hereof) and (b) approved this Agreement upon the terms and subject to the conditions set forth herein; WHEREAS, concurrently with the execution of this Agreement, the Board of Directors of Parent will have approved this Agreement and the Merger and, in its capacity as the sole stockholder of Sub, will have approved this Agreement upon the terms and subject to the conditions set forth herein; WHEREAS, following the execution of this Agreement and prior to the Closing (as defined in Section 1.18 hereof), Parent will (a) duly adopt and declare advisable an amendment and restatement of the Certificate of Incorporation of Parent substantially in the form attached hereto as Exhibit A-1 (the "Charter ------- Amendment") and (b) declare and pay a stock dividend to the then current holders - --------- of shares of common stock, par value $.01 per share, of Parent ("Parent Common ------------- Stock") or effect some other form of recapitalization, the results of which are - ----- substantially set forth on Exhibit A-2 attached hereto (the "Parent ------ Recapitalization"); - ---------------- WHEREAS, simultaneous with the execution and delivery of this Agreement, Parent and each stockholder of the Company listed on Annex I attached hereto have each entered into an agreement substantially in the form of Exhibit B hereto (each, a "Stockholder Voting Agreement" and collectively, "Stockholder ---------------------------- ----------- Voting Agreements") pursuant to which such stockholder has agreed to vote the - ------------------ shares of Company Common Stock beneficially owned by such stockholder in favor of the Merger (the Stockholder Voting Agreements, the Warrant Agreement (as defined in Section 1.7(c) hereof) and this Agreement are collectively referred to herein as the "Transaction Agreements"); ----------------------- WHEREAS, following the execution of this Agreement and prior to the Closing, Parent and certain stockholders of Parent shall enter into a registration rights agreement pursuant to which Parent will grant certain rights to such Persons regarding the registration of Parent Common Stock owned by them following the Merger; WHEREAS, for U.S. federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code") and that this ---- Agreement shall be, and hereby is, adopted as a plan of reorganization for purposes of Section 368 of the Code; NOW, THEREFORE, in consideration of the premises, representations, warranties and agreements herein contained, the parties hereto agree as follows: ARTICLE I THE MERGER Section 1.1 The Merger. Upon the terms and subject to the conditions ---------- hereof, and in accordance with the Delaware General Corporation Law (the "DGCL"), the Company shall be merged with and into Sub at the Effective Time ---- (as hereinafter defined). Following the Merger, the separate corporate existence of the Company shall cease and Sub shall (i) continue as the surviving corporation (sometimes referred to herein as the "Surviving Corporation"), (ii) --------------------- succeed to and assume all the rights and obligations of the Company in accordance with the DGCL, (iii) continue to be governed by the laws of the State of Delaware and (iv) continue under the name "Endo Inc." 2 Section 1.2 Effective Time. The Merger shall become effective when a -------------- Certificate of Merger (the "Certificate of Merger"), duly executed in accordance --------------------- with the relevant provisions of the DGCL, is filed with the Secretary of State of the State of Delaware; provided, however, that, upon mutual consent of the -------- ------- Constituent Corporations, the Certificate of Merger may provide for a later date or time of effectiveness of the Merger. When used in this Agreement, the term "Effective Time" shall mean the later of the date and time at which the -------------- Certificate of Merger is filed or such later date and time established by the Certificate of Merger. The filing of the Certificate of Merger in accordance with the DGCL shall be made on the date of the Closing, or as promptly thereafter as practicable. Section 1.3 Effects of the Merger. The Merger shall have the effects set --------------------- forth in Section 259 of the DGCL. Section 1.4 Directors of the Surviving Corporation. The directors of Sub -------------------------------------- immediately prior to the Effective Time shall be the directors of the Surviving Corporation as of the Effective Time and shall hold office until their successors are duly appointed or elected in accordance with applicable law and the Certificate of Incorporation and By-laws of the Surviving Corporation. Section 1.5 Officers of the Surviving Corporation. The officers of Sub ------------------------------------- immediately prior to the Effective Time shall be the officers of the Surviving Corporation as of the Effective Time and shall hold office until their successors are duly appointed or elected in accordance with applicable law and the certificate of incorporation and by-laws of the Surviving Corporation. Section 1.6 Charter and By-Laws. The Certificate of Incorporation of Sub ------------------- in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. The By-laws of Sub as in effect immediately prior to the Effective Time shall be the By-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by the certificate of incorporation of the Surviving Corporation or by applicable law. Section 1.7 Conversion of Securities. As of the Effective Time, by ------------------------ virtue of the Merger and without any action on the part of Sub, the Company or the holders of any securities of the Constituent Corporations: (a) Each issued and outstanding share of common stock of Sub shall remain outstanding as one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. 3 (b) All shares of Company Common Stock that are held in the treasury of the Company and any shares of Company Common Stock owned by Parent or Sub shall be canceled and no capital stock of Parent or other consideration shall be delivered in respect thereof. (c) Subject to the provisions of Section 1.12 hereof, each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than shares to be canceled in accordance with Section 1.7(b) hereof) shall be converted into (i) one (the "Conversion Number") validly issued, fully ----------------- paid and nonassessable share of Parent Common Stock and (ii) one warrant which shall be subject to the terms and conditions of a warrant agreement (the "Warrant Agreement") substantially in the form attached hereto as Exhibit C (an - ------------------ "Algos Warrant" and, together with the shares of Parent Common Stock referred to ------------- in clause (i), the "Merger Consideration"). All such shares of Company Common -------------------- Stock, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and each holder of a certificate formerly representing any such shares shall cease to have any rights with respect thereto, except for the right to receive any dividends and other distributions in accordance with Section 1.9 hereof, certificates representing the shares of Parent Common Stock and Algos Warrants into which such shares are converted upon surrender of such certificates in accordance with Section 1.8 hereof. Each certificate shall, from and after the Effective Time until surrendered in exchange for Parent Common Stock and Algos Warrants, for all purposes be deemed to represent the shares of Parent Common Stock and Algos Warrants into which such Company Common Stock was converted in the Merger. Section 1.8 Parent to Make Certificates Available. ------------------------------------- (a) Exchange of Certificates. Parent shall authorize a commercial bank ------------------------ reasonably acceptable to the Company (or such other Person (as defined in Section 1.8(a) hereof) or Persons as shall be reasonably acceptable to Parent and the Company) to act as Exchange Agent hereunder (the "Exchange Agent"). As -------------- soon as practicable after the Effective Time, Parent shall deposit with the Exchange Agent, in trust for the holders of shares of Company Common Stock converted in the Merger, certificates representing the shares of Parent Common Stock and certificates representing the Algos Warrants, including certificates representing Algos Warrants subject to the transfer restrictions set forth in the Warrant Agreement (the "Non-Transferable Warrants"), each issuable pursuant ------------------------- to Section 1.7(c) hereof in exchange for outstanding certificates representing shares of Company Common Stock (such shares of Parent Common Stock and Algos Warrants, together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange -------- 4 Fund"). Except as contemplated by this Section 1.8, and Section 1.11 hereof, - ----- the Exchange Fund shall not be used for any other purpose. For purposes of this Agreement, "Person" means any natural person, firm, individual, corporation, ------ limited liability company, partnership, association, joint venture, company, business trust, trust or any other entity or organization, whether incorporated or unincorporated, including a government or political subdivision or any agency or instrumentality thereof. (b) Exchange Procedures. As soon as practicable after the Effective Time, ------------------- Parent shall cause the Exchange Agent to mail to each record holder of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Company Common Stock converted in the Merger (the "Certificates") a letter of transmittal (in customary form), which shall ------------ specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon actual delivery of the Certificates to the Exchange Agent, and shall contain instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of Parent Common Stock, certificates representing Algos Warrants. Upon surrender to the Exchange Agent for cancellation of a Certificate, together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor (i) a certificate representing that number of whole shares of Parent Common Stock into which the shares of Company Common Stock represented by the surrendered Certificate shall have been converted at the Effective Time pursuant to this Article I, (ii) a certificate representing that number of Algos Warrants (or, if requested, Non-Transferable Warrants) into which the shares of Company Common Stock represented by the surrendered Certificate shall have been converted at the Effective Time pursuant to this Article I and (iii) any dividends and other distributions payable in accordance with Section 1.9 hereof, and any Certificate so surrendered shall forthwith be canceled. Section 1.9 Dividends; Transfer Taxes; Withholding. -------------------------------------- (a) No dividends or other distributions that are declared on or after the Effective Time on Parent Common Stock, or are payable to the holders of record thereof on or after the Effective Time, will be paid to any Person entitled by reason of the Merger to receive a certificate representing Parent Common Stock and a certificate representing Algos Warrants, until such Person surrenders such certificates in accordance with Section 1.8 hereof. Subject to the effect of applicable law, there shall be paid to each record holder of a new certificate representing such Parent Common Stock: (i) at the time of such surrender or as promptly as practicable thereafter, the amount of any dividends or other distributions theretofore paid with 5 respect to the shares of Parent Common Stock represented by such new certificate and having a record date on or after the Effective Time and a payment date prior to such surrender; (ii) at the appropriate payment date or as promptly as practicable thereafter, the amount of any dividends or other distributions payable with respect to such shares of Parent Common Stock and having a record date on or after the Effective Time, but prior to such surrender and a payment date on or subsequent to such surrender. In no event shall (1) the Person entitled to receive such dividends or other distributions be entitled to receive interest on such dividends or other distributions and (2) any dividends or distributions be payable on the Algos Warrants or to the holders of record thereof unless and until such Algos Warrants are exercised in accordance with the terms of the Warrant Agreement. (b) If any cash or certificates representing shares of Parent Common Stock or Algos Warrants are to be paid to or issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition of such exchange that the Certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer, subject to the limitations set forth in Section 1.8 hereof and in the Warrant Agreement with respect to Non-Transferable Warrants, and that the Person requesting such exchange shall pay to the Exchange Agent any transfer or other Taxes (as defined in Section 2.9 hereof) required by reason of the issuance of certificates representing such shares of Parent Common Stock or such Algos Warrants in a name other than that of the registered holder of the Certificate surrendered, or shall establish to the satisfaction of the Exchange Agent that such Tax has been paid or is not applicable. Except as otherwise provided in Section 5.17 hereof, Parent or the Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock such amounts as Parent or the Exchange Agent are required to deduct and withhold with respect to the making of such payment under the Code or under any provision of state, local or foreign Tax law. To the extent that amounts are so withheld by Parent or the Exchange Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Company Common Stock in respect of which such deduction and withholding were made by Parent or the Exchange Agent. Section 1.10 [Intentionally Omitted.] 6 Section 1.11 Return of Exchange Fund. Any portion of the Exchange Fund ----------------------- that remains undistributed to the former stockholders of the Company for six months after the Effective Time shall be delivered to Parent, upon demand of Parent, and any such former stockholders who have not theretofore complied with this Article I shall thereafter look only to Parent for payment of their claim for Parent Common Stock, Algos Warrants and any dividends or distributions with respect to Parent Common Stock. Neither Parent nor either Constituent Corporation shall be liable to any former holder of Company Common Stock for any such shares of Parent Common Stock, Algos Warrants, cash and dividends and distributions held in the Exchange Fund which are delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. Section 1.12 Adjustment of Conversion Number. In the event of any ------------------------------- reclassification, recapitalization, stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock) or subdivision with respect to Parent Common Stock, any change or conversion of Parent Common Stock into other securities, any other dividend or distribution with respect to the Parent Common Stock as the same may be adjusted from time to time pursuant to the terms of this Agreement (or if a record date with respect to any of the foregoing should occur), prior to the Effective Time, appropriate and proportionate adjustments shall be made to the Conversion Number, and all references to the Conversion Number in this Agreement shall be deemed to be to the Conversion Number as so adjusted; provided that in -------- ---- no event shall any such adjustment occur on account of the Charter Amendment or the Parent Recapitalization. Section 1.13 No Further Ownership Rights in Company Common Stock. All --------------------------------------------------- shares of Parent Common Stock and all Algos Warrants issued pursuant to the terms hereof (including any cash paid pursuant to Section 1.10 hereof) shall be deemed to have been issued in full satisfaction of all rights pertaining to the shares of Company Common Stock represented by such Certificates. Section 1.14 Closing of Company Transfer Books. At the Effective Time, --------------------------------- the stock transfer books of the Company shall be closed and no transfer of shares of Company Common Stock outstanding prior to the Effective Time shall thereafter be made on the records of the Company. If, after the Effective Time, Certificates are presented to the Surviving Corporation, the Exchange Agent or Parent, such Certificates shall be canceled and exchanged as provided in this Article I. 7 Section 1.15 Lost Certificates. If any Certificate shall have been lost, ----------------- stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if reasonably required by the Surviving Corporation, the posting by such Person of a bond, in such reasonable amount as the Surviving Corporation may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the shares of Parent Common Stock, the Algos Warrants and any dividends or other distributions to which the holder thereof is entitled pursuant to Section 1.9 hereof. Section 1.16 Affiliates. Certificates surrendered for exchange by each ---------- Affiliate (as defined in Section 5.4 hereof) of the Company for purposes of Rule 145(c) under the Securities Act of 1933 and the rules and regulations promulgated thereunder (the "Securities Act") that has been identified and -------------- required to provide an Affiliate letter pursuant to Section 5.4 hereof shall not be exchanged until Parent has received such Affiliate letter from such Person as provided in Section 5.4 hereof. Section 1.17 Further Assurances. If at any time after the Effective Time ------------------ the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments or assurances or any other acts or things are necessary, desirable or proper (i) to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of either of the Constituent Corporations or (ii) otherwise to carry out the purposes of this Agreement, the Surviving Corporation and its proper officers and directors or their designees shall be authorized to execute and deliver, in the name and on behalf of either of the Constituent Corporations, all such deeds, bills of sale, assignments and assurances and to do, in the name and on behalf of either Constituent Corporation, all such other acts and things as may be necessary, desirable or proper to vest, perfect or confirm the Surviving Corporation's right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of such Constituent Corporation and otherwise to carry out the purposes of this Agreement. Section 1.18 Closing. Subject to the satisfaction or waiver of the ------- conditions set forth in Article VI hereof, the closing of the transactions contemplated by this Agreement (the "Closing") and all actions specified in this ------- Agreement to occur at the Closing shall take place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP in New York, New York at 10:00 a.m. (New York time) on a date to be specified by the parties hereto, but no later than the business day immediately following the satisfaction or waiver of the conditions set forth in Section 6.1(a), (b), (c) and (d) 8 hereof or at such other time, date or place as Parent and the Company shall agree. The date on which the Closing occurs is referred to herein as the "Closing Date." ------------ ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Parent and Sub jointly and severally represent and warrant to the Company as follows: Section 2.1 Organization, Standing and Power. Each of Parent and Sub is a -------------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as now being conducted and to enter into and perform this Agreement and the other Transaction Agreements and the transactions contemplated hereby and thereby. Each Subsidiary (as hereinafter defined) of Parent (other than Sub) is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate or other power and authority to carry on its business as now being conducted, except where the failure to be so organized, existing or in good standing or to have such power or authority would not, individually or in the aggregate, have a Material Adverse Effect (as hereinafter defined) on Parent. Each of Parent and its Subsidiaries is duly qualified to do business, and is in good standing, in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary, except where the failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect on Parent. For purposes of this Agreement, (a) each of "Material Adverse Change" or "Material Adverse ----------------------- ---------------- Effect" means, when used with respect to Parent, Sub or the Company, as the case - ------ may be, any change or effect that is materially adverse to the business, assets, liabilities, results of operation or condition (financial or otherwise) of Parent and its Subsidiaries, taken as a whole, or the Company, as the case may be, excluding, in either case, any changes, circumstances or effects resulting from or related to changes or developments in the economy, financial markets or regulatory or political climate generally, any changes in conditions or developments generally applicable to the industries in which Parent and Subsidiaries of Parent or the Company, as the case may be, are involved, any changes or developments related to the general relationship of Parent and Subsidiaries of Parent or the Company, as the case may be, with the U.S. Food and Drug Administration ("FDA") or the U.S. Drug Enforcement Administration --- ("DEA") and in the case of the Company, any change or development relating to --- MorphiDex(R) or any other of the Company's products under 9 development (including the FDA or DEA approval process relating thereto) and except for any such changes or effects resulting from this Agreement, the transactions contemplated hereby or the announcement thereof and (b) "Subsidiary" means any corporation, partnership, joint venture or other legal ---------- entity of which Parent or the Company, as the case may be (either alone or through or together with any other Subsidiary), owns, directly or indirectly, 50% or more of the stock or other equity interests the holders of which generally are entitled to vote for the election of the board of directors or other governing body of such corporation, partnership, joint venture or other legal entity. Parent has heretofore delivered to the Company complete and correct copies of Parent's certificate of incorporation ("Parent Charter") and -------------- by-laws ("Parent By-Laws") and Sub's certificate of incorporation and by-laws, -------------- each as in effect on the date of this Agreement. Section 2.2 Capital Structure. As of the date of this Agreement, the ----------------- authorized capital stock of Parent consists of (i) 2,000,000 shares of Parent Common Stock, (ii) 200,000 shares of class A common stock, par value $.01 per share, of Parent ("Parent Class A Common Stock") and (iii) 500,000 shares of --------------------------- preferred stock, par value $.01 per share, of Parent (the "Parent Preferred ---------------- Stock"). At the close of business on November 15, 1999, (i) 929,950 shares of - ----- Parent Common Stock were issued and outstanding, all of which were validly issued, fully paid and nonassessable and free of preemptive rights; (ii) 174,560 shares of Parent Class A Common Stock were issued and outstanding, all of which were validly issued, fully paid and nonassessable and free of preemptive rights, and 290 of which are held in the treasury of the Parent; (iii) 618,750 shares of Parent Common Stock were reserved for future issuance pursuant to Parent's 1997 Executive Stock Option Plan and Parent's 1997 Employee Stock Option Plan (collectively, the "Parent Stock Plans"); (iv) 6,000 shares of Parent Common ------------------ Stock were reserved for future issuance pursuant to Parent's 1997 Employee Stock Purchase Plan (the "Parent Stock Purchase Plan" and, together with the -------------------------- Parent Stock Plans, the "Parent Incentive Plans"); and (v) no shares of Parent ---------------------- Preferred Stock were issued or outstanding. All of the shares of Parent Common Stock and all of the Algos Warrants issuable in exchange for Company Common Stock at the Effective Time in accordance with this Agreement will be, when so issued, duly authorized, validly issued, free of preemptive rights and, in the case of the shares of the Parent Common Stock, fully paid and nonassessable. Each share of Parent Common Stock issuable upon exercise of the Algos Warrants will be fully paid and nonassessable at the time of exercise. As of the date of this Agreement, except for (a) this Agreement, (b) stock options covering not in excess of 618,750 shares of Parent Common Stock (collectively, the "Parent Stock ------------ Options") and (c) the Parent Stock Purchase Plan, there are no options, - ------- warrants, calls, rights or agreements to which Parent or any of its Subsidiaries is a party or by which any of them is bound obligating Parent or any of its Subsidiaries to 10 issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of Parent or any of its Subsidiaries, or securities convertible into or exchangeable for such capital stock, or obligating Parent or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, right or agreement. Since November 15, 1999, Parent has not issued any shares of its capital stock, or securities convertible into or exchangeable for such capital stock, other than shares issued in the ordinary course pursuant to the Parent Stock Plans. Except as set forth in Schedule 2.2 of that separate disclosure letter delivered by Parent to the Company at or prior to the execution and delivery by Parent of this Agreement (the "Parent Disclosure ----------------- Schedule"), there are no outstanding contractual obligations of Parent or any of - -------- Parent's Subsidiaries (i) restricting the transfer of, (ii) affecting the voting rights of, (iii) requiring the repurchase, redemption or disposition of, (iv) requiring the registration for sale of, or (v) granting any preemptive or antidilutive right with respect to, any shares of Parent Common Stock, Parent Class A Common Stock, Parent Preferred Stock or any capital stock of any Subsidiary of Parent. The execution and delivery of the Transaction Agreements do not, and the consummation of the transactions contemplated hereby and thereby and the compliance with the provisions hereof and thereof will not, except as set forth in such Transaction Agreements, give rise to any preemptive right or antidilutive right of any Person with respect to any shares of Parent Common Stock, Parent Class A Common Stock, Parent Preferred Stock or any capital stock of any Subsidiary of Parent. Each outstanding share of capital stock or other equity interests of each Subsidiary of Parent is duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights, and each such share is owned by Parent or another Subsidiary of Parent, free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, agreements, limitations on voting rights, charges and other encumbrances of any nature whatsoever. Section 2.3 Authority. Each of Parent and Sub has all requisite corporate --------- power and authority to enter into the Transaction Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby. On or prior to the date of this Agreement, the respective Boards of Directors of Parent and Sub have each declared the Merger advisable and in the best interest of their respective stockholders and have each approved execution and delivery of this Agreement in accordance with applicable law; the Board of Directors of Sub has recommended to Parent, as the sole stockholder of Sub, that it approve this Agreement in accordance with the DGCL; the Board of Directors of Parent has authorized that it approve this Agreement in its capacity as the sole stockholder of Sub in accordance with the DGCL; and concurrently with the execution of this Agreement, Parent is approving this Agreement as the sole stockholder of Sub in accordance with the DGCL. On or prior to the date of this Agreement, the stockholders of Parent, in accordance with 11 the DGCL and the Parent Charter, shall have approved the Charter Amendment. The execution and delivery by each of Parent and Sub of the Transaction Agreements to which it is a party and the consummation by Parent and Sub of the transactions contemplated hereby and thereby, including the Share Issuance, have been duly authorized by all necessary corporate action on the part of Parent and Sub, subject to the filing of the Certificate of Merger pursuant to the DGCL. Each of Parent and Sub have duly executed and delivered the Transaction Agreements to which it is a party and (assuming the valid authorization, execution and delivery thereof by the other parties thereto) each such Transaction Agreement constitutes the valid and binding obligation of Parent and Sub enforceable against each of them in accordance with their terms, except as the enforceability hereof and thereof may be limited (1) by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws in effect that affect the enforcement of creditors rights generally or (2) general principals of equity, whether considered in a proceeding at law or in equity. Prior to the filing thereof, the filing of a registration statement on Form S-4 with the Securities and Exchange Commission ("SEC") by Parent under the --- Securities Act for the purpose of registering the shares of Parent Common Stock and the Algos Warrants to be issued in the Merger and the shares of Parent Common Stock to be issued upon exercise of the Algos Warrants (together with any amendments or supplements thereto, whether prior to or after the effective date thereof, the "Registration Statement") and the taking of all actions in ---------------------- connection therewith will have been duly authorized by Parent's Board of Directors. Section 2.4 Consents and Approvals; No Violation. Assuming that all ------------------------------------ consents, approvals, authorizations and other actions described in the second sentence of this Section 2.4 have been obtained and all filings and obligations described in the second sentence of this Section 2.4 have been made, the execution and delivery of the Transaction Agreements do not, and the consummation of the transactions contemplated hereby and thereby and compliance with the provisions hereof and thereof will not, conflict with, result in any violation of, or breach or default (with or without due notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation or the loss of any benefit under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Parent or any of its Subsidiaries under, any provision of (i) the Parent Charter or Parent By-Laws, (ii) any provision of the comparable charter or organization documents of any of Parent's Subsidiaries, (iii) any loan or credit agreement, note, bond, mortgage, lease, indenture, or other contract, agreement, instrument, permit, concession, franchise or license applicable to Parent or any of its Subsidiaries, (iv) any license, permit or other instrument, contract or agreement granted by, or entered into with, the FDA or the DEA or (v) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to 12 Parent or any of its Subsidiaries or any of their respective properties or assets, other than, in the case of clauses (ii), (iii), (iv) or (v), any such conflicts, violations, breaches, defaults, rights, liens, security interests, charges or encumbrances that, individually or in the aggregate, would not have a Material Adverse Effect on Parent, or prevent or materially delay the consummation of any of the transactions contemplated hereby or thereby. No filing, notification or registration with, or authorization, consent or approval of, any domestic (federal and state), or foreign court, commission, governmental body, regulatory or administrative agency, authority or tribunal (a "Governmental Entity") is required by or with respect to Parent or any of its ------------------- Subsidiaries in connection with the execution, delivery and performance of the Transaction Agreements by Parent or Sub or is necessary for the consummation of the Merger and the other transactions contemplated by the Transaction Agreements, except for (i) in connection, or in compliance, with the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Securities Act and the Securities Exchange Act of 1934, as ------- amended (together with the rules and regulations promulgated thereunder, the "Exchange Act"), (ii) the filing of the Certificate of Merger with the Secretary ------------ of State of the State of Delaware and the filing of the appropriate documents with the relevant authorities of other states in which Parent or any of its Subsidiaries is qualified to do business, each of which is set forth in Schedule 2.4 of the Parent Disclosure Schedule, (iii) such filings and consents as may be required under any environmental, health or safety law or regulation (including any rules and regulations of the FDA and the DEA ) pertaining to any notification, disclosure or required approval triggered by the Merger or by the transactions contemplated by the Transaction Agreements, each of which is set forth in Schedule 2.4 of the Parent Disclosure Schedule, (iv) such filings, authorizations, orders and approvals as may be required by state takeover laws (the "State Takeover Approvals"), each of which is set forth in Schedule 2.4 of ------------------------ the Parent Disclosure Schedule, (v) applicable requirements, if any, of "blue sky" laws and the NASDAQ National Market (the "NASDAQ") and (vi) such other ------ consents, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made would not, individually or in the aggregate, have a Material Adverse Effect on Parent, or prevent or materially delay the consummation of any of the transactions contemplated by the Transaction Agreements. The execution and delivery of the Transaction Agreements do not, and the consummation of the transactions contemplated hereby and thereby and compliance with the provisions hereof and thereof will not, conflict with, result in any violation of, or breach or default (with or without due notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation or the loss of any benefit under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Parent or any of its Subsidiaries under, any of the license agreements to which it is a 13 party, except for such conflicts, violations, breaches, defaults, rights or liens as would not, individually or in the aggregate, have a Material Adverse Effect on Parent. All material license agreements of Parent or any of its Subsidiaries are listed in Schedule 2.4 of the Parent Disclosure Schedule. Section 2.5 Financial Statements. Parent has previously provided the -------------------- Company with true and accurate copies of (x) Parent's audited financial statements for the years ended December 31, 1997 and December 31, 1998, and (y) Parent's unaudited financial statements for the six-month periods ended June 30, 1998 and June 30, 1999 (collectively, the "Parent Financial Statements"). The --------------------------- Parent Financial Statements, as of their respective dates, fairly present in all material respects in accordance with generally accepted accounting principles ("GAAP") the consolidated financial position of Parent and its consolidated ---- Subsidiaries as at the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to any other adjustments described therein and normal year-end audit adjustments and to any other adjustments described therein). Except as required by GAAP, Parent has not, since December 31, 1998, made any change in the accounting practices or policies applied in the preparation of the financial statements. The books and records of Parent and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and other applicable legal and accounting requirements. Section 2.6 Registration Statement and Proxy Statement. None of the ------------------------------------------ information to be supplied by Parent or Sub for inclusion or incorporation by reference in the Registration Statement or the proxy statement/prospectus included therein (together with any amendments or supplements thereto, the "Proxy Statement") relating to the Stockholder Meeting (as hereinafter defined) --------------- will (i) in the case of the Registration Statement, at the time it becomes effective, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading or (ii) in the case of the Proxy Statement, at the time of the mailing of the Proxy Statement, the time of the Stockholder Meeting and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If, at any time prior to the Effective Time, any event with respect to Parent, its officers and directors or any of its Subsidiaries shall occur which is required to be described in the Proxy Statement or the Registration Statement, such event shall be so described, and an appropriate amendment or supplement shall be promptly filed with the SEC and, as required by law, disseminated to the stockholders of the Company. The Registration Statement 14 will comply (excluding any matters relating to the Company, as to which Parent and Sub make no representations) as to form in all material respects with the provisions of the Securities Act. Section 2.7 Absence of Certain Changes or Events. Except as disclosed in ------------------------------------ Schedule 2.7 of the Parent Disclosure Schedule, since September 30, 1999, (A) none of Parent or any of its Subsidiaries has incurred any liability or obligation (indirect, direct or contingent), or entered into any oral or written agreement or other transaction, that is not in the ordinary course of business or that would, individually or in the aggregate, result in a Material Adverse Effect on Parent, except for any such changes or effects resulting from this Agreement, the transactions contemplated hereby or the announcement thereof; (B) none of Parent or any of its Subsidiaries has sustained any loss or interference with their business or properties from fire, flood, windstorm, accident or other calamity (whether or not covered by insurance) that would, individually or in the aggregate, have a Material Adverse Effect on Parent; (C) there has been no action taken by Parent or any of its Subsidiaries that, if taken during the period from the date of this Agreement through the Effective Time, would constitute a material breach of Section 4.1(a) hereof; and (D) there has been no event, circum stance or development that would, individually or in the aggregate, have a Material Adverse Effect on Parent. Section 2.8 Permits and Compliance. ---------------------- (a) Each of Parent and its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Entity ("Permits") necessary for it to own, lease and operate its properties or ------- to carry on its business as it is now being conducted (the "Parent Permits"), -------------- except where the failure to have any of the Parent Permits would not, individually or in the aggregate, have a Material Adverse Effect on Parent, and, as of the date of this Agreement, no suspension or cancellation of any of the Parent Permits is pending or, to the Knowledge of Parent (as hereinafter defined), threatened, except where the suspension or cancellation of any of the Parent Permits would not, individually or in the aggregate, have a Material Adverse Effect on Parent; provided that no representation is being made by the -------- ---- Company in this sentence with respect to any investigational new drug application (an "IND") or new drug application (an "NDA") of Parent filed with --- --- the FDA (which are the subject of Section 2.13 hereof). None of Parent or any of its Subsidiaries is in violation of (A) its charter, by-laws or other organizational documents, (B) any applicable law, ordinance, administrative or governmental rule or regulation or (C) any order, decree or judgment of any Governmental Entity having jurisdiction over Parent or any of its Subsidiaries, except, in the case of clauses (B) and (C), for any violations that, 15 individually or in the aggregate, would not have a Material Adverse Effect on Parent. (b) Schedule 2.8(b) of the Parent Disclosure Schedule contains a true and complete list of all written agreements (i) that would be required to be listed as exhibits to a registration statement of Parent on Form S-1 under the rules and regulations of the SEC if such registration statement were filed on the date of this Agreement, (ii) relating to indebtedness for money borrowed by Parent or any of its Subsidiaries, which, individually or in the aggregate, represent an amount greater than $1.0 million, excluding trade credit or payables arising in the ordinary course of business, (iii) creating any guarantee arrangement or other agreement to be liable for the obligations of a Person other than Parent or any of its wholly owned Subsidiaries, (iv) providing for payment or the receipt of payment or the sale of purchase or exchange of goods worth in excess of $20.0 million, (v) with any distributor or sales contractor for Parent's products, (vi) providing for any joint venture or partnership, (vii) with E.I. du Pont de Nemours and Company or The Dupont Merck Pharmaceutical Company or any of its Subsidiaries or (viii) containing any provision or covenant materially limiting the ability of Parent or its Subsidiaries or any of its or their Affiliates to sell any products of or to any other Person, engage in any line of business or compete with or to obtain products or services from any Person or materially limiting the ability of any Person to provide products or services to Parent or any of its Subsidiaries or Affiliates (collectively, the "Parent Material Contracts"). Parent has previously provided the Company with ------------------------- true and correct copies of each of the Parent Material Contracts, as in effect on the date of this Agreement. Except as disclosed in Schedule 2.8(b) of the Parent Disclosure Schedule, the execution and delivery of the Transaction Agreements do not, and the consummation of the transactions contemplated hereby and thereby and compliance with the provisions hereof and thereof will not, conflict with, result in any violation of, or breach or default (with or without due notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation or the loss of any benefit under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Parent or any of its Subsidiaries under, any indenture, mortgage, loan agreement, note or other agreement or instrument for borrowed money, any guarantee of any agreement or instrument for borrowed money or any lease, contractual license or other contract, agreement or instrument to which Parent or any of its Subsidiaries is a party or by which Parent or any of its Subsidiaries is bound or to which any of the properties, assets or operations of Parent or any of its Subsidiaries is subject, other than such conflicts, violations, breaches, defaults, rights or liens as would not, individually or in the aggregate, have a Material Adverse Effect on Parent. As used in this Agreement, "Knowledge of Parent" means the ------------------- actual knowledge of any of the Chief Executive Officer, Chief 16 Operating Officer, Chief Financial Officer, General Counsel of Parent or Senior Vice President-Research and Development. Section 2.9 Tax Matters. ----------- Except as set forth in Schedule 2.9 of the Parent Disclosure Schedule: (a) All federal, state, local and foreign Tax Returns required to be filed (taking into account extensions) by or on behalf of Parent and each of its Subsidiaries (i) have been timely filed, except for such Tax Returns that the failure by Parent or such Subsidiary to timely file would not, individually or in the aggregate, have a Material Adverse Effect on Parent, and (ii) are true, complete and correct in all material respects. (b) All Taxes payable by or with respect to Parent and any of its Subsidiaries have been timely paid, or adequately reserved for (in accordance with GAAP) in the most recent Parent Financial Statements, except for Taxes that the failure of which to pay would not, individually or in the aggregate, have a Material Adverse Effect on Parent. (c) No deficiencies for any Taxes have been proposed, asserted or assessed either orally or in writing against Parent or any of its Subsidiaries that are not adequately reserved for (in accordance with GAAP) in the most recent Parent Financial Statements, except for such deficiencies as would not, individually or in the aggregate, have a Material Adverse Effect on Parent. All assessments for Taxes due and owing by or with respect to Parent or any of its Subsidiaries with respect to completed and settled examinations or concluded Litigation have been paid. (d) No examinations have been completed or are presently being conducted with respect to the Parent or any of its Subsidiaries' federal or material state income Tax Returns. (e) Parent and each of its Subsidiaries have complied with all rules and Treasury regulations relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or similar provisions under any foreign Laws) and have, within the time and in the manner required by law, withheld from employee wages and paid over to the proper Governmental Entities all amounts required to be so withheld and paid over under all Applicable Laws, except where the failure to be in such compliance or to withhold and pay over such amounts would not, individually or in the aggregate, have a Material Adverse Effect on Parent. 17 (f) Parent and each of its Subsidiaries (i) have not waived any statutory period of limitations in respect of its or their Taxes or Tax Returns or (ii) are not a party to, not bound by, or have no obligation under any agreement, contract or arrangement for the sharing, allocation, or indemnification of Taxes (other than indemnification agreements where Taxes incidental to the primary obligation so indemnified are also indemnified). (g) No property of Parent or any of its Subsidiaries is "tax-exempt use property" (as such term is defined in Section 168 of the Code). (h) Neither Parent nor any of its Subsidiaries has filed a consent pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a "Subsection (f) asset" (as such term is defined in Section 341(f)(4) of the Code) owned by Parent or any of its Subsidiaries. (i) Parent is not, and has not been for the five years preceding the Closing, a "United States real property holding company" (as such term is defined in Section 897(c)(2) of the Code). (j) Parent has no reason to believe that any condition exists, nor has Parent, nor any of its Subsidiaries, taken any action or failed to take any action, that could reasonably be expected to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code. For purposes of this Agreement the term (i) "Taxes" will mean any and all ----- federal, state, local, foreign, provincial, territorial or other taxes, imposts, tariffs, fees, levies or other similar assessments or liabilities and other charges of any kind, including income taxes, ad valorem taxes, excise taxes, withholding taxes, stamp taxes or other taxes of or with respect to gross receipts, premiums, real property, personal property, windfall profits, sales, use, transfers, licensing, employment, social security, workers' compensation, unemployment, payroll and franchises imposed by or under any Law; and such terms will include any interest, fines, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any such tax or any contest or dispute thereof and (ii) "Tax Returns" will mean any declaration, ----------- return, report, schedule, certificate, statement or other similar document (including relating or supporting information) required to be filed with a Governmental Entity, or where none is required to be filed with a Governmental Entity, the statement or other document issued by a Governmental Entity in connection with any Tax, including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax. 18 Section 2.10 Actions and Proceedings. Except as set forth in Schedule ----------------------- 2.10 the Parent Disclosure Schedule, (a) there are no outstanding orders, judgments, injunctions, awards or decrees of any Governmental Entity against or involving Parent or any of its Subsidiaries, against or involving any of the present directors or officers of Parent or any of its Subsidiaries, as such, or involving any of its or their properties, assets or business that, individually or in the aggregate, would have a Material Adverse Effect on Parent and (b) as of the date of this Agreement, there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the Knowledge of Parent, threatened against or involving Parent or any of its Subsidiaries against or involving any of the present directors or officers of Parent or any of its Subsidiaries, as such, or involving any of its or their properties, assets or business before any court or arbitration tribunal or before any Governmental Entity that, individually or in the aggregate, would have a Material Adverse Effect on Parent. As of the date of this Agreement, there are no actions, suits, labor disputes or other litigation, legal or administrative proceedings or governmental investigations pending, or, to the Knowledge of Parent, threatened against or affecting Parent or any of its Subsidiaries or any of its or their present directors or officers, as such, or any of its or their properties, assets or business before any court or arbitration tribunal or before any Governmental Entity relating to the transactions contemplated by the Transaction Agreements. Section 2.11 Certain Agreements. Schedule 2.11 of the Parent Disclosure ------------------ Schedule sets forth each material oral or written stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan to which Parent or any of its Subsidiaries is a party. Except as set forth in Schedule 2.11 of the Parent Disclosure Schedule, as of the date of this Agreement, neither Parent nor any of its Subsidiaries is a party to any oral or written agreement or plan, including any stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. No holder of any option to purchase shares of Parent Common Stock, or shares of Parent Common Stock granted in connection with the performance of services for Parent or its Subsidiaries, is or will be entitled to receive cash from Parent or any Subsidiary in lieu of or in exchange for such option or shares as a result of the transactions contemplated by this Agreement (other than in lieu of fractional shares). Neither Parent nor any Subsidiary is a party to any termination benefits agreement or severance agreement or employment agreement which would be triggered by the consummation of the transactions contemplated by this Agreement. 19 Section 2.12 ERISA. ----- (a) Schedule 2.12(a) of the Parent Disclosure Schedule lists each Parent Plan (as hereinafter defined). With respect to each material Parent Plan, Parent has made (or as soon as practicable will make) available to the Company a true and correct copy of (i) the three most recent annual reports (Form 5500) filed with the Internal Revenue Service (the "IRS"), (ii) such Parent Plan and --- any amendments thereto, (iii) each trust agreement, insurance contract or administration agreement relating to such Parent Plan and the latest financial statements thereof, (iv) the most recent summary plan description of each Parent Plan for which a summary plan description is required, (v) the most recent actuarial report or valuation relating to a Parent Plan subject to Title IV of ERISA, (vi) the most recent determination letter, if any, issued by the IRS with respect to any Parent Plan intended to be qualified under section 401(a) of the Code and (vii) any written description that exists as of the date of this Agreement of any unwritten Parent Plan. Except as would not, individually or in the aggregate, have a Material Adverse Effect on Parent, (i) each Parent Plan complies with all applicable statutes and governmental rules and regulations, including but not limited to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Code and the Consolidated Omnibus Budget ----- Reconciliation Act of 1985, as amended ("COBRA"), and (ii) no "reportable ----- event" (within the meaning of Section 4043 of ERISA) has occurred with respect to any Parent Plan for which the 30-day notice requirement has not been waived, (iii) none of Parent or its Subsidiaries is or has been obligated to contribute or otherwise may have any liability with respect to any Parent Multiemployer Plan (as hereinafter defined), (iv) no action has been taken, or is currently being considered, to terminate any Parent Plan subject to Title IV of ERISA, (v) Parent has complied with the continued medical coverage requirements of COBRA, (vi) no Parent Plan has engaged in a "prohibited transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA) and (vii) no liability under Title IV or Section 302 of ERISA or Section 412 of the Code has been incurred by Parent that has not been satisfied in full, and no condition exists that presents a risk to Parent of incurring any such liability. Except as would not, individually or in the aggregate, have a Material Adverse Effect on Parent, no Parent Plan subject to Title IV of ERISA, nor any trust created thereunder, has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived. (b) With respect to any Parent Plan which is subject to Title IV of ERISA, the present value of accrued benefit obligations, as determined in accordance with FAS 87 in accordance with the actuarial assumptions used to prepare the most recent reports of such Parent Plan, did not exceed the fair market value of the Plan assets as of the most recent valuation date for which an actuarial report has been 20 prepared and to the Knowledge of Parent, there has not been any material adverse change to such status. All contributions required to be made with respect to any Parent Plan on or prior to the Closing Date have been timely made or are reflected on the most recent balance sheet of Parent. With respect to the Parent Plans, no event has occurred in connection with which Parent would be subject to any liability under the terms of such Parent Plans, ERISA, the Code or any other applicable law which would have, individually or in the aggregate, a Material Adverse Effect on Parent. With respect to any current or former employee, director, officer, consultant or contractor of Parent or its Subsidiaries, consummation of the transactions contemplated by this Agreement shall not result in the payment or provision of additional compensation or benefits or accelerate the vesting, payment or funding of any compensation or benefits. No amounts payable by reason of this transaction under the Parent Plans will fail to be deductible for federal income tax purposes by virtue of either Section 280G or Section 162(m) of the Code. All Parent Plans that are intended to be qualified under Section 401(a) of the Code have been determined by the IRS to be so qualified or a timely application for such determination is pending, and to the Knowledge of Parent, there is no reason why any such Parent Plan is not so qualified in operation. Parent does not have any liability or obligation under any welfare plan to provide benefits after termination of employment to any employee or dependent other than as required by ERISA or as disclosed in Schedule 2.12 of the Parent Disclosure Schedule. There are no pending or, to the Knowledge of Parent, threat ened, claims, suits, audits or investigations related to any Parent Plan other than claims for benefits in the ordinary course and other than claims, suits, audits or investigations that would not, individually or in the aggregate, have a Material Adverse Effect on Parent. As used herein, (i) "Parent Plan" means each deferred compensation and each bonus ----------- or other incentive compensation, stock purchase, stock option and other equity compensation or ownership plan, program, agreement or arrangement, each severance or termination pay, medical, surgical, hospitalization, life insurance and other "welfare" plan, fund or program (within the meaning of Section 3(1) of the ERISA); each profit-sharing, stock bonus or other "pension" plan, fund or program (within the meaning of Section 3(2) of ERISA); each employment, retention, consulting, termination or severance agreement; and each other employee benefit plan, fund, program, agreement or arrangement, in each case, that is sponsored, maintained or contributed to or required to be contributed to by Parent or its Subsidiaries, including any plan subject to Title IV of ERISA maintained within the past five (5) years by Parent or any of its Subsidiaries and (ii) "Parent Multiemployer Plan" means a "multiemployer plan" ------------------------- (as defined in Section 4001(a)(3) of ERISA) to which Parent is or has been obligated to contribute or otherwise may have any liability. Section 2.13 Compliance with Certain Laws. ---------------------------- 21 (a) Except as disclosed in Schedule 2.13(a) of the Parent Disclosure Schedule, the properties, assets and operations of Parent and its Subsidiaries are in compliance with all Applicable Laws, except for any violations that, individually or in the aggregate, would not have a Material Adverse Effect on Parent. Except as disclosed in Schedule 2.13(a) of the Parent Disclosure Schedule, with respect to such properties, assets and operations, including any previously owned, leased or operated properties, assets or operations, there are no past, present or reasonably anticipated future events, conditions, circumstances, activities, practices, incidents, actions or plans of Parent or any of its Subsidiaries that may interfere with or prevent compliance or continued compliance with all Applicable Laws, other than any such interference or prevention as would not, individually or in the aggregate with any such other interference or prevention, have a Material Adverse Effect on Parent. For purposes of this Agreement, "Applicable Laws" shall mean applicable federal, --------------- state, local and foreign laws, rules and regulations, orders, decrees, judgments, permits and licenses of all Governmental Entities (including, but not limited to, those related to public and worker health and safety, controlled substances and the protection and clean-up of the environment and activities or conditions related thereto (including, without limitation, those relating to the generation, handling, disposal, transportation or release of hazardous materials) (collectively, "Environmental Laws")). The term "hazardous materials" ------------------ ------------------- shall mean those substances that are regulated by or form the basis for liability under any applicable Environmental Laws. Parent will make available to the Company such certificates and environmental studies with respect to such properties as Parent has available on the date of this Agreement. (b) Each of Parent's and its Subsidiaries' manufacturing, distribution, development and marketing practices are in compliance with all applicable federal and state laws, rules, regulations, orders, licenses, judgments, writs, injunctions, decrees or demands, including, without limitation, laws and regulations administered by the FDA and the DEA, except where the failure to be in such compliance would not, individually or in the aggregate, have a Material Adverse Effect on Parent. (c) Each of Parent and its Subsidiaries possesses FDA approval or allowance of all material investigational or marketed product applications as are currently legally required and are necessary for the conduct of its business as now being conducted, a list of which is attached hereto as Schedule 2.13(c) of the Parent Disclosure Schedule, true and correct copies of which have been provided to the Company by Parent. (d) Since December 1, 1997, none of Parent or any of its Subsidiaries has used the services of any person debarred under the provisions of the Generic Drug 22 Enforcement Act of 1992, 21 U.S.C. (S) 335(a)(b). Since December 1, 1997, none of Parent, its Subsidiaries, nor any of their respective officers, employees, agents or affiliates, has been convicted of any crime or engaged in any conduct for which debarment is mandated by 21 U.S.C. (S) 335a(a) or authorized by 21 U.S.C. (S) 335a(b). (e) Each of Parent and its Subsidiaries is in compliance with all (i) federal and state laws applicable to the development, manufacture, processing, packing, testing and sale of pharmaceutical products to the extent such laws are applicable to it, (ii) rules and regulations of the FDA and the DEA to the extent such rules and regulations are applicable to it, and (iii) product applications (including INDs) has been approved by the FDA under which Parent or any of its Subsidiaries has sold any product on or after November 1, 1999, except in each case where the failure to be in such compliance would not, individually or in the aggregate, have a Material Adverse Effect on Parent. All manufacturing operations conducted by or for the benefit of Parent or any of its Subsidiaries have been and are being conducted in compliance with the current Good Manufacturing Practice regulations set forth in 21 C.F.R. Parts 210 and 211, except where the failure to be in such compliance would not, individually or in the aggregate, have a Material Adverse Effect on Parent. (f) As to each drug of Parent for which a product application has been approved by, or an IND has been filed with, the FDA, the applicant and all Persons performing operations covered by the application are in compliance with the requirements of the Food, Drug and Cosmetics Act, as amended (the "FDCA"), ---- and the implementing regulations of the FDA, respectively, and all terms and conditions of the application, except where the failure to be in such compliance would not, individually or in the aggregate, have a Material Adverse Effect on Parent. (g) Each of Parent and its Subsidiaries is in material compliance with all applicable registration and listing requirements set forth in 21 U.S.C. (S) 360 and 21 C.F.R. Part 207. To the extent required, each of Parent and its Subsidiaries has obtained registrations from the DEA and are in material compliance with all such registrations and all applicable regulations promulgated by the DEA. (h) Neither Parent, any of its Subsidiaries, nor their respective officers, employees, or agents have made an untrue statement of material fact or fraudulent statement to the FDA or the DEA, failed to disclose a material fact required to be disclosed to the FDA or the DEA, or committed an act, made a statement, or failed to make a statement that could reasonably be expected to provide a basis for the FDA to invoke its policy respecting "Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities," set forth in 56 Fed. Reg. 46191 (September 10, 1991). 23 (i) Parent has made available to the Company copies of any and all notices of inspectional observations (FD 483's), establishment inspection reports, warning letters and any other documents received from or issued by the FDA or the DEA within the last three years that indicate or suggest lack of compliance with the FDA or the DEA regulatory requirements by Parent, any Subsidiary of Parent, or Persons covered by product applications or otherwise performing services for the benefit of Parent or any of its Subsidiaries with respect to services or products provided to Parent or any of its Subsidiaries. (j) Neither Parent nor any of its Subsidiaries has received any written notice that the FDA or the DEA has commenced or threatened to initiate (i) any action to withdraw its approval or request the recall of any product of Parent or any Subsidiary of Parent, (ii) any action to enjoin (A) production at any facility owned or used by Parent, any of Parent's Subsidiaries or any Person on behalf of Parent or any of Parent's Subsidiaries or (B) any facility (including any clinical facility where testing and/or trials occur) owned or used by Parent, any of Parent's Subsidiaries or any Person on behalf of Parent or any of Parent's Subsidiaries, (iii) the withdrawal of approval of any product application (including any IND), other than such withdrawals of approval that would not, individually or in the aggregate, have a Material Adverse Effect on Parent, or (iv) any material civil penalty, injunction, seizure or criminal action. (k) To the Knowledge of Parent, as to each article of drug or consumer product currently manufactured and/or distributed by Parent or any Subsidiary of Parent, or by any Person on behalf of Parent or any Subsidiary of Parent, such article is not adulterated or misbranded within the meaning of the FDCA, 21 U.S.C. (S)(S) 301 et seq. and not in violation of 21 U.S.C. (S) 355. (l) As to each drug referred to in subsection (c) above, Parent, its Subsidiaries and their respective officers, employees, agents and affiliates have included or caused to be included in the application for such drug, where required, the certification described in 21 U.S.C. (S) 335a(k)(1) and the list described in 21 U.S.C. (S) 335a(k)(2), and such certification and such list was in each case true and accurate when made and remained true and accurate thereafter. (m) All pre-clinical trials and clinical trials Parent or its Subsidiaries has conducted or has had conducted for it by third parties, to the Knowledge of Parent, complies in all material respects with the requirements of Good Clinical Practice, Informed Consent, and all requirements relating to protection of human subjects, found in 21 C.F.R. (S)(S) 50, 54 and 56 and that all nonclinical laboratory testing complies with the requirements of 21 C.F.R. (S) 58. 24 (n) As to each product application submitted to, but not approved by, the FDA, and not withdrawn by Parent or one of its Subsidiaries, or applicants acting on its behalf as of the date of this Agreement, each of Parent and its Subsidiaries has complied in all material respects with the requirements of the FDCA and implementing FDA regulations and has provided, or will provide, all additional information and taken, or will take, all additional action that has been deemed appropriate by Parent in connection with the application. (o) Parent and each of its Subsidiaries represent and warrant that in connection with the exportation of certain FDA regulated products, it is in compliance with the requirements of 21 U.S.C. (S)(S) 381 and 382 of the FDCA. Section 2.14 Liabilities. Except as fully reflected or reserved against ----------- in the consolidated balance sheet of Parent and its Subsidiaries as of December 31, 1998 (included in the Parent Financial Statements) or as disclosed in Schedule 2.14 of the Parent Disclosure Schedule, Parent and its Subsidiaries have no liabilities (including, without limitation, tax liabilities) absolute or contingent, that would be required to be reflected on a balance sheet or in notes thereto prepared in accordance with GAAP, other than liabilities incurred in the ordinary course of business or that, individually or in the aggregate, would not have a Material Adverse Effect on Parent. Section 2.15 Labor Matters. Except as set forth in Schedule 2.15 of the ------------- Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries is a party to any collective bargaining agreement or labor contract. Neither Parent nor any of its Subsidiaries has engaged in any unfair labor practice with respect to any Persons employed by or otherwise performing services for Parent or any of its Subsidiaries (the "Parent Business Personnel"), and there is no ------------------------- unfair labor practice complaint or grievance against Parent or any of its Subsidiaries by the National Labor Relations Board or any comparable state agency pending or, to Parent's Knowledge, threatened in writing with respect to the Parent Business Personnel, except where such unfair labor practices, complaints or grievances would not, individually or in the aggregate, have a Material Adverse Effect on Parent. There is no labor strike, dispute, slow down or stoppage pending or, to the Knowledge of Parent, threatened against or affecting Parent or any of its Subsidiaries which may interfere with the respective business activities of Parent or any of its Subsidiaries, except where such disputes, strikes or work stoppages would not, individually in the aggregate, have a Material Adverse Effect on Parent. Parent and its Subsidiaries are in compliance with all labor, employment and wage payment- related laws, regulations and rules, except where the failure to be in such compliance would not, individually or in the aggregate, have a Material Adverse Effect on Parent. 25 Section 2.16 Intellectual Property. --------------------- (a) Except as set forth in Schedule 2.16(a) of the Parent Disclosure Schedule or as would not, individually or in the aggregate, have a Material Adverse Effect on Parent, Parent and each of its Subsidiaries are the owners of or have the valid and enforceable right to make, use, sell, offer to sell and import all Parent Intellectual Property to the extent used in or necessary for the conduct of Parent or any of its Subsidiaries' business, free and clear of all liens, security interests, charges or encumbrances of any kind and, except for the Parent License Agreements set forth in Schedule 2.16(b) of the Parent Disclosure Schedule, free and clear of all licenses to third parties granting any right to use or practice any rights under any Parent Intellectual Property. As used in this Agreement, the term "Parent Intellectual Property" shall mean: ---------------------------- (i) Parent's or any of its Subsidiaries' registered and unregistered trade marks, service marks (including registrations, recordings and applications in the United States Patent and Trademark Office, any state of the United States or any other Governmental Entity worldwide), slogans, trade names, logos and trade dress (collectively, together with the good will symbolized thereby or associated with each, "Parent Trademarks"); (ii) all of Parent's or any of its ----------------- Subsidiaries' national (including, but not limited to, the United States) and multinational statutory invention registrations, patents, patent registrations and patent applications (including, but not limited to, all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations, and all rights therein provided by law, multinational treaties or conventions) (collectively, "Parent Patents"); (iii) all of Parent's or any of its -------------- Subsidiaries' national and multinational registered and material unregistered copyrights, including, but not limited to, copyrights in software programs and databases (collectively, "Parent Copyrights"); (iv) Parent's or any of its ----------------- Subsidiaries' software programs documentation and manuals used in connection therewith and databases (together, "Parent Software"); (v) all of Parent's or --------------- any of its Subsidiaries' (A) inventions, whether patentable or not patentable, whether or not reduced to practice, and not yet made the subject of a pending patent application or applications, (B) ideas and conceptions of potentially patentable subject matter, including, without limitation, any patent disclosures, whether or not reduced to practice and not yet made the subject of a patent application, (C) trade secrets and confidential, technical information (including ideas, formulas, compositions, inventions and conceptions of inventions whether patentable or not patentable and whether or not reduced to practice), (D) technology (including, without limitation, know-how and show-how), manufacturing and production processes and techniques, service and repair manuals, research and development information, drawings, specifications, designs, plans, proposals, technical data and copyrightable works, whether secret or confidential or not, and all proprietary or confidential business information, (E) all rights to obtain 26 and rights to apply for patents, and to register trademarks and copyrights and (F) all records (including, but not limited to, laboratory, research and testing notebooks) in any accessible format (including, but not limited to, paper records, photographs, audio and visual tape recordings and computer storage media and other information storage media) pertaining to patentable or potentially patentable subject matter and all technical manuals and documentation made or used in connection with any of the foregoing (collectively, "Parent Technology"); and (vi) agreements pursuant to which ----------------- Parent or any of its Subsidiaries has obtained or granted the right to use any of the foregoing (collectively, and together with other agreements to which Parent or any of its Subsidiaries are a party relating to the development, acquisition, use, sale, offer for sale or importation of Parent Intellectual Property, "Parent License Agreements"). ------------------------- (b) Schedule 2.16(b) of the Parent Disclosure Schedule sets forth a true, complete and accurate list of the following Parent Intellectual Property items owned by or under obligation of assignment to Parent or any of its Subsidiaries: (i) all registrations of and applications to register Parent Trademarks material to the business of Parent or any of its Subsidiaries as conducted on the date of this Agreement; (ii) all unregistered Parent Trademarks which are material to the business of Parent or any of its Subsidiaries as conducted on the date of this Agreement; (iii) all Parent Patents; (iv) all registrations of and applications to register any Parent Copyrights; (v) all Parent Software; and (vi) all Parent License Agreements, other than off-the-shelf Parent Software licenses. (c) Except as set forth in Schedule 2.16(c) of the Parent Disclosure Schedule, either Parent or one of its Subsidiaries is the sole and exclusive owner of Parent Intellectual Property items set forth in Schedule 2.16(b) of the Parent Disclosure Schedule and Parent or one of its Subsidiaries, as applicable, is listed in the records of the appropriate Governmental Entity as the sole owner of record. Except as set forth in Schedule 2.16(c) of the Parent Disclosure Schedule, there is no lien, security interest, charge or encumbrance of any kind on the right of Parent or any of its Subsidiaries to transfer any of Parent Intellectual Property. Except as otherwise indicated in Schedule 2.16(b) of the Parent Disclosure Schedule, (i) all issued patents set forth thereon are valid and enforceable and (ii) (A) as of the date of this Agreement, no such trademark registrations, trademark applications, issued patents or patent applications set forth in Schedule 2.16(b) of the Parent Disclosure Schedule are subject to any pending proceedings, including opposition, cancellation, interference or similar adversarial proceeding by or before any Governmental Entity and no such proceedings are threatened and (B) at the Effective Time, no such trademark registrations, trademark applications, issued patents or patent applications set forth in Schedule 2.16(b) of the Parent Disclosure Schedule are subject to any pending proceedings, including opposition, cancellation, interference or similar adversarial proceeding by or before any Governmental Entity and no such proceedings are 27 threatened, other than such proceedings that would not, individually or in the aggregate, have a Material Adverse Effect on Parent. (d) There are no royalties, honoraria, fees or other payments payable by Parent or any of its Subsidiaries in respect of the use or the right to use any Parent Intellectual Property to any Person or Governmental Entity (excluding Taxes, governmental or attorneys' fees required in the normal course of obtaining patent, trademark or copyright rights and excluding governmental maintenance fees), except as set forth in the Parent License Agreements listed in Schedule 2.16(b) of the Parent Disclosure Schedule and pursuant to off-the- shelf Parent Software licenses. The Parent License Agreements set forth in Schedule 2.16(b) of the Parent Disclosure Schedule are valid and binding obligations of the parties thereto, enforceable in accordance with their terms, except as the enforceability thereof may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws in effect that affect the enforcement of creditors rights generally or general principals of equity, whether considered in a proceeding at law or in equity, and there exists no event or condition which will result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default by Parent or any of its Subsidiaries (or, to the Knowledge of Parent or any of its Subsidiaries, any other party thereto) under any Parent License Agreement, except where such violations, breaches or defaults would not, individually or in the aggregate, have a Material Adverse Effect on Parent. (e) Except as disclosed in Schedule 2.16(e) of the Parent Disclosure Schedule or as would not, individually or in the aggregate, have a Material Adverse Effect on Parent, (i) none of the use by Parent or any of its Subsidiaries of any Parent Intellectual Property, the exercise of rights relating to Parent Patents, Parent Trademarks and Parent Copyrights contained within Parent Intellectual Property or the conduct of the business of Parent or any of its Subsidiaries infringes or otherwise violates any intellectual property rights (either directly or indirectly, such as through contributory infringement or inducement to infringe) of any third party and (ii) no such claims have been asserted or, to the Knowledge of Parent, threatened against Parent or any of its Subsidiaries which have not been resolved. Except as disclosed in Schedule 2.16(e) of Parent Disclosure Schedule, (A) as of the date of this Agreement, (i) to the Knowledge of Parent, no third party is infringing or otherwise violating any Parent Intellectual Property rights of Parent or any of its Subsidiaries and (ii) no such claims are pending or threatened by Parent or any of its Subsidiaries against any third party and (B) at the Effective Time, (i) to the Knowledge of Parent, no third party is infringing or otherwise violating any Parent Intellectual Property rights of Parent that are material to the business of Parent as conducted or proposed to be conducted on the date of this Agreement and (ii) no such claims are pending or 28 threatened by Parent against any third party, which involve any Parent Intellectual Property that is material to the business of Parent as conducted or proposed to be conducted on the date of this Agreement. (f) Except as disclosed in Schedule 2.16(f) of the Parent Disclosure Schedule, (i) as of the date of this Agreement, there are no suits or any other proceedings pending or, to the Knowledge of Parent, threatened before any Governmental Entity to which Parent or any of its Subsidiaries is a party challenging (A) Parent's or such Subsidiary's rights to own or use any Parent Intellectual Property or (B) the validity, enforceability or scope of the Parent Intellectual Property and (ii) at the Effective Time, there are no such suits to which Parent or any of its Subsidiaries is a party challenging (A) Parent's or such Subsidiary's rights to own or use any Parent Intellectual Property that is material to the business of the Company as conducted or proposed to be conducted on the date of this Agreement or (B) the validity, enforceability or scope of the Parent Intellectual Property that is material to the business of the Company as conducted or proposed to be conducted on the date of this Agreement. There are no settlement agreements, consents, judgments, orders, forebearances to sue or similar obligations which materially restrict any rights of Parent or any of its Subsidiaries to (i) make, use, sell, offer for sale, import or license under any Parent Intellectual Property or (ii) conduct its business in order to accommodate a third party's intellectual property rights. (g) Parent and each of its Subsidiaries employ reasonable measures to protect the confidentiality of the Parent Technology. Parent and each of its Subsidiaries require employees with access to the Parent Technology to execute a nondisclosure agreement substantially in accordance with the form(s) previously provided by Parent to the Company. Except as set forth in Schedule 2.16(g) of the Parent Disclosure Schedule, none of the current or former employees, officers or directors of Parent or any of its Subsidiaries (i) is suspected to be in violation of any such agreement or (ii) is suspected of having disclosed any Parent Technology to any third party except subject to an appropriate confidentiality agreement or as required by a Governmental Entity. (h) Except as set forth in Schedule 2.16(h) of the Parent Disclosure Schedule, the consummation of the transactions contemplated by this Agreement will not result in the loss or impairment of any rights of Parent or any of its Subsidiaries to own, use or license any Parent Intellectual Property, except where such losses or impairments would not, individually or in the aggregate, have a Material Adverse Effect on Parent. 29 (i) Except as set forth in Schedule 2.16(i) of the Parent Disclosure Schedule, since December 1, 1997, none of Parent or any of its Subsidiaries has disposed of or permitted to lapse any rights to the use of any Parent Intellectual Property, or disposed of or disclosed to any Person other than representatives of the Company any Parent trade secret, formula, process or know-how not theretofore a matter of public knowledge other than in the ordinary course of business or pursuant to secrecy agreement. Section 2.17 Ownership of Shares. As of the date of this Agreement, none ------------------- of Parent, any Person deemed acting in concert with Parent or any of its Subsidiaries or any of Parent's Subsidiaries owns any shares of Company Common Stock. Section 2.18 Operations of Sub. Sub is a direct, wholly-owned subsidiary ----------------- of Parent, was formed solely for the purpose of engaging in the transactions contemplated hereby, has engaged in no other business activities and has conducted its operations only as contemplated hereby. Section 2.19 Brokers. No broker, investment banker or other Person ------- (other than (a) Goldman, Sachs & Co. and Salomon Smith Barney, the fees and expenses of which have been previously disclosed to the Company and will be paid by Parent and (b) Kelso & Co. (or an Affiliate thereof) to whom a fee (in an amount previously disclosed to the Company) will be paid in connection with the transactions contemplated by this Agreement), is entitled to any broker's, finder's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent. Section 2.20 State Takeover Statutes. Assuming the accuracy of the ----------------------- Company's representations and warranties contained in Section 3.19 hereof (Owner ship of Shares), as of the date of this Agreement, no state takeover statutes or other state statutes, including, without limitation, any business combination act, with respect to Parent or Sub are applicable to the Merger or the Transaction Agreements. Section 2.21 Year 2000. With respect to year 2000, Parent and Sub --------- represent and warrant that the statement contained in Exhibit D-1 hereto is true and accurate. 30 Section 2.22 Accuracy of Information Furnished. No representation or --------------------------------- warranty of Parent and Sub contained in this Agreement (taken together with the other Transaction Agreements and the exhibits, schedules, certificates and lists attached hereto or specifically referred to herein or delivered by or on behalf of Parent or Sub pursuant to this Agreement) contains or will contain, in light of the circumstances in which they were made, any untrue statement of a material fact, or omits or will omit to state any material fact that is necessary to make the statement contained herein or therein not misleading. Section 2.23 Required Vote of Parent and Sub Stockholders. Under -------------------------------------------- applicable Delaware law and the Parent Charter and Parent By-laws and the certificate of incorporation and by-laws of Sub, respectively, the affirmative vote of the holder(s) of (A) not less than a majority of the outstanding shares of Parent Common Stock and (B) not less than a majority of the outstanding shares of common stock of Sub is in each case required to approve the Merger. Such votes have been obtained as of the date of this Agreement. No other vote of the stockholders of Parent or of Sub is required by law, the Parent Charter, the Parent By-laws or the certificate of incorporation or by-laws of Sub or otherwise for Parent and Sub to consummate the Merger and the transactions contemplated hereby. Section 2.24 Interests in Other Entities. As of the date of this --------------------------- Agreement, none of Parent or its Subsidiaries, directly or indirectly, own or have the right to acquire any equity interest in any other corporation, partnership, joint venture or other business organization (other than any such equity interest that is 1% or less of the equity interest of such a public corporation). None of Parent or its Subsidiaries has made any material investment in or advance of cash or other extension of credit to any Person, or has any material commitment or obligation to do so. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Sub as follows: Section 3.1 Organization, Standing and Power. The Company is a -------------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as now being conducted and to enter into and perform this Agreement and the other Transaction Agreements and the transactions contemplated hereby and thereby. The Company is duly qualified to do business, and is in good standing, in 31 each jurisdiction where the character of its properties owned or held under lease or the nature of their activities makes such qualification necessary, except where the failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect on the Company. The Company has heretofore delivered to Parent complete and correct copies of the Company's Certificate of Incorporation ("Company Charter") and by-laws --------------- ("Company By-Laws"), as in effect on the date of this Agreement. --------------- Section 3.2 Capital Structure; Subsidiaries. ------------------------------- (a) The authorized capital stock of the Company consists of 50,000,000 shares of Company Common Stock, par value $.0l per share, and 10,000,000 shares of Company preferred stock, par value $.01 per share (the "Company Preferred ----------------- Stock"). At the close of business on November 22, 1999, (i) 17,403,895 shares - ----- of Company Common Stock were issued and outstanding, all of which were validly issued, fully paid and nonassessable and free of preemptive rights, (ii) no shares of Company Common Stock were held in the treasury of the Company, (iii) not more than 23,240 and 1,146,100 shares of Company Common Stock were reserved for future issuance pursuant to the Company's 1994 Stock Option Plan and the Company's 1996 Stock Option Plan, respectively, (v) 283,000 shares of Company Common Stock were reserved for issuance pursuant to the 1996 Non-Employee Director Stock Option Plan (collectively with the Company's 1994 Stock Option Plan and the Company's 1996 Stock Option Plan, the "Company Stock Plans") and ------------------- (vi) no shares of Company Preferred Stock were issued and outstanding. As of the date of this Agreement, except for (a) stock options covering not in excess of 767,315 shares of Company Common Stock issued under the Company Stock Plans (collectively, the "Company Stock Options") and (b) warrants exercisable into --------------------- 479,661 shares of Company Common Stock, there are no options, warrants, calls, rights or agreements to which the Company is a party or by which any of them is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of the Company or securities convertible into or exchangeable for such capital stock, or obligating the Company to grant, extend or enter into any such option, warrant, call, right or agreement. Except as disclosed in the Company SEC Documents (as hereinafter defined) filed prior to the date of this Agreement, since November 15, 1999, the Company has not issued any shares of its capital stock, or securities convertible into or exchangeable for such capital stock, other than shares issued in the ordinary course pursuant to the Company Stock Plans. Except as disclosed in the Company SEC Documents filed prior to the date of this Agreement or as set forth in Schedule 3.2 of the disclosure letter delivered by the Company to Parent at or prior to the execution of this Agreement (the "Company Disclosure Schedule"), there are no outstanding contractual obligations --------------------------- of the Company (i) 32 restricting the transfer of, (ii) affecting the voting rights of, (iii) requiring the repurchase, redemption or disposition of, (iv) requiring the registration for sale of or (v) granting any preemptive or antidilutive right with respect to, any shares of Company Common Stock. The execution and delivery of the Transaction Documents do not, and the consummation of the transactions contemplated hereby and thereby and the compliance with the provisions hereof and thereof will not, give rise to any preemptive right or antidilutive right of any Person with respect to any shares of the Company Common Stock. (b) The Company has no Subsidiaries. Section 3.3 Authority. The Board of Directors of the Company has on or --------- prior to the date of this Agreement (a) declared the Merger advisable and in the best interest of the Company and its stockholders and approved this Agreement in accordance with applicable law, (b) resolved to recommend the approval of this Agreement by the Company's stockholders and (c) directed that this Agreement be submitted to the Company's stockholders for approval. The Company has all requisite corporate power and authority to enter into the Transaction Agreements to which it is a party and, subject to approval by the stockholders of the Company of this Agreement (which approval, for all purposes in this Agreement, shall be deemed to include any necessary approval of amendments to the Company's Stock Plans) (collectively, the "Company Stockholder Approval"), to consummate ---------------------------- the transactions contemplated hereby and thereby. The execution and delivery of the Transaction Agreements to which it is a party by the Company and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company, subject to (x) Company Stockholder Approval and (y) the filing of the Certificate of Merger pursuant to the DGCL. The Transaction Agreements to which it is a party have been duly executed and delivered by the Company and (assuming the valid authorization, execution and delivery thereof by the other parties thereto) each such Transaction Agreement constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with their terms, except as the enforceability thereof may be limited by (1) applicable bankruptcy, insolvency, moratorium, reorganization or similar laws in effect that affect the enforcement of creditors rights generally or (2) general principals of equity, whether considered in a proceeding at law or in equity. Prior to the filing thereof, the filing of the Proxy Statement with the SEC and the taking of all actions in connection therewith will have been duly authorized by the Company's Board of Directors. Section 3.4 Consents and Approvals; No Violation. Assuming all consents, ------------------------------------ approvals, authorizations and other actions described in the second 33 sentence of this Section 3.4 have been obtained and all filings and obligations described in the second sentence of this Section 3.4 have been made and except as set forth in Schedule 3.4 of the Company Disclosure Schedule, the execution and delivery of the Transaction Agreements do not, and the consummation of the transactions contemplated hereby and thereby and compliance with the provisions hereof and thereof will not, conflict with, result in any violation of, or breach or default (with or without due notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation or the loss of any benefit under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under, any provision of (a) the Company Charter or Company By-Laws, (b) any loan or credit agreement, note, bond, mort gage, lease, indenture or other contract, agreement, instrument, permit, concession, franchise or license applicable to the Company, (c) any license, permit or other instrument, contract or agreement granted by, or entered into with, the FDA or the DEA or (d) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its properties or assets, other than, in the case of clauses (b), (c) or (d), any such conflicts, violations, breaches, defaults, rights, liens, security interests, charges or encumbrances that, individually or in the aggregate, would not have a Material Adverse Effect on the Company, or prevent or materially delay the consummation of any of the transactions contemplated hereby or thereby. No filing, notification or registration with, or authorization, consent or approval of, any Governmental Entity is required by or with respect to the Company in connection with the execution, delivery and performance of the Transaction Agreements by the Company or is necessary for the consummation of the Merger and the other transactions contemplated by the Transaction Agreements, except for (i) in connection, or in compliance, with the provisions of the HSR Act, the Securities Act and the Exchange Act, (ii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and the filing of appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, each of which is set forth in Schedule 3.4 of the Company Disclosure Schedule, (iii) such filings and consents as may be required under any environmental, health or safety law or regulation pertaining to any notification, disclosure or required approval triggered by the Merger or by the transactions contemplated by the Transaction Agreements, each of which is set forth in Schedule 3.4 of the Company Disclosure Schedule, (iv) such filings, authorizations, orders and approvals as may be required to obtain the State Takeover Approvals, each of which is set forth in Schedule 3.4 of the Company Disclosure Schedule, (v) applicable requirements, if any, of "blue sky" laws and the NASDAQ Composite Index and (vi) such other consents, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made would not, individually or in the aggregate, have a Material Adverse Effect on the Company or 34 prevent or materially delay the consummation of any of the transactions contemplated hereby or thereby or by any other Transaction Agreement. The execution and delivery of the Transaction Agreements do not, and the consummation of the transactions contemplated hereby and thereby and compliance with the provisions hereof and thereof will not, conflict with, result in any violation of, or breach or default (with or without due notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation or the loss of a material benefit under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under, any of the license agreements to which it is a party, except for such conflicts, violations, breaches, defaults, rights or liens as would not, individually or in the aggregate, have a Material Adverse Effect on the Company. All license agreements of the Company are listed in Schedule 3.4 of the Company Disclosure Schedule. Section 3.5 SEC Documents and Other Reports. The Company has filed with ------------------------------- the SEC all documents required by the Exchange Act to be filed by the Company since September 25, 1996 (the "Company SEC Documents"). As of their respective --------------------- dates, the Company SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and, at the respective times they were filed, none of the Company SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except, to the extent that any Company SEC Documents were subsequently amended or modified by a filing prior to the date of this Agreement, such representation is given only with respect to such Company SEC Document as so amended or modified as of the date of such amendment or modification). The financial statements (including, in each case, any notes thereto) of the Company included in the Company SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP (except, in the case of the unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly present in all material respects in accordance with GAAP the financial position of the Company as at the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). Except as disclosed in the Company SEC Documents or as required by GAAP, the Company has not, since December 31, 1998, made any change in the accounting practices or policies applied in the preparation of its financial statements. The books and records of the Company have 35 been, and are being, maintained in accordance with GAAP and other applicable legal and accounting requirements. Section 3.6 Registration Statement and Proxy Statement. None of the ------------------------------------------ information to be supplied by the Company for inclusion or incorporation by reference in the Registration Statement or the Proxy Statement will (i) in the case of the Registration Statement, at the time it becomes effective, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading or include any statement that is materially different from the representations and warranties of the Company contained in this Agreement or the other Transaction Agreements or that discloses a liability, condition or event that would constitute a Material Adverse Effect on the Company, which liability, condition or event is not otherwise disclosed in the representations and warranties of the Company contained in this Agreement or in the Company Disclosure Schedule or (ii) in the case of the Proxy Statement, at the time of the mailing of the Proxy Statement, the time of the Stockholder Meeting and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading or include any statement that is materially different from the representations and warranties of the Company contained in this Agreement or the other Transaction Agreements or that discloses a liability, condition or event that would constitute a Material Adverse Effect on the Company, which liability, condition or event is not otherwise disclosed in the representations and warranties of the Company contained in this Agreement or in the Company Disclosure Schedule. If, at any time prior to the Effective Time, any event with respect to the Company, its officers or directors shall occur which is required to be described in the Proxy Statement or the Registration Statement, such event shall be so described, and an appropriate amendment or supplement shall be promptly filed with the SEC and, as required by law, disseminated to the stockholders of the Company. The Proxy Statement will comply (excluding any matters relating to Parent and Sub, as to which the Company makes no representations) as to form in all material respects with the provisions of the Exchange Act. Section 3.7 Absence of Certain Changes or Events. Except as disclosed ------------------------------------ in the Company SEC Documents filed with the SEC prior to the date of this Agreement or in Schedule 3.7 of the Company Disclosure Schedule, since December 31, 1998, (A) the Company has not incurred any liability or obligation (indirect, direct or contingent), or entered into any oral or written agreement or other transaction, that is not in the ordinary course of business or that would, individually or in the aggregate, result in a Material Adverse Effect on the Company, except for any such changes or 36 effects resulting from this Agreement, the transactions contemplated hereby or the announcement thereof; (B) the Company has not sustained any loss or interference with their business or properties from fire, flood, windstorm, accident or other calamity (whether or not covered by insurance) that would, individually or in the aggregate, have a Material Adverse Effect on the Company; (C) there has been no action taken by the Company, that, if taken during the period from the date of this Agreement through the Effective Time, would constitute a material breach of Section 4.1(b) hereof; and (D) there has been no event, circumstance or development that would have a Material Adverse Effect on the Company. Section 3.8 Permits and Compliance. ---------------------- (a) The Company is in possession of all Permits necessary for it to own, lease and operate its properties or to carry on its business as it is now being conducted (the "Company Permits"), except where the failure to have any of the --------------- Company Permits would not, individually or in the aggregate, have a Material Adverse Effect on the Company, and, as of the date of this Agreement, no suspension or cancellation of any of the Company Permits is pending or, to the Knowledge of the Company (as hereinafter defined), threatened, except where the suspension or cancellation of any of the Company Permits would not, individually or in the aggregate, have a Material Adverse Effect on the Company; provided -------- that no representation is being made by the Company in this sentence with - ---- respect to any IND or NDA of the Company filed with the FDA (which are the subject of Section 3.13 hereof). The Company is not in violation of (A) the Company Charter or the Company By-Laws, (B) any applicable law, ordinance, administrative or governmental rule or regulation or (C) any order, decree or judgment of any Governmental Entity having jurisdiction over the Company, except, in the case of clauses (B) and (C), for any violations that, individually or in the aggregate, would not have a Material Adverse Effect on the Company. (b) Except as disclosed in the Company SEC Documents filed prior to the date of this Agreement or in Schedule 3.8(a) of the Company Disclosure Schedule, as of the date of this Agreement, there is no contract or agreement that is material to the business, financial condition or results of operations of the Company. Except as set forth in the Company SEC Documents filed prior to the date of this Agreement or in Schedule 3.8(b) of the Company Disclosure Schedule, the execution and delivery of the Transaction Agreements do not, and the consummation of the transactions contemplated hereby and thereby and compliance with the provisions hereof and thereof will not, conflict with, result in any violation of, or breach or default (with or without due notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation or the loss of any benefit 37 under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under, any indenture, mortgage, loan agreement, note or other agreement or instrument for borrowed money, any guarantee of any agreement or instrument for borrowed money or any lease, contractual license or other contract, agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the properties, assets or operations of the Company is subject, other than such conflicts, violations, breaches, defaults, rights or liens as would not, individually or in the aggregate, have a Material Adverse Effect on the Company. As used in this Agreement "Knowledge of the Company" means the actual knowledge ------------------------ of any of the Chief Executive Officer, the Chief Financial Officer, the General Counsel of the Company or Executive Vice President, Research and Development. Section 3.9 Tax Matters. ----------- Except as set forth in Schedule 3.9 of the Company Disclosure Schedule: (a) All federal, state, local and foreign Tax Returns required to be filed (taking into account extensions) by or on behalf of the Company (i) have been timely filed, except for such Tax Returns that the failure by the Company to timely file would not, individually or in the aggregate, have a Material Adverse Effect on the Company, and (ii) are true, complete and correct in all material respects. (b) All Taxes payable by or with respect to the Company have been timely paid, or adequately reserved for (in accordance with GAAP) in the most recent financial statements contained in the Company SEC Documents, except for Taxes that the failure of which to pay would not, individually or in the aggregate, have a Material Adverse Effect on the Company. (c) No deficiencies for any Taxes have been proposed, asserted or assessed either orally or in writing against the Company that are not adequately reserved for (in accordance with GAAP) in the most recent financial statements contained in the Company SEC Documents, except for such deficiencies as would not, individually or in the aggregate, have a Material Adverse Effect on the Company. All assessments for Taxes due and owing by or with respect to the Company with respect to completed and settled examinations or concluded Litigation have been paid. (d) No examinations have been completed or are presently being conducted with respect to the Company's federal or material state income Tax Returns. 38 (e) The Company has complied with all rules and Treasury regulations relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or similar provisions under any foreign Laws) and have, within the time and in the manner required by law, withheld from employee wages and paid over to the proper Govern mental Entities all amounts required to be so withheld and paid over under all Applicable Laws, except where the failure to be in such compliance or to withhold and pay over such amounts would not, individually or in the aggregate, have a Material Adverse Effect on the Company. (f) The Company (i) has not waived any statutory period of limitations in respect of its or their Taxes or Tax Returns or (ii) is not a party to, not bound by, or has no obligation under any agreement, contract or arrangement for the sharing, allocation, or indemnification of Taxes (other than indemnification agreements where Taxes incidental to the primary obligation so indemnified are also indemnified). (g) The net operating losses ("NOLs") of the Company are not, as of the ---- date hereof, subject to Section 382 or 269 of the Code, Treasury regulation Section 1.1502-21T(c), or any similar provisions or Treasury regulations otherwise limiting the use of the NOLs of the Company. (h) No property of the Company is "tax-exempt use property" (as such term is defined in Section 168 of the Code). (i) The Company has not filed a consent pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a "Subsection (f) asset" (as such term is defined in Section 341(f)(4) of the Code) owned by the Company. (j) The Company is not, and has not been for the five years preceding the Closing, a "United States real property holding company" (as such term is defined in Section 897(c)(2) of the Code). (k) The Company has no reason to believe that any condition exists nor has the Company taken any action or failed to take any action that could reasonably be expected to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code. 39 Section 3.10 Actions and Proceedings. Except as set forth in the Company ----------------------- SEC Documents filed prior to the date of this Agreement or in Schedule 3.10 of the Company Disclosure Schedule, there are no outstanding orders, judgments, injunctions, awards or decrees of any Governmental Entity against or involving the Company, against or involving any of the present directors or officers of the Company, as such, or involving any of its or their properties, assets or business that, individually or in the aggregate, would have a Material Adverse Effect on the Company. Except as set forth in the Company SEC Documents filed prior to the date of this Agreement or in Schedule 3.10 of the Company Disclosure Schedule, as of the date of this Agreement, there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the Knowledge of the Company, threatened against or involving the Company against or involving any of the present directors or officers of the Company as such, or involving any of its or their properties, assets or business before any court or arbitration tribunal or before any Governmental Entity that, individually or in the aggregate, would have a Material Adverse Effect on the Company. As of the date of this Agreement, there are no actions, suits, labor disputes or other litigation, legal or administrative proceedings or governmental investigations pending, or, to the Knowledge of the Company, threatened against or affecting the Company or any of its present directors or officers, as such, or any of its or their properties, assets or business before any court or arbitration tribunal or before any Governmental Entity relating to the transactions contemplated by the Transaction Agreements. Section 3.11 Certain Agreements. Schedule 3.11 of the Company Disclosure ------------------ Schedule sets forth each material oral or written stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan to which the Company is a party. Except as set forth in Schedule 3.11 of the Company Disclosure Schedule, as of the date of this Agreement, the Company is not a party to any oral or written agreement or plan, including any stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. No holder of any option to purchase shares of Company Common Stock, or shares of Company Common Stock granted in connection with the performance of services for the Company, is or will be entitled to receive cash from the Company in lieu of or in exchange for such option or shares as a result of the transactions contemplated by this Agreement (other than in lieu of fractional shares). The Company is not a party to any termination benefits agreement or severance agreement or employment agreement which would be triggered by the 40 consummation of the transactions contemplated by this Agreement, except as set forth in Schedule 3.11 of the Company Disclosure Schedule. Section 3.12 ERISA. ----- (a) Schedule 3.12(a) of the Company Disclosure Schedule lists each Company Plan (as hereinafter defined). With respect to each material Company Plan, the Company has made (or as soon as practicable will make) available to Parent a true and correct copy of (i) the three most recent annual reports (Form 5500) filed with the IRS, (ii) such Company Plan and any amendments thereto, (iii) each trust agreement, insurance contract or administration agreement relating to such Company Plan and the latest financial statements thereof, (iv) the most recent summary plan description of each Company Plan for which a summary plan description is required, (v) the most recent actuarial report or valuation relating to a Company Plan subject to Title IV of ERISA, (vi) the most recent determination letter, if any, issued by the IRS with respect to any Company Plan intended to be qualified under Section 401(a) of the Code and (vii) any written description that exists as of the date of this Agreement of any unwritten Company Plan. Except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, (i) each Company Plan complies with all applicable statutes and governmental rules and regulations, including but not limited to ERISA, the Code and COBRA, (ii) no "reportable event" (within the meaning of Section 4043 of ERISA) has occurred with respect to any Company Plan for which the 30-day notice requirement has not been waived, (iii) the Company is not or has not been obligated to contribute or otherwise may not have any liability with respect to any Company Multiemployer Plan (as hereinafter defined), (iv) no action has been taken, or is currently being considered, to terminate any Company Plan subject to Title IV of ERISA, (v) the Company has complied with the continued medical coverage requirements of COBRA, (vi) no Company Plan has engaged in a "prohibited transaction" (as defined in Section 4975 of the Code and Section 406 of ERISA) and (vii) no liability under Title IV or Section 302 of ERISA or Section 412 of the Code has been incurred by the Company that has not been satisfied in full, and no condition exists that presents a risk to the Company of incurring any such liability. Except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, no Company Plan subject to Title IV of ERISA, nor any trust created thereunder, has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived. (b) Except as disclosed in Schedule 3.12(b) of the Company Disclosure Schedule, with respect to any Company Plan which is subject to Title IV of ERISA, the present value of accrued benefit obligations, as determined in accordance with FAS 87 in accordance with the actuarial assumptions used to prepare the most recent 41 reports of such Company Plan, did not exceed the fair market value of the Plan assets as of the most recent valuation date for which an actuarial report has been prepared, and to the Knowledge of the Company, there has not been any material adverse change to such status. All contributions required to be made with respect to any Company Plan on or prior to the Closing Date have been made or are reflected on the most recent balance sheet of the Company. (c) With respect to the Company Plans, no event has occurred in connection with which the Company would be subject to any liability under the terms of such Company Plans, ERISA, the Code or any other applicable law which would have, individually or in the aggregate, a Material Adverse Effect on the Company. Except as disclosed in the Company SEC Documents or set forth in Schedule 3.12(c) of the Company Disclosure Schedule, with respect to any current or former employee, director, officer, consultant or contractor of the Company, consummation of the transactions contemplated by this Agreement shall not result in the payment or provision of additional compensation or benefits or accelerate the vesting, payment or funding of any compensation or benefits. Except as disclosed in the Company SEC Documents or set forth in Schedule 3.12(c) of the Company Disclosure Schedule, no amounts payable by reason of this transaction under the Company Plans will fail to be deductible for federal income tax purposes by virtue of either Section 280G or Section 162(m) of the Code. Except as set forth in Schedule 3.12(c) of the Company Disclosure Schedule, Company Plans that are intended to be qualified under Section 401(a) of the Code have been determined by the IRS to be so qualified, or a timely application for such determination is now pending, and to the Knowledge of the Company, there is no reason why any Company Plan is not so qualified in operation. Except as disclosed in the Company SEC Documents filed prior to the date of this Agreement or set forth in Schedule 3.12(c) of the Company Disclosure Schedule or as required by ERISA, the Company does not have any liability or obligation under any welfare plan to provide benefits after termination of employment to any employee or dependent. There are no pending, or to the Knowledge of the Company, threatened, claims, suits, audits or investigations related to any Company Plan other than claims for benefits in the ordinary course and other than claims, suits, audits or investigations that would not, individually or in the aggregate, have a Material Adverse Effect on the Company. As used herein, (i) "Company Plan" means each deferred compensation and each bonus or other ------------ incentive compensation, stock purchase, stock option and other equity compensation or ownership plan, program, agreement or arrangement, each severance or termination pay, medical, surgical, hospitalization, life insurance and other "welfare" plan, fund or program (within the meaning of Section 3(1) of the ERISA); each profit-sharing, stock bonus or other "pension" plan, fund or program (within the meaning of Section 3(2) of ERISA); each employment, retention, consulting, 42 termination or severance agreement; and each other employee benefit plan, fund, program, agreement or arrangement, in each case, that is sponsored, maintained or contributed to or required to be contributed to by the Company, including any plan subject to Title IV of ERISA maintained within the past five (5) years by the Company and (ii) "Company Multiemployer Plan" means a "multiemployer plan" -------------------------- (as defined in Section 4001(a)(3) of ERISA) to which the Company is or has been obligated to contribute or otherwise may have any liability. Section 3.13 Compliance with Certain Laws. ---------------------------- (a) Except as disclosed in Schedule 3.13(a) of the Company Disclosure Schedule, the properties, assets and operations of the Company are in compliance with all Applicable Laws, except for any violations that individually or in the aggregate would not have a Material Adverse Effect on the Company. Except as disclosed in Schedule 3.13(a) of the Company Disclosure Schedule, with respect to such properties, assets and operations, including any previously owned, leased or operated properties, assets or operations, there are no past, present or reasonably anticipated future events, conditions, circumstances, activities, practices, incidents, actions or plans of the Company that may interfere with or prevent compliance or continued compliance with all Applicable Laws, other than interference or prevention that would not individually or in the aggregate with any other such interference or prevention have a Material Adverse Effect on the Company. The Company will make available to Parent such certificates and environmental studies with respect to such properties as the Company has available on the date of this Agreement. (b) The Company's manufacturing, distribution, development and marketing practices are in compliance with all applicable federal and state laws, rules, regulations, orders, licenses, judgments, writs, injunctions, decrees or demands, including, without limitation, laws and regulations administered by the FDA and the DEA, except where the failure to be in such compliance would not, individually or in the aggregate, have a Material Adverse Effect on the Company. (c) The Company has filed an NDA for MorphiDex(R) with the FDA (the "MorphiDex(R) Application"), and on August 2, 1999, the Company received ------------------------ notification from the FDA that such application was not approvable. The MorphiDex(R) Application is the only NDA of the Company on file with the FDA. Schedule 3.13(c) of the Company Disclosure Schedule sets forth all INDs and license agreements of the Company. 43 (d) The Company has not used the services of any person debarred under the provisions of the Generic Drug Enforcement Act of 1992, 21 U.S.C. (S) 335(a)(b). Neither the Company nor any of its officers, employees, agents or affiliates, has been convicted of any crime or engaged in any conduct for which debarment is mandated by 21 U.S.C. (S) 335a(a) or authorized by 21 U.S.C. (S) 335a(b). (e) The Company is in compliance with all (i) federal and state laws applicable to the development, manufacture, processing, packing, testing and sale of pharmaceutical products to the extent such laws are applicable to it, (ii) rules and regulations of the FDA and the DEA to the extent such rules and regulations are applicable to it, and (iii) product applications (including INDs) in which the Company has sold any product on or after November 1, 1999, except in each case where the failure to be in such compliance would not, individually or in the aggregate, have a Material Adverse Effect on the Company. All manufacturing operations conducted by or for the benefit of the Company have been and are being conducted in substantial compliance with the current Good Manufacturing Practice regulations set forth in 21 C.F.R. Parts 210 and 211. (f) As to each drug of the Company for which a product application has been approved by, or any IND has been filed with, the FDA, which drugs are described in Schedule 3.13(f) of the Company Disclosure Schedule, the applicant and all Persons performing operations covered by the application are in compliance with the requirements of the FDCA and the implementing regulations of the FDA, respectively, and all terms and conditions of the application, except where the failure to be in such compliance would not, individually or in the aggregate, have a Material Adverse Effect on the Company. (g) The Company is in material compliance with all applicable registration and listing requirements set forth in 21 U.S.C. (S) 360 and 21 C.F.R. Part 207. To the extent required, the Company has obtained registrations from the DEA and is in material compliance with all such registrations and all applicable regulations promulgated by the DEA. (h) None of the Company or any of its officers, employees, or agents has made an untrue statement of material fact or fraudulent statement to the FDA or the DEA, failed to disclose a material fact required to be disclosed to the FDA or the DEA, or committed an act, made a statement, or failed to make a statement that could reasonably be expected to provide a basis for the FDA to invoke its policy respecting "Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities," set forth in 56 Fed. Reg 46191 (September 10, 1991). 44 (i) The Company has made available to Parent copies of any and all notices of inspectional observations (FD 483's), establishment inspection reports, warning letters and any other documents received from or issued by the FDA or the DEA within the last three years that indicate or suggest lack of compliance with the FDA or the DEA regulatory requirements by the Company or Persons covered by product applications or otherwise performing services for the benefit of the Company with respect to services or products provided to the Company. (j) The Company has not received any written notice that the FDA or the DEA has commenced or threatened to initiate (i) any action to withdraw its approval or request the recall of any product of the Company, or (ii) any action to enjoin (A) production at any facility (including any clinical facility where testing and/or trials occur) owned or used by the Company or any Person on behalf of the Company or (B) any facility (including any clinical facility where testing and/or trials occur) owned or used by the Company or any Person on behalf of the Company, (iii) the withdrawal of approval of any product application (including any IND), other than such withdrawals of approval that would not, individually or in the aggregate, have a Material Adverse Effect on the Company, or (iv) any material civil penalty, injunction, seizure or criminal action. (k) To the Knowledge of the Company, as to each article of drug or consumer product currently manufactured and/or distributed by the Company, which products are described in Schedule 3.13(k) of the Company Disclosure Schedule, or by any Person on behalf of the Company, such article is not adulterated or misbranded within the meaning of the FDCA, 21 U.S.C. (S)(S) 301 et seq. and not in violation of 21 U.S.C. (S) 355. (l) As to each drug referred to in subsection (c) above, the Company and its officers, employees, agents and affiliates have included or caused to be included in the application for such drug, where required, the certification described in 21 U.S.C. (S) 335a(k)(1) and the list described in 21 U.S.C. (S) 335a(k)(2), and such certification and such list was in each case true and accurate when made and remained true and accurate thereafter. (m) Except as set forth in Schedule 3.13(m) of the Company Disclosure Schedule, all pre-clinical trials and clinical trials the Company has conducted or has had conducted for it by third parties, to the Knowledge of the Company, complies in all material respects with the requirements of Good Clinical Practice, Informed Consent, and all requirements relating to protection of human subjects, found in 21 C.F.R. (S)(S) 50, 54 and 56 and that all nonclinical laboratory testing complies with the requirements of 21 C.F.R. (S) 58. 45 (n) Except as set forth in Schedule 3.13(n) of the Company Disclosure Schedule, as to each product application submitted to, but not approved by, the FDA, and not withdrawn by the Company or applicants acting on its behalf as of the date of this Agreement, the Company has complied in all material respects with the requirements of the FDCA and implementing FDA regulations and has provided, or will provide, all additional information and taken, or will take, all additional action either that has been deemed appropriate by both the Company and Parent in connection with the application. (o) The Company exports no FDA regulated products. Section 3.14 Liabilities. Except as fully reflected or reserved against in ----------- the balance sheet of the Company as of December 31, 1998 (included in the Company SEC Documents) or as reflected in the Company SEC Documents filed prior to the date of this Agreement, or set forth in Schedule 3.14 of the Company Disclosure Schedule, the Company has no liabilities (including, without limitation, tax liabilities) absolute or contingent, that would be required to be reflected on a balance sheet or in notes thereto prepared in accordance with GAAP, other than liabilities incurred in the ordinary course of business or that, individually or in the aggregate, would not have a Material Adverse Effect on the Company. Section 3.15 Labor Matters. Except as set forth in Schedule 3.15 of the ------------- Company Disclosure Schedule or in the Company SEC Documents filed prior to the date of this Agreement, the Company is not a party to any collective bargaining agreement or labor contract. The Company has not engaged in any unfair labor practice with respect to any Persons employed by or otherwise performing services primarily for the Company (the "Company Business Personnel"), and there -------------------------- is no unfair labor practice complaint or grievance against the Company by the National Labor Relations Board or any comparable state agency pending or threatened in writing with respect to the Company Business Personnel, except where such unfair labor practices, complaints or grievances would not, individually or in the aggregate, have a Material Adverse Effect on the Company. There is no labor strike, dispute, slowdown or stoppage pending or, to the Knowledge of the Company, threatened against or affecting the Company which may interfere with the business activities of the Company, except where such disputes, strikes or work stoppages would not, individually or in the aggregate, have a Material Adverse Effect on the Company. The Company is in compliance with all labor, employment and wage payment-related laws, regulations and rules, except where the failure to be in such compliance would not, individually or in the aggregate, have a Material Adverse Effect on Parent. 46 Section 3.16 Intellectual Property. --------------------- (a) Except as set forth in Schedule 3.16(a) of the Company Disclosure Schedule or as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, the Company is the owner of or has the valid and enforceable right to make, use, sell, offer to sell and import all Company Intellectual Property to the extent used in or necessary for the conduct of the Company's business, free and clear of all liens, security interests, charges or encumbrances of any kind and, except for the Company License Agreements set forth in Schedule 3.16(b) of the Company Disclosure Schedule, free and clear of all licenses to third parties granting any right to use or practice any rights under any Company Intellectual Property. As used in this Agreement, the term "Company Intellectual Property" shall mean: (i) the Company's registered and ----------------------------- material unregistered trademarks, service marks (including registrations, recordings and applications in the United States Patent and Trademark Office, any state of the United States or any other Governmental Entity worldwide), slogans, trade names, logos and trade dress (collectively, together with the good will symbolized thereby or associated with each, "Company Trademarks"); ------------------ (ii) all of the Company's national (including, but not limited to, the United States) and multinational statutory invention registrations, patents, patent registrations and patent applications (including, but not limited to, all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations, and all rights therein provided by law, multinational treaties or conventions) (collectively, "Company Patents"); (iii) all of the Company's --------------- national and multinational registered and material unregistered copy rights, including, but not limited to, copyrights in software programs and databases (collectively, "Company Copyrights"); (iv) the Company's software programs ------------------ documentation and manuals used in connection therewith and databases (together, "Company Software"); (v) all of the Company's (A) inventions, whether patentable ---------------- or not patentable, whether or not reduced to practice, and not yet made the subject of a pending patent application or applications, (B) ideas and conceptions of potentially patentable subject matter, including, without limitation, any patent disclosures, whether or not reduced to practice and not yet made the subject of a patent application, (C) trade secrets and confidential, technical information (including ideas, formulas, compositions, inventions and conceptions of inventions whether patentable or not patentable and whether or not reduced to practice), (D) technology (including, without limitation, know-how and show-how), manufacturing and production processes and techniques, service and repair manuals, research and development information, drawings, specifications, designs, plans, proposals, technical data and copyrightable works, whether secret or confidential or not, and all proprietary or confidential business information, (E) all rights to obtain and rights to apply for patents, and to register trademarks and copyrights and (F) all records (including, but 47 not limited to, laboratory, research and testing notebooks) in any accessible format (including, but not limited to, paper records, photographs, audio and visual tape recordings and computer storage media and other information storage media) pertaining to patentable or potentially patentable subject matter and all technical manuals and documentation made or used in connection with any of the foregoing (collectively, "Company Technology"); and (vi) agreements pursuant to ------------------ which the Company has obtained or granted the right to use any of the foregoing (collectively, and together with other agreements to which the Company is a party relating to the development, acquisition, use, sale, offer for sale or importation of Company Intellectual Property, "Company License Agreements"). -------------------------- (b) Schedule 3.16(b) of the Company Disclosure Schedule sets forth a true, complete and accurate list of the following Company Intellectual Property items owned by or under obligation of assignment to the Company: (i) all registrations of and applications to register Company Trademarks material to the Company; (ii) all unregistered Company Trademarks which are material to the Company; (iii) all Company Patents; (iv) all registrations of and applications to register any Company Copyrights; (v) all Company Software; and (vi) all Company License Agreements, other than off-the-shelf Company Software licenses. (c) Except as set forth in Schedule 3.16(b) of the Company Disclosure Schedule, the Company is the sole and exclusive owner of the Company Intellectual Property items set forth in Schedule 3.16(b) of the Company Disclosure Schedule and the Company is listed in the records of the Governmental Entities set forth in Schedule 3.16(b) of the Company Disclosure Schedule as the sole owner of record. Except as set forth in Schedule 3.16(c) of the Company Disclosure Schedule, there is no lien, security interest, charge or encumbrance of any kind on the right of the Company to transfer to the Surviving Corporation any of the Company Intellectual Property, as contemplated by this Agreement. Except as otherwise indicated in Schedule 3.16(b) of the Company Disclosure Schedule, (i) all issued patents set forth thereon are valid and enforceable and (ii) (A) as of the date of this Agreement, no such trademark registrations, trademark applications, issued patents or patent applications set forth in Schedule 3.16(b) of the Company Disclosure Schedule are subject to any pending proceedings, including opposition, cancellation, interference or similar adversarial proceeding by or before any Governmental Entity and no such proceedings are threatened and (B) at the Effective Time, no such trademark registrations, trademark applications, issued patents or patent applications set forth in Schedule 3.16(b) of the Company Disclosure Schedule are subject to any pending proceedings, including opposition, cancellation, interference or similar adversarial proceeding by or before any Governmental Entity and no such proceedings are 48 threatened, other than such proceedings that would not, individually or in the aggregate, have a Material Adverse Effect on the Company. (d) There are no royalties, honoraria, fees or other payments payable by the Company in respect of the use or the right to use any of the Company Intellectual Property to any Person or Governmental Entity (excluding Taxes, governmental or attorneys' fees required in the normal course of obtaining patent, trademark or copyright rights and excluding governmental maintenance fees), except as set forth in the Company License Agreements listed in Schedule 3.16(b) of the Company Disclosure Schedule and pursuant to off-the-shelf Company Software licenses. The Company License Agreements set forth in Schedule 3.16(b) of the Company Disclosure Schedule are valid and binding obligations of the parties thereto, enforceable in accordance with their terms, except as the enforceability thereof may be limited by (a) applicable bankruptcy, insolvency, moratorium, reorganization or similar laws in effect that affect the enforcement of creditors rights generally or (b) general principals of equity, whether considered in a proceeding at law or in equity, and there exists no event or condition which will result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default by the Company (or, to the Knowledge of the Company, any other party thereto) under any Company License Agreement, except where such violations, breaches or defaults would not, individually or in the aggregate, have a Material Adverse Effect on the Company. Except as set forth in Schedule 3.16(d) of the Company Disclosure Schedule, no consent is required to be obtained in connection with the right of the Company to transfer any Company License Agreement to Parent or Sub pursuant to the Merger. (e) Except as disclosed in Schedule 3.16(e) of the Company Disclosure Schedule or as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, (i) none of the use by the Company of any Company Intellectual Property, the exercise of rights relating to Company Patents, Company Trademarks and Company Copyrights contained within the Company Intellectual Property or the conduct of the business of the Company infringes or otherwise violates any intellectual property rights (either directly or indirectly, such as through contributory infringement or inducement to infringe) of any third party and (ii) no such claims have been asserted or, to the Knowledge of the Company, threatened against the Company which have not been resolved. Except as disclosed in Schedule 3.16(e) of the Company Disclosure Schedule, (A) as of the date of this Agreement, (i) to the Knowledge of the Company, no third party is infringing or otherwise violating any Company Intellectual Property rights of the Company and (ii) no such claims are pending or threatened by the Company against any third party and (B) at the Effective Time, (i) to the Knowledge of the Company, no third party is infringing or otherwise violating any Company Intellectual Property rights of the Company that 49 are material to the business of the Company as conducted or proposed to be conducted on the date of this Agreement and (ii) no such claims are pending or threatened by the Company against any third party, which involve any Company Intellectual Property that is material to the business of the Company as conducted or proposed to be conducted on the date of this Agreement. (f) Except as disclosed in Schedule 3.16(f) of the Company Disclosure Schedule, (i) as of the date of this Agreement, there are no suits or any other proceedings pending or, to the Knowledge of the Company, threatened before any Governmental Entity to which the Company is a party challenging (A) the Company's rights to own or use any Company Intellectual Property or (B) the validity, enforceability or scope of the Company Intellectual Property and (ii) at the Effective Time, there are no such suits to which the Company is a party challenging (A) the Company's rights to own or use any Company Intellectual Property that is material to the business of the Company as conducted or proposed to be conducted on the date of this Agreement or (B) the validity, enforceability or scope of the Company Intellectual Property that is material to the business of the Company as conducted or proposed to be conducted on the date of this Agreement. There are no settlement agreements, consents, judgments, orders, forebearances to sue or similar obligations which materially restrict any rights of the Company to (i) make, use, sell, offer for sale, import or license under any Company Intellectual Property or (ii) conduct its business in order to accommodate a third party's intellectual property rights. (g) The Company employs reasonable measures to protect the confidentiality of the Company Technology. The Company requires employees with access to the Company Technology to execute a nondisclosure agreement substantially in accordance with the form(s) previously provided by the Company to Parent. Except as set forth in Schedule 3.16(g) of the Company Disclosure Schedule, none of the current or former employees, officers or directors of the Company (i) is suspected to be in violation of any such agreement or (ii) is suspected of having disclosed any Company Technology to any third party except subject to an appropriate confidentiality agreement or as required by a Governmental Entity. (h) Except as set forth in Schedule 3.16(h) of the Company Disclosure Schedule, the consummation of the transactions contemplated by this Agreement will not result in the loss or impairment of any rights of the Company to own, use or license any Company Intellectual Property, except where such losses or impairments would not, individually or in the aggregate, have a Material Adverse Effect on the Company. 50 (i) Except as set forth in Schedule 3.16(i) of the Company Disclosure Schedule, since September 25, 1996, the Company has not disposed of or permitted to lapse any rights to the use of any Company Intellectual Property, or disposed of or disclosed to any Person other than representatives of Parent any Company trade secret, formula, process or know-how not theretofore a matter of public knowledge other than in the ordinary course of business or pursuant to secrecy agreement. Section 3.17 Opinion of Financial Advisor. The Company has received the ---------------------------- written opinion of Credit Suisse First Boston dated the date hereof, to the effect that, as of the date hereof, the Merger Consideration is fair to the Company's stockholders from a financial point of view, a copy of which opinion will be made available to Parent promptly after the date of this Agreement. Section 3.18 Required Vote of Company Stockholders. Under applicable ------------------------------------- Delaware law and the Company Charter and Company By-laws, the affirmative vote of the holders of not less than a majority of the outstanding shares of Company Common Stock is required to approve the Merger. No other vote of the stockholders of the Company is required by law, the Company Charter or Company By-Laws or otherwise for the Company to consummate the Merger and the transactions contemplated hereby. Section 3.19 Ownership of Shares. The Company does not own any Shares of ------------------- Parent Common Stock. Section 3.20 Brokers. No broker, investment banker or other Person, other ------- than Credit Suisse First Boston, the fees and expenses of which will be paid by the Company (and are reflected in agreements between Credit Suisse First Boston and the Company, copies of which have been furnished to Parent), is entitled to any broker's, finder's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. Section 3.21 State Takeover Statutes. Assuming the accuracy of Parent's ----------------------- representations and warranties contained in Section 2.17 hereof (Ownership of Shares), the Board of Directors of the Company has taken all action so that, prior to the execution hereof, the Board of Directors has approved both pursuant to Section 203 of the DGCL and Article VIII of the Company Charter (a) the Merger, this Agreement and each Stockholder Voting Agreement and the transactions contemplated hereby and thereby prior to the execution hereof and thereof, (b) a fee (in an amount previously disclosed to the Company) paid to Kelso & Co. (or an Affiliate thereof) in connection with the transactions contemplated by this 51 Agreement and (c) the possible purchase by an Affiliate of Parent (other than Parent and so long as such purchase would not be treated for U.S. federal income tax purposes as a purchase, in whole or in part, by a Person who is related to Parent within the meaning of Treasury Regulation Section 1.368-1(e)(3)) of shares of Company Common Stock from John W. Lyle and Frank S. Caruso pursuant to that certain side letter dated of even date herewith between each of such executives and Parent. Prior to the execution of this Agreement, the Company has delivered to Parent a true and accurate copy of the resolutions of the Board of Directors of the Company approving such transactions. As of the date of this Agreement, no other state takeover statutes, including without limitation, any business combination act or supermajority Company Charter provisions are applicable to the Merger or the Transaction Agreements. Section 3.22 Year 2000. With respect to year 2000, the Company --------- represents and warrants that the statement contained in Exhibit D-2 hereto is true and accurate. Section 3.23 Interests in Other Entities. Except as set forth in --------------------------- Schedule 3.23 of the Company Disclosure Schedule, the Company does not, directly or indirectly, own or have the right to acquire any equity interest in any other corporation, partnership, joint venture or other business organization (other than any such equity interest that is 1% or less of the equity interest such public corporation). The Company has not made any investment in or advance of cash or other extension of credit to any Person, or has any commitment or obligation to do so. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS Section 4.1 Conduct of Business Pending the Merger. -------------------------------------- (a) Actions by Parent. Notwithstanding anything herein to the contrary, ----------------- (1) prior to the Effective Time, the Parent Recapitalization shall occur and (2) contemporaneously with the Closing, Parent shall duly adopt and declare advisable the Charter Amendment. During the period from the date of this Agreement through the Effective Time, Parent shall, and shall cause each of its Subsidiaries to, in all material respects carry on its business in the ordinary course as currently conducted and, to the extent consistent therewith, use reasonable best efforts to preserve intact its current business organizations, keep available the services of its current officers and employees and preserve its relationships with customers, suppliers and others 52 having business dealings with it. Without limiting the generality of the foregoing, and except as otherwise contemplated by this Agreement (including the Parent Recapitalization as consummated in accordance with the terms set forth on Exhibit A-2 hereto), from the date of this Agreement to the Effective Time, Parent, shall not, and shall not permit any of its Subsidiaries to, without the prior written consent of the Company: (i) (w) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of its capital stock, or otherwise make any payments to its stockholders in their capacity as such (other than dividends and other distributions by Subsidiaries), (x) other than in the case of any Subsidiary, split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (y) other than pursuant to any existing stockholders agreement (copies of which have been previously provided to the Company), purchase, redeem or otherwise acquire any shares of capital stock of Parent or any other securities thereof or the capital stock of any Subsidiary or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities or (z) institute or amend any share repurchase program; (ii) issue, deliver, sell, pledge, dispose of, grant, transfer or otherwise encumber any shares of its capital stock, any other voting securities or equity equivalent or any securities convertible or exchangeable into, or exercisable for, or any rights, warrants or options to acquire any such shares, voting securities, equity equivalent or convertible securities, other than (A) subject to Section 4.3 hereof, the issuance of stock options and shares of Parent Common Stock to employees of Parent or any of its Subsidiaries under the Parent Incentive Plans and in the ordinary course of business consistent with past practice between the date hereof and the Effective Date, (B) the issuance by any wholly-owned Subsidiary of Parent of its capital stock to Parent or another wholly-owned Subsidiary of Parent and (C) as set forth in Schedule 4.1(a)(ii) of the Parent Disclosure Schedule; (iii) amend its charter or by-laws; (iv) except for inventory, merchandise, finished goods and accounts receivable acquired in the ordinary course of business, acquire or agree to acquire by merging or consolidating with, or by purchasing a portion of the assets of or equity in, or by making an investment in or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets, other than acquisitions of 53 assets in the ordinary course of business consistent with past practice in an amount not to exceed $20 million; (v) sell, lease or otherwise dispose of, or agree to sell, lease or otherwise dispose of, any of its rights or other assets, other than (A) sales of inventory, merchandise and finished goods in the ordinary course of business and (B) transactions that are in the ordinary course of business consistent with past practice and that, individually or in the aggregate, are not material to Parent and its Subsidiaries taken as a whole; (vi) incur any indebtedness for borrowed money, guarantee any such indebtedness or make any loans, advances or capital contributions to, or other investments in, any other Person, other than (A) indebtedness incurred in the ordinary course of business consistent with past practice in an amount not to exceed $20 million, (B) indebtedness, loans, advances, capital contributions and investments between Parent and any of its wholly-owned Subsidiaries or between any of such wholly-owned Subsidiaries, (C) such indebtedness as may be necessary to fund actions allowed under Section 4.1(a)(iv) hereof and (D) in connection with a refinancing of the Credit Agreement, dated as of August 26, 1997 (the "Credit Agreement"), among Endo Pharmaceuticals Inc., the lenders party thereto ---------------- and The Chase Manhattan Bank (provided that such indebtedness incurred in -------- ---- connection with such a refinancing does not exceed indebtedness allowed under the Credit Agreement); (vii) knowingly violate or knowingly fail to perform any material obligation or duty imposed upon it or any Subsidiary by any applicable federal, state or local law, rule, regulation, guideline or ordinance; (viii) take any action, other than reasonable and usual actions in the ordinary course of business consistent with past practice, with respect to accounting policies or procedures and other than actions required to be taken by GAAP; or (ix) enter into any contract, agreement, commitment or arrangement to take any action prohibited by this Section 4.1(a). (b) Actions by the Company. During the period from the date of this ---------------------- Agreement through the Effective Time, the Company shall, in all material respects, carry on its business in the ordinary course as currently conducted and, to the extent consistent therewith, use reasonable best efforts to preserve intact its current business organizations, keep available the services of its current officers and employees and preserve its relationships with customers, suppliers and others having business 54 dealings with it. Without limiting the generality of the foregoing, and except as otherwise expressly contemplated by this Agreement, from the date of this Agreement to the Effective Time, the Company shall not, without the prior written consent of Parent: (i) (w) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of its capital stock, or otherwise make any payments to its stockholders in their capacity as such, (x) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (y) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities or (z) institute or amend any share repurchase program; (ii) issue, deliver, sell, pledge, dispose of, grant, transfer or otherwise encumber any shares of its capital stock, any other voting securities or equity equivalent or any securities convertible or exchangeable into, or exercisable for, or any rights, warrants or options to acquire any such shares, voting securities, equity equivalent or convertible securities, other than the issuance of shares of Company Common Stock upon the exercise of Company Stock Options outstanding on the date of this Agreement in accordance with their current terms; (iii) amend the Company Charter or Company By-Laws; (iv) except for inventory, merchandise, finished goods and accounts receivable acquired in the ordinary course of business, acquire or agree to acquire by merging or consolidating with, or by purchasing a portion of the assets of or equity in, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets other than acquisitions of assets in the ordinary course of business consistent with past practice, the value of which do not exceed $500,000 in the aggregate; (v) sell, lease or otherwise dispose of, or agree to sell, lease or otherwise dispose of, any of its rights or other assets other than (A) sales of inventory, merchandise and finished goods in the ordinary course of business and (B) transactions that are in the ordinary course of business consistent with past practice, not material to the Company and in an aggregate amount greater than $250,000; 55 (vi) incur any indebtedness for borrowed money, guarantee any such indebtedness or make any loans, advances or capital contributions to, or other investments in (other than investments in accordance with clause (iv) above), any other Person, other than indebtedness incurred in the ordinary course of business consistent with past practice in an amount not to exceed $50,000 in the aggregate; (vii) alter (through merger, liquidation, reorganization, restructuring or in any other fashion) the corporate structure or ownership of the Company other than as a result of the trading of the Company Common Stock on the NASDAQ; (viii) enter into or adopt, or amend any existing, severance plan, agreement or arrangement or enter into or amend any Company Plan or employment or consulting agreement, other than (A) as required by applicable law, (B) as expressly contemplated by this Agreement or (C) stay bonuses as reasonably approved by Parent; (ix) increase the compensation payable or to become payable to its officers, employees or directors except for increases in the ordinary course of business consistent with past practice in salaries or wages of employees of the Company who are not officers of the Company, or grant any additional rights to severance or termination pay to, or enter into any employment or severance agreement with, any director or officer of the Company, or establish, adopt, enter into, or, except as set forth in Schedule 4.1(b)(ix) of the Company Disclosure Schedule or as may be required to comply with applicable law, amend or take action in any such case in a manner so as to enhance or accelerate any rights or benefits under, any labor, collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer or employee; (x) knowingly violate or knowingly fail to perform any material obligation or duty imposed upon it by any applicable federal, state or local law, rule, regulation, guideline or ordinance; (xi) take any action, other than reasonable and usual actions in the ordinary course of business consistent with past practice, with respect to accounting policies or procedures (other than actions required to be taken by GAAP); 56 (xii) make any Tax election, change its method of accounting, or settle or compromise any material federal, state, local or foreign income Tax liability or refund; (xiii) except as set forth in Schedule 4.1(b)(xiii) of the Company Disclosure Schedule, enter into any contract that cannot be canceled on 30 days' notice pursuant to which it is obligated in an amount in excess of $500,000; (xiv) make any capital expenditure in the aggregate in excess of $100,000, other than expenditures (and contracts for such expenditures) set forth in the Company's current capital budget included as Schedule 4.1(b)(xiv) of the Company Disclosure Schedule; (xv) enter into any agreement, arrangement or contract that provides for the allocation, sharing or indemnification for Taxes; or (xvi) enter into any contract, agreement, commitment or arrangement to take any action prohibited by this Section 4.1(b). (c) Other Actions. The Company and Parent shall not, and Parent shall not ------------- permit any of its Subsidiaries to, take any action that would, or that could reasonably be expected to, result in (i) any of the representations and warranties of such party set forth in this Agreement that is qualified as to materiality becoming untrue, (ii) any of such representations and warranties that is not so qualified becoming untrue in any material respect or (iii) except as otherwise permitted by Section 4.2 hereof with regard to the Company, any condition to the Merger set forth in Article VI hereof not being satisfied. Section 4.2 No Solicitation. --------------- (a) The Company shall not, and it will use its best efforts to cause its officers, directors, employees, investment bankers, consultants, attorneys, accountants, agents, advisors or representatives not to, directly or indirectly, (i) take any action to solicit, initiate, encourage or facilitate any Company Takeover Proposal (as hereinafter defined) or any inquiry with respect thereto, (ii) enter into or approve any agreement or agreement-in-principle providing for or with respect to any Company Takeover Proposal or (iii) participate or engage in any discussions or negotiations regarding, or furnish to any Person any information with respect to or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Company Takeover Proposal, including affording access to the Company's properties, books or records; 57 provided, however, that prior to the approval of this Agreement by the - -------- ------- stockholders of the Company, to the extent required by the fiduciary obligations of the Board of Directors of the Company, as determined in good faith by it after consultation with outside counsel, the Company may, in response to a Company Takeover Proposal that was not solicited by the Company and that did not otherwise result from a breach or a deemed breach of this Section 4.2(a), and subject to compliance with the provisions of this Agreement, (x) furnish information with respect to the Company to any Person pursuant to a customary confidentiality agreement and (y) if the Company is in compliance with Section 4.2(b) hereof, participate or engage in discussions or negotiations with such Person regarding any Company Takeover Proposal. Without limiting the foregoing, it is agreed that any violation of the restrictions set forth in the preceding sentence by any executive officer of the Company or any director or investment banker, attorney or other advisor or representative of the Company, whether or not such Person is purporting to act on behalf of the Company or otherwise, shall be deemed to be a breach of this Section 4.2(a) by the Company. For purposes of this Agreement, "Company Takeover Proposal" means any proposal for a ------------------------ merger or other business combination involving the Company or the acquisition or purchase of more than 25% of any class of equity securities of the Company, or any tender offer (including self-tenders) or exchange offer that, if consummated, would result in any Person beneficially owning more than 25% of any class of equity securities of the Company, or a majority of the assets of the Company, other than the transactions contemplated by this Agreement. Nothing contained in this Section 4.2 shall prohibit the Company or the Company's Board of Directors from (i) taking and disclosing to the Company's stockholders a position with respect to a tender or exchange offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or (ii) making any disclosure required by applicable law. (b) The Company promptly shall advise Parent orally and in writing of its receipt of any public or private Company Takeover Proposal or any inquiry with respect to or that could reasonably be expected to lead to any Company Takeover Proposal, the identity of the Person making any such Company Takeover Proposal or inquiry and the material terms of any such Company Takeover Proposal. The Company shall (i) keep Parent fully informed of the status, including any change to the terms and conditions of, any such Company Takeover Proposal or inquiry and (ii) provide to Parent as soon as practicable after receipt or delivery thereof with copies of all correspondence and other written material sent or provided to the Company from any third party in connection with any Company Takeover Proposal or sent or provided by the Company to any third party in connection with any Company Takeover Proposal. 58 Section 4.3 Tax Representation Letters. For purposes of the tax -------------------------- opinions described in Sections 6.2(b) and 6.3(c) hereof, Parent and the Company shall provide representation letters reasonably customary in scope and substance, substantially in the respective forms of Exhibits E-1 and E-2 attached hereto (the "Tax Representation Letters"), dated as of the date that is -------------------------- two business days prior to the date the Proxy Statement is mailed to stockholders of the Company and reissued as of the date of Closing. ARTICLE V ADDITIONAL AGREEMENTS Section 5.1 Stockholder Meeting. The Company shall call a meeting of its ------------------- stockholders to be held as promptly as practicable after the date on which the Registration Statement becomes effective for the purpose of considering the approval of this Agreement (such meeting and any adjournments or postponements thereto, the "Stockholder Meeting"). Neither the Board of Directors of the ------------------- Company nor any committee thereof shall withdraw or modify, or propose to withdraw or modify, in a manner adverse to Parent or Sub, the approval or recommendation by the Board of Directors of the Company or any such committee thereof of this Agreement or the Merger, or approve or recommend, or propose to approve or recommend, any Company Takeover Proposal (each, a "Change in the ------------- Company Recommendation"), unless such proposal is a Superior Company Proposal. - ---------------------- For purposes of this Agreement, a "Superior Company Proposal" means any proposal ------------------------- made by a third party to acquire a majority of the equity securities or assets of the Company, pursuant to a tender or exchange offer, a merger, a sale of all or substantially all its assets or otherwise, on terms which the Company Board of Directors determines in its good faith judgment to be superior from a financial point of view to the holders of Company Common Stock (based on the written opinion, with only customary qualifications, of the Company's independent financial advisor), taking into account all the terms and conditions of such proposal and this Agreement. Notwithstanding any Change in the Company Recommendation, a proposal to approve the Merger and adopt this Agreement shall be submitted to the stockholders of the Company at the Stockholder Meeting in order to give the Company's stockholders the opportunity to vote on the Merger and this Agreement in order to obtain the requisite approval of the Company's stockholders and nothing contained in this Agreement shall be deemed to relieve the Company of such obligation. 59 Section 5.2 Preparation of the Registration Statement and the Proxy ------------------------------------------------------- Statement. The Company and Parent shall promptly prepare the Proxy Statement - --------- and the Registration Statement in which the Proxy Statement will be included, and thereafter the Company shall promptly file with the SEC the Proxy Statement and Parent shall promptly file with the SEC such Registration Statement. The Company and Parent shall cooperate with each other in connection with the preparation of the foregoing documents (including, without limitation, providing each other any information that is necessary to be included in such documents). Each of Parent and the Company shall use its reasonable best efforts to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing. As promptly as practicable after the Registration Statement shall have become effective, the Company shall mail the Proxy Statement to its stockholders. Parent shall also take any action (other than qualifying to do business in any jurisdiction in which it is now not so qualified) required to be taken under any applicable state securities laws in connection with the issuance of Parent Common Stock and Algos Warrants in the Merger and the issuance of Parent Common Stock upon the exercise of the Algos Warrants, and the Company shall furnish all information concerning the Company and the holders of Company Common Stock as may be reasonably requested in connection with any such action. No amendment or supplement to the Proxy Statement or the Registration Statement will be made by Parent or the Company without the prior approval of the other party. Parent and the Company each will advise the other, promptly after it receives notice thereof, of the time when the Registration Statement has become effective or any supplement or amendment has been filed, of the issuance of any stop order, of the suspension of the qualification of the Parent Common Stock or Algos Warrants issuable in connection with the Merger or the Parent Common Stock issuable upon the exercise of the Algos Warrants for offering or sale in any jurisdiction, or of any request by the SEC for amendment of the Proxy Statement or the Registration Statement or comments thereon and responses thereto or requests by the SEC for additional information. Section 5.3 Access to Information; Regulatory Communications. ------------------------------------------------ (a) Subject to currently existing contractual and legal restrictions applicable to the Company or Parent or any of Parent's Subsidiaries, each of Parent and the Company shall, and Parent shall cause each of its Subsidiaries to, afford to the accountants, counsel, financial advisors and other representatives of the other party hereto reasonable access to, and permit them to make such inspections as they may reasonably require of, during normal business hours during the period from the date of this Agreement through the Effective Time, all their respective properties, books, contracts, commitments and records (including, without limitation, the work papers of independent accountants, if available and subject to the consent of such 60 independent accountants) and, during such period, Parent and the Company shall, and Parent shall cause each of its Subsidiaries to, furnish promptly to the other (i) a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of federal or state securities laws and (ii) all other information concerning its business, properties and personnel as the other may reasonably request. No investigation pursuant to this Section 5.3(a) shall affect any representation or warranty in this Agreement of any party hereto or any condition to the obligations of the parties hereto. (b) The Company (i) shall keep Parent promptly informed of (A) any communication (written or oral) with or from the FDA or the DEA and (B) any communications (written or oral) received from any Person relating to the Company Intellectual Property and (ii) shall not make any submissions to, or have discussions with, the FDA or the DEA without either the prior consultation or the inclusion of Parent; provided, however, that in the event the Company (i) -------- ------- is verbally contacted by the FDA and (ii) has made a good faith effort to include representatives of Parent in such discussion without success, then the Company shall be allowed to participate in such discussions without Parent and shall promptly inform Parent of the content of such discussions. Parent shall keep the Company promptly informed of any communications from the FDA or DEA relating to any of the drugs set forth in Schedule 5.3(b) of the Parent Disclosure Schedule, Section 5.4 Compliance with the Securities Act. Prior to mailing the ---------------------------------- Proxy Statement, the Company shall deliver to Parent a list of names and addresses of those Persons who, in the opinion of the Company, may, at the time of the Stockholder Meeting, be deemed to be "affiliates" of the Company within the meaning of Rule 145 under the Securities Act ("Affiliates"). The Company ---------- shall provide to Parent such information and documents as each shall reasonably request for purposes of reviewing such lists. There shall be added to such lists the names and addresses of any other Person that the Company reasonably identifies (by written notice to the other party within ten business days after receipt of such list) as being a Person who may be deemed to be an Affiliate of the Company. Except as set forth in Schedule 5.4 of the Company Disclosure Schedule, the Company shall exercise all reasonable efforts to deliver or cause to be delivered to Parent, not later than 30 days prior to the Effective Time, from each of such Affiliates of the Company identified on the foregoing list, an affiliate letter in the form attached hereto as Exhibit F. 61 Section 5.5 Designation of Directors. At the Effective Time, Parent ------------------------- shall take all actions necessary to cause (a) three (3) designees of the Company (each of whom shall be satisfactory to Parent) to be appointed to its Board of Directors (such person and any subsequent designees thereof, the "Company ------- Designees"), to serve until their terms expire or until their successors have - --------- been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Parent Charter or Parent By-laws and (b) John W. Lyle to be appointed a Non-Executive Chairman of Parent's Board of Directors. During the three-year period from and including the Effective Date, (A) Parent shall use its reasonable best efforts to cause at least three (3) Company Designees to be on the Board of Directors of Parent at all times, (B) at any meeting of stockholders for the purpose of electing the members of Parent's Board of Directors, Parent shall cause to be nominated for election the Company Designees, (C) the Parent LLC (as defined in Section 5.21) shall vote the shares of Parent Common Stock owned by it in favor of the Company Designees, (D) the Parent Charter or the Parent By-Laws shall provide that any vacancies created by any Company Designee upon such Company Designee's death, resignation or removal that are not filled pursuant to a Parent stockholder vote shall be filled by a nominee of the remaining Company Designees and (E) one Company Designee shall be appointed as a member of any compensation committee of Parent's Board of Directors or any other committee of such Board having the responsibility or power with respect to the granting of employee stock options. Section 5.6 NASDAQ Listing. Parent shall use its reasonable best efforts -------------- to have authorized for listing on the NASDAQ, subject to official notice of issuance,the shares of Parent Common Stock, the Algos Warrants to be issued in connection with the Merger and the Endo Warrants (as defined in Section 5.20 hereof). Section 5.7 Fees and Expenses. ----------------- (a) Except as provided in this Section 5.7, whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby, including, without limitation, the fees and disbursements of counsel, financial advisors and accountants, shall be paid by the party incurring such costs and expenses; provided that all filing -------- ---- fees and printing expenses for the Proxy Statement and Registration Statement shall be shared equally by the Company and Parent. (b) The Company shall reimburse Parent and Sub for all their out-of-pocket expenses actually incurred in connection with this Agreement and the other Transaction Agreements, the Merger and any other transactions contemplated hereby and thereby if this Agreement is terminated pursuant to Section 7.1(e) hereof, or 62 terminated pursuant to Section 7.1(b) or (c) hereof based on a breach of the Company. Such reimbursement shall be paid upon demand following such termination. (c) Parent and Sub shall reimburse the Company for all of its out-of- pocket expenses actually incurred in connection with this Agreement and the other Transaction Agreements, the Merger and any other transactions contemplated hereby and thereby if this Agreement is terminated pursuant to Section 7.1(b) or (c) hereby based on a breach of Parent or Sub. Such reimbursement shall be paid upon demand following such termination. Section 5.8 Company Stock Options. The Company shall cause each --------------------- unexpired and unexercised Company Stock Option under the Company Stock Plans to become fully vested and exercisable for the thirty (30)-day period immediately prior to the Effective Time. To the extent any Company Stock Option is unexpired and unexercised at the end of such period, the Company shall cause such Company Stock Option to terminate as of the Effective Time. Section 5.9 Parent Options. Parent shall take all action necessary, and -------------- shall use its reasonable best efforts to obtain as soon as practicable the consent of option holders to provide that each Parent Stock Option (to purchase shares of Parent Common Stock under the Parent Incentive Plans) which is outstanding at the Effective Time (whether or not such Parent Stock Option is then vested and exercisable) shall, subject to the following sentence, be following the Effective Time exercisable solely into shares of Parent Common Stock that are beneficially owned by certain holders of Parent Common Stock immediately following the Parent Recapitalization and prior to the Effective Time (the "Current Endo Options"). The parties hereto also agree and -------------------- acknowledge that following the date of this Agreement, current holders of Parent Common Stock and current holders of Parent Stock Options will enter into amendments to their current stockholders agreements, Parent Incentive Plans and Parent Stock Options, as the case may be, in order to accomplish the foregoing. Section 5.10 Reasonable Efforts. ------------------ (a) Upon the terms and subject to the conditions set forth in this Agreement, including, with regard to the Company, Section 4.2 hereof, each of the parties agrees to use reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions 63 contemplated by this Agreement, including, but not limited to: (i) the obtaining of all necessary actions or nonactions, waivers, consents and approvals from all Governmental Entities and the making of all necessary registrations and filings (including filings with Governmental Entities) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Entity (including those in connection with the HSR Act and State Takeover Approvals), (ii) the obtaining of all necessary consents, approvals or waivers from third parties, (iii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed and (iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by this Agreement. Parent and the Company shall cooperate with each other in connection with the making of such filings, including providing copies of all such documents to the non-filing party and its advisors prior to filing and, if requested, accepting all reasonable suggestions in connection therewith. (b) The parties hereto will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party hereto in connection with proceedings under or relating to the HSR Act or any other federal, state or foreign antitrust or fair trade law. Each party shall promptly notify the other party of any communication to that party from any Governmental Entity in connection with any required filing with, or approval or review by, such Governmental Entity in connection with the Merger and permit the other party to review in advance any such proposed communication to any Governmental Entity. Neither party shall agree to participate in any meeting with any Governmental Entity in respect of any such filings, investigation or other inquiry unless it consults with the other party in advance and, to the extent permitted by such Governmental Entity, gives the other party the opportunity to attend and participate thereat. (c) Each party shall use all reasonable efforts to not take any action, or enter into any transaction, which would cause any of its representations or warranties contained in this Agreement to be untrue or result in a breach of any covenant made by it in this Agreement. Section 5.11 Public Announcements. The initial press release shall be a -------------------- joint press release and thereafter the Company and Parent each shall obtain the prior consent of the other prior to issuing any press releases or otherwise making public 64 announcements with respect to the Merger and the other transactions contemplated by this Agreement and prior to making any filings with any third party and/or any Governmental Entity (including any national securities exchange or interdealer quotation service) with respect thereto, except as may be required by law or by obligations pursuant to any listing agreement with or rules of the NASDAQ. Section 5.12 State Takeover Laws. If any "fair price," "business ------------------- combination" or "control share acquisition" statute or other similar statute or regulation shall become applicable to the transactions contemplated hereby, Parent and the Company and their respective Boards of Directors shall use their reasonable best efforts to grant such approvals and take such actions as are necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to minimize the effects of any such statute or regulation on the transactions contemplated hereby. Section 5.13 Indemnification; Directors and Officers Insurance. For not ------------------------------------------------- than six (6) years from and after the Effective Time, Parent agrees to, and to cause the Surviving Corporation to, indemnify and hold harmless all past and present directors, officers and employees of the Company to the same extent such Persons are indemnified as of the date of this Agreement by the Company pursuant to the Company Charter and Company By-Laws and indemnification agreements, if any, in existence on the date of this Agreement with any directors, officers and employees of the Company for acts or omissions occurring at or prior to the Effective Time; provided, however, that Parent agrees to, and to cause the -------- ------- Surviving Corporation to, indemnify and hold harmless such Persons to the fullest extent permitted by law for acts or omissions occurring in connection with the approval of this Agreement and the consummation of the transactions contemplated hereby. Parent shall cause the Surviving Corporation to provide, for an aggregate period of not less than six (6) years from the Effective Time, the Company's current directors and officers an insurance and indemnification policy that provides coverage for events occurring prior to the Effective Time (the "D&O Insurance") that is no less favorable than the Company's existing ------------- policy or, if substantially equivalent insurance coverage is unavailable, the best available coverage; provided, however, that the Surviving Corporation shall -------- ------- not be required to pay an annual premium for the D&O Insurance in excess of 200 percent of the last annual premium paid prior to the date of this Agreement, which premium the Company represents and warrants to be approximately $195,740. Section 5.14 Notification of Certain Matters. Parent shall use its ------------------------------- reasonable best efforts to give prompt notice to the Company, and the Company shall use its reasonable best efforts to give prompt notice to Parent, of: (i) the 65 occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which it is aware and which would be reasonably likely to cause (x) any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect or (y) any covenant, condition or agreement contained in this Agreement not to be complied with or satisfied in all material respects, (ii) any failure of Parent or the Company, as the case may be, to comply in a timely manner with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, (iii) any material litigation, any material governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated) or (iv) any change or event which would be reasonably likely to have a Material Adverse Effect on Parent or the Company, as the case may be; provided, however, that the delivery -------- ------- of any notice pursuant to this Section 5.14 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. Section 5.15 Employee Matters. Except to the extent necessary to avoid ---------------- duplication of benefits, Parent will, or will cause the Surviving Corporation to, give Continuing Employees full credit for purposes of eligibility and vesting under any employee benefit plans or arrangements maintained by Parent, the Surviving Corporation or any Subsidiary of Parent in which such Continuing Employee is eligible to participate for such Continuing Employees' service with the Company to the same extent recognized by the Company immediately prior to the Effective Time. Parent will, or will cause the Surviving Corporation to, (i) waive all limitations as to preexisting conditions exclusions and waiting periods with respect to participation and coverage requirements applicable to the Continuing Employees under any welfare plan that such employees may be eligible to participate in after the Effective Time, other than limitations or waiting periods that are already in effect with respect to such employees and that have not been satisfied as of the Effective Time under any welfare plan maintained for the Continuing Employees immediately prior to the Effective Time, and (ii) provide each Continuing Employee with credit for any co-payments and deductibles paid prior to the Effective Time in satisfying any applicable deductible or out-of-pocket requirements under any welfare plans that such employees are eligible to participate in after the Effective Time. Section 5.16 Tax Treatment. Parent and the Company will each use ------------- reasonable efforts before and after the Closing to cause the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, and will not take or fail to take, and will use reasonable efforts to prevent any Affiliate of such party from taking or failing to take, any actions which would jeopardize the qualification of the Merger as such a reorganization, and will take such action as is available and may be reasonably required to negate the impact of any past actions or failures by 66 such party or its respective Affiliates which would reasonably be expected to adversely impact the qualification of the Merger as a reorganization within the meaning of Section 368(a) of the Code. Section 5.17 Conveyance Taxes. Parent and the Company shall cooperate ---------------- in the preparation, execution and filing of all returns, questionnaires, applications, or other documents regarding (i) any real property transfer gains, sales, use, transfer, value-added, stock transfer (subject to Section 1.9(b) hereof), and stamp Taxes, (ii) any recording, registration and other fees and (iii) any similar Taxes or fees that become payable in connection with the transactions contemplated hereby. The Taxes described in clause (i) above shall be paid by the Company, without deduction or withholding from any amounts payable to the holders of Company Common Stock. Section 5.18 Ownership of Shares. None of Parent, any Person deemed ------------------- acting in concert with Parent or any of its Subsidiaries or any of Parent's Subsidiaries has acquired the beneficial ownership of any shares of Company Common Stock other than in compliance with Section 3.21 hereof and any other Applicable Law. Section 5.19 Additional Agreements. At or before Closing, (a) each of --------------------- Parent and the Parent LLC shall enter into a tax sharing agreement in substantially the form attached hereto as Exhibit G (the "Tax Sharing ----------- Agreement") and (b) each of Parent and John W. Lyle shall enter into an - ---------- agreement in substantially the form attached hereto as Exhibit H (the "Lyle ----- Agreement"). - ---------- Section 5.20 Issuance of Warrants to Parent. Immediately prior to ------------------------------ Closing, Parent shall issue one warrant (collectively, the "Endo Warrants") ------------- with respect to each share of Parent Common Stock then outstanding, which warrant shall be subject to the terms and conditions of a warrant agreement "Endo Warrant Agreement") substantially in the form attached hereto as ---------------------- Exhibit I. Section 5.21 Formation of Parent LLC. ----------------------- (a) Immediately prior to the Effective Time, a limited liability company (the "Parent LLC") shall be formed to which Parent shall use its reasonable best ---------- efforts to cause each of the then current holders of Parent Common Stock to contribute all of the shares of Parent Common Stock beneficially owned by it in exchange for membership interests in such Parent LLC; provided that this -------- ---- covenant shall be deemed to have occurred if holders of at least 85% of the Parent Common Stock so contribute their shares of Parent Common Stock to the Parent LLC. 67 (b) On March 31, 2001, Parent will determine the Cash Gross Profit of Parent (as defined below) and the Adjustment Event (as defined below) shall be deemed to have occurred or not occurred (as appropriate) on such date. Among other things, the limited liability company agreement for the Parent LLC (the "Parent LLC Agreement") will provide that (i) in the event (A) the Cash Gross -------------------- Profit of Parent (as defined below) for the fiscal year ended December 31, 2000 does not equal or exceed $147.4 million and (B) the Exercisability Date (as defined in the Algos Warrant) has occurred prior to March 31, 2001, then ---- 13,769,573 shares of Parent Common Stock that are then owned by the Parent LLC shall be transferred for no consideration to Parent (which shall deposit the same in its treasury) and (ii) in the event (A) the Cash Gross Profit of Parent for the fiscal year ended December 31, 2000 does not equal or exceed $147.4 million and (B) the Exercisability Date has not occurred prior to March 31, 2001, then 17,900,445 shares of Parent Common Stock that are then owned by the ---- Parent LLC shall be transferred for no consideration to Parent (which shall deposit the same in its treasury) (the actions contemplated by clause (i) or clause (ii) shall be adjustments to the Merger Consideration and shall be referred to as an "Adjustment Event"). ---------------- (c) The number of shares that are required to be transferred in the event of an Adjustment Event shall be appropriately adjusted (i) such that, at the Effective Time, the numbers in clauses (b)(i)(B) and (b)(ii)(B) of this Section 5.21 shall represent that number of shares of Parent Common Stock such that if such shares were no longer outstanding at the Effective Time, the shares issuable under the Algos Warrants in the aggregate (if such Algos Warrants were then immediately exercisable), together with shares of Parent Common Stock issued to the Company stockholders in the Merger would represent 40% of the outstanding Parent Common Stock on a fully diluted basis (excluding the Endo Warrants) and (ii) without duplicating clause (i) above, if Parent pays a dividend or makes a distribution on the Parent Common Stock in shares of Parent Common Stock or other capital stock of Parent or subdivides, splits, combines or reclassifies its outstanding shares of Parent Common Stock into a different number of securities of the same class, then the number of shares of Parent Common Stock required to be transferred under this Section 5.21 shall be appropriately adjusted to give the effect specified in clause (i) of this sentence as if such events occurred immediately prior to the Effective Time. (d) For such purposes, "Cash Gross Profit of Parent" shall mean the --------------------------- difference between Net Sales (as defined below) and Cash Cost of Sales (as defined below) for the fiscal year ended December 31, 2000. "Net Sales" shall --------- mean the gross invoice price of Endo Products (as defined below) sold to any third party (excluding Affiliates of Parent) less (i) cash, trade, promotional, or quantity discounts and/or rebates, and chargebacks, (ii) retroactive price reductions, (iii) sales, 68 use or other excise taxes and (iv) returns and allowances, all as reflected on the audited statement of operations of Parent attributable to the Endo Products determined in accordance with GAAP consistently applied for the fiscal year ended December 31, 2000. "Cash Cost of Sales" shall mean the Cost of Sales ------------------ (determined in accordance with GAAP and consistent with the past practices used by Parent in 1998 as previously disclosed to the Company) as reflected on the audited statement of operations of Parent for the fiscal year ended December 31, 2000 attributable to the Endo Products less all non-recurring charges and non- cash charges included in Cost of Sales (including, but not limited to, depreciation, amortization and other non-cash manufacturing charges). "Endo ---- Products" shall include current and future internally developed products sold or - -------- marketed by Parent or its Subsidiaries (other than products developed or being developed by the Company) to any third party (including products from which Parent has revenues on account of royalties and license fees). The Parent LLC Agreement shall further provide that the definition of the Cash Gross Profit of Parent shall be based solely on the audited financial statements of Parent for the fiscal year ended December 31, 2000. Any determinations regarding the satisfaction of such obligation or any amendments, modifications or waivers of such provisions by Parent shall be effective only if approved by a majority of the members of the Board of Directors of Parent who do not then (by themselves or through an Affiliate) have a financial interest in the Parent LLC. Any dispute relating to the calculation of the Cash Gross Profit of Parent shall be resolved by the Independent Accounting Firm (as defined below) acting as arbitrator, and such determination shall be final and binding on the parties. The Parent LLC and Parent (by a majority of the members of the Board of Directors of Parent who do not then (by themselves or through an Affiliate) have a financial interest in the Parent LLC) shall mutually select a nationally recognized firm of certified public accountants then having no significant ongoing relationship with either Parent or the Parent LLC or their respective Affiliates, but if the Parent LLC and Parent cannot mutually agree on the identity of such firm, then the Parent LLC and Parent shall each submit to the other party's independent auditor the name of a national accounting firm other than any firm that has in the prior two years provided services to the Parent LLC, Parent or any of their respective Affiliates, and a firm shall be selected by lot from these two firms by the independent auditors of the two parties. The accounting firm selected pursuant to the foregoing procedures shall be referred to as the "Independent Accounting Firm." (If no national accounting firm shall --------------------------- be willing to serve as the Independent Accounting Firm, then an arbitrator qualified under the rules of the American Arbitration Association shall be selected to serve as such, such selection to be according to the above procedures.) Within five (5) days of the submission of the dispute to the Independent Accounting Firm, each of the Parent LLC and Parent (by a majority of the members of the Board of Directors of Parent who do not then (by themselves or through an Affiliate) have a 69 financial interest in the Parent LLC) shall submit a written position paper (the "Position Paper") to the Independent Accounting Firm outlining such party's -------------- calculations and/or objections that are the subject of dispute. The Independent Accounting Firm shall be instructed to use every reasonable effort to perform its services within thirty (30) days of submission of the Position Papers to it and, in any case, as promptly as practicable after such submission. The determination of the Independent Accounting Firm shall be final and binding on the parties without further right of appeal. Section 5.22 Effect of Parent Recapitalization. Parent covenants that the --------------------------------- Parent Recapitalization shall have the effect of adjusting the outstanding Parent Common Stock such that those Persons who had been holders of Company Common Stock immediately prior to the Effective Time shall, following the Parent Recapitalization and at the Effective Time, hold, in the aggregate, 20% of the outstanding Parent Common Stock (on a fully diluted basis, excluding the effect of the Algos Warrants and the Endo Warrants) and those Persons who had been holders of Parent Common Stock immediately prior to the Effective Time shall, following the Parent Recapitalization and at the Effective Time, hold, in the aggregate, 80% of the outstanding Parent Common Stock (on a fully diluted basis, excluding the effect of the Algos Warrants and the Endo Warrants). For purposes of calculating this 20/80 split, (a) any repurchases by Parent between the date of this Agreement and the Effective Time of any Parent Common Stock or Parent Stock Options from current holders thereof pursuant to any current stockholders or options agreements or plans and any issuances of Parent Common Stock or Parent Stock Options between the date of this Agreement and the Effective Time to any Parent employee shall be taken into account in determining the 80% to be owned by holders of Parent Common Stock and the 20% to be owned by holders of Company Common Stock and (b) the shares of Parent Common Stock underlying any Parent Stock Options, the holders of which do not consent to amend such Parent Stock Options pursuant to Section 5.9 hereof, shall not be counted as part of the 80% to be owned by holders of Parent Common Stock nor as part of the 20% to be owned by holders of Company Common Stock and shall be treated as if such Parent Stock Options did not exist for purposes of this calculation and in calculating the number of fully diluted shares; provided, however, that such -------- ------- ---- treatment will not apply to the shares underlying the Parent Stock Options held by the six executives listed in Schedule 5.22 of the Parent Disclosure Schedule, which Parent Stock Options shall be taken into account in determining the 80% to be owned by the current holders of Parent Common Stock if such Parent Stock Options are not amended pursuant to Section 5.9 hereof. If any of such executives fails to abide by the terms of that certain side letter agreement between each of them and the Company, mutually agreed upon arrangements will be made so that the Parent Stock Options held by such Persons will only affect the 80% held at 70 Effective Time by the current Parent stockholders. Each of the Algos Warrants and the Endo Warrants shall be exercisable into a number of shares of Parent Common Stock that is necessary to achieve the effect specified in the form of each such Warrant in Section 7 of the Warrant Agreement and Section 7 of the Endo Warrant Agreement, respectively. ARTICLE VI CONDITIONS PRECEDENT TO THE MERGER Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. ---------------------------------------------------------- The respective obligation of each party to effect the Merger shall be subject to the fulfillment or, to the extent permitted by applicable law, waiver at or prior to the Effective Time of the following conditions: (a) Stockholder Approval. This Agreement shall have been duly approved by -------------------- the requisite vote of stockholders of the Company in accordance with applicable law and the Company Charter and Company By-Laws. (b) Listing on the NASDAQ. The Parent Common Stock issuable in the Merger --------------------- shall have been authorized for listing on the NASDAQ, subject to official notice of issuance. (c) HSR. The waiting period (and any extensions thereof) applicable to --- the consummation of the Merger under the HSR Act shall have expired or been terminated. (d) Registration Statement. The Registration Statement shall have become ---------------------- effective in accordance with the provisions of the Securities Act. No stop order suspending the effectiveness of the Registration Statement shall have been issued by the SEC and no proceedings for that purpose shall have been initiated or, to the Knowledge of Parent or the Knowledge of the Company, threatened by the SEC. All necessary state securities or "blue sky" authorizations (including State Takeover Approvals) shall have been received. (e) No Governmental Action/Order. There shall not be pending any action, ---------------------------- suit or proceeding brought by any Governmental Entity which challenges or seeks to enjoin the Merger or the other transactions contemplated hereby. No court or other Governmental Entity having jurisdiction over the Company or Parent, or any of Parent's Subsidiaries, shall have enacted, issued, promulgated, enforced or entered 71 any law, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is then in effect and has the effect of making the Merger or any of the transactions contemplated hereby illegal. Section 6.2 Conditions to Obligation of the Company to Effect the Merger. ------------------------------------------------------------ The obligation of the Company to effect the Merger shall be subject to the fulfillment or, to the extent permitted by applicable law, waiver at or prior to the Effective Time of the following additional conditions: (a) Performance of Obligations; Representations and Warranties. Each of ---------------------------------------------------------- Parent and Sub shall have performed in all material respects each of its covenants and agreements contained in this Agreement required to be performed on or prior to the Effective Time, each of the representations and warranties of Parent and Sub contained in this Agreement that is qualified by materiality shall be true and correct on and as of the Effective Time as if made on and as of such date (other than representations and warranties that address matters only as of a certain date which shall be true and correct as of such certain date) and each of the representations and warranties that is not so qualified shall be true and correct in all material respects on and as of the Effective Time as if made on and as of such date (other than representations and warranties that address matters only as of a certain date which shall be true and correct in all material respects as of such certain date), in each case except as contemplated or permitted by this Agreement, and the Company shall have received a certificate signed on behalf of each of Parent and Sub by its Chief Executive Officer or its Chief Financial Officer to such effect. (b) Tax Opinion. The Company shall have received an opinion of Latham & ----------- Watkins in form and substance reasonably satisfactory to the Company, dated the Effective Time, substantially to the effect that on the basis of facts, representations and assumptions set forth in such opinion (including as provided in the Tax Representation Letters) which are consistent with the state of facts existing as of the Effective Time, for U.S. federal income tax purposes: (i) the Merger will constitute a "reorganization" within the meaning of Section 368(a) of the Code, and the Company, Sub and Parent will each be a party to that reorganization within the meaning of Section 368(b) of the Code; and (ii) no gain or loss will be recognized by Parent or the Company as a result of the Merger. 72 The issuance of such opinion shall be conditioned on the receipt by Latham & Watkins of the Tax Representation Letters, upon which Latham & Watkins will rely in rendering its opinion, from each of Parent, Sub and the Company, in each case, in form and substance reasonably satisfactory to such tax counsel. The specific provisions of each such representation letter shall be in form and substance reasonably satisfactory to such tax counsel rendering such opinion, and each such representation letter shall be dated on or before the date of such opinion and shall not have been withdrawn or modified in any material respect. (c) Formation of Parent LLC. The formation of the Parent LLC in ------------------------ accordance with Section 5.21 hereof shall have occurred. Section 6.3 Conditions to Obligations of Parent and Sub to Effect the --------------------------------------------------------- Merger. The obligations of Parent and Sub to effect the Merger shall be subject - ------ to the fulfillment or, to the extent permitted by applicable law, waiver at or prior to the Effective Time of the following additional condition: (a) Performance of Obligations; Representations and Warranties. The ---------------------------------------------------------- Company shall have performed in all material respects each of its agreements contained in this Agreement required to be performed on or prior to the Effective Time, each of the representations and warranties of the Company contained in this Agreement that is qualified by materiality shall be true and correct on and as of the Effective Time as if made on and as of such date (other than representations and warranties that address matters only as of a certain date which shall be true and correct as of such certain date) and each of the representations and warranties that is not so qualified shall be true and correct in all material respects on and as of the Effective Time as if made on and as of such date (other than representations and warranties that address matters only as of a certain date which shall be true and correct in all material respects as of such certain date), in each case except as contemplated or permitted by this Agreement, and Parent shall have received a certificate signed on behalf of the Company by its Chief Executive Officer or its Chief Financial Officer to such effect. (b) Affiliate Letters. The letters from Affiliates required by Section ----------------- 5.4 hereof shall have been executed and delivered. (c) Tax Opinion. Parent shall have received an opinion of Skadden, Arps, ----------- Slate, Meagher & Flom LLP in form and substance reasonably satisfactory to Parent, dated the Effective Time substantially to the effect that on the basis of facts, representations and assumptions set forth in such opinion (including as provided in 73 the Tax Representation Letters) which are consistent with the state of facts existing as of the Effective Time, for U.S. federal income tax purposes: (i) the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code, and that the Company, Sub and Parent will each be a party to that reorganization within the meaning of Section 368(b) of the Code; and (ii) no gain or loss will be recognized by Parent or the Company as a result of the Merger. The issuance of such opinion shall be conditioned on the receipt by Skadden, Arps, Slate, Meagher & Flom LLP of the Tax Representation Letters, upon which Skadden, Arps, Slate, Meagher & Flom LLP will rely in rendering its opinion, from each of Parent, Sub, and the Company, in each case, in form and substance reasonably satisfactory to such tax counsel. The specific provisions of each such representation letter shall be in form and substance reasonably satisfactory to such tax counsel rendering such opinion, and each such representation letter shall be dated on or before the date of such opinion and shall not have been withdrawn or modified in any material respect. ARTICLE VII TERMINATION, AMENDMENT AND WAIVER Section 7.1 Termination. This Agreement may be terminated at any time ----------- prior to the Effective Time, whether before or after any approval of the matters presented in connection with the Merger by the stockholders of the Company: (a) by mutual written consent of Parent and the Company; (b) by either Parent or the Company (provided such party is not then in material breach) if the other party shall have failed to comply in any material respect with any of its covenants or agreements contained in this Agreement required to be complied with prior to the date of such termination, which failure to comply has not been cured within ten business days following receipt by such other party of written notice of such failure to comply; provided, -------- however, that if any such breach is curable by the breaching party through the - ------- exercise of the breaching party's best efforts and for so long as the breaching party shall be so using its best efforts to cure such breach, the non-breaching party may not terminate this Agreement pursuant to this paragraph; 74 (c) by either Parent or the Company (provided such party is not then in material breach) if there has been (i) a breach by the other party (in the case of Parent, including any breach by Sub) of any representation or warranty that is not qualified as to materiality which has the effect of making such representation or warranty not true and correct in all material respects or (ii) a breach by the other party (in the case of Parent, including any breach by Sub) of any representation or warranty that is qualified as to materiality, in each case which breach has not been cured within ten business days following receipt by the breaching party of written notice of the breach; provided, however, that -------- ------- if any such breach is curable by the breaching party through the exercise of the breaching party's best efforts and for so long as the breaching party shall be so using its best efforts to cure such breach, the non-breaching party may not terminate this Agreement pursuant to this paragraph; (d) by Parent or the Company: (i) if any Governmental Entity issues an order, decree or ruling or takes any other action permanently enjoining, restraining or otherwise prohibiting the Merger and such order, decree or ruling shall have become final and nonappealable; (ii) if any condition to the obligation of such party to consummate the Merger set forth in Article VI hereof becomes incapable of satisfaction prior to the Termination Date (as hereinafter defined) (provided that the ------------- terminating party is not then in material breach of any representation, warranty or covenant contained in this Agreement); or (iii) if the Merger has not been effected on or prior to the close of business on June 30, 2000 (the "Termination Date"); provided, however, that the ---------------- -------- ------- right to terminate this Agreement pursuant to this Section 7.1(d)(iii) shall not be available to any party whose failure to fulfill any of its obligations contained in this Agreement has been the cause of, or resulted in, the failure of the Merger to have occurred on or prior to the aforesaid date; and (e) by Parent or the Company if the stockholders of the Company do not approve this Agreement at the Stockholder Meeting or any adjournment or postponement thereof (so long as Parent and its Affiliates have voted the proxies that they are entitled to vote in favor of this Agreement). The right of any party hereto to terminate this Agreement pursuant to this Section 7.1 shall remain operative and in full force and effect regardless of any 75 investigation made by or on behalf of any party hereto, any Person controlling any such party or any of their respective officers or directors, whether prior to or after the execution of this Agreement. Section 7.2 Effect of Termination. In the event of termination of this --------------------- Agreement by either Parent or the Company as provided in Section 7.1 hereof, this Agreement shall forthwith terminate and there shall be no liability hereunder on the part of the Company, Parent, Sub or their respective officers or directors (except for Section 5.7 and Article VIII hereof which shall survive the termination); provided, however, that nothing contained in this Section 7.2 -------- ------- shall relieve any party hereto from any liability for any willful breach of a representation or warranty contained in this Agreement or the breach of any covenant contained in this Agreement. Section 7.3 Amendment. This Agreement may be amended by the parties --------- hereto at any time before or after approval of the matters presented in connection with the Merger by the stockholders of the Company; provided, -------- however, after any such - ------- approval, no amendment shall be made which by law requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 7.4 Waiver. At any time prior to the Effective Time, the parties ------ hereto may (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) subject to the proviso of Section 7.3 hereof, waive compliance with any of the agreements or conditions contained herein which may legally be waived. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. Section 7.5 Procedure for Termination, Amendment, Extension or Waiver. A --------------------------------------------------------- termination of this Agreement pursuant to Section 7.1 hereof, an amendment of this Agreement pursuant to Section 7.3 hereof or an extension or waiver pursuant to Section 7.4 hereof shall, to be effective, require in the case of Parent, Sub or the Company, action by its Board of Directors or the duly authorized designee of its Board of Directors. 76 ARTICLE VIII GENERAL PROVISIONS Section 8.1 Non-Survival of Representations and Warranties. The ---------------------------------------------- representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall terminate at the Effective Time or, subject to Section 7.2 hereof, upon the termination of this Agreement pursuant to Section 7.1 hereof. Section 8.2 Notices. All notices and other communications hereunder shall ------- be in writing and shall be deemed given when delivered personally, one day after being delivered to an overnight courier or when telecopied (with a confirmatory copy sent by overnight courier) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Parent or Sub, to: Endo Pharmaceuticals Holdings Inc. 223 Wilmington-West Chester Pike Chadds Ford, PA 19317 Attn.: Carol A. Ammon Fax No.: (610) 558-9683 with copies to: Kelso & Company 320 Park Avenue, 24/th/ Floor New York, New York 10022 Attn.: James J. Connors, II Fax No.: (212) 223-2379 and Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, NY 10022 Attn.: Eileen Nugent Simon Fax No.: (212) 735-2000 77 (b) if to the Company, to: Algos Pharmaceuticals Corporation 1333 Campus Parkway Neptune, NJ 07753-6815 Attn.: General Counsel Fax No.: (732) 938-2825 with copies to: Latham & Watkins 885 Third Avenue Suite 1000 New York, NY 10022 Attn.: Raymond Y. Lin Fax No.: (212) 751-4864 Section 8.3 Interpretation. When a reference is made in this Agreement to -------------- a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Section 8.4 Counterparts. This Agreement may be executed in counterparts, ------------ all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. Section 8.5 Entire Agreement; No Third-Party Beneficiaries. Except for ---------------------------------------------- the Mutual Confidentiality and Non-Disclosure Agreement between the parties dated October 21, 1998, this Agreement (together with the Company Disclosure Schedule, the Parent Disclosure Schedule, the Stockholder Voting Agreements and the exhibits and annexes attached hereto and thereto) constitute the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof. In the event of any conflict between this Agreement and any of the Company Disclosure Schedule, the Parent Disclosure Schedule, the Stockholder Voting Agreements and the exhibits and annexes attached hereto and thereto, this Agreement shall control. Other than Sections 5.5, 5.8, 5.9, 5.13, 5.15 and 5.21(c) hereof and the obligation of the Parent 78 LLC to transfer shares of Parent Common Stock pursuant to Section 5.21(b) hereof (taking into account Section 5.21(d) hereof), this Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. Section 8.6 Governing Law. This Agreement shall be governed by, and ------------- construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, THE COMPANY, OR SUB IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF. Section 8.7 Assignment. Neither this Agreement nor any of the rights, ---------- interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Section 8.8 Severability. If any term or other provision of this ------------ Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible. Section 8.9 Enforcement of this Agreement. ----------------------------- (a) The parties acknowledge and agree that any payment made pursuant to Section 5.7 hereof does not relieve either party from any liability it otherwise may have for breach of this Agreement. (b) The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this 79 Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, such remedy being in addition to any other remedy to which any party is entitled at law or in equity. Each party hereto hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the United States District Court located in the State of Delaware (unless such courts assert no jurisdiction, in which case the parties hereto consent to the exclusive jurisdiction of the courts of the State of Delaware) for any actions, suits or proceedings arising out of or relating to this Agreement and the transactions contemplated hereby (and each party hereto agrees not to commence any action, suit or proceeding relating thereto except in such courts), and further agrees that service of any process, summons, notice or document by U.S. registered mail to the addresses set forth herein shall be effective service of process for any such action, suit or proceeding brought against each party in such court. Each party hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby, in the United States District Courts located in the State of Delaware (unless such courts assert no jurisdiction, in which case each party consents to the exclusive jurisdiction of the courts of the State of Delaware). Each party hereby further irrevocably and unconditionally waives and agrees not to plead or to claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. 80 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized all as of the date first written above. ENDO PHARMACEUTICALS HOLDINGS INC. By: /s/ Carol A. Ammon ------------------------------------------------------- Name: Carol A. Ammon Title: President & Chief Executive Officer ENDO INC. By: /s/ Carol A. Ammon ------------------------------------------------------- Name: Carol A. Ammon Title: President & Chief Executive Officer ALGOS PHARMACEUTICAL CORPORATION By: /s/ John W. Lyle ------------------------------------------------------- Name: John W. Lyle Title: President Annex I Company Stockholders Entering into a Stockholder Voting Agreement - -----------------------------------------------------------------
=================================================================== Registered Holder Number of Shares Subject to Stockholder Voting Agreements - ------------------------------------------------------------------- Karen B. Lyle 1,344,416 - ------------------------------------------------------------------- Michael Hyatt (N.B. does not include 829,551 shares owned by the Kimmel Trusts listed below) - ------------------------------------------------------------------- Trust Under the Will of Inez Kimmel 657,193 - ------------------------------------------------------------------- Todd Kimmel Trust 171,530 - ------------------------------------------------------------------- Melissa Kimmel Trust 155,000 - ------------------------------------------------------------------- Anita Hyatt Family Trust 20,750 - ------------------------------------------------------------------- Frank S. Caruso 370,200 - ------------------------------------------------------------------- John W. Lyle 224,100 - ------------------------------------------------------------------- Hyatt Family Trust 221,332 - ------------------------------------------------------------------- Roger H. Kimmel (N.B. does not include shares owned by the Hyatt Trusts listed above) 30,000 - ------------------------------------------------------------------- Frank S. Caruso Irrevocable Trust 24,900 - ------------------------------------------------------------------- James R. Ledley 109,450 - ------------------------------------------------------------------- Donald G. Drapkin 8,300 - ------------------------------------------------------------------- Donald Drapkin 8,300 - ------------------------------------------------------------------- Patricia Caruso 1,000 =================================================================== Total 4,176,022 ===================================================================
82 EX-4 5 FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION. EXHIBIT 4 FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ENDO PHARMACEUTICALS HOLDINGS INC. FIRST: The name of the Corporation is Endo Pharmaceuticals Holdings ----- Inc. (hereinafter the "Corporation"). SECOND: The address of the registered office of the Corporation in ------ the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at that address is the Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act ----- or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the "GCL"). FOURTH: The total number of shares of capital stock which the ------ Corporation shall have authority to issue is 175,078,160 shares, consisting of (i) 142,656,279 shares of Common Stock, par value $.01 per share (the "Common Stock") and (ii) 32,421,882 shares of Preferred Stock, par value $.01 per share (the "Preferred Stock"). A. Common Stock. Except as otherwise pro vided in this Article ------------ FOURTH or as otherwise required by law, shares of Common Stock shall be identical and shall entitle the holders thereof to the same rights and privileges, subject to the same qualifications, limitations and restrictions. 1. Voting Rights. Except as otherwise required by applicable ------------- law, the holders of Common Stock will be entitled to one vote per share on all matters to be voted on by the Corporation's Common Stockholders. 2. Dividends. When and as dividends are declared thereon, --------- whether payable in cash, property or securities of the Corporation, the holders of Common Stock will be entitled to share equally, share for share, in such dividends. B. Preferred Stock. The Board of Directors is expressly authorized --------------- to provide for the issuance of all or any shares of the Preferred Stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such distinctive designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such class or series and as may be permitted by the GCL, including, without limitation, the authority to provide that any such class or series may be (i) subject to such mandatory or optional redemption at such time or times and at such price or prices, or, if appropriate, not subject to such mandatory or optional redemption, (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series, (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation, or (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, of the Corporation at such price or prices or at such rates of exchange and with such adjustments, all as may be stated in such resolution or resolutions . FIFTH: The following provisions are inserted for the management of ----- the business and the conduct of 2 the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: (1) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. (2) The directors shall have concurrent power with the stockholders to make, alter, amend, change, add to or repeal the By-Laws of the Corporation, as amended and restated from time to time (the "By-Laws"). (3) The number of directors of the Corporation shall not be less than seven (7) nor more than eleven (11), the exact number of directors to be fixed from time to time by, or in the manner provided in, the By-Laws of the Corporation. The number of directors constituting the Board of Directors shall be fixed at nine (9) as of the date hereof. Election of directors need not be by written ballot unless the By-Laws so provide. (4) No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the GCL or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Article FIFTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions 3 occurring prior to such repeal or modification. (5) In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the GCL, this Certificate of Incorporation, and any By-Laws adopted by the stockholders; provided, however, that no By-Laws hereafter adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such By-Laws had not been adopted. SIXTH: The name and mailing address of the Sole Incorporator is as ----- follows: Name Address ---- ------- Deborah M. Reusch P.O. Box 636 Wilmington, DE 19899 SEVENTH: The Corporation shall indemnify its directors and officers ------- to the fullest extent authorized or permitted by law, as now or hereafter in effect, and such right to indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of his or her heirs, executors and personal and legal representatives; provided, however, that, except for proceedings to enforce rights to - -------- ------- indemnification, the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors. The right to indemnification conferred by this Article SEVENTH shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition. 4 The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article SEVENTH to directors and officers of the Corporation. The rights to indemnification and to the advance of expenses conferred in this Article SEVENTH shall not be exclusive of any other right which any person may have or hereafter acquire under this Certificate of Incorporation, the By-Laws, any statute, agreement, vote of stockholders or disinterested directors or otherwise. Any repeal or modification of this Article SEVENTH by the stockholders of the Corporation shall not adversely affect any rights to indemnification and to the advancement of expenses of a director or officer of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification. EIGHTH: Meetings of stockholders may be held within or without the ------ State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the GCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws. NINTH: The Corporation hereby elects not to be governed by Section ----- 203 of the GCL pursuant to Section 203(b)(3) therein. TENTH: The Corporation reserves the right to amend, alter, change or ----- repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 5 I, THE UNDERSIGNED, being the Sole Incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the GCL, do make this Certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this __ day of _________, ____. ______________________ Deborah M. Reusch Sole Incorporator 6 EX-5 6 FORM OF AMENDED AND RESTATED BY-LAWS EXHIBIT 5 FORM OF AMENDED AND RESTATED BY-LAWS OF ENDO PHARMACEUTICALS HOLDINGS INC. (hereinafter called the "Corporation") As adopted ________ __, ____ ARTICLE I OFFICES ------- Section 1. Registered Office. The registered office of the --------- ----------------- Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The Corporation may also have offices --------- ------------- at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS ------------------------ Section 1. Place of Meetings. Meetings of the stockholders for the --------- ----------------- election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meetings. The Annual Meetings of Stockholders --------- --------------- shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the stockholders shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. Written notice of the Annual Meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 3. Nature of Business at Meetings of Stockholders. No --------- ---------------------------------------------- business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 3 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 3. 2 In addition to any other applicable require ments, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is -------- ------- called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings 3 between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 3; provided, however, that, once business -------- ------- has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 3 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. Section 4. Special Meetings. Unless otherwise prescribed by law --------- ---------------- or by the certificate of incorporation of the Corporation, as amended and restated from time to time (the "Certificate of Incorporation"), Special Meetings of Stockholders, for any purpose or purposes, may be called by any officer of the Corporation at the request in writing of a majority of the Board of Directors or at the request in writing of stockholders owning a majority of the capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of 4 the proposed meeting. Written notice of a Special Meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. Section 5. Quorum. Except as otherwise provided by law or by the --------- ------ Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. Section 6. Voting. Unless otherwise required by law, the --------- ------ Certificate of Incorporation or these By-Laws, any question brought before any meeting of stockholders shall be decided by the vote of the holders of a majority of the stock 5 represented and entitled to vote thereat. Unless otherwise provided in the Certificate of Incorporation and subject to Section 5 of Article V hereof, each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his or her discretion, may require that any votes cast at such meeting shall be cast by written ballot. Section 7. Consent of Stockholders in Lieu of Meeting. Unless --------- ------------------------------------------ otherwise provided in the Certificate of Incorporation, any action required or permitted to be taken at any Annual or Special Meeting of Stockholders of the Corporation, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Section 8. List of Stockholders Entitled to Vote. The officer of --------- ------------------------------------- the Corporation who has charge of the stock ledger of the Corporation shall prepare and 6 make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. Section 9. Stock Ledger. The stock ledger of the Corporation --------- ------------ shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 8 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. ARTICLE III DIRECTORS --------- Section 1. Number and Election of Directors. The Board of Directors --------- -------------------------------- shall consist of not less than seven (7) nor more than eleven (11) members, the exact number of which shall initially be fixed upon the adoption of these By- Laws at nine (9) and, thereafter, shall be fixed from time to time by resolution of the 7 Board of Directors adopted in accordance with Section 6 of this Article III (the "Board Resolution"), or by resolution adopted by the vote of a majority of the stockholders of the Common Stock or by consent executed on behalf of such stockholders (the "Stockholder Resolution"); provided, that in the event of a -------- conflict between the Board Resolution and the Stockholder Resolution, the Stockholder Resolution shall govern. Except as provided in Section 2 of this Article, directors shall be elected by a plurality of the votes cast at Annual Meetings of Stockholders, and each director so elected shall hold office until the next Annual Meeting and until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal. Any director may resign at any time upon notice to the Corporation. Directors need not be stockholders. Section 2. Vacancies. Vacancies and newly created directorships --------- --------- resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next Annual Meeting and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. Section 3. Duties and Powers. The business of the Corporation --------- ----------------- shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not 8 by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 4. Meetings. The Board of Directors of the Corporation may --------- -------- hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman, if there be one, the President, or any director. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by personal delivery, facsimile, telephone or telegram on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Section 5. Quorum. Except as may be otherwise specifically --------- ------ provided by law, the Certificate of Incorporation or these By-Laws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors; provided, however, that so long as -------- ------- (i) Kelso & Company ("Kelso") and its affiliates shall own at least 25% of the outstanding shares of Common Stock and (ii) the Corporation's Common Stock is not publicly traded, any act by the Board of Directors shall require the consent of at least one member of the Board of Directors 9 who is an officer, director or employee of Kelso or its affiliates (other than the Corporation), if there exists such officer, director or employee of Kelso serving as a member of the Board of Directors at such time. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 6. Actions of Board by Written Consent. Unless otherwise --------- ----------------------------------- provided by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 7. Meetings by Means of Conference Telephone. Unless --------- ----------------------------------------- otherwise provided by the Certificate of Incorporation or these By-Laws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. 10 Section 8. Committees. The Board of Directors may, by resolution --------- ---------- passed by a majority of the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Notwithstanding the preceding sentences, no absent or disqualified member of any committee who is a [Target] Designee (as defined in Section 11 of this Article III) shall be replaced at any meeting except by another [Target] Designee or a nominee thereof. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required. Section 9. Compensation. The directors may be paid their --------- ------------ expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a 11 fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation there for. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 10. Interested Directors. No contract or transaction ---------- -------------------- between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or her or their votes are counted for such purpose if (i) the material facts as to his or her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract 12 or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. Section 11. Continuing Directors. Three (3) designees of [Target] ---------- -------------------- (each of whom shall be satisfactory to the Corporation) shall be appointed to the Board of Directors (such person and any subsequent designees thereof, the "[Target] Designees"), and shall serve until their terms expire or until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the terms hereof or the Certificate of Incorporation. During the three-year period, from and including [the Effective Date], (a) at any meeting of stockholders for the purpose of electing the members of the Board of Directors, the Corporation shall use its reasonable best efforts to cause to be nominated for election the [Target] Designees, (b) any vacancies created by any [Target] Designee upon such [Target] Designee's death, resignation or removal that are not filled pursuant to a stockholder vote shall be filled by a nominee of the remaining [Target] Designees and (c) one [Target] Designee shall be appointed as a member of any compensation committee of the Board of Directors or any other committee of such Board of Directors having the responsibility or power with respect to the granting of employee stock options. 13 ARTICLE IV OFFICERS -------- Section 1. General. The officers of the Corporation shall be --------- ------- chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors, in its discretion, may also choose a Chairman of the Board of Directors (who must be a director) and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless other- wise prohibited by law, the Certificate of Incorporation or these By-Laws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation. Section 2. Election. The Board of Directors at its first meeting --------- -------- held after each Annual Meeting of Stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. 14 Section 3. Voting Securities Owned by the Corporation. Powers of --------- ------------------------------------------ attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. Section 4. Chairman of the Board of Directors. The Chairman of --------- ---------------------------------- the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. Except where by law the signature of the President is required, the Chairman of the Board of Directors shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers 15 as from time to time may be assigned to him or her by these By-Laws or by the Board of Directors. Section 5. President. The President shall be the Chief Executive --------- --------- Officer of the Corporation, and shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He or she shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these By-Laws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and the Board of Directors. The President shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these By-Laws or by the Board of Directors. Section 6. Vice Presidents. At the request of the President or in --------- --------------- his or her absence or in the event of his or her inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice President or the Vice Presidents if there is more than one (in the order designated by the Board of Directors) shall perform the duties of the President, and when so acting, shall have all the powers of 16 and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Section 7. Secretary. The Secretary shall attend all meetings of --------- --------- the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he or she shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by 17 the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Section 8. Treasurer. The Treasurer shall have the custody of the --------- --------- corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation. 18 Section 9. Assistant Secretaries. Except as may be otherwise --------- --------------------- provided in these By-Laws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of his or her disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. Section 10. Assistant Treasurers. Assistant Treasurers, if there ---------- -------------------- be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of his or her disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation. 19 Section 11. Other Officers. Such other officers as the Board of ---------- -------------- Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other offi cers and to prescribe their respective duties and powers. ARTICLE V STOCK ----- Section 1. Form of Certificates. Every holder of stock in the --------- -------------------- Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board of Directors, the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Section 2. Signatures. Any or all of the signatures on a --------- ---------- certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. 20 Section 3. Lost Certificates. The Board of Directors may direct a --------- ----------------- new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his or her legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 4. Transfers. Stock of the Corporation shall be --------- --------- transferable in the manner prescribed by law and in these By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his or her attorney law fully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. Section 5. Record Date. In order that the Corporation may --------- ----------- determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of 21 any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6. Beneficial Owners. The Corporation shall be entitled --------- ----------------- to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VI NOTICES ------- Section 1. Notices. Whenever written notice is required by law, --------- ------- the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at his or her address as it appears on 22 the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given by personal delivery, facsimile, telephone or telegram. Section 2. Waivers of Notice. Whenever any notice is required by --------- ----------------- law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VII GENERAL PROVISIONS ------------------ Section 1. Dividends. Dividends upon the capital stock of the --------- --------- Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corpora- 23 tion, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. Section 2. Disbursements. All checks or demands for money and --------- ------------- notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 3. Fiscal Year. The fiscal year of the Corporation shall --------- ----------- be fixed by resolution of the Board of Directors. Section 4. Corporate Seal. The corporate seal shall have inscribed --------- -------------- thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII INDEMNIFICATION --------------- Section 1. Power to Indemnify in Actions, Suits or Proceedings other --------- --------------------------------------------------------- than Those by or in the Right of the Corporation. Subject to Section 3 of this - ------------------------------------------------ Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director or officer of the 24 Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person's conduct was unlawful. Section 2. Power to Indemnify in Actions, Suits or Proceedings by or --------- --------------------------------------------------------- in the Right of the Corporation. Subject to Section 3 of this Article VIII, - ------------------------------- the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, 25 officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 3. Authorization of Indemnification. Any indemnification --------- -------------------------------- under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such determination shall be made (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iii) by the stockholders. To the extent, 26 however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case. Section 4. Good Faith Defined. For purposes of any determination --------- ------------------ under Section 3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person's conduct was unlawful, if such person's action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. 27 The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be. Section 5. Indemnification by a Court. Not withstanding any contrary --------- -------------------------- determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application. 28 Section 6. Expenses Payable in Advance. Expenses incurred by a --------- --------------------------- director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VIII. Section 7. Nonexclusivity of Indemnification and Advancement of --------- ---------------------------------------------------- Expenses. The indemnification and advancement of expenses provided by or - -------- granted pursuant to this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 1 or 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise. 29 Section 8. Insurance. The Corporation may purchase and maintain --------- --------- insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VIII. Section 9. Certain Definitions. For purposes of this Article VIII, --------- ------------------- references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, 30 references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VIII. Section 10. Survival of Indemnification and Advancement of Expenses. ---------- ------------------------------------------------------- The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 11. Limitation on Indemnification. Notwithstanding anything ---------- ----------------------------- contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 hereof), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation. 31 Section 12. Indemnification of Employees and Agents. The Corporation ---------- --------------------------------------- may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation. ARTICLE IX AMENDMENTS ---------- Section 1. These By-Laws may be altered, amended or repealed, in --------- whole or in part, or new By-Laws may be adopted by the stockholders or by the Board of Directors, provided, however, that notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such meeting of stockholders or Board of Directors as the case may be. All such amendments must be approved by either the holders of a majority of the outstanding capital stock entitled to vote thereon or by a majority of the entire Board of Directors then in office. Section 2. Entire Board of Directors. As used in this Article IX --------- ------------------------- and in these By-Laws generally, the term "entire Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies. 32 -----END PRIVACY-ENHANCED MESSAGE-----