UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date of
Report (Date of earliest event reported): March 8, 2010
Manhattan
Pharmaceuticals, Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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001-32639
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36-3898269
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(State
or other jurisdiction
of
incorporation)
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(Commission
File Number)
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(IRS
Employer
Identification
No.)
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48
Wall Street, Suite 1110
New
York, New York 10005
(Address
of principal executive offices) (Zip Code)
(212)
582-3950
(Registrant's
telephone number, including area code)
Not
applicable
(Former
name or former address, if changed since last report)
Check the appropriate box below if the
Form 8-K filing is intended to simultaneously satisfy the filing obligation of
the registrant under any of the following provisions:
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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1
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Item
1.01
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Entry
into a Material Definitive
Agreement.
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On March
8, 2010, Manhattan Pharmaceuticals, Inc. (the “Company” or "Manhattan") entered
into an Agreement and Plan of Merger (the "Merger Agreement") by
and among the Company, Ariston Pharmaceuticals, Inc., a Delaware corporation
("Ariston") and
Ariston Merger Corp., a Delaware corporation and wholly-owned subsidiary of the
Company (the "Merger
Sub"). Pursuant to the terms and conditions set forth in the
Merger Agreement, on March 8, 2010, the Merger Sub merged with and into Ariston
(the "Merger"),
with Ariston being the surviving corporation of the Merger. As a
result of the Merger, Ariston became a wholly-owned subsidiary of the
Company.
Under the
terms of the Merger Agreement, the consideration payable by the Company to the
stockholders and note holders of Ariston consists of the issuance of 7,062,423
shares of the Company's common stock, par value $0.001 per share, ("Common Stock") at
Closing (as defined in the Merger Agreement) plus the right to receive up
to an additional 24,718,481 shares of Common Stock (the “Milestone Shares”) upon
the achievement of certain product-related milestones described
below. In addition, the Company has reserved 38,630,723 shares of its
Common Stock for possible future issuance in connection with the conversion of
$15.45 million of outstanding Ariston convertible promissory
notes. The note holders will not have any recourse to the Company for
repayment of the notes (their sole recourse being to Ariston), but the note
holders will have the right to convert the notes into shares of the Company's
Common Stock at the rate of $0.40 per share. Further, the Company has
reserved 5,000,000 shares of its Common Stock for possible future issuance in
connection with the conversion of $1.0 million of an outstanding Ariston
convertible promissory note issued in satisfaction of a trade
payable. The note holder will not have any recourse to the Company
for repayment of the note (their sole recourse being to Ariston), but the note
holder will have the right to convert the note into shares of the Company's
Common Stock at the rate of $0.20 per share.
Upon the
achievement of the milestones described below, the Company would be obligated to
issue portions of the Milestone Shares to the former Ariston stockholders and
noteholders
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·
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Upon
the affirmative decision of the Company’s Board of Directors, provided
that such decision is made prior to March 8, 2011, to further develop the
AST-914 metabolite product candidate, either internally or through a
corporate partnership, the Company would issue 8,828,029 of the Milestone
Shares.
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·
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Upon
the acceptance by the FDA of the Company's filing of the first New Drug
Application for the AST-726 product candidate, the Company would issue
7,062,423 of the Milestone Shares.
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2
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·
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Upon
the Company receiving FDA approval to market the AST-726 product candidate
in the United States of America, the Company would issue 8,828,029 of the
Milestone Shares.
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Certain
members of the Company's board of directors and principal stockholders of the
Company owned Ariston securities. Timothy McInerney, a director of
Manhattan, owned 16,668 shares of Ariston common stock which represented less
than 1% of Ariston’s outstanding common stock as of the closing of the
Merger. Neil Herskowitz, a director of Manhattan, indirectly owned
convertible promissory notes of Ariston with interest and principal in the
amount of $192,739. Michael Weiser, a director of Manhattan, owned
117,342 shares of Ariston common stock, which represented approximately 2.1% of
Ariston’s outstanding common stock as of the closing of the
Merger. Lindsay Rosenwald, a more than 5% beneficial owner of
Manhattan common stock, in his individual capacity and indirectly through trusts
and companies he controls owned 511,552 shares of Ariston common stock, which
represented approximately 9.2% of Ariston’s outstanding common stock as of the
closing of the Merger and indirectly owned convertible promissory notes of
Ariston in the amount of $141,438.
The
description of the Merger and Merger Agreement contained in this Current Report
on Form 8-K does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement filed as Exhibit 2.1 hereto,
which is incorporated herein by reference.
The
Merger Agreement has been included to provide investors with information
regarding its terms. Except for its status as a contractual document that
establishes and governs the legal relations among the parties thereto with
respect to the transactions described above, the Merger Agreement is not
intended to be a source of factual, business or operational information about
the parties. The Merger Agreement contains representations and
warranties made by the parties to each other regarding certain matters. The
assertions embodied in the representations and warranties are qualified by
information in confidential disclosure schedules that the parties have exchanged
in connection with signing the Merger Agreement. The disclosure schedules
contain information that modifies, qualifies and creates exceptions to the
representations and warranties. Moreover, certain representations and warranties
may not be complete or accurate as of a particular date because they are subject
to a contractual standard of materiality that is different from those generally
applicable to stockholders and/or were used for the purpose of allocating risk
among the parties rather than establishing certain matters as facts.
Accordingly, you should not rely on the representations and warranties as
characterizations of the actual state of facts at the time they were made or
otherwise.
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Item
2.01
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Completion
of Acquisition or Disposition of
Assets.
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The
information set forth under Item 1.01 of this Current Report on Form 8-K is
incorporated by reference in response to this Item 2.01.
3
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Item
5.02
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Departure
of Directors or Principal Officers; Election of Directors; Appointment of
Principal Officers
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In
connection with the Closing of the Merger, on March 8, 2010, Dr. Michael Weiser
and Malcolm Hoenlin resigned from the Company's Board of
Directors. Pursuant to the terms of the Merger Agreement, the Company
will appoint Malcolm Morville, PhD and David Shimko, each of whom was a director
of Ariston immediately prior to the Merger, to fill the vacancies on the
Company's Board of Directors created by the resignations of Dr. Weiser and Mr.
Hoenlin.
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Item
8.01.
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Other
Events.
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On March
12, 2010, the Company issued a press release announcing the completion of the
Merger described in Item 1.01. A copy of the press release is
attached as Exhibit
99.1.
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Item
9.01.
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Financial
Statements and Exhibits.
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(a)
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Financial
statements of business acquired
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The
financial statements required by Item 9.01(a) of Form 8-K will be filed by
amendment to this Current Report on Form 8-K not later than 71 days from the
date that the initial report on Form 8-K must be filed.
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(b)
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Pro
Forma Financial Information
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The pro
forma financial statements required by Item 9.01(b) of Form 8-K will be filed by
amendment to this Current Report on Form 8-K not later than 71 days from the
date that the initial report on Form 8-K must be filed.
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(d)
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Exhibits
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2.1
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Agreement
and Plan of Merger by and among Manhattan Pharmaceuticals, Inc., Ariston
Pharmaceuticals, Inc. and Ariston Merger Corp. dated March 8,
2010.
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99.1
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Press
release issued by the Company on March 12,
2010.
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4
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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MANHATTAN
PHARMACEUTICALS, INC.
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Date: March 12,
2010
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By:
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/s/
Michael G. McGuinness
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Michael
G. McGuinness
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Chief
Operating and Financial Officer
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5
EXECUTION
COPY
AGREEMENT
AND PLAN OF MERGER
This
AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made and
entered into as of March 8, 2010, by and among Ariston Pharmaceuticals, Inc., a
Delaware corporation (the “Company”), Manhattan
Pharmaceuticals, Inc., a Delaware corporation (“Parent”) and Ariston Merger
Corp., a Delaware corporation and a direct, wholly-owned subsidiary of Parent
(“Merger
Sub”).
RECITALS
WHEREAS
the boards of directors of the Company, the Parent and Merger Sub believe it is
in the best interests of their respective corporations and the stockholders of
their respective corporations that the Merger Sub be merged with and into the
Company (the “Merger”)
and, in furtherance thereof, have deemed advisable, approved and adopted this
Agreement and the Merger;
WHEREAS,
simultaneously herewith, the Company is delivering to the Parent the written
consent of the Company's stockholders approving the Merger and adopting this
Agreement, such written consents representing the only approvals of any holders
of the Company's capital stock required to effect the Merger under applicable
Law; and
WHEREAS,
the Company, Parent and Merger Sub desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe certain conditions to the Merger, as set forth herein.
AGREEMENT
NOW,
THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained herein, intending to be legally
bound, the parties hereto agree as follows:
ARTICLE
I
DEFINITIONS
1.1 Definitions. For
purposes of this Agreement, the following terms have the respective meanings set
forth below:
“Affiliate” means, with respect
to any specified Person, any other Person who, directly or indirectly, controls,
is controlled by, or is under common control with such Person, including,
without limitation, any general partner, managing member, officer or director of
such Person or any venture capital fund now or hereafter existing that is
controlled by one or more general partners or managing members of, or shares the
same management company with, such Person.
“Code” means the Internal
Revenue Code of 1986, as amended.
"Company Common Stock" means
shares of common stock of Ariston Pharmaceuticals, Inc. having par value of
$0.001 per share.
1
“Company Intellectual Property”
means any patents, patent applications, trademarks, trademark applications,
service marks, tradenames, copyrights, trade secrets, licenses, domain names,
mask works, information and proprietary rights and processes that are necessary
to the conduct of Company’s business as now conducted and as presently proposed
to be conducted.
“Company IP Rights” shall mean
all Company Intellectual Property owned, licensed to, or controlled by Company
that is related to any product or service of the Company or is otherwise
necessary for, used in or held for use in Company’s business as presently
conducted or planned to be conducted.
"FDA" shall mean the Food and
Drug Administration of the United States of America.
“Governmental Authority” means
any (a) nation, region, state, county, city, town, village, district or other
jurisdiction, (b) federal, state, local, municipal, foreign or other government,
(c) governmental or quasi-governmental authority of any nature (including any
governmental agency, branch, department or other entity and any court or other
tribunal), (d) multinational organization exercising judicial, legislative or
regulatory power or (e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory or taxing
authority or power of any nature of any federal, state, local, municipal,
foreign or other government, in each case anywhere throughout the
world.
“Knowledge,” including the
phrase “to the Company’s
knowledge”, means the actual
knowledge of Malcolm Morville, President and CEO of the Company.
“Law” means any applicable
foreign, federal, state or local law (including common law), statute, code,
ordinance, rule or regulation.
“Material Adverse Effect” means
a material adverse effect on the business, assets (including intangible assets),
liabilities, financial condition, property, prospects or results of operations
of the Company or any Subsidiary, with the entities evaluated individually or as
a whole.
"New Notes" shall mean
convertible promissory notes having an aggregate principal amount of $15,452,289
(with the holders and principal amount of each such note being listed on
Schedule 3.5 hereto) in the form attached hereto as Exhibit C.
“Noteholder” means a holder of
a New Note.
"Parent Common Stock" means
shares of common stock of Manhattan Pharmaceuticals, Inc. having par value of
$0.001 per share.
"Parent SEC Reports" means all
forms, reports, statements, certifications and other documents (including all
exhibits and other information incorporated therein, amendments and supplements
thereto) required to be filed by the Parent with the Securities and Exchange
Commission ("SEC') since
January 1, 2007 (all such forms, reports, statements, certificates and other
documents filed since January 1, 2007, including any amendments
thereto).
2
“Person” means any individual,
corporation, partnership, trust, limited liability company, association or other
entity.
“Requisite Company Noteholder
Consent” means the affirmative consent of the holders of at least sixty
six and two thirds percent of the outstanding principal under each of the
Company’s 2006 Convertible Promissory Notes and 2007 Senior Promissory Notes,
acting as separate classes, to the exchange of such notes and the warrants
issued in connection therewith for the New Notes.
"Requisite Company Stockholder
Vote" means the affirmative vote of at least a majority of the
outstanding shares of Company Common Stock on the record date set by the board
of directors of the Company.
“Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
“Shares” means the Closing
Shares and the Milestone Shares.
“Subsidiary” with respect to
any Person, means any other Person of which the first Person owns, directly or
indirectly, securities or other ownership interests having voting power to elect
a majority of the board of directors or other persons performing similar
functions (or, if there are no such voting interests, more than 50% of the
equity interests of the second Person).
"Stockholder" means any holder
of Company Common Stock as of the Effective Time.
“Tax” means, (a) any federal, state, local, foreign, or
other tax, charge, fee, duty (including customs duty), levy or assessment,
including any income, gross receipts, net proceeds, alternative or add-on
minimum, corporation, ad valorem, turnover, real property, personal property
(tangible or intangible), sales, use, franchise, excise, value added, stamp,
leasing, lease, user, transfer, fuel, excess profits, profits, occupational,
premium, interest equalization, windfall profits, severance, license,
registration, payroll, environmental (including taxes under Section 59A of the
Code), capital stock, capital duty, disability, estimated, gains, wealth,
welfare, employee’s income withholding, other withholding, unemployment or
social security or other tax of whatever kind (including any fee, assessment or
other charges in the nature of or in lieu of any tax) that is imposed by any
Governmental Authority, and (b) any interest, fines, penalties or additions
resulting from, attributable to, or incurred in connection with any items
described in this paragraph.
“Tax Return” means any report, return, declaration, claim for
refund, notice, account or information return or statement related to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
1.2 Terms
Generally. The definitions in Section 1.1 and other
defined terms contained in this Agreement shall apply equally to both the
singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words “include,” “includes” and “including” shall be deemed to
be followed by the phrase “without limitation,” unless the context expressly
provides otherwise. All references herein to Sections, paragraphs,
subparagraphs, clauses, Exhibits or Schedules shall be deemed references to
Sections, paragraphs, subparagraphs or clauses of, or Exhibits or Schedules to
this Agreement, unless the context requires otherwise. Unless otherwise
expressly defined, terms defined in this Agreement have the same meanings when
used in any Exhibit or Schedule hereto, including the Company Disclosure Letter.
Unless otherwise specified, the words “this Agreement,” “herein,” “hereof,”
“hereto” and “hereunder” and other words of similar import refer to this
Agreement as a whole (including the Schedules, Exhibits and the Company
Disclosure Letter) and not to any particular provision of this
Agreement.
3
ARTICLE
II
THE
MERGER
2.1 The
Merger. On the terms and subject to the conditions set forth
in this Agreement, and in accordance with the General Corporation Law of the
State of Delaware (the “DGCL”), at the Effective Time,
the Merger Sub will merge with and into the Company (the “Merger”), the separate
corporate existence of the Merger Sub will cease and the Company will continue
its corporate existence under the DGCL as the surviving corporation in the
Merger (the “Surviving
Corporation”).
2.2 Closing. Unless
otherwise mutually agreed in writing by the Company and Parent, the closing of
the Merger (the “Closing”) will take place at
the offices of Lowenstein Sandler PC, 65 Livingston Ave., Roseland, New Jersey,
upon execution of this Agreement, or at such other place, date and time as the
Company and Parent may agree in writing. The date on which the
Closing actually occurs is hereinafter referred to as the “Closing Date.”
2.3 Effective
Time. Subject to the provisions of this Agreement, at the
Closing, the parties hereto shall cause the Merger to be consummated by
executing and filing a certificate of merger (the “Certificate of Merger”) with
the Secretary of State of the State of Delaware in accordance with the
DGCL. The Merger will become effective at such date and time as the
Certificate of Merger has been duly filed with and accepted for recording by the
Secretary of State of the State of Delaware or at such later date or time as may
be agreed by the Company and Parent in writing and specified in the Certificate
of Merger in accordance with the DGCL (the effective time of the Merger being
hereinafter referred to as the “Effective Time”).
2.4 Effects
of the Merger. The Merger shall have the effects set forth in
this Agreement and the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, from and after
the Effective Time, all property, rights, privileges, immunities, powers,
franchises, licenses and authority of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities, obligations, restrictions
and duties of each of the Company and Merger Sub shall become the debts,
liabilities, obligations, restrictions and duties of the Surviving
Corporation.
2.5 Organizational
Documents. At the Effective Time, (a) the Certificate of
Incorporation of the Surviving Corporation shall be amended to read in its
entirety in the form attached hereto as Exhibit A and (b) the
bylaws of the Surviving Corporation shall be amended so as to read in their
entirety as the bylaws of Merger Sub as in effect immediately prior to the
Effective Time, in the form attached hereto as Exhibit B, until
thereafter amended in accordance with applicable Law.
4
2.6 Directors
and Officers of Surviving Corporation. The directors of the
Company immediately prior to the Effective Time shall submit their resignations
to be effective as of the Effective Time, which resignations shall be a
condition of the Merger. Immediately after the Effective Time, Parent
shall take the necessary action to cause the directors of Merger Sub immediately
prior to the Effective Time to be the directors of the Surviving Corporation,
each to hold office in accordance with the certificate of incorporation and
bylaws of the Surviving Corporation. The officers of the Merger Sub
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office until the earlier of their
resignation or removal.
2.7 Merger
Consideration; Conversion of Company Common Stock. At the
Effective Time, on the terms and subject to the conditions of this Agreement by
virtue of the Merger and without any action on the part of any Stockholder or
Noteholder:
(a) each
share of Company Common Stock issued and outstanding immediately prior to the
Effective Time shall be canceled and extinguished and converted into the right
to receive, pursuant to the procedures set forth in Section 2.8 hereof,
(a) an amount of Parent Common Stock equal to (i) 2,118,727 divided by (ii) the
number of shares of Company Common Stock outstanding immediately prior to the
Effective Time (the "Stockholder Closing
Shares") plus (b) the right to receive
a pro rata portion (based on aggregate number of shares of Company Common Stock
outstanding immediately prior to the Effective Time) of the Stockholder
Milestone Shares (as defined in Section 2.8 (c)
hereof) (collectively the “Stockholder Merger
Consideration”);
(b) each
Noteholder shall have the right to receive, pursuant to the procedures set forth
in Section 2.8
hereof, (a) an amount of Parent Common Stock equal to (i) 4,943,696 multiplied
by a (ii) fraction, the numerator of which is the principal amount of the New
Notes held by such holder and the denominator of which is the aggregate
principal amount of all the New Notes (the "Noteholder Closing
Shares") plus (b) the right to receive
a pro rata portion (based on aggregate principal amount of the New Notes
outstanding at such time) of the Noteholder Milestone Shares (as defined in
Section 2.8 (c)
hereof) (collectively the “Noteholder Merger
Consideration” and with the Stockholder Merger Consideration, the “Merger
Consideration”).
2.8 Payment
Procedures.
(a) Stockholder Closing
Shares. Promptly following the Effective Time, upon receipt of
a duly executed letter of transmittal in a form acceptable to the Parent, the
Parent shall issue to each Stockholder, in exchange for a stock certificate(s)
representing all of the shares of Company Common Stock held by such Stockholder,
their pro-rata portion of the Stockholder Closing Shares.
5
(b) Noteholder Closing
Shares. Promptly following the Effective Time, the Parent
shall issue to each Noteholder their pro-rata portion of the Noteholder Closing
Shares.
(c) Milestone
Shares. Subject to the indemnification provisions set forth in
Section 7, upon
the achievement of certain milestones set forth in this Section 2.8(b), each
Stockholder and Noteholder shall receive additional shares of Parent Common
Stock as set forth in this Section 2.8(b) (the
"Milestone
Shares").
(i) Upon
the affirmative decision of the Parent's Board of Directors, provided that such
decision is made within twelve months of the Closing Date, to further develop
the AST-914 metabolite product (which is currently undergoing a study by the
National Institutes of Health in essential tremor), either internally or through
a corporate partnership, Parent shall issue 8,828,029 shares of Parent Common
Stock; fifty percent (50%) shall be issued to the Stockholders (such Milestone
Shares allocated to the Stockholders are referred to as the “Stockholder Milestone Shares”)
and fifty percent (50%) shall be issued to the Noteholders (such Milestone
Shares allocated to the Noteholders are referred to as the “Noteholder Milestone
Shares”).
(ii) Upon
the acceptance by the FDA of the Company's filing of the first New Drug
Application for the Company's AST-726 product candidate, Parent shall issue
7,062,423 shares of Parent Common Stock; seventy percent (70%) shall be issued
to the Stockholders and thirty percent (30%) shall be issued to the
Noteholders.
(iii) Upon
the Company receiving FDA approval to market AST-726 in the United States of
America, Parent shall issue 8,828,029 shares of Parent Common Stock to the
Stockholders.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
Except
(i) as set forth in the disclosure letter (the “Company Disclosure Letter”)
delivered to Parent and Merger Sub by the Company concurrently with entering
into this Agreement (it being understood that any information set forth in one
section or subsection of the Company Disclosure Letter shall be deemed to apply
to and qualify the section or subsection of this Agreement to which it
corresponds in number and each other section or subsection of this Agreement to
which the relevance of such disclosure is readily apparent on its face), the
Company hereby represents and warrants to Parent and Merger Sub
that:
3.1 Corporate
Existence and Power. The Company is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. The Company has all corporate or similar powers and
authority required to own, lease and operate its respective properties and to
carry on its business as now conducted. The Company is duly licensed
or qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such qualification necessary, except for any
failures to be so licensed or qualified that would not reasonably be expected to
have a Material Adverse Effect on the Company. The Company is not in
violation of its organizational or governing documents in any
respect.
6
3.2 Corporate
Authorization. The Company has the corporate power and
authority to execute and deliver this Agreement and to consummate the Merger and
the other transactions contemplated hereby and to perform each of its
obligations hereunder. The execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the Merger and
the other transactions contemplated hereby have been duly and validly authorized
by the Board of Directors of the Company. The Board of Directors of
the Company at a duly held meeting has (i) determined that it is in the best
interests of the Company and its stockholders to enter into this Agreement, (ii)
approved the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, including the Merger, and
(iii) resolved to recommend that the stockholders of the Company approve the
adoption of this Agreement and directed that such matter be submitted for
consideration of the stockholders of the Company. The Company has
received both the Requisite Company Noteholder Consent and the Requisite Company
Stockholder Vote and the Agreement has been duly adopted by the stockholders of
the Company.
3.3 Governmental
Authorization. The execution, delivery and performance by the
Company of this Agreement and the consummation of the Merger by the Company do
not and will not require any consent, approval, authorization or permit of,
action by, filing with or notification to any Governmental Authority, other than
the filing of the Certificate of Merger;.
3.4 Non-Contravention. The
execution, delivery and performance by the Company of this Agreement and the
consummation by the Company of the Merger and the other transactions
contemplated hereby do not and will not (i) contravene or conflict with the
organizational or governing documents of the Company; (ii) contravene or
conflict with or constitute a violation of any provision of any Law binding upon
or applicable to the Company, or any of its properties or assets; (iii) require
the consent, approval or authorization of, or notice to or filing with any third
party with respect to, result in any breach or violation of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) or result in the loss of a benefit under, or give rise to any right of
termination, cancellation, amendment or acceleration of any right or obligation
of the Company, or result in the creation of any Lien on any of the properties
or assets of the Company under, any loan or credit agreement, note, bond,
mortgage, indenture, contract, agreement, lease, license, permit or other
instrument or obligation (each, a “Contract”) to which the
Company is a party or by which the Company or its properties or assets are
bound, except, in the case of clause (iii) above, as would not (A) individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
the Company or (B) reasonably be expected to prevent or materially delay the
consummation of the Merger.
3.5 Capitalization;
Subsidiaries.
(a) The
authorized capital stock of the Company consists of 20,000,000 shares of Company
Common Stock and 6,000,000 shares of Preferred Stock.
(b) As
of the Closing Date:
7
(i) 5,556,615
shares of Company Common Stock were issued and outstanding and no shares of
Preferred Stock were issued and outstanding (assuming conversion of the warrants
discussed in (iii) below);
(ii) the
Company has reserved an aggregate of 1,000,000 shares of Company Common Stock
for issuance under the Company's equity compensation plans (provided that all
outstanding options for the purchase of Company Common Stock under such plans
shall be cancelled as of the Effective Time); and
(iii) fixed
warrants to purchase 660,681 shares of Company Common Stock plus warrants to
purchase a variable number of shares of Company Common Stock were issued or
outstanding (provided that as of the Effective Time, (a) all warrants issued to
the purchasers of the Company’s debt securities (including the variable
warrants) will be cancelled as a result of the issuance of the New Notes and (b)
383,334 warrants issued to the placement agents in such sales of debt securities
will be exchanged for shares of the Company’s Common Stock at the ratio of 0.2
shares of Common Stock for each warrant share).
(iv) Although
the Company anticipates that all the placement agent warrants will be exchanged
for the Company’s Common Stock, if any warrants remain outstanding at the
Effective Time then they will be factored into the pro rata calculations for the
Stockholder Merger Consideration.
All
outstanding shares of Company Common Stock are duly authorized, validly issued,
fully paid and non-assessable, and are not subject to and were not issued in
violation of any preemptive or similar right, purchase option, call or right of
first refusal or similar right. Section 3.5 of the Company
Disclosure Letter contains a complete and accurate list of (i) each
stockholder of the Company and the number of shares of stock held by each such
stockholder and (ii) each Noteholder of the Company and the principal amount of
notes held by each such Noteholder.
(c) Except
as set forth in this Section 3.5(b), there
have not been reserved for issuance, and there are no outstanding (i) shares of
capital stock or other voting securities of the Company; (ii) securities
(including without limitation convertible notes) of the Company convertible into
or exchangeable for shares of capital stock or voting securities of the Company;
(iii) other rights or options to acquire from the Company, or obligations of the
Company to issue, any shares of capital stock, voting securities or securities
convertible into or exchangeable for shares of capital stock or voting
securities of the Company, as the case may be; or (iv) equity equivalent
interests in the ownership or earnings of the Company (the items in clauses (i)
through (iv) collectively, “Company Securities”). There
are no outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any Company Securities. There are no preemptive rights of any
kind which obligate the Company to issue or deliver any Company
Securities.
(d) The
Company has not declared or paid any dividend or distribution in respect of any
Company Securities, and the Company has not issued, sold, repurchased, redeemed
or otherwise acquired any Company Securities, and the Board of Directors has not
authorized any of the foregoing.
8
(e) As
of the date hereof, the Company has not entered into any commitment, arrangement
or agreement, or is otherwise obligated, to contribute capital, loan money or
make additional investments in any Person.
(f) The
Company does not own, directly or indirectly, any capital stock or equity
securities of any Person.
3.6 Undisclosed
Liabilities. Except as disclosed in Section 3.6 of the
Disclosure Schedule, the Company does not have any liabilities, commitments or
obligations, asserted or unasserted, known or unknown, absolute or contingent,
whether or not accrued, matured or un-matured or otherwise, of a nature required
by GAAP to be reflected in a consolidated balance sheet or disclosed in the
notes thereto.
3.7 Compliance With
Laws.
(a) The
Company is, and at all times since January 1, 2006, has been, in compliance with
all Laws applicable to the Company and its business and activities, except for
failures to comply that, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on the Company.
(b) As
of the date hereof, the Company has not received written notice from a
Governmental Authority that it is a target of, or the subject of, any action,
proceeding, suit, investigation or sanction by or on behalf of any Governmental
Authority brought pursuant to any Law, nor, to the Knowledge of the Company, has
any such action, proceeding, suit, investigation or sanction been instituted or
threatened in writing.
(c) The
Company has and maintains in full force and effect, and is in compliance with,
all Permits and all orders from Governmental Authorities necessary for the
Company to carry on its business as currently conducted, except where the
failure to so maintain or be in compliance would not reasonably be expected to
result in a Material Adverse Effect on the Company.
3.8 Litigation. The
Company is not a party to any, and there are no pending or, to the Company’s
Knowledge, threatened, legal, administrative, arbitral or other material
proceedings, claims, actions or governmental or regulatory investigations of any
nature against the Company, in each case that, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect on the
Company. Neither the Company, nor its business or properties is
subject to or bound by any injunction, order, judgment, decree or regulatory
restriction of any Governmental Authority specifically imposed upon the Company
or its properties or assets.
3.9 Voting. The
Requisite Company Stockholder Vote and the Requisite Company Noteholder Consent
are the only vote of the holders of any class or series of the capital stock of
the Company or other Company Security necessary to approve and adopt this
Agreement and approve the Merger and the other transactions contemplated
thereby.
3.10 No
Appraisal Rights. No Stockholder has notified the Company
of its intent to exercise any appraisal, dissenters’ or similar
rights under any Law with respect to any such Stockholder's shares of the
capital stock of the Company by virtue of the Merger, and the statutory notice
period under the Delaware General Corporation Law has
expired.
9
3.11 Intellectual Property;
Software.
(a) Section 3.11(a) of the
Company Disclosure Letter sets forth a complete list of any and all
patents, patent applications, trademark registrations and applications,
copyright registrations and applications and domain name registrations that are
included in the Company IP Rights, as well as any other Company Intellectual
Property that is material to the Company’s business.
(b) Except
as set forth on Section 3.11(b) of the
Company Disclosure Letter, Company is the sole owner of the Company IP
Rights, free and clear of any liens or encumbrances.
(c) Except
as set forth on Section 3.11(c) of the
Company Disclosure Letter, Company has not granted any licenses to any
Company IP Rights to any other Person.
(d) Neither
the development, manufacture, use or sale of any product or service offered by
the Company, nor the conduct of the Company’s business (as conducted as of the
Closing Date or at any time prior thereto), infringes, misappropriates or
otherwise violates the intellectual property of any Person, and Company has not
received any notice of any such infringement or misappropriation.
(e) To
the knowledge of Company, no other Person has infringed or misappropriated any
of the Company IP Rights.
(f) All
filing, issuance, registration, and maintenance fees due with respect to the
Company IP Rights have been paid, and all of the Company IP Rights are valid,
enforceable and in full force and effect.
3.12 ERISA
Matters.
(a) Section 3.12 of the Company
Disclosure Letter contains a list of all “employee benefit plans” (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended (“ERISA”))
and any other plan, contract, or other benefit or compensation arrangement,
including all bonus, stock option, stock purchase, deferred compensation plans
or arrangements and other employee fringe benefit plans, maintained, sponsored
or contributed to, by the Company or any of its ERISA Affiliates (as defined
below) for the benefit of any employee or any former employee of the Company or
any of its ERISA Affiliates (each of the foregoing plans, contracts or
arrangements being herein referred to as an “Employee Benefit
Plan”). For purposes of this Section 3.12, "ERISA Affiliate" means any
entity trade or business that would be treated as under common control with the
Company or as a member of a controlled group including the Company within the
meaning of Section 414(b), (c), (m), (n) or (o) of the Code or Section 4001 of
ERISA.
(b) Neither
the Company nor any ERISA Affiliate of the Company has ever maintained,
sponsored or had any obligation to contribute to, a plan that is subject to
Title IV of ERISA or Section 412 of the Code, including without limitation, any
“multiemployer plan” within the meaning of Section 4001(3) of
ERISA.
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(c) There
are no actions or claims existing or pending (other than routine claims for
benefits) or threatened with respect to any Employee Benefit Plan, and neither
Seller nor the Company has been notified of any audit or investigation of an
Employee Benefit Plan by any governmental entity. No event or condition exists
or has occurred that could lead to a penalty under Section 4980B or 4980D of the
Code.
(d) Each
Employee Benefit Plan has been operated and administered in compliance in all
material respects with the provisions of ERISA and the Code, and all other
applicable governmental laws and regulations. The Internal Revenue
Service (“IRS”) has,
with respect to each Employee Benefit Plan that is an “employee pension benefit
plan” within the meaning of Section 3(2) of ERISA (each a “Pension Plan”), issued a
favorable determination letter, which takes into account all provisions of all
laws for which the “remedial amendment period” (within the meaning of Treasury
Regulation §1.401(b)-1) applicable to such Pension Plan has expired, or an
application for such a determination letter has been filed with the IRS prior to
the expiration of the applicable remedial amendment period. No event
or condition exists or has occurred that could lead to disqualification of any
such Pension Plan or result in the imposition of a penalty tax or civil
penalty.
(e) There
is no contract, agreement or benefit arrangement covering any current or former
employee of the Company or any of its ERISA Affiliates which, individually or in
the aggregate, could reasonably be expected to give rise to the payment of any
amount which would constitute an “excess parachute payment” (as defined in
Section 280G of the Code). Neither the execution of this Agreement
nor the consummation of any of the transactions contemplated hereby will
(i) result in any payment (whether of severance pay or otherwise) becoming
due to any such present or former employee, officer, director, stockholder,
contractor, or consultant, or (iii) accelerate the time of payment or
vesting, or increase the amount, of any compensation theretofore or thereafter
due or granted to any employee, officer, director, stockholder, contractor, or
consultant of the Company or any of its ERISA Affiliates.
3.13 Tax
Matters.
(a) (i) All Tax Returns required to be filed by or on behalf
of the Company and its Subsidiaries have been duly and timely filed with the
appropriate Governmental Authority in all jurisdictions in which such Tax
Returns are required to be filed (after giving effect to any valid extensions of
time in which to make such filings), and all such Tax Returns have at all times
been and remain true, complete and correct in all material respects and were
prepared in substantial compliance with all applicable Laws and regulations; and
(ii) all Taxes payable by or on behalf of the Company and its Subsidiaries have
been fully and timely paid. With respect to any period for which Tax
Returns have not yet been filed or for which Taxes are not yet due or owing, the
Company has made due and sufficient accruals for such Taxes in the Company's
financial statements and its books and records. No claim has been
made by a Governmental Authority in a jurisdiction where the Company or any one
of its Subsidiaries does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no encumbrances for unpaid
Taxes upon any of the assets of the Company or its Subsidiaries. The
Company and its Subsidiaries have withheld and paid all Taxes required to have
been withheld and paid by any Governmental Authority in connection with any
amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
11
(b) No federal, state, local or non-U.S. tax audits or
administrative or judicial Tax proceedings are pending, being conducted, or have
been conducted with respect to the Company or its
Subsidiaries. Neither the Company nor its Subsidiaries have received
from any Governmental Authority (including jurisdictions where the Company or
any one of its Subsidiaries has not filed a Tax Return) any (i) notice
indicating an intent to open an audit or other review, (ii) request for
information related to Tax matters, or (iii) notice of deficiency or proposed
adjustment for any amount of Tax proposed, asserted, or assessed by any
Governmental Authority against the Company or its
Subsidiaries.
(c) Neither the Company nor its Subsidiaries are parties to
or bound by any tax sharing, allocation, indemnity or similar agreement or
arrangement (whether or not written). Neither the Company nor its
Subsidiaries (i) have been members of any consolidated, combined, affiliated or
unitary group of corporations filing a consolidated return for any Tax purposes
other than a group in which the Company or one of its Subsidiaries is the common
parent; or (ii) have any liability for the Taxes of any Person (other than the
Company and its Subsidiaries) under Treasury Regulations §1.1502-6 (or any
similar provision of state, local, or non-U.S. Law), as a transferee or
successor, by contract, or otherwise. Neither the Company nor its
Subsidiaries are or have been a party to any “reportable transaction,” as
defined in Code §6707A(c)(1) and Treasury Regulations
§1.6011-4(b).
(d) Neither the Company nor its Subsidiaries nor any
Stockholder nor any other Person on their behalf has (i) agreed to or is
required to make any adjustments pursuant to Section 481(a) of the Code or any
similar provision of Law or has any Knowledge that any Governmental Authority
has proposed any such adjustment, or has any application pending with any
Governmental Authority requesting permission for any changes in accounting
methods that relate to the Company or its Subsidiaries, (ii) executed or entered
into a closing agreement pursuant to Section 7121 of the Code or any similar
provision of Law with respect to the Company or its Subsidiaries, (iii)
requested any extension of time within which to file any Tax Return, which Tax
Return has since not been filed, (iv) waived any statute of limitations in
respect of Taxes or granted any extension for the assessment or collection of
Taxes, or (v) granted to any Person any power of attorney that is currently in
force with respect to any Tax matter. Neither the Company nor its
Subsidiaries are currently the subjects of any agreement or ruling in respect of
Taxes with any Governmental Authority, and no such agreement or ruling is
pending.
(e) Neither the Company nor its Subsidiaries will be
required to include any item of income in, or exclude any item of deduction
from, taxable income for any taxable period (or portion thereof) ending after
the Closing Date as a result of any (i) intercompany transaction or excess loss
account described in Treasury Regulations under Code §1502 (or any corresponding
or similar provision of state, local, or non-U.S. income Tax law); (ii)
installment sale or open transaction disposition made on or prior to the Close
Date; or (iii) prepaid amount received on or prior to the Closing
Date. There is no material amount of taxable income of the Company or
its Subsidiaries that will be required under applicable Tax Law to be reported
by Parent or its Affiliates, including the Company and its Subsidiaries, for a
taxable period beginning after the Closing Date which taxable income was
realized (and reflects economic income) arising on or prior to the Closing
Date. There is no material amount of Tax of the Company or its
Subsidiaries that will be required under applicable Tax Law to be reported or
paid by Parent or its Affiliates, including the Company and its Subsidiaries,
after the Closing Date (i) which Tax is attributable to (A) a taxable year or
other period ending on or prior to the Closing Date or (B) activities or
transactions occurring on or prior to the Closing Date; and (ii) for which the
Company and its Subsidiaries have not made due and sufficient accruals in the
Company's financial statements.
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3.14 Brokers
and Finders. The Company has not entered into any contract
with any person that may result in the obligation of the Company to pay any
investment banking fees, finder’s fees or brokerage fees in connection with the
transactions contemplated hereby.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF PARENT
AND
MERGER SUB
Except
(i) as set forth in the disclosure letter (the “Parent Disclosure Letter”)
delivered to the Company by Parent concurrently with entering into this
Agreement (it being understood that any information set forth in one section or
subsection of the Parent Disclosure Letter shall be deemed to apply to and
qualify the section or subsection of this Agreement to which it corresponds in
number and each other section or subsection of this Agreement to which the
relevance of such disclosure is readily apparent on its face) or (ii) as
disclosed in the Parent SEC Reports (as defined herein) filed prior to the date
of this Agreement (other than any forward-looking disclosures set forth in any
risk factor section, any disclosures in any section relating to forward-looking
statements and any other similar disclosures included therein to the extent they
are primarily predictive or forward-looking in nature), Parent hereby represents
and warrants to the Company that:
4.1 Corporate
Existence and Power. Each of Parent
and Merger Sub is duly organized, validly existing and in good standing under
the Laws of Delaware and has all corporate power and authority required to (a)
carry on its business as presently conducted and (b) consummate the Merger and
the other transactions contemplated hereby and to perform its obligations
hereunder.
4.2 Corporate
Authorization. Each of Parent and Merger Sub has the corporate
power and authority to execute and deliver this Agreement and to consummate the
Merger and the other transactions contemplated hereby and to perform each of its
obligations hereunder. The execution, delivery and performance by
each of Parent and Merger Sub of this Agreement and the consummation by Parent
and Merger Sub of the Merger and the other transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of Parent and the
Board of Directors of Merger Sub. This Agreement has been duly and
validly executed and delivered by Parent and, assuming the due and valid
execution and delivery of the Agreement by the Company, constitutes a legal,
valid and binding agreement of Parent, enforceable against Parent in accordance
with its terms.
13
4.3 Governmental
Authorization. The execution, delivery and performance by
Parent and Merger Sub of this Agreement and the consummation by Parent and
Merger Sub of the Merger do not and will not require any consent, approval,
authorization or permit of, action by, filing with or notification to any
Governmental Authority, other than (i) the filing of the Certificate of Merger;
(ii) compliance with the applicable requirements of the Exchange Act; (iii)
compliance with any applicable foreign or state securities or blue sky Laws;
(iv) compliance with applicable environmental, health and safety Laws and
regulations and any health care licensure Laws; and (v) any such consent,
approval, authorization, permit, action, filing or notification the failure of
which to make or obtain would not have or reasonably be expected to have a
Parent Material Adverse Effect.
4.4 Capitalization.
(a) The
authorized capital stock of the Parent consists of 500,000,000 shares of Parent
Common Stock and 10,000,000 shares of Preferred Stock.
(b) As
of the Closing Date:
(i)
107,017,120 shares of Parent Common Stock were issued
and outstanding;
(ii)
No shares of Parent Common Stock were held by the Parent
in its treasury;
(iii) the
Parent has reserved an aggregate of 7,459,936 shares of Parent Common
Stock for issuance under the Parent's equity compensation plans;
(iv)
the Parent has reserved an aggregate of 71,428,571
shares of Parent Common Stock for issuance pursuant to outstanding put and call
rights; and
(v)
the Parent has reserved an aggregate of 148,572,109 shares of Parent Common
Stock for issuance pursuant to outstanding warrants to purchase shares of Parent
Common Stock.
All
outstanding shares of Parent Common Stock are duly authorized, validly issued,
fully paid and non-assessable, and are not subject to and were not issued in
violation of any preemptive or similar right, purchase option, call or right of
first refusal or similar right.
(c) Except
as set forth in this Section 4.4(b), there
have not been reserved for issuance, and there are no outstanding (i) shares of
capital stock or other voting securities of the Parent; (ii) securities
(including without limitation convertible notes) of the Parent convertible into
or exchangeable for shares of capital stock or voting securities of the Parent;
(iii) other rights or options to acquire from the Parent, or obligations of the
Parent to issue, any shares of capital stock, voting securities or securities
convertible into or exchangeable for shares of capital stock or voting
securities of the Parent, as the case may be; or (iv) equity equivalent
interests in the ownership or earnings of the Parent (the items in clauses (i)
through (iv) collectively, “Parent Securities”). There are
no outstanding obligations of the Parent to repurchase, redeem or otherwise
acquire any Parent Securities. There are no preemptive rights of any
kind which obligate the Parent to issue or deliver any Parent
Securities.
14
(d) The
Parent has not declared or paid any dividend or distribution in respect of any
Parent Securities, and the Parent has not issued, sold, repurchased, redeemed or
otherwise acquired any Parent Securities, and the Board of Directors has not
authorized any of the foregoing.
(e) As
of the date hereof, the Parent has not entered into any commitment, arrangement
or agreement, or is otherwise obligated, to contribute capital, loan money or
otherwise provide funds or make additional investments in any
Person.
4.5 Undisclosed
Liabilities. Except as disclosed in Section 4.5 of the Parent
Disclosure Letter, the Company and Merger Sub do not have any liabilities,
commitments or obligations, asserted or unasserted, known or unknown, absolute
or contingent, whether or not accrued, matured or un-matured or otherwise, of a
nature required by GAAP to be reflected in a consolidated balance sheet or
disclosed in the notes thereto except as set forth in the Parent SEC
Reports.
4.6 Reports
and Financial Statements. Since January 1, 2007, Parent has filed with
the SEC all material forms, statements, reports and documents, including all
exhibits, post-effective amendments and supplements thereto, required to be
filed by it under each of the Securities Act, the Exchange Act and the
respective rules and regulations thereunder, all of which, as amended if
applicable, complied when filed, or amended, in all material respects with all
applicable requirements of the appropriate act and the rules and regulations
thereunder. As of their respective dates, the Parent SEC Reports did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except to
the extent corrected by a subsequent Parent SEC Report filed with the SEC prior
to the date hereof. The financial statements of Parent included in
the Parent SEC Reports (collectively, the “Parent Financial Statements”)
were prepared in accordance with generally accepted accounting principles
(except, with respect to any unaudited financial statements, as permitted by
applicable SEC rules or requirements) applied on a consistent basis (except as
may be indicated therein or in the notes thereto) and fairly present in all
material respects the financial position of Parent as of the dates thereof and
the results of operations and changes in financial position of Parent for the
periods then ended (subject, in the case of any unaudited interim financial
statements, to normal year-end adjustments).
4.7 Brokers
and Finders. Neither Parent nor Merger Sub has entered into
any contract with any person that may result in the obligation of Parent or
Merger Sub to pay any investment banking fees, finder’s fees or brokerage fees
in connection with the transactions contemplated hereby.
15
ARTICLE
V
ADDITIONAL
AGREEMENTS
5.1 Board of
Directors of Parent. At the Effective
Time, Parent shall appoint the persons identified on Schedule 5.1 as
members of the Board of Directors
of Parent. If the persons designated to be a director on Schedule
5.1 shall prior to the
Effective Time be unable or unwilling to hold office immediately after the
Effective Time, the Company and Parent shall work together in good faith to
designate other persons acceptable to Parent as directors in his or her
places.
ARTICLE
VI
CONDITIONS
TO THE MERGER
6.1 Conditions
to the Obligations of Each Party. The obligations of the
Company, Merger Sub and Parent to consummate the Merger are subject to the
satisfaction of the following conditions:
(a) Stockholder
Approval. This Agreement shall have been duly adopted and
approved by the Requisite Company Stockholder Vote and the Company shall have
received the Requisite Company Noteholder Consent.
(b) No Injunctions or
Restraints; Illegality. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect. There shall not be any action
taken, or any Law, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, by any Governmental Entity of competent
jurisdiction that makes the consummation of the Merger illegal.
6.2 Conditions
to the Obligations of Parent and Merger Sub. The obligations
of Parent and Merger Sub to consummate the Merger are subject to the
satisfaction or valid waiver of the following further conditions:
(a) Representations and
Warranties. The representations and warranties of the Company
set forth herein shall be true and correct in all respects as of the Effective
Time as though made on and as of such date, except where the failure of any such
representations and warranties to be so true and correct, in the aggregate, has
not had, and would not reasonably be expected to have, a Material Adverse Effect
on the Company.
(b) Conversion of Company
Debt. All holders of the Company’s 2006 Convertible Promissory
Notes and 2007 Senior Promissory Notes have converted such debt and the
associated warrants to purchase Company Common Stock into New
Notes.
(c) Performance of Obligations
of the Company. The Company shall have performed in all
material respects all obligations and complied in all material respects with the
agreements and covenants required to be performed by or complied with by it
prior to the Effective Time hereunder.
16
(d) Officer’s
Certificate. Parent shall have received a certificate signed
by a senior officer of the Company certifying as to the matters set forth in
Sections
6.2(a), 6.2(b) and 6.2(c).
(e) Material Adverse Effect on
the Company. Since September 10, 2009, there shall not have
occurred a Material Adverse Effect on the Company.
(f)
Resignations. Parent
shall have received copies of the resignations, effective as of the Effective
Time, of each director and officer of the Company.
(g) Opinion of
Counsel. The Company shall provide the Parent with an opinion
rendered by the Company's counsel in form and substance that is acceptable to
Parent.
6.3 Conditions
to the Obligations of the Company. The obligation of the
Company to consummate the Merger is subject to the satisfaction or valid waiver
of the following further conditions:
(a) Representations and
Warranties. The representations and warranties of Parent set
forth in herein shall be true and correct in all respects, except where the
failure of any such representations and warranties to be so true and correct, in
the aggregate, has not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Company.
(b) Financing. The
Parent has consummated a financing transaction or a series of financing
transactions with gross proceeds of at least two million five hundred thousand
dollars ($2,500,000.00) in the aggregate.
(c) Performance of Obligations
of Parent. Parent shall have performed in all material
respects all obligations, and complied in all material respects with the
agreements and covenants, required to be performed by or complied with by it
hereunder.
(d) Officer’s
Certificate. The Company shall have received a certificate
signed by a senior officer of Parent certifying as to the matters set forth in
Sections
6.3(a), 6.3(b) and 6.3(c).
(e) Director
Designees. Parent shall have complied with its obligations
under Section
5.1 with respect to the appointment of the designees to Parent’s Board of
Directors.
ARTICLE
VII
INDEMNIFICATION
7.1 Indemnification.
(a) From
and after the Closing, the Stockholders and Noteholders shall indemnify and hold
the Parent, its Subsidiaries and its Affiliates and their successors and assigns
(collectively, the "Parent
Indemnified Parties" and individually "Parent Indemnified Party")
harmless from and defend each of them from and against any and all losses,
liabilities, claims, obligations, deficiencies, demands, judgments, damages,
interest, fines, claims, suits, actions, causes of action, assessments, costs
and expenses (including costs of investigation and defense and attorneys’ and
other professionals’ fees) (collectively, "Parent's Claims") asserted
against, imposed upon or incurred by the Parent Indemnified Parties arising out
of, resulting from or incurred in connection with (i) any inaccuracy in any
representation or the breach of any warranty made by the Company in this
Agreement or (ii) any liability or obligation of the Company that was not
disclosed in the Company Disclosure Schedule or the Company’s financial
statements delivered to Parent. Any Person or Persons providing
indemnification pursuant to the provisions of this Section 7 is
hereinafter referred to as an "Indemnifying Party" or the
"Indemnifying Parties"
as the case may be.
17
(b) The
right to indemnification or any other remedy based on representations,
warranties, covenants and agreements in this Agreement shall not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing, with respect to the accuracy or
inaccuracy of or compliance with, any such representation, warranty, covenant or
agreement. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or agreements, will not affect the right to indemnification or any
other remedy based on such representations, warranties, covenants and
agreements.
7.2 Indemnity
Payments. Any payment that
Indemnifying Parties are obligated to make to any Parent Indemnified Parties
pursuant to this Section 7
(individually, an "Indemnity
Payment" and collectively, the "Indemnity Payments") shall be
exclusively satisfied by the release by the Indemnifying Parties of the right to
receive Milestone Shares, if any, that may be due and owing to such Indemnifying
Parties having a value equal to the amount owed. The Parent shall
have the absolute right to offset any indemnity payments against future issuance
Milestone Shares, if any, that become due and owing under this
Agreement. For purposes of this Section 7, the value
of each Milestone Share shall be equal to the closing price of the Parent Common
Stock on the principal exchange on which the Parent Common Stock is then listed
or the average bid and asked price of such Parent Common Stock on the Over the
Counter Bulletin Board or other quotation services on which the Parent Common
Stock is then quoted on the date the Parent becomes obligated to issue such
Milestone Shares. Each party agrees that the Parent Indemnified
Parties shall have no recourse against any Indemnifying Party other than the
offset of Milestone Shares set forth in this Section 7.2.
7.3 Tax
Treatment of Indemnity Payments. The Parent and
the Company agree to treat any indemnity payment made pursuant to this Section 7 as an
adjustment to the value of the Merger Consideration for federal, state, local
and foreign income tax purposes.
ARTICLE
VIII
MISCELLANEOUS
8.1 Notices. All
notices, requests and other communications to any party hereunder shall be in
writing (including facsimile or similar writing) and shall be
given:
18
|
if
to the Company, to:
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|
Ariston
Pharmaceuticals, Inc.
449
West Main Street
Shrewsbury
, MA 01545
Attention:
President and CEO
Fax:
|
|
with
a copy (which shall not constitute notice) to:
|
|
Wyrick
Robbins Yates & Ponton LLP
4101
Lake Boone Trail, Suite 300
Raleigh,
NC 27607
Attention:
W. David Mannheim
Fax:
(919) 781-4865
|
|
if
to Parent or Merger Sub, to:
|
|
Manhattan
Pharmaceuticals, Inc.
48
Wall Street
New
York, NY 10005
Attention:
Chief Operating and Financial Officer
Fax:
|
|
with
a copy (which shall not constitute notice) to:
|
|
Lowenstein
Sandler PC
1251
Avenue of the Americas
New
York, New York 10020
Attention: Anthony
O. Pergola, Esq.
Fax: (973)
597-2445
|
or such
other address or facsimile number as such party may hereafter specify by notice
to the other parties hereto. Each such notice, request or other communication
shall be effective (i) if given by telecopier, when such telecopy is transmitted
to the facsimile number specified above and electronic confirmation of
transmission is received or (ii) if given by any other means, when delivered at
the address specified in this Section
8.1.
8.2 Representations
and Warranties. The representations, warranties, covenants and
agreements in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive for a period of three years following the Effective
Time. Each of the Company, Merger Sub and Parent acknowledges and
agrees that, except for the representations and warranties expressly set forth
in this Agreement (a) no party makes, and has not made, any representations or
warranties relating to itself or its businesses or otherwise in connection with
the Merger, (b) no person has been authorized by any party to make any
representation or warranty relating to itself or its businesses or otherwise in
connection with the Merger and, if made, such representation or warranty must
not be relied upon as having been authorized by such party, and (c) any
estimates, projections, predictions, data, financial information, memoranda,
presentations or any other materials or information provided or addressed to any
party or any of its Representatives are not and shall not be deemed to be or to
include representations or warranties unless any such materials or information
are expressly the subject of any representation or warranty set forth in this
Agreement.
19
8.3 Expenses. All
costs and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense.
8.4 Amendment. This
Agreement may be amended by the parties hereto by action taken by or on behalf
of their respective Boards of Directors, as applicable, at any time prior to the
Effective Time, whether before or after adoption of this Agreement by the
Stockholders; provided, however, that, after
adoption of this Agreement by the Stockholders, no amendment may be made which
under applicable Law requires the further approval of the Stockholders without
such further approval. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
8.5 Waiver. At
any time prior to the Effective Time, any party 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 requirements of applicable Law, waive compliance with any of the
agreements or conditions contained for the benefit of such party contained
herein. Any such extension or waiver shall be valid if set forth in
an instrument in writing signed by the party or parties to be bound
thereby. The failure of any party to assert any rights or remedies
shall not constitute a waiver of such rights or remedies.
8.6 Successors
and Assigns. The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, provided that no
party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of the other parties hereto
(and any purported assignment without such consent shall be void and without
effect).
8.7 Governing
Law. This Agreement, and all matters arising, directly or
indirectly, herefrom, shall be governed by and construed in accordance with the
Laws of the State of Delaware (without regard to conflict of Laws
principles).
8.8 Counterparts;
Effectiveness; Third Party Beneficiaries. This Agreement may
be executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement shall become
effective only when actually signed by each party hereto and each such party has
received counterparts hereof signed by all of the other parties
hereto. No provision of this Agreement is intended to or shall confer
upon any Person other than the Stockholders and the Noteholders and the parties
hereto any rights or remedies hereunder or with respect hereto.
8.9 Severability. If
any term or other provision of this Agreement is invalid, illegal or incapable
of being enforced by virtue of any Law, or due to any public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner so that the
transactions contemplated hereby are fulfilled to the extent
possible.
20
8.10 Entire
Agreement. This Agreement (including the exhibits and
schedules thereto) constitutes the entire agreement of the parties hereto with
respect to its subject matter and supersedes all oral or written prior or
contemporaneous agreements and understandings among the parties with respect to
such subject matter.
8.11 Remedies. The
parties hereto agree that irreparable damage would occur in the event that any
provision of this Agreement were not performed in accordance with its 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
Agreement and to enforce specifically the terms and provisions of this
Agreement, in addition to any other remedy they may have at law or in
equity.
8.12 Jurisdiction.
(a) In
any action or proceeding between any of the parties arising out of or relating
to this Agreement or any of the transactions contemplated by this Agreement,
each of the parties hereto: (i) irrevocably and unconditionally consents and
submits, for itself and its property, to the exclusive personal jurisdiction of
the state courts of New York and to the jurisdiction of the United States
District Court for the District of New York; (ii) agrees that all claims in
respect of such action or proceeding must be commenced, and may be heard and
determined, exclusively in the aforementioned courts; (iii) waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any such action or proceeding in
the aforementioned courts; and (iv) waives, to the fullest extent permitted by
Law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in the aforementioned courts. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by Law. Each party to this Agreement
irrevocably consents to service of process in the manner provided for notices in
Section 8.1.
Nothing in this Agreement shall affect the right of any party to this Agreement
to serve process in any other manner permitted by Law.
(b) EACH
PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER
THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION
8.12.
21
8.13 Headings. The
headings contained in this Agreement are for convenience of reference only,
shall not be deemed to be a part of this Agreement and shall not be referred to
in connection with the construction or interpretation of this
Agreement.
8.14 Further
Assurances. Each party will, and will cause its Subsidiaries
to, execute such further documents and instruments and take such further actions
as may reasonably be requested by any other party in order to consummate the
Merger in accordance with the terms hereof.
8.15 Authorship. The
parties agree that the terms and language of this Agreement were the result of
negotiations between the parties and their respective advisors and, as a result,
there shall be no presumption that any ambiguities in this Agreement shall be
resolved against any party. Any controversy over construction of this
Agreement shall be decided without regard to events of authorship or
negotiation.
22
IN WITNESS WHEREOF, the parties hereto
have caused this Agreement and Plan of Merger to be duly executed by their
respective authorized officers as of the day and year first written
above.
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MANHATTAN
PHARMACEUTICALS, INC.
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|||
|
By:
|
/s/
Michael McGuinness
|
||
|
Its:
|
Chief
Financial and Operating Officer
|
||
|
ARISTON
MERGER CORP.
|
|||
|
By:
|
/s/
Michael McGuinness
|
||
|
Its:
|
President
|
||
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ARISTON
PHARMACEUTICALS, INC.
|
|||
|
By:
|
/s/
Malcolm Morville
|
||
|
Its:
|
President
and CEO
|
||
Agreement
and Plan of Merger Signature Page
23
Manhattan
Pharmaceuticals Completes Merger Transaction with Ariston
Pharmaceuticals
NEW YORK, NY MAR 11, 2010 –
Manhattan Pharmaceuticals, Inc. (OTCBB: MHAN) today announced it has entered
into a definitive agreement and plan of merger and completed the merger
transaction with Ariston Pharmaceuticals, Inc., a privately-held, specialty
pharmaceutical company. As a result of the merger, Ariston became a
wholly owned subsidiary of Manhattan Pharmaceuticals.
Under the
terms of the merger agreement, Manhattan Pharmaceuticals, upon the closing,
issued 7.06 million shares of its common stock to Ariston stockholders and
debtholders (which represents approximately 6% of Manhattan Pharmaceuticals
common stock on an issued and outstanding basis). Under the terms of
the merger agreement, Manhattan Pharmaceuticals could issue up to an additional
24.74 million shares upon completion of certain development milestones relating
to the Ariston product candidates. If all the product development
milestones are reached, former Ariston stockholders and debtholders will own 22%
of Manhattan Pharmaceuticals common stock on a currently issued and outstanding
basis.
In
addition, Manhattan Pharmaceuticals has reserved 43.63 million shares of its
common stock for the possible future conversion of $16.45 million of Ariston’s
outstanding convertible debt. The debt holders have no recourse to
Manhattan Pharmaceuticals for repayment. They do have the right to
convert their notes into shares of Manhattan Pharmaceuticals common
stock.
Assuming
all Ariston product candidate development milestones are reached, and if all of
Ariston’s convertible debt converts into Manhattan Pharmaceuticals common stock,
Manhattan Pharmaceuticals could ultimately issue a total of 75.4 million shares
to the Ariston stockholders and debtholders. For the complete terms
of the merger agreement, including an explanation of the Ariston product
candidate development milestones, please see Form 8-K to be filed on or about
March 12, 2010.
Senior
Management & Board of Directors
In
connection with the Ariston transaction, Manhattan Pharmaceuticals will appoint
Malcolm Morville, PhD, formerly President and CEO of Ariston Pharmaceuticals, as
Executive Chairman of Manhattan Pharmaceuticals. Michael G.
McGuinness will remain Manhattan Pharmaceuticals’ Chief Operating and Financial
Officer and Mary C. Spellman, MD, will also continue to serve as Head of
Dermatology and Drug Development. Michelle Carroll will serve as Vice
President, Corporate Development.
Following
the Ariston transaction, Manhattan Pharmaceuticals expects that its Board of
Directors will consist of 7 directors: Malcolm Morville, PhD and
David Shimko, formerly directors of Ariston, Michael G. McGuinness, and Timothy
McInerney, Richard Steinhart, Neil Herskowitz, and Douglas Abel, who will remain
as Manhattan Pharmaceuticals Directors. Michael Weiser and Malcolm
Hoenlein have resigned from the Manhattan Pharmaceuticals board in connection
with the Ariston transaction.
Expanded
Product Pipeline
With the
completion of the Ariston transaction, Manhattan Pharmaceuticals’ pipeline has
been expanded from two to four product candidates.
Hedrin®
- - A novel, non-pesticide treatment for pediculosis (head lice). In
the U.S., Manhattan Pharmaceuticals, through a joint venture with Nordic Biotech
(the “Hedrin JV”), is pursuing the development of Hedrin as a Class III
prescription medical device. The company expects to initiate a
pivotal clinical study for Hedrin the second quarter of 2010 and to file a
Premarket Authorization with the FDA in 2010. Hedrin is the leading
head lice product in Europe. To date it has launched in 32 countries
and, according to Thornton & Ross Ltd., has achieved 2008 annual sales
through its licensees of approximately $48 million (€35 million) at in-market
public prices, garnering approximately 23% market share across
Europe. According to the American Academy of Pediatrics an estimated
6-12 million Americans are infested with head lice each year. The
Hedrin JV is currently working to commercialize Hedrin in the U.S. and
Canada.
AST-726 – A nasally delivered
treatment for Vitamin B12
deficiency. AST-726 has demonstrated pharmacokinetic equivalence to
the current gold standard treatment for Vitamin B12
remediation, a marketed intramuscular injection product. The company
expects to initiate a pivotal clinical study for AST-726 in
2010. Manhattan Pharmaceuticals believes that AST-726 may enable both
a single, once-monthly treatment for maintenance of normal Vitamin B12 levels in
deficient patients, and more frequent administration to restore normal levels in
newly diagnosed B12
deficiency. Further, the company believes that AST-726 could offer a
convenient, painless, safe and cost-effective treatment for Vitamin B12
deficiency, without the need for intramuscular injections. More than
9 million people in the US are deficient in Vitamin B12,
indicating substantial market potential for a facile, convenient, safe and
effective treatment that can replace the need for painful and frequent
intramuscular injections or other less than fully effective delivery forms. The
company also believes that substantial market opportunity also exists
internationally.
AST-915 – An orally delivered
treatment for essential tremor. AST-915 is being studied under a
CRADA agreement with the National Institutes of Health and a Phase 1 clinical
study is currently underway in essential tremor patients. Essential
tremor is the most common involuntary movement disorder, affecting between 0.4
and 5% of the population, with increasing incidence as people
age. Essential tremor is characterized by involuntary shaking of the
hands, arms, head, voice, and upper body. The most disabling tremors occur
during voluntary movement, affecting common skills such as writing, eating and
drinking. There is no cure for essential tremor and the currently
available drug therapies do not work in certain patients, produce at best a 50%
response in others and have significant side effects. Manhattan
Pharmaceuticals believes AST-915 may provide a new treatment option for this
serious and prevalent disorder.
GEL – A topical gel for the
treatment of mild psoriasis. In 2007, Manhattan Pharmaceuticals
developed a topical gel that was used as the placebo in a Phase 2a clinical
study versus topical PTH (1-34). This proprietary topical gel showed
evidence of psoriasis improving properties and the company believes it may be
effective enough to market as an over-the-counter (OTC) treatment for mild
psoriasis. The National Psoriasis Foundation estimates that 5-7
million Americans suffer from psoriasis, with approximately 4.4 million being
classified as mild. According to Datamonitor, only half of psoriasis
sufferers have been formally diagnosed by a physician, therefore, the market
could be much larger. Currently there is no cure for
psoriasis. There are a number of OTC creams and ointments that reduce
inflammation, stop itching, and soothe skin, but none are viewed as particularly
effective in treating psoriasis. Manhattan Pharmaceuticals believes
this topical GEL may provide a new OTC treatment option for mild psoriasis
sufferers. The company also believes that substantial market
opportunity also exists internationally.
About
Manhattan Pharmaceuticals, Inc.
Manhattan
Pharmaceuticals is a specialty healthcare product company focused on the
development and commercialization of innovative treatments for underserved
patient populations. The Company is currently focused on two lead
programs: Hedrin®, a
novel, non-insecticide treatment for pediculosis (head lice), which is being
developed through a joint venture with Nordic Biotech, and AST-726, a nasally
delivered vitamin B12
remediation treatment. The company is also studying AST-915 for the
treatment of essential tremor and a topical GEL product which may be
commercialized as an OTC treatment for mild psoriasis.
Note
Regarding Forward-Looking Statements
This press release contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements involve risks and uncertainties
that could cause Manhattan Pharmaceuticals, Inc.'s actual results to differ
materially from the anticipated results and expectations expressed in these
forward-looking statements. These statements are often, but not always, made
through the use of words or phrases such as "intends," "anticipates,"
"expects," "plans," "believes," "intends," "will," and similar words or phrases.
These statements are based on Manhattan Pharmaceuticals, Inc.'s current
expectations, forecasts and assumptions, which are subject to risks and
uncertainties, which could cause actual outcomes and results to differ
materially from these statements. Among other things, there can be no
assurances that Manhattan
Pharmaceuticals, Inc.'s (or its joint venture with Nordic's)
development or commercialization efforts relating to Hedrin, topical
GEL, AST-726, AST-915,
or any other current or
future product candidates will be successful, that any clinical study will be
completed or will return positive results. Other risks that may affect
forward-looking information contained in this press release include the
company's extremely limited capital resources, the possibility of being
unable to obtain regulatory approval for Hedrin or its other product
candidates, the risk that
the results of clinical trials may not support the company's or its joint
venture's claims, the risk that the company's product candidates may not achieve
market acceptance in North America or elsewhere, the company's reliance on
third-party researchers to develop its product candidates, availability of
patent protection, the risk that sufficient capital may not be available to
develop and commercialize the company's product candidates, the company’s ability to integrate the
business and operations of Ariston, and the Ariston product candidates, with its
business operations, and
the company's lack of experience in developing and commercializing
pharmaceutical products. Additional risks are described in the company's filings
with the Securities and Exchange Commission, including its Annual Report on Form
10-K for the year ended December 31, 2008. Manhattan Pharmaceuticals, Inc. assumes no
obligation to update these statements, whether as a result of new information,
future events, or otherwise, except as required by law.
Contact
Manhattan
Pharmaceuticals, Inc.
Michael
G. McGuinness, Chief Operating
& Financial Officer
(212)
582-3950