<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
SCHEDULE 14D-9
(AMENDMENT NO. 1)
---------------
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
---------------
SIBIA NEUROSCIENCES, INC.
(NAME OF SUBJECT COMPANY)
---------------
SIBIA NEUROSCIENCES, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, $.001 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
825732 10 0
(CUSIP NUMBER OF CLASS OF SECURITIES)
DR. WILLIAM T. COMER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SIBIA NEUROSCIENCES, INC.
505 COAST BOULEVARD SOUTH
SAN DIEGO, CALIFORNIA 92037
(858) 452-5892
(NAME, ADDRESS, AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF OF
PERSON(S) FILING STATEMENT)
---------------
COPIES TO:
THOMAS A. COLL, ESQ.
CARL R. SANCHEZ, ESQ.
COOLEY GODWARD LLP
4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CALIFORNIA 92121
(619) 550-6000
GARY P. COOPERSTEIN, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
(212) 859-8000
===============================================================================
<PAGE> 2
This Amendment No. 1 to the Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Statement") relates to the tender offer of MC Subsidiary
Corp., a Delaware corporation ("Offeror") and wholly owned subsidiary of Merck &
Co., Inc., a New Jersey corporation (the "Parent"), disclosed in a Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") dated August 6, 1999, to
purchase all of the outstanding Shares at a price of $8.50 per Share, net to the
seller, in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated August 6, 1999 (the "Offer to Purchase") and the related
Letter of Transmittal (which together shall constitute the "Offer"). The purpose
of this Amendment No. 1 is to amend and supplement Items 4 and 9 of the Schedule
14D-9 as described below.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
Item 4 is hereby amended and supplemented as set forth below. The text
of Item 4 as previously filed on August 6, 1999 is incorporated herein by
reference.
On the afternoon of August 16, 1999, a putative class action lawsuit was
filed in the Superior Court of the State of California in the County of San
Diego alleging, among other things, that the Company's directors breached their
fiduciary duties to the stockholders of SIBIA Neurosciences, Inc. (the
"Company") in connection with the transactions contemplated by the previously
announced Merger Agreement between the Company, Merck & Co., Inc. ("Merck") and
MC Subsidiary Corp., pursuant to which MC Subsidiary Corp. commenced a tender
offer on August 6, 1999 to acquire all of the outstanding shares of the Company
for $8.50 per share in cash. Plaintiffs seek to enjoin the defendants from
proceeding with the Merger Agreement and Offer, as well as unspecified damages
and other remedies. The Company believes that the suit is without merit and will
vigorously defend the suit. The above description is qualified in its entirety
by reference to the complaint, a copy of which is filed herewith as Exhibit 10
and is incorporated herein by reference.
On the afternoon of August 17, 1999, the Board of Directors of the Company
received a letter from plaintiffs' counsel alleging, among other things, that
the directors of the Company breached their fiduciary duties owed to the
Company's stockholders. The above description is qualified in its entirety by
reference to the letter, a copy of which is filed herewith as Exhibit 11 and is
incorporated herein by reference.
Since engaging CIBC World Markets in December 1998, the Company has not
received any offer from any company or other person to acquire the Company,
other than from Merck and an offer received in May 1999 from a small
biotechnology company at a value between $4.75 to $5.25 per share of Company
Common Stock as described in Item 4 as previously filed on August 6, 1999.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
Item 9 is hereby amended and restated as follows:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
Exhibit 1 Offer to Purchase dated August 6, 1999 (incorporated by
reference to Exhibit (a)(1) of the Schedule 14D-1 of Merck
& Co., Inc. and MC Subsidiary Corp. filed with the
Securities and Exchange Commission on August 6, 1999 (the
"Schedule 14D-1")).**(1)
Exhibit 2 Letter of Transmittal (incorporated by reference to Exhibit
(a)(2) of Schedule 14D-1).** (1)
Exhibit 3 Joint Press Release issued by the Company and the Parent,
dated August 2, 1999.(1)
Exhibit 4 Opinion Letter of CIBC World Markets Corp., dated July 30,
1999.* (1)
Exhibit 5 Confidential Disclosure Agreement dated July 21, 1999
between the Company and Parent.(1)
Exhibit 6 Agreement and Plan of Merger, dated July 30, 1999 between
the Company, the Parent and the Merger Sub (incorporated by
reference to Exhibit (c)(1) of the Schedule 14D-1).(1)
Exhibit 7 Stock Option Agreement dated July 30, 1999 among the Parent,
the Merger Sub and the Company (incorporated by reference to
Exhibit (c)(3) of the Schedule 14D-1).(1)
Exhibit 8 Shareholders Agreement dated July 30, 1999 between the
Parent, the Merger Sub and certain stockholders of the
Company (incorporated by reference to Exhibit (c)(2) of the
Schedule 14D-1).(1)
Exhibit 9 Letter to Stockholders of the Company dated August 6, 1999.*(1)
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
Exhibit 10 Complaint - Steve Pellinger on behalf of himself and all
others similarly situated v. SIBIA Neurosciences, Inc.,
William R. Miller, William T. Comer, Gunnar Ekdahl, Jeffrey
F. McKelvy, Stanley T. Crooke, James D. Watson and Does 1-25
inclusive, Case No. GIC 733725 (Superior Court, San Diego,
CA, filed August 16, 1999)(2)
Exhibit 11 Letter to SIBIA Board of Directors.(2)
</TABLE>
- ----------
* Included in copies of Schedule 14D-9 mailed to stockholders of the Company
** Included in the Offer to Purchase materials mailed to stockholders of
the Company
(1) Previously Filed
(2) Filed herewith
3
<PAGE> 4
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
SIBIA NEUROSCIENCES, INC.
Date: August 19, 1999 /s/ DR. WILLIAM T. COMER
-------------------------------------
Dr. William T. Comer
President and Chief Executive Officer
4
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
Exhibit 1 Offer to Purchase dated August 6, 1999 (incorporated by
reference to Exhibit (a)(1) of the Schedule 14D-1 of Merck &
Co., Inc. and MC Subsidiary Corp. filed with the Securities
and Exchange Commission on August 6, 1999 (the "Schedule
14D-1")).**(1)
Exhibit 2 Letter of Transmittal (incorporated by reference to Exhibit
(a)(2) of Schedule 14D-1).**(1)
Exhibit 3 Joint Press Release issued by the Company and the Parent,
dated August 2, 1999.(1)
Exhibit 4 Opinion Letter of CIBC World Markets Corp., dated July 30,
1999.*(1)
Exhibit 5 Confidential Disclosure Agreement dated July 21, 1999
between the Company and Parent.(1)
Exhibit 6 Agreement and Plan of Merger, dated July 30, 1999 between
the Company, the Parent and the Merger Sub (incorporated by
reference to Exhibit (c)(1) of the Schedule 14D-1).(1)
Exhibit 7 Stock Option Agreement dated July 30, 1999 among the
Parent, the Merger Sub and the Company (incorporated by
reference to Exhibit (c)(3) of the Schedule 14D-1).(1)
Exhibit 8 Shareholders Agreement dated July 30, 1999 between the
Parent, the Merger Sub and certain stockholders of the
Company (incorporated by reference to Exhibit (c)(2) of the
Schedule 14D-1).(1)
Exhibit 9 Letter to Stockholders of the Company dated August 6, 1999.*(1)
Exhibit 10 Complaint - Steve Pellinger on behalf of himself and all
others similarly situated v. SIBIA Neurosciences, Inc.,
William R. Miller, William T. Comer, Gunnar Ekdahl, Jeffrey
F. McKelvy, Stanley T. Crooke, James D. Watson and Does 1-25
inclusive, Case No. GIC 733725 (Superior Court, San Diego,
CA, filed August 16, 1999)(2)
Exhibit 11 Letter to SIBIA Board of Directors.(2)
</TABLE>
- ----------
* Included in copies of Schedule 14D-9 mailed to stockholders of the Company
** Included in the Offer to Purchase materials mailed to stockholders of the
Company
(1) Previously Filed
(2) Filed herewith
5
<PAGE> 1
EXHIBIT 10
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN DIEGO
STEVE PELLINGER On Behalf of Himself and ) Case No. GIC 733725
All Others Similarly Situated, )
Plaintiff, ) CLASS ACTION
)
vs. ) CLASS ACTION COMPLAINT FOR
) BREACH OF FIDUCIARY DUTY
)
SIBIA NEUROSCIENCES, INC., WILLIAM ) General - Civil
R. MILLER, WILLIAM T. COMER, GUNNAR )
EKDAHL, JEFFREY F. McKELVY, )
STANLEY T. CROOKE, JAMES D. WATSON )
and DOES 1-25, inclusive, )
)
Defendants. )
- ---------------------------------------- ) DEMAND FOR JURY TRIAL
<PAGE> 2
Plaintiff, by his attorneys, alleges as follows:
INTRODUCTION
1. This is a shareholder class action on behalf of the public stockholders
of Sibia Neurosciences, Inc. ("Sibia" or the "Company") against Sibia and its
Board of Directors arising out of an offer to purchase the outstanding shares of
Sibia in a deal valued at more than $86 million. On August 2, 1999, Merck & Co.
("Merck") offered to purchase the remaining outstanding shares of Sibia for
$8.50 per share. In violation of their fiduciary obligation to Sibia's
shareholders, the Board of Directors of Sibia has used Merck's offer to enact a
penalty fee designed to halt any other offer and deter higher offers from other
potential acquirers and thereby entrench current management.
2. Each of the defendants has directly violated their fiduciary duty of
care owed to the public shareholders of Sibia. Absent judicial intervention,
the defendants will continue to entrench themselves by implementing and abiding
by provisions designed to deter higher offers and further entrench current
management and which will result in irreparable injury to the plaintiff and the
Class. This action seeks to enjoin the unreasonable steps taken by defendants,
including the implementation of defensive measures which were enacted solely to
discourage or otherwise inhibit higher offers from other potential acquirers.
JURISDICTION AND VENUE
3. This Court has jurisdiction over the cause of action asserted herein
pursuant to the California Constitution, Article VI, Section 10, because this
case is a cause not given by statute to other trial courts.
4. This Court has jurisdiction over each of the defendants because they
conduct business in, reside in and/or are citizens of California. Certain of the
defendants are citizens of California, including defendant Sibia which has its
principal place of business in this State. The amount in controversy of
plaintiff's claim exclusive of interest and costs is less than $75,000. Venue is
proper in this Court because defendants' wrongful acts arose in and emanated
from this county.
PARTIES
5. Plaintiff Steve Pellinger ("Pellinger" or "plaintiff") is a resident and
citizen of Utah and at all times relevant hereto has been a stockholder of
Sibia.
-1-
<PAGE> 3
6. Defendant Sibia is a corporation with its principal executive offices
located at 505 Coast Blvd., La Jolla, California. Sibia is a San Diego-based
drug company which is engaged in the discovery of small molecule therapeutics
for the treatment of neurodegenerative, neuropsychiatric and neurological
disorders. Sibia's common shares are publicly traded on the NASDAQ. Sibia has
over 9 million shares outstanding held by thousands of shareholders.
7. Defendant William R. Miller ("Miller") is the Chairman of the Board
of Directors of Sibia.
8. Defendant William T. Comer ("Comer") is President, Chief Executive
Officer and a director of Sibia.
9. Defendant Gunnar Ekdahl ("Ekdahl") has served as a director of Sibia
since 1995.
10. Defendant Jeffrey F. McKelvy ("McKelvy") has served as Sibia's
Executive Vice President and Chief Scientific Officer and a director since
April 1998.
11. Defendant Stanley Crooke ("Crooke") has served as a director of Sibia
since 1992.
12. Defendant James D. Watson ("Watson") has served as a director of
Sibia since 1992.
13. The defendants named in paragraphs 7-12 are sometimes collectively
referred to herein as the "Individual Defendants."
14. The true names and capacities of defendants sued herein under
California Code of Civil Procedure Section 474 as Does 1 through 25, inclusive,
are presently not known to plaintiff, who therefore sues these defendants by
such fictitious names. Plaintiff will seek to amend this Complaint and include
these Doe defendants' true names and capacities when they are ascertained. Each
of the fictitiously named defendants is responsible in some manner for the
conduct alleged herein and for the injuries suffered by the Class.
15. By virtue of their positions as directors and/or officers of Sibia,
the Individual Defendants have, and at all relevant times had, the power to
control and influence, and did control and influence and cause Sibia to engage
in the practices complained of herein.
FIDUCIARY DUTIES OF THE INDIVIDUAL DEFENDANTS
16. By reason of the above Individual Defendants' positions with the
Company as officers and/or directors, said individuals are in a fiduciary
relationship with plaintiff and the other public
-2-
<PAGE> 4
stockholders of Sibia and owe plaintiff and the other members of the Class a
duty of highest good faith, fair dealing, loyalty and full, candid and adequate
disclosure.
17. The claims are brought under state laws which require every corporate
director to act in good faith, in the best interests of a corporation's
shareholders and with such care, including reasonable inquiry, as would be
expected of an ordinarily prudent person. In a situation where the directors of
a publicly traded company undertake a transaction that may result in a change
in corporate control (particularly when it involves a decision to eliminate the
shareholders' equity investment in a company), the applicable state law
requires the directors to take all steps reasonably required to maximize the
value shareholders will receive. To diligently comply with this duty, the
directors of a corporation may not take any action that:
(a) adversely affects the value provided to the corporation's
shareholders;
(b) contractually prohibits them from complying with or carrying out
their fiduciary duties;
(c) discourages or inhibits alternative offers to purchase control
of the corporation or its assets; or
(d) will otherwise adversely affect their duty to search and secure
the best value reasonably available under the circumstances for the
corporation's shareholders.
18. As described herein, the Individual Defendants have breached their
fiduciary duties by, among other things, adopting a penalty fee designed to
halt any other offers and deter higher offers from other potential acquirers so
as to protect the interests of defendants at the expense of Sibia's
shareholders. Defendants cannot possibly fulfill their fiduciary obligations
after implementing provisions which disable them from maximizing shareholder
value. The Individual Defendants have breached their fiduciary obligation to
act reasonably and establish a "level playing field" for all potential bidders
such that Sibia shareholders will benefit from fair competition to acquire the
Company.
CLASS ACTION ALLEGATIONS
19. Plaintiff brings this action pursuant to Section 382 of the
California Code of Civil Procedure on his own behalf and as a class action on
behalf of all holders of Sibia common stock, who are being
- 3 -
<PAGE> 5
and will be harmed by defendants' actions described below (the "Class").
Excluded from the Class are defendants herein and any person, firm, trust,
corporation, or other entity related to or affiliated with any defendants.
20. This action is properly maintainable as a class action.
21. The Class is so numerous that joinder of all members is
impracticable. There are over 9 million shares of Sibia stock issued. The
shares trade on the NASDAQ and thousands of Sibia stockholders of record are
located throughout the United States.
22. Questions of law and fact are common to the Class and predominate
over questions affecting any individual Class members. The common questions
include, inter alia, the following:
(a) whether the defendants breached their fiduciary duties of care,
loyalty and/or candor owed by them to plaintiff and the other members of the
Class in connection with the proposed sale of Sibia;
(b) whether the defendants have breached their fiduciary duty to
secure and obtain the best price reasonable under the circumstances for the
benefit of plaintiff and the other members of the Class in connection with the
proposed sale of Sibia;
(c) whether the defendants have, in bad faith or for improper
motives, erected and/or retained barriers to discourage other offers for the
Company or its assets;
(d) whether plaintiffs and the other members of the Class would be
irreparably damaged were the provisions and conduct detailed herein allowed to
persist;
(e) whether the compensation to be paid to plaintiff and the class
is unfair and inadequate; and
(f) whether the "$2 million dollar plus costs and expenses"
provision is a penalty, payment of which would constitute an unlawful waste
(liquidated damages) of corporate assets which has wrongfully reduced the value
a competing bidder is willing to pay.
23. The defendants have acted or refused to act on grounds generally
applicable to the Class thereby making appropriate final injunctive relief with
respect to the Class as a whole.
24. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of
plaintiff are typical of the claims of the other
4
<PAGE> 6
members of the Class and plaintiff has the same interests as the other members
of the Class. Accordingly, plaintiff is an adequate representative of the Class
and will fairly and adequately protect the interests of the Class.
25. Plaintiff anticipates that there will be no difficulty in the
management of this litigation as a class action.
26. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy.
BACKGROUND TO PROPOSED MERGER
27. Sibia is engaged in the discovery and development of novel small
molecule therapeutics for the treatment of neurodegenerative, neuropsychiatric
and neurological disorders, many of which have large patient populations and
represent critical unmet medical needs. Sibia is a leader in the area of the
proprietary drug discovery platforms that combine key tools necessary for
modern drug discovery, including genomics, high throughput screening, advanced
combinatorial chemistry techniques and pharmacology. In the Fall of 1998,
Sibia's efforts and the public shareholders' investments in Sibia were just
beginning to pay off as its pipeline of drugs began moving into the final
phases of FDA approval.
28. On December 21, 1998, Sibia announced that it had won a patent
infringement case resulting in damages of $18 million against Cadus
Pharmaceuticals Corporation.
29. On March 2, 1999, Ethan Lovell, an analyst with Bear Stearns, issued
a report which conservatively valued Sibia at "$93 million."
30. On May 7, 1999, Sibia announced its first quarter results for the
period ending March 31, 1999, reporting revenues of $2.5 million compared with
revenues of $1.5 million for the same period in 1998. In connection with the
announcement, defendant Comer announced that:
"Sibia has made significant progress over the last few months in
licensing our patented TBA technology and in identifying several new
promising drug leads...... Looking ahead, we are accelerating our drug
discovery efforts and continue to leverage our unique technology
platforms to attract major strategic collaborations with pharmaceutical
and biotechnology companies."
31. Over the next few months, the Company's drugs advanced through the
FDA process and Sibia continued to announce new patents and promising licensing
agreements of its drugs with
-5-
<PAGE> 7
the world's largest drug companies. The following is Sibia's pipeline of drugs,
their indications, their FDA status and their corporate partner.
SIBIA'S PIPELINE
<TABLE>
<CAPTION>
Compound Indication Status Partner
<S> <C> <C> <C>
NAChR Agonists
SIB-1508Y Parkinson's Disease Phase II Meiji/Lilly
SIB-1553A Alzheimer's Disease Phase II Lilly
SIB-3182 Alzheimer's Disease Discovery Lilly
(Other Indications) Pain, schizophrenia, Discovery Lilly
depression
EAAR Ligands
CGP 80887 Epilepsy Preclinical Novartis
CGP 79397 Pain Preclinical Novartis
VGCC Angatonists Pain, stroke, migraine, Discovery
bipolar disorder
Protease Inhibitors
AB Inhibitors Alzheimer's Disease Preclinical Bristol-Myers
Squibb
Apoptosis Modulators Stroke Discovery
</TABLE>
MERGER NEGOTIATIONS
32. In June 1999, Sibia and Merck entered into merger negotiations wherein
the Individual Defendants provided to Merck certain proprietary information
about the Company and the Company's prospects. In fact, it was during these
negotiations that the Individual Defendants, for the first time ever, revealed
that Sibia would report a profit for the year 1999. In addition, the Individual
Defendants provided to Merck Sibia's internal operating projections wherein it
was disclosed that over the next two years Sibia expected to earn $30 million
in net profits. The following are the internal operating projections that were
provided by the Individual Defendants to Merck during merger negotiations:
-6-
<PAGE> 8
SIBIA'S INTERNAL OPERATING PROJECTIONS
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $21.4 $29.7 $44.5 $53.5 $79 $83.7
million million million million million million
- ---------------------------------------------------------------------------
Net $1.5 $9.0 $22.7 $23.4 $33.7 $36.4
Income million million million million million million
- ---------------------------------------------------------------------------
</TABLE>
33. While negotiating to the sell the Company, the Company amended its
Change in Control Plan in June 1999 which provides for the payment of benefits
to certain officers and directors including certain Individual Defendants named
herein for (i) cash bonuses of up to 25% of the individual's annual base
salary, (ii) acceleration of vesting of certain stock options granted to
certain participants, and (iii) severance payments of up to two times the
individual's annual base salary. Under the Change of Control Plan as amended in
June 1999, these change of control provisions will be triggered upon the
consummation of the merger with Merck.
THE MERGER AGREEMENT
34. On July 30, 1999, Sibia entered into a merger agreement with Merck
and MC Subsidiary Corp., a wholly owned subsidiary of Merck (collectively
referred to as "Merck"). Under the terms of the merger agreement, Merck will
pay $8.50 for each share of Sibia. The merger is to be consummated through a
Tender Offer which began on August 6, 1999.
35. In the Solicitation and Recommendation Statement filed on April 6,
1999, the Individual Defendants stated that they "unanimously recommends that
the holders of shares accept the offer and tender their shares pursuant to the
offer" and that "the Merger is in the best interests of the Company and its
stockholders."
36. The merger agreement with Merck included several provisions designed
to make it difficult for a competing bid from a third party to succeed. For
example, the merger agreement contains:
- a provision that Sibia pay immediately to Merck a penalty of $2
million plus its costs if Sibia's Board decides to proceed with a superior
offer, despite the fact that $2 million plus costs is in no way a
reflection of "damages" that Merck would suffer if a superior bid was
accepted by the defendants;
-7-
<PAGE> 9
- a "no shop" provision, which states in part "[Sibia] shall not
directly or indirectly, knowingly encourage, solicit, participate in or
initiate discussions or negotiations with, or provide any non-public
information or data . . . to any corporation, partnership, person or other
entity or a group . . . with respect to any inquiries or the making of any
offer or proposal . . . concerning an acquisition transaction"; and
- a provision which requires Sibia to notify Merck concerning any
acquisition proposals, inquiries or offers within 48 hours of receipt. In
addition, Sibia agreed to provide Merck with three business days' advance
notice of its intention to either enter into an agreement with or provide
any information to any entity or person making an inquiry or proposal.
37. In addition, in the Solicitation and Recommendation Statement
transmitted to shareholders, the defendants were required to act with complete
candor and provide the shareholders with all material information which might
affect the shareholders' decision to tender their shares. As of June 1999,
Sibia had cash or its equivalent of approximately $14 million. However, in
addition to the $14 million in cash, Sibia had obtained a judgment of $18
million against Cadus. Sibia had won all pre-trial motions and Cadus had
deposited the $18 million into an escrow account pending final settlement
negotiations. Pursuant to Financial Accounting Standards No. 5, Accounting for
Contingencies, paragraph 17, Sibia was required to adequately disclose any
contingency that "might result in gains." Given the status of the litigation
with Cadus, Sibia having survived all post-trial motions and the $18 million
being placed into an escrow account, coupled with the fact that this $18
million would virtually double the Company's cash position, the $18 million
judgment was a material factor to Sibia's shareholders' deciding whether or not
to tender their shares. As such, this gain contingency should have been
disclosed. The defendants failed to disclose the possibility of the Company
recovering the $18 million judgment or a portion thereof.
38. The Individual Defendants failed to conduct a market check or
otherwise ensure that Sibia shareholders obtained the highest value reasonably
available prior to entering into the merger agreement. Subsequent events have
only confirmed the unreasonableness of the defendants' conduct, in that
despite defendants' efforts to go forward with the merger, to deter other
bidders and consummate the Merck merger agreement, other parties have announced
that they are willing to pay
-8-
<PAGE> 10
Sibia shareholders more than the $86 million which Merck offered to pay. On
August 3, 1999, a pharmaceutical company contacted the defendants and advised
them that they were interested in acquiring the Company and that it was prepared
to make an offer in excess of the $8.50 per share that was offered by Merck. In
addition, on August 4, 1999, a representative of an investment banking firm
contacted Sibia's financial advisor on behalf of a pharmaceutical company and
indicated that the company was evaluating making a better offer for Sibia's
shares. Instead of pursuing a merger with those companies, the defendants voted
on the same day to proceed with the inferior offer and go forward with the
merger. The defendants not only proceeded with the inferior Merck agreement,
they failed to use the leverage provided by the other indications of interest
from the third parties to negotiate a better price from Merck, or eliminate the
no shop clause, the termination fee and the other provisions in the merger
agreement that are calculated to deprive Sibia's shareholders of receiving full
value for their shares.
FIRST CAUSE OF ACTION
Breach Of Fiduciary Duty Of Loyalty
And Due Care Against All Defendants
39. Plaintiff repeats and realleges each allegation set forth herein.
40. The Individual Defendants have thus far failed to announce any active
auction, open bidding, or other procedures best calculated to maximize
shareholder value. Instead of attempting to obtain the highest price reasonably
available for Sibia shareholders, the Individual Defendants have taken actions
and put into place, among other things, a penalty fee that will only serve to
inhibit the maximization of shareholder value.
41. The Individual Defendants were and are under a duty:
(a) to fully inform themselves of the market value of Sibia before
taking, or agreeing to refrain from taking, action;
(b) to act in the interests of the equity owners;
(c) to maximize shareholder value;
(d) to obtain the best financial and other terms when the Company's
independent existence will be materially altered by a transaction; and
- 9 -
<PAGE> 11
(e) to act in accordance with their fundamental duties of due care
and loyalty.
42. By the acts, transactions and courses of conduct alleged herein,
defendants, individually and as part of a common plan and scheme or in breach
of their fiduciary duties to plaintiff and the other members of the Class, are
implementing and abiding by a process that will deprive plaintiff and other
members of the Class of the true value of their investment in Sibia.
43. Sibia shareholders will, if the defendants' actions are allowed to
stand, be deprived of the opportunity for substantial gains the plaintiff and
Class members may realize if an active auction or open bidding process is
allowed to occur.
44. By reason of the foregoing acts, practices and course of conduct, the
defendants have failed to exercise ordinary care and diligence in the exercise
of their fiduciary obligations toward plaintiff and the other Sibia public
stockholders.
45. In light of the foregoing, plaintiff demands that the Individual
Defendants, as their fiduciary obligations require, immediately:
- Undertake an independent evaluation of Sibia's worth as an acquisition
candidate.
- Rescind any and all provisions that inhibit the maximization of
shareholder value, including but not limited to the penalty fee.
- Implement an active auction or open bidding process in order to
maximize shareholder value.
- Retain independent advisors and appoint a truly independent committee
so that the interests of Sibia's public stockholders will be protected
and any subsequent offers will be considered and negotiated in the
interest of Sibia's public stockholders.
46. As a result of the defendants' failure to take such steps to date,
plaintiff and the other members of the Class have been and will be damaged in
that they have been and will be prevented from obtaining a fair price for their
shares.
47. Defendants are not acting in good faith toward plaintiff and the other
members of the Class, and have breached and are continuing to breach their
fiduciary duties to plaintiff and the members of the Class.
-10-
<PAGE> 12
48. As a result of the defendants' unlawful actions, plaintiff and the
other members of the Class will be irreparably harmed in that they will not
receive fair value for Sibia's assets and business and will be prevented from
obtaining the real value of their equity ownership in Sibia. Unless the
defendants' actions are enjoined by the Court, defendants will continue to
breach their fiduciary duties owed to plaintiff and the members of the Class,
and will engage in a process that inhibits the maximization of shareholder
value.
49. Plaintiff and the other members of the Class have no adequate remedy
at law.
SECOND CAUSE OF ACTION
Breach Of Duty Of Candor Against All Defendants
50. Plaintiff repeats and realleges each allegation set forth herein.
51. As fiduciaries of the Sibia shareholders, the Individual Defendants
owe the Sibia shareholders a duty to fully disclose the existence and nature of
all material facts in their possession or control with respect to the Merck
merger and all other alternative transactions.
52. The Individual Defendants breached and are continuing to breach their
duty of candor and full disclosure owed to Sibia shareholders by failing to
disclose material facts and/or misrepresenting facts regarding the existence and
nature of the Merck offer and/or other offers. For example, defendants failed to
disclose the existence of the $18 million judgment and the likelihood of
recovering said judgment and the status of the litigation with Cadus which would
have a material impact valuing said judgment. Plaintiff has no adequate remedy
at law for defendants' misrepresentations and/or omissions. Only through this
Court's exercise of its broad equitable powers can plaintiff and the Class be
fully protected from the immediate and irreparable injury that defendants'
actions threaten to inflict.
PRAYER
WHEREFORE, plaintiff demands judgment and preliminary and permanent relief,
including injunctive relief, in plaintiff's favor and in favor of the Class and
against defendants as follows:
A. Declaring that this action is properly maintainable as a class action;
B. Declaring and decreeing that the Merck Merger Agreement was entered
into in breach of the fiduciary duties of the Individual Defendants and is
therefore unlawful and unenforceable;
-11-
<PAGE> 13
C. Enjoining defendants from proceeding with the Merck Merger Agreement
and Tender Offer;
D. Enjoining defendants from consummating the merger, or a business
combination with a third party, unless and until the Company adopts and
implements a procedure or process, such as an auction, to obtain the highest
possible price for the Company;
E. Directing the Individual Defendants to exercise their fiduciary
duties to obtain a transaction which is in the best interests of shareholders
until the process for the sale or auction of the Company is completed and the
highest possible price is obtained;
F. Rescinding, to the extent already implemented, the Merck Merger
Agreement and/or any of the terms thereof, including any provisions which
provide advantages to Merck and/or are designated to deter other bidders and/or
high bids;
G. Prohibiting payment of the $2 million termination fee plus costs;
H. Awarding plaintiff and the Class appropriate damages;
I. Awarding plaintiff the costs and disbursements of this action,
including reasonable attorneys' and experts' fees; and
J. Granting such other and further relief as this Court may deem just
and proper.
JURY DEMAND
Plaintiff demands a trial by jury.
DATED this 16th day of August, 1999.
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH
DARREN J. ROBBINS
/S/ William S. Lerach
-------------------------------
WILLIAM S. LERACH
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 610/231-1058
SHEPHERD & GELIER, LLC
PAUL J. GELIER
7200 W. Camino Real, Suite 203
Boca Raton, FL 33433
Telephone: 561/750-3000
Attorneys for Plaintiff
-12-
<PAGE> 14
SHEPHERD & GELLER, LLC
PAUL J. GELLER
7200 W. Camino Real, Suite 203
Boca Raton, FL 33433
Telephone: 561/750-3000
Attorneys for Plaintiff
-13-
<PAGE> 1
EXHIBIT 11
[MILBERG WEISS BERSHAD HYNES & LERACH LLP LETTERHEAD]
August 17, 1999
Board of Directors VIA FACSIMILE
Sibia Neurosciences, Inc. -------------
c/o William E. Grauer 858/453-3555
COOLEY GODWARD, LLP
4365 Executive Drive
Suite 1200
San Diego, CA 92121
Re: Pellinger v. Sibia Neurosciences, Inc. et al
Dear Board Members:
As you know, we represent the plaintiff in the action Pellinger v. Sibia
Neurosciences, Inc., et al, filed in the Superior Court of California for the
County of San Diego on August 16, 1999. The class action lawsuit alleges that
the directors of Sibia Neurosciences, Inc. ("Sibia" or the "Company") have
breached their fiduciary duty owed to plaintiff and the Company's public
shareholders. For example, Sibia's Board of Directors voted to proceed with an
offer to be acquired by Merck & Company for an offer price of $8.50 per share
instead of properly considering superior offers by other companies who
are interested in acquiring Sibia. As such, the Board of Directors breached the
fiduciary duty owed to Sibia's shareholders by failing to make efforts to obtain
a higher offer for Sibia shareholders. Additionally, Sibia's Board agreed to
substantial defensive measures designed to deter potential acquirers from making
unsolicited superior offers to acquire Sibia.
<PAGE> 2
Board of Directors
August 17, 1999
Page 2
Pursuant to applicable law, the Company's Board of Directors have a
fiduciary responsibility to secure a transaction that will offer the best value
reasonably available to Sibia's shareholders. In this regard, we demand that the
Company's Board of Directors adopt and implement a procedural process, such as
an auction, to obtain the highest possible price reasonably available for the
Company's shares. We also demand that Sibia's Directors make all efforts to
suspend the tender offer which is set to expire on September 2, 1999 and rescind
the defensive measures contained in the merger agreement with Merck & Company,
including the termination fee, the no-shop provision, and the notice provision.
The above demands are in accord with the Board's fiduciary obligations and
will help to ensure that the defendants comply with their fiduciary obligations
and that shareholders are presented with the transaction offering the best value
reasonably available.
Very truly yours,
/s/ RANDALL J. BARON
-----------------------
RANDALL J. BARON
RJB: krj
