AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

EXECUTION COPY

 

AGREEMENT AND PLAN OF MERGER

by and among

ELI LILLY AND COMPANY,

TOUR MERGER SUB, INC.

and

ICOS CORPORATION

Dated as of October 16, 2006

 

Table of Contents

 

 

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AGREEMENT AND PLAN OF MERGER (this “ Agreement ”) dated as of October 16, 2006, by and among ELI LILLY AND COMPANY, an Indiana corporation (“ Parent ”), TOUR MERGER SUB, INC., a Delaware corporation and a wholly owned subsidiary of Parent (“ Merger Sub ”), and ICOS CORPORATION, a Washington corporation (the “ Company ”).

WHEREAS, the Boards of Directors of Parent and the Company each have determined that a business combination between Parent and the Company is in the best interests of their respective companies and shareholders and accordingly have agreed to effect the Merger provided for herein upon the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and subject to the conditions set forth herein, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

“ Agreement ” shall have the meaning set forth in the Preamble hereto.

“ Articles of Merger ” shall have the meaning set forth in Section 2.3.

“ Bankruptcy and Equity Exception ” shall have the meaning set forth in Section 4.4.

“ Benefit Plan ” shall have the meaning set forth in Section 4.9(a).

“ Business Day ” shall mean any day, other than a Saturday, Sunday or one on which banks are authorized by Law to close in New York, New York.

“ Closing ” shall have the meaning set forth in Section 2.2.

“ Closing Date ” shall have the meaning set forth in Section 2.2.

“ Code ” shall mean the Internal Revenue Code of 1986, as amended. All citations to provisions of the Code, or to the Treasury Regulations promulgated thereunder, shall include any amendments thereto and any substitute or successor provisions thereto.

“ Commonly Controlled Entity ” shall have the meaning set forth in Section 4.9(d).

“ Company ” shall have the meaning set forth in the Preamble hereto.

“ Company Adverse Recommendation Change ” shall have the meaning set forth in Section 6.3(b).

“ Company Certificate ” shall have the meaning set forth in Section 3.1(c).

“ Company Charter Documents ” shall mean (i) the Restated Articles of Incorporation of the Company filed with the Secretary of State of Washington on September 27, 2005 and (ii) the Amended and Restated Bylaws of the Company adopted on April 29, 2005, each as amended through the date of this Agreement.

“ Company Disclosure Schedule ” shall have the meaning set forth in Article IV.

“ Company Employees ” shall have the meaning set forth in Section 6.12(c).

“ Company Equity Plans ” means the ICOS Corporation 1999 Long-Term Incentive Plan, as amended from time to time, the ICOS Corporation 1991 Stock Option Plan for Non-employee Directors, as amended from time to time, and the ICOS Corporation 1989 Stock Option Plan, as amended from time to time, and any other plan or arrangement under which the Company or its Subsidiaries grant equity-based awards.

“ Company Filed SEC Documents ” shall have the meaning set forth in Section 4.7.

“ Company Financial Advisor ” shall have the meaning set forth in Section 4.23.

“ Company Intellectual Property ” shall have the meaning set forth in Section 4.18(c).

“ Company Material Adverse Effect ” shall mean a fact, event or circumstance which has had, or is reasonably likely to have, together with all similar or related facts, events and circumstances, a material adverse effect on the condition (financial or otherwise), business, properties, assets or results of operations of the Company and its Subsidiaries taken as a whole (provided that in determining whether a fact, event or circumstance existing at Lilly ICOS LLC is a Company Material Adverse Effect for purposes of this definition, both the magnitude of such effect and its relative impact on the Company and its Subsidiaries shall be considered after taking into account the Company’s proportionate equity interest in Lilly ICOS LLC) or which would prevent the performance by the Company of its material obligations hereunder or prevent or delay beyond the Termination Date the ability of the Company to consummate the Merger; provided , however , that any such effect resulting from or arising out of any of the following items shall not be considered in determining whether a Company Material Adverse Effect has occurred: (i) any change in Law or GAAP, (ii) general economic or financial market conditions, (iii) general changes or developments in the biotechnology or pharmaceutical industries that do not have a materially disproportionate effect (relative to other industry participants) on the Company and its Subsidiaries taken as a whole, (iv) an act of war or terrorism, which act of terrorism does not have a disproportionate effect (relative to other industry participants) on the Company and its Subsidiaries taken as a whole, (v) the execution, announcement and performance of this Agreement, or any

 

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actions taken, delayed or omitted to be taken by the Company pursuant to and in accordance with the express terms of this Agreement or at the written request of Parent or Merger Sub, (vi) any change in the Company’s stock price or trading volume, in and of itself (it being understood that the facts or occurrences giving rise or contributing to such change may be deemed to constitute, or be taken into account in determining, whether there has been, or will be, a Company Material Adverse Effect), (vii) the failure of the Company to meet projections of earnings, revenues or other financial measures (whether such projections were made by the Company or independent third parties), in and of itself (it being understood that the facts or occurrences giving rise or contributing to such failure may be deemed to constitute, or be taken into account in determining, whether there has been, or will be, a Company Material Adverse Effect) or (viii) any adverse change, development, circumstance, event or occurrence relating to Lilly ICOS LLC to the extent that it results from (A) an action by Parent or any of its affiliates, (B) the omission of an action that was required to be, or reasonably should have been, taken by Parent or any of its affiliates, or (C) facts and circumstances of which Parent has Knowledge as of the date hereof (provided that for purposes of this clause (viii), affiliates of Parent shall be deemed to include Lilly ICOS LLC only in respect of action or omissions of employees of Parent and its Subsidiaries other than Lilly ICOS LLC).

“ Company Option ” shall mean any option to purchase Company Shares.

“ Company Permits ” shall have the meaning set forth in Section 4.13(a).

“ Company Preferred Shares ” shall have the meaning set forth in Section 4.2(a).

“ Company Rights ” shall mean any of the Rights, as such term is defined in the Company Rights Agreement.

“ Company Rights Agreement ” shall mean the Rights Agreement, dated as of August 9, 2002, as amended by Amendment No. 1 to Rights Agreement dated, as of September 26, 2005, between the Company and Mellon Investor Services, LLC, as Rights Agent.

“ Company SEC Documents ” shall have the meaning set forth in Section 4.6(a).

“ Company Share ” shall mean one share of common stock of the Company, $0.01 par value per share.

“ Company Shareholder Approval ” shall have the meaning set forth in Section 4.4.

“ Company Shareholder Meeting ” shall have the meaning set forth in Section 4.25.

“ Confidentiality Agreement ” shall mean the confidentiality agreement, dated as of August 23, 2006, between Parent and the Company.

 

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“ Contract ” shall mean any note, bond, mortgage, indenture, lease, license, concession, franchise, contract, agreement or other instrument or obligation.

“ Convertible Subordinated Notes ” shall have the meaning set forth in Section 4.2(a).

“ Copyrights ” shall have the meaning set forth in Section 4.18(b).

“ DGCL ” shall mean the Delaware General Corporation Law.

“ D&O Insurance ” shall have the meaning set forth in Section 6.8(c).

“ Dissenting Shares ” shall have the meaning set forth in Section 3.1(e).

“ Drug or Health Law ” shall mean any Law in any jurisdiction, (i) related to the development, testing, manufacture, marketing, sale or use of any compounds or products for human consumption, including, without limitation, the FDCA and PHSA, and (ii) related to the collection, disclosure or use of health-related information or the provision of health-related products or services, including, without limitation, HIPAA.

“ Effective Time ” shall have the meaning set forth in Section 2.3.

“ Environmental Law ” shall mean any Law relating to the environment, natural resources, or safety or health of humans, including the manufacture, distribution in commerce and use or Release of Hazardous Substances.

“ ERISA ” shall have the meaning set forth in Section 4.9(a).

“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“ FDA ” shall mean the U.S. Food and Drug Administration.

“ FDCA ” shall mean the U.S. Food, Drug and Cosmetic Act of 1938, as amended, and all rules and regulations issued thereunder.

“ GAAP ” shall mean U.S. generally accepted accounting principles.

“ Governmental Entity ” shall mean any governmental body, court, agency, official or regulatory or other authority, whether federal, state, local or foreign.

“ Hazardous Substance ” shall mean any pollutant, contaminant, hazardous substance, hazardous waste, medical waste, special waste, toxic substance, petroleum or petroleum-derived substance, waste or additive, asbestos, Polychlorinated Biphenyls, radioactive material, or other compound, element, material or substance in any form whatsoever (including products) regulated or restricted by or under any applicable Environmental Law.

 

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“ HIPAA ” means the Health Insurance Portability and Accountability Act of 1996, as may be amended, and all rules and regulations issued thereunder.

“ HSR Act ” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“ Indemnified Parties ” shall have the meaning set forth in Section 6.8(a).

“ Intellectual Property ” shall have the meaning set forth in Section 4.18(b).

“ Intervening Event ” shall mean a material event relating to the business of the Company and its Subsidiaries, unknown to the Board of Directors of the Company as of the date hereof, which material event becomes known to or by the Board of Directors of the Company prior to obtaining the Company Shareholder Approval; provided , however , that in no event shall the receipt, existence or terms of a Takeover Proposal or any matter relating thereto or consequence thereof constitute an Intervening Event.

“ IP Contracts ” shall have the meaning set forth in Section 4.18(b).

“ IRS ” shall mean the U.S. Internal Revenue Service.

“ Key Product ” shall have the meaning set forth in Section 4.18(b).

“ Key Product Registered or Licensed Intellectual Property ” shall have the meaning set forth in Section 4.18(b).

“ Knowledge ” shall have the meaning set forth in Section 1 of the Company Disclosure Schedule.

“ Law ” shall mean any statute, law, ordinance, rule or regulation of any Governmental Entity, including any Environmental Law and any Drug or Health Law, in each case including any implementing regulations thereunder.

“ Letter of Transmittal ” shall have the meaning set forth in Section 3.2(c).

“ Liens ” shall mean pledges, claims, liens, charges, encumbrances and security interests of any kind or nature.

“ Material Contract ” shall have the meaning set forth in Section 4.10(b).

“ Merger ” shall have the meaning set forth in Section 2.1.

“ Merger Consideration ” shall have the meaning set forth in Section 3.1(c).

“ Merger Sub ” shall have the meaning set forth in the Preamble hereto.

“ New Plans ” shall have the meaning set forth in Section 6.12(d).

“ Notice ” shall have the meaning set forth in Section 6.3(b).

 

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“ Old Plans ” shall have the meaning set forth in Section 6.12(d).

“ Order ” shall mean any judgment, order, writ, preliminary or permanent injunction or decree of any Governmental Entity.

“ Other Registered or Licensed Intellectual Property ” shall have the meaning set forth in Section 4.18(b).

“ OTS Software License ” shall mean a license for off-the-shelf personal computer software that is commercially available under non-discriminatory pricing terms on a retail basis, and is used solely on the desktop personal computers of the Company or any of its Subsidiaries.

“ Owned Real Properties ” shall have the meaning set forth in Section 4.21(b).

“ Parent ” shall have the meaning set forth in the Preamble hereto.

“ Parent Disclosure Schedule ” shall have the meaning set forth in Article V.

“ Patents ” shall have the meaning set forth in Section 4.18(b).

“ Paying Agent ” shall have the meaning set forth in Section 3.2(a).

“ Pension Plans ” shall have the meaning set forth in Section 4.9(a).

“ Permitted Liens ” shall mean (1) Liens for Taxes, assessments or similar charges incurred in the ordinary course of business that are not yet due and payable or the amount of which is being contested in good faith; (2) pledges or deposits made in the ordinary course of business; (3) Liens of mechanics, materialmen, warehousemen or similar Liens securing obligations incurred in the ordinary course of business that are not yet due and payable; (4) purchase money Liens and Liens securing rental payments under capital lease arrangements or similar Liens securing obligations incurred in the ordinary course of business that are not yet due and payable; and (5) Liens and encumbrances which are incurred in the ordinary course of business and which do not in the aggregate materially detract from the value of the related assets or properties or materially impair the use thereof in the operation of such business.

“ Person ” shall mean an individual, corporation, limited liability company, partnership, association, trust or any other entity or organization, including any Governmental Entities.

“ Personal Property Leases ” shall mean all Contracts for personal property leased, subleased, licensed or otherwise conveyed to the Company or any of its Subsidiaries involving annual payments in excess of $250,000.

 

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“ Pharmaceutical Products ” shall mean all biological and drug candidates, compounds or products being researched, tested, developed, manufactured, marketed or distributed by the Company or any of its Subsidiaries; provided, however, that Pharmaceutical Products shall not include biological and drug candidates, compounds or products owned by third parties which are manufactured by the Company or any of its Subsidiaries.

“ PHSA ” shall mean the Public Health Service Act of 1944, as amended, and all rules and regulations issued thereunder.

“ Proxy Statement ” shall have the meaning set forth in Section 4.5(a).

“ Real Property Leases ” shall mean all Contracts for real property leased, subleased, licensed or otherwise conveyed to the Company or any of its Subsidiaries involving annual payments in excess of $250,000.

“ Release ” shall mean any release, pumping, pouring, emptying, injecting, escaping, leaching, migrating, dumping, seepage, spill, leak, flow, discharge, disposal or emission.

“ Representatives ” shall have the meaning set forth in Section 6.3(a).

“ Restricted Stock Awards ” means an award of Company Shares granted under any Company Equity Plan, subject to such restrictions and terms as are provided under such Company Equity Plan.

“ Restricted Unit Awards ” means an award of stock units based upon Company Shares granted under any Company Equity Plan, subject to such restrictions and terms as are provided under such Company Equity Plan.

“ Rights Agreement Amendment ” shall have the meaning set forth in Section 4.17.

“ Sarbanes-Oxley Act ” shall have the meaning set forth in Section 4.13(c).

“ SEC ” shall mean the U.S. Securities and Exchange Commission or the staff thereof.

“ Securities Act ” shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“ Series A Shares ” shall have the meaning set forth in Section 4.2(a).

“ Short Period ” means any Taxable Period that ends on the Closing Date.

“ Software ” shall mean computer software programs, including all source code, object code, specifications, databases, designs and documentation related to such programs.

 

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“ Specified Software ” shall have the meaning set forth in Section 4.19.

“ Subsidiary ” shall mean, with respect to any Person, any corporation, partnership, limited liability company or other legal entity of which such Person (either directly or through or together with another Subsidiary of such Person) owns 50% or more of the voting stock or other interests of such corporation, partnership, limited liability company or other legal entity.

“ Superior Proposal ” shall mean a bona fide written Takeover Proposal made by a third party which, if consummated, would result in such third party or its shareholders owning at least 80% of the outstanding equity securities of the Company (or other entity surviving or resulting from such transaction) pursuant to a tender offer, exchange offer, merger, consolidation, business combination, recapitalization or similar transaction involving the Company (i) on terms which the Company’s Board of Directors determines in good faith (after consultation with a financial advisor of nationally recognized reputation and outside counsel) to be superior for the shareholders of the Company (in their capacity as shareholders) from a financial point of view as compared to the transactions contemplated hereby and any alternative proposed by Parent or Merger Sub in accordance with Section 6.3(b) hereof and (ii) which is reasonably likely to be consummated (taking into account, among other things, all legal, financial, regulatory and other aspects of the proposal and identity of the offeror).

“ Surviving Corporation ” shall have the meaning set forth in Section 2.1.

“ Takeover Proposal ” shall mean any inquiry, proposal or offer from any Person or group relating to (i) any direct or indirect acquisition or purchase of 15% or more of the assets of the Company or 15% or more of any class of equity securities of the Company or any of its Subsidiaries, (ii) any tender offer or exchange offer that, if consummated, would result in any Person beneficially owning at least 15% of any class of equity securities of the Company or (iii) any merger, consolidation, business combination, sale of all or a substantial portion of the assets, recapitalization, liquidation or a dissolution of, or similar transaction involving the Company other than the Merger.

“ Tax Return ” shall mean any report, return, election, notice, estimate, declaration, claims for refund, information statement or other form or document (including all schedules, exhibits and other attachments thereto) relating to and filed or required to be filed with a Tax authority in connection with the determination, assessment, or collection of any Tax (including estimated Taxes) or the administration of any Laws, regulations or administrative requirements relating to any Taxes, and shall include any amendment to any of the foregoing.

“ Taxable Period ” shall mean any taxable year or any other period that is treated as a taxable year (or other period, or portion thereof, in the case of a Tax imposed with respect to such other period; e.g. , a quarter or a Short Period) with respect to which any Tax may be imposed under any applicable statute, rule, or regulation.

 

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“ Taxes ” shall mean any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions, levies and liabilities, including taxes that are or are based upon or measured by gross receipts, net income, gross income, profits, sales, use and occupation, value added, ad valorem, transfer, gains, franchise, withholding, payroll, recapture, employment, excise, unemployment, insurance, social security, business license, occupation, business organization, stamp, environmental and real and personal property taxes, together with all interest, penalties and additions imposed with respect to such amounts.

“ Termination Date ” shall have the meaning set forth in Section 8.1(b)(ii).

“ Termination Fee ” shall have the meaning set forth in Section 8.4(a).

“ Trademarks ” shall have the meaning set forth in Section 4.18(b).

“ Trade Secrets ” shall have the meaning set forth in Section 4.18(b).

“ Unauthorized Code ” shall mean (i) any software routine designed to disable a computer program automatically with the passage of time or under the positive control of a Person other than an authorized licensee or owner of a copy of the program and (ii) any software routine or hardware component designed to permit unauthorized access to, or to disable, erase, or otherwise harm any computer, systems or Software.

“ WBCA ” shall mean the Washington Business Corporation Act.

“ Welfare Plan ” shall have the meaning set forth in Section 4.9(a).

ARTICLE II

THE MERGER

Section 2.1 The Merger . Upon the terms and subject to the conditions of this Agreement, at the Effective Time, Merger Sub shall be merged with and into the Company in accordance with the WBCA and the DGCL and the terms of this Agreement (the “ Merger ”), whereupon the separate corporate existence of Merger Sub shall cease, and the Company shall be the surviving corporation of the Merger (the Company, as the surviving entity after the Merger is sometimes referred to herein as the “ Surviving Corporation ”).

Section 2.2 Closing . Subject to the terms and conditions of this Agreement, the closing of the Merger (the “ Closing ”) shall take place (a) at the offices of Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, New York 10019 at 10:00 a.m., New York City time, no later than the third Business Day following the satisfaction (subject to applicable Law) of the conditions set forth in Article VII of this Agreement (other than (i) those conditions that are waived by the party or parties for whose benefit such conditions exist, and (ii) any such conditions which, by their terms, are not capable of being satisfied until the Closing Date, but subject to the satisfaction of such conditions); or (b) at such other place, time, and/or date as the parties hereto may otherwise agree. The date upon which the Closing shall occur is referred to herein as the “ Closing Date .”

 

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Section 2.3 Effective Time . If all the conditions to the Merger set forth in Article VII of this Agreement have been fulfilled or waived and this Agreement shall not have been terminated as provided in Article VIII hereof, the parties hereto shall cause articles of merger effectuating the Merger to be properly executed and filed with the Secretary of State of the State of Washington and the certificate of merger effectuating the Merger to be properly executed and filed with the Secretary of State of the State of Delaware (together, the “ Articles of Merger ”), as required by, and executed in accordance with the WBCA and the DGCL, respectively, and the terms of this Agreement on the Closing Date. The Merger shall become effective at such time as the Articles of Merger are duly filed with the Secretary of State of Washington and the Secretary of State of Delaware or at such later time as is specified by the parties hereto as the Effective Time in the Articles of Merger (the “ Effective Time ”). The Merger shall have the effects set forth in the applicable provisions of the WBCA and the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time the Surviving Corporation shall possess all the property, rights, privileges, powers and franchises and be subject to all of the debts, liabilities and duties of the Company and Merger Sub.

Section 2.4 Articles of Incorporation and Bylaws .

(a) At the Effective Time, pursuant to Revised Code of Washington, Section 23B.11.100(5), the Certificate of Incorporation of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation at the Effective Time, except that such Articles of Incorporation shall be amended to include necessary changes to account for the state of incorporation of the Surviving Corporation and the application of the WBCA. Thereafter, as so amended, the Articles of Incorporation of the Surviving Corporation may be further amended as provided therein or pursuant to Revised Code of Washington, Chapter 23B.10.

(b) At the Effective Time, pursuant to Revised Code of Washington, the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation at the Effective Time, except that such bylaws shall be amended to include necessary changes to account for the state of incorporation of the Surviving Corporation and the application of the WBCA. Thereafter, as so amended, the bylaws of the Surviving Corporation may be further amended as provided therein or pursuant to Revised Code of Washington.

Section 2.5 Directors and Officers .

(a) The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

 

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(b) The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

ARTICLE III

MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF COMPANY SHARES IN THE MERGER

Section 3.1 Effect on Capital Stock . As of the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub or the Company or their respective shareholders:

(a) Capital Stock of Merger Sub . Each issued and outstanding share of common stock of Merger Sub shall be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation.

(b) Cancellation of Parent Owned Stock . Each Company Share owned by Parent or any Subsidiary of Parent immediately prior to the Effective Time shall be canceled, and no payment shall be made with respect thereto.

(c) Conversion of Company Shares . Each issued and outstanding Company Share (other than (i) Company Shares to be canceled in accordance with Section 3.1(b) hereof and (ii) Dissenting Shares), together with any associated Company Rights, shall automatically be converted into the right to receive an amount in cash equal to $32.00, without interest (the “ Merger Consideration ”). All Company Shares converted into the right to receive the Merger Consideration pursuant to this Section 3.1(c) shall cease to be outstanding and shall be canceled and retired and shall cease to exist, and each holder of a certificate that immediately prior to the Effective Time represented such Company Shares (or in the case of a non-certificated share, the equivalent right to such Company Shares) (“ Company Certificate ”) shall thereafter cease to have any rights with respect to such Company Shares, except the right to receive the Merger Consideration to be issued in consideration therefor.

(d) Change in Shares . If, between the date of this Agreement and the Effective Time, there is a reclassification, recapitalization, stock split, stock dividend, combination or exchange of shares with respect to, or rights issued in respect of, Company Shares, the Merger Consideration shall be adjusted accordingly to provide to the holders of Company Shares the same economic effect as contemplated by this Agreement prior to such event.

(e) Dissenting Company Shares . Each outstanding Company Share, the holder of which has demanded and perfected such holder’s right to dissent from the Merger and to be paid the fair value of such shares in accordance with Section 23B.13 of the WBCA and, as of the Effective Time, has not effectively waived, withdrawn or otherwise lost such dissenters’ rights (“ Dissenting Shares ”), will not be converted into or represent a right to receive the Merger Consideration, but the holder thereof will be

 

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entitled only to such rights as are granted by the WBCA. The Company will give Parent (i) prompt written notice of any notice of intent to demand fair value for any Company Share, withdrawals of such notices, and any other instruments received by the Company, and in respect of the exercise, perfection, or attempt to exercise or perfect, dissenters’ rights and (ii) the opportunity to conduct jointly all negotiations and proceedings with respect to such demands for fair value for Company Shares under the WBCA. The Company will not, except with the prior written consent of Parent, voluntarily make any payment with respect to any demands for fair value for Company Shares or settle or offer to settle any such demands.

Section 3.2 Paying Agent; Exchange of Company Certificates .

(a) Prior to the Effective Time, Parent shall designate a bank or trust company, reasonably acceptable to the Company, to act as paying agent (the “ Paying Agent ”) for payment of the Merger Consideration.

(b) As of or promptly following the Effective Time, Parent shall deposit with the Paying Agent, cash sufficient in the aggregate to provide all funds necessary for the Paying Agent to make payments of the Merger Consideration pursuant to Section 3.1.

(c) As soon as reasonably practicable following the Effective Time, the Surviving Corporation shall cause the Paying Agent to mail to each holder of record of Company Certificates (other than Company Certificates representing Dissenting Shares) (i) a letter of transmittal that shall specify that delivery shall be effected, and risk of loss and title to Company Certificates shall pass, only upon proper delivery of Company Certificates to the Paying Agent and which shall be in the form and have such other provisions as Parent may reasonably specify (the “ Letter of Transmittal ”) and (ii) instructions for use in effecting the surrender of Company Certificates in exchange for the Merger Consideration. Upon surrender of a Company Certificate for cancellation to the Paying Agent, together with a Letter of Transmittal properly completed and validly executed in accordance with the instructions thereto, and such other documents as may be reasonably required by the Paying Agent, the holder of such Company Certificate shall be entitled to receive in exchange therefor the Merger Consideration payable in respect of the number of Company Shares previously represented by such Company Certificates, and Company Certificates so surrendered shall be forthwith canceled. The Paying Agent shall promptly accept such Company Certificates upon compliance with such reasonable terms and conditions as the Paying Agent may impose to effect an orderly exchange thereof in accordance with customary exchange practices. No interest shall accrue on the Merger Consideration payable upon the surrender of Company Certificates for the benefit of, or be paid to, the holders of Company Certificates.

(d) All Merger Consideration delivered upon the surrender of Company Certificates in accordance with the terms of this Article III shall be deemed to have been paid in full satisfaction of all rights pertaining to Company Shares theretofore represented by such Company Certificates. Until surrendered as contemplated by this Section 3.2, each Company Certificate shall be deemed at all times after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration into which Company Shares theretofore represented by such Company Certificate shall have been converted pursuant to this Article III.

 

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(e) At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of Company Shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Company Certificates are presented to the Surviving Corporation or the Paying Agent for any reason, they shall be canceled and exchanged as provided in this Article III.

(f) If any Company Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Company Certificate to be lost, stolen or destroyed and, if reasonably required by the Paying Agent, the posting by such Person of a bond or other surety in such amount as the Paying Agent may reasonably direct as indemnity against any claim that may be made with respect to such Company Certificate and subject to such other reasonable conditions as the Paying Agent may impose, the Paying Agent shall deliver in exchange for such Company Certificate the Merger Consideration into which Company Shares theretofore represented by such Company Certificate shall have been converted pursuant to this Article III.

(g) If any payment under this Article III is to be made to a Person other than the Person in whose name any Company Certificate surrendered in exchange therefor is registered, it shall be a condition of payment that the Company Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the Person requesting such payment shall pay any transfer or other Taxes required by reason of the payment to a Person other than the registered holder of Company Certificate surrendered or such Person shall establish to the satisfaction of the Surviving Corporation that such Tax has been paid or is not applicable.

(h) The Paying Agent shall invest any funds held by it for purposes of this Section 3.2 as directed by Parent, on a daily basis; provided that no such investment or loss thereon shall affect the amounts payable to the Company’s shareholders pursuant to this Article III. Any interest and other income resulting from such investments shall be paid to Parent.

(i) Parent and/or the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to the holders of Company Shares such amounts, if any, as are required to be deducted or withheld under any provision of U.S. federal Tax Law, or any provision of state, local or foreign Tax Law, with respect to the making of such payment. Amounts so withheld shall be treated for all purposes of this Agreement as having been paid to the holders of Company Shares in respect of which such deduction or withholding was made.

(j) None of Parent, Merger Sub, the Company or the Paying Agent shall be liable to any Person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law. Any portion of the cash that has been made available to the Paying Agent pursuant to this Section 3.2 that remains

 

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unclaimed by the holder of any Company Certificate twelve months after the Effective Time, shall be returned to Parent and any such holder who has not exchanged such holder’s Company Certificate prior to such time shall thereafter look only to Parent for any claim for Merger Consideration hereunder.

Section 3.3 Equity Awards .

(a) Treatment of Company Options . Prior to the Effective Time, the Company shall take all action necessary such that, as of the Effective Time, each Company Option that is outstanding as of immediately prior to the Effective Time, whether or not vested or exercisable, shall be canceled and the holder thereof shall be entitled to receive an amount of cash, without interest, equal to the product of (i) the total number of Company Shares subject to such Company Option as of immediately prior to the Effective Time, whether or not vested or exercisable, multiplied by (ii) the excess, if any, of the Merger Consideration over the exercise price per Company Share subject to such Company Option (with the aggregate amount of such payment to the holder to be rounded down to the nearest cent), less applicable Taxes, if any, required to be withheld with respect to such payment. Parent shall pay, or shall cause the Surviving Corporation to pay, the amount of cash payable in respect of each Company Option as soon as practicable following the Effective Time, but in any event no later than 10 Business Days following the Effective Time.

(b) Restricted Stock . Prior to the Effective Time, the Company shall take all action necessary such that, immediately prior to the Effective Time, all restrictions (including all forfeiture restrictions or repurchase rights) applicable to Company Shares subject to Restricted Stock Awards, whether or not vested, shall lapse.

(c) Restricted Units . Prior to the Effective Time, the Company shall take all action necessary such that, as of the Effective Time, each outstanding Restricted Unit Award, whether or not vested, shall be cancelled and the holder thereof shall be entitled to receive an amount of cash, without interest, equal to the product of (i) the total number of Company Shares subject to such Restricted Unit Award as of immediately prior to the Effective Time, whether or not vested, multiplied by (ii) the Merger Consideration (with the aggregate amount of such payment to the holder to be rounded down to the nearest cent), less applicable Taxes, if any, required to be withheld with respect to such payment. Parent shall pay, or shall cause the Surviving Corporation to pay, the amount of cash payable in respect of each Restricted Unit Award as soon as practicable following the Effective Time, but in any event no later than 10 Business Days following the Effective Time.

(d) Corporate Actions . At or prior to the Effective Time, the Board of Directors of the Company (or, if appropriate, any committee of the Board of Directors of the Company responsible for administering the Company Equity Plans) shall adopt any resolutions and cause the Company to take any actions which are necessary to effectuate the provisions of this Section 3.3, including, without limitation, obtaining all necessary consents from award holders.

 

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(e) No Right to Acquire Company Shares . The Company shall take all actions necessary to ensure that from and after the Effective Time neither Parent nor the Surviving Corporation will be required to deliver Company Shares to any Person pursuant to or in settlement of Company Options after the Effective Time.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in the disclosure schedule delivered by the Company to Parent prior to the execution of this Agreement (the “ Company Disclosure Schedule ”), which Company Disclosure Schedule identifies the Section (or, if applicable, subsection) to which such exception relates (provided, however, that any disclosure contained in any section of the Company Disclosure Schedule shall be deemed to be disclosed with respect to any other Section of this Agreement to the extent that it is reasonably apparent that such disclosure is applicable to such other Section of this Agreement), the Company represents and warrants to Parent and Merger Sub as follows; provided, however, that with respect to Lilly ICOS LLC the representations and warranties set forth in this Article IV are only being made with respect to facts and circumstances to the Knowledge of the Company as to which Parent does not have Knowledge as of the date hereof:

Section 4.1 Organization . The Company (i) (A) is a corporation duly incorporated and validly existing under the Laws of the State of Washington and (B) has paid all fees and penalties owed to the State of Washington under the WBCA, (ii) has all corporate powers and authority necessary to own, lease and operate its properties and assets and to carry on its business as now conducted and (iii) is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of the property owned, leased or operated by it or the nature of its activities makes such qualification necessary, except, in the case of (ii) and (iii), where the failure to have the same or to so qualify would not be reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. The Company has made available to Parent complete and correct copies of the Company Charter Documents and the articles of incorporation and bylaws (or similar organizational documents) of each of its Subsidiaries.

Section 4.2 Capitalization .

(a) The authorized capital stock of the Company consists of 100,000,000 Company Shares and 2,000,000 shares of preferred stock, $0.01 par value, of the Company (“ Company Preferred Shares ”) of which 1,000,000 Company Preferred Shares have been designated as Series A Junior Participating Preferred Stock (“ Series A Shares ”). At the close of business on October 13, 2006, (i) 65,547,192 Company Shares (including Company Shares subject to outstanding Restricted Stock Awards) were issued and outstanding, (ii) no Company Preferred Shares were issued and outstanding, (iii) 1,000,000 Series A Shares were reserved for issuance under the Company Rights Agreement, (iv) 4,530,894 Company Shares were subject to issuance upon conversion of the Company’s 2% Convertible Subordinated Notes due July 1, 2023 (the “ Convertible Subordinated Notes ”), (v) 10,894,763 Company Shares were reserved for issuance

 

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pursuant to outstanding unexercised Company Options and (vi) 246,211 Company Shares were reserved for issuance pursuant to outstanding Restricted Unit Awards. No shares of capital stock of the Company are owned by any Subsidiary of the Company. All of the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable and free of preemptive and similar rights. As of the date hereof, except as set forth above and for changes since October 13, 2006 resulting from the exercise of Company Options, conversion of Convertible Subordinated Notes, or the issuance of shares pursuant to Restricted Unit Awards, each in accordance with their terms, there are no outstanding (i) shares of capital stock, debt securities or other voting securities of the Company; (ii) securities of the Company or any of its Subsidiaries convertible into or exchangeable for shares of capital stock, debt securities, voting securities or ownership interests in the Company; (iii) subscriptions, call rights, Contracts, commitments, understandings, restrictions, arrangements, rights, warrants, options, or other rights to acquire from the Company or any of its Subsidiaries, or obligations of the Company or any of its Subsidiaries to issue, any capital stock, debt securities, voting securities or other ownership interests in, or any securities convertible into or exchangeable or exercisable for any capital stock, voting securities, debt securities or ownership interests in, the Company, or obligations of the Company or any of its Subsidiaries to grant, extend or enter into any such agreement or commitment; or (iv) obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any outstanding securities of the Company (other than pursuant to the exercise or tax withholding provisions of the Company Options, Restricted Stock Awards or Restricted Unit Awards), or to vote or to dispose of any shares of the capital stock of the Company. All of the outstanding debt and equity securities of the Company have been offered and issued in compliance with all applicable securities Laws, including the Securities Act and “blue sky” Laws.

(b) Section 4.2(b) of the Company Disclosure Schedule sets forth a complete and correct list, as of the close of business on October 13, 2006, of the holder of each outstanding Company Option or Restricted Unit Award, the number of Company Shares issuable thereunder and, with respect to each Company Option, the maximum term and the exercise price thereof. Section 4.2(b) of the Company Disclosure Schedule also sets forth a complete and correct list, as of the close of business on October 13, 2006, of the holder of each outstanding Restricted Stock Award pursuant to which one or more Company Shares remain subject to forfeiture or repurchase and the number of Company Shares remaining subject to forfeiture or repurchase.

Section 4.3 Subsidiaries .

(a) Each Subsidiary of the Company (i) is a corporation duly incorporated or an entity duly organized, and is validly existing and in good standing under the Laws of its jurisdiction of incorporation or organization, (ii) has all powers and authority necessary to own, lease and operate its properties and assets and to carry on its business as now conducted and is duly qualified to do business as a foreign corporation and (iii) is in good standing in each jurisdiction where the character of the property owned, leased or operated by it or the nature of its activities makes such qualification necessary, except, in cases (ii) and (iii) above, where the failure to do so would not be reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect.

 

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(b) All of the outstanding shares of capital stock of, or other ownership interest in, each Subsidiary of the Company have been validly issued and are fully paid and nonassessable and free of preemptive rights. All of the outstanding capital stock or securities of, or other ownership interest in, each of the Subsidiaries of the Company, is owned, directly or indirectly, by the Company, and is owned free and clear of any Lien and free of any other limitation or restriction (including any limitation or restriction on the right to vote, sell or otherwise dispose of the stock or other ownership interests), except Permitted Liens. There are no outstanding (i) shares of capital stock, debt securities or other voting securities of any Subsidiary of the Company (except for shares of capital stock owned by the Company); (ii) securities of the Company or any of its Subsidiaries convertible into or exchangeable for shares of capital stock, debt securities or voting securities or ownership interests in any Subsidiary of the Company; (iii) subscriptions, call rights, Contracts, commitments, understandings, restrictions, arrangements, rights, warrants, options, or other rights to acquire from the Company or any of its Subsidiaries, or obligations of the Company or any of its Subsidiaries to issue, any capital stock, debt securities, voting securities or other ownership interests in, or any securities convertible into or exchangeable or exercisable for any capital stock, voting securities, debt securities or ownership interests in, any Subsidiary of the Company, or obligations of the Company or any of its Subsidiaries to grant, extend or enter into any such agreement or commitment or (iv) obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any outstanding securities of any Subsidiary of the Company, or to vote or to dispose of any shares of the capital stock of any Subsidiary of the Company.

(c) Section 4.3(c) of the Company Disclosure Schedule lists (i) each Subsidiary of the Company, (ii) its jurisdiction of incorporation or organization and (iii) the location of its principal executive office. Except for the capital stock of its Subsidiaries, the Company does not own, directly or indirectly, any capital stock or other ownership interest in any entity.

Section 4.4 Authority . The Company has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation by the Company of the Merger and of the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate such transactions, other than, with respect to the Merger, the adoption of this Agreement by the holders of at least majority of the outstanding Company Shares (the “ Company Shareholder Approval ”). This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors’ rights and subject to general equity principles (the “ Bankruptcy and Equity Exception ”) and assuming that this Agreement is a valid and binding obligation of Parent and Merger Sub.

 

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Section 4.5 Consents and Approvals; No Violations .

(a) The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated by this Agreement do not and will not require any filing or registration with, notification to, or authorization, permit, consent or approval of, or other action by or in respect of, any Governmental Entities other than (i) the filing of the Articles of Merger as contemplated by Article II hereof, (ii) compliance with any applicable requirements of the HSR Act or antitrust or competition Laws of any other applicable jurisdiction, (iii) any filings required under the rules and regulations of The Nasdaq Stock Market, Inc.’s Global Select Market, and (iv) compliance with any applicable requirements of the Securities Act, the Exchange Act and state securities and “blue sky” Laws, including the filing with the SEC of a proxy statement relating to the adoption of this Agreement by the Company’s shareholders (as amended from time to time, the “ Proxy Statement ”).

(b) The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated by this Agreement do not and will not (i) conflict with or result in any breach of any provision of the Company Charter Documents or any similar organizational documents of any of its Subsidiaries; (ii) violate, conflict with, require consent pursuant to, result in a breach of, constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or give rise to a right of, or result in, the termination, cancellation, modification, acceleration or the loss of a benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries under, any of the terms, conditions or provisions of any Contract to which the Company or any of its Subsidiaries is a party or by which any of its properties or assets may be bound; or (iii) violate any Order or Law applicable to the Company, any of its Subsidiaries or any of their properties or assets, except, in the case of clause (ii) above, for any violations, conflicts, consents, breaches, defaults, terminations, cancellations, modifications, accelerations, losses or creations that would not be reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect.

Section 4.6 SEC Reports and Financial Statements .

(a) The Company has filed with the SEC all forms, reports, schedules, statements and other documents required to be filed by it since January 1, 2003 (together with all information incorporated therein by reference, the “ Company SEC Documents ”). The Company SEC Documents as of their respective dates, or, if amended, as of the date of the last such amendment, (i) 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; and (ii) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. No Subsidiary of the Company is required to make any filings with the SEC.

 

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(b) The financial statements of the Company included in the Company SEC Documents complied in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP applied on a consistent basis during the periods indicated (except as may be indicated in the notes thereto) and fairly presented (subject, in the case of the unaudited statements, to normal and recurring audit adjustments not material in amount) the consolidated financial position of the Company and its consolidated Subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. Since January 1, 2003, there has been no material change in the Company’s accounting methods or principles that would be required to be disclosed in the Company’s financial statements in accordance with GAAP, except as described in the notes to such Company financial statements.

(c) The Company has heretofore made available to Parent a complete and correct copy of any amendments or modifications, which are required to be filed with the SEC but have not yet been filed with the SEC, to (i) agreements, documents or other instruments which previously have been filed by the Company with the SEC pursuant to the Exchange Act and (ii) the Company SEC Documents themselves. The Company has responded to all comment letters of the staff of the SEC relating to the Company SEC Documents, and the SEC has not asserted that any of such responses are inadequate, insufficient or otherwise non-responsive. The Company has heretofore made available to Parent true, correct and complete copies of all correspondence with the SEC occurring since January 1, 2003.

Section 4.7 Absence of Certain Changes or Events . Except as disclosed in the Company SEC Documents filed and publicly available prior to the date of this Agreement (the “ Company Filed SEC Documents ”), since December 31, 2005, (a) the Company and its Subsidiaries have conducted their respective business only in the ordinary course; (b) there has not been any event or events that would be reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect; and (c) there has not been: (i) any declaration or payment of any dividends on, or making of any other distribution in respect of any of the capital stock of the Company or any of its Subsidiaries (except for dividends by a wholly owned Subsidiary of the Company to its parent); any split, combination or reclassification of any of the capital stock of the Company or any of its Subsidiaries or any issuance or authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of the capital stock of the Company or any of its Subsidiaries; any repurchase, redemption or other acquisition, or modification or amendment, of any shares of the capital stock of the Company or any of its Subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities, except pursuant to the forfeiture or repurchase provisions of the Company Options, Restricted Stock Awards and Restricted Unit Awards; (ii) any issuance, delivery, sale, pledge or encumbrance, or authorization or agreement to the issuance, delivery, sale, pledge or encumbrance of, any shares of the capital stock of the Company or any of its Subsidiaries or any other security

 

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(or any right to acquire such capital stock or other security) other than the issuance of Company Shares upon the exercise of Company Options, conversion of the Convertible Subordinated Notes, or pursuant to Restricted Stock Awards or Restricted Unit Awards in accordance with the terms of such Company Options, Convertible Subordinated Notes, Restricted Stock Awards or Restricted Unit Awards, as the case may be; (iii) any acquisition or agreement, by the Company or any of its Subsidiaries, to acquire by merger or consolidation, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof; (iv) any sale, lease, license or other disposition of, or agreement to sell, lease, license or otherwise dispose of, a substantial portion of the assets of the Company or any of its Subsidiaries (including capital stock of Subsidiaries) that were material to the Company and its Subsidiaries taken as a whole; (v) any making of loans, advances or capital contributions to, or investments in, any other Person, other than loans or investments by the Company or a wholly owned Subsidiary to or in the Company or any wholly owned Subsidiary, or any incurring of additional indebtedness for borrowed money or guarantee of any such indebtedness of another Person other than a guaranty by the Company on behalf of one of its Subsidiaries, issuance or sale of any debt securities or warrants or other rights to acquire any debt securities of the Company or any of its Subsidiaries, guarantee of any debt securities of another Person, entry into any “keep well” or other agreement to maintain any financial statement condition of another Person or entry into any arrangement having the economic effect of any of the foregoing; (vi) any change in the Company’s methods of accounting, except as required by changes in GAAP as agreed to by the Company’s independent public accountants or as may be required by applicable law; (vii) any settlement or compromise of litigation, or payment, discharge, settlement or satisfaction of any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than in the ordinary course of business; (viii) any sale, assignment, license, sublicense, encumbrance, impairment, abandonment or failure to maintain any Company Intellectual Property; any grant, extension, amendment, waiver or modification of any rights in or to the Company Intellectual Property; any failure to diligently prosecute the Company’s and its Subsidiaries’ Patent applications; any divulging, furnishing or making accessible any Trade Secrets of the Company or any of its Subsidiaries to any Person who is not subject to an enforceable written agreement to maintain confidentiality of such Trade Secrets; any entry into any IP Contract; any amendment, assignment, termination or failure to exercise a right of renewal or extension under any IP Contract; provided that, for purposes of this 4.7(c)(viii), (A) OTS Software Licenses and (B) IP Contracts for Other Registered or Licensed Intellectual Property, for which there is no grant of a material incoming or outgoing license to or assignment of Patents or Trade Secrets, and that are not material (i) to the research, development and commercialization plans of the Company or any of its Subsidiaries or (ii) to a product or chemical composition under development by the Company or any of its Subsidiaries, shall be excluded; or (ix) any authorization of, or announcement of an intention, commitment or agreement to take any of the forgoing actions.

Section 4.8 No Undisclosed Liabilities . Except as and to the extent disclosed in the Company Filed SEC Documents, neither the Company nor any of its Subsidiaries has any liabilities or obligations of any nature, whether or not accrued,

 

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absolute, contingent, unliquidated or otherwise, whether due or to become due and whether or not required to be disclosed (including any liability for breach of contract, breach of warranty, torts, infringements, claims or lawsuits), that would be reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect.

Section 4.9 Benefit Plans; Employees and Employment Practices .

(a) Section 4.9 of the Company Disclosure Schedule contains a list of all “employee pension benefit plans” (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) (sometimes referred to herein as “ Pension Plans ”), “employee welfare benefit plans” (as defined in Section 3(1) of ERISA and sometimes referred to herein as “ Welfare Plans ”) and each other “ Benefit Plan ” (defined herein as any Pension Plan, Welfare Plan and any other plan, fund, program, arrangement or agreement (including any employment or consulting agreement but excluding any individual award agreements under Company Equity Plans) to provide employees, directors, independent contractors, consultants, officers or agents with medical, health, life, bonus, stock or stock-based rights (option, ownership or purchase), retirement, deferred compensation, severance, salary continuation, vacation, sick leave, fringe, incentive insurance or other benefits) maintained, or contributed to, or required to be contributed to, by the Company or any of its Subsidiaries for the benefit of any current or former independent contractors, consultants, agents, employees, officers or directors of the Company or any of its Subsidiaries. The Company has delivered or made available to Parent true, complete and correct copies of (i) each Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions of the material terms thereof), (ii) the most recent annual report on Form 5500 filed with the IRS with respect to each Benefit Plan (if any such report was required), (iii) the most recent summary plan description for each Benefit Plan for which such summary plan description is required, (iv) each trust agreement and group annuity contract relating to any Benefit Plan; (v) any model award agreement under the Company Equity Plans, and (vi) the most recent determination letter from the IRS, if any. Neither the Company nor any of its Subsidiaries have undertaken or committed to make any material amendments to any Benefit Plan or to adopt or approve any new plans.

(b) Each Benefit Plan has been established, funded, maintained and administered in all material respects in accordance with its terms and is in compliance in all material respects with the applicable provisions of ERISA, the Code, and all other applicable Laws. All Company Options have been granted with an exercise price per share no lower than the “fair market value” of a Company Share on the date of grant, as determined in accordance with the terms of the applicable option plan, the Company Charter Documents and applicable Law. All Company Options have been properly accounted for by the Company in accordance with GAAP.

(c) All Pension Plans intended to be Tax qualified under the Code have been the subject of favorable and up-to-date (through any applicable remedial amendment period) determination letters from the IRS, or a timely application therefor has been filed, to the effect that such Pension Plans are qualified and exempt from federal income taxes under Section 401(a) and 501(a), respectively, of the Code, and no such

 

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determination letter has been revoked nor has any such Pension Plan been amended since the date of its most recent determination letter or application therefor in any respect that would adversely affect its qualification; and, to the Knowledge of the Company, no circumstances exist and no events have occurred that could adversely affect the qualification of any Pension Plan or the related trust. No trust funding any Benefit Plan is intended to meet the requirements of Section 501(c)(9) of the Code.

(d) Neither the Company, nor any of its Subsidiaries, nor any other Person that, together with the Company, is or was treated as a single employer under Section 414(b), (c), (m) or (o) of the Code (the Company and each such other Person a “Commonly Controlled Entity”) has during the past six years (i) maintained, sponsored or been required to contribute to a plan subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code or (ii) been required at any time or is required currently to contribute to any “multiemployer plan” (as defined in Section 4001(a)(3) of ERISA).

(e) With respect to any Welfare Plan, (i) no such Welfare Plan is funded through a “welfare benefits fund”, as such term is defined in Section 419(e) of the Code and (ii) each such Welfare Plan that is a “group health plan”, as such term is defined in Section 5000(b)(1) of the Code and any Benefit Plan that is maintained by a Commonly Controlled Entity, complies in all material respects with the applicable requirements of Section 4980B(f) of the Code.

(f) Neither the Company, nor any of its Subsidiaries, nor any Person acting on behalf of the Company or its Subsidiaries has made or entered into any legally binding commitment with, any current or former directors, officers, employees, consultants or independent contractors of the Company, any of its Subsidiaries to the effect that, following the date hereof, (i) any benefits or compensation provided to such persons under existing Benefit Plans or under any other plan or arrangement will be amended to provide enhanced or accelerated benefits, (ii) any new plans or arrangements providing benefits or compensation will be adopted, (iii) any Benefit Plans will be continued for any period of time or cannot be amended or terminated at any time or for any reason, (iv) any plans or arrangements provided by Parent will be made available to such employees, or (v) any trusts or other funding mechanisms will be required to be funded.

(g) Neither the Company, nor any of its Subsidiaries has any material liability for life, health, medical or other welfare benefits for former employees or beneficiaries or dependents thereof under Benefit Plans, other than Pension Plans and other than as required by Section 4980B of the Code, Part 6 of Title I of ERISA or other applicable Law.

(h) All contributions or premiums owed by the Company or any of its Subsidiaries with respect to Benefit Plans under Law, contract or otherwise have been made in full and on a timely basis and the Company or its Subsidiaries are not obligated to contribute with respect to any Benefit Plan that involves a retroactive contribution, assessment or funding waiver arrangement. All administrative costs attributable to Benefit Plans have been paid when due.

 

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(i) To the Company’s Knowledge, no Pension Plan or Welfare Plan or any “fiduciary” or “party-in-interest” (as such terms are respectively defined by Sections 3(21) and 3(14) of ERISA) thereto has engaged in a transaction prohibited by Section 406 of ERISA or 4975 of the Code for which a valid exception is not available.

(j) There are no pending or, to the Company’s Knowledge, threatened, claims, lawsuits, arbitrations or audits asserted or instituted against any Benefit Plan, any fiduciary (as defined by Section 3(21) of ERISA) thereto, the Company, any of its Subsidiaries or any employee or administrator thereof in connection with the existence, operation or administration of a Benefit Plan, other than routine claims for benefits.

(k) Nothing in this Agreement or the transactions contemplated by this Agreement will: (i) trigger a right, whether or not conditioned upon termination of employment or changes in duties or responsibilities, of any employee of the Company or any of its Subsidiaries to severance, deferred compensation or retirement benefits under any agreement or arrangement to which the Company or any of its Subsidiaries is a party; (ii) trigger a right or payment, whether or not conditioned upon termination of employment or changes in duties or responsibilities, under any agreement or arrangement to which the Company or any of its Subsidiaries is a party, that would be considered a parachute payment within the meaning of Section 280G of the Code or any reimbursement of any excise taxes under Section 4999 of the Code or any income taxes under the Code; or (iii) cause any early withdrawal or premature termination penalty with respect to any asset held in connection with any Benefit Plan. The Company has made available to Parent a complete and correct schedule, as of the date of this Agreement, of the annual base salary and annual target bonus of each executive officer of the Company.

(l) Neither the Company nor its Subsidiaries is a party to any labor or collective bargaining agreement. There are no controversies, strikes, work stoppages, slowdowns, lockouts, arbitrations or other material labor disputes pending or, to the Knowledge of the Company, threatened between the Company or its Subsidiaries and any representatives of any of their employees. To the Knowledge of the Company, there are no material organizational efforts presently being made involving any of the presently unorganized employees of the Company or its Subsidiaries. There are no pending or, to the Knowledge of the Company, threatened complaints, charges or claims against the Company or any of its Subsidiaries brought or filed with any Governmental Entity, arbitrator or court based on, arising out of, in connection with or otherwise relating to the employment or termination of employment by any of the Company or any of its Subsidiaries or, relating to the employees or other persons providing services to or on behalf of the Company or any of its Subsidiaries.

(m) The Company and its Subsidiaries are in compliance in all material respects with all Laws and Orders applicable to such entity or the employees or other persons providing services to or on behalf of such entity, as the case may be, relating to the employment of labor, including all such laws, regulations and orders relating to wages, hours, employment standards, the WARN Act, Title VII of the Civil Rights Act of 1964, Age Discrimination in Employment Act, Americans with Disabilities Act, Equal Pay Act, HIPAA, ERISA, Family and Medical Leave Act, discrimination, civil rights, safety and health, workers’ compensation and the collection and payment of withholding and/or social security taxes and any similar tax.

 

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Section 4.10 Material Contracts .

(a) Neither the Company nor any of its Subsidiaries, or to the Knowledge of the Company, any other party, is in violation or breach of or in default (nor, to the Knowledge of the Company, does there exist any condition which upon the passage of time or the giving of not