<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CYPROS PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 2936 33-0476164
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2714 LOKER AVENUE WEST
CARLSBAD, CA 92008
(760) 929-9500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DAVID W. NASSIF
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
CYPROS PHARMACEUTICAL CORPORATION
2714 LOKER AVENUE WEST
CARLSBAD, CA 92008
(760) 929-9500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
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M. WAINWRIGHT FISHBURN, ESQ. DAVID A. HAHN, ESQ.
THOMAS A. COLL, ESQ. KEVEN K. LIPPERT, ESQ.
DENNIS A. CALDERON, ESQ. Latham & Watkins
Cooley Godward LLP 701 "B" Street, Suite 2100
4365 Executive Drive, Suite 1100 San Diego, CA 92101
San Diego, CA 92121 (619) 236-1234
(619) 550-6000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable following the effectiveness of this Registration
Statement.
------------------------------
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If the form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value.... 10,783,770 shares(1) $2.34(2) $20,239,213(2) $5,627
Series A Preferred Stock, no
par value................... 2,134,534 shares $4.68(3) $10,000,000(3) $2,780
Total......................... $8,407(4)
</TABLE>
(1) Based on the number of shares of the Common Stock of the Registrant which
may be issued to former holders of shares of Common Stock of RiboGene, Inc.
("RiboGene") pursuant to the merger described herein and 2,134,534 shares of
Common Stock of the Registrant which may become issuable upon conversion of
Registrant's Series A Preferred Stock being registered hereby.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) and 457(f)(1) under the Securities Act of 1933, as
amended. Pursuant to Rule 457(i) under the Securities Act, the calculation
excludes the shares of Common Stock which may become issuable upon
conversion of the Series A Preferred Stock being registered hereby. The
Proposed Maximum Aggregate Offering Price is based on the average of the
high and low prices per share of RiboGene's Common Stock as of September 20,
1999 as reported on the American Stock Exchange, Inc.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended. The
Proposed Maximum Offering Price is equal to the aggregate book value of the
Series A Preferred Stock of RiboGene as of September 22, 1999. The Proposed
Maximum Offering Price Per Share is equal to the Proposed Maximum Aggregate
Offering Price divided by the number of shares of Cypros Series A Preferred
Stock being registered.
(4) A registration fee of $4,714 was previously paid in connection with
preliminary proxy materials filed by Registrant and RiboGene with the
Commission on September 8, 1999 pursuant to Section 14(g) of the Securities
Exchange Act of 1934, as amended. Therefore, pursuant to Rule 457(b) of the
Securities Act, only the balance of $3,693 is being submitted herewith.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
Dear Shareholder:
As you may be aware, Cypros Pharmaceutical Corporation and RiboGene, Inc., a
Delaware corporation, have entered into an Agreement and Plan of Reorganization
dated as of August 4, 1999 (the "merger agreement"), providing for the merger of
RiboGene with a wholly-owned subsidiary of Cypros. The merger is more fully
described in the accompanying prospectus/joint proxy statement. A special
meeting of the shareholders of Cypros will be held at 9:00 a.m., local time, on
November 5, 1999, at the corporate offices of Cypros at 2714 Loker Avenue West,
Carlsbad, CA 92008.
At the special meeting, you will be asked to consider and vote upon
proposals to:
1. approve the merger agreement and the merger, which contemplates, among
other things, the issuance of shares of Cypros common stock and Series A
preferred stock to stockholders of RiboGene;
2. amend the articles of incorporation of Cypros, as amended, to (a)
increase the number of authorized shares of common stock of Cypros from
30,000,000 shares to 75,000,000 shares and the number of authorized
shares of preferred stock of Cypros from 1,000,000 shares to 7,500,000
shares, (b) authorize the Cypros board to provide for the issuance of
preferred stock in one or more classes or series, having rights,
privileges, designations and preferences as may be determined by the
Cypros board, (c) designate the rights, preferences, privileges and
restrictions of Series A preferred stock, so that shares of that series
may be issued in connection with the merger, and (d) change the corporate
name to Questcor Pharmaceuticals, Inc.;
3. amend the bylaws of Cypros to change the authorized number of directors
of Cypros to not less than four nor more than nine;
4. increase the number of shares authorized for issuance under Cypros' 1992
Stock Option Plan by 4,733,712 shares from 2,766,288 shares to 7,500,000
shares; and
5. increase the number of shares authorized for issuance under Cypros' 1993
Non-Employee Directors' Equity Incentive Plan by 400,000 shares from
350,000 shares to 750,000 shares.
Each of these proposals is described more fully in the accompanying notice
of special meeting of shareholders and prospectus/joint proxy statement.
Immediately following the merger, the former holders of RiboGene common stock
will hold approximately 41% of the outstanding voting capital stock of Cypros
and current holders of Cypros common stock will hold approximately 59% of the
outstanding voting capital stock of Cypros, assuming the conversion of the
Cypros Series A preferred stock being issued in the merger. On a fully-diluted
basis, the former holders of RiboGene common stock, preferred stock, options and
warrants will hold approximately 45% of the voting stock of Cypros after the
merger.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED AND VOTED. SHAREHOLDER APPROVAL OF ALL OF THE
PROPOSALS LISTED ABOVE WILL BE REQUIRED IN ORDER TO CONSUMMATE THE MERGER.
If the requisite approvals of the shareholders of Cypros and the
stockholders of RiboGene are received and all other conditions to closing are
satisfied or waived, the merger is anticipated to close as soon as practicable
after the special meeting.
After careful consideration, the Cypros board has unanimously approved the
merger and the merger agreement and all of the other matters described in the
proposals above. The Cypros board unanimously recommends that you vote in favor
of each of the foregoing proposals.
All Cypros shareholders are cordially invited to attend the Cypros special
meeting in person. You may attend the meeting and vote in person even if you
have previously returned your proxy.
Please take the time now to review the prospectus/joint proxy statement and
to sign and date your proxy and promptly return it in the envelope provided. If
you have any questions regarding the information contained in the
prospectus/joint proxy statement or the voting process, please do not hesitate
to contact the Secretary of Cypros at 760/929-9500 extension 207.
Sincerely,
[SIGNATURE]
David W. Nassif,
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND SECRETARY
September 23, 1999
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Cypros
Pharmaceutical Corporation, a California corporation, will be held at 9:00 a.m.,
local time, on November 5, 1999, at the corporate offices of Cypros at 2714
Loker Avenue West, Carlsbad, CA 92008.
The meeting is called for the purpose of considering and voting upon the
following proposals:
Proposal 1. The approval and adoption of the agreement and plan of
reorganization dated as of August 4, 1999, among Cypros, Cypros Acquisition
Corporation, a newly-formed, wholly-owned subsidiary of Cypros incorporated
in Delaware, and RiboGene, Inc., a Delaware corporation (the "merger
agreement"), under which, among other things, Cypros will issue common stock
to the holders of common stock of RiboGene and issue Series A preferred
stock to the sole holder of RiboGene Series A preferred stock. A copy of the
merger agreement is attached as Annex A to the prospectus/joint proxy
statement accompanying this notice.
Proposal 2. The approval of the amendment to Cypros' articles of
incorporation to (a) increase the number of authorized shares of common
stock to 75,000,000 shares and the number of authorized shares of preferred
stock to 7,500,000 shares; (b) authorize the Cypros Board to designate the
rights, preferences, privileges and restrictions of additional shares of
Cypros preferred stock; (c) designate shares of Cypros Series A preferred
stock to be issued in connection with the merger; and (d) change the name of
Cypros to Questcor Pharmaceuticals, Inc. A copy of the proposed amended
articles of incorporation is attached as Annex B to the prospectus/joint
proxy statement accompanying this notice.
Proposal 3. The approval of an amendment to the bylaws of Cypros to change
the authorized number of directors to not less than four nor more than nine
upon the merger. A copy of the proposed amendment to the Cypros bylaws is
set forth under the caption "Amendment to Bylaws" in the prospectus/joint
proxy statement.
Proposal 4. The approval of an amendment to Cypros' 1992 Stock Option Plan
to increase the number of shares that may be issued under the plan to
7,500,000 shares;
Proposal 5. The approval of an amendment to Cypros' 1993 Non-Employee
Directors' Equity Incentive Plan to, among other things, increase the number
of shares that may be issued under the plan to 750,000 shares; and
To transact such other business as may properly come before the special
meeting or any adjournments or postponements thereof.
These proposals are more fully described in the attached prospectus/joint
proxy statement and its annexes. Shareholder approval of all of the proposals
will be required in order to consummate the merger. If any of the proposals is
not approved by the Cypros shareholders, the merger cannot be completed.
The board of directors of Cypros has fixed the close of business on
September 15, 1999 as the record date for the determination of the shareholders
entitled to notice of and to vote at the Cypros special meeting and any
adjournments or postponements thereof. Only holders of record of Cypros common
stock on the record date are entitled to vote at the Cypros special meeting.
If you would like to attend the special meeting and your shares are held by
a broker, bank or other nominee, you must bring to the meeting a recent
brokerage statement or a letter from the nominee confirming your beneficial
ownership of the shares. You must also bring a form of personal identification.
In order to vote your shares at the special meeting, you must obtain from the
nominee a proxy issued in your name.
You can ensure that your shares are voted at the special meeting by signing
and dating the enclosed proxy and returning it in the envelope provided. Sending
in a signed proxy will not affect your right to
<PAGE>
attend the meeting and vote in person. You may revoke your proxy at any time
before it is voted by giving written notice to the Secretary of Cypros at
Cypros' headquarters, located at 2714 Loker Avenue West, Carlsbad, CA 92008, by
signing and returning a later dated proxy or by voting in person at the special
meeting.
All shares represented by properly executed parties will be voted in
accordance with the specifications of the proxy card. In no such specifications
are made, proxies will be voted for approval and adoption of the proposals
above.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE CYPROS SPECIAL MEETING
IN PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE CYPROS SPECIAL MEETING, WE
URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENVELOPE PROVIDED.
By Order of the Board of Directors,
[SIGNATURE]
David W. Nassif, SECRETARY
Carlsbad, California
September 23, 1999
<PAGE>
[LOGO]
Dear Fellow Stockholder:
As many of you are aware, the board of directors of RiboGene, Inc. has
unanimously approved a merger with Cypros Pharmaceutical Corporation. If the
merger is approved by the stockholders of RiboGene and the shareholders of
Cypros and all other conditions are satisfied or waived, RiboGene will merge
with a wholly-owned subsidiary of Cypros with RiboGene continuing as a
wholly-owned subsidiary of Cypros. The name of the combined company will be
"Questcor Pharmaceuticals, Inc." Under the terms of the merger agreement, for
each share of RiboGene common stock you own, you will be entitled to receive
approximately 1.494 shares of Cypros common stock upon closing of the merger.
The 1.494 exchange ratio is subject to final determination based on (1) the
total number of shares of RiboGene common stock and Cypros common stock
outstanding, assuming conversion or exercise of all preferred stock, options and
warrants in each case, on the date before the special meetings of RiboGene and
Cypros and (2) a specific adjustment to the exchange ratio if the average
closing price of Cypros common stock over the 20 trading days before the date of
Cypros' special meeting exceeds or falls below specific thresholds. Immediately
following the merger, existing RiboGene stockholders will hold approximately 41%
of the voting stock of the combined company and current holders of Cypros common
stock will hold approximately 59% of the voting stock of the combined company.
After the merger, on a fully diluted basis, existing RiboGene stockholders,
option holders and warrant holders together will hold approximately 45% of the
voting stock of the combined company and the existing Cypros shareholders,
option holders and warrant holders together will hold approximately 55% of the
voting stock of the combined company. In addition, the board of directors of the
combined company will consist of the five current directors of the RiboGene
board and the five current directors of the Cypros board, including one board
member currently serving on both boards. I will serve as Chairman, President and
Chief Executive Officer of the combined company after the merger.
The merger cannot be completed unless holders of a majority of the
outstanding RiboGene common stock vote to approve the merger. We have scheduled
a special meeting of RiboGene to obtain this vote, and stockholders who owned
RiboGene common stock as of September 15, 1999 may vote at this meeting. THE
BOARD OF DIRECTORS OF RIBOGENE UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL
OF THE MERGER AGREEMENT AND THE MERGER AT THE SPECIAL MEETING.
We urge you to review carefully the enclosed materials. Stockholders with
questions regarding the merger or other transactions or matters described in the
prospectus/joint proxy statement may contact Michael D. Rose at RiboGene at
(510) 732-5551.
Whether or not you plan to attend the special meeting, please take the time
to vote your shares regarding the merger proposal described above. You may vote
your shares by completing, signing, dating and returning the enclosed proxy card
as promptly as possible in the enclosed postage-paid envelope. If you attend the
special stockholders meeting, you may vote your shares in person even if you
have previously submitted a proxy. IF YOU FAIL TO RETURN THE PROXY CARD OR FAIL
TO VOTE IN PERSON AT THE SPECIAL MEETING, IT WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER.
The date, time and place of the special meeting are as follows:
November 5, 1999
9:00 a.m., local time
Offices of RiboGene
26118 Research Road
Hayward, California
Sincerely,
[SIGNATURE]
Charles J. Casamento
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Hayward, California
September 23, 1999
<PAGE>
RIBOGENE, INC.
26118 RESEARCH ROAD
HAYWARD, CA 94545
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
<TABLE>
<S> <C>
DATE: November 5, 1999
9:00 a.m., local
TIME: time
PLACE: Offices of RiboGene
26118 Research Road
Hayward, California
</TABLE>
PURPOSE OF THE SPECIAL MEETING:
- To consider and vote on a proposal to adopt and approve an agreement and
plan of reorganization, dated as of August 4, 1999, among RiboGene, Inc.,
Cypros Pharmaceutical Corporation and Cypros Acquisition Corporation under
which, among other things, Cypros Acquisition Corporation, a wholly owned
subsidiary of Cypros Pharmaceutical, will merge into RiboGene and RiboGene
will continue as a wholly-owned subsidiary of Cypros Pharmaceutical
Corporation.
- To consider any other matters that may be properly brought before the
special meeting or any adjournment or postponement of the meeting.
Only holders of record of RiboGene common stock and RiboGene preferred stock
at the close of business on September 15, 1999 are entitled to notice of the
meeting, and only the holders of RiboGene common stock on the record date are
entitled to vote at the meeting or any adjournment or postponement of the
meeting.
THE BOARD OF DIRECTORS OF RIBOGENE HAS DETERMINED THAT THE MERGER AGREEMENT
AND THE MERGER ARE FAIR TO RIBOGENE AND IN THE BEST INTERESTS OF RIBOGENE AND
ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS OF RIBOGENE HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE IN FAVOR OF THESE ITEMS.
The merger is explained in the accompanying prospectus/joint proxy
statement, which you are urged to read carefully. A copy of the merger agreement
is attached as Annex A to the prospectus/joint proxy statement.
By Order of the Board of Directors
[SIGNATURE]
Charles J. Casamento
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION RIBOGENE, INC.
PROSPECTUS/PROXY STATEMENT PROXY STATEMENT
The board of directors of Cypros Pharmaceutical Corporation and RiboGene,
Inc. have each unanimously approved a merger agreement which provides for the
merger of Cypros and RiboGene, whereby RiboGene will become a wholly-owned
subsidiary of Cypros.
If the merger is completed each outstanding share of RiboGene common stock
will be converted into the right to receive approximately 1.494 shares of Cypros
common stock and each issued and outstanding share of RiboGene Series A
preferred stock will be converted into the right to receive approximately 1.494
shares of Cypros Series A preferred stock. The actual exchange ratio will be
determined as of the day immediately preceding the date of each of Cypros' and
RiboGene's shareholder meetings. The final exchange ratio will be determined as
follows:
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IF THE AVERAGE CLOSING PRICE OF CYPROS COMMON STOCK OVER THE 20 DAY PERIOD ENDING
THE DAY BEFORE THE CYPROS SPECIAL MEETING IS:
GREATER THAN $2.475 BETWEEN $2.475 AND $1.464 LESS THAN $1.464
THEN THE FINAL EXCHANGE RATIO WILL BE EQUAL TO:
(1) $36,921,567 divided by the (1) The total number of Cypros (1) $21,839,666 divided by the
20-day average closing price of common stock outstanding on the day 20-day average closing price of
Cypros common stock, minus (2) before the Cypros special meeting, Cypros common stock, minus (2)
403,549, divided by (3) the total assuming the exercise or conversion 403,549, divided by (3) the total
number of shares of RiboGene common of all options and warrants, number of shares of RiboGene common
stock outstanding on the day before multiplied by (2) 45/55 (or stock outstanding on the day before
the RiboGene special meeting, 0.81818), minus (3) 403,549, divided the RiboGene special meeting,
assuming the exercise or conversion by (4) the total number of shares of assuming the exercise or conversion
of all preferred stock, options and RiboGene common stock outstanding on of all preferred stock, options and
warrants. the day before the RiboGene special warrants.
meeting, assuming the exercise or
conversion of all preferred stock,
options and warrants.
</TABLE>
Subject to the actual determination of the exchange ratio, Cypros expects to
issue an aggregate of approximately 8,649,236 shares of Cypros common stock and
2,134,534 shares of Series A preferred stock to the RiboGene stockholders (and
reserve approximately 3,730,486 shares to be issued upon exercise of RiboGene
options and warrants that will be assumed by Cypros in the merger), based upon
the number of shares of Cypros common stock and RiboGene common stock
outstanding and issuable on August 4, 1999. Immediately following the merger,
the former RiboGene stockholders will hold approximately 41% of the voting
capital stock of Cypros and current holders of Cypros common stock will hold
approximately 59% of the outstanding capital stock of Cypros, assuming the
conversion of the Cypros Series A preferred stock being issued in the merger. In
addition, each outstanding option and warrant to purchase RiboGene common stock
will become an equivalent option or warrant with respect to Cypros common stock,
on the same terms as the original option or warrant, as adjusted by the exchange
ratio. On a fully diluted basis, the former holders of RiboGene capital stock,
options and warrants will hold 45% of the combined company's voting stock and
the current holders of Cypros common stock, options and warrants will hold the
remaining 55%.
Cypros common stock is listed on AMEX under the symbol CYP. The combined
company's common stock will be listed on AMEX under the symbol QSC after the
merger.
This document is both the prospectus of Cypros for the shares of Cypros
common stock and shares of Cypros Series A preferred stock to be issued to
RiboGene stockholders and the joint proxy statement of Cypros and RiboGene for
their respective meetings.
This prospectus/joint proxy statement provides you with detailed information
about the merger. THE PROPOSED MERGER IS A COMPLEX TRANSACTION AND YOU ARE
STRONGLY ENCOURAGED TO READ THE ENTIRE DOCUMENT CAREFULLY, INCLUDING "RISK
FACTORS" COMMENCING ON PAGE 16.
THE SHARES OF CYPROS COMMON STOCK AND CYPROS SERIES A PREFERRED STOCK TO BE
ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/JOINT PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The prospectus/joint proxy statement is dated September 23, 1999 and is
first mailed to shareholders on or about September 29, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
FORWARD LOOKING STATEMENTS................................................................................. 1
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 1
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................................................... 2
SUMMARY.................................................................................................... 4
SUMMARY SELECTED HISTORICAL FINANCIAL INFORMATION.......................................................... 12
COMPARATIVE PER SHARE DATA................................................................................. 15
RISK FACTORS............................................................................................... 16
Risks Related to the Merger.............................................................................. 16
Risks Related to Both Cypros and RiboGene................................................................ 17
Risks Specific to Either Cypros or RiboGene.............................................................. 25
THE CYPROS SPECIAL MEETING................................................................................. 26
THE RIBOGENE SPECIAL MEETING............................................................................... 28
THE MERGER................................................................................................. 30
General.................................................................................................. 30
Effective Time........................................................................................... 30
Conversion of Shares; Procedures for Exchange of RiboGene Certificates................................... 30
Background of the Merger................................................................................. 30
Recommendation of the Cypros Board; Cypros Reasons for the Merger........................................ 34
Recommendation of the RiboGene Board; RiboGene Reasons for the Merger.................................... 36
Opinion of Financial Advisor to Cypros................................................................... 38
Opinion of Financial Advisor to RiboGene................................................................. 41
Interests of Certain Persons in the Merger............................................................... 46
Material Federal Income Tax Consequences................................................................. 50
Rights Agreement......................................................................................... 52
Roberts Pharmaceutical Corporation Waiver................................................................ 53
Accounting Treatment..................................................................................... 53
Effect on Cypros Options and Warrants.................................................................... 53
Regulatory Matters....................................................................................... 53
Federal Securities Law Consequences...................................................................... 53
Appraisal and Dissenters' Rights......................................................................... 54
THE MERGER AGREEMENT....................................................................................... 56
Terms of the Merger...................................................................................... 56
Exchange of Certificates................................................................................. 57
Representations and Warranties........................................................................... 58
Conduct of Business Pending the Merger................................................................... 59
Indemnification of Officers and Directors................................................................ 60
No Solicitation.......................................................................................... 60
Conditions to the Merger................................................................................. 61
Termination of the Merger Agreement...................................................................... 63
Termination Fees......................................................................................... 64
Other Fees and Expenses.................................................................................. 64
Amendment; Waiver........................................................................................ 64
OTHER AGREEMENTS........................................................................................... 65
RiboGene Voting Agreements............................................................................... 65
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Cypros Voting Agreement.................................................................................. 65
Affiliate Agreements..................................................................................... 66
MANAGEMENT OF CYPROS AFTER THE MERGER...................................................................... 67
Board Committees......................................................................................... 69
EXECUTIVE COMPENSATION..................................................................................... 69
RiboGene Director Compensation........................................................................... 71
Cypros Director Compensation............................................................................. 72
Limitation of Liability and Indemnification Matters...................................................... 72
Employment Agreements and Change of Control Agreements................................................... 73
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF RIBOGENE................................................. 73
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................................................ 75
BUSINESS OF CYPROS......................................................................................... 79
CYPROS SELECTED HISTORICAL FINANCIAL INFORMATION........................................................... 92
CYPROS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 93
BUSINESS OF RIBOGENE....................................................................................... 97
RIBOGENE SELECTED HISTORICAL FINANCIAL INFORMATION......................................................... 105
RIBOGENE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 106
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 112
Beneficial Security Ownership of Certain Owners and Management of Cypros................................. 112
Beneficial Security Ownership of Certain Owners and Management of RiboGene............................... 113
DESCRIPTION OF CAPITAL STOCK............................................................................... 114
Description of Cypros Capital Stock...................................................................... 114
Description of RiboGene Capital Stock.................................................................... 115
COMPARISON OF SHAREHOLDERS' RIGHTS......................................................................... 117
ADDITIONAL MATTERS FOR CONSIDERATION BY CYPROS SHAREHOLDERS................................................ 127
Amendment to the Articles of Incorporation............................................................... 127
Amendment to Bylaws...................................................................................... 129
Amendment to 1992 Stock Option Plan...................................................................... 129
Amendment to 1993 Non-Employee Directors' Equity Incentive Plan.......................................... 135
LEGAL MATTERS.............................................................................................. 138
REPRESENTATIVES OF INDEPENDENT AUDITORS.................................................................... 138
SHAREHOLDER PROPOSALS...................................................................................... 139
EXPERTS.................................................................................................... 139
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
Annex A--Agreement and Plan of Reorganization
Annex B--Amended and Restated Cypros Articles of Incorporation
Annex C--Opinion of EVEREN Securities
Annex D--Opinion of Rabobank International
Annex E--Form of Cypros Voting Agreement
Annex F--Form of RiboGene Voting Agreement
Annex G--Chapter 13 of California General Corporation Law Relating to Dissenters' Rights
</TABLE>
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FORWARD LOOKING STATEMENTS
This prospectus/joint proxy statement includes statements that may
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
The reasons for the merger discussed under the caption "The Merger," statements
about the expected impact of the merger on Cypros' and RiboGene's businesses,
financial performance and condition, accounting and tax treatment and the extent
of the charges to be incurred by Cypros relating to the merger are
forward-looking statements. Further, any statements contained in this
prospectus/joint proxy statement that are not statements of historical fact may
be deemed to be forward-looking statements. The words "projects," "believes,"
"anticipates," "plans," "expects," "intends" and similar expressions are
intended to identify forward-looking statements. There are a number of important
factors that could cause the results of the combined company to differ
materially from those indicated by these forward-looking statements, including,
but not limited to:
- the risk that anticipated synergies from the merger will not be realized,
- the significant transaction charges and the potential dilutive effect to
holders of Cypros common stock and RiboGene capital stock which will
result from the merger,
- significant fluctuations in operating results,
- the adverse outcome of outstanding litigation,
- the ability to develop, manufacture and ship planned products,
- the ability to recruit, train and retain qualified sales and other
personnel, product liability and insurance,
- the ability to secure additional funding, and
- other factors described in this prospectus/joint proxy statement under the
caption "Risk Factors."
Neither Cypros nor RiboGene undertakes any obligation to update any
forward-looking statements.
WHERE YOU CAN FIND MORE INFORMATION
Both Cypros and RiboGene are subject to the informational requirements of
the Exchange Act, and file reports, proxy and information statements and other
information with the SEC. This information can be inspected and copied at the
public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and may be available at the
following Regional Offices of the SEC: Chicago Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and New York
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of these materials can be obtained at prescribed rates from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Cypros and RiboGene make filings under the Exchange Act
with the SEC electronically, these materials are available at the SEC's Web site
(http://www.sec.gov).
Cypros filed with the SEC a registration statement on Form S-4 under the
Securities Act to register with the SEC the Cypros common stock and Cypros
Series A preferred stock to be issued to RiboGene stockholders in the merger.
This prospectus/joint proxy statement constitutes the prospectus of Cypros that
was filed as part of the registration statement. Other parts of the registration
statement are excluded from this prospectus/joint proxy statement under the
rules and regulations of the SEC. Reference is made to the registration
statement for further information relating to Cypros, RiboGene and the Cypros
common stock and the Cypros Series A preferred stock offered by this
prospectus/joint proxy statement. Statements contained in this prospectus/joint
proxy statement concerning the provisions of documents are necessarily summaries
of the documents, and each statement is qualified in its entirety by reference
to the copy of the applicable document filed with the SEC or attached as an
annex to this prospectus/joint proxy statement.
This prospectus/joint proxy statement contains trademarks of Cypros,
RiboGene and other companies. Neosporin-Registered Trademark- is a registered
trademark or Glaxo Wellcome.
All information contained in this prospectus/joint proxy statement regarding
Cypros and Cypros Acquisition Corporation has been provided by Cypros. All
information contained in this prospectus/ joint proxy statement regarding
RiboGene has been provided by RiboGene.
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QUESTIONS AND ANSWERS
ABOUT THE MERGER
Q: WHAT IS THE PROPOSED TRANSACTION?
A: Cypros and RiboGene will form a combined company by merging a subsidiary of
Cypros with RiboGene.
Q: AS A HOLDER OF RIBOGENE COMMON STOCK OR SERIES A PREFERRED STOCK, WHAT WILL
I RECEIVE IN THE MERGER?
A: You will receive approximately 1.494 shares of Cypros common stock or Cypros
Series A preferred stock, as the case may be, in exchange for each share of
RiboGene common stock or RiboGene Series A preferred stock that you own. No
fractional shares will be issued. You will receive cash for any fractional
shares you would otherwise receive. For example, if you own 100 shares of
RiboGene common stock, you will receive 149 shares of Cypros common stock in
exchange for your shares plus cash for the remaining fractional amount.
Q: CAN THE EXCHANGE RATIO OF 1.494 CHANGE?
A: Yes. The final exchange ratio will be determined based on (1) the number of
shares of Cypros common stock and the number of shares of RiboGene common
stock outstanding, assuming exercise or the conversion of all options,
warrants and preferred stock in each case, on the day before the special
meetings of Cypros and RiboGene to vote on this merger, and (2) an
adjustment if the average closing share price of Cypros common stock over
the 20 consecutive trading days ending on the day before the Cypros
shareholder meeting to vote on this merger exceeds $2.475 or falls below
$1.464.
Q: AS A CYPROS SHAREHOLDER, WILL I RECEIVE ADDITIONAL SHARES OF CYPROS COMMON
STOCK IN THE MERGER?
A: No. You will continue to hold the same number of shares of Cypros common
stock after the merger.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?
A: The merger will constitute a tax-free reorganization for federal income tax
purposes. Generally, RiboGene stockholders will not recognize taxable gain
or loss on the exchange of their stock, except that RiboGene stockholders
may be taxed on cash received for a fractional share. Cypros shareholders
will not recognize any taxable gain or loss in connection with the merger.
Tax matters, however, are complicated and the tax consequences of the merger
to you will depend on the facts of your particular situation. We encourage
you to contact your tax advisors to determine the tax consequences of the
merger to you.
Q: WILL MY RIGHTS AS A RIBOGENE STOCKHOLDER CHANGE AS A RESULT OF THE MERGER?
A: Yes. Currently, RiboGene stockholder rights are governed by Delaware law and
RiboGene's certificate of incorporation and bylaws, whereas Cypros
shareholder rights are governed by California law and Cypros' articles of
incorporation and bylaws. After the merger, RiboGene stockholders who
receive Cypros stock in the merger will become shareholders of Cypros and,
therefore, their rights will be governed by California law and Cypros'
articles of incorporation and bylaws.
Q: IF I AM NOT GOING TO ATTEND THE SHAREHOLDER MEETING, SHOULD I RETURN BY
PROXY CARD?
A: Yes, please fill out and sign your proxy card and mail it to us in the
enclosed return envelope as soon as possible. Returning your proxy card
ensures that your shares will be represented at the special meeting.
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Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE AFTER I HAVE MAILED BY PROXY CARD?
A: Send in a later-dated, signed proxy card to your company's corporate
secretary before the special meeting or attend the special meeting in person
and vote.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
document and completing and signing your proxy card, just mail your signed
proxy card in the enclosed envelope as soon as possible so that your shares
may be represented at your meeting. In order to assure that your vote is
obtained, please give your proxy as instructed on you proxy card even if you
currently plan to attend the meeting in person. The board of directors of
each of Cypros and RiboGene recommends that its shareholders vote in favor
of the merger and related transactions.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: If you do not provide your broker with instructions on how to vote your
"street name" shares, your broker will not be permitted to vote them on the
merger. You should therefore be sure to provide your broker with
instructions on how to vote your shares. If you do not give voting
instructions to your broker, you will not be counted as voting for purposes
of the merger unless you appear in person at your meeting.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send RiboGene stockholders
written instructions for exchanging their stock certificates. Cypros
shareholders will keep their current certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. Assuming
that both Cypros and RiboGene satisfy or waive all of the conditions to
closing contained in the merger agreement, we anticipate that the merger
will occur as soon as practicable after approval of the merger and related
transactions at the special meetings.
Q: WHOM SHOULD SHAREHOLDERS CALL WITH ADDITIONAL QUESTIONS?
A: Cypros shareholders who have questions about the merger should call David W.
Nassif Cypros' Chief Financial Officer and Secretary, at (760) 929-9500.
RiboGene stockholders who have questions about the merger should call
Michael D. Rose at RiboGene at (510) 732-5551.
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SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF SELECTED INFORMATION CONTAINED ELSEWHERE
IN THIS PROSPECTUS/JOINT PROXY STATEMENT AND THE ANNEXES TO THIS
PROSPECTUS/JOINT PROXY STATEMENT. THIS SUMMARY DOES NOT CONTAIN A COMPLETE
STATEMENT OF ALL MATERIAL INFORMATION RELATING TO THE MERGER AGREEMENT OR THE
MERGER AND THIS SUMMARY IS SUBJECT TO, AND IS QUALIFIED IN ITS ENTIRETY BY, THE
MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS CONTAINED IN THIS
PROSPECTUS/JOINT PROXY STATEMENT. YOU SHOULD READ THIS PROSPECTUS/JOINT PROXY
STATEMENT CAREFULLY AND IN ITS ENTIRETY.
CYPROS PHARMACEUTICAL CORPORATION
Cypros is a specialty pharmaceutical company which develops, acquires and
markets products for the critical care market. Cypros currently markets three
products, Glofil and Inulin, two injectable drugs that assess kidney function by
the measurement of glomerular filtration rate, and
Ethamolin-Registered Trademark-, an injectable drug that treats bleeding
esophageal varices. In addition, Cypros has launched a new proprietary triple
antibiotic bandage with its over-the-counter marketing partner, Nutramax
Products Inc., incorporating Cypros' patented Dermaflo-TM- drug delivery
technology and, assuming regulatory clearance, intends to launch two burn/wound
care products, Neoflo-TM- and Sildaflo-TM-, during the latter part of 2000.
Cypros' drug development programs, Cordox-TM- and Ceresine-TM-, target ischemic
(impaired blood flow) disorders and Cypros is currently conducting a
multi-center, double-blind, placebo-controlled Phase III clinical trial on
Cordox in sickle cell crisis patients. Cypros may also conduct Phase III
clinical trials of Cordox in other ischemic disorders, such as coronary artery
bypass grafting surgery and other pivotal clinical trials of Ceresine-TM- in
closed head injury patients. Cypros common stock is listed on the AMEX under the
symbol CYP.
The principal executive offices of Cypros are located at 2714 Loker Avenue
West, Carlsbad, California 92008 and its telephone number is (760) 929-9500. In
addition, Cypros manufactures the product lines incorporating its Dermaflo-TM-
technology at a facility located in Lee's Summit, Missouri.
RIBOGENE, INC.
RiboGene is developing Emitasol-Registered Trademark-, an intranasal form of
metoclopramide, in the United States with Roberts Pharmaceutical Corporation to
treat diabetic gastroparesis and delayed onset emesis caused by cancer
chemotherapy. Phase III clinical trials of Emitasol for diabetic gastroparesis
are expected to begin in the United States in late 1999 or early 2000.
Metoclopramide is an approved antiemetic and is available as a generic in oral
and intravenous form. RiboGene holds patents related to the administration of
metoclopramide intranasally. RiboGene is currently developing Emitasol in Europe
through two corporate partners, where it is undergoing regulatory review in
Austria and five other Eastern European countries and is marketed in Italy under
the tradename Pramidin. RiboGene common stock is listed on the AMEX under the
symbol RBO.
The principal executive offices of RiboGene are located at 26118 Research
Road, Hayward, California 94545 and its telephone number is (510) 732-5551.
CYPROS ACQUISITION CORPORATION
Cypros Acquisition Corporation is a Delaware corporation recently organized
for the sole purpose of effecting the merger. Cypros Acquisition Corporation is
a wholly-owned subsidiary of Cypros, has no material assets and has not engaged
in any activities except in connection with the merger.
The principal executive offices of Cypros Acquisition Corporation are
located at 2714 Loker Avenue West, Carlsbad, California 92008 and its telephone
number is (760) 929-9500.
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REASONS FOR THE MERGER
Each of the board of directors considered a number of factors in evaluating
the merger agreement and the merger. After consideration of all factors taken as
a whole, each of the boards of directors determined that the merger agreement
and merger are fair to and in the best interests of its company's shareholders.
CYPROS SHAREHOLDERS MEETING
The Cypros special meeting will be held at Cypros' corporate offices located
at 2714 Loker Avenue West, Carlsbad, California 92008 on November 5, 1999, at
9:00 a.m., local time. At the Cypros special meeting, Cypros will ask the
holders of its common stock to consider and vote upon:
1. the merger agreement and the merger, which provides for the issuance of
Cypros common stock and Cypros Series A preferred stock to RiboGene
stockholders in the merger;
2. the amendment of Cypros' articles of incorporation to, among other
things, change the Cypros name to Questcor Pharmaceuticals, Inc.,
increase the authorized capital stock of Cypros and designate shares of
Cypros Series A preferred stock for issuance in the merger;
3. the amendment of Cypros' bylaws to change the authorized size of the
board of directors of the combined company;
4. the amendment of Cypros' 1992 Stock Option Plan;
5. the amendment of Cypros' 1993 Non-Employee Directors' Equity Incentive
Plan;
6. other matters as may properly come before the Cypros special meeting or
any postponements or adjournments of the meeting.
RIBOGENE STOCKHOLDERS' MEETING
The RiboGene special meeting will be held at RiboGene's corporate offices
located at 26118 Research Road, Hayward, California 94545 on November 5, 1999,
at 9:00 a.m., local time. At the RiboGene special meeting, RiboGene will ask the
holders of RiboGene common stock to consider and vote upon the approval of the
merger agreement and the merger and other matters as may properly come before
the RiboGene special meeting or any postponements or adjournments of the
meeting.
VOTES REQUIRED; RECORD DATE
CYPROS. Approval of the merger proposal and the proposals for the amendment
of Cypros' articles of incorporation and bylaws will require the affirmative
vote of the holders of a majority of the outstanding shares of Cypros common
stock. Approval of the proposals for the amendment of the stock option plan and
directors' equity incentive plan will require the vote of the majority of the
votes cast at the Cypros special meeting, provided that the total votes cast
represent over 50% in interest of all shares of Cypros common stock as of the
record date. Each of these proposals must be approved by Cypros' shareholders
for the merger to occur. If any of these proposals is not approved by the Cypros
shareholders, the merger will not occur. Holders of Cypros common stock are
entitled to one vote per share. Only holders of Cypros common stock at the close
of business on September 15, 1999 will be entitled to notice of and to vote at
the Cypros special meeting. On that date, there were 15,735,007 shares of Cypros
common stock outstanding.
RIBOGENE. Approval of the merger agreement and the merger will require the
affirmative vote of the holders of a majority of the outstanding shares of
RiboGene common stock. Holders of RiboGene common stock are entitled to one vote
per share. Only holders of RiboGene common stock and holders of RiboGene Series
A preferred stock at the close of business on September 15, 1999 will be
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entitled to notice of the RiboGene special meeting and only holders of RiboGene
common stock will be entitled to vote at the RiboGene special meeting. On that
date, there were 5,783,954 shares of RiboGene common stock outstanding.
VOTING AGREEMENTS
Paul J. Marangos, the Chairman, President and Chief Executive Officer of
Cypros, beneficially owns approximately 9.9% of Cypros common stock outstanding
as of the Cypros record date. He has entered into a voting agreement with
RiboGene under which he has agreed to vote in favor of the merger agreement and
related transactions and has granted RiboGene an irrevocable proxy to vote his
shares of Cypros common stock in favor of the respective proposals.
Charles J. Casamento, the Chairman, President and Chief Executive Officer of
RiboGene, and Timothy E. Morris, the Vice President Finance & Administration,
Chief Financial Officer and Assistant Secretary of RiboGene (who will be
resigning from RiboGene effective October 1, 1999), who, as of the RiboGene
record date, together beneficially own approximately 6% of the outstanding
RiboGene common stock have entered into voting agreements with Cypros under
which they have agreed to vote in favor of the merger agreement and the merger
and have granted Cypros an irrevocable proxy to vote their shares of RiboGene
common stock in favor of the merger agreement and the merger.
Other than the shareholders listed above, shareholders of either company who
have executed a proxy may revoke the proxy at any time prior to its exercise at
their respective special meeting by giving written notice to the Secretary at
Cypros' or RiboGene's corporate offices, as the case may be, by signing and
returning a later dated proxy or by voting in person at the respective special
meeting. Shareholders who have executed and returned proxy cards in advance of
their special meeting may change their vote at any time prior to or at the
special meeting.
THE MERGER
Under the merger agreement, Cypros Acquisition Corporation will be merged
with and into RiboGene, and Cypros Acquisition Corporation will cease to exist
and RiboGene will become a wholly owned subsidiary of Cypros to form the
combined company. In the merger, RiboGene stockholders will receive
approximately 1.494 shares of Cypros common stock in exchange for each share of
RiboGene common stock and 1.494 shares of Cypros Series A preferred stock in
exchange for each share of RiboGene Series A preferred stock, and cash in lieu
of any fractional shares. The final exchange ratio will be determined based on
(1) the number of shares of Cypros common stock and the number of shares of
RiboGene common stock outstanding, assuming exercise or the conversion of all
options, warrants and preferred stock in each case, on the day before the
special meetings of Cypros and RiboGene to vote on the merger, and (2) an
adjustment if the average closing share price of Cypros common stock over the 20
consecutive trading days ending on the day before the Cypros special meeting to
vote on this merger exceeds $2.475 or falls below $1.464. The name of the
combined company after the merger will be Questcor Pharmaceuticals, Inc.
EFFECT ON RIBOGENE STOCK OPTIONS AND WARRANTS
Upon the merger, each outstanding option and warrant to purchase RiboGene
common stock will be assumed by Cypros in accordance with its terms. Appropriate
adjustments will be made to the number of shares issuable upon exercise of these
options and warrants and the exercise price of each option and warrant to
reflect the exchange ratio. As of September 15, 1999, there were options to
purchase 1,135,053 shares of RiboGene common stock and warrants to purchase
1,301,594 shares of RiboGene common stock outstanding.
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EFFECT ON CYPROS STOCK OPTIONS AND WARRANTS
The merger will have no effect on any Cypros stock options or warrants or
the terms of the stock options or warrants, except as provided in the proposed
amendment to the directors' equity incentive plan described in this
prospectus/joint proxy statement.
CONDITIONS TO THE MERGER; TERMINATION; FEES
The consummation of the merger is subject to various conditions, including:
- the continued accuracy of the parties' representations and warranties and
fulfillment of each party's promises contained in the merger agreement;
- receiving the required vote of the Cypros shareholders to approve the
merger agreement and merger, the issuance of the Cypros stock in the
merger and the amendment of Cypros' articles of incorporation, bylaws and
stock option plans;
- receiving the required vote of the RiboGene stockholders to approve the
merger agreement and the merger;
- the execution of an employment agreement between Cypros and Charles J.
Casamento and a separation and consulting agreement between Cypros and
Paul J. Marangos;
- the receipt of opinions from the parties' respective tax attorneys that
the merger will constitute a tax-free reorganization;
- the authorization for listing on the AMEX of the Cypros common stock to be
issued in the merger;
- the receipt of all third-party consents required to consummate the merger;
- the absence of any restraining orders, injunctions or other orders
preventing the consummation of the merger or other litigation or
administrative actions or proceedings; and
- with respect to Cypros' obligation to consummate the transaction, the
cancellation of or rendering inapplicable the RiboGene shareholder rights
plan.
Cypros has agreed that if the merger agreement is terminated (1) by Cypros
or RiboGene as a result of the Cypros shareholders' failure to approve the
merger, or (2) by RiboGene, following one or more specified events, such as
Cypros' Board's approval of an unsolicited offer from another company which is
determined to be more advantageous to Cypros than the merger with RiboGene, then
Cypros will pay to RiboGene, in cash, a nonrefundable fee in the amount of
$1,000,000. Cypros may also terminate the merger upon payment to RiboGene of a
$1,000,000 fee, if as a result of an adjustment of the exchange ratio, its
shareholders on a fully diluted basis would own less than 50% of the combined
company.
RiboGene has agreed that if the merger agreement is terminated (1) by Cypros
or RiboGene as a result of the RiboGene stockholders' failure to approve the
merger, or (2) by Cypros following one or more specified events, such as
RiboGene's board's approval of an unsolicited offer from another company which
is determined to be more advantageous than the merger with Cypros, then RiboGene
will pay to Cypros, in cash, a nonrefundable fee in the amount of $1,000,000.
Otherwise, each of the companies agreed that it will pay its own expenses in
connection with the merger, except that they will share equally all fees and
expenses incurred in connection with the printing and filing of this
prospectus/joint proxy statement and the registration statement of which this
prospectus/joint proxy statement is a part.
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NO SOLICITATION
Under the merger agreement, except under specified circumstances, each of
Cypros and RiboGene has agreed not to:
1. solicit, initiate or encourage any alternate acquisition proposal;
2. furnish any information regarding itself to any other party in
connection with any alternate acquisition proposal;
3. participate in any discussions or negotiations with any other parties
regarding an alternate acquisition proposal;
4. approve endorse or recommend any alternative proposal; or
5. enter into any letter of intent or similar document or any other
contract relating to an alternate acquisition proposal.
DISSENTERS' AND APPRAISAL RIGHTS
Under applicable Delaware law, the holders of RiboGene common stock are not
entitled to dissenters' or appraisal rights in connection with the merger.
Although the holder of RiboGene Series A preferred stock is otherwise entitled
to appraisal rights under Delaware law in connection with the merger, the holder
has effectively waived its appraisal rights for this transaction by waiving its
liquidation preference specified in the RiboGene Series A preferred stock
certificate of designation. In addition, if the merger agreement is approved by
the required vote of Cypros shareholders and is not abandoned or terminated, the
holders of Cypros common stock may be entitled to exercise dissenters' rights
under Chapter 13 of the California Corporations Code, a copy of which is
attached to this prospectus/joint proxy statement as Annex G, relating to shares
voted in opposition to the merger, if five percent or more of the shares of
Cypros common stock are voted against the merger and seek to exercise
dissenters' rights.
ACCOUNTING TREATMENT
For accounting purposes, the merger will be treated as a purchase of
RiboGene by Cypros.
RISK FACTORS
See "Risk Factors" beginning on page 16 for a detailed discussion of the
risk factors pertaining to the merger and the businesses of Cypros and RiboGene.
OPINIONS OF FINANCIAL ADVISORS TO CYPROS AND RIBOGENE
In deciding to approve the merger, each board of directors considered the
opinion of its financial advisor. Cypros received an opinion from its financial
advisor, EVEREN Securities, Inc., that, as of the date of its opinion and
subject to the limitations in the opinion, the merger was fair, from a financial
point of view, to Cypros and its shareholders. RiboGene received an opinion from
its financial advisor, Rabobank International, that as of the date of its
opinion, the exchange ratio for converting the shares RiboGene shares into
Cypros shares was fair, from a financial point of view, to RiboGene's
stockholders. The full text of each of the EVEREN Securities and Rabobank
opinions are attached as Annexes C and D, respectively, to this document. You
are encouraged to read these opinions carefully and in their entirety.
8
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Some members of Cypros and RiboGene management and their boards of directors
have interests in the merger that are different from, or in addition to, the
interests of the Cypros shareholders or RiboGene stockholders generally. The
boards of directors of Cypros and RiboGene were aware of those interests and
considered them, among other matters, in adopting and approving the merger
agreement and the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The merger will constitute a tax-free reorganization for federal income tax
purposes, so that no gain or loss will be recognized for federal income tax
purposes by the RiboGene stockholders upon the exchange of RiboGene common stock
for Cypros common stock or upon the exchange of RiboGene Series A preferred
stock for Cypros Series A preferred stock in the merger, except with respect to
any cash received instead of any fractional share interest of Cypros common
stock. The obligations of Cypros and RiboGene to consummate the merger are
conditioned on the receipt by Cypros of an opinion from Cooley Godward LLP and
the receipt by RiboGene of an opinion from Latham & Watkins, that the merger
constitutes a reorganization under Section 368 of the Internal Revenue Code of
1986. RIBOGENE STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC TAX CONSEQUENCES OF THE MERGER.
AMENDMENTS TO CYPROS ARTICLES OF INCORPORATION
Under the merger agreement, Cypros is required to amend its articles of
incorporation to:
1. increase the number of authorized shares of common stock of Cypros from
30,000,000 shares to 75,000,000 shares and the number of authorized
shares of preferred stock of Cypros from 1,000,000 shares to 7,500,000
shares;
2. authorize the Cypros board to designate the rights, preferences,
privileges and restrictions of shares of preferred stock; and
3. designate shares of Cypros preferred stock as Series A preferred stock
for issuance in the merger.
In addition, the amendment of the articles of incorporation will include a
change in the company name of Cypros to Questcor Pharmaceuticals, Inc.
ADDITIONAL MATTERS FOR CONSIDERATION BY CYPROS SHAREHOLDERS
At the Cypros special meeting, Cypros shareholders will also be asked to act
upon proposals to (1) amend Cypros' bylaws to change the authorized number of
directors of Cypros to not less than four nor more than nine; (2) approve the
increase of the number of shares authorized for issuance under Cypros' 1992
Stock Option Plan from 2,766,288 to 7,500,000 shares; and (3) approve the
increase of the number of shares authorized for issuance under Cypros' 1993
Non-Employee Directors' Equity Incentive Plan from 350,000 to 750,000 shares and
to accelerate the vesting of options issued under the directors' equity
incentive plan upon the merger.
COMPARATIVE RIGHTS OF STOCKHOLDERS
Upon completion of the merger, RiboGene stockholders will become Cypros
shareholders. As a result, the rights of the holders of RiboGene capital stock
will be governed by Cypros articles of incorporation and bylaws and California
law.
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COMPARATIVE MARKET PRICE INFORMATION
Cypros common stock is currently listed on the AMEX under the symbol CYP.
There are currently no outstanding shares of Cypros preferred stock. After the
merger, the combined company common stock will be traded on the AMEX under the
symbol QSC. The combined company Series A preferred stock will not be listed for
trading on any securities exchange after the merger.
The table below provides, for the fiscal quarters indicated, the reported
high and low closing sales prices of Cypros common stock on the AMEX.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 2000 HIGH LOW
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter (through September 22, 1999)................................. $ 2.316 $ 1.625
<CAPTION>
YEAR ENDED JULY 31, 1999 HIGH LOW
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter.............................................................. $ 3.875 $ 2.250
Second Quarter............................................................. $ 4.188 $ 2.250
Third Quarter.............................................................. $ 3.188 $ 2.188
Fourth Quarter............................................................. $ 2.688 $ 1.813
<CAPTION>
YEAR ENDED JULY 31, 1998 HIGH LOW
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter.............................................................. $ 6.120 $ 3.750
Second Quarter............................................................. $ 6.000 $ 3.810
Third Quarter.............................................................. $ 4.750 $ 3.500
Fourth Quarter............................................................. $ 5.430 $ 3.375
</TABLE>
After its initial public offering, RiboGene's common stock commenced trading
on the AMEX on May 28, 1998 under the symbol RBO. After the merger, the RiboGene
common stock will no longer be traded on the AMEX. The Ribogene Series A
preferred stock has not been listed for trading on any securities exchange and
will cease to exist following the merger.
The table below provides, for the fiscal quarters indicated, the reported
high and low closing sales prices of RiboGene's common stock on the AMEX.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 HIGH LOW
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter.............................................................. $ 3.000 $ 1.750
Second Quarter............................................................. $ 2.063 $ 1.500
Third Quarter (through September 22, 1999)................................. $ 2.750 $ 1.500
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 HIGH LOW
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Second Quarter (from May 28, 1998)......................................... $ 7.125 $ 5.375
Third Quarter.............................................................. $ 7.000 $ 2.813
Fourth Quarter............................................................. $ 4.500 $ 1.813
</TABLE>
The following table provides the closing prices per share of Cypros common
stock and RiboGene common stock on August 4, 1999, the day of execution and
delivery of the merger agreement and the date prior to public announcement of
the merger, and on September 21, 1999. The estimated
10
<PAGE>
equivalent per share price of RiboGene common stock is calculated by multiplying
the price per share of Cypros common stock by the exchange ratio of
approximately 1.494.
<TABLE>
<CAPTION>
RIBOGENE
CYPROS EQUIVALENT
PER SHARE RIBOGENE PER SHARE
DATE PRICE PER SHARE PRICE PRICE
- --------------------------------------------- -------------- --------------- -------------
<S> <C> <C> <C>
August 4, 1999............................... $ 2.063 $ 2.750 $ 3.081
September 22, 1999........................... $ 1.938 $ 2.375 $ 2.895
</TABLE>
Because the market price of Cypros common stock is subject to fluctuation
and the exchange ratio is subject to adjustment, the number of and market value
of the shares of Cypros common stock that holders of RiboGene common stock will
actually receive in the merger may increase or decrease.
HOLDERS OF RIBOGENE COMMON STOCK ARE URGED TO OBTAIN A CURRENT MARKET
QUOTATION FOR CYPROS COMMON STOCK BEFORE VOTING ON THE MERGER AGREEMENT AND THE
MERGER.
Neither Cypros nor RiboGene has paid any cash dividends in the past, and
each currently intends to retain future earnings, if any, to fund the
development and growth of its business and not to pay any cash dividends in the
foreseeable future.
11
<PAGE>
SUMMARY SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected historical financial information of Cypros and
selected historical financial information of RiboGene has been derived from
their respective historical financial statements, and should be read in
conjunction with the financial statements and the notes, which are included in
this prospectus/joint proxy statement.
CYPROS SELECTED HISTORICAL FINANCIAL INFORMATION. The selected historical
financial information of Cypros as of and for the years ended July 31, 1995,
1996, 1997, 1998 and 1999 has been derived from the financial statements audited
by Ernst & Young LLP, independent auditors.
RIBOGENE SELECTED HISTORICAL FINANCIAL INFORMATION. The selected historical
financial information of RiboGene as of and for the years ended December 31,
1994, 1995, 1996, 1997 and 1998 has been derived from the financial statements
audited by Ernst & Young LLP, independent auditors. The selected historical
financial information provided below relating to RiboGene for the six months
ended June 30, 1998 and 1999 is derived from the unaudited financial statements
of RiboGene. In RiboGene's management's opinion, all adjustments, which consist
of normal recurring adjustments, considered necessary for a fair presentation of
interim financial information have been included. Operating results for the
interim periods presented are not necessarily indicative of the results that may
be expected for the year ending December 31, 1999.
The financial statement data provided below should be read in conjunction
with, and is qualified in its entirety by reference to, the financial statements
and the related notes included elsewhere in this prospectus/joint proxy
statement, "Cypros Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "RiboGene Management's Discussion and Analysis of
Financial Condition and Results of Operations."
12
<PAGE>
SUMMARY SELECTED HISTORICAL FINANCIAL INFORMATION
CYPROS PHARMACEUTICAL CORPORATION
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................... $ -- $ 1,275 $ 2,428 $ 3,446 $ 2,518
Gross profit................................ -- 870 1,890 2,675 1,747
Total operating expenses.................... 3,910 4,988 7,466 9,139 9,255
Loss from operations........................ (3,910) (4,118) (5,576) (6,464) (7,508)
Other income (expense), net................. 797 1,028 (1,099) 891 724
Net loss.................................... (3,113) (3,090) (6,675) (5,573) (6,784)
Net loss per share--basic and diluted....... (0.32) (0.27) (0.54) (0.37) (0.43)
Shares used in computing net loss per
share-- basic and diluted................. 9,860 11,518 12,303 15,187 15,712
</TABLE>
<TABLE>
<CAPTION>
JULY 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................... $ 13,442 $ 15,997 $ 14,567 $ 13,444 $ 5,474
Investment grade securities, non-current
portion................................... -- -- -- -- 1,789
Property, plant and equipment, net.......... 412 608 676 1,064 1,472
Purchased technology, net................... -- 2,629 5,061 4,163 3,266
Working capital............................. 12,934 15,384 13,076 13,378 5,261
Total assets................................ 14,175 20,266 21,345 19,736 13,139
Long-term debt.............................. 195 6,624 4,176 217 147
Common stock................................ 20,945 23,421 32,345 41,328 41,497
Accumulated deficit......................... (7,392) (10,482) (17,157) (22,730) (29,514)
Total shareholders' equity.................. 13,366 12,635 15,026 18,511 11,914
</TABLE>
13
<PAGE>
SUMMARY SELECTED HISTORICAL FINANCIAL INFORMATION
RIBOGENE, INC.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract research........................ $ -- $ -- $ 1,112 $ 1,668 $ 2,569 $ 1,388 $ 1,003
Grants................................... 238 407 975 1,303 594 403 --
Royalty revenue.......................... -- -- -- -- -- -- 4
--------- --------- --------- --------- --------- --------- ---------
Total revenues............................. 238 407 2,087 2,971 3,163 1,791 1,007
Total operating expenses................... 11,633 7,421 5,668 7,077 10,329 3,615 7,564
--------- --------- --------- --------- --------- --------- ---------
Loss from operations....................... (11,395) (7,014) (3,581) (4,106) (7,166) (1,824) (6,557)
Interest income (expense), net............. (42) (240) (282) (7) 605 (35) 380
--------- --------- --------- --------- --------- --------- ---------
Net loss................................... (11,437) (7,254) (3,863) (4,113) (6,561) (1,859) (6,177)
Deemed dividend upon conversion of
preferred stock.......................... -- -- -- -- (7,989) (7,989) --
--------- --------- --------- --------- --------- --------- ---------
Net loss attributable to common
stockholders............................. $ (11,437) $ (7,254) $ (3,863) $ (4,113) $ (14,550) $ (9,848) $ (6,177)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share--basic and diluted...... $ (300.97) $ (164.86) $ (52.92) $ (41.13) $ (4.49) $ (10.59) $ (1.09)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in computing net loss per
share-- basic and diluted................ 38 44 73 100 3,244 930 5,660
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.............................. $ 4,416 $ 1,897 $ 1,981 $ 2,167 $ 29,518 $ 18,696 $ 25,693
Working capital (deficit).................. 2,133 (1,762) (954) (1,745) 26,261 15,864 20,911
Total assets............................... 5,105 2,404 2,657 4,312 31,820 20,110 28,256
Long-term obligations...................... 3,192 2,656 1,494 477 5,718 379 6,198
Accumulated deficit........................ (20,467) (27,721) (31,584) (35,697) (42,258) (37,556) (48,435)
Total stockholders' equity (deficit)....... (504) (4,029) (1,956) (162) 22,755 16,573 17,131
</TABLE>
14
<PAGE>
COMPARATIVE PER SHARE DATA
The following table provides historical per share data of Cypros and
RiboGene and combined per share data on an unaudited pro forma basis after
giving effect to the merger as a purchase of RiboGene by Cypros assuming the
merger had been effected during the periods presented. This data should be read
in conjunction with the selected financial data, the unaudited pro forma
combined financial information and the separate historical financial statements
of Cypros and RiboGene, and notes, included elsewhere in this prospectus/joint
proxy statement. The pro forma combined financial data is not necessarily
indicative of the operating results that would have been achieved had the merger
been completed as of the beginning of the periods indicated nor is this data
necessarily indicative of future financial condition or results of operations.
For purposes of the comparative per share data, Cypros' financial data for the
year ended July 31, 1999 has been combined with RiboGene's financial data for
the year ended June 30, 1999.
<TABLE>
<CAPTION>
CYPROS RIBOGENE
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
JULY 31, 1999 JUNE 30, 1999
--------------------- ---------------------
<S> <C> <C>
Historical:
Basic and diluted net loss per share(1)................... $ (0.43) $ (1.94)
Book value per share(2)................................... $ 0.76 $ 2.38
Pro Forma Consolidated:
Basic and diluted net loss per share...................... $ (0.73) N/A
Book value per share(3)................................... $ 0.97 N/A
Equivalent Pro Forma Consolidated--
per RiboGene share(1)(4):
Basic and diluted net loss per share...................... N/A $ (1.09)
Book value per share...................................... N/A $ 1.45
</TABLE>
- ------------------------
(1) Shares of RiboGene Series A preferred stock are excluded from the pro forma
net loss per share computations due to their anti-dilutive nature.
(2) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock and all shares of preferred
stock on an as-if-converted basis at the balance sheet date.
(3) The pro forma combined book value per share is computed by dividing pro
forma shareholders' equity by the pro forma number of shares of Cypros
common stock, including all shares of Cypros Series A preferred stock on an
as-if-converted basis outstanding at the end of each period.
(4) The RiboGene equivalent pro forma combined per share amounts are calculated
by multiplying the Cypros combined pro forma per share amounts by an assumed
exchange ratio of 1.494 per share of RiboGene common stock.
15
<PAGE>
RISK FACTORS
THE MERGER INVOLVES A HIGH DEGREE OF RISK. ALSO, BY VOTING IN FAVOR OF IT,
RIBOGENE STOCKHOLDERS WILL BE CHOOSING TO INVEST IN CYPROS COMMON STOCK. AN
INVESTMENT IN CYPROS COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. CYPROS
SHAREHOLDERS AND RIBOGENE STOCKHOLDERS SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS IN EVALUATING WHETHER TO APPROVE THE MERGER. YOU SHOULD CONSIDER
THESE FACTORS IN CONJUNCTION WITH THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS/JOINT PROXY STATEMENT AND THE ANNEXES AND EXHIBITS TO THIS
PROSPECTUS/JOINT PROXY STATEMENT. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
THE BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF EITHER OR BOTH OF
CYPROS AND RIBOGENE MAY BE SERIOUSLY HARMED. IN THIS CASE, THE TRADING PRICE OF
CYPROS COMMON STOCK MAY DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT.
RISKS RELATED TO THE MERGER
INTEGRATION OF THE OPERATIONS OF CYPROS AND RIBOGENE MAY BE DIFFICULT AND LEAD
TO ADVERSE EFFECTS
The realization of the anticipated benefits of the merger will depend in
part on whether Cypros and RiboGene can integrate their operations in an
efficient and effective manner. Integrating Cypros and RiboGene will be a
complex, time consuming and expensive process. Successful integration will
require combining the companies' respective:
- research, development and manufacturing efforts;
- scientific and management cultures;
- strategic goals;
- boards of directors;
- business development efforts; and
- geographically separate facilities.
Cypros and RiboGene may not accomplish this integration smoothly or
successfully or the business synergies may not develop as quickly or to the
extent currently expected. The diversion of the attention of management to the
integration effort and any difficulties encountered in combining operations
could cause the interruption of, or a loss of momentum in, the activities of
either or both of the companies' businesses. Furthermore, employee morale may
suffer, and RiboGene and Cypros may have difficulties retaining key scientific
and managerial personnel. If the combined company is unable to address any of
the foregoing risks, it could materially harm the combined company's business
and impair the value of the combined company's stock.
CYPROS SHAREHOLDERS AND RIBOGENE STOCKHOLDERS COULD BE ADVERSELY AFFECTED BY THE
MOVEMENT OF CYPROS' STOCK PRICE PRIOR TO CLOSING
Assuming the outstanding fully diluted capitalization of the companies are
constant, the number of shares of Cypros common stock and common stock
equivalents being issued to RiboGene stockholders, option holders and warrant
holders is fixed so long as the average daily closing price over the 20
consecutive trading days ending the day before the Cypros special meeting is
between $1.464 and $2.475. If the average closing price of the Cypros common
stock is above that range for the 20-day period, then Cypros will issue fewer
shares of Cypros common stock and common stock equivalents to former holders of
RiboGene common stock and RiboGene Series A preferred stock. There is no limit
on how low the issued shares could reach. Conversely, if the average closing
price of Cypros common stock for average closing is below that range, then
Cypros will issue more shares of common stock and common stock equivalents to
former holders of RiboGene common stock and RiboGene Series A preferred stock.
If this happens and RiboGene's stockholders, option holders and warrant holders
would otherwise end up with beneficial ownership of more than 50% of the
combined company, Cypros has the right to terminate the merger agreement upon
the payment of a $1,000,000 fee to RiboGene.
16
<PAGE>
THE MERGER WILL RESULT IN COSTS OF INTEGRATION AND TRANSACTION EXPENSES THAT
COULD ADVERSELY AFFECT THE COMBINED COMPANY'S FINANCIAL RESULTS
If the benefits of the merger do not exceed the costs associated with the
merger, including the dilution to Cypros' shareholders resulting from the
issuance of shares of Cypros common stock and Cypros Series A preferred stock in
connection with the merger, the combined company's financial results could be
adversely affected. Cypros and RiboGene estimate that they will incur total
transaction costs of approximately $2.8 million associated with the merger and
potential related severance, retention and relocation costs and bonus payments
of approximately $3.8 million. It is also expected that the combined company
will incur significant costs after completion of the merger associated with
integrating the operations of Cypros and RiboGene. These costs may include the
elimination of duplicate operations and consolidation of administration, support
and research and development activities.
Actual costs may substantially exceed the parties' estimates. In addition,
unanticipated expenses associated with integrating the two companies may arise.
It is expected that the combined company will incur a charge currently estimated
to be $15 million in the second quarter of the fiscal year ending July 31, 2000
to reflect the combined company's write-off of RiboGene's in-process research
and development efforts. Cypros may also incur additional charges in subsequent
quarters to reflect costs associated with the merger.
THE COMBINED COMPANY MAY NOT SUCCESSFULLY MANAGE ITS GROWTH OR INTEGRATE
POTENTIAL FUTURE ACQUISITIONS
In the future, the combined company may make additional acquisitions of
companies, products or technologies. Managing these acquired businesses will
entail numerous operational and financial risks and strains, including:
- difficulties in assimilating acquired operations and scientific cultures;
- potential disruption of the combined company's ongoing business;
- amortization of acquired intangible assets; and
- potential loss of key employees or strategic relationships of acquired
entities.
Neither Cypros nor RiboGene has significant experience in the identification
and management of acquisitions. If the combined company is unable to
successfully address any of the foregoing risks, or if the combined company is
not able to manage effectively its growth, it could adversely affect the
combined company's business and stock price.
RISKS RELATED TO BOTH CYPROS AND RIBOGENE
CYPROS AND RIBOGENE HAVE A HISTORY OF OPERATING LOSSES AND THE COMBINED COMPANY
MAY NEVER GENERATE SUFFICIENT REVENUE TO ACHIEVE PROFITABILITY
Neither Cypros nor RiboGene has ever been profitable and both companies have
histories of consistent operating losses. Further, the combined company expects
that substantial and increasing operating losses will continue over the next
several years. To date, Cypros' revenues have been generated principally from
sales of Glofil, Inulin and Ethamolin, and substantially all of RiboGene's
revenues have resulted from payments under research and license agreements and
government grants. The combined company does not expect Cordox, Ceresine,
Emitasol or any of the compounds currently in pre-clinical testing by Cypros or
RiboGene to be commercially available for a number of years, if at all. Further,
the combined company's revenues will also be dependent on the success of the
lead compounds and potential drug candidates developed through RiboGene's
collaboration agreement with Dainippon and the approval and sale of Emitasol in
conjunction with Roberts Pharmaceutical, both as described below. Although new
product launches are planned, there can be no assurance that sufficient
17
<PAGE>
revenues from new products will be generated. Further, there can be no assurance
that the combined company will ever generate sufficient revenues to become
profitable. The combined company's ability to achieve a consistent, profitable
level of operations will be dependent in large part upon its ability to:
- acquire additional marketed products;
- finance product acquisitions;
- increase sales of current products;
- finance the growth of the combined company's sales and marketing
organization;
- enter into agreements with corporate partners for product research,
development and commercialization;
- obtain regulatory approvals for products; and
- obtain FDA approval of its manufacturing facility and successfully
manufacture products.
The failure to consistently achieve any of these goals could materially harm
the business of the combined company and impair the value of the combined
company's stock.
THE COMBINED COMPANY MAY BE UNABLE TO EXPAND ITS SALES AND MARKETING FORCE IN
ORDER TO ACHIEVE ITS COMMERCIAL POTENTIAL
Cypros' current sales and marketing force is not large enough to fully
exploit the potential of Glofil, Inulin and Ethamolin. Further, it is not large
enough to directly market and sell the Dermaflo product line nor does it
currently have any personnel with experience in the burn and wound care markets.
RiboGene has no experience in marketing drugs and has granted marketing rights
to corporate partners in connection with some products. If the combined company
cannot financially support a larger sales force or is unable to add enough
qualified people to that organization, then the combined company will not be
able to exploit its products' potential, which could materially harm the
combined company and impair the value of the combined company's stock.
ANY FAILURE TO MAINTAIN OR ENTER INTO NEW CONTRACTS RELATED TO COLLABORATIONS
AND IN-LICENSED OR ACQUIRED TECHNOLOGY AND PRODUCTS COULD ADVERSELY AFFECT THE
COMBINED COMPANY
Cypros' business model has been dependent on its ability to enter into
licensing and acquisition arrangements with commercial or academic entities to
obtain technology or marketed products for development and commercialization.
Disputes may arise regarding the inventorship and corresponding rights in
inventions and know-how resulting from the joint creation or use of intellectual
property by Cypros and its licensors or scientific collaborators. Additionally,
many of Cypros' existing in-licensing and acquisition agreements contain
milestone-based termination provisions. The combined company's failure to meet
any significant milestones in a particular agreement could allow the licensor or
seller to terminate the agreement. In addition, the combined company may not be
able to negotiate additional license and acquisition agreements in the future on
acceptable terms, if at all. In addition, current license and acquisition
agreements may be terminated, and the combined company may not be able to
maintain the exclusivity of its exclusive licenses.
RiboGene has historically depended upon corporate partners for the
development, preclinical and clinical testing, manufacturing and
commercialization of new drugs based on its research and development activities.
RiboGene has relied upon the performance of these outside parties to provide
funding for its research programs, further develop lead compounds or potential
product candidates, provide access to additional compound libraries, conduct
preclinical studies and clinical trials, obtain regulatory approvals and
manufacture and market any resulting products. In particular, Emitasol is the
only RiboGene compound in clinical trials. There can be no assurance that the
remaining trial(s) will be completed on a timely basis or that Emitasol will be
approved by the FDA. Further, Roberts Pharmaceutical recently announced that it
was merging with Shire Pharmaceuticals Group PLC and it is not known whether
Emitasol will be a priority development program for that combined company
post-merger. If the development program for Emitasol is not completed on a
timely basis, or if it is
18
<PAGE>
completed on a timely basis but is never approved, or not timely approved, by
the FDA, then the combined company will be adversely affected.
The failure of the combined company to maintain or obtain rights under
licensing arrangements, maintain the Roberts Pharmaceutical collaboration
relationship or to enter into agreements with additional collaborators, and to
develop, obtain regulatory approval for, and market products incorporating, the
combined company's product acquisitions and discoveries could materially harm
the combined company's business and impair the value of the combined company's
stock.
There can be no assurance that any collaborators will commit sufficient
development resources, technology, regulatory expertise, manufacturing,
marketing and other resources towards developing, promoting and commercializing
products incorporating RiboGene's or the combined company's discoveries.
Further, competitive conflicts may arise among these third parties that could
prevent them from working cooperatively with the combined company. The amount
and timing of resources devoted to these activities by the parties could depend
on the achievement of milestones by the combined company and otherwise generally
will be controlled by the parties. In addition, the combined company expects
that its agreements with future collaborators will likely permit the
collaborators to terminate their agreements upon written notice to the combined
company. This type of termination would substantially reduce the likelihood that
the applicable research program or any lead candidate or candidates would be
developed into a drug candidate, would obtain regulatory approvals and would be
manufactured and successfully commercialized. Therefore, any such termination
could materially harm the combined company's business and impair the value of
the combined company's stock.
There can be no assurance that any of the combined company's collaborations
will be successful in developing and commercializing products or that the
combined company will receive milestone payments or generate revenues from
royalties sufficient to offset its significant investment in product development
and other costs. There also can be no assurance that disputes will not arise in
the future with collaborators, including with respect to the ownership of rights
to any technology developed pursuant to the collaboration. These and other
possible disagreements between collaborators and the combined company could lead
to delays or interruptions in, or termination of, collaborative development and
commercialization of certain potential products or could require or result in
litigation or arbitration, which could be time-consuming and expensive and could
have a material adverse effect on the combined company's business, financial
condition and results of operations.
THE COMBINED COMPANY EXPECTS TO INCUR EXPENSE RELATED TO ITS COLLABORATION
AGREEMENT WITH ROBERTS PHARMACEUTICAL CORPORATION
RiboGene is obligated to fund one-half of clinical development expense for
Emitasol under its corporate partnering agreement with Roberts Pharmaceutical
Corporation, up to an aggregate of $7 million. As of June 30, 1999, expenses of
$1.9 million has been incurred by RiboGene. Incurrence of these expenses by the
combined company in the period they become due will have a material adverse
effect on the combined company's financial condition and results of operation
for that period and may impair the value of its stock.
THE COMBINED COMPANY'S SUCCESS DEPENDS IN PART ON TIMELY COMPLETION OF DERMAFLO
MANUFACTURING FACILITY AND THE COMMERCIALIZATION OF DERMAFLO
In order to commercialize Cypros' current Dermaflo technology, Cypros and
the combined company will need to complete and validate its manufacturing
facility in Lee's Summit, Missouri and validate various methods and systems. In
addition, the facility must successfully pass an inspection by the FDA and
comply with local state and federal requirements. There is no assurance that
Cypros or the combined company will be able to meet these requirements and no
assurance that the facility will pass the FDA inspection. The combined company's
failure to meet these requirements or for the
19
<PAGE>
facility to pass FDA inspection could materially harm the combined company's
business and impair the value of the combined company's stock.
THE COMBINED COMPANY'S BUSINESS COULD BE HARMED IF IT IS UNABLE TO PROTECT ITS
PROPRIETARY RIGHTS
The combined company's success will depend in part on its ability to:
- obtain patents for its products and technologies;
- protect trade secrets;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing on Cypros' and RiboGene's proprietary
rights.
The combined company will only be able to protect its proprietary rights
from unauthorized use by third parties to the extent that these rights are
covered by valid and enforceable patents or are effectively maintained as trade
secrets and are otherwise protectable under applicable law. Each of Cypros and
RiboGene currently, and the combined company will, attempt to protect its
proprietary position by filing United States and foreign patent applications
related to its proprietary products, technology, inventions and improvements
that are important to the development of its business.
The patent positions of biotechnology and biopharmaceutical companies
involve complex legal and factual questions and, therefore, enforceability
cannot be predicted with certainty. Patents, if issued, may be challenged,
invalidated or circumvented. Thus, any patents that the combined company owns or
licenses from third parties may not provide any protection against competitors.
Cypros' and RiboGene's pending patent applications, those that they or the
combined company may file in the future, or those they or the combined company
may license from third parties, may not result in patents being issued. Also,
patent rights may not provide the combined company with proprietary protection
or competitive advantages against competitors with similar technology.
Furthermore, others may independently develop similar technologies or duplicate
any technology that Cypros or RiboGene have developed or that the combined
company will develop. The laws of some foreign countries may not protect the
combined company's intellectual property rights to the same extent as do the
laws of the United States.
In addition to patents, the combined company will rely on trade secrets and
proprietary know-how. Each of Cypros and RiboGene currently, and the combined
company will, seek protection, in part, through confidentiality and proprietary
information agreements. These agreements may not provide meaningful protection
or adequate remedies for proprietary technology in the event of unauthorized use
or disclosure of confidential and proprietary information. The parties may not
comply or may breach these agreements. Furthermore, Cypros', RiboGene's or the
combined company's trade secrets may otherwise become known to, or be
independently developed by competitors.
The combined company's success will further depend, in part, on its ability
to operate without infringing the proprietary rights of others. There can be no
assurance that its activities will not infringe patents owned by others. The
combined company could incur substantial costs in defending itself in suits
brought against it or any licensor. Should the combined company's products or
technologies be found to infringe patents issued to third parties, the
manufacture, use and sale of its products could be enjoined, and the combined
company could be required to pay substantial damages. In addition, the combined
company, in connection with the development and use of its products and
technologies, may be required to obtain licenses to patents or other proprietary
rights of third parties. No assurance can be given that any licenses required
under any such patents or proprietary rights would be made available on terms
acceptable to the combined company, if at all. Failure to obtain these licenses
could materially harm the combined company and impair the value of the combined
company's stock.
20
<PAGE>
THE COMBINED COMPANY'S INABILITY TO SECURE ADDITIONAL FUNDING COULD LEAD TO A
LOSS OF YOUR INVESTMENT
The combined company will require substantial capital resources in order to
acquire new products, increase sales of existing products, and conduct its
various clinical and pre-clinical programs. The combined company's future
capital requirements will depend on many factors, including the following:
- product sales performance,
- cost of sales force expansion,
- combined company operating efficiencies, and
- cost of research and development programs.
The combined company will require additional funding, which it expects to
obtain through corporate partnerships and public or private debt or equity
financings.
However, additional financing may not be available to the combined company
on acceptable terms, if at all. Further, additional equity financings will be
dilutive to the combined company's shareholders. If sufficient capital is not
available, then the combined company may be required to delay, reduce the scope
of, eliminate or divest one or more of its product acquisition, clinical
programs or manufacturing efforts. Failure of the combined company to obtain
additional financing or generate sufficient revenues may also lead to a default
under the financial condition covenants of the bank credit line agreements of
the combined company. The combined company believes that its existing capital
resources, committed payments under existing corporate partnerships and
licensing arrangements and interest income will be sufficient to fund its
current and planned operations into the second half of year 2000.
THE COMBINED COMPANY'S BUSINESS COULD BE HARMED BY INTENSE COMPETITION
The biotechnology and pharmaceutical industries are intensely competitive
and subject to rapid and significant technological change. A number of companies
are pursuing the development of pharmaceuticals and products which target the
same diseases and conditions that the combined company will target. For example,
there are products on the market that compete with Glofil, Inulin and Ethamolin
and there is another company in late stage clinical trials of a drug for sickle
cell crisis patients, which if approved by the FDA, would compete with Cordox.
Moreover, technology controlled by third parties that may be advantageous to
the combined company's business may be acquired or licensed by competitors of
the combined company, preventing the combined company from obtaining this
technology on favorable terms, or at all.
The combined company's ability to compete will depend on its abilities to
create and maintain scientifically advanced technology and to develop and
commercialize pharmaceutical products based on this technology, as well as its
ability to attract and retain qualified personnel, obtain patent protection or
otherwise develop proprietary technology or processes and secure sufficient
capital resources for the expected substantial time period between technological
conception and commercial sales of products based upon its technology.
Many of the companies developing competing technologies and products have
significantly greater financial resources and expertise in development,
manufacturing, clinical testing, obtaining regulatory approvals and marketing
than the combined company. Other smaller companies may also prove to be
significant competitors, particularly through collaborative arrangements with
large and established companies. Academic institutions, government agencies and
other public and private research organizations may also seek patent protection
and establish collaborative arrangements for clinical development, manufacturing
and marketing of products similar to those of the combined company. These
companies and institutions will compete with the combined company in recruiting
and retaining qualified scientific and management personnel as well as in
acquiring technologies complementary to the combined company's programs. The
combined company will face competition with respect to:
- product efficacy and safety;
- the timing and scope of regulatory approvals;
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- availability of resources;
- reimbursement coverage;
- price; and
- patent position, including potentially dominant patent positions of
others.
There can be no assurance that competitors will not succeed in developing
technologies and drugs that are more effective or less costly than any which are
being developed by Cypros or RiboGene or which would render the combined
company's technology and future drugs obsolete and noncompetitive. In addition,
the combined company's competitors may succeed in obtaining the approval of the
FDA or other regulatory approvals for drug candidates more rapidly than the
combined company. Companies that complete clinical trials, obtain required
regulatory agency approvals and commence commercial sale of their drugs before
their competitors may achieve a significant competitive advantage, including
patent and FDA marketing exclusivity rights that would delay the combined
company's ability to market specific products. There can be no assurance that
drugs resulting from the combined company's development efforts, or from the
joint efforts of the combined company and its existing or future collaborative
partners, will be able to compete successfully with competitors' existing
products or products under development or that they will obtain regulatory
approval in the United States or elsewhere.
THE COMBINED COMPANY'S RELIANCE ON CONTRACT MANUFACTURERS COULD ADVERSELY AFFECT
THE COMBINED COMPANY'S BUSINESS
The combined company will rely on third party contract manufacturers to
produce the clinical supplies for Cordox and Ceresine and for the marketed
products, Glofil, Inulin and Ethamolin, and other products that may be developed
or commercialized in the future. RiboGene has no manufacturing capabilities.
Third party manufacturers may not be able to meet the combined company's needs
with respect to timing, quantity or quality. If the combined company is unable
to contract for a sufficient supply of required products and substances on
acceptable terms, or if it should encounter delays or difficulties in its
relationships with its manufacturers, the combined company would lose sales and
its clinical testing would be delayed, leading to a delay in the submission of
products for regulatory approval or the market introduction and subsequent sales
of these products. Moreover, contract manufacturers that the combined company
may use must continually adhere to current good manufacturing practices
regulations enforced by the FDA. If the facilities of these manufacturers cannot
pass an inspection, the FDA approval of the combined company's products will not
be granted.
THE COMBINED COMPANY'S PRODUCTS MAY NOT BE ACCEPTED BY THE MARKET
Any products successfully developed by the combined company, if approved for
marketing, may never achieve market acceptance. These products, if successfully
developed, will compete with drugs and therapies manufactured and marketed by
major pharmaceutical and other biotechnology companies. Physicians, patients or
the medical community in general may not accept and utilize any products that
may be developed by the combined company or its corporate partners.
The degree of market acceptance of any products developed by the combined
company will depend on a number of factors, including:
- the establishment and demonstration of the clinical efficacy and safety of
the product candidates;
- their potential advantage over alternative treatment methods;
- reimbursement policies of government and third-party payors; and
- the ability of the combined company to effectively market and promote the
products.
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THE COMBINED COMPANY'S BUSINESS AND PRODUCT APPROVALS MUST COMPLY WITH STRICT
GOVERNMENT REGULATION
Any products developed by Cypros, RiboGene and the combined company are
subject to regulation by federal, state and local governmental authorities in
the United States, including the FDA, and by similar agencies in other
countries. Any product developed by Cypros, RiboGene or the combined company
must receive all relevant regulatory approvals or clearances before it may be
marketed in a particular country. The regulatory process, which includes
extensive preclinical studies and clinical trials of each product to establish
its safety and efficacy, is uncertain, can take many years and requires the
expenditure of substantial resources. Data obtained from preclinical and
clinical activities are susceptible to varying interpretations which could
delay, limit or prevent regulatory approval or clearance. In addition, delays or
rejections may be encountered based upon changes in regulatory policy during the
period of product development and the period of review of any application for
regulatory approval or clearance for a product. Delays in obtaining regulatory
approvals or clearances:
- would adversely affect the marketing of any products developed by the
combined company or its corporate partners;
- could impose significant additional costs on the combined company and its
corporate partners;
- could diminish any competitive advantages that the combined company or its
corporate partners may attain; and
- could adversely affect the combined company's ability to receive royalties
and generate revenues and profits.
Regulatory approval, if granted, may entail limitations on the indicated
uses for which the new product may be marketed that could limit the potential
market for the product. Product approvals, once granted, may be withdrawn if
problems occur after initial marketing. Furthermore, manufacturers of approved
products are subject to pervasive review, including compliance with detailed
regulations governing FDA good manufacturing practices. The FDA has recently
revised the good manufacturing practices regulations. The new FDA quality system
regulation imposes design controls and makes other significant changes in the
requirements applicable to manufacturers. Failure to comply with applicable
regulatory requirements can result in warning letters, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, refusal of the government to renew marketing applications and
criminal prosecution.
In addition, the combined company cannot predict the extent of government
regulations or the impact of new governmental regulations that might have an
adverse effect on the development, production and marketing of the combined
company's products. The combined company may be required to incur significant
costs to comply with current or future laws or regulations. The combined
company's business may be harmed by the cost of this compliance.
THE COMBINED COMPANY WILL FACE UNCERTAINTY RELATED TO PRICING AND REIMBURSEMENT
AND HEALTH CARE REFORM
In both domestic and foreign markets, sales of the combined company'
products will depend in part on the availability of reimbursement from
third-party payors such as:
- government health administration authorities;
- private health insurers;
- health maintenance organizations;
- pharmacy benefit management companies; and
- other healthcare-related organizations.
Both the federal and state governments in the United States and foreign
governments continue to propose and pass new legislation designed to contain or
reduce the cost of health care. Existing regulations affecting the pricing of
pharmaceuticals and other medical products may also change before
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any of the combined company's or its corporate partners' products are approved
for marketing. Cost control initiatives could decrease the price that the
combined company receives for any product it or any of its corporate partners
may develop in the future. In addition, third-party payors are increasingly
challenging the price and cost-effectiveness of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products, including pharmaceuticals. The combined company's or its
corporate partners' products may not be considered cost effective or adequate
third-party reimbursement may not be available to enable the combined company or
its corporate partners to maintain price levels sufficient to realize a return
on their investment and that failure could materially harm the combined
company's business and impair the value of the combined company's stock.
THE COMBINED COMPANY'S BUSINESS MAY BE AFFECTED BY PRODUCT LIABILITY AND
AVAILABILITY OF INSURANCE
The combined company's business will expose it to potential liability risks
that are inherent in the testing, manufacturing and marketing of pharmaceutical
products. The use of any drug candidates ultimately developed by the combined
company or its collaborators in clinical trials may expose it to product
liability claims and possible adverse publicity. These risks will expand for any
of the combined company's drug candidates that receive regulatory approval for
commercial sale. Product liability insurance for the pharmaceutical industry is
generally expensive, if available at all. Cypros currently has product liability
insurance, however, there can be no assurance that the combined company will be
able to maintain insurance coverage at acceptable costs or in a sufficient
amount, if at all, or that a product liability claim would not harm the combined
company's reputation, stock price or its business.
THE COMBINED COMPANY WILL BE DEPENDENT ON KEY PERSONNEL
The combined company will be highly dependent on the services of Charles J.
Casamento, President, Chief Executive Officer and Chairman of the Board of
RiboGene, who will serve as Chairman of the Board, President and Chief Executive
Officer of the combined company after the merger. Cypros and Mr. Casamento have
executed an employment agreement to be effective upon the closing of the merger.
However, there can be no assurance that Mr. Casamento will continue to be
employed by combined company in the future. The loss of Mr. Casamento could
materially harm the combined company's business. The integration of the separate
businesses of Cypros and RiboGene, and the combined company's potential growth
and expansion are expected to place increased demands on the combined company's
management skills and resources. These demands are expected to require a
substantial increase in management and scientific personnel and the development
of additional expertise by existing management personnel. Accordingly,
recruiting and retaining management and operational personnel and qualified
scientific personnel development work in the future will also be critical to the
combined company's success. There can be no assurance that the combined company
will be able to attract and retain skilled and experienced management,
operational and scientific personnel on acceptable terms given the extensive
competition among numerous pharmaceutical and biotechnology companies,
universities and other research institutions for such personnel. The failure to
attract and retain this personnel or to develop this expertise could materially
harm the combined company's business and impair the price of the combined
company's stock.
THE COMBINED COMPANY WILL FACE POTENTIAL VOLATILITY IN ITS STOCK PRICE
The market prices for securities of pharmaceutical and biotechnology
companies have in the past been, and can in the future be expected to be,
especially volatile. The market price of the combined company's common stock
after the merger will continue to be subject to substantial volatility depending
upon many factors, including:
- announcements regarding the acquisition of technologies, products or
companies, including the merger;
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- technological innovations or new commercial products developed by the
combined company or its competitors;
- regulatory changes and developments that affect the combined company's
business;
- developments or disputes concerning patent and proprietary rights and
other legal matters;
- establishment of additional corporate partnerships or licensing
arrangements;
- issuance of new or changed stock market analyst reports and/or
recommendations;
- economic and other external factors; and
- fluctuations in the combined company's financial results and degree of
trading liquidity in its common stock.
One or more of these factors could significantly harm the combined company's
business and decrease the price of its common stock in the public market.
THE COMBINED COMPANY COULD BE ADVERSELY AFFECTED BY OUTSTANDING LITIGATION
Cypros is a defendant in a lawsuit brought in the United States Bankruptcy
Court for the Southern District of New York by the Trustee for the Liquidation
of the Business of A.R. Baron & Co., Inc. and the Trustee of The Baron Group,
Inc., the parent of A.R. Baron. The complaint alleges that A.R. Baron and the
Baron Group made preferential or fraudulent transfers of funds to Cypros prior
to the commencement of bankruptcy proceedings involving A.R. Baron and the Baron
Group. The Trustee is seeking return of the funds, totaling approximately $3.2
million. Cypros believes that the Trustee's claims are unfounded and is
contesting the allegations in the complaint vigorously. Cypros contends that the
transfers challenged by the Trustee relate to (1) the exercise by A.R. Baron in
1995 of unit purchase options issued to it in 1992 as part of its negotiated
compensation for underwriting Cypros' initial public offering and (2) the
repayment by the Baron Group of the principal and interest (at 12% per annum)
payments and loan extension fees related to collateralized loans made to it by
Cypros in 1995 and 1996. There can be no assurance that Cypros or the combined
company will prevail in this lawsuit. Further, if Cypros or the combined company
does not prevail, then there is no assurance that it will have sufficient
insurance coverage to pay any costs, expenses and losses. If Cypros or the
combined company does not prevail and if it does not have sufficient insurance
coverage, then the financial condition of the combined company could be
materially harmed.
RISKS SPECIFIC TO EITHER CYPROS OR RIBOGENE
CYPROS SHAREHOLDERS FACE IMMEDIATE DILUTION AS A RESULT OF THE MERGER
Cypros' shareholders will experience immediate and substantial dilution as a
result of the shares of Cypros common stock issued to RiboGene stockholders in
the merger. Additional dilution will also occur:
- upon conversion of the Series A preferred stock issued in the merger into
combined company common stock; or
- if there is exercise of any of the outstanding options or warrants to
purchase RiboGene common stock that will be assumed by Cypros in the
merger.
RIBOGENE'S SUCCESS DEPENDS ON EMITASOL
Concurrent with the signing of the merger agreement with Cypros, RiboGene
modified its strategy and focused all of its efforts on the clinical trial of
Emitasol in the United States, the licensing and potential registration of
Emitasol in Europe and on its antibacterial drug discovery efforts. As RiboGene
intends to spin off or eliminate all of its drug discovery efforts, RiboGene's
success will depend in large part on the successful clinical trial and ultimate
approval of Emitasol in the United States. RiboGene's success also will depend
on its ability to successfully enter into licensing arrangements and to obtain
additional regulatory approvals in Europe. There can be no assurance that the
planned clinical trial for Emitasol in the United States will be successful or,
if the trial is successful, that Emitasol will be approved for sale. There can
also be no assurance that RiboGene will be successful in entering into licensing
agreements and obtaining additional regulatory approvals in Europe.
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THE CYPROS SPECIAL MEETING
At the Cypros special meeting, the Cypros shareholders will consider and
vote upon the approval of the merger, the amendments to Cypros' articles of
incorporation, the amendment to Cypros' bylaws, the amendment to Cypros' stock
option plan, and the amendment to Cypros' directors' equity incentive plan and
other matters as may properly come before the Cypros special meeting or any
adjournments or postponements of the meeting.
THE CYPROS BOARD HAS UNANIMOUSLY APPROVED THE MERGER, THE AMENDMENTS TO
CYPROS' ARTICLES OF INCORPORATION, THE AMENDMENT TO CYPROS' BYLAWS, THE
AMENDMENT TO THE STOCK OPTION PLAN AND THE AMENDMENT TO THE DIRECTORS' EQUITY
INCENTIVE PLAN, AND UNANIMOUSLY RECOMMENDS THAT CYPROS SHAREHOLDERS VOTE FOR
EACH OF THESE PROPOSALS.
RECORD DATE
The Cypros board has fixed the close of business on September 15, 1999 as
the Cypros record date for determining holders entitled to notice of and to vote
at the Cypros special meeting.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of Cypros common stock is
necessary to constitute a quorum at the Cypros special meeting. Abstentions and
broker non-votes will each be included in determining whether a quorum is
present.
REQUIRED VOTES
Approval of the merger proposal, as well as the proposals relating to the
amendment to Cypros' articles of incorporation and the amendment to Cypros'
bylaws require the affirmative vote of a majority of the outstanding shares of
Cypros common stock. Accordingly, abstentions and broker non-votes are
equivalent to negative votes for purposes of approving these matters. Approval
of the amendment to the stock option plan and the amendment to the directors'
equity incentive plan will require the affirmative vote of the holders of a
majority of the shares of Cypros common stock present in person or represented
by proxy at the Cypros special meeting and voting with respect to these
particular amendments provided a quorum is present. Abstentions are equivalent
to negative votes for purposes of approving the amendment to the stock option
plan and the amendment to the directors' equity incentive plan. Broker non-votes
will not be counted in determining whether these particular amendments have been
approved. Shareholder approval of each of the proposals described above is
required for the merger to occur. If any of these proposals is not approved,
then the merger cannot be completed.
VOTING RIGHTS; PROXIES
As of the Cypros record date, there were 15,735,007 shares of Cypros common
stock issued and outstanding, each of which entitles the holder to one vote. All
shares of Cypros common stock represented by properly executed proxies will,
unless such proxies have been previously revoked, be voted in accordance with
the instructions indicated in such proxies.
IF NO INSTRUCTIONS ARE INDICATED, THE SHARES OF CYPROS COMMON STOCK WILL BE
VOTED IN FAVOR OF APPROVAL OF THE MERGER, THE AMENDMENT TO CYPROS' ARTICLES OF
INCORPORATION, THE AMENDMENT TO CYPROS' BYLAWS, THE AMENDMENT TO THE STOCK
OPTION PLAN AND THE AMENDMENT TO THE DIRECTORS' EQUITY INCENTIVE PLAN.
Cypros does not know of any matters other than as described in the
accompanying notice of the Cypros special meeting that are to come before the
Cypros special meeting. If any other matter or
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matters are properly presented for action at the Cypros special meeting, the
persons named in the enclosed form of proxy and acting thereunder will have the
discretion to vote on the matters in accordance with their best judgment, unless
authorization is withheld. A Cypros shareholder giving a proxy under this proxy
solicitation may revoke it at any time before it is exercised by giving a
subsequent proxy, delivering to the Secretary of Cypros at the address of Cypros
provided elsewhere in this prospectus/joint proxy statement a written notice of
revocation prior to the voting of the proxy at the Cypros special meeting, or
attending the Cypros special meeting and informing the Secretary of Cypros in
writing that the shareholder wishes to vote his or her shares in person.
However, attending the Cypros special meeting will not in and of itself have the
effect of revoking the proxy. Dr. Marangos, who beneficially holds approximately
9.9% of the outstanding shares of common stock of Cypros, has agreed to vote in
favor of the merger proposal as well as the proposals relating to the amendment
to Cypros' articles of incorporation, the amendment to Cypros' bylaws, the
amendment to the stock option plan and the amendment to the directors' equity
incentive plan and not to change his vote prior to the Cypros special meeting.
Votes cast by proxy or in person at the Cypros special meeting will be
tabulated by the inspector of election appointed for the meeting and the
inspector will determine whether or not a quorum is present. The election
inspector will treat abstentions as shares that are present and entitled to vote
for purposes of determining the presence of a quorum. If a broker indicates on
the proxy that it does not have discretionary authority as to some shares to
vote on a particular matter, those shares will be treated as present for
purposes of determining whether or not a quorum is present, but will not be
considered as present and entitled to vote with respect to that matter.
SOLICITATION OF PROXIES
The expenses of the solicitations of proxies for the Cypros special meeting
will be borne by Cypros. In addition to solicitation by mail, proxies may be
solicited by directors, officers and employees of Cypros in person or by
telephone, telegram or other means of communication. These persons will receive
no additional compensation for solicitation of proxies, but may be reimbursed
for reasonable out-of-pocket expenses in connection with the solicitation.
Arrangements will also be made by Cypros with custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of shares held of record by such custodians, nominees and fiduciaries, and
Cypros will reimburse such custodians, nominees and fiduciaries for reasonable
expenses incurred in connection therewith. Cypros has no present plans to hire
special employees or paid solicitors to assist in obtaining proxies, but
reserves the option of doing so if it should appear that a quorum otherwise
might not be obtained.
THE MATTERS TO BE CONSIDERED AT THE CYPROS SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE CYPROS SHAREHOLDERS. ACCORDINGLY, THE CYPROS SHAREHOLDERS ARE
URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS
PROSPECTUS/JOINT PROXY STATEMENT, AND TO COMPLETE, DATE, SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PRE-PAID ENVELOPE.
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THE RIBOGENE SPECIAL MEETING
At the RiboGene special meeting, the RiboGene stockholders will consider and
vote upon the merger proposal.
THE RIBOGENE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND UNANIMOUSLY
RECOMMENDS THAT RIBOGENE STOCKHOLDERS VOTE FOR THE MERGER.
RECORD DATE
The RiboGene board has fixed the close of business on September 15, 1999 as
the RiboGene record date for determining holders entitled to notice of and to
vote at the RiboGene special meeting.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of RiboGene common stock is
necessary to constitute a quorum at the RiboGene special meeting. Abstentions
and broker non-votes will each be included in determining whether a quorum is
present.
REQUIRED VOTES
Approval of the merger proposal requires the affirmative vote of a majority
of the outstanding shares of RiboGene common stock. Accordingly, abstentions are
equivalent to negative votes for purposes of approving the merger proposal.
VOTING RIGHTS; PROXIES
As of the RiboGene record date, there were 5,783,954 shares of RiboGene
common stock issued and outstanding, each of which entitles its holder to one
vote. The shares of RiboGene Series A preferred stock have no voting rights. All
shares of RiboGene common stock represented by properly executed proxies will,
unless such proxies have been previously revoked, be voted in accordance with
the instructions indicated in the proxies.
IF NO INSTRUCTIONS ARE INDICATED, THE SHARES OF RIBOGENE COMMON STOCK WILL
BE VOTED IN FAVOR OF APPROVAL OF THE MERGER.
No additional matters other than as described in the accompanying notice of
the RiboGene special meeting will come before the RiboGene special meeting. If
any other matter or matters are properly presented for action at the RiboGene
special meeting, the persons named in the enclosed form of proxy and acting
thereunder will have the discretion to vote on the matters in accordance with
their best judgment, unless authorization is withheld. A RiboGene stockholder
giving a proxy under this proxy solicitation may revoke it at any time before it
is exercised by giving a subsequent proxy, delivering to the Secretary of
RiboGene at the address of RiboGene provided a written notice of revocation
prior to the voting of the proxy at the RiboGene special meeting, or attending
the RiboGene special meeting and voting his or her shares in person. However,
attending the RiboGene special meeting will not in and of itself have the effect
of revoking the proxy. Charles Casamento and Timothy Morris, who together
beneficially hold approximately 6% of the outstanding shares of RiboGene common
stock, have agreed to vote in favor of the merger and not to change their vote
prior to the RiboGene special meeting.
Votes cast by proxy or in person at the RiboGene special meeting will be
tabulated by the inspector of election appointed for the meeting and such
inspector(s) will determine whether or not a quorum is present.
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SOLICITATION OF PROXIES
The expenses of the solicitation of proxies for use at the RiboGene special
meeting will be borne by RiboGene. In addition to solicitation by mail, proxies
may be solicited by directors, officers or other employees of RiboGene or, at
the request of RiboGene, D.F. King & Co., Inc., in person or by telephone,
telegram or other means of communication. These persons will receive no
additional compensation for solicitation of proxies, but may be reimbursed for
reasonable out-of-pocket expenses in connection with the solicitation, except
for D.F. King & Co., Inc., who will be paid a fee estimated to be approximately
$5,000 in connection with the solicitation plus reasonable out-of-pocket
expenses.
THE MATTERS TO BE CONSIDERED AT THE RIBOGENE SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE RIBOGENE STOCKHOLDERS. ACCORDINGLY, THE RIBOGENE STOCKHOLDERS
ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS
PROSPECTUS/JOINT PROXY STATEMENT, AND TO COMPLETE, DATE, SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PRE-PAID ENVELOPE.
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THE MERGER
The following discussions of the merger and the merger agreement do not
purport to be complete and are qualified in their entirety by reference to the
merger agreement, which is attached as Annex A to this prospectus/joint proxy
statement. All stockholders are urged to read the merger agreement in its
entirety.
GENERAL
The merger agreement provides for the merger of Cypros Acquisition
Corporation with and into RiboGene. As a result of the merger, Cypros
Acquisition Corporation will cease to exist, RiboGene will become a wholly-owned
subsidiary of Cypros, and the former stockholders of RiboGene will become
shareholders of Cypros. The merger agreement provides that the merger will be
consummated if the required approvals of the RiboGene stockholders and the
Cypros shareholders are obtained and all other conditions to the merger are
satisfied or waived.
EFFECTIVE TIME
The merger will become effective upon the filing and acceptance of a
certificate of merger with the Secretary of State of the State of Delaware. The
filing of the certificate of merger will occur as soon as practicable after the
latest to occur of the approval of the merger by the RiboGene stockholders or
the Cypros shareholders, subject to the satisfaction or waiver of the other
conditions in the merger agreement.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF RIBOGENE CERTIFICATES
The conversion of RiboGene capital stock into the right to receive Cypros
capital stock will occur automatically upon effectiveness of the merger. As soon
as practicable after the closing, Cypros or its designee will mail to the
holders of RiboGene capital stock a letter of transmittal in customary form,
together with instructions for effecting the surrender of RiboGene stock
certificates in exchange for certificates representing Cypros common stock or
Cypros Series A preferred stock. Upon surrender of an RiboGene stock certificate
to Cypros or its designee and a duly executed letter of transmittal, the holder
of the RiboGene stock certificate will be entitled to receive in exchange for
the certificate a certificate representing the number of whole shares of Cypros
common stock or Cypros Series A preferred stock that the holder has the right to
receive and cash in lieu of any fractional share of Cypros common stock or
Cypros Series A preferred stock. RIBOGENE STOCKHOLDERS SHOULD NOT RETURN THEIR
STOCK CERTIFICATE WITH THE ENCLOSED PROXY.
BACKGROUND OF THE MERGER
CYPROS
In early 1998, the Cypros board of directors started discussions regarding
strategic alternatives to expand its business scope and accelerate its ability
to build critical mass by acquiring late stage development opportunities and
additional marketed products. A range of opportunities was evaluated including
mergers, acquisitions and both debt and equity financings. The Cypros board
decided after due consideration that identifying an appropriate merger or
acquisition candidate would provide the maximum benefit to the company and its
shareholders because of potential synergies in the areas mentioned above as well
as a stronger balance sheet and broader management expertise.
In September of 1998, a special Cypros board retreat was held in New York
City and various parameters were set for the target merger or acquisition which
included a favorable cash position, late stage development programs and a
product focus. The board also decided that it did not have sufficient
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capital to acquire additional marketed products and that the acquisition of or
merger with the appropriate company in a tax free stock-for-stock transaction
would be the most feasible strategy.
Cypros proceeded to identify merger or acquisition candidates and retained
various consultants and advisors in 1998 and 1999 to assist in this task and to
accelerate the process. Numerous public and private companies were evaluated and
contacted.
RIBOGENE
RiboGene's original goal had been to build a drug discovery company focused
on the identification of novel leads and the development of potential drug
candidates for the treatment of infectious diseases. RiboGene's drug discovery
efforts initially targeted bacterial, fungal and viral infections. Concurrent
with entering into the merger agreement, RiboGene's management refocused its
efforts and modified its strategy emphasizing its clinical development program
on Emitasol and its antibacterial drug discovery efforts.
Recognizing that revenues from products resulting from its own research
efforts may not occur for several years, if ever, RiboGene sought to accelerate
commercialization by acquiring and licensing clinical stage compounds. As part
of this strategy, RiboGene entered into an option and license agreement with
Roberts Pharmaceutical Corporation for the development of
Emitasol-Registered Trademark-, an intranasal form of metoclopramide. Under the
terms of the option and license agreement, Roberts Pharmaceutical and RiboGene
will work to develop Emitasol-Registered Trademark- for the treatment of
diabetic gastroparesis and for delayed emesis associated with cancer
chemotherapy. RiboGene's commitment to develop Emitasol is limited to $7
million, of which $1.9 million has been incurred to date. RiboGene is also
entitled to receive a milestone payment of up to $10 million from Roberts
Pharmaceutical within 60 days in the event that Roberts Pharmaceutical exercises
its option for the North American commercialization rights following approval of
the drug by the FDA.
In order to finance its research and development efforts, RiboGene completed
an initial public offering of its common stock in June 1998 and a concurrent
private placement raising an aggregate amount of $20.1 million.
Subsequent to the initial public offering, RiboGene's stock price has
declined dramatically. In response, RiboGene began to explore various
alternatives that would allow it to acquire and in-license products in later
stages of development. At the January 26, 1999 board of directors meeting, the
directors discussed a potential product acquisition candidate and a potential
merger partner.
In response to the discussions initiated at the January 1999 board of
directors meeting, RiboGene engaged Rabobank International on March 15, 1999 to
act as its non-exclusive representative in seeking a merger partner. RiboGene
also began to review a number of merger candidates and prepared a summary of its
efforts for presentation at the March 25, 1999 board of directors meeting.
CONTACTS BETWEEN THE PARTIES
During April 1999, Dr. Marangos, the Chief Executive Officer of Cypros,
received a telephone call from Dr. Harold Gerber of Rabobank International and
was told that Rabobank had been retained by a client interested in discussing a
merger with Cypros. Dr. Marangos expressed an interest in further discussions
and after a mutual confidentiality agreement was signed, Dr. Gerber told Dr.
Marangos that the client was RiboGene. Dr. Gerber then provided Cypros with some
information about RiboGene.
Shortly after this initial inquiry, a face-to-face meeting occurred among
Dr. Marangos, Dr. Gerber and Charles J. Casamento, the Chairman, President and
Chief Executive Officer of RiboGene. At this meeting it was determined that
Cypros and RiboGene had consistent strategic visions for a merged company which
would focus on building the existing sales organization at Cypros and applying
the other resources of the companies to the development of each company's
late-stage clinical development
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products. After that meeting there were several more phone conversations among
Dr. Marangos, Dr. Gerber and Mr. Casamento to discuss the strategic direction
and focus of the prospective merged entity.
On April 27, 1999 there was a special telephone meeting of the board of
directors of Cypros at which a potential business combination with RiboGene was
discussed, specific conflicts of interest were identified and dealt with and a
decision was made to retain EVEREN Securities to advise Cypros on the potential
merger with RiboGene.
On May 13, 1999 the management team from RiboGene and its regulatory and
medical consultants visited the executive offices of Cypros to meet with the
management team of Cypros. Additional information about the two companies was
presented and delivered and extensive discussions ensued.
On May 16, 1999 Dr. Marangos, David W. Nassif, the Chief Financial Officer
of Cypros, Virgil D. Thompson and Robert F. Allnutt, members of Cypros' board of
directors, and representatives of EVEREN Securities attended a meeting of the
RiboGene board of directors in New York City. After presentations by Mr.
Casamento and Dr. Marangos and extensive discussion, it was decided that a
merger of the two companies should be pursued.
At a regularly scheduled meeting of the board of directors of RiboGene held
on May 17, 1999, a special committee of the board, composed of Jon Saxe and
Roger Stoll, was appointed to negotiate the terms of a transaction with Cypros.
At a regularly scheduled meeting of the board of directors of Cypros held on
May 21, 1999, a special committee of the Cypros board, composed of Mr. Robert F.
Allnutt and Mr. Virgil D. Thompson, was appointed to negotiate the terms of a
transaction with RiboGene. Cooley Godward summarized for the Cypros board
members the relevant fiduciary obligations under California law in connection
with their consideration of the proposed merger.
On June 1, 1999 the Cypros special committee and a representative of EVEREN
Securities met with the RiboGene special committee and a representative of
Rabobank International to negotiate the terms for a merger of Cypros and
RiboGene. The general terms of a merger, including percentage ownership by each
party were discussed at length. Both companies agreed to hold further
discussions to continue to negotiate specific terms.
During the next two weeks, the special committee of the Cypros board, the
management of Cypros and EVEREN Securities held several meetings and
conversations to develop a term sheet for the merger of the two companies.
On June 18, 1999 EVEREN Securities sent a term sheet on the transaction to
Rabobank International. Over the next several weeks, the parties negotiated the
proposed terms and Cooley Godward LLP, legal counsel to Cypros, and Latham &
Watkins, legal counsel to RiboGene, began drafting and negotiating the
definitive merger agreement.
On July 1, 1999, a special meeting of the RiboGene board was held, at which
management of RiboGene presented to the board a summary of the diligence
conducted regarding Cypros to date. Digby Barrios, a member of the Cypros board
and the RiboGene board, was not present at this meeting. At this meeting, the
board of RiboGene heard a presentation from Latham & Watkins, its legal counsel,
with respect to the financial terms and structure of the proposed merger and the
board's fiduciary obligations under Delaware law in connection with their
consideration of the proposed merger. After hearing this presentation, the
RiboGene board instructed the management to conduct further diligence regarding
Cypros and to proceed with negotiations of the non-financial terms of the
proposed merger.
On July 19, 1999, a regular meeting of the RiboGene board was held. Digby
Barrios, a member of the Cypros board and RiboGene board, excused himself from
this meeting when the proposed merger with Cypros was discussed. At this
meeting, Latham & Watkins, legal counsel to RiboGene, and RiboGene management
provided an update of the results of due diligence regarding Cypros and the
terms and structure of the proposed merger.
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On July 31, 1999, a special meeting of the board of RiboGene was held. Mr.
Barrios was not present at this meeting. At this meeting, RiboGene management
and Latham & Watkins, legal counsel to RiboGene, updated the board on the
results of due diligence regarding Cypros. In addition, at this meeting, the
RiboGene board, together with RiboGene's legal counsel and a representative of
RaboBank International reviewed the proposed terms and conditions of the merger
agreement. The RiboGene board also heard presentations by its legal counsel
regarding the terms and structure of the proposed merger and a summary of the
board's fiduciary obligations under Delaware law in connection with their
consideration of the proposed merger.
Between June 18 and August 3, 1999 the Cypros special committee held several
telephonic meetings to review the proposed terms of the merger and the status of
negotiations of the terms with RiboGene. Representatives of Cooley Godward and
EVEREN Securities attended several of the special committee meetings. In
addition, during that period representatives of Cooley Godward, legal counsel to
Cypros, and Latham & Watkins, legal counsel to RiboGene, held numerous phone
calls to negotiate the terms of the merger agreement and ancillary documents
related to the merger. During this period, the directors of Cypros received from
the special committee and Cooley Godward reports on the status of merger
negotiations and draft copies of the merger agreement and ancillary documents.
On August 3, 1999, another special meeting of the board of directors of
Cypros was held. At the meeting, the Cypros board discussed the terms of the
proposed merger, including the terms of the proposed severance benefits
agreements for Dr. Marangos and Mr. Nassif, the proposed separation and
consulting agreement of Dr. Marangos, the proposed severance benefits plans and
retention bonus agreements for Cypros and RiboGene and the proposed terms of the
employment agreement of Mr. Casamento. At this meeting, Cooley Godward also
reviewed with the full Cypros board the various fiduciary obligations of the
directors under California law in connection with the merger.
On August 3, 1999, another special meeting of the board of directors of
RiboGene was held. At the meeting, Latham & Watkins, counsel to RiboGene,
reviewed the terms of the proposed definitive merger agreement, voting
agreements, retention agreements, severance benefit plans, affiliate agreements,
Mr. Casamento's proposed employment agreement, and Mr. Marangos' proposed
separation and consulting agreement, and related documents. Also at this
meeting, Rabobank International reviewed the various financial analyses it had
performed on the two companies and rendered its opinion to the effect that, as
of that date and based upon and subject to specific matters stated in the
opinion, the exchange ratio was fair, from a financial point of view, to the
stockholders of RiboGene.
During the August 3, 1999 meeting of the board of RiboGene, the board
members were notified by Robert Vukovich, a member of the Cypros board, that
specific terms of the proposed employment agreement for Mr. Casamento were not
acceptable to the Cypros board. In particular, the Cypros board believed the
proposed grant of options to purchase 834,508 shares of combined company common
stock to Mr. Casamento on the closing date of the merger, vesting over four
years, was excessive. After numerous discussions between the board members of
the companies, excluding Messrs. Casamento and Marangos, the boards agreed on a
revised employment agreement for Mr. Casamento providing for the grant of an
option on the closing of the merger to purchase 403,549 shares of combined
company common stock vesting over a four year period. In addition, the boards
agreed that the revised employment agreement would also provide for the grant of
an option on the closing of the merger to purchase 665,000 shares of combined
company common stock. The additional option would vest upon the satisfaction of
performance-based targets, or if the targets are not satisfied, upon the eighth
anniversary of the date of grant. The actual performance targets will be agreed
upon by Mr. Casamento and the combined company board of directors following the
merger and will require achievement of the targets within two years from the
date they are established. The boards believed that the vesting of the
additional option primarily based upon the success of the combined company would
serve as an appropriate reward for Mr. Casamento's performance. In addition, the
respective
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board members believed that the stock option grants to Mr. Casamento in the
revised employment agreement were consistent with surveys of chief executive
officers of public companies reviewed by the respective boards. The boards
acknowledged that the option grant of 403,549 shares to Mr. Casamento would
reduce the number of shares of stock to be issued to RiboGene stockholders in
the merger and the boards believed that the total option grant to Mr. Casamento
was reasonable and will provide an appropriate incentive for Mr. Casamento to
enhance the performance of the combined company following the merger. After
extensive discussions, the RiboGene board, including Mr. Casamento, determined
to proceed with finalizing the merger agreement, as revised for the reduction of
the merger consideration to the RiboGene stockholders, and directed its
financial advisor to prepare to issue a new opinion to the RiboGene board
assuming the reduction in the merger consideration to the RiboGene stockholders.
The Cypros board, including Mr. Marangos, determined to also proceed with
finalizing the merger agreement.
On August 4, 1999, the RiboGene board held another meeting at which Latham &
Watkins, its legal counsel, reviewed the terms of the proposed merger contained
in the definitive merger documents. Mr. Barrios was not present at this meeting.
In particular, the RiboGene board discussed with its legal counsel the specific
terms of the merger agreement, voting agreements, retention agreements,
severance benefits plans, severance agreements, affiliate agreements, Mr.
Casamento's proposed employment agreement, Mr. Marangos' proposed separation and
consulting agreement and other related documents. In addition, Rabobank
International updated its fairness opinion reflecting the change in the merger
consideration and rendered its opinion that, as of that date and based upon and
subject to specific matters stated in the opinion, the exchange ratio was fair,
from a financial point of view, to the stockholders of RiboGene. Following full
discussion of the proposed merger, the RiboGene board unanimously approved the
merger proposal and the transactions contemplated thereby.
On August 4, 1999, the Cypros board of directors held another meeting at
which Cooley Godward, Cypros' legal counsel, reviewed the terms of the proposed
definitive merger agreement, voting agreements, affiliate agreements, change in
control agreements, proposed amendments to Cypros' articles of incorporation,
bylaws, stock option plan and directors' equity incentive plan and related
documents. Also at this meeting, EVEREN Securities reviewed the various
financial analyses it had performed on the two companies and rendered its
opinion to the effect that, as of that date and based upon and subject to
specific matters stated in the opinion, the merger consideration was fair, from
a financial point of view, to Cypros and its shareholders. After extensive
discussion, the Cypros board unanimously approved the merger and the merger
agreement, the related amendments to Cypros' articles of incorporation, the
bylaws, the Cypros' stock option plan and directors' equity incentive plan, and
approved the proposed severance benefits agreements with Dr. Marangos and Mr.
Nassif, the separation and consulting agreement with Dr. Marangos, the Cypros
severance benefits plan, the retention bonus agreements and the employment
agreement with Charles Casamento.
Following the approval of the Cypros board and the RiboGene board, on August
4, 1999, the merger agreement and related documents were executed.
RECOMMENDATION OF THE CYPROS BOARD; CYPROS REASONS FOR THE MERGER
The Cypros board has unanimously determined that the terms of the merger
agreement and the merger are fair to, and in the best interests of, the Cypros
shareholders. Accordingly, the Cypros board has unanimously approved the merger
agreement and the merger and unanimously recommends that the Cypros stockholders
vote FOR approval of the merger. In reaching its determination, the Cypros board
consulted with Cypros' management, as well as its legal counsel, accountants and
financial advisor, and gave significant consideration to a number of factors
bearing on its decision. The post-merger ownership between Cypros shareholders
and RiboGene stockholders was determined in arm's-length negotiation. The
ownership allocation ultimately agreed to by the Cypros board was approved,
based upon the Cypros board's evaluation of a number of factors, including the
amount of
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value of the commercial organization of Cypros, the number and value of each
company's late-stage clinical development programs and the relative balance
sheet contributions of each company. The Cypros board believes that the merger
should result in greater value to Cypros' shareholders than would otherwise be
realized through the continued operation of Cypros as an independent entity. The
following are the primary reasons the Cypros board believes the merger will be
beneficial to Cypros and its shareholders:
- The belief that the merger represents an opportunity to more rapidly
increase sales revenue through the expansion of the Cypros sales and
marketing organization and the addition of the foreign sales of
Emitasol-Registered Trademark-.
- The commercial potential of Emitasol-Registered Trademark- in the United
States, assuming FDA approval.
- The belief that the combined company's stronger balance sheet will enable
it to accelerate the expansion of its sales and marketing organization, to
fund additional programs, to accelerate existing clinical programs, to
acquire additional products and to raise additional capital.
- The belief that the efficiencies of combining operations and
administrative functions would result in cost savings by eliminating some
fixed costs.
- The belief that the business development expertise of RiboGene's
management could result in corporate partnerships for one or more of the
clinical programs of Cypros.
In addition to the reasons described above, during the course of its
deliberations concerning the merger, the Cypros board consulted with Cypros'
legal counsel and financial advisors as well as Cypros' management, and reviewed
a number of other factors relevant to the merger, including:
- Information concerning the business, assets, operations, properties,
management, financial condition, operating results, competitive position
and prospects of Cypros and RiboGene.
- Reports from its legal counsel on specific terms of the merger agreement,
the voting agreements, the affiliate agreements, the amendment to the
articles of incorporation and bylaws of Cypros, the amendments to Cypros'
stock option plans, the severance agreements, the severance benefits
plans, the retention bonus agreements and Mr. Casamento's employment
agreement.
- The opinion of EVEREN Securities to the effect that, as of August 4, 1999
and based upon and subject to specific matters stated in the opinion, the
merger consideration was fair, from a financial point of view, to Cypros
and its shareholders.
The Cypros board also considered a number of potentially negative factors in
its deliberations concerning the merger, including:
- The risk that Emitasol may never be approved by the FDA or take much
longer to get approved than is anticipated or when approved and launched
does not generate the sales anticipated by RiboGene and Roberts
Pharmaceutical Corporation.
- The risk that revenue might shrink if some significant customers reduce or
terminate their purchase of Cypros products because of uncertainties
concerning the merger.
- The risk that the combined company might not achieve the expected
operating synergies.
- The adverse effects of one-time charges expected to be incurred in
connection with the costs of the merger and the subsequent integration of
the companies, including write-offs for in-process research and
development expenses of RiboGene.
- The potential adverse effects on the combined company's results of
operations of amortizing the goodwill and other intangible assets that
would be recorded in connection with the merger.
- The risk that some key employees or members of management of either Cypros
or RiboGene may decide not to continue employment with the combined
company.
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- The risk that other benefits sought to be achieved by the merger would not
be obtained.
After carefully considering the potentially negative factors described
above, among others, the Cypros board concluded that the potential benefits from
the merger outweighed the negative factors and determined that the merger is
fair to and in the best interest of Cypros and the Cypros shareholders.
The foregoing discussion of the information and positive and negative
factors considered by the Cypros board in approving merger proposal is not
intended to be exhaustive, but includes the material factors considered by the
Cypros board in their analysis of the merger proposal. In considering the merger
proposal, given the number and diversity of the potentially positive and
negative factors considered, the Cypros board did not find it practical or
feasible to quantify or otherwise attempt to assign any relative or specific
values to any of the foregoing factors. In making their determination,
individual directors may have accorded different values to different factors.
RECOMMENDATION OF THE RIBOGENE BOARD; RIBOGENE REASONS FOR THE MERGER
The RiboGene board has unanimously determined that the terms of the merger
agreement and the transactions contemplated by the merger agreement are fair to,
and in the best interests of, the RiboGene stockholders. Accordingly, the
RiboGene board has unanimously approved the merger agreement and the merger and
unanimously recommends that the RiboGene stockholders vote FOR approval of the
merger proposal. In reaching its determination, the RiboGene board consulted
with RiboGene's management, as well as its legal counsel, accountants and
financial advisor, and gave significant consideration to a number of factors
bearing on its decision. The post-merger ownership between RiboGene stockholders
and Cypros shareholders was determined in arm's-length negotiation. The
ownership allocation ultimately agreed to by the RiboGene board was approved,
based upon the RiboGene board's evaluation of a number of factors, including the
amount of value of the commercial organization of RiboGene, the number and value
of each company's late stage clinical development programs and the relative
balance sheet contributions of each company. The RiboGene board believes that
the merger should result in greater value to RiboGene's stockholders than would
otherwise be realized through continued operation of RiboGene as an independent
entity.
The following are the primary reasons the RiboGene board believes the merger
will be beneficial to RiboGene and its shareholders:
- The belief that the merger represents an opportunity to accelerate the
commercialization efforts of RiboGene by adding products already on the
market and an existing sales and marketing organization.
- The belief that the addition of a sales and marketing infrastructure would
accelerate acquisitions of additional marketed products.
- The belief that RiboGene's balance sheet could be used to accelerate the
development of Cypros' two clinical development programs.
- The belief that RiboGene's business development expertise could be used to
secure corporate partnerships for Cypros' two clinical development
programs.
- The belief that the larger revenue and asset base of the combined company
would likely enhance the combined company's access to equity and debt
capital.
- The belief that the combined company would likely realize certain
operating efficiencies as a result of the merger, including in the areas
of research and development and administration.
- The belief that the increased size of the combined company would enhance
its ability to attract and retain skilled personnel, especially in the
area of sales and operations.
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In addition to the reasons set forth above, during the course of its
deliberations concerning the merger, the RiboGene board consulted with
RiboGene's legal counsel and financial advisors as well as RiboGene's
management, and reviewed a number of other factors relevant to the merger,
including:
- Information concerning the business, assets, operations, properties,
management, financial condition, operating results, competitive position
and prospects of RiboGene and Cypros;
- Reports from its legal counsel on specific terms of the merger agreement,
the voting agreements, the affiliate agreements, the employment agreement
of Mr. Casamento, the severance benefits plan, and the retention bonus
agreements of RiboGene;
- The opinion of Rabobank International to the effect that, as of August 4,
1999 and based upon and subject to specific matters stated in the opinion,
the exchange ratio was fair, from a financial point of view, to RiboGene's
stockholders.
The RiboGene board also considered a number of potentially negative factors
concerning the merger, including:
- The risk that increased sales of Glofil, Inulin and Ethamolin cannot be
achieved even with a larger sales and marketing organization.
- The risk that the Dermaflo product line will never be launched, or will
not be timely launched, or if launched will never generate the sales
anticipated by Cypros.
- The risk that Cordox and Ceresine may never be approved by the FDA or take
much longer to get approved than is anticipated or when approved and
launched does not generate the sales anticipated by Cypros.
- The risk that Cypros will not prevail in the current litigation involving
the trustee in bankruptcy for A.R. Baron and will not have sufficient
insurance coverage to pay the losses, costs and expenses relating to an
adverse decision, if at all.
- The risk that the combined company might not realize the anticipated
economies of scale or combined operating efficiencies.
- The adverse effects of one-time charges expected to be incurred in
connection with the costs of the merger and the subsequent integration of
the companies.
- The potential adverse effects on the combined company's results of
operations of amortizing the goodwill and other intangible assets that
would be recorded in connection with the merger.
- The potential that some key employees or members of management of either
Cypros or RiboGene may determine not to continue employment with the
combined company.
- The risk that other benefits sought to be achieved by the merger would not
be obtained.
After carefully considering the potentially negative factors described
above, among others, the RiboGene board concluded that the potential benefits
from the merger outweighed the negative factors and determined that the merger
is fair to and in the best interest of RiboGene's stockholders. On August 4,
1999, the RiboGene board unanimously approved the merger proposal and
recommended that the RiboGene stockholders vote in favor of the merger proposal.
The foregoing discussion of the information and positive and negative
factors considered by the RiboGene board in approving the merger proposal is not
intended to be exhaustive, but includes the factors considered by the RiboGene
board to have been material in their analysis of the merger proposal. In
considering the merger proposal, given the number and diversity of the
potentially positive and negative factors considered, the RiboGene board did not
find it practical or feasible to quantify or otherwise attempt to assign any
relative or specific values to any of the foregoing factors. In making their
determination, individual directors may have accorded different values to
different factors.
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OPINION OF FINANCIAL ADVISOR TO CYPROS
Cypros retained EVEREN Securities, Inc. as its exclusive financial advisor
in connection with its merger with RiboGene to render an opinion as to whether
the consideration to be paid by Cypros in the merger was fair, from a financial
point of view. EVEREN delivered its opinion to Cypros on August 4, 1999; EVEREN
based its opinion on a number of factors with the principal factor being the
value of the consideration to be paid by Cypros in the merger. For purposes of
its opinion, EVEREN used the Cypros common stock closing stock price of $2.13 as
of August 3, 1999.
Cypros selected EVEREN as an advisor because of its expertise and reputation
as a nationally recognized investment banking firm. EVEREN, as part of its
investment banking business, regularly engages in the valuation of businesses
and securities in connection with mergers and acquisitions, negotiated
underwriting, competitive bidding, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. EVEREN did not determine the consideration to be received in the
merger. Cypros and RiboGene made the determination through arms length
negotiation.
On August 4, 1999, during a telephonic meeting of the board of directors of
Cypros, EVEREN rendered its opinion that, as of the date of the opinion, the
consideration to be paid to RiboGene stockholders in the merger was fair from a
financial point of view to Cypros and its shareholders.
In formulating the opinion, EVEREN:
1. reviewed the merger agreement;
2. reviewed Cypros' definitive proxy statement dated December 19, 1998,
Cypros' annual reports on Form 10-K for the years ended July 31, 1997
and 1998, and Cypros' quarterly reports on Form 10-Q for the six months
ended January 31, 1999 and nine months ended April 30, 1999;
3. reviewed specific non-public operating and financial information
relating to Cypros' and RiboGene's businesses prepared by the respective
management teams;
4. reviewed specific sections of various publicly available equity research
reports on Roberts Pharmaceutical pertaining to development and
commercialization of RiboGene's compound, Emitasol;
5. reviewed RiboGene's definitive proxy statement dated May 17, 1999,
RiboGene's annual report on Form 10-K for the year ended December 31,
1998, and RiboGene's quarterly report on Form 10-Q for the three month
period ended March 31, 1999;
6. reviewed publicly available financial data and stock market performance
data of other biotechnology and emerging pharmaceutical companies which
EVEREN deemed comparable to Cypros and RiboGene, respectively;
7. reviewed the purchase price multiples of recent acquisitions for
selected companies which EVEREN deemed generally comparable to RiboGene;
and
8. conducted other studies, analyses, inquiries and investigations as
EVEREN deemed appropriate.
In arriving at its opinion, EVEREN considered other factors as it deemed
relevant, including but not limited to, the following:
1. the purchase price to be paid to the RiboGene stockholders under the
merger relative to a discounted cash flow valuation;
2. the purchase price as compared to the valuations and multiples of
publicly traded biotechnology and emerging pharmaceutical companies;
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3. the purchase price multiples of the merger as compared to the purchase
price multiples of comparable biotechnology and emerging pharmaceutical
merger transactions; and
4. the relative financial contributions of Cypros and RiboGene as compared
to the post-merger ownership interests of Cypros shareholders and
RiboGene stockholders.
DISCOUNTED CASH FLOW ANALYSIS. EVEREN performed a discounted cash flow
analysis to compare the purchase price to the implied value of RiboGene.
Applying this valuation technique, EVEREN estimates the equity value of RiboGene
to be approximately $43.3 million. Using Cypros' closing stock price of $2.13
per share on August 3, 1999, the equity purchase price for RiboGene on a
fully-diluted basis is $30.8 million. The equity purchase price represents a 29%
discount to EVEREN's discounted cash flow valuation.
For purposes of the analysis, EVEREN assumed the only valuable assets of
RiboGene are its royalty rights and milestone payments from Emitasol and its
cash holdings. As of August 3, 1999, the public equity markets ascribed no value
to the drug discovery and development efforts at RiboGene as evidenced by the
fact that RiboGene was trading below its cash value. As a result, EVEREN
ascribed no value to the drug development efforts RiboGene is pursuing.
In estimating the value of Emitasol, EVEREN analyzed the financial
projections prepared by Roberts Pharmaceutical. In addition, EVEREN reviewed
equity research reports of Roberts Pharmaceutical prepared by Merrill Lynch,
DLJ, Hambrecht & Quist, ABN AMRO and Cleary Gull. Based on EVEREN's discussions
with Cypros and RiboGene management and its industry knowledge, EVEREN estimated
the revenues and royalties associated with Emitasol. Using a 25% discount rate,
EVEREN discounted the free cash flows from Emitasol to arrive at an indicated
value of Emitasol of approximately $29.0 million.
Since it is quite difficult for development-stage, small-cap healthcare
companies to raise capital, EVEREN conservatively assumed that Cypros would be
willing to pay at least a 10% premium to acquire RiboGene's cash. EVEREN assumed
that RiboGene would have $20.0 million in cash and $7.0 million in debt at
closing. Applying a 10% premium to net cash, EVEREN ascribed a value of $14.3
million to RiboGene's cash contribution to Cypros.
The equity value of RiboGene is $43.3 million based on EVEREN's discounted
cash flow valuation of Emitasol ($29.0 million) and RiboGene's net cash position
($14.3 million). This valuation compares favorably to the $30.8 million equity
purchase price.
ANALYSIS OF SELECTED RIBOGENE COMPARABLE COMPANIES. EVEREN compared the
purchase price multiples for RiboGene to the corresponding multiples of other
drug discovery companies. Due to RiboGene's development-stage status, a
comparison of customary comparable company trading multiples (i.e., revenue,
EBITDA, etc.) and the equity purchase price multiples is not possible. Instead,
EVEREN analyzed the equity purchase price relative to (1) net cash and (2) book
value. The analysis indicated the following:
(1) the $30.8 million equity purchase price represents a multiple of 2.4x
RiboGene's net cash position, which is a 25% discount to the median
multiple of the comparable group of 3.2x; and
(2) the $30.8 million equity purchase price represents a multiple of 1.5x
RiboGene's book value, which is a 57% discount to the median multiple of
the comparable group of 3.5x.
ANALYSIS OF MULTIPLES IN SELECTED COMPARABLE MERGER AND ACQUISITION
TRANSACTIONS. EVEREN analyzed comparable merger transactions in the
biotechnology and emerging pharmaceutical sectors since January 1997 with
transaction values between $5 million and $75 million. The selected transactions
included, among others, RIBI ImmunoChem Research/Corixa Corp (June 1999), Metra
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Biosystems/Quidel Corp (June 1999), Sparta Pharmaceuticals/SuperGen (January
1999), and Transcend Therapeutics/KeraVision (December 1998).
The equity purchase price for RiboGene of $30.8 million represents a
multiple of 1.5x RiboGene's tangible book value. This multiple represents a 48%
discount to the median multiple of 2.9x book value for the comparable group.
Again, due to RiboGene's development-stage status, a comparison of other
customary purchase price multiples is not possible.
ANALYSIS OF RELATIVE CONTRIBUTION. EVEREN analyzed the relative financial
contribution of both companies to the combined company. Immediately following
the merger, Cypros shareholders will own approximately 55% of the combined
company on a fully-diluted basis. EVEREN analyzed the financial contribution of
both RiboGene and Cypros to the combined company on the basis of their cash,
total assets and stockholders' equity. RiboGene is expected to contribute
approximately 76% of the cash, 67% of the total assets and 59% of the
stockholders' equity of the combined company. These contributions by RiboGene
exceed its relative ownership interest in the combined company following the
merger.
Analyzing the relative contributions of RiboGene and Cypros on the basis of
revenue, operating income or net income is not meaningful since both companies
are not expected to have material positive operating results in the near term
due to their development-stage status.
EVEREN did not conduct a physical inspection of any of the assets,
properties or facilities of either Cypros or RiboGene, and did not make or
obtain, and was not furnished with, any independent evaluation or appraisal of
any of the assets, properties, facilities, liabilities or contingencies of
Cypros or RiboGene. EVEREN assumed and relied upon, without independent
investigation, the accuracy and completeness of the financial and other
information that was publicly available or provided to it by Cypros and RiboGene
senior management, and did not independently attempt to verify any information.
EVEREN also assumed that all of the conditions to the merger would be satisfied
and that the merger would be consummated on a timely basis. No limitations were
imposed by Cypros upon EVEREN with respect to the scope of its investigation,
nor were any specific instructions given to EVEREN in connection with its
fairness opinion.
EVEREN's opinion is necessarily based on the economic, market, and other
conditions as in effect on, and the information made available to EVEREN as of
August 4, 1999. EVEREN disclaims any undertaking or obligation to advise any
person of any change in any fact or matter affecting EVEREN's opinion which may
come or be brought to EVEREN's attention after the date of this opinion.
The full text of the written opinion of EVEREN Securities dated August 4,
1999 which describes the assumptions made, matters considered and limitations on
the review undertaken, is attached hereto as Annex C and is incorporated herein
by reference. Cypros shareholders are urged to read this opinion carefully in
its entirety. EVEREN's opinion is directed only to the fairness of the
consideration to be paid by Cypros in the merger from a financial point of view,
does not address any other aspect of the merger or related transactions and does
not constitute a recommendation to any shareholder as to how the stockholder
should vote at the Cypros special meeting. THE SUMMARY OF THE OPINION OF EVEREN
SECURITIES SET FORTH IN THIS PROSPECTUS/JOINT PROXY STATEMENT IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses, without considering the analyses as a whole, could
create an incomplete view of the processes underlying EVEREN's opinion. In
arriving at its fairness determination, EVEREN considered the results of all of
the analyses. No company or transaction used in the analyses as a comparison is
directly comparable to Cypros, RiboGene or to the contemplated merger. The
analyses were prepared solely for purposes of EVEREN providing its opinion to
Cypros' board of directors as to the fairness, from a financial point
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<PAGE>
of view, of the consideration to be paid by Cypros in the merger and do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be purchased. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. These
analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of EVEREN.
EVEREN acted as financial advisor to Cypros over the past 12 to 18 months in
connection with the evaluation of several merger opportunities and potential
capital raising efforts for which it received customary compensation. EVEREN is
serving as financial advisor to Cypros in connection with the merger and will
receive a success fee upon its completion. EVEREN provides a full range of
financial advisory and securities services and, in the course of its normal
trading activities, may from time to time effect transactions and hold
securities, including derivative securities, of Cypros or RiboGene for its own
account and for the account of customers.
OPINION OF FINANCIAL ADVISOR TO RIBOGENE
RiboGene engaged Rabobank to act as its financial advisor in connection with
the merger and to render an opinion as to the fairness of the exchange ratio,
from a financial point of view, to the stockholders of RiboGene. On August 4,
1999, Rabobank delivered its opinion to the RiboGene board (subsequently
confirmed in writing) that, as of the date of the opinion, the exchange ratio
under the merger agreement was fair, from a financial point of view, to the
stockholders of RiboGene.
THE FULL TEXT OF RABOBANK'S OPINION DATED AUGUST 4, 1999, IS ATTACHED AS
ANNEX D TO THIS PROSPECTUS/JOINT PROXY STATEMENT. THIS SUMMARY IS QUALIFIED IN
ITS ENTIRETY BY THE OPINION. STOCKHOLDERS OF RIBOGENE ARE URGED TO, AND SHOULD,
READ THE OPINION IN ITS ENTIRETY.
In connection with its opinion, Rabobank reviewed among other things:
- the draft of the merger agreement dated July 30, 1999, as supplemented by
adjustment to the pricing mechanism reflected in the merger agreement;
- the annual report to stockholders of RiboGene for the fiscal year ended
December 31, 1998, the annual report on Form 10-K of RiboGene for the
fiscal year ended December 31, 1998, and the prospectus filed by RiboGene
under Rule 424(b)(4) on May 28, 1999;
- the annual reports to stockholders of Cypros for the three fiscal years
ended July 31, 1996, July 31, 1997 and July 31, 1998, respectively and the
annual reports on Form 10-K of Cypros for the three fiscal years ended
July 31, 1996, July 31, 1997 and July 31, 1998, respectively;
- the quarterly report on Form 10-Q of RiboGene for the period ending March
31, 1999;
- the quarterly reports on Form 10-Q for Cypros for the periods ending
October 31, 1998, January 31, 1999 and April 30, 1999;
- unaudited interim financial reports of RiboGene and Cypros;
- other communications from RiboGene and Cypros to their respective
stockholders; and
- internal financial analyses and forecasts for RiboGene and Cypros prepared
by their respective managements, including pro forma financial forecasts
for the combined company prepared by RiboGene's management.
In addition, Rabobank:
- held discussions with members of the senior management of RiboGene and
Cypros regarding the strategic rationale for, and the potential benefits
of, the merger and the past and current business operations, financial
condition and future prospects of their respective companies;
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<PAGE>
- reviewed the implied premium to the RiboGene common stockholders of the
exchange of their shares with newly issued shares of Cypros common stock
pursuant to the exchange ratio as compared to recent and historical
reported share prices of the common stock of RiboGene and Cypros;
- compared the recent and historical reported share prices of the common
stock of RiboGene and Cypros and specific financial information for
RiboGene and Cypros with similar information for selected companies whose
securities are publicly traded;
- reviewed the financial terms of recent business combinations which
Rabobank deemed relevant;
- compared various measures of the relative contributions to the combined
company of RiboGene and Cypros with the relative ownership of the combined
company after giving effect to the transaction; and
- performed such other studies and analyses as Rabobank considered
appropriate.
Rabobank relied, with the consent of RiboGene, upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of rendering its opinion. Rabobank assumed, with the consent of
RiboGene, the reasonableness of the financial forecasts prepared by RiboGene.
RiboGene and Cypros informed Rabobank that they prepared their forecasts based
on their best available estimates and judgements.
Rabobank did not make an independent evaluation or appraisal of the assets
and liabilities of RiboGene or Cypros or any of their respective subsidiaries.
Rabobank's opinion was necessarily based on market, financial, economic and
other conditions as they existed and could be evaluated as of the date of its
opinion and any material change in those conditions would require a reevaluation
of its opinion.
The Rabobank opinion was provided for the information and assistance of the
RiboGene board in connection with its consideration of the transaction
contemplated by the merger agreement. The Rabobank opinion does not constitute a
recommendation as to how any stockholder of RiboGene should vote with respect to
the merger.
The following is a summary of the financial analyses presented by Rabobank
to the RiboGene board on August 4, 1999. SOME OF THE SUMMARIES OF THE FINANCIAL
ANALYSES INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. THE TABLES MUST BE
READ TOGETHER WITH THE TEXT ACCOMPANYING EACH SUMMARY.
CONTRIBUTION ANALYSIS. Rabobank compared RiboGene's contribution to the
combined company resulting from the merger with the pro forma ownership of
RiboGene stockholders in the combined company following the merger. Rabobank
reviewed specific financial and market information, including, among other
things, revenues, market capitalization, and technology value (defined as market
capitalization plus debt minus cash) utilizing RiboGene's results for the last
twelve month ("LTM") period ended March 31, 1999 and Cypros' results for the LTM
period ended April 30, 1999, unaudited balance sheet information as of June 30,
1999 provided by RiboGene and Cypros senior management, outstanding common share
information as of July 29, 1999 for RiboGene and Cypros provided by RiboGene
management, and reported closing share prices of RiboGene and Cypros as of July
30, 1999.
The analysis indicated, and the following table presents, the percentage of
revenues, market capitalization, and technology value that RiboGene would have
contributed to the combined company.
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In analyzing technology value, Rabobank noted that the calculation of this
measurement for RiboGene generated a negative value and thus made contribution
analysis for this measurement not meaningful.
<TABLE>
<CAPTION>
RIBOGENE
------------------
<S> <C>
Revenues.................................................................. 51%
Market Capitalization..................................................... 22%
Technology Value.......................................................... Not Meaningful
</TABLE>
PREMIUM ANALYSIS. This analysis compared the recent and historical reported
share prices of the common stock of RiboGene with the per share premium implied
by the exchange ratio in the merger. This stock performance review indicated
that for the fifty-two week period ended August 3, 1999, the reported intraday
low and high closing prices were $1.50 and $5.88. Based on the calculation of
the exchange ratio as of August 3, 1999 and the reported closing price of the
common stock of Cypros of $2.13, the 1.494 shares of common stock to be
exchanged for each share of common stock of RiboGene implied a per share premium
of 81% over the reported closing price of the common stock of RiboGene of $1.75
as of August 3, 1999. Additionally, Rabobank noted that the exchange ratio
calculated as of August 3, 1999 implied a 112% per share premium to the
above-mentioned fifty-two week reported intraday low of the common stock of
RiboGene of $1.50 and a 46% discount to the above-mentioned fifty-two week
intraday day high of the common stock of RiboGene of $5.88.
HISTORICAL EXCHANGE RATIO ANALYSIS. Rabobank reviewed reported historical
trading prices for shares of RiboGene and Cypros common stock to calculate
exchange ratios based on the trading price relationship between RiboGene common
stock and Cypros common stock. In examining the reported closing prices of the
common stock of RiboGene and Cypros on dates one week, two weeks, one month,
three months, and six months prior to August 3, 1999, and based on the exchange
ratio as calculated on August 3, 1999, this calculated exchange ratio review
indicated that on such dates the low RiboGene/Cypros exchange ratio was 0.628
and the high RiboGene/Cypros exchange ratio was 0.800.
SELECTED PUBLIC COMPANIES ANALYSIS. This analysis compared the recent and
historical reported share prices of the common stock of RiboGene and Cypros and
certain financial information of RiboGene and Cypros with similar publicly
available information for 41 selected biotechnology and pharmaceutical companies
whose securities are publicly traded. The primary criteria used for selecting
these publicly traded biotechnology and pharmaceutical companies included but
was not limited to (1) companies engaged in drug and chemical discovery and
development activities for medical applications, (2) companies with reported
market capitalizations of approximately $100 million or less, (3) companies that
issued shares to the public for the first time within the last five years and
(4) early stage companies, which have generally not generated net profits. The
selected companies were: Aastrom Biosciences, Inc., Alteon, Inc., Amarillo
Biosciences, Inc., Amylin Pharmaceuticals, Inc., ArQule, Inc., Atlantic
Pharmaceuticals, Inc., Bentley Pharmaceuticals, Inc., BioSpecifics Technologies
Corp., Biotransplant Inc., Bradley Pharmaceuticals, Inc., Cadus Pharmaceuticals
Corp., CardioTech International, Inc., Carrington Laboratories, Inc., Cell
Therapeutics, Inc., Celtrix Pharmaceuticals, Inc., Chesapeake Biological
Laboratories, Inc., CollaGenex Pharmaceuticals, Inc., Cortech, Inc., Corvas
International, Inc., Crescendo Pharmaceuticals Corp., Cubist Pharmaceuticals,
Inc., CV Therapeutics, Inc., Cytoclonal Pharmaceutics, Inc., Endorex
Corporation, Ergo Science Corp., Epimmune Inc., Incara Pharmaceuticals Corp.,
InKine Pharmaceuticals Company, Inc., Kos Pharmaceuticals, Inc., NaPro
BioTherapeutics, Inc., Neurocrine Biosciences, Inc., Orphan Medical, Inc., OXIS
International, Inc., PharmaPrint Inc., Pharmos Corp., SciClone Pharmaceuticals,
Inc., Sibia Neurosciences, Inc., SIGA Pharmaceuticals, Inc., SunPharm Corp.,
Trega Biosciences, Inc. and ZymeTx, Inc.
Rabobank reviewed and compared, among other things, the market
capitalization, technology value, discount of common stock market price relative
to the 52-week high per share market price and premium of common stock market
price relative to the 52-week low per share market price of the
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selected companies with RiboGene and Cypros. The financial information used in
connection with this analysis with respect to RiboGene was based on unaudited
balance sheet information as of June 30, 1999 and shares of RiboGene common
stock outstanding as of July 29, 1999 each as provided by RiboGene management.
In the case of the selected companies, the financial information used in
connection with this analysis was based on the then-available latest reported
quarterly period and derived from publicly available information. Rabobank noted
that, based on such latest reported financial information and most recent
reported common equity share prices as of July 30, 1999, the mean multiple of
market capitalization to technology value of the selected companies, adjusted to
exclude the high and low, was 1.8x compared to (1.0x) for RiboGene as of July
30, 1999. The mean discount to 52-week high for the selected companies, adjusted
to exclude the high and low, was 46.6%, which compared to 72.3% for RiboGene and
49.3% for Cypros. The mean premium to 52-week low for the selected companies,
adjusted to exclude the high and low, was 102.2% which compared to 8.3% for
RiboGene and 17.2% for Cypros. Applying the 46.6% discount of the selected
companies to RiboGene's 52-week intraday high of $5.88 implied a per share
common stock price of RiboGene of $3.14. Applying the 102.2% premium of the
selected companies to RiboGene's fifty-two week intraday low of $1.50 implied a
per share common stock price of RiboGene of $3.03.
As Rabobank informed the RiboGene board, none of the selected companies is
directly comparable to RiboGene because of the inherent differences in product
pipelines, product portfolios and financial and operating characteristics
between RiboGene and the selected companies. These differences could affect the
value of RiboGene as compared to the selected companies.
SELECTED MERGER AND ACQUISITION TRANSACTION ANALYSIS. This analysis
utilized publicly available information concerning selected publicly announced
recent merger and acquisition transactions involving publicly traded
biotechnology and pharmaceutical companies. The transaction targets included
companies which were generally engaged in drug and chemical discovery and
development activities for medical applications and early stage companies, which
have generally not generated net profits. The ten selected announced merger and
acquisition transactions involved purchase prices of under $200 million. With
respect to the following selected transactions, Rabobank analyzed (1) the
proposed purchase prices to be paid relative to the acquired companies'
technology value, (2) the implied per share price premia to be paid relative to
the acquired companies' reported closing common stock price one day, one week
and one month prior to the announcement of the transactions, (3) the implied per
share premia to the 52-week low closing price of the acquired companies and (4)
the implied discounts to the 52-week high closing price of the acquired
companies:
- Unimed Pharmaceuticals, Inc. / Solvay SA
- Ribi ImmunoChem Research, Inc. / Corixa Corporation
- Anergen, Inc. / Corixa Corporation
- DepoTech Corp. / SkyePharma PLC
- Oncormed, Inc. / Gene Logic Inc.
- Virus Research Institute, Inc. / T Cell Sciences, Inc.
- Somatogen, Inc. / Baxter International Inc.
- Sequana Therapeutics Inc. / Arris Pharmaceutical Corp.
- Somatix Therapy Corp. / Cell Genesys, Inc.
- Houston Biotechnology, Inc. / Medarex, Inc.
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Rabobank compared the high, low, and mean (adjusted to exclude the high and
low) premia of the above-mentioned per share analyses to the implied per share
premium to the common stock of RiboGene calculated using the exchange ratio as
of August 3, 1999 and the 52-week per share high and low closing prices for
RiboGene, as follows:
<TABLE>
<CAPTION>
MEAN FOR CYPROS PROPOSED
SELECTED RANGE FOR SELECTED TRANSACTION
TRANSACTIONS TRANSACTIONS PREMIUM
------------- ------------------- -----------------
<S> <C> <C> <C>
Premia to 52 Week Low........................................ 112.4% 367.3% - 6.8% 112.0%
Discount to 52 Week High..................................... 44.6% 88.6% - (11.6%) 40.8%
PREMIA OVER SHARE PRICE:
1 Day Before Announcement.................................... 34.5% 91.6% - (11.0%) 81.7%
1 Week Before Announcement................................... 33.6% 75.7% - (6.4%) 81.7%
1 Month Before Announcement.................................. 31.6% 92.0% - (9.5%) 81.7%
</TABLE>
Rabobank informed the RiboGene board that no company or transaction used in
the above analysis is identical to RiboGene or the merger, respectively, given,
among other things, the inherent differences in product pipelines, product
portfolios and financial and operating characteristics between RiboGene and the
companies involved in the selected transactions. These differences could affect
the value of RiboGene as compared to the acquired companies in the selected
transactions. Rabobank did not attempt to prepare any further quantitative
valuation analyses based on these selected transactions because Rabobank
believed that differences in the technologies of each company and market
conditions at the time these transactions were announced would make these
analyses meaningless.
PRO FORMA MERGER ANALYSIS. Rabobank used this analysis to generate an
implied valuation of the combined company based upon a discounted cash flow
methodology. Rabobank performed a discounted cash flow analysis using
projections for the combined company provided by RiboGene management. Rabobank
made no modifications or adjustments to the combined company financial
projections provided by RiboGene's management. Rabobank calculated a net present
value of the free cash flows of the combined company for the years 2000 through
2004 using discount rates ranging from 30% to 40%. Rabobank calculated a
terminal value of the combined company in the year 2004 based on the perpetuity
growth rate method using growth rates ranging from 0% to 2%. This terminal value
was then discounted to present value using discount rates from 30% to 40%.
Rabobank added the net present value of free cash flows of the combined company
to the net present value of the combined company's terminal value in 2004 to
calculate implied firm values for the combined company, which ranged from $66.7
million to $114.7 million. Based on the implied firm values of the combined
company's discounted cash flow valuations derived from RiboGene management
projections, this analysis determined that RiboGene's pro forma ownership in the
combined company of approximately 44%, as implied by the exchange ratio
calculated as of August 3, 1999, had a value ranging from $29.2 million to $50.2
million.
The actual operating or financial results achieved by the pro forma combined
company may vary from projected results and such variations may be material as a
result of, among other factors, the outcome of clinical trials, market
acceptance of untested products, regulatory approvals, the efforts of corporate
partners, the signing of licensing agreements, business and operational risks,
and integration costs associated with the merger.
The preparation of a fairness opinion is a complex process and is not
susceptible to partial analysis or summary description. Selecting portions of
the analyses or of the summary set forth above, without considering the analyses
as a whole, could create an incomplete view of the processes underlying
Rabobank's opinion. In arriving at its determination, Rabobank considered the
results of all such analyses. No company or transaction used in the above
analyses as a comparison is directly comparable to RiboGene or Cypros or the
contemplated transaction. Accordingly, an analysis of the foregoing is
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<PAGE>
not mathematical; rather it involves complex considerations and judgements
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading values of the
company or companies to which they are compared. The analyses were prepared
solely for purposes of Rabobank providing its opinion to the RiboGene board as
to the fairness to RiboGene's stockholders, from a financial point of view, of
the exchange ratio. The analyses do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Rabobank expressed no opinion as to what the value of Cypros common stock
actually will be subsequent to the merger. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the parties or their respective
advisors, actual future results may differ materially from those forecasted. As
described above, Rabobank's opinion to the RiboGene board was one of many
factors taken into consideration by the RiboGene board in making its
determination to approve the merger agreement. This summary is not a complete
description of the analysis performed by Rabobank and is qualified in its
entirety by reference to the written opinion of Rabobank included as Annex D.
Rabobank is an international bank with over 116 offices in 35 countries and
is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, corporate restructurings, and
valuations for corporate and other purposes. Pursuant to engagement letters
dated March 15, 1999 and July 6, 1999, RiboGene agreed to pay Rabobank fees for
services as a financial advisor to the RiboGene board and for rendering a
fairness opinion in connection with the closing of the merger. RiboGene has also
agreed to reimburse Rabobank for its reasonable out-of-pocket expenses
(including fees of its counsel), and to indemnify Rabobank and specific related
persons against specific potential liabilities arising out of Rabobank's
rendering of services under such engagement letters.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Some members of the RiboGene board and the Cypros board and the executive
officers of each company have interests in the merger that are in addition to
the interests of the Cypros shareholders and RiboGene stockholders generally.
BOARD OF DIRECTORS. Under the merger agreement, Charles J. Casamento, Frank
J. Sasinowski, Jon S. Saxe and Roger G. Stoll, current directors of RiboGene,
will become members of the combined company's board upon the completion of the
merger. Digby W. Barrios, currently a member of both the RiboGene and Cypros
boards, will remain on the Cypros board. Current Cypros directors Paul J.
Marangos, Robert F. Allnutt, Virgil D. Thompson and Robert A. Vukovich will also
remain on the combined company's board. In addition, Charles J. Casamento
currently Chairman, President and Chief Executive Officer of RiboGene, will
serve in those same capacities with the combined company following the merger.
Mr. Casamento will receive a cash bonus of $85,313 from RiboGene for completing
the merger.
In connection with the merger, the Cypros board approved an amendment to the
Cypros directors' equity incentive plan to provide for acceleration of vesting
of all options outstanding under the plan upon a transaction in which any person
or group acquires beneficial ownership of 40% of the voting power to elect
directors. The merger is expected to result in the RiboGene stockholders
acquiring beneficial ownership of over 40% of the voting power of Cypros. As a
result, the vesting of all of the options outstanding under the plan will likely
be accelerated upon completion of the merger. In addition, each director of
RiboGene, excluding Mr. Casamento, was granted an option to purchase 10,000
shares of RiboGene common stock at an exercise price of $1.625 per share on July
31, 1999 in connection with the merger.
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In connection with the approval of the merger, the RiboGene board approved
an amendment to the RiboGene 1997 Non-Employee Directors' Stock Option Plan to
provide for the assumption of options outstanding under the plan upon a change
in control. The plan provides for acceleration of vesting of all options
outstanding under the plan upon a change in control of RiboGene. However, prior
to the amendment of the plan, options under the plan would terminate if not
exercised prior to the consummation of the change in control transaction.
CASAMENTO EMPLOYMENT AGREEMENT. In connection with the merger agreement, an
employment agreement to employ Charles J. Casamento, RiboGene's current
President and Chief Executive Officer, as President and Chief Executive Officer
of the combined company will become effective upon consummation of the merger.
The employment agreement provides for an initial term ending December 31, 2001,
extending automatically for additional one-year periods unless either the
combined company or Mr. Casamento elects not to extend the term. The employment
agreement also provides for him to serve as Chairman of the board of the
combined company.
Mr. Casamento will receive an annual base salary of not less than $341,250
through January 1, 2000, and an annual base salary of not less than $375,000
after January 1, 2000. Mr. Casamento will also receive an opportunity to receive
an annual bonus of up to 50% of his annual base salary. The combined company
board of directors will determine the terms and conditions under which Mr.
Casamento will receive all or a portion of this bonus opportunity. Mr. Casamento
will also receive a grant of an option to purchase 403,549 shares of Cypros
common stock vesting over a period of four years and a grant of an option to
purchase 665,000 shares of Cypros common stock vesting upon the earlier of (1)
the eighth anniversary of the date of grant or (2) the achievement of specific
performance targets to be mutually agreed upon by the combined company board of
directors and Mr. Casamento. These performance targets will be determined by Mr.
Casamento and the combined company board after the merger and will require
achievement of the targets within two years from the date they are established.
The stock options granted to Mr. Casamento in connection with the merger will be
exercisable at an exercise price equal to the closing price of Cypros common
stock on the effective date of the merger. Mr. Casamento will also receive
fringe benefits, which may include reimbursement of temporary living expenses
and a short term housing loan of up to $900,000 if he is required to relocate.
If the employment agreement is terminated by the combined company without
cause or by Mr. Casamento for good reason, Mr. Casamento will be entitled to
severance benefits consisting of (1) the continued payment of his base salary
for a period of 18 months after the termination of employment, (2) a prorated
bonus based on the bonus opportunity for the fiscal year of termination and the
number of days he was employed during the fiscal year, (3) the full vesting of
all stock options and restricted stock originally issued to him by RiboGene (and
assumed by Cypros) and (4) the continued vesting for the 18 month period
following his termination of employment of the stock options issued in
connection with the merger. Good reason is defined to include (1) a material
diminution in Mr. Casamento's position, power or duties with the combined
company, (2) a material breach by the combined company of the employment
agreement, (3) the relocation of Cypros' principal offices to a location more
than 50 miles from the location of Cypros' principal offices, or (4) the failure
of Mr. Casamento to serve as Chairman or a board member of the combined company
other than by his failure to stand for election or by his resignation. If Mr.
Casamento's employment is terminated by either the combined company or Mr.
Casamento in connection with a change of control of the combined company under
specific circumstances, Mr. Casamento will be entitled to a lump sum payment
equal to 18 months of base salary and a prorated bonus for the portion of the
fiscal year Mr. Casamento was employed, continuation of health insurance
coverage at no cost for up to 18 months, the full vesting of all stock options
and restricted stock then held by Mr. Casamento and forgiveness of all loans by
the combined company. The employment agreement also provides for some continued
benefits upon death or disability.
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MORRIS RETENTION BONUS AGREEMENT. In connection with the execution of the
merger agreement, RiboGene executed a retention bonus agreement with Timothy E.
Morris, RiboGene's former Chief Financial Officer. Mr. Morris has informed
RiboGene that he intends to resign from RiboGene as of October 1, 1999. Thus,
Mr. Morris is not expected to receive any benefits under his retention bonus
agreement.
OTHER RIBOGENE RETENTION BONUS AGREEMENTS. In connection with the merger,
RiboGene will enter into retention bonus agreements with several RiboGene
employees. These retention bonus agreements provide that if the merger occurs
and the employee is employed by RiboGene on the incentive date, RiboGene will
pay to the employee a retention bonus in an amount equal to either 50% or 100%,
as applicable, of the employee's base salary for the period from the dates of
the retention bonus agreements, to the incentive date (as described below). The
incentive date varies among these retention bonus agreements, and includes the
following dates (1) January 5, 2000, (2) the date of the closure, shutdown,
relocation or other discontinuance of RiboGene's Hayward facility and (3) the
last day of the calendar month in which the merger occurs. The retention bonus
agreements further provide that if the merger agreement is terminated prior to
the merger and the employee is employed by RiboGene on the termination date of
the merger agreement, RiboGene will pay to the employee a retention bonus in an
amount equal to either 50% or 100%, as applicable, of the employee's base salary
for the period from the dates of the retention bonus agreements to January 5,
2000 or March 31, 2000, as the case may be. If the employee's employment is
terminated by RiboGene without cause prior to the incentive date, RiboGene will
pay to the employee a termination bonus in an amount equal to either 50% or
100%, as applicable, of the employee's base salary for the period from the dates
of the retention bonus agreements to January 5, 2000 or March 31, 2000, as the
case may be, provided that this termination bonus will not be paid if the
employee receives a retention bonus under the terms of the preceding sentence.
RIBOGENE SEVERANCE BENEFITS PLAN. On August 4, 1999, RiboGene adopted the
RiboGene Severance Benefits Plan. The RiboGene plan provides that each full time
employee of RiboGene (with the exception of the Chief Executive Officer and
President) who is employed at the time of a change of control of RiboGene is
eligible to receive benefits under the plan. The merger will be a change of
control under the RiboGene plan. If an eligible employee is terminated
involuntarily, other than for cause, at any time within 60 days before or within
12 months after the change of control then the employee will be entitled to
receive a lump sum severance payment under the plan. An employee will be treated
as having been terminated involuntarily if the employee's employment is
terminated by RiboGene, or the employee resigns as a result of any of the
following: (1) a material reduction in job responsibilities, (2) a reduction in
annual base compensation or bonus opportunity, (3) a requirement that the
employee perform services at a principal location that is more than 50 miles
from the location at which the employee currently performs services, or (4) a
material reduction in the employee's benefits. If the terminated employee holds
the position of Vice President, the employee will receive a severance benefit
equal to the greater of one month of base salary for each year of service with
RiboGene or nine months of base salary. If the terminated employee holds the
position of Director, the employee will receive a severance benefit equal to the
greater of one month of base salary for each year of service with RiboGene or
six months of base salary. If the terminated employee does not hold the position
of either Vice President or Director, the employee will receive a severance
benefit equal to the greater of one month of base salary for each year of
service with RiboGene or three months of base salary under the plan. The
RiboGene severance benefits plan also provides terminated employees with
continued health insurance benefits and the immediate vesting of all stock
options held by the terminated employee. However, an employee of RiboGene will
cease to be an eligible employee under the plan if: (1) the employee enters into
an employment agreement with RiboGene (other than a retention bonus agreement)
providing for the payment of compensation to the employee for a specified period
of time or following termination, or equal or greater severance benefits, (2)
the employee is offered employment with Cypros, or the employee accepts
employment with Cypros, unless the
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employee rejects such employment for reasons that would cause the employee's
resignation from RiboGene to be treated as an involuntary termination (as
described above), or (3) in the event RiboGene sells, transfers or otherwise
disposes of all or substantially all of the assets or business related to any
business unit, division, department or operational unit, and the employee is
offered employment with the purchaser or other acquiror of such assets or
business, or accepts employment with such purchaser or acquiror, unless the
employee rejects such employment for reasons that would cause the employee's
resignation from RiboGene to be treated as an involuntary termination (as
described above). As a condition to receiving benefits of the RiboGene severance
benefits plan, an employee of RiboGene must agree in writing to waive any rights
under any prior change of control agreements and execute a release of claim
against RiboGene.
MARANGOS AGREEMENTS. In connection with the merger, Cypros and Paul J.
Marangos, its Chairman, President and Chief Executive Officer, entered into a
Severance Benefits Agreement to provide severance benefits upon termination of
his employment relationship with Cypros and agreed upon the form of a Separation
and Consulting Agreement to provide for further severance benefits and an
ongoing consulting relationship following the completion of the merger. The
severance agreement provides Dr. Marangos, among other things, with a payment of
two years' annual salary, the acceleration of the vesting of his stock options
and the extension of the exercise period to two years, the continuation of his
medical, dental and disability benefits for two years and a cash bonus of
$25,000. The consulting agreement provides for Dr. Marangos to continue serving
on the board of Cypros and to consult for Cypros as requested for one year
following his separation date at an annual fee of $125,000. In addition, in
exchange for payment of $25,000 and the consulting agreement, Mr. Marangos
agreed to execute a release, and in exchange for an additional $50,000, Dr.
Marangos agreed to execute a covenant not to compete to run concurrently with
the term of the consulting agreement.
NASSIF AND SULLIVAN AGREEMENTS. Also, in connection with the merger, Cypros
and David W. Nassif, Senior Vice President, Chief Financial Officer and
Secretary, entered into a Severance Benefits Agreement to provide severance
benefits upon termination of his employment relationship with Cypros. Mr.
Nassif's severance agreement provides Mr. Nassif, among other things, with a
payment of one year's annual salary, the acceleration of the vesting of his
stock options and the extension of the exercise period to two years, and the
continuation of his medical, dental and disability benefits for one year. In
addition, Mr. Nassif and Dr. Brian Sullivan, Vice President of Product
Development, each entered into a Retention Bonus Agreement with Cypros which
provides for cash bonuses for remaining with Cypros (1) through the closing of
the merger and (2) if needed, for 90 days after the merger to assist in the
integration of the two companies. Each retention agreement also provides for a
bonus of 100% of Mr. Nassif's or Mr. Sullivan's prorated salary for the
period(s) that he stays, however, it is in the discretion of Cypros to let him
stay to or through those periods. Mr. Nassif is also entitled to a cash bonus of
$30,000 for the completion of the merger.
CYPROS SEVERANCE BENEFIT PLAN. On August 4, 1999, Cypros adopted and
approved the Cypros Severance Benefits Plan. The Cypros severance benefits plan
provides that each full time employee of Cypros (with the exception of the Chief
Executive Officer and Chief Financial Officer) who is employed at the time of a
change of control of Cypros is eligible to receive benefits under the plan. The
merger will be a change of control under the plan. If an eligible employee is
terminated at any time within 60 days before or within 12 months after the
change of control, and the termination or removal is not voluntary or for cause,
then the employee will be entitled to receive a lump sum severance payment under
the plan. If the terminated employee holds the position of Vice President, the
employee will receive a severance benefit equal to the greater of one month of
base salary for each year of service with Cypros or nine months of base salary.
If the terminated employee holds the position of director, the employee will
receive a severance benefit equal to the greater of one month of base salary for
each year of service with Cypros or six months of base salary. If the terminated
employee does not hold the position of either Vice President or Director, the
employee will receive a
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severance benefit equal to the greater of one month of base salary for each year
of service with Cypros or three months of base salary under the plan. The Cypros
severance benefits plan also provides terminated employees with continued health
insurance benefits and the immediate vesting of all stock options held by the
terminated employee. However, an employee of Cypros will cease to be an eligible
employee under the plan if the employee enters into an employment agreement with
Cypros providing for the payment of compensation to the employee following
termination if the employment agreement provides for severance benefits to the
employee that are equal to or greater than the severance benefits to be provided
under the terms of the plan. As a condition to receiving benefits of the Cypros
severance benefits plan, an employee of Cypros must agree in writing to waive
any rights under any prior change of control agreements and execute a release of
claims against Cypros.
ROBERTS PHARMACEUTICAL CORPORATION. Roberts Pharmaceutical Corporation, the
owner of 1,528,428 shares of RiboGene Series A preferred stock, will receive all
of the Cypros Series A preferred stock being issued in the merger. Dr. Vukovich,
a member of Cypros' board of directors, is the Chairman of Roberts
Pharmaceutical Corporation and Mr. Barrios, a member of the board of both Cypros
and RiboGene, is a member of the board of directors of Roberts Pharmaceutical
Corporation.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences generally applicable to RiboGene stockholders. The
discussion is based on current law. Changes in the law could affect the federal
income tax consequences of the merger to RiboGene stockholders. This discussion
assumes that RiboGene stockholders hold their RiboGene common stock and RiboGene
Series A preferred stock as capital assets within the meaning of Section 1221 of
the Internal Revenue Code. Cypros and RiboGene have not and will not seek a
ruling from the Internal Revenue Service in connection with the merger. This
discussion does not address the consequences of the merger under state, local or
foreign law, nor does the discussion address all aspects of federal income
taxation that may be important to a RiboGene stockholder in light of his or her
particular circumstances or tax issues that may be significant to RiboGene
stockholders subject to special rules, such as:
- financial institutions;
- insurance companies;
- foreign individuals and entities;
- tax-exempt entities;
- dealers in securities;
- persons who are subject to the alternative minimum tax provisions of the
Internal Revenue Code;
- persons who acquired RiboGene capital stock pursuant to the exercise of an
employee option (or otherwise as compensation); or
- persons who acquired RiboGene capital stock as part of an integrated
investment, such as a "hedge," "straddle" or other risk reduction
transaction, composed of RiboGene capital stock and one or more other
positions.
This discussion does not address the tax consequences of an exchange or
conversion of RiboGene stock options or warrants into stock options or warrants
to acquire Cypros common stock.
Accordingly, RiboGene stockholders are urged to consult their own tax
advisors as to the specific tax consequences of the merger, including the
applicable federal, state, local and foreign tax consequences to them of the
merger.
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Based upon the assumptions and representations in this discussion, Cooley
Godward, counsel to Cypros, and Latham & Watkins, counsel to RiboGene, are of
the opinion that the merger will constitute a reorganization under Section
368(a) of the Internal Revenue Code. In addition, it is a condition to the
obligation of each party to consummate the merger that it receive an opinion of
its counsel to the effect that the merger will constitute a reorganization.
These conditions will not be waived without a resolicitation of consent by the
stockholders of RiboGene and the shareholders of Cypros. Cooley Godward and
Latham & Watkins have advised Cypros, Cypros Acquisition Corporation and
RiboGene that they currently expect to be able to deliver these opinions. These
opinions neither bind the IRS or the courts nor preclude the IRS or a court from
adopting a contrary position.
In addition, the tax opinions assume and are conditioned upon the following:
- the truth and accuracy of the statements, covenants, representations and
warranties contained in the merger agreement, in the tax representations
received from Cypros, Cypros Acquisition Corporation and RiboGene and in
all other instruments and documents related to the formation and operation
of Cypros, Cypros Acquisition Corporation and RiboGene examined by and
relied upon by Latham & Watkins and Cooley Godward in connection with
their opinions;
- that original documents submitted to counsel are authentic, documents
submitted to counsel as copies conform to the original documents, and that
those documents have been or will be by the effective time duly and
validly executed and delivered;
- that all covenants contained in the merger agreement and the tax
representations received from Cypros, Cypros Acquisition Corporation and
RiboGene are performed without waiver or breach of any material provision;
- that the merger will be effected under applicable state law;
- that the merger will be reported by Cypros and RiboGene on their
respective federal income tax returns in a manner consistent with the tax
opinions; and
- that any representation or statement made "to the best of knowledge" or
similarly qualified is correct without being qualified.
Subject to the limitations and qualifications referred to above, the merger
will have the following federal income tax consequences:
- EXCHANGE OF RIBOGENE CAPITAL STOCK FOR CYPROS CAPITAL STOCK. Except as
discussed below, no gain or loss will be recognized for federal income tax
purposes by RiboGene stockholders who exchange their RiboGene capital
stock solely for Cypros capital stock under the merger. Each RiboGene
stockholder's aggregate tax basis in the Cypros capital stock he or she
receives in the merger will be the same as his or her aggregate tax basis
in the RiboGene capital stock surrendered in the merger, reduced by any
tax basis allocable to fractional shares exchanged for cash. In addition,
the holding period of the Cypros capital stock received will include the
holding period of the RiboGene capital stock surrendered.
- CASH RECEIVED INSTEAD OF FRACTIONAL SHARES. The payment of cash to a
RiboGene stockholder instead of a fractional share in Cypros capital stock
generally should result in the recognition of capital gain or loss
measured by the difference between the amount of cash received and the
portion of the tax basis of the RiboGene capital stock allocable to that
fractional share interest. In the case of an individual, capital gain is
generally subject to United States federal income tax at a maximum rate of
20% if the individual has held his or her RiboGene capital stock for more
than one year at the time of the merger, and at ordinary income rates (as
a short-term capital gain) if the individual has held his or her RiboGene
capital stock for one year or less at the time of the completion of the
merger. The deductibility of capital losses may be limited.
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- TAX CONSEQUENCES TO THE COMPANIES. Neither Cypros, RiboGene nor Cypros
Acquisition Corporation will recognize gain or loss solely as a result of
the merger.
There are other tax-related issues that you should be aware of such as:
- REPORTING REQUIREMENTS. Each RiboGene stockholder that receives Cypros
capital stock in the merger will be required to file a statement with his
or her federal income tax return providing his or her basis in the
RiboGene capital stock surrendered and the fair market value of the Cypros
capital stock and cash received in the merger, and to retain permanent
records of these facts relating to the merger.
- BACKUP WITHHOLDING. Unless an exemption applies under applicable law and
regulations, the exchange agent is required to withhold, and will
withhold, 31% of any cash payments to a RiboGene stockholder in the merger
unless the stockholder provides the appropriate form as described below.
Each RiboGene stockholder should complete and sign the Substitute Form W-9
included as part of the letter of transmittal to be sent to each RiboGene
stockholder, so as to provide the information, including the stockholder's
taxpayer identification number, and certification necessary to avoid
backup withholding, unless an applicable exemption exists and is proved in
a manner satisfactory to Cypros and the exchange agent.
- CONSEQUENCES OF IRS CHALLENGE. A successful IRS challenge to the
reorganization status of the merger would result in significant tax
consequences. RiboGene stockholders would recognize gain or loss with
respect to each share of RiboGene capital stock surrendered in the merger.
This gain or loss would be equal to the difference between the
stockholder's basis in the share and the sum of the fair market value, as
of the effective time, of the Cypros capital stock received in the merger
and any cash received instead of a fractional share of Cypros capital
stock. In that event, a stockholder's aggregate basis in the Cypros
capital stock so received would equal its fair market value as of the
effective time and the stockholder's holding period for the stock would
begin the day after the merger is consummated.
- OTHER CONSIDERATION. Even if the merger qualifies as a reorganization, a
recipient of Cypros capital stock would recognize income to the extent
that, for example, any of the shares were determined to have been received
in exchange for services, to satisfy obligations or in consideration for
anything other than the RiboGene capital stock surrendered. Generally,
this income is taxable as ordinary income upon receipt. In addition, to
the extent that RiboGene stockholders were treated as receiving, directly
or indirectly, consideration other than Cypros capital stock in exchange
for the stockholder's RiboGene capital stock, gain or loss would have to
be recognized.
The preceding discussion is not meant to be a complete analysis or
discussion of all potential tax effects relevant to the merger. Thus, RiboGene
stockholders are urged to consult their own tax advisors as to the specific tax
consequences to them of the merger, including tax return reporting requirements,
federal, state, local and other applicable tax laws and the effect of any
proposed changes in the tax laws.
RIGHTS AGREEMENT
RiboGene entered into a rights agreement dated July 1, 1999, with American
Stock Transfer & Trust Company to provide rights to the stockholders of RiboGene
in the event of specific events or transactions which could result in a change
in control of the ownership of RiboGene. The form of rights agreement is also
commonly referred to as a poison pill. In the merger agreement, RiboGene
represented that it had taken all, and would continue to take all, actions
necessary to render the RiboGene rights agreement inapplicable to the merger and
the transactions contemplated in the merger agreement. The rights agreement was
amended as of August 4, 1999 to specify that the rights agreement does not apply
to the merger and related transactions.
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ROBERTS PHARMACEUTICAL CORPORATION WAIVER
Roberts Pharmaceutical Corporation is the sole holder of all of the
outstanding Series A preferred stock of RiboGene. Under the certificate of
designation for the RiboGene Series A preferred stock, the holders of RiboGene
Series A preferred stock are entitled to receive a liquidation distribution
equal to the original issuance price of the RiboGene Series A preferred stock in
the event of the liquidation or dissolution of RiboGene or upon a merger in
which a majority of the ownership of RiboGene is transferred. Prior to the
execution of the merger agreement, Cypros entered into a letter agreement with
Roberts Pharmaceutical under which Roberts Pharmaceutical waived its right to
receive any liquidation distribution under the terms of the certificate of
designation. The waiver applies only to the merger and terminates immediately
following the merger.
ACCOUNTING TREATMENT
For accounting purposes, the merger will be treated as a purchase of
RiboGene by Cypros.
EFFECT ON CYPROS OPTIONS AND WARRANTS
No other adjustments to any outstanding Cypros stock options or warrants
will occur as a result of the merger, except that vesting of options issued
under the Cypros 1993 Non-Employee Directors' Equity Incentive Plan will be
accelerated.
REGULATORY MATTERS
The consummation of the merger is not subject to the expiration or
termination of the relevant waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976.
FEDERAL SECURITIES LAW CONSEQUENCES
All of the Cypros common stock issued in connection with the merger will be
freely transferable, except that any Cypros common stock received by persons who
are deemed to be affiliates as defined under the Securities Act, of RiboGene or
Cypros prior to the merger may be sold by them only in transactions permitted by
the resale provisions of Rule 145 under the Securities Act with respect to
affiliates of RiboGene, or Rule 144 under the Securities Act with respect to
persons who are or become affiliates of Cypros, or as otherwise permitted under
the Securities Act. Persons who may be deemed to be affiliates of RiboGene or
Cypros generally include individuals or entities that control, are controlled
by, or are under common control with, the corporation and may include some
officers and directors of such corporation as well as principal stockholders of
the corporation.
Affiliates of RiboGene may not sell their shares of Cypros common stock
acquired in connection with the merger, except under an effective registration
under the Securities Act covering the shares or in compliance with Rule 145, or
Rule 144 under the Securities Act in the case of persons who are or become
affiliates of Cypros, or another applicable exemption from the registration
requirements of the Securities Act. In general, under Rule 145, for one year
following the merger, an affiliate, together with certain related persons, would
be entitled to sell shares of the combined company's common stock acquired in
connection with the merger only through unsolicited brokers transactions or in
transactions directly with a market maker, as those terms are defined in Rule
145. Additionally, the number of shares to be sold by an affiliate within any
three-month period for purposes of Rule 145 may not exceed the greater of 1% of
the outstanding shares of the combined company's common stock or the average
weekly trading volume of the stock during the four calendar weeks preceding the
sale. Rule 145 would only remain available, however, to affiliates if the
combined company remained current with its informational filings under the
Exchange Act. One year after the merger, an affiliate would be able to sell its
combined company common stock without the manner of sale or volume limitations
provided that the combined company was current with its Exchange Act
informational filings and the affiliate was not then an affiliate of the
combined company. Two years after the merger, an affiliate
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would be able to sell the shares of the combined company common stock without
any restrictions so long as the affiliate had not been an affiliate of the
combined company for at least three months prior to that date.
The shares of Cypros Series A preferred stock issuable in the merger will be
registered but will not be listed on any securities exchange. The shares of
Cypros common stock issuable upon conversion of the Cypros Series A preferred
stock shall be registered under the Securities Act but shall be subject to
restrictions on transfer for stock held by affiliates.
APPRAISAL AND DISSENTERS' RIGHTS
DISSENTERS' RIGHTS OF RIBOGENE STOCKHOLDERS
Under applicable Delaware law, the holders of common stock of RiboGene are
not entitled to dissenters' or appraisal rights in connection with the merger.
However, holders of RiboGene preferred stock are entitled to appraisal rights
under Delaware law in connection with the merger. The holder of RiboGene Series
A preferred stock effectively waived its appraisal rights under Delaware law by
waiving its liquidation preference provided in the RiboGene Series A preferred
stock certificate of designation.
DISSENTERS' RIGHTS OF CYPROS SHAREHOLDERS
The following summary of dissenters' rights under the California
Corporations Code is qualified in its entirety by reference to Chapter 13 of the
California Corporations Code, the complete text of which is attached hereto as
Annex G.
FAILURE TO STRICTLY FOLLOW THE PROCEDURES PROVIDED IN CHAPTER 13 OF THE
CALIFORNIA CORPORATIONS CODE MAY RESULT IN THE LOSS, TERMINATION OR WAIVER OF
APPRAISAL RIGHTS. A CYPROS SHAREHOLDER WHO FAILS TO SIGN AND RETURN A PROXY CARD
DISAPPROVING AND WITHHOLDING AUTHORIZATION FOR THE MERGER OR TO ATTEND THE
CYPROS SPECIAL MEETING AND VOTE HIS OR HER SHARES AGAINST THE MERGER WILL NOT
HAVE A RIGHT TO EXERCISE DISSENTERS' RIGHTS. A CYPROS SHAREHOLDER WHO DESIRES TO
EXERCISE HIS OR HER DISSENTERS' RIGHTS MUST ALSO SUBMIT A WRITTEN DEMAND FOR
PAYMENT TO CYPROS BEFORE THE DATE OF THE CYPROS SPECIAL MEETING. IN ADDITION, NO
CYPROS SHAREHOLDER, UNDER ANY CIRCUMSTANCES, WILL HAVE A RIGHT TO DISSENT FROM
THE MERGER AGREEMENT IF LESS THAN FIVE PERCENT OF THE OUTSTANDING SHARES OF
CYPROS COMMON STOCK DO NOT PERFECT THEIR RIGHT TO DISSENT AND EXERCISE THEIR
DISSENTERS' RIGHTS IN ACCORDANCE WITH CHAPTER 13 OF THE CALIFORNIA CORPORATIONS
CODE.
Under Chapter 13 of the California Corporations Code, each Cypros
shareholder as of the record date who votes against the merger and who submits a
written demand for payment to Cypros prior to the date of the Cypros special
meeting is entitled to receive payment of the fair value of all or any portion
of the holder's shares of Cypros common stock owned by the holder if the merger
is completed and if demands for payment are made for five percent or more of the
outstanding shares of Cypros common stock. The fair value of these shares is
determined as of August 4, 1999, the last day before the first announcement of
the terms of the merger. Any Cypros shareholder who elects to perfect its
dissenters' rights and demands payment of the fair value of its shares must
strictly comply with Chapter 13 of the California Corporations Code. The
following summary does not purport to be complete and is qualified in its
entirety by reference to Chapter 13 of the California Corporations Code, the
text of which is attached to this prospectus/joint proxy statement as Annex G.
Any holder of shares of Cypros common stock considering demanding dissenters'
rights is advised to consult legal counsel. Dissenters' rights will not be
available unless and until the merger is consummated. To perfect the right to
dissent and receive the fair value of the holder's shares, a Cypros shareholder
must vote against the merger.
Prior to the date set for approval of the merger, each Cypros shareholder
who elects to exercise his or her dissenters' rights must make a written demand
upon Cypros for the purchase of his or her Cypros shares. The Cypros
shareholder's demand must state the number and class of shares held of
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record by the Cypros shareholder which the Cypros shareholder demands that
Cypros purchase, as well as a statement by the Cypros shareholder as to what the
holder claims the fair market value of such shares was as of the day prior to
the announcement of the merger. The statement of fair market value constitutes
an offer by the Cypros shareholder to sell the shares at that price. Voting
against the merger shall not constitute a written demand.
If demands for payment are made for five percent or more of the outstanding
shares of Cypros common stock, and, as a consequence dissenting shareholders of
Cypros become entitled to exercise dissenters' rights, then, within 10 days
after the date of approval of the merger, Cypros will mail to each Cypros
shareholder who filed a demand, notice of the approval of the merger by the
Cypros shareholders, accompanied by a copy of Sections 1300 through 1304 of the
California Corporations Code. The notice will also state the price determined by
Cypros to be the fair market value of shares of Cypros common stock under which
dissenters' rights are properly exercised under the California Corporations Code
and a brief description of the procedure to be followed by a shareholder who
elects to dissent.
Within the 30-day period following the mailing of the notice, the dissenting
shareholder must submit to Cypros for endorsement certificates for any shares
which the Cypros shareholder demands that Cypros purchase. If Cypros and the
Cypros shareholder agree upon the price of the Cypros dissenting shares, the
dissenting Cypros shareholder is entitled to the agreed price with interest at
the legal rate on judgments from the date of the agreement. Payment must be made
within 30 days of the later of the date of the agreement between the Cypros
shareholder and Cypros or the date the contractual conditions to the merger are
satisfied or waived.
If Cypros and the Cypros shareholder cannot agree as to the fair market
value or whether the shares are Cypros dissenting shares, the Cypros shareholder
may file within six months of the date of mailing of the notice a complaint with
the California Superior Court for the County of San Diego demanding judicial
determination of these matters. Cypros will then be required to make any
payments in accordance with such judicial determination. If the complaint is not
filed within the specified six-month period, the Cypros shareholder's rights as
a dissenter are lost.
Cypros dissenting shares lose their dissenters' rights if (1) Cypros
abandons the merger; (2) the shares are transferred prior to submission for
endorsement or are surrendered for conversion into shares of another class in
accordance with Cypros' articles of incorporation; (3) the Cypros shareholder
and Cypros do not agree as to the fair market value of the shares and a
complaint is not filed within six months of the date that the notice was mailed;
or (4) the dissenting Cypros shareholder withdraws, with the consent of Cypros,
his or her demand for purchase of the shares.
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THE MERGER AGREEMENT
THE DESCRIPTION OF THE MERGER AGREEMENT PROVIDED BELOW DOES NOT PURPORT TO
BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED TO THIS PROSPECTUS/ JOINT PROXY STATEMENT
AS ANNEX A AND INCORPORATED HEREIN BY REFERENCE. ALL STOCKHOLDERS ARE URGED TO
READ THE MERGER AGREEMENT CAREFULLY AND IN ITS ENTIRETY.
TERMS OF THE MERGER
THE MERGER. At the closing and subject to and upon the terms and conditions
of the merger agreement and the Delaware General Corporation Law, Cypros
Acquisition Corporation will be merged with and into RiboGene, the separate
corporate existence of Cypros Acquisition Corporation will cease, and RiboGene
will continue as the surviving corporation and a wholly-owned subsidiary of
Cypros. In the merger, each share of RiboGene common stock will be converted
into the right to receive approximately 1.494 shares of Cypros common stock,
subject to adjustment as described below. In addition, each share of RiboGene
Series A preferred stock will be converted into the right to receive
approximately 1.494 shares of Cypros Series A preferred stock with similar
rights, preferences and privileges as the RiboGene Series A preferred stock,
including a $10 million liquidation preference. Each outstanding option and
warrant to purchase RiboGene common stock will be assumed by Cypros in
accordance with its terms. Appropriate adjustments will be made to the number of
shares issuable upon exercise of these options and warrants and the exercise
price of each option and warrant to reflect the exchange ratio. The final
exchange ratio will be determined based on (1) the number of shares of Cypros
common stock and shares of RiboGene common stock outstanding, assuming exercise
or the conversion of all options, warrants and preferred stock in each case, on
the day before the special meetings of Cypros and RiboGene to vote on this
merger, and (2) a designated adjustment if the average closing price of Cypros
common stock over the 20 consecutive trading days ending on the day before the
Cypros special meeting to vote on this merger exceeds $2.475 or falls below
$1.464. The final exchange ratio will be calculated as follows:
<TABLE>
<S> <C> <C>
IF THE AVERAGE CLOSING PRICE OF CYPROS COMMON STOCK OVER THE 20 DAY PERIOD ENDING
THE DAY BEFORE THE CYPROS SPECIAL MEETING IS:
GREATER THAN $2.475 BETWEEN $2.475 AND $1.464 LESS THAN $1.464
THEN THE EXCHANGE RATIO CALCULATION IS:
(1) $36,921,567 divided by the (1) The total number of Cypros (1) $21,839,666 divided by the
20-day average closing price of common stock outstanding on the day 20-day average closing price of
Cypros common stock, minus (2) before the Cypros special meeting, Cypros common stock, minus (2)
403,549, divided by (3) the total assuming the exercise or conversion 403,549, divided by (3) the total
number of shares of RiboGene common of all options and warrants, number of shares of RiboGene common
stock outstanding on the day before multiplied by (2) 45/55 (or stock outstanding on the day before
the RiboGene special meeting, 0.81818), minus (3) 403,549, divided the RiboGene special meeting,
assuming the exercise or conversion by (4) the total number of shares of assuming the exercise or conversion
of all preferred stock, options and RiboGene common stock outstanding on of all preferred stock, options and
warrants. the day before the RiboGene special warrants.
meeting, assuming the exercise or
conversion of all preferred stock,
options and warrants.
</TABLE>
Cypros expects to issue approximately 8,649,236 shares of Cypros common
stock and approximately 2,134,534 shares of Cypros Series A preferred stock to
RiboGene stockholders in the merger. As a result of the merger, the former
holders of RiboGene common stock and RiboGene Series A preferred stock will hold
approximately 41% of the outstanding voting stock of Cypros and current holders
of
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Cypros common stock will hold approximately 59% of the outstanding voting stock
of Cypros. In addition, Cypros expects to reserve approximately 3.7 million
shares of Cypros common stock to be issued upon the exercise of RiboGene options
and warrants that will be assumed by Cypros in the merger. On a fully-diluted
basis after the merger, the former holders of RiboGene common stock, preferred
stock, options and warrants will hold approximately 45% of the voting stock of
Cypros and current holders of Cypros common stock, options and warrants will
hold approximately 55% of the voting stock of Cypros. The Cypros common stock
currently trades on the AMEX under the symbol CYP. The combined company common
stock will trade on the AMEX under the symbol QSC.
CHARTERS AND BYLAWS. The merger agreement provides that the certificate of
incorporation and bylaws of RiboGene will be amended as of the closing to
conform to the certificate of incorporation and bylaws of Cypros Acquisition
Corporation. In addition, the merger agreement provides that the articles of
incorporation of Cypros must be amended as of the closing to (a) increase the
number of authorized shares of common stock of Cypros from 30,000,000 shares to
75,000,000 shares and the number of authorized shares of preferred stock of
Cypros from 1,000,000 shares to 7,500,000 shares, (b) authorize the Cypros board
to issue and designate the rights, preferences and privileges of Cypros
preferred stock; and (c) designate the rights, preferences, privileges and
restrictions on its Series A preferred stock, so that shares of that series may
be issued in connection with the merger. The Cypros bylaws must also be amended
to change the authorized number of directors of Cypros to not less than four nor
more than nine. See "Amendment to the Articles of Incorporation."
DIRECTORS AND OFFICERS. As required under the merger agreement, Charles J.
Casamento, Frank J. Sasinowski, Jon S. Saxe and Roger G. Stoll, current
directors of RiboGene, will become members of the Cypros board upon the
effectiveness of the merger. Digby W. Barrios, a current member of both the
RiboGene and Cypros boards, will remain on the board of Cypros. Current Cypros
directors Paul J. Marangos, Robert F. Allnutt, Virgil D. Thompson and Robert A.
Vukovich will also remain on the Cypros board. In addition, Charles J.
Casamento, currently Chairman, President and Chief Executive Officer of RiboGene
will serve in those same capacities with Cypros following the merger.
FRACTIONAL SHARES. No fractional shares or certificates or scrip
representing fractional shares of Cypros common stock shall be issued in
connection with the merger. In lieu of any fractional share, each holder of a
certificate or certificates representing RiboGene common stock who would
otherwise have been entitled to a fraction of a share of Cypros common stock
upon surrender of the certificate for exchange shall be paid in cash upon
surrender the dollar amount determined by multiplying the fraction by the
average closing prices of Cypros common stock as reported on the AMEX for the 20
trading days ending on the day immediately preceding the date of the Cypros
special meeting.
EXCHANGE OF CERTIFICATES
EXCHANGE AGENT. Cypros will supply to American Securities Transfer & Trust,
Inc., as exchange agent for Cypros common stock, certificates evidencing shares
of Cypros common stock to be issued in exchange for outstanding RiboGene common
stock in accordance with the merger agreement. Cypros will act as exchange agent
for Cypros preferred stock.
EXCHANGE PROCEDURES. As soon as reasonably practicable after the
effectiveness of the merger, the exchange agent will mail to record holders of
RiboGene stock a transmittal letter and instructions for effecting the surrender
of RiboGene stock certificates in exchange for Cypros stock certificates. To
exchange the certificates, the holders of RiboGene common stock and RiboGene
Series A preferred stock must then surrender their certificates representing
RiboGene common stock or RiboGene Series A preferred stock to exchange the
certificates for certificates evidencing Cypros common stock or Cypros Series A
preferred stock, as the case may be.
Upon surrender of a certificate representing RiboGene common stock or
RiboGene Series A preferred stock for cancellation to the exchange agent, and
other customary documents as may be
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required, the holder of the certificate will be entitled to receive in exchange
for the certificate a certificate evidencing that number of whole shares of
Cypros common stock or Cypros Series A preferred stock which the holder has the
right to receive in the merger and cash instead of fractional shares of Cypros
common stock. The certificate representing RiboGene common stock or RiboGene
Series A preferred stock so surrendered will be cancelled. In the event of a
transfer of ownership of shares of RiboGene common stock or RiboGene Series A
preferred stock which is not registered in the transfer records of RiboGene as
of the completion of the merger, the merger consideration, the shares of Cypros
common stock and Cypros Series A preferred stock (and any cash in lieu of
fractional shares) to be issued in exchange, may be issued and paid to a
transferee if the certificate evidencing the shares of RiboGene common stock or
RiboGene Series A preferred stock is presented to the exchange agent,
accompanied by all documents required to evidence and effect the transfer and by
evidence that any applicable stock transfer taxes have been paid. Until so
surrendered, each outstanding certificate that represented shares of RiboGene
common stock or RiboGene Series A preferred stock prior to the merger will be
deemed from and after the merger to evidence only the right to receive the
shares of Cypros common stock or Cypros Series A preferred stock, as the case
may be, and cash in lieu of fractional shares.
The exchange agent will be entitled to deduct and withhold from the Cypros
common stock or Cypros Series A preferred stock otherwise payable under the
merger agreement to any RiboGene stockholder such amounts as Cypros or its
designee is required to deduct and withhold for the making of the payment under
any provision of law. To the extent that amounts are withheld by Cypros or its
designee, the withheld amounts shall be treated for purposes of the merger
agreement as having been paid to the holder of the shares of RiboGene common
stock or RiboGene Series A preferred stock in respect of which the deduction and
withholding was made by Cypros or its designee.
If any certificate representing shares of RiboGene common stock or RiboGene
Series A preferred stock have been lost, stolen or destroyed, Cypros may, in its
discretion and as a condition to the issuance of a certificate representing
Cypros common stock or Cypros Series A preferred stock, require the owner of
that certificate to provide an affidavit and to deliver a bond as indemnity
against any claim that may be regarding the certificate alleged to have been
lost, stolen or destroyed.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains substantially reciprocal customary
representations and warranties made by RiboGene and Cypros to each other. The
most significant of those relate to:
- corporate organization and standing;
- force and effect of charter and bylaws;
- capitalization;
- financial statements;
- absence of any material adverse changes in the operation of each company
since a specified date;
- good and valid title to all assets;
- ownership and rights to use intellectual property;
- absence of breach in any material agreement;
- payment of taxes;
- employee and labor matters;
- compliance with environmental laws;
- maintenance of adequate insurance;
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- pending litigation;
- vote required to approve the merger and related transactions; and
- receipt of fairness opinions from financial advisors.
In particular, Ribogene has represented and warranted that its has not
received any notice of nor is it aware that since December 31, 1998, there has
been any material adverse change or event with respect to RiboGene's research
programs, including with respect to either of its collaboration arrangements
with Dainippon and Roberts Pharmaceutical Corporation and that each agreement is
in full force and effect and RiboGene is not aware that either Dainippon or
Roberts intends to terminate is agreement with RiboGene within 12 months of the
date of the merger agreement and relations between RiboGene and these parties
are good.
The representations and warranties of the parties in the merger agreement do
not survive the consummation of the merger.
CONDUCT OF BUSINESS PENDING THE MERGER
The merger agreement provides that each of Cypros and RiboGene will, from
the date of the execution of the merger agreement until the effectiveness of the
merger, conduct its business in the ordinary course and preserve intact its
present business organization and employee relations. The merger agreement also
requires that each party will provide the other party with reasonable access to
its personnel, assets, documents and other information. Each company has also
agreed that, during the pre-merger period, it will not without the prior consent
of the other:
- pay any dividend or repurchase, redeem any shares of capital stock or
other securities, except for repurchases of RiboGene warrants under their
existing terms;
- issue additional shares of its capital stock or securities convertible or
exchangeable for its capital stock or any other security, except that it
may issue shares and grant options to purchase up to 100,000 shares of its
common stock under approved stock option and stock purchase plans and
issue shares of its common stock upon the valid exercise of outstanding or
permitted stock options, upon the exercise of outstanding warrants and
upon the conversion of outstanding preferred stock;
- amend or waive any of its rights under, or permit the acceleration of
vesting under any provision of any agreement evidencing any outstanding
option, warrant or restricted stock;
- amend or permit the adoption of any amendment to its charter documents, or
effect or permit itself or any of its subsidiaries to become a party to
any merger, consolidation, business combination, recapitalization, stock
split, reverse stock split or similar transaction;
- form any subsidiary or acquire any equity interest in any other entity;
- make any capital expenditure exceeding $100,000;
- enter into any material contract except in the ordinary course of
business, or amend or waive any material right or remedy under, any
material contract;
- acquire, lease, license, dispose or sell any material right or other
material asset or waive or relinquish any material right;
- lend money to any third party, or incur or guarantee any indebtedness;
- adopt or amend any employee benefit plan, pay any bonus or make any
profit-sharing or similar payment to, or increase the amount of the wages,
salary, commissions, fringe benefits or other compensation payable to, any
of its directors, officers or employees;
- prepay any material claim, liability or obligation;
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- enter into or amend any employment agreement, severance agreement or
special pay arrangement;
- make or fail to make any material election concerning or waive any
material provision of a real property lease;
- make any tax election;
- commence or settle any legal proceeding;
- enter into any material transaction or take any other material action
outside the ordinary course of business or inconsistent with its
practices; or
- agree or commit to take any action described in the clauses above.
In particular, the merger agreement also calls for Cypros to have taken
specific actions by specific dates related to (1) the completion of its Lee's
Summit, Missouri manufacturing facility; (2) the validation of the facility,
equipment, cleaning methods, manufacturing processes and related analytical
methods; and (3) the filing of all necessary applications with the FDA to
manufacture, test and label Sildaflo.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under the merger agreement, Cypros has agreed that after the completion of
the merger, it will fulfill and honor to the fullest extent available under
Delaware law the indemnification obligations of RiboGene under RiboGene's bylaws
and each indemnification agreement in effect at the time in favor of each person
who is or was a director or officer of RiboGene before the merger for a period
of six years.
Cypros has also agreed that it will maintain until the fifth anniversary of
the merger, directors' and officers' liability insurance.
NO SOLICITATION
Under the merger agreement, each of Cypros and RiboGene has agreed that they
will not:
- solicit, initiate, or encourage any acquisition proposal, as defined
below;
- furnish any information regarding itself to any third party in connection
with or in response to an acquisition proposal;
- continue or engage in discussions or negotiations with any third party
with respect to any acquisition proposal;
- approve, endorse or recommend any acquisition proposal; or
- enter into any contract relating to any acquisition transaction, as
defined below.
An acquisition proposal is defined in the merger agreement as any offer or
proposal, other than an offer or proposal by Cypros or RiboGene, relating to any
RiboGene or Cypros acquisition transaction. An acquisition transaction is
defined in the merger agreement as any transaction involving:
- any merger, consolidation, share exchange, business combination, issuance
of securities, acquisition of securities, tender offer, exchange offer or
other similar transaction or the acquisition of more than 20% of the
business of Cypros or RiboGene or the acquisition of beneficial or record
ownership of securities representing more than 20% of the outstanding
securities of any class of voting securities of Cypros or RiboGene, or in
which securities representing more than 20% of the outstanding securities
of any class of voting securities of Cypros or RiboGene are issued;
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- any sale, lease, exchange, transfer, license, acquisition or disposition
of more than 20% of the assets of Cypros or RiboGene or assets which
generate more than 20% of Cypros' or RiboGene's revenues; or
- any liquidation or dissolution of the company or any subsidiary.
However, an acquisition transaction will not include any collaboration or other
similar transaction with a pharmaceutical or biotechnology company, to the
extent the collaboration or other similar transaction relates primarily to the
licensing of technology relating to Cypros' drug discovery or pre-clinical or
clinical drug development business or RiboGene's drug discovery business.
Subject to the restrictions on the conduct of Cypros' and RiboGene's respective
businesses described above, prior to the approval of the merger by the Cypros
shareholders or the RiboGene stockholders, Cypros or RiboGene may furnish
nonpublic information regarding themselves to, or enter into discussions and
participate in negotiations with, any third party in response to an acquisition
proposal that is submitted by the third party if:
- the board of the company concludes in good faith, after consultation with
outside legal counsel, that the action is required in order for the board
to comply with its fiduciary obligations to the company's securityholders
under applicable law;
- prior to furnishing any nonpublic information to, or entering into
discussions or negotiations with, the third party, the company gives the
other company written notice of the identity of the third party and of the
company's intention to furnish nonpublic information to, or enter into
discussions or negotiations with, the third party, and the company
receives from the third party an executed confidentiality agreement
containing customary limitations on the use and disclosure of all
nonpublic written and oral information furnished to the third party by or
on behalf of the company;
- prior to furnishing any nonpublic information to the person, the company
furnishes the nonpublic information to the other company, to the extent
nonpublic information has not been previously furnished to the other
company; and
- the company does not violate any of the non-solicitation provisions
described in the merger agreement.
In addition, each of RiboGene and Cypros has agreed to promptly advise the
other of any acquisition proposal made during the pre-closing period and any
modification or proposed modification to any acquisition proposal and
immediately cease and terminate any existing discussions with any person that
relate to any acquisition proposal.
CONDITIONS TO THE MERGER
CYPROS AND CYPROS ACQUISITION CORPORATION. The obligations of Cypros and
Cypros Acquisition Corporation to complete the merger and the transactions
contemplated by the merger agreement are subject to the satisfaction, at or
prior to the closing of the merger, of each of the following conditions:
- the representations and warranties of RiboGene are accurate in all
material respects as of the date of the merger agreement and the date of
closing;
- each covenant or obligation that RiboGene is required to comply with or to
perform at or prior to the consummation of the merger shall have been
complied with and performed in all material respects;
- the registration statement relating to the Cypros capital stock being
issued in the merger shall have become effective in accordance with the
provisions of the Securities Act, and no stop order shall have been issued
by the SEC with respect to the registration statement;
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- the merger agreement, the merger and the various other related proposals
will have been adopted and approved by the Cypros shareholders, and the
merger agreement and the merger will have been adopted and approved by the
RiboGene stockholders;
- Cypros will have received (1) an employment agreement executed by it and
Charles J. Casamento; (2) a separation and consulting agreement executed
by it and Paul J. Marangos and an executive severance benefits agreement
between it and Dr. Marangos; (3) a legal opinion of Cooley Godward LLP to
the effect that the merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code and (4) a closing
certificate executed by RiboGene's Chief Executive Officer evidencing
compliance with the conditions in the merger agreement;
- all actions will have been taken to extinguish and cancel all outstanding
rights under RiboGene's rights plan relating to the merger;
- the shares of Cypros common stock to be issued in the merger will have
been approved for listing on AMEX;
- no injunction or other order preventing the consummation of the merger
will have been issued by any court, and there will not be any legal
requirement applicable to the merger that makes consummation of the merger
illegal;
- RiboGene and Cypros will have obtained all consents required under the
merger agreement; and
- there is no pending or threatened legal proceeding in which a governmental
body is involved, and neither Cypros nor RiboGene will have received any
communication from any governmental body indicating the possibility of
commencing any legal proceeding or taking any other action either seeking
to restrain or prohibit the completion of the merger or any related
transactions or seeking to obtain any damages or other material relief.
RIBOGENE. The obligations of RiboGene to effect the merger and complete the
transactions contemplated by the merger agreement are subject to the
satisfaction, at or prior to the closing, of the following conditions:
- the representations and warranties of Cypros and Cypros Acquisition
Corporation will have been accurate in all material respects as of the
date of the merger agreement and the date of closing;
- each covenant or obligation that Cypros and Cypros Acquisition Corporation
are required to comply with or to perform at or prior to the consummation
of the merger will have been complied with and performed in all material
respects;
- the registration statement shall have become effective in accordance with
the provisions of the Securities Act, and no stop order will have been
issued by the SEC regarding the registration statement;
- the merger agreement and the merger will have been adopted and approved by
the RiboGene stockholders, and the merger agreement, the merger and the
various other related proposals will have been adopted and approved by the
Cypros shareholders;
- RiboGene will have received (1) an employment agreement executed by Cypros
and Charles J. Casamento; (2) a separation and consulting agreement
executed by Cypros and Paul J. Marangos and an executive severance
benefits agreement between Cypros and Dr. Marangos; (3) a legal opinion of
Latham & Watkins to the effect that the merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code; and (4) a closing certificate
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executed by the Chief Executive Officer of Cypros evidencing compliance
with certain conditions set forth in the merger agreement;
- the shares of Cypros common stock to be issued in the merger will have
been approved for listing on the AMEX;
- RiboGene and Cypros will have obtained all consents as required under the
merger agreement;
- no injunction or other order preventing the consummation of the merger
will have been issued by any court, and there will not be any legal
requirement applicable to the merger that makes consummation of the merger
illegal; and
- there is no pending or threatened legal proceeding in which a governmental
body is involved, and neither Cypros nor RiboGene will have received any
communication from any governmental body indicating the possibility of
commencing any legal proceeding or taking any other action either seeking
to restrain or prohibit the completion of the merger or any related
transactions or seeking to obtain any damages or other material relief.
TERMINATION OF THE MERGER AGREEMENT
Either Cypros or RiboGene may terminate the merger agreement at any time
prior to the time of the merger, whether before or after Cypros and RiboGene
obtain the requisite shareholder approvals, if:
- The Cypros and RiboGene boards mutually consent.
- Cypros and RiboGene do not complete the merger by December 31, 1999.
- A governmental entity issues an order, decree or ruling or takes any other
action which permanently prevents Cypros or RiboGene from consummating the
merger.
- The shareholders of Cypros or the stockholders RiboGene do not approve the
merger.
Cypros may terminate the merger agreement at any time prior to the merger,
whether before or after Cypros and RiboGene obtain the requisite shareholder
approvals, if:
- The shares issued to RiboGene's stockholders in the merger would equal or
exceed 50% of the outstanding shares of Cypros upon the effectiveness of
the merger on a fully diluted basis.
- RiboGene breaches any of its covenants, representations or warranties
contained in the merger agreement.
RiboGene may terminate the merger agreement at any time prior to the merger,
whether before or after Cypros and RiboGene obtain the requisite shareholder
approvals, if Cypros breaches any of its covenants, representations or
warranties contained in the merger agreement.
Either Cypros or RiboGene may terminate the merger agreement at any time
prior to the adoption of the merger agreement and merger by the requisite
shareholder approvals, if a triggering event occurs with respect to the other
party.
A triggering event is deemed to have occurred for purposes of the merger if:
(1) the board of directors of the company fails to unanimously recommend or for
any reason withdraws or modifies in a manner adverse to the other company its
unanimous recommendation in favor of, the adoption and approval of the merger
agreement or the approval of the merger; (2) the company has failed to include
in the prospectus/joint proxy statement the unanimous recommendation of the
board of directors of the company in favor of the adoption and approval of the
merger agreement and the merger; (3) the board of directors of the company fails
to reaffirm its unanimous recommendation in favor of the adoption and approval
of the merger agreement and the merger within ten business days after the other
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company requests in writing that the unanimous recommendation be reaffirmed; (4)
the board of directors of the company has approved, endorsed or recommended any
acquisition transaction; (5) the company has entered into any contract relating
to any acquisition transaction; (6) the company has failed to hold its
shareholders meeting as promptly as practicable after the Form S-4 registration
statement is declared effective under the Securities Act; (7) a tender or
exchange offer relating to the company's securities has been commenced and the
company has not sent to its securityholders, within ten business days after the
commencement of the tender or exchange offer, a statement disclosing that the
company recommends rejection of the tender or exchange offer; (8) an acquisition
transaction of the company is publicly announced, and the company fails to issue
a press release announcing its opposition to the acquisition transaction within
ten business days after the acquisition transaction is announced; (9) the
company breaches or is deemed to have breached any of its obligations, or (10) a
person or group, as defined in the Exchange Act has acquired more than 50% of
the company's voting securities, excluding persons or groups that as of the date
of the merger agreement, hold more than 50% of the company's voting securities
or that may be deemed to have acquired 50% upon execution of the voting
agreements in connection with the merger.
TERMINATION FEES
Cypros has agreed that if the merger agreement is terminated (1) by Cypros
or RiboGene as a result of the Cypros shareholders' failure to approve the
merger, or (2) by RiboGene following a Cypros triggering event, each as
described above, then Cypros will pay $1,000,000 to RiboGene. This fee is also
due if Cypros terminates the merger agreement because the shares of Cypros stock
to be issued to RiboGene stockholders in the merger would equal or exceed 50% of
the outstanding shares of Cypros upon the effectiveness of the merger on a fully
diluted basis.
RiboGene has agreed that if the merger agreement is terminated (1) by Cypros
or RiboGene as a result of the RiboGene stockholders' failure to approve the
merger, or (2) by Cypros following a RiboGene triggering event, each as
described above, then RiboGene will pay $1,000,000 to Cypros.
OTHER FEES AND EXPENSES
Except as described above, each party to the merger agreement will bear and
pay all fees, costs, and expenses incurred by it in connection with the merger.
However, the companies will share equally all fees and expenses other than
attorneys' fees incurred in connection with the filing, printing and mailing of
the registration statement and prospectus/joint proxy statement and any
amendments or supplements to the registration statement.
AMENDMENT; WAIVER
The merger agreement may be amended only by an instrument in writing signed
by each of Cypros, Cypros Acquisition Corporation and RiboGene.
No delay or failure on the part of any person to exercise any power, right,
privilege or remedy under the merger agreement will operate as a waiver of that
power, right, privilege or remedy, and no single or partial exercise of any
power, right, privilege or remedy will preclude any other or further exercise of
any other power, right, privilege or remedy.
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OTHER AGREEMENTS
RIBOGENE VOTING AGREEMENTS
Under voting agreements entered into in favor of Cypros, Charles J.
Casamento, Chairman, President and Chief Executive Officer of RiboGene, and
Timothy E. Morris, Vice President, Finance Administration, Chief Financial
Officer and Assistant Secretary (who will be resigning from RiboGene effective
October 1, 1999), who together beneficially hold approximately 365,219 shares of
RiboGene common stock have agreed that, before the earlier of the termination of
the merger agreement or the effective time of the merger, they will vote their
shares of RiboGene common stock in favor of the merger.
Messrs. Casamento and Morris have agreed to vote against any action or
agreement that would result in a breach of any representation, warranty,
covenant or obligation of RiboGene in the merger agreement. They have also
agreed that they will not enter into any agreement or understanding with any
person to vote or give instructions with respect to their shares of RiboGene
common stock in any manner inconsistent with the voting agreement.
Messrs. Casamento and Morris have also delivered to Cypros an irrevocable
proxy with respect to matters covered by the voting agreement and have agreed to
waive any rights of appraisal and any dissenters' rights that they may have in
connection with the merger. They have further agreed that during the period
commencing on the date of the voting agreement and ending on the earlier of the
termination of the merger agreement or the effective time of the merger, they
will not:
- solicit, initiate, encourage or induce the making, submission or
announcement of any competing acquisition proposal or take any action that
could reasonably be expected to lead to an acquisition proposal;
- furnish any information regarding RiboGene to any person in connection
with or in response to an acquisition proposal;
- engage in discussions or negotiations with any person with respect to an
acquisition proposal;
- approve, endorse or recommend an acquisition proposal; or
- enter into any letter of intent or similar document or any contract
contemplating an acquisition transaction.
The form of RiboGene voting agreement is attached hereto as Annex F.
CYPROS VOTING AGREEMENT
Under a voting agreement entered into in favor of RiboGene, Paul J.
Marangos, Chairman, President and Chief Executive Office of Cypros, who
beneficially holds approximately 1,554,411 shares of Cypros common stock, has
agreed that, before the earlier of the termination of the merger agreement or
the effective time of the merger, he will vote his shares of Cypros common stock
in favor of the merger, the amendment to Cypros' articles of incorporation, the
amendment to Cypros' bylaws, the amendment to the Cypros stock option plan and
the amendment to the Cypros directors' equity incentive plan.
Dr. Marangos has also agreed that prior to the earlier of the valid
termination of the merger agreement or the effective time of the merger, he will
not enter into any agreement or understanding with any person to vote or give
instructions with respect to his shares of Cypros common stock in any manner
inconsistent with the voting agreement. In addition, under some circumstances,
Dr. Marangos has agreed to vote against any action or agreement that would
result in a breach of any representation, warranty, covenant or obligation of
Cypros in the merger agreement and against competing acquisition proposals to
the merger.
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Dr. Marangos has also delivered to RiboGene an irrevocable proxy with
respect to matters covered by the voting agreement and has agreed to waive any
rights of appraisal and any dissenters' rights that he may have in connection
with the merger. He has further agreed that during the period commencing on the
date of the voting agreement and ending on the earlier of the valid termination
of the merger agreement or the effective time of the merger, he will not:
- solicit, initiate, encourage or induce the making, submission or
announcement of any competing acquisition proposal or take any action that
could reasonably be expected to lead to an acquisition proposal,
- furnish any information regarding Cypros to any person in connection with
or in response to an acquisition proposal,
- engage in discussions or negotiations with any person with respect to an
acquisition proposal,
- approve, endorse or recommend an acquisition proposal or
- enter into any letter of intent or similar document or any contract
contemplating or otherwise relating to an acquisition transaction.
The form of Cypros voting agreement is attached hereto as Annex E.
AFFILIATE AGREEMENTS
Each RiboGene stockholder who is or becomes an affiliate of RiboGene as the
term affiliate is defined in Rule 145 of the Securities Act, is required under
the merger agreement to execute an affiliate agreement that prohibits the sale,
pledge, transfer or other disposition of Cypros common stock received by that
stockholder of RiboGene unless at the time:
- the sale, transfer or other disposition is effected under an effective
registration statement under the Securities Act;
- the sale, transfer or other disposition is made in conformity with the
requirements of Rule 145 under the Securities Act;
- counsel reasonably satisfactory to Cypros will have advised Cypros in a
written opinion letter that is satisfactory in form and content to Cypros,
upon which Cypros may rely, that the sale, transfer or other disposition
will be exempt from registration under the Securities Act; or
- an authorized representative of the SEC shall have rendered written advice
to the affiliate to the effect that the SEC would take no action, or that
the staff of the SEC would not recommend that the SEC take action,
regarding the sale, transfer or other disposition, and a copy of the
written advice and all other related communications with the SEC will have
been delivered to Cypros.
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MANAGEMENT OF CYPROS AFTER THE MERGER
The executive officer and directors of Cypros after the merger, and their
ages as of July 31, 1999, will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Charles J. Casamento....................... 54 Chairman of the Board, President, Chief
Executive Officer and Director
Robert F. Allnutt(1)(2).................... 64 Director
Digby W. Barrios........................... 62 Director
Paul J. Marangos, Ph.D..................... 52 Director
Frank J. Sasinowski, Esq.(2)............... 46 Director
Jon S. Saxe(1)............................. 63 Director
Roger G. Stoll, Ph.D.(2)................... 57 Director
Virgil D. Thompson(1)...................... 59 Director
Robert A. Vukovich, Ph.D................... 55 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Charles J. Casamento joined RiboGene as President, Chief Executive Officer
and Chairman of the board in June 1993. Prior to joining RiboGene, he was
co-founder, President and Chief Executive Officer of Interneuron
Pharmaceuticals, Inc., a biopharmaceutical company, from March 1989 until May
1993. Mr. Casamento has also held senior management positions at Genzyme
Corporation, American Hospital Supply, Johnson & Johnson, Hoffmann LaRoche Inc.
and Sandoz Inc. Mr. Casamento is also a director of CORTEX Pharmaceuticals, a
biopharmaceutical company and two not-for-profit organizations. Mr. Casamento
holds a bachelor's degree in Pharmacy from Fordham University and an M.B.A.
degree from Iona College. He is also a licensed pharmacist in the States of New
York and New Jersey.
Robert F. Allnutt has been a director of Cypros since November 1996. He has
been a management consultant since February 1995. Mr. Allnutt served as
Executive Vice President of the Pharmaceutical Manufacturers Association from
May 1985 until February 1995. Mr. Allnutt is also a director of CORTEX
Pharmaceuticals, Inc., a biopharmaceutical company, and in February 1999 he was
appointed Chairman of the board of that company. Mr. Allnutt holds a B.S. degree
in Industrial Engineering from Virginia Polytechnic Institute and a Juris
Doctorate and L.L.M. degrees from George Washington University School of Law.
Digby W. Barrios has been a director of Cypros since February 1993 and a
director of RiboGene since August 1996. He has been a management consultant
since June 1992. Mr. Barrios held various management positions at Boehringer
Ingelheim Corporation, a manufacturer of pharmaceuticals and fine chemicals,
from January 1983 to June 1992, the last five years of which he was President
and Chief Executive Officer. He is also a director of the following
publicly-held companies: Roberts Pharmaceutical Corporation, an international
pharmaceutical company which licenses, acquires, develops and commercializes
post-discovery drugs in selected therapeutical categories; Sepracor, Inc., a
developer of enhanced forms of existing, widely-sold pharmaceuticals; and
Sheffield Pharmaceuticals, Inc., an early-stage company involved in the
development of therapies, delivery systems and medical devices.
Paul J. Marangos, Ph.D., has been President and Chairman of the board of
Cypros since he founded Cypros in November 1990. In February 1993, he became
Chief Executive Officer of Cypros. From April 1988 to November 1990, he was
Senior Director of Research at Gensia Pharmaceuticals, Inc., a biotechnology
company. From 1980 to 1988, he was Chief of Neurochemistry in
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<PAGE>
the Biological Psychiatry Branch, National Institute of Mental Health. Dr.
Marangos obtained his doctorate in biochemistry from the University of Rhode
Island and did his post-doctoral work at the Roche Institute of Molecular
Biology. He has published 250 research papers and four books in the field of
biochemistry and pharmacology, the most recent of which is entitled EMERGING
STRATEGIES IN NEUROPROTECTION. He is a member of the Society for Neuroscience
and the American Academy for the Advancement of Science. Dr. Marangos is the
founding editor of the JOURNAL OF MOLECULAR NEUROSCIENCE published by Humana
Press.
Frank J. Sasinowski joined RiboGene's board of directors in March 1998.
Since 1987, he has been a partner with Hyman, Phelps & McNamara, P.C., a food
and drug law firm. From December 1983 to June 1987, Mr. Sasinowski served in
various positions with the United States Food and Drug Administration. Mr.
Sasinowski holds a Masters of Science in nutritional sciences and a Masters of
Public Health from the University of California at Berkeley. He also earned a
Bachelor of Science in biological sciences and genetics from Cornell University
and a Juris Doctorate from the Georgetown University Law Center.
Jon S. Saxe joined RiboGene's board of directors in April 1994. He has been
a director of Protein Design Labs, Inc., a biotechnology company, since 1989 and
from January 1995 to May 1999 he was President of Protein Design Labs, Inc. From
May 1999 to date, he has been an executive in residence at Institutional Venture
Partners. From May 1993 to May 1995, he served as President of Saxe Associates,
a biotechnology consulting firm. Mr. Saxe also serves as a director of ID
Biomedical Corporation, a diagnostics and vaccine development company, and
Incyte Pharmaceuticals, Inc., a genomics company. Mr. Saxe holds a B.S. degree
in Chemical Engineering from Carnegie-Mellon university, a Juris Doctorate from
George Washington University School of Law and an L.L.M. from New York
University School of Law.
Roger G. Stoll joined RiboGene's board of directors in June 1998. He has
been Executive Vice-President of Fresenius Medical Care North America, since the
end of 1998. Before that, he was President and Chief Executive Officer of
Ohmeda, Inc., a medical goods and services company, from 1991 to 1998. From May
1986 to October 1991, Dr. Stoll was a senior executive within Bayer, AG, where
he served as Executive Vice President and General Manager of its worldwide
Diagnostic Business Group. Dr. Stoll currently serves on the board of directors
of St. Jude Medical, Inc., a cardiovascular medical devices company, and
Collaborative Clinical Research, Inc, a clinical research company. Dr. Stoll
holds a B.S. degree in Pharmacy from Ferris State University and a Ph.D. in
Biopharmaceutics from the University of Connecticut, and did post-doctoral
studies at the University of Michigan.
Virgil D. Thompson has been a director of Cypros since January 1996. Mr.
Thompson has been a member of the board of directors of Biotechnology General
Corporation, a publicly-held developer, manufacturer and marketer of
genetically-engineered and other products for human health care, since 1994, and
in May 1999 became President and Chief Operating Officer. He served as the
President and Chief Executive Officer and a member of the board of directors of
Cytel Corporation from January 1996 to May 1999. He was the President and Chief
Executive Officer of CIBUS Pharmaceutical, Inc. from July 1994 to January 1996.
Mr. Thompson was the President of Syntex Laboratories, Inc. from August 1991 to
August 1993 and an Executive Vice President of Syntex from March 1986 to August
1991. Mr. Thompson is also a director of Aradigm Corporation, a publicly-held
developer of non-invasive pulmonary drug delivery products.
Robert A. Vukovich, Ph.D., has been a director of Cypros since August 1992.
Dr. Vukovich has been the Chairman of the board of directors of Roberts
Pharmaceutical Corporation since 1983, and from 1983 until 1998, he was also the
President and Chief Executive Officer of Roberts Pharmaceutical Corporation. Dr.
Vukovich was the Director of the Division of Developmental Therapeutics for
Revlon Health Care Group from 1979 to 1983. Dr. Vukovich is also a director of
InKine Pharmaceuticals
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<PAGE>
Company, Inc., a publicly-held developer and acquirer of drugs to diagnose and
treat cancer and autoimmune diseases. Dr. Vukovich received a doctorate in
pharmacology and pathology from Jefferson Medical College, Philadelphia.
BOARD COMMITTEES
Following the merger, the combined company will have an Audit Committee and
a Compensation Committee. The Audit Committee will consist of Messrs. Allnutt,
Saxe and Thompson. The Audit Committee will recommend to the board of directors
the engagement of the combined company's independent auditors, will review with
the auditors the plan, scope and results of their examination of the financial
statements and determine the independence of the auditors. Following the merger,
the Compensation Committee will consist of Messrs. Allnutt and Sasinowski and
Dr. Stoll. The Compensation Committee will review and make recommendations to
the board of directors regarding all forms of compensation to be provided to the
executive officers, directors and consultants to the combined company and will
also administer the combined company's equity-based employee benefits plans.
EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ended December 31, 1998,
1997 and 1996, compensation awarded or paid to, or earned by, RiboGene's
executive officer continuing as an officer of the combined company after the
merger:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1) LONG-TERM COMPENSATION AWARDS
------------------------ --------------------------------
RESTRICTED SECURITIES ALL OTHER
STOCK AWARDS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS($) ($)(3) OPTIONS (#)(4) ($)(1)(2)
- --------------------------- ----------- ----------- ----------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Charles J. Casamento....... 1998 325,000 250,000 125,000 450,000 66,825
President, Chief 1997 325,000 50,000 -- 17,136 66,407
Executive Officer and 1996 275,000 80,000 -- 9,374 65,750
Chairman of the Board
</TABLE>
- --------------------------
(1) In accordance with SEC rules, other annual compensation in the form of
perquisites and other personal benefits has been omitted where the aggregate
amount of the perquisites and other personal benefits constitutes less than
the lesser of $50,000 or 10% of the total annual salary and bonus for the
executive officer for the fiscal year.
(2) The amounts reflect: (1) in fiscal year 1998, $47,775 in loan forgiveness
and $19,050 paid by RiboGene for life insurance and disability insurance
premiums; (2) in fiscal year 1997, $47,613 in loan forgiveness and $18,794
paid by RiboGene for life insurance and disability premiums; and (3) in
fiscal year 1996, $47,193 in loan forgiveness and $18,557 paid by RiboGene
for life insurance and disability insurance premiums.
(3) The amount represents restricted stock bonus awards with vesting provisions
that are tied to a vesting schedule over a four-year period with 1/8 vesting
after six months, and 1/48(th) vesting monthly after the initial six-month
period. Of these awards, 50,000 shares of common stock reflect a per share
price of $2.50, the closing per share price on December 21, 1998, the date
the shares were granted.
(4) Includes options granted to purchase 200,000 shares of common stock to Mr.
Casamento and options subject to performance-based milestones granted to
purchase 250,000 shares of common stock to Mr. Casamento.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options during the fiscal year ended December 31, 1998 to the executive officers
continuing as officers of the combined company after the merger.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES IN OR BASE OPTION TERM (3)
GRANTED FISCAL PRICE EXPIRATION --------------------
NAME (#) 1998(1) ($/SH)(2) DATE 5% ($) 10% ($)
- ------------------------------------ ----------- --------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Charles J. Casamento................ 200,000 14.2% 5.63 06/04/08 708,135 1,794,554
</TABLE>
- ------------------------
(1) Based on options to purchase 1,405,329 shares of RiboGene common stock
granted to employees in fiscal 1998.
(2) The exercise price is equal to 85% to 100% of the fair market value of the
RiboGene common stock at the date of grant, as determined by the RiboGene
board of directors at the time of grant.
(3) The potential realizable value is calculated based on the term of the option
at the time of grant which is ten years. Stock price appreciation of five
percent and ten percent is assumed under SEC rules and does not represent
RiboGene's prediction of the stock price performance. The potential
realizable value is calculated by assuming that the fair value of RiboGene's
common stock at the date of the grant, as determined by RiboGene's board of
directors, appreciates at the indicated rate for the entire term of the
option and that the option is exercised at the exercise price and sold on
the last day of its term at the appreciated price.
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<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
AND FISCAL YEAR-END 1998 OPTION VALUES
In 1998, no shares of RiboGene common stock were purchased by Mr. Casamento
under purchase rights granted under the RiboGene 1993 Stock Plan and the
RiboGene 1997 Equity Incentive Plan. In addition, in 1998, no options for shares
of RiboGene common stock were exercised by Mr. Casamento under purchase rights
granted under the RiboGene 1993 Stock Plan and the RiboGene 1997 Equity
Incentive Plan.
RIBOGENE DIRECTOR COMPENSATION
Each non-employee director of RiboGene receives a per meeting fee of $2,000.
In the fiscal year ended December 31, 1998, the total compensation paid to
non-employee directors was $20,500. The members of the RiboGene board of
directors are also eligible for reimbursement for their expenses incurred in
connection with attendance at RiboGene board meetings in accordance with
RiboGene policy.
Each non-employee director of RiboGene also receives stock option grants
under the RiboGene 1997 Non-Employee Directors' Stock Option Plan. Only
non-employee directors of RiboGene or an affiliate of the directors, as defined
in the Internal Revenue Code of 1986, are eligible to receive options under the
directors' plan. Options granted under the RiboGene directors' plan are intended
by RiboGene not to qualify as incentive stock options under the Internal Revenue
Code.
Option grants under the RiboGene directors' plan are non-discretionary. Each
member of RiboGene's board of directors who is not an employee of RiboGene is
automatically granted, on the date of his initial election or appointment to the
RiboGene board, an option to purchase 10,000 shares of RiboGene common stock.
After initial election to the RiboGene board, immediately following the annual
meeting of RiboGene stockholders each year, each member of the RiboGene board of
directors who is not an employee of RiboGene and has served as a non-employee
director for at least six months or, where specified by the non-employee
director, an affiliate of the director, is automatically granted under the
RiboGene directors' plan, without further action by RiboGene, the RiboGene board
of directors or the stockholders of RiboGene, an option to purchase 2,500 shares
of RiboGene common stock. No other options may be granted at any time under the
RiboGene directors' plan. The exercise price of options granted under the
RiboGene directors' plan is 100% of the fair market value of the RiboGene common
stock subject to the option on the date of the option grant. An initial option
grant under the RiboGene directors' plan become exercisable in four equal annual
installments measured from the date of grant, commencing on the one year
anniversary of the date of grant of the option. An annual grant under the
RiboGene directors' plan become exercisable one year from the date of grant,
provided that, with respect to any grant under the RiboGene directors' plan, the
optionee has, during the entire period prior to the vesting installment date,
continuously served as a non-employee director. The term of options granted
under the RiboGene directors' plan is ten years. In the event of a merger of
RiboGene with or into another corporation or a consolidation, acquisition of
assets or other change-in-control transaction involving RiboGene, the vesting of
each option will accelerate and the option will be assumed by the surviving
entity if not exercised prior to the consummation of the transaction.
In the last fiscal year, RiboGene granted two stock options, each for 10,000
shares, to two new non-employee directors of RiboGene at an exercise price per
share of $5.63. RiboGene also granted two stock options, each for 6,965 shares,
to two continuing non-employee directors of RiboGene at an exercise price per
share of $5.63. All grants were made pursuant to the RiboGene Equity Incentive
Plan. The fair market value of the RiboGene common stock on the date of the
grants was $6.625 per share, based on the closing sales price reported on the
AMEX for the date of grant.
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<PAGE>
CYPROS DIRECTOR COMPENSATION
Cypros compensates its non-employee directors for their service on the
Cypros board with an annual grant of 10,000 stock options under Cypros'
directors' equity incentive plan. Options granted under the plan have an
exercise price equal to 85% of the fair market value of Cypros common stock on
the date of the grant and vest in 48 equal monthly installments commencing on
the date of the grant, provided the non-employee director serves continuously on
the board during the month. In addition, Cypros will pay stock bonus awards
comprised of $2,000 of Cypros common stock to non-employee directors for each
board of director meeting attended. Cypros will also reimburse its directors who
are not employees for their reasonable expenses incurred in attending meetings.
No additional fees are paid for participation in committee meetings. Directors
who are officers of the Cypros receive no additional compensation for board
service.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Cypros articles of incorporation provide that Cypros shall indemnify its
directors to the fullest extent permitted by California law. California law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except for:
- intentional misconduct or knowing and culpable violation of law;
- acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders, or that involve the
absence of good faith on the part of the director;
- receipt of any improper personal benefit;
- acts or omissions that show reckless disregard for the director's duty to
the corporation or its shareholders, where the director in the ordinary
course of performing a director's duties should have been aware of a risk
or serious injury to the corporation or its shareholders;
- acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders;
- interested transactions between the corporation and a director, in which a
director has a material financial interest; or
- liability for improper distributions, loans or guarantees.
Cypros' articles of incorporation also provide that it is authorized to
provide indemnification to its officers and directors in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code. Cypros' bylaws provide that it may indemnify its directors,
officers, employees or other agents to the extent and under the circumstances
permitted by California law. Cypros is also empowered under its bylaws to enter
into indemnification contracts with its directors, officers, employees or other
agents and to purchase insurance on behalf of the director, officer, employee or
other agent arising out of his or her action in that capacity, irregardless of
whether the bylaws would permit indemnification.
From this authority, Cypros has entered into agreements to indemnify its
directors and officers. These agreements indemnify the directors and officers
for some expenses, including attorney's fees, judgments, fines and settlement
amounts incurred by them in any action or proceeding, including any action by or
in the right of Cypros, arising out of their services as directors or officers
or any other company or enterprise to which the person provides services at
Cypros' request. In addition, Cypros has obtained directors' and officers'
insurance providing indemnification for certain liabilities. Cypros believes
that these provisions, agreements and insurance are necessary to attract and
retain qualified directors and officers.
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<PAGE>
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL AGREEMENTS
In May 1993, RiboGene entered into an employment agreement with Charles J.
Casamento, President, Chief Executive Officer and Chairman of the Board of
Directors of RiboGene. The agreement provides for an annual base salary of
$200,000, subject to annual review. On each of the first day of his employment
and the first and second anniversary of his employment, RiboGene loaned Mr.
Casamento $40,000 (for a total of $120,000) in the form of three-year notes with
interest rates of 3.62%, 5.63% and 5.97% per annum, respectively. These loans
were made in connection with cost-of-living adjustments and could be forgiven,
at the election of the RiboGene board of directors, for so long as Mr. Casamento
remained employed by RiboGene. In addition, in October 1993, RiboGene provided
Mr. Casamento with a bridge loan in the aggregate amount of $250,000, which loan
subsequently was repaid by Mr. Casamento in October 1994. The $40,000 loan due
in 1996 was forgiven by the board. In 1997 the board approved a bonus of up to
$150,000 to be paid to Mr. Casamento in the event of a merger or an initial
public offering of RiboGene's common stock, and up to an additional $150,000 for
the achievement of specific goals ($50,000 per goal). In 1997 the RiboGene board
paid Mr. Casamento $50,000 in connection with RiboGene's private placement of
RiboGene Series F preferred stock and forgave the $40,000 loan due in 1997. In
1998, the RiboGene board paid Mr. Casamento a bonus of $150,000 upon the closing
of RiboGene's initial public offering of its common stock, a bonus of $50,000
for executing a collaboration with Dainippon Pharmaceuticals for joint discovery
of antibacterial compounds, and a bonus of $50,000 for execution of the
collaboration with Roberts Pharmaceutical for marketing of Emitasol in North
America. The RiboGene board also forgave Mr. Casamento's final $40,000 loan.
In July 1995, RiboGene entered into a change of control agreement with Mr.
Casamento that provides for severance benefits in the event his employment is
involuntarily terminated other than for cause at any time within 12 months
after, or in contemplation of, a change of control a reorganization in which the
current stockholders hold less than a 50% ownership interest in the surviving
entity consummated without the approval of the board of directors, a sale of all
or substantially all of RiboGene's assets, a liquidation of RiboGene or a
transaction in which more than half of RiboGene's board of directors is
replaced. Severance benefits include a lump-sum payment equal to 12 months'
salary and the continued payment of medical benefits during the 12 months
following termination. In addition, all loans issued by RiboGene to Mr.
Casamento will be forgiven automatically upon a change of control. The change of
control agreement also provides that all options held by Mr. Casamento will
immediately vest, and the exercise period of the options will be extended to a
date one year from the earlier of the termination date or the date upon which
any relevant lock-up agreements expire. In connection with the merger, Cypros
and Mr. Casamento executed an employment agreement for Mr. Casamento to serve as
President and Chief Executive Officer of the combined company after the merger.
Upon completion of the merger, this employment agreement will take effect and
Mr. Casamento's prior employment agreement with RiboGene will terminate.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF RIBOGENE
In July 1993, Mr. Casamento purchased an aggregate of 10,710 shares of
RiboGene common stock. In March 1994, August 1996 and March 1997, Mr. Casamento
purchased an aggregate of 30,794 shares of RiboGene common stock under purchase
rights issued under RiboGene's 1993 stock plan. In payment for the common stock,
Mr. Casamento issued promissory notes to RiboGene in the aggregate principal
amount of $108,293. The notes accrued interest at 5.47%, 5.29%, 6.73% and 6.32%
per annum, respectively. As of January 26, 1999, $95,993 of the aggregate
principal amount of the notes remained outstanding plus an aggregate of $19,974
accrued interest. At the January 26, 1999 RiboGene board of director's meeting,
the notes were forgiven in consideration of services previously rendered, and
Mr. Casamento has no further obligations to RiboGene with respect to them,
provided that Mr. Casamento shall be liable for all income taxes payable with
respect to their forgiveness.
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<PAGE>
In July 1994, Mr. Saxe purchased an aggregate of 3,034 shares of RiboGene
common stock under purchase rights issued under the 1993 stock plan. In payment
for such common stock, Mr. Saxe issued a promissory note to RiboGene in the
principal amount of $12,750. The notes accrued interest at 6.72% per annum. As
of January 26, 1999, $12,750 of the aggregate principal amount of the notes
remained outstanding plus an aggregate of $4,409 accrued interest. At the
January 26, 1999 RiboGene board of director's meeting, the notes were forgiven
in consideration of services previously rendered, and Mr. Saxe has no further
obligations to RiboGene with respect to them, provided that Mr. Saxe will be
liable for all income taxes payable with respect to their forgiveness.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the merger had been consummated as of the dates
indicated, nor is it necessarily indicative of future operating results or
financial position. The unaudited pro forma combined condensed financial
statements have been derived from the historical financial statements of Cypros
and RiboGene and give effect to (1) the merger as a purchase of RiboGene by
Cypros for accounting purposes, and (2) costs associated with the completion of
the merger. The unaudited pro forma combined condensed balance sheet gives
effect to the merger as if it had occurred on July 31, 1999 and reflects the
allocation of the purchase price to the RiboGene assets acquired, including
in-process research and development, and liabilities assumed, using Cypros' July
31, 1999 balance sheet and RiboGene's June 30, 1999 balance sheet. The unaudited
pro forma combined condensed statement of operations gives effect to the merger
as if it had occurred on August 1, 1998 utilizing the results of operations of
Cypros and RiboGene for the years ended July 31, 1999 and June 30, 1999,
respectively. The pro forma adjustments are based on preliminary estimates,
available information and assumptions that management deems appropriate.
Following completion of the merger, Cypros will obtain a valuation of the
acquired intangible assets and in-process research and development, actively
engage in the disposition of excess equipment and termination of excess
personnel and modify the purchase price allocation accordingly based on the
results obtained.
The Cypros statement of operations for the period in which the merger occurs
will include a significant charge for acquired in-process research and
development, currently estimated to be approximately $15 million, or 36% of the
purchase price. This amount represents the value determined by Cypros'
management, using a discounted cash flow methodology, to be attributable to
RiboGene's development program for Emitasol. Assuming this program continues
through the final stages of clinical development, the projected future
development expenditures related to this program total approximately $7 million.
The Emitasol program is forecasted to be completed in approximately two to three
years. If Cypros would have allocated less of the purchase price to this
program, the value would have been recorded as goodwill on the balance sheet and
amortized over the expected benefit period, resulting in increased amortization
expense during that period.
Management of Cypros believes that the allocation of the purchase price to
the Emitasol program is appropriate given the future potential of the program to
contribute to Cypros' operations. If, at a later date, management of Cypros
decides to no longer pursue or indefinitely postpones this in-process program,
or determines that the discounted cash flows will no longer meet the projection
underlying the valuation, or revises its estimate of the anticipated time of
regulatory approval, it will disclose that fact to investors in the appropriate
Form 10-K or 10-Q with a supporting explanation, if material.
The pro forma financial information does not purport to represent what the
combined company's financial position or results of operations would actually
have been if the merger in fact had been completed on those dates or to project
the combined company's financial position or results of operations for any
future period. It is expected that following the merger, the combined company
will incur additional costs, which are not expected to be significant to the
combined results of operations, in connection with integrating the operations of
the two companies. Integration-related costs are not included in the
accompanying unaudited pro forma condensed combined financial statements. The
unaudited pro forma combined financial statements should be read in conjunction
with RiboGene's and Cypros' financial statements and the related notes included
elsewhere in this prospectus/joint proxy statement.
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PRO FORMA COMBINED CONDENSED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CYPROS RIBOGENE
JULY 31, JUNE 30, ACQUISITION
1999 1999 ADJUSTMENTS COMBINED
----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 2,509 $ 10,214 $ -- $ 12,723
Short-term investments................................... 2,964 15,479 -- 18,443
Accounts receivable...................................... 392 -- -- 392
Inventories.............................................. 205 -- -- 205
Prepaid expenses and other current assets................ 113 145 (145)(1) 113
----------- ----------- -------------- -----------
Total current assets................................... 6,183 25,838 (145) 31,876
Investment grade securities, non-current portion........... 1,789 -- -- 1,789
Property, equipment and leasehold improvements, net........ 1,472 1,699 (1,164)(2) 2,007
Goodwill and other purchased intangibles................... -- -- 1,376(3) 1,376
Purchased technology, net.................................. 3,266 -- -- 3,266
Licenses and patents, net.................................. 158 -- -- 158
Deferred financing costs................................... -- 534 (534)(1) --
Other assets............................................... 271 185 (185)(1) 271
----------- ----------- -------------- -----------
Total assets........................................... $ 13,139 $ 28,256 $ (652) $ 40,743
----------- ----------- -------------- -----------
----------- ----------- -------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 498 $ 753 $ 2,797(4) $ 4,048
Accrued development costs................................ -- 1,285 -- 1,285
Accrued compensation..................................... 201 293 -- 494
Other accrued liabilities................................ 63 8 -- 71
Deferred compensation--related party..................... -- 1,167 -- 1,167
Other current liabilities................................ -- 952 -- 952
Current portion of long-term debt........................ 54 310 -- 364
Current portion of capital lease obligations............. 106 159 -- 265
----------- ----------- -------------- -----------
Total current liabilities.............................. 922 4,927 2,797 8,646
Non-current portion of notes payable....................... 7 6,042 -- 6,049
Non-current portion of capital lease obligations........... 140 144 -- 284
Deferred rent.............................................. 156 -- -- 156
Other noncurrent liabilities............................... -- 12 -- 12
Shareholders' equity:
RiboGene preferred stock, 5,000,000 shares, $0.001 par
value authorized, 1,428,572 shares issued and
outstanding as of June 30, 1999........................ -- 1 (1)(5) --
RiboGene common stock, 30,000,000 shares, $0.001 par
value, authorized, 5,783,956 shares issued and
outstanding as of June 30, 1999 (none at close of
merger)................................................ -- 6 (6)(5) --
Cypros common stock, 30,000,000 shares authorized,
15,711,877 shares issued and outstanding as of July 31,
1999; 24,361,113 shares outstanding at the closing of
the merger............................................. 41,497 -- 18,380(6) 59,877
Cypros preferred stock, 5,000,000 shares authorized, none
issued and outstanding as of July 31, 1999; 2,134,534
shares of Series A preferred stock outstanding at the
closing of the merger.................................. -- -- 4,535(6) 4,535
Additional paid-in capital............................... -- 67,139 (61,329)(5)(8) 5,810
Notes receivable from stockholders....................... -- (1) 1(5) --
Accumulated other comprehensive loss..................... -- (88) 88(5) --
Deferred compensation.................................... (69) (1,491) 1,491(5) (69)
Accumulated deficit...................................... (29,514) (48,435) 33,392 (5)(7 (44,557)
----------- ----------- -------------- -----------
Total shareholders' equity............................. 11,914 17,131 (3,449) 25,596
----------- ----------- -------------- -----------
Total liabilities and shareholders' equity............. $ 13,139 $ 28,256 $ (652) $ 40,743
----------- ----------- -------------- -----------
----------- ----------- -------------- -----------
</TABLE>
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PRO FORMA COMBINED CONDENSED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) Adjustment to record the writeoff of this asset in connection with the
merger.
(2) Adjustment to reflect the estimated net salvage value of certain of
RiboGene's equipment, which is to be disposed of following the merger.
(3) Adjustment to reflect $657 in goodwill (7 year life), $458 in Italian rights
to Emitasol (5 year life) and $261 in assembled work force (2 year life)
acquired by Cypros.
The unaudited estimated fair value of assets acquired and liabilities
assumed is summarized as follows:
<TABLE>
<S> <C>
Fair market value of Cypros' stock, to be issued
in connection with the merger.................................... $ 22,915
Fair value of options and warrants assumed......................... 5,810
Fair value of liabilities assumed.................................. 11,125
Other acquisition costs............................................ 2,797
---------
Total cost....................................................... 42,647
Fair value of tangible assets acquired............................. 26,228
Acquired in-process research and development 15,043
Identifiable intangible assets..................................... 719
---------
Total identifiable assets acquired............................... 41,990
---------
Excess of cost over identifiable assets acquired (goodwill)........ $ 657
---------
---------
</TABLE>
The fair market value of Cypros' stock to be issued will range between
approximately $22,000 and $27,000. Any change to the $22,915 used above will
result in an increase or decrease in goodwill.
(4) Adjustment to reflect $2,797 in transaction costs expected to be incurred by
Cypros and RiboGene related to the merger.
(5) Adjustments to reflect the elimination of RiboGene's equity accounts,
totalling $17,131.
(6) Adjustment to reflect $28,725 relating to the issuance of 8,649,236 shares
of Cypros common stock, 2,134,534 shares of Cypros Series A preferred stock
(convertible on a one-for-one basis into Cypros common stock) in exchange
for all outstanding shares of RiboGene common stock and RiboGene Series A
preferred stock, and the assumption of all outstanding options and warrants
of RiboGene valued at $5,810.
(7) Adjustment to expense the acquired in-process research and development
amounting to $15,043, based on management assumptions of the value of
Emitasol, which has not yet completed clinical development in the United
States.
(8) To record the $5,810 estimated fair value of Cypros stock options and
warrants to be issued to RiboGene option and and warrant holders in
connection with the merger.
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PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
CYPROS RIBOGENE
TWELVE MONTHS TWELVE MONTHS
ENDED JULY 31, ENDED JUNE 30, PRO FORMA PRO FORMA
1999 1999(1) ADJUSTMENTS COMBINED(5)
-------------- -------------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Net product sales................................... $ 2,518 $ -- $ -- $ 2,518
Contract research................................... -- 2,184 -- 2,184
Grants.............................................. 51 191 -- 242
Royalties........................................... -- 4 -- 4
------- -------------- ----- ------------
Total revenues.................................... 2,569 2,379 -- 4,948
Operating expenses:
Cost of product sales............................... 771 -- -- 771
Sales and marketing................................. 1,703 -- -- 1,703
General and administrative.......................... 3,327 4,421 -- 7,748
Clinical testing and regulatory..................... 2,438 1,918 -- 4,356
Pre-clinical research and development............... 548 7,939 -- 8,487
Amortization of goodwill............................ -- -- 94(2) 94
Depreciation and amortization....................... 1,239 -- (7)(3) 1,232
------- -------------- ----- ------------
Total operating expenses.......................... 10,026 14,278 87 24,391
------- -------------- ----- ------------
Loss from operations.................................. (7,457) (11,899) (87) (19,443)
Interest and other income, net........................ 590 1,020 -- 1,610
Sublease income, net.................................. 83 -- -- 83
------- -------------- ----- ------------
Net loss.............................................. $ (6,784) $ (10,879) $ (87) $ (17,750)
------- -------------- ----- ------------
------- -------------- ----- ------------
Net loss per share, basic and diluted(4).............. $ (0.43) $ (1.94) $ (0.73)
------- -------------- ------------
------- -------------- ------------
Shares used in computing net loss per share, basic and
diluted(4).......................................... 15,712 5,604 24,361
------- -------------- ------------
------- -------------- ------------
</TABLE>
- ------------------------
(1) RiboGene's results for the twelve months ended June 30, 1999 are calculated
based on the unaudited consolidated financial information for the six months
ended June 30, 1999 included elsewhere in this prospectus/joint proxy
statement plus the unaudited consolidated financial information for the
quarters ended September 30, 1998 and December 31, 1998 not included
elsewhere herein.
(2) Adjustment to recognize amortization of goodwill arising from the merger
over seven years.
(3) Adjustment to recognize $223 of amortization of other intangible assets
arising from the merger over two to five years, offset by a $230 reduction
in depreciation expense as a result of the $1,164 write down of some
RiboGene assets acquired.
(4) Preferred shares, stock options and warrants are excluded from the
computation of diluted net loss per share due to their antidilutive nature.
Pro forma combined basic and diluted net loss per share are based on the
historical weighted average number of shares of Cypros common stock
outstanding, adjusted to reflect the issuance as of August 1, 1998 of
8,649,236 shares in connection with the merger.
(5) Excluded from the above is the adjustment to expense $15,043 of acquired
in-process research and development associated with the merger based on
management assumptions of the value of RiboGene's late-stage clinical
development program for Emitasol in the United States. This amount has been
included as an increase to accumulated deficit in the pro forma combined
condensed balance sheet at July 31, 1999. Also excluded from the above are
charges totalling $2,028 to write down some assets to their estimated fair
value. These charges have been excluded as they relate to the merger and are
nonrecurring in nature.
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<PAGE>
BUSINESS OF CYPROS
Cypros is a specialty pharmaceutical company which develops and markets
products for the critical care market. Cypros' sales and marketing force is
currently marketing three products, Glofil and Inulin, two injectable drugs that
assess kidney function by the measurement of glomerular filtration rate, and
Ethamolin-Registered Trademark-, an injectable drug that treats bleeding
esophageal varices. Cypros is manufacturing and shipping its proprietary topical
triple antibiotic wound care product to its over-the-counter marketing partner,
NutraMax Products, Inc., incorporating Cypros' patented Dermaflo drug delivery
technology and Neosporin-Registered Trademark-. Under an agreement entered into
in November 1998, NutraMax is converting the product into finished adhesive
strips and patches and distribution to the mass merchandise market. Assuming
regulatory clearance, Cypros intends to manufacture and launch two proprietary
topical burn/ wound care products, Neoflo-TM- and Sildaflo-TM-, in the year 2000
in other markets. Cypros' development programs target ischemic disorders and
Cypros is currently conducting a multi-center, randomized, placebo-controlled
Phase III clinical trial on Cordox-TM- in sickle cell crisis patients. Cypros
may also conduct Phase III clinical trials of Cordox in other ischemic
disorders, such as coronary artery bypass grafting surgery and other pivotal
clinical trials of Ceresine-TM- in closed head injury patients.
ACQUISITIONS OF APPROVED PRODUCTS TO BUILD COMMERCIAL CAPABILITIES. Cypros
is building a sales, marketing and distribution capability to support and
increase the sales of niche products that it has acquired; Glofil-125 and
Inulin, which it acquired in August 1995, and Ethamolin, which it acquired in
November 1996 from Schwarz Pharma, Inc. Cypros intends to have fully operating
commercial capability in advance of the launch of Neoflo, Sildaflo and the
potential launch of other products in its pipeline.
In November 1997, Cypros acquired a patented drug delivery technology,
Dermaflo-TM-, and two FDA-approved products, Neoflo and Sildaflo, for the burn
and wound care markets. Cypros has a multi-year, marketing and joint venture
agreement with NutraMax Products, Inc., a leading supplier of first aid and
wound care products under which Cypros is supplying its proprietary triple
antibiotic product to NutraMax for conversion and sale in the form of adhesive
strips and patches, and NutraMax has the exclusive right to sell the finished
products to the retail and industrial first aid markets. Further, the agreement
calls for Cypros and NutraMax to jointly develop several new products using the
Dermaflo technology and to share the development expense and profits from sale.
Cypros began shipping product to NutraMax in March 1999.
CORDOX AND CERESINE: ISCHEMIA THERAPIES IN DEVELOPMENT SERVING UNMET MEDICAL
NEEDS. There are several million cases of ischemia-induced disorders annually
in the United States, resulting in over 700,000 deaths and several billion
dollars in annual costs for physical and mental rehabilitation and ongoing care,
and yet there are currently no FDA-approved drugs to avoid or reverse the
massive cell damage caused by ischemia, known as cytoprotective drugs. Ischemic
disorders include heart attack, stroke, surgery, trauma and various anemias.
Currently approved drugs for treating cardiovascular ischemia, such as clot
busting drugs, serve to re-establish blood flow but do not have direct
cytoprotective effects on the ischemic tissue. Cypros believes that the drugs it
is developing, Cordox and Ceresine, if approved by the FDA and successfully
marketed, may reduce the number of fatalities and the rehabilitation and ongoing
care costs associated with ischemic disorders.
Impairment of blood flow reduces the supply of oxygen to body cells,
interrupting normal aerobic metabolism and causing depletion of adenosine
triphosphate, or ATP, the cells' primary energy source. Ischemia-induced
depletion of ATP produces a myriad of increasingly destructive cellular events
known as the toxic ischemic cascade. Cypros believes that the cytoprotective
drugs under development by others for treatment of ischemia are focused on
treating specific elements of the toxic ischemic cascade, leaving other elements
free to cause cell, tissue and organ damage.
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<PAGE>
Cypros' approach, based on preventing or reversing the toxic ischemic
cascade, is comprehensive in nature and, Cypros believes, potentially more
effective. Cordox and Ceresine are designed to act during and after ischemia by
maintaining cellular ATP levels or accelerating their restoration. Cordox, a
natural substance, and Ceresine are more amenable to being used early in the
patient management process, which is critical in acute care settings.
Further, Cordox and Ceresine are small molecules, easily deliverable and
inexpensive to produce. Human data, available from Cypros' own studies and
independent, physician-sponsored Investigational New Drug applications, commonly
referred to as INDs, show that to date each of these drugs is well tolerated
when administered at clinically relevant doses to healthy subjects. The minimal
side effects associated with Cordox and Ceresine should reduce their development
risk and may permit their broad, early use in acute care settings, such as
emergency rooms, where rapid access to treatment is of utmost importance.
During the fiscal year ended July 31, 1999, Cypros commenced a Phase III
trial of Cordox in sickle cell anemia crisis patients. In addition, Cypros also
received a U.S. patent covering the use of Cordox in sickle cell anemia crisis
patients to reduce the painful occlusive ischemic episodes.
PRE-CLINICAL PROGRAMS FOCUSED ON ISCHEMIC DISORDERS. Further implementing
its overall strategy of developing drugs that protect cells from ischemic
damage, Cypros is conducting pre-clinical studies on additional compounds
intended to reduce the neurodegeneration associated with stroke and traumatic
head injury. Cypros believes that these drugs may reduce excitotoxicity, the
excess release of excitatory amino acid neurotransmitters in the brain that
stems from ischemically-caused ATP depletion in certain brain cells. Drugs being
developed in these studies include: (1) a new class of neuronal calcium channel
blockers which block excessive excitatory amino acid neurotransmitter release;
(2) a patented series of novel compounds which augment levels of adenosine, a
naturally occurring substance which inhibits excitatory amino acid release, in
ischemic tissue by inhibiting its metabolism; and (3) a novel series of
compounds which inhibit the release of excitatory amino acid (especially
glutamate) from glial cells in the brain for which Cypros received a two-year,
$750,000 federal grant during the past year. Cypros is attempting to develop
lead compounds from all three of the above pre-clinical programs to treat a
variety of ischemic disorders of both the cardiovascular and cerebrovascular
systems.
ACQUIRED PHARMACEUTICAL PRODUCTS
Cypros' strategy includes building near-term sustainability with the cash
flow from acquired pharmaceutical products with the goal of reducing its overall
cash consumption rate and building its sales, marketing and distribution
infrastructure in advance of the launch of Neoflo and Sildaflo and the potential
products in its pipeline.
GLOFIL-125 AND INULIN. Kidney disease afflicts more than two million
persons in the United States and is increasing primarily due to the growth in
diabetes and systemic lupus erythromatosis cases. Kidney disease results in over
$12 billion annually in healthcare costs in the United States. The measurement
of kidney function, glomerular filtration rate, or GFR, is critical to the
understanding of the disease state and its appropriate therapeutic intervention.
GFR has historically been estimated by the measurement of endogenous serum
creatinine and by creatinine clearance. These diagnostic assays overestimate
kidney function by as much as 100% in patients. Cypros believes that the
injection of a renal filtration marker, such as Inulin and Glofil-125, is a more
accurate and direct means of determining GFR.
Glofil-125 and Inulin are FDA-approved products for the measurement of GFR.
Nephrologists and nuclear medicine departments at major medical centers are the
primary users of these products. During the fiscal year ended July 31, 1999,
Cypros recorded gross sales from these two products of $797,959 and one customer
using Glofil-125 accounted for 31% of these sales and 9% of Cypros' total sales.
Glofil-125 is an injectable radioactive diagnostic drug, which provides rapid
information on GFRs with
80
<PAGE>
great accuracy. It is currently sold by Cypros in 4ml vials and in prefilled
syringes through the 117 nationwide radiopharmacies of Syncor International
under a distribution agreement entered into with Cypros in February 1996. Inulin
is an injectable diagnostic drug, which provides a measure of GFRs. Inulin is
currently sold in 50 ml ampules with actual patient dosing correlated to patient
weight.
Cypros believes there is opportunity for increased utilization of
Glofil-125. Present diagnostic procedures for measuring kidney function include
serum creatinine and creatinine clearance tests. These two tests are the most
commonly performed methods of measuring kidney function because of their low
cost, however both methods significantly overestimate kidney function in the
estimated 500,000 patients with severe renal disease. The use of Glofil-125 has
been established in published clinical studies as being a more direct, true
measure of kidney function yielding much more accurate results than serum
creatinine or creatinine clearance tests. This improved accuracy can be
essential to reliably monitoring disease progression and intervention, as well
as assessing renal impairment in its early and most treatable stage, however,
most patients do not require this degree of accuracy in the estimation of renal
function.
In addition, the serum creatinine test involves blood draws and an average
time of three to four hours to complete, and the creatinine clearance test
involves 24-hour urine collection, followed by an additional three to four hours
of analysis time. Cypros is currently funding a clinical study of Glofil-125 at
the University of Texas Southwest Medical Center to determine whether the
Glofil-125 test can be shortened to 45 minutes. If the study is successful,
Cypros believes that use of Glofil-125 may increase.
The biggest impediments to the growth in the sales of Glofil-125 is the
current size of Cypros' sales and marketing organization, the loss of
reimbursement for the test or the inability of Cypros to include Glofil in the
protocols of other clinical studies of renal therapeutics.
Inulin, which is sold by Cypros, and (99m)Tc-DTPA, which is not sold by
Cypros and must be prepared onsite by the end user, are alternative agents for
GFR measurement. However, the preparation and use of these two drugs is
difficult and they do not provide the practical advantages of Glofil-125. Cypros
is aware of no new diagnostic drugs being introduced or in development that
would be a competitive threat to Glofil-125.
ETHAMOLIN. Approximately 75,000 people in the United States have or are
approaching end stage liver disease. Liver disease, known as hepatic cirrhosis,
results in approximately 25,000 deaths annually and ranks ninth among the
leading causes of death. Hepatic cirrhosis promotes the formation of esophageal
varices through development of portal hypertension. When intravenous blood
pressure rises, these varicosities may cause a life threatening form of upper
gastrointestinal hemorrhage associated with a 35-50% mortality rate. At least
50,000 patients in the United States either have actively bleeding esophageal
varices or are at imminent risk of bleeding.
Early and effective treatment of esophageal varices to achieve hemostasis is
essential to the outcome of the bleeding patient. The most common pharmaceutical
treatment protocol involves the injection of a sclerosing agent into the varix,
achieving clot formation and obliteration of the varix. This form of hemostasis
is called sclerotherapy and usually requires multiple treatment sessions.
Ethamolin is the only sclerotherapy agent cleared by the FDA for the treatment
of bleeding esophageal varices and Cypros believes that it is the market leader
in this therapeutic category. During the fiscal year ended July 31, 1999, Cypros
recorded gross sales from this product of $1,675,091 and two wholesalers
accounted for 66% of these sales and 41% of total sales. However, there is
strong competition from another drug, Sotradecol, which is being prescribed
off-label, and from band ligation, a form of surgery.
THE DERMAFLO TECHNOLOGY AND THE NEOFLO AND SILDAFLO PRODUCTS. In November
1997, Cypros acquired the Dermaflo technology, a patented topical drug delivery
system, from Enquay, Inc. for a combination of cash and royalties on net sales.
The technology is a polymer matrix system that can
81
<PAGE>
store a variety of different drugs and release them at a desired rate over an
extended period of time so that optimal clinical response is obtained. Included
in the assets acquired were two FDA-approved products, Neoflo and Sildaflo, and
a substantial amount of manufacturing equipment.
Neoflo and Sildaflo, the first two products that Cypros expects to launch
using the Dermaflo technology address consumer needs in both the
over-the-counter and acute care markets. Neoflo is a dressing that incorporates
the triple antibiotic, polymyxin B sulfate, bacitracin zinc and neomycin sulfate
(Neosporin-Registered Trademark-). Cypros intends to manufacture Neoflo in
various sizes, including small sizes to address the over-the-counter market
through NutraMax, a distributor, and larger sizes for the hospital market.
Sildaflo is a dressing that incorporates silver sulfadiazine, the most
widely-used topical antimicrobial for the treatment of burns. Cypros intends to
manufacture Sildaflo in various large sizes to address the hospital/burn clinic
market. Initially, Cypros intends to market these products with its own sales
force.
Cypros believes the extended-release nature of the technology could result
in decreased treatment-related costs, increased patient compliance and reduced
pain and discomfort, resulting in a marketing advantage for the products sold
using the Dermaflo technology. While it is difficult to determine the market
potential of Neoflo and Sildaflo, it is known that silver sulfadiazine and the
triple antibiotic in their currently marketed non-extended release forms, have
combined sales of approximately $60 million in the United States in their
non-controlled-release forms.
Cypros is currently manufacturing the NutraMax product in temporary space in
a facility in Lee's Summit, Missouri. At the same time, it has just completed
improvements to permanent space in the same facility, has installed large-scale
equipment in that space and is validating the equipment, cleaning methods and
analytical methods. In late 1999, Cypros will file an additional supplement to
its New Drug Application, commonly referred to as an NDA, for Sildaflo covering
the establishment of the permanent space, which will require a state license and
trigger an FDA inspection of the facility. If and when the permanent space is
approved by the FDA, and other changes to the Sildaflo lab are finalized, Cypros
will manufacture Neoflo, Sildaflo and all future products incorporating the
Dermaflo technology in the permanent space.
CYTOPROTECTION MARKET OPPORTUNITIES
Cytoprotective drugs for acute care settings that treat ischemic injury are
not currently available and the market opportunities for Cypros may be
significant, potentially totalling several million cases annually in the United
States. Cypros believes that its drugs, if approved, may reduce the number of
fatalities associated with ischemia-related disorders and also reduce the high
cost of rehabilitation and ongoing care in the United States of these victims.
Cypros' drugs are administered intravenously which allows for faster
delivery to the ischemic tissue. In order to ensure early interventions, they
are intended to be standard components in hospital emergency rooms, operating
theater suites, endoscopy suites and radiology suites. A chemically demonstrated
lack of acute toxicity should suit them for this purpose.
CIRCULATORY SYSTEM ISCHEMIA. Cardiovascular ischemia can result in a
spectrum of clinically significant events ranging from angina (pain) to heart
attack and sudden death. In addition to the numerous trauma or disease related
causes of ischemia, there are a variety of voluntary surgical procedures which
result in ischemia to vital organ systems. Procedures such as coronary artery
bypass grafting surgery, which are performed to improve blood flow to the heart,
induce temporary ischemia which can result in tissue damage. Thus, Cordox, if
approved, may be a part of the treatment regimen for these disorders. Some of
these conditions or procedures represent potential opportunities for use of
Cypros' drugs to reduce the tissue damage known to be associated with them.
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Cerebrovascular ischemia (stroke) can result in temporary loss of
consciousness, permanent behavioral and neurologic impairment, coma and death.
Traumatic injury to the head is caused by accidents, near drownings and similar
incidents. The resultant medical problems are, in large part, caused by ischemia
to the brain. The biochemical processes associated with stroke and head trauma
are thought to be very similar; thus, Cypros believes drugs developed for one
indication may be useful for the other.
SICKLE CELL ANEMIA. Sickle cell anemia is an autosomal recessive genetic
disease carried by about 8% of African-Americans and a lesser number of people
native to the Mediterranean region. Approximately 72,000 African-Americans
suffer from the most severe form, known ashomozygous, of the disease, where the
red blood cells form sickle shapes that can occlude capillaries and result in
severe and disseminated ischemia, termed vaso-occlusive events, or VOE. Most
sickle cell patients undergo multiple VOEs each year. Cordox has been shown
pre-clinically to help reduce this sickling process and to reduce pain in sickle
cell disease patients. Cypros is evaluating it in a Phase III trial of sickle
cell anemia crisis patients. The FDA has granted orphan drug designation to
Cordox in this indication.
THE PATHOLOGY OF ISCHEMIA
METABOLIC ASPECTS (ALL TISSUES). All living animal cells require glucose
and oxygen to survive, both of which are supplied to tissues by the blood.
Glucose is transformed into carbon dioxide and water with the resultant
formation of ATP. ATP is the universal fuel which is required to keep the cell
alive. During and after ischemia, the decrease in cellular ATP levels damages
the cell and, Cypros believes, results in the toxic ischemic cascade, a myriad
of cell-damaging processes discussed below which cause further cell damage.
ATP generation occurs in two phases. The first phase, called glycolysis or
anaerobic metabolism, does not require oxygen. The second phase, called aerobic
metabolism or the Krebs cycle, requires oxygen and occurs in mitochondria.
Glycolysis is a means of producing cellular energy in ischemic conditions, and
therefore, represents the body's natural defense against ischemic damage. For
this reason, the facilitation of glycolysis is of interest therapeutically in
the prevention of ischemic damage to tissues and organs. When pyruvic acid
builds up during ischemia due to the inability of aerobic metabolism to utilize
it, an enzyme converts it to lactic acid which blocks glycolysis. The
therapeutic principle underlying Cordox and Ceresine is to facilitate glycolysis
during and after ischemia so the cell continues to produce ATP and the toxic
ischemic cascade is pre-empted or reversed. Specifically, Cordox bypasses the
lactic acid block and does not need to be energized by ATP to be metabolized.
Ceresine reduces ischemia induced lactic acid accumulation by removing the cause
of the metabolic block, and therefore, allows energy metabolism to continue.
EXCITOTOXICITY (NERVE TISSUE). The destructive impact of ATP depletion in
nerve tissue is further complicated by the over-production in nerve cells of
various excitatory amino acids, chemicals that transmit nerve impulses from one
nerve cell to another. The over-production and release of excitatory amino
acids, predominately glutamate and aspartate, by nerve cells exposed to ischemia
over-stimulates adjacent postsynaptic nerve cells, causing them in time to
succumb to metabolic exhaustion and cell death. This ischemia-induced process,
called delayed excitotoxicity, is associated with a number of acute neurologic
disorders, which include stroke and traumatic head injury, and chronic, which
includes Alzheimer's, Parkinson's Disease and Amyotrophic Lateral Sclerosis.
Controlling delayed excitotoxicity by blocking the postsynaptic excitatory amino
acid receptors has recently attracted the attention of both academic and
pharmaceutical scientists. To date, the drugs in development that act by this
mechanism have considerable side effects and only block selected receptor
subtypes, therefore only dealing with part of the problem since all receptor
subtypes appear to cause damage.
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<PAGE>
Recent evidence has shown that specific presynaptic channels, neuronal
calcium channels, regulate the release of neurotransmitters in nerve cells.
Cypros has shown that compounds which block excessive excitatory amino acid
neurotransmitter release from nerve cells greatly reduce excitotoxicity and
post-ischemic tissue damage in animal models of stroke and head trauma. Cypros
is seeking to develop drugs that specifically block neuronal calcium channels
and therefore, if successful, would block the excitotoxic process and reduce the
resultant cell damage. These drugs are believed to have a more comprehensive
effect on excitotoxicity than the specific postsynaptic excitatory amino acid
receptor blockers, since they will reduce the stimulation of all and not just
some excitatory amino acid receptors.
Cypros has also shown in vitro that adenosine, a natural compound, has
cytoprotective properties. Cypros is seeking to develop a series of drugs,
called adenosine metabolism inhibitors, which, if successful, would augment
adenosine levels in ischemic tissue and have cytoprotective effects in both
brain and heart tissue.
Additionally, Cypros is developing a novel series of compounds which inhibit
the release of excitatory amino acid, especially glutamate, from glial cells in
the brain.
THE TOXIC ISCHEMIC CASCADE. Ischemia-induced cell damage triggers a number
of processes which cause further damage to each affected cell and its
surrounding cells. This myriad of destructive processes is facilitated by
reperfusion injury, which occurs after blood flow is re-established. The
traumatized, ATP-depleted cell enters into the toxic ischemic cascade, resulting
in the release of a host of toxic agents, including damaging reactive chemicals
called free radicals, as well as other molecules that are products of cell
membrane breakdown, all of which damage cells. Excessive intracellular calcium
buildup is also an element of the toxic ischemic cascade and also triggers a
host of other damaging processes, such as activation of proteolytic enzymes
which break down proteins and digest cells and activation of protein kinases
which regulate cell metabolism. The traumatized cell also releases agents which
stimulate the immune system, activating various blood cells, such as neutrophils
and macrophages which actually eliminate the cell affected by ischemia. Rather
than target each of these myriad events, Cypros' drugs, Cordox and Ceresine,
address ATP replenishment so that the cell can correct the ischemic cascade
naturally.
There are currently no known FDA-approved cytoprotective drugs. Those under
development are, to Cypros' knowledge, primarily aimed at specific elements of
the toxic ischemic cascade. Cypros believes that its approach to cytoprotective
drug development is unique in that it seeks to pre-empt or reverse the entire
cascade by decreasing the initial metabolic trauma which triggers ATP depletion.
Cypros believes that this approach is preferable to treating specific elements
of the cascade, since it more comprehensively addresses the underlying pathology
and should therefore result in more efficacious therapy.
CARDIOVASCULAR AND CEREBROVASCULAR ISCHEMIA DRUGS IN DEVELOPMENT--THE METABOLISM
PROGRAM
Cypros has started a Phase III clinical trial on Cordox in sickle cell
crisis patients and has received orphan drug designation for Cordox in this
indication. Cypros has also released substantial amounts of data from its heart
surgery trial of Cordox and its traumatic head injury trial of Ceresine and may
consider additional trials in both of these indications in the future.
CORDOX. Cordox is a small phophoryllated sugar that Cypros believes
stimulates and maintains glycolysis in cells undergoing ischemia by
circumventing the ischemia-induced blockage of this process based on extensive
pre-clinical and mechanistic data. The drug also appears to inhibit various
aspects of immune system activation which underlie reperfusion injury. Cypros
has licensed or obtained several issued U.S. patents which cover the use of
Cordox in several acute ischemic indications and a U.S. patent on a novel
formulation of Cordox.
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There are numerous published U.S. and foreign clinical studies with Cordox
conducted by others, where more than 500 patients were administered the drug,
indicating that Cordox is well tolerated in humans with little or no side
effects. These studies indicate that the drug improves heart function and
recovery in various ischemic situations where the heart is injured. In addition,
317 patients have participated in the four Phase II trials of Cordox under
Cypros' IND and the drug continues to be well tolerated.
A total of 125 CABG patients participated in Cypros' double-blind,
placebo-controlled Phase II trial conducted in one hospital in the United
Kingdom, and the data released demonstrates that in patients receiving the
active drug, Cordox (1) has a cardioprotective effect on heart muscle, (2)
improves key parameters of heart function, including cardiac output, left
ventricular stroke work index and cardiac index and (3) reduces the need for
inotope support post-operatively in the intensive care unit, or ICU, and results
in shorter patient stays in the ICU.
In October 1997, Cypros released positive data from a 47-patient
double-blind, placebo-controlled, dose-ranging Phase II clinical trial with
Cordox in sickle cell anemia crisis patients showing that the drug significantly
reduced pain during crisis using two different measures of pain, the visual
analog scale and the categorical assessment scale.
CERESINE. Ceresine is also a small non-peptide molecule which acts on
glycolysis at a different site from Cordox. Cypros has licensed or obtained two
issued U.S. patents covering the use of Ceresine in cerebral ischemia and
recently received orphan drug designation for Ceresine in this indication.
Cypros believes that Ceresine stimulates a specific enzyme which is present in
the membrane of mitochondria that removes a precursor of lactic acid, known
aspyruvic acid, from the cytoplasm of the cell by transporting it into the
mitochondria and converting it to acetyl coA. This results in a reduction of
lactic acid in the cell. Increased post-ischemia accumulation of lactic acid is
a major causal factor in the cessation of glycolysis, the resultant decrease in
cellular ATP levels and eventual cell death. Numerous studies have shown that
Ceresine reduces post-ischemia lactic acid levels in humans subjected to various
traumatic events which would otherwise have resulted in increased lactic acid or
lactic acidosis.
Ceresine has been employed by clinical investigators in patients on an
experimental basis for the intravenous treatment of lactic acidosis. Published
clinical studies and Cypros' own Phase I data have established that Ceresine
reduces serum lactic acid and exhibited no serious side effects at the dose
levels in that study. It has also been shown in human studies to permeate the
blood-brain barrier and to reduce brain lactic acid levels in congenital lactic
acidosis patients.
Cypros' Phase II clinical trial data on Ceresine in closed head injury
patients showed that the drug crosses the blood-brain barrier at high levels and
very quickly after crossing reduces brain lactate levels substantially. This
effect lasted for at least 12 hours. Serum lactate levels were also reduced
substantially in the drug-treated group. In July 1998, the FDA granted expedited
development status to Ceresine in head injury under Subpart E of the FDA
regulations. In addition, Cypros has completed enrollment in a Phase II clinical
trial on Ceresine in stroke patients. Approximately 100 patients participated in
the Phase I and two Phase II trials of Ceresine under Cypros' IND and the drug
was well tolerated.
ISCHEMIA DRUGS IN PRE-CLINICAL RESEARCH--THE METABOLISM AND EXCITOTOXICITY
PROGRAMS
Cypros is also seeking to develop new drugs for the treatment of ischemia
related disorders involving neurological damage, such as stroke, traumatic head
injury, epilepsy and chronic neurodegenerative disorders such as Alzheimer's and
Parkinson's disease. These pre-clinical research programs are focused on either
the metabolic or the excitotoxicity aspects of ischemia therapeutics, and
involve the chemical modification of identified lead molecules that regulate
adenosine metabolism, various calcium ion channels on neuronal cells and
chloride channels on glial cells.
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ADENOSINE METABOLISM INHIBITOR PROGRAM. Cypros is seeking to develop
CPC-405 and some of its derivatives, which are novel small molecules with
demonstrated potency as inhibitors of adenosine metabolism. Adenosine is a
natural cytoprotective agent which is generated in ischemic tissue and serves to
protect cells from a variety of traumatic situations. Naturally generated
adenosine is rapidly degraded by enzymes. Cypros expects that CPC-405 will
increase the level of adenosine in tissue traumatized by ischemia and increase
its cytoprotective effect. A U.S. patent has been issued on the composition of
the CPC-400 series of drugs Cypros has licensed an additional U.S. patent from
the University of Rhode Island which covers the composition of additional
CPC-400 series compounds.
NEURONAL CALCIUM CHANNEL BLOCKER PROGRAM. Cypros believes that the
therapeutic approach to excitotoxicity currently attracting the most commercial
attention involves the development of specific excitatory amino acid receptor
blockers which inhibit the excessive postsynaptic excitatory amino acid action
that is triggered by ischemia. Although these excitatory amino acid receptor
blockers have neuroprotective properties in cell culture and animal models of
ischemia, their usefulness is hampered by toxic side effects associated with the
blockage of excitatory amino acid receptors and by the fact that there are
multiple excitatory amino acid receptor subtypes, all of which appear to cause
post-ischemic damage when they are excessively stimulated. Also, a number of
these excitatory amino acid receptor blockers have failed in various stroke and
head injury clinical trials.
Cypros is seeking to develop new classes of drugs that are designed to
remedy excitotoxicity in a potentially more complete and effective manner by
reducing excitatory amino acid release from nerve cells and reducing the
over-stimulation of all excitatory amino acid receptor subtypes. This
pre-synaptic approach to neuroprotection is viewed by Cypros as potentially more
effective than blocking receptors post-synaptically.
Specifically, Cypros is seeking to develop separate classes of
small-molecule drugs that act as neuronal calcium channel blockers, which it has
labelled as the CPC-300, CPC-800 and CPC-8000 series and has synthesized over
100 compounds in this series. If successful, these drugs would have the ability
to normalize or decrease excitatory amino acid release and comprehensively
reduce the over-stimulation of excitatory amino acid receptors. Prototype agents
such as CPC-8027 have shown the desired effect of acting at the neuronal calcium
channels, which controls excitatory amino acid release. Cypros has demonstrated
neuroprotection in several pre-clinical models with CPC-304, CPC-317, CPC-877
and CPC-8027 and intends to further modify them structurally with the goal of
improved drug delivery to the central nervous system. These modifications will
require additional pre-clinical testing.
GLIAL CHLORIDE CHANNEL BLOCKERS. Cypros has synthesized a series of agents
designated as the CPC-700 series. These agents act to inhibit glial cell
swelling in the brain which occurs after injury in disorders such as stroke and
head injury. These agents inhibit the excess release of excitatory amino acids
from glial cells and have demonstrated neuroprotective properties. Cypros is
currently filing patents on these compounds and recently received a two-year,
$750,000 federal grant to fund additional studies of these compounds.
LICENSES
The principal sources of Cypros' existing licenses are:
ANGEL K. MARKOV, M.D.-CORDOX. Cypros has obtained an exclusive license from
Dr. Markov to four U.S. patents covering the use of Cordox in a number of
ischemic indications. As part of the license, Cypros is funding clinical
development in Dr. Markov's laboratories at the University of Mississippi
Medical Center. In this regard, Cypros has undertaken development obligations
which must be met in order to maintain this license in force. In the event
Cypros breaches the license agreement, such as by not meeting specific
milestones within the specified time periods or by failing to expend specific
amounts in connection with clinical trials within specified time periods, the
license will automatically
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terminate and all rights under the license and information acquired by Cypros
concerning any products based on the licensed technology will revert to Dr.
Markov. In the event of termination, Cypros will retain the rights to market
products for which sales occurred within the calendar year prior to the
termination, and all other products and information related to those products
based on the licensed technology will revert to Dr. Markov. To date, Cypros has
met all milestones in the agreement.
UNIVERSITY OF CINCINNATI-CERESINE. Cypros has an exclusive license from the
University of Cincinnati to a U.S. patent covering the use of Ceresine in
cerebral ischemia. Cypros has undertaken specific development obligations which
must be met in order to maintain its rights in force. If specific milestones are
not met by Cypros within specified time periods, the University of Cincinnati
may, in its sole discretion, elect to continue the agreement, negotiate in good
faith with Cypros to modify the agreement or terminate the agreement upon 30
days' written notice in which event all rights under the license would revert to
the University of Cincinnati. To date, Cypros has met all of these milestones.
MANUFACTURING
Cypros does not currently manufacture any of its acquired products or its
products in development, except for the NutraMax product. The finished forms of
Glofil, Inulin and Ethamolin for sale and Cordox and Ceresine for clinical
trials are manufactured for Cypros under contract by established manufacturers
and alternative manufacturers have been qualified for Cordox and Ceresine. In
the case of Inulin, Cordox and Ceresine, Cypros is responsible for obtaining the
bulk drug from a third party and delivering it to the finished goods
manufacturer. In the case of Inulin and Ceresine, Cypros has qualified
alternative sources of supply for the bulk drug. There can be no assurance that
any of Cypros' bulk or finished goods contract manufacturers will continue to
meet Cypros's requirements for quality, quantity and timeliness or the FDA's
current good manufacturing practice requirements or that Cypros would be able to
find a substitute bulk manufacturer for Cordox, or a substitute finished goods
manufacturer for Inulin, Glofil and Ethamolin or any other of its products which
would meet these requirements or that lots will not have to be recalled with the
attendant financial consequences to Cypros.
In addition, the Dermaflo product line is Cypros' first attempt at in-house
manufacturing of any of its products and there can be no assurance that the
Lee's Summit facility will be completed, or when completed that it will meet the
FDA's current good manufacturing practice requirements and be approved by the
FDA, or when approved will have the capacity to meet demand. Cypros has recently
begun manufacturing the NutraMax product in temporary space in the same complex
housing its Lee's Summit facility. Cypros also faces risks inherent in the
operation of a single facility for the manufacture of Dermaflo products,
including risks of unforeseen plan shutdowns due to personnel, equipment or
other factors. Any delay in the manufacturing of Dermaflo products could result
in delays of product shipments, which could have a material adverse effect on
Cypros' business, financial condition and results of operations. Further, Cypros
is relying on third parties to supply it with the active ingredients for the
Neoflo and Sildaflo products in bulk form, and there can be no assurance that
these third parties may not cause delays in the manufacture or shipments of
these Dermaflo products.
Cypros' limited manufacturing experience and its dependence upon others for
the manufacture of bulk or finished forms of its products may adversely affect
the future profit margin, if any, on the sale of those products and Cypros'
ability to develop and deliver products on a timely and competitive basis. In
the event Cypros is unable to manufacture its products, directly or indirectly
through others, on commercially acceptable terms, it may not be able to
commercialize its products as planned.
SALES AND MARKETING
Cypros currently has a Vice President of Sales and Marketing, a product
manager, a marketing administrator, a customer service representative, and seven
field sales representatives for Glofil, Inulin
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and Ethamolin and is hiring additional sales representatives. Cypros believes
that it will be able to serve the hospital market in North America with a 50 to
70 person sales and marketing staff. There can be no assurance that Cypros will
be able to establish sales and distribution capabilities or be successful in
gaining market acceptance for its drugs.
COMPETITION
Cypros faces competition from specialized biotechnology companies,
pharmaceutical companies of all sizes, academic institutions, government
agencies and public and private research organizations, many of which have
extensive resources and experience in research and development, clinical
testing, manufacturing, regulatory affairs, distribution and marketing. Some of
these entities have significant research activities in areas upon which Cypros'
programs focus. Many of Cypros' competitors possess substantially greater
research and development, financial, technical, marketing and human resources
than Cypros and may be in a better position to develop, manufacture and market
drugs. These entities may discover and develop drugs competitive with or
superior to those developed by Cypros.
GOVERNMENT REGULATION
The manufacture and sale of Cypros' products are subject to extensive
regulation by United States and foreign governmental authorities prior to
commercialization. In particular, drugs are subject to rigorous preclinical and
clinical testing and other approval requirements by the FDA, state and local
authorities and comparable foreign regulatory authorities. The process for
obtaining the required regulatory approvals from the FDA and other regulatory
authorities takes many years and is very expensive. There can be no assurance
that any product developed by Cypros will prove to meet all of the applicable
standards to receive marketing approval in the United States or abroad. There
can be no assurance that these approvals will be granted on a timely basis, if
at all. Delays and costs in obtaining these approvals and the subsequent
compliance with applicable federal, state and local statutes and regulations
could materially adversely affect Cypros' ability to commercialize its products
and its ability to receive sales revenues.
The research activities required by the FDA before a drug can be approved
for marketing begin with extensive preclinical animal and laboratory testing.
The tests include laboratory evaluation of product chemistry and animal studies
for the safety and efficacy of the drug. The results of these studies are
submitted to the FDA as part of an IND which is reviewed by the FDA prior to
beginning clinical trials, first in normal volunteers and then in patients with
the disease.
Clinical trials involve the administration of the investigational new drug
to healthy volunteers or to patients, under the supervision of a qualified
physician/principal investigator. Clinical trials are conducted in accordance
with governmental statutes, regulations and guidelines and under protocols that
detail the objectives of the study, the parameters to be used to monitor safety
and the efficacy criteria to be evaluated. Each protocol must be submitted to
the FDA as part of the IND. Further, each clinical study must be evaluated by an
independent Institutional Review Board, referred to as the IRB, at the
institution at which the study will be conducted. The IRB considers, among other
things, ethical factors, the safety of human subjects and the possible liability
of the institution, and approves the informed consent to be obtained from all
subjects and patients in the clinical trials. Cypros will have to monitor the
conduct of clinical investigators in performing clinical trials and their
compliance with FDA requirements.
Clinical trials are typically conducted in three sequential phases (Phase I,
Phase II and Phase III), but these phases may overlap. There can be no assurance
that Phase I, Phase II or Phase III testing will be completed successfully
within any specified time period, if at all, with respect to any of Cypros'
drugs. Furthermore, Cypros or the FDA may suspend clinical trials at any time if
it is felt that the
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subjects or patients are being exposed to an unacceptable health risk or that
the investigational product lacks any demonstrable efficacy.
The results of the pharmaceutical development, preclinical studies and
clinical studies are submitted to the FDA in the form of an NDA for approval of
the marketing and commercial shipment of the drug. The testing and approval
process is likely to require substantial time (frequently five to eight years or
more) and expense and there can be no assurance that any approval will be
granted on a timely basis, if at all. The FDA may deny an NDA if applicable
regulatory criteria are not satisfied, require additional testing or
information, or require post-marketing testing and surveillance to monitor the
safety of Cypros' drugs. Notwithstanding the submission of the NDA and any
additional testing data or information, the FDA may ultimately decide that the
application does not satisfy its regulatory criteria for approval. Finally, drug
approvals may be withdrawn if compliance with labeling and current good
manufacturing practices regulatory standards is not maintained or if unexpected
safety problems occur following initial marketing.
Among the conditions for clinical studies and NDA approval is the
requirement that the prospective manufacturer's quality control and
manufacturing procedures conform to cGMP, which must be followed at all times.
In complying with standards set forth in these regulations, manufacturers must
continue to expend time, monies and effort in the area of production and quality
control to ensure full technical compliance.
Also, the Prescription Drug Act of 1997 requires that companies engaged in
pharmaceutical development, such as Cypros, pay user fees of at least $100,000
upon submission of an NDA. In addition to regulations enforced by the FDA,
Cypros is subject to regulation under the Occupational Safety and Health Act,
the Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state or local regulations. For marketing outside the United States, Cypros is
subject to foreign regulatory requirements governing human clinical trials and
marketing approval for drugs. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country.
PATENTS AND PROPRIETARY RIGHTS
Cypros' success may depend in large measure upon its ability to obtain
patent protection for its products, maintain confidentiality and operate without
infringing upon the proprietary rights of third parties. Cypros has obtained
patent coverage, either directly or through licenses from third parties, for
some of its products. Cypros currently owns or has licensed a total of 13 issued
and 5 allowed U.S and foreign patents covering Cordox and Ceresine in a variety
of ischemic disorders. It also holds an exclusive license to 5 U.S. and foreign
patents on the Dermaflo technology.
In addition to the patents issued and allowed as mentioned above, Cypros has
also filed several other patent applications in the United States and abroad on
its various products and expects to file additional applications in the future.
There can be no assurance that any of these patent applications will be
approved, except where claims have already been examined and allowed, or that
Cypros will develop additional proprietary products that are patentable. Nor can
there be any assurance that any patents issued to Cypros or its licensors will
provide Cypros with any competitive advantages or will not be challenged by
third parties or that patents issued to others will not have an adverse effect
on the ability of Cypros to conduct its business. Furthermore, because patent
applications in the United States are maintained in secrecy until issue, and
because publication of discoveries in the scientific and patent literature often
lag behind actual discoveries, Cypros cannot be certain that it was the first
chronologically to make the inventions covered by each of its pending U.S.
patent applications, or that it was the first to file patent applications for
such inventions. In the event that a third party has also filed a U.S. patent
application for any of its inventions, Cypros may have to participate in
interference
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proceedings declared by the United States Patent and Trademark Office to
determine priority of the invention, which could result in substantial cost to
Cypros, even if the eventual outcome is favorable to Cypros. In addition, there
can be no assurance that Cypros' U.S. patents, including those of its licensors,
would be held valid by a court of law of competent jurisdiction. If patents are
issued to other companies that contain competitive or conflicting claims which
ultimately may be determined to be valid, there can be no assurance that Cypros
would be able to obtain a license to any of these patents.
Under Title 35 of the United States Code, as amended by the General
Agreement on Tariffs and Trade implementing the Uruguay Round Agreement Act of
1994, commonly referred to as GATT, patents that issue from patent applications
filed prior to June 8, 1995 will enjoy a 17-year period of enforceability as
measured from the date of patent issue while those that issue from applications
filed on or after June 8, 1995 will enjoy a 20-year period of enforceability as
measured from the date the patent application was filed or the first claimed
priority date, whichever is earlier. Patents that issue from applications filed
on or after June 8, 1995 may be extended under the term extension provisions of
GATT for a period up to five years to compensate for any period of
enforceability lost due to interference proceedings, government secrecy orders
or appeals to the Board of Patent Appeals or the Federal Circuit.
Under the Drug Price Competition and Patent Term Restoration Act of 1984,
including amendments implemented under GATT, the period of enforceability of a
first or basic product patent or use patent covering a drug may be extended for
up to five years to compensate the patent holder for the time required for FDA
regulatory review of the product. This law also establishes a period of time
following FDA approval of certain drug applications during which the FDA may not
accept or approve applications for similar or identical drugs from other
sponsors. Any extension under the Patent Term Restoration Act and any extension
under GATT are cumulative. There can be no assurance that Cypros will be able to
take advantage of the patent term extensions or marketing exclusivity provisions
of these laws. While Cypros cannot predict the effect that such changes will
have on its business, the adoption of such changes could have a material adverse
effect on Cypros' ability to protect its proprietary information and sustain the
commercial viability of its products. Furthermore, the possibility of shorter
terms of patent protection, combined with the lengthy FDA review process and
possibility of extensive delays in such process, could effectively further
reduce the term during which a marketed product could be protected by patents.
Cypros also relies on trade secrets and proprietary know-how. Cypros has
been and will continue to be required to disclose its trade secrets and
proprietary know-how to employees and consultants, potential corporate partners,
collaborators and contract manufacturers. Although Cypros seeks to protect its
trade secrets and proprietary know-how, in part by entering into confidentiality
agreements with such persons, there can be no assurance that these agreements
will not be breached, that Cypros would have adequate remedies for any breach or
that Cypros' trade secrets will not otherwise become known or be independently
discovered by competitors.
PROPERTIES
Cypros leases two buildings in Carlsbad, California at a total monthly
rental of $37,651, and 7,676 square feet in a building in Lee's Summit,
Missouri. All of Cypros' operations are located in 18,339 square feet of space
located at 2714 Loker Avenue West, except for the manufacturing facility for the
Dermaflo product line, which is located in the Missouri building. In April 1997,
Cypros subleased its other building in Carlsbad located at 2732 Loker Avenue
West to another pharmaceutical company.
Cypros has leases on two floors in the 2714 Loker Avenue West property, one
of which commenced in April 1996 and has a term of 69 months, and the other of
which commenced in November 1996 and has a term of 61 months. The lease on the
2732 Loker Avenue West property commenced in December 1993 and has a term of 81
months. Both leases have clauses providing for
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rent increases at various points in time during the terms of the leases. The
subtenant's lease covers the remainder of Cypros' original lease term plus a
36-month option, and the subtenant's rental payments to Cypros exceed Cypros'
rental payments to the landlord. In addition, the sublease provides for annual
rent increases. Under the sublease, Cypros spent approximately $200,000 on
tenant improvements to the 2732 Loker Avenue West, however, the net present
value of the subtenant's rental payments over the term of the sublease greatly
exceeds Cypros' tenant improvement obligation.
Cypros leased the space in the Missouri building in December, 1998 and began
improving the space to meet its needs for manufacturing the Dermaflo product
line. Cypros has been paying monthly operating expenses on the space since
inception and will begin paying a monthly rental of $9,316 on the space in May
2000.
LEGAL PROCEEDINGS
In July 1998, Cypros was served with a complaint in the United States
Bankruptcy Court for the Southern District of New York by the Trustee for the
Liquidation of the Business of A.R. Baron & Co., Inc. and the Trustee of The
Baron Group, Inc., the parent of A.R. Baron. The complaint alleges that A.R.
Baron and the Baron Group made preferential or fraudulent transfers of funds to
Cypros prior to the commencement of bankruptcy proceedings involving A.R. Baron
and the Baron group. The Trustee is seeking return of the funds, totalling $3.2
million. Cypros believes that the Trustee's claims are unfounded and intends to
contest the allegations in the complaint vigorously. Cypros contends that the
transfers challenged by the Trustee relate to (1) the exercise by A.R. Baron in
1995 of unit purchase options issued to it in 1992 as part of its negotiated
compensation for underwriting the Cypros' initial public offering and (2) the
repayment by the Baron group of the principal and interest (at 12% per annum)
payments and loan extension fees related to collateralized loans made to it by
Cypros in 1995 and 1996.
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CYPROS SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected historical financial information of Cypros has been
derived from Cypros' historical financial statements, and should be read in
conjunction with the financial statements and the notes, which are included in
this prospectus/joint proxy statement.
The selected historical financial information as of and for the years ended
July 31, 1995, 1996, 1997, 1998 and 1999 has been derived from the financial
statements audited by Ernst & Young LLP, independent auditors.
The financial statement data provided below should be read in conjunction
with, and is qualified in its entirety by reference to, the financial statements
and related notes included elsewhere in this prospectus/joint proxy statement
and "Cypros Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................... $ -- $ 1,275 $ 2,428 $ 3,446 $ 2,518
Gross profit................................ -- 870 1,890 2,675 1,747
Total operating expenses.................... 3,910 4,988 7,466 9,139 9,255
Loss from operations........................ (3,910) (4,118) (5,576) (6,464) (7,508)
Other income (expense), net................. 797 1,028 (1,099) 891 724
Net loss.................................... (3,113) (3,090) (6,675) (5,573) (6,784)
Net loss per share--basic and diluted....... (0.32) (0.27) (0.54) (0.37) (0.43)
Shares used in computing net loss per
share-- basic and diluted................. 9,860 11,518 12,303 15,187 15,712
</TABLE>
<TABLE>
<CAPTION>
JULY 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................... $ 13,442 $ 15,997 $ 14,567 $ 13,444 $ 5,474
Investment grade securities, non-current
portion................................... -- -- -- -- 1,789
Property, plant and equipment, net.......... 412 608 676 1,064 1,472
Purchased technology, net................... -- 2,629 5,061 4,163 3,266
Working capital............................. 12,934 15,384 13,076 13,378 5,261
Total assets................................ 14,175 20,266 21,345 19,736 13,139
Long-term debt.............................. 195 6,624 4,176 217 147
Common stock................................ 20,945 23,421 32,345 41,328 41,497
Accumulated deficit......................... (7,392) (10,482) (17,157) (22,730) (29,514)
Total shareholders' equity.................. 13,366 12,635 15,026 18,511 11,914
</TABLE>
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CYPROS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of Cypros should be read in conjunction with the consolidated
financial statements and the related notes included in this prospectus/joint
proxy statement. The discussion in this prospectus/joint proxy statement
contains forward-looking statements that involve risks and uncertainties.
Cypros' actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to the
differences include, without limitation, those discussed in this section and the
sections entitled "Risk Factors," and "Business of Cypros," as well as those
discussed elsewhere in this prospectus/joint proxy statement.
OVERVIEW
Cypros was founded in 1990, commenced its research and development
activities in 1991, completed an initial public offering in November 1992,
commenced clinical trials in December 1994, acquired two FDA-cleared products,
Glofil and Inulin in August 1995, acquired a third FDA-cleared product,
Ethamolin, in November 1996, and acquired the Dermaflo technology in November
1997. Cypros has sustained an accumulated deficit of $29,514,000 from inception
through July 31, 1999. As Cypros will not have positive net operating cash flow
for the next few years and its research and development, clinical testing and
regulatory, sales and marketing and general and administrative expenses during
these years will be substantial and increasing, Cypros expects to incur
increasing losses for the foreseeable future.
RESULTS OF OPERATIONS
YEAR ENDED JULY 31, 1999 COMPARED TO YEAR ENDED JULY 31, 1998
During the fiscal year ended July 31, 1999, Cypros sustained a loss of
$6,784,000 (or $.43 per share, basic and diluted) compared to a loss of
$5,573,000 (or $.37 per share, basic and diluted) for the prior fiscal year.
Gross profit for fiscal 1999 of $1,747,000 on sales of Glofil, Inulin and
Ethamolin, plus other income of $724,000, resulting from interest, grant, and
rental income, were offset by $9,255,000 in expenses for sales and marketing,
general and administrative, clinical testing and regulatory, pre-clinical
research and development and depreciation. During the prior fiscal year, the
gross profit of $2,676,000 on sales of Ethamolin, Glofil and Inulin and other
income of $891,000 (principally interest income) was offset by $9,139,000 in
expenses for sales and marketing, general and administrative, clinical testing
and regulatory, and pre-clinical research and development as well as
depreciation and amortization.
Net sales declined during the fiscal year ended July 31, 1999, principally
due to increasing competition in the market served by Ethamolin and the expected
decline in Glofil sales volume due to the termination in the third quarter of
fiscal 1998 of a customer's two clinical trials which required Glofil to be used
as part of their protocols. The sales decline also contributed to the 35%
decrease in gross profit on sales, in light of the significant level of fixed
costs associated with the manufacturing, release and stability testing of Inulin
and Glofil.
In addition, during the fourth quarter of fiscal 1999, Cypros commenced
shipments of the topical triple antibiotic wound care product, incorporating the
Dermaflo technology, to its partner, NutraMax Products, Inc., and thus, began
introducing the related costs to the cost of sales. Cypros expects that the
sales to NutraMax will grow and be meaningful to Cypros' revenues, but the gross
margin on these sales will be minimal. Therefore, until the capacity in the
Company's plant in Lee's Summit, Missouri is increased and higher margin
products, such as Neoflo and Sildaflo are launched, Cypros' gross profit margin
on sales and its gross profit margin as a percentage of sales will be lower than
historically reported for Ethamolin, Glofil and Inulin.
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Sales and marketing expense increased by 30% to $1,703,000 in fiscal 1999
from $1,310,000 in the prior fiscal year, principally due to the recruiting cost
of hiring additional personnel, additional costs associated with promotional
items and advertising, the cost of a clinical study of Glofil to prove the
viability of a 45-minute test, and regulatory consulting expense related to
these studies.
Pre-clinical research and development expense decreased by 33% to $548,000
in fiscal 1999 from $822,000 in the prior fiscal year, principally due to a
decrease in staffing and the completion of specific contract studies.
Grant income declined 70% during fiscal 1999 to $51,000 from $170,000 in
fiscal 1998, as there was only one grant in process for much of fiscal 1999,
versus two during the prior fiscal year. During the last month of fiscal 1999,
Cypros received a two-year, $750,000 federal grant for its glial chloride
channel blocker program.
Interest and other income decreased by 27% to $590,000 in fiscal 1999 from
$809,000 in the prior fiscal year, principally because Cypros had a larger
investment portfolio during the prior fiscal year.
Rental income net of related expenses decreased by 52% to $83,000 in fiscal
1999 from $171,000 in the prior fiscal year, principally due to the increases in
rent expense and amortization of tenant improvement expense in fiscal 1999.
The amortization of the discount and costs on Cypros' mandatorily
convertible notes was completed in fiscal 1999, and therefore, Cypros did not
have these expenses in fiscal 1999.
YEAR ENDED JULY 31, 1998 COMPARED TO YEAR ENDED JULY 31, 1997
During the fiscal year ended July 31, 1998, Cypros sustained a loss of
$5,573,000 (or $.37 per share, basic and diluted) compared to a loss of
$6,675,000 (or $.54 per share, basic and diluted) for the prior fiscal year.
Gross profit for fiscal 1998 of $2,676,000 on sales of Glofil, Inulin and
Ethamolin, plus other income of $1,150,000, resulting from interest, grant, and
rental income, were offset by $9,139,000 in expenses for sales and marketing,
general and administrative, clinical testing and regulatory, pre-clinical
research and development and depreciation and amortization and $259,000 in
amortization of discount and costs on its mandatorily convertible notes. During
the prior fiscal year, the gross profit of $1,890,000 on sales of Glofil and
Inulin and other income of $761,000, principally interest income, was offset by
$7,465,000 in expenses for sales and marketing, general and administrative,
clinical testing and regulatory, and pre-clinical research and development as
well as depreciation and amortization and $1,860,000 in amortization of discount
and costs on the notes.
During the third quarter of fiscal 1998, Cypros announced that its largest
Glofil customer had informed Cypros that it would be terminating two clinical
trials which require Glofil to be used as part of their protocols. Those trials
have terminated and as stated previously in the third quarter, Cypros expects
the loss of sales to this customer to adversely affect Cypros' sales going
forward.
Sales and marketing expense increased by 31.8% to $1,310,000 in fiscal 1998
from $994,000 in the prior fiscal year, principally as a result of additional
promotional costs for Glofil and increased payroll expense from pay raises and
the hiring of additional personnel.
General and administrative expense increased by 35.5% to $3,247,000 in
fiscal 1998 from $2,396,000 in the prior fiscal year. Approximately 52% of the
increase was due to the expenditures related to acquiring the Dermaflo
technology and scaling up the manufacturing of the Dermaflo products. The
remainder of the increase reflected increased legal fees.
Clinical testing and regulatory expense increased by 28.2% to $2,521,000 in
fiscal 1998 from $1,967,000 in the prior fiscal year, principally as the result
of increased staffing in the quality assurance/ quality control department,
increased use of data input and management, statistical and other
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consultants to accelerate, finish and report on Cypros' various clinical trials
and certain toxicology studies performed during the period.
Pre-clinical research and development expense decreased by 20.4% to $822,000
in fiscal 1998 from $1,032,000 in the prior fiscal year, principally due to a
decrease in staffing and the completion of specific contract studies.
Depreciation and amortization expense increased by 15.3% to $1,239,000 in
fiscal 1998 from $1,075,000 in the prior fiscal year, principally as a result of
the acquisition of Ethamolin during the prior year and the related amortization
of that purchased technology.
Sublease income increased from $0 to $171,062 in fiscal 1998 due to the
sublease of Cypros' former corporate headquarters. Interest and other income
increased by 22.2% to $809,000 in fiscal 1998 from $662,000 in the prior fiscal
year, principally due to the additional interest earned on the proceeds from the
exercise of Cypros' Redeemable Class B Warrants in November 1997. Research and
grant income increased 71.7% to $170,000 in fiscal 1998 from $99,000 in the
prior fiscal year, principally due to the receipt of two additional federal
grants during fiscal 1998 versus the receipt of one in the prior fiscal year.
The amortization of discount and costs on the notes decreased 86.1% to $259,000
in fiscal 1998 from $1,860,000 in the prior fiscal year. The majority of the
principal amount of the notes was converted in the prior year, and thus, a
larger amount of amortization expense occurred. The remaining principal balance
of the notes was converted in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cypros has principally funded its activities to date through various
issuances of equity securities, which have raised total net proceeds of $35.0
million, as well as product sales.
At July 31, 1999, Cypros had cash, cash equivalents and short-term
investments of $5,474,000 compared to $13,444,000, at July 31, 1998. At July 31,
1999, working capital was $5,262,000, compared to $13,378,000 at July 31, 1998.
The decrease in both balance sheet items was principally due to cash spent on
operations for the year. In addition, working capital decreased $1.8 million due
to the classification of some held-to-maturity investments as non-current in
fiscal 1999.
Cypros expects that its cash needs will increase significantly in future
periods due to expansion of its research and development programs, increased
clinical testing activity, growth of administrative, clinical and laboratory
staff and their related equipment and space needs. Management believes that
Cypros' working capital will be sufficient to fund the operations of Cypros for
at least 12 months dependent, in part, on (1) the timing of the commencement of
each phase of the clinical trials on Cordox and Ceresine, (2) the funding
priorities that it gives its various research programs, (3) the results of
clinical tests and research programs, (4) competing technological and market
developments, (5) the time and costs involved in obtaining regulatory approvals
and in obtaining, maintaining and enforcing patents, and (6) the cost of product
acquisitions and their resulting cash flows.
Cypros expects to seek additional funds through public or private equity
financings, collaborations or from other sources. There can be no assurance that
funds can be obtained on desirable terms or at all. Cypros may seek to raise
additional capital whenever conditions in the financial markets are favorable,
even if Cypros does not have an immediate need for additional cash at that time.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 problem is the result of computer applications being written
using two digits rather than four digits to define the applicable year. Any of
Cypros's computer applications and computer applications used by any of Cypros'
customers, collaborators and manufacturers that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruption of
operations.
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Cypros has modified or replaced portions of its software so that its
computer systems will function properly with respect to dates in the year 2000
and beyond. The costs associated with these modifications totaled approximately
$30,000, which was funded from operations. Cypros believes that, with these
modifications to existing software and conversions to new software, the Year
2000 problem will not pose significant operational problems for its computer
systems. However, because of the many uncertainties associated with Year 2000
compliance issues, and because Cypros' assessment is necessarily based on
information from third-party customers, collaborators and manufacturers, there
can be no assurance that Cypros' assessment is correct or as to the materiality
or effect of any failure of the assessment to be correct.
Cypros has initiated a program to determine whether the computer
applications of its significant customers, collaborators and manufacturers will
be upgraded in a timely manner. Cypros has not completed its review and it is
unknown whether the computer applications of its customers, collaborators and
manufacturers will be Year 2000 compliant. Cypros has not determined the extent
to which any disruption in the computer applications of third parties caused by
the Year 2000 issues will affect Cypros' operations. However, any disruptions in
payments by customers or in the manufacture of Cypros' products could have a
material adverse effect upon Cypros' business, financial condition and results
of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Cypros invests its excess cash in interest-bearing investment-grade
securities. Cypros holds all the securities for their remaining term. Therefore,
Cypros believes that it is not subject to material interest rate risks on its
investments, other than the creditworthiness of the issuer of the securities. In
addition, Cypros does not utilize market risk sensitive instruments, positions
or transactions in any material fashion and does not believe it maintains any
material exposure to market risk sensitivities.
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BUSINESS OF RIBOGENE
RiboGene is developing Emitasol-Registered Trademark-, an intranasal form of
metoclopramide, in the United States with Roberts Pharmaceutical Corporation to
treat diabetic gastroparesis and delayed onset emesis caused by cancer
chemotherapy. Phase III clinical trials of Emitasol for diabetic gastroparesis
are expected to begin in the United States in late 1999 or early 2000.
Metoclopramide is an approved antiemetic and is available as a generic in oral
and intravenous form. RiboGene holds patents related to the administration of
metoclopramide intranasally. RiboGene is currently developing Emitasol in Europe
through two corporate partners, where it is undergoing regulatory review in
Austria and five other Eastern European countries and marketed in Italy under
the tradename Pramidin. RiboGene common stock is listed on the AMEX under the
symbol RBO.
STRATEGY
RiboGene's objectives are to discover and develop novel drugs to treat
infectious disease and other unmet medical needs. RiboGene has adopted two
approaches to accomplish these objectives. The first is to discover novel
compounds in a proprietary program based on translation, the process used by
cells to synthesize proteins. However, RiboGene also recognizes that it will be
a number of years before any potential products reach the market, given the
extensive preclinical and clinical development programs through which each must
proceed. Accordingly, RiboGene's second approach is to acquire rights to drug
candidates that have reached a more advanced stage of development and are thus
more likely to reach the commercial market sooner. Concurrent with entering into
the merger agreement with Cypros, RiboGene management has refocused its efforts
and modified its strategy, emphasizing its clinical development program on
Emitasol, its drug discovery efforts on the antibacterial programs and its
program to acquire compounds in advanced stages of development.
THE RIBOGENE DEVELOPMENT PROGRAM
EMITASOL
RiboGene acquired the rights to Emitasol from Hyline Laboratories, Inc. in
1994. RiboGene, in conjunction with Roberts Pharmaceutical, is developing
Emitasol for two indications: diabetic gastroparesis and delayed onset emesis
associated with chemotherapy.
DIABETIC GASTROPARESIS. For some diabetics, proper digestion may be
difficult. Variable blood glucose levels may lead to a condition known as
gastroparesis or stomach paralysis. Gastroparesis can result in general loss of
appetite, nausea and vomiting, and in some cases severe dehydration. Many
prescription medications are used to treat gastroparesis, including bethanecal,
cisapride and erythromycin. Each of these drugs has limited effectiveness and
has side effects. Metoclopramide tablets are approved for treating
gastroparesis. RiboGene believes that the intranasal form of metaclopramide may
provide diabetics with gastroparesis an easier route of administration and
better patient compliance. RiboGene intends to study the control of diabetic
gastroparesis in a phase III clinical trial which it expects to initiate by
early 2000. Positive results in these trials may allow for the submission of a
New Drug Application to the FDA, which RiboGene expects may occur in early 2000.
DELAYED ONSET EMESIS. Nausea and vomiting (emesis) are common side effects
of cancer chemotherapy. Chemotherapy-induced emesis is considered to occur in
two phases: acute (within 24 hours of the initiation of chemotherapy) and
delayed (on the second and subsequent days). Several drugs have been approved by
the FDA for preventing nausea and vomiting associated with emetogenic
chemotherapy, including injectable forms of ondansetron, granisetron, and
metoclopramide. Ondansetron and granisetron are representatives of a class of
drugs called serotonin antagonists or setrons, and are considered highly
effective in controlling acute chemotherapy-induced emesis. There are
conflicting reports, however, about the efficacy of serotonin antagonists in
controlling delayed onset emesis. There are no FDA-approved treatments
specifically for delayed onset emesis. Increasing
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numbers of these patients are being treated as outpatients and experience
delayed onset emesis when they are no longer under the immediate care of a
medical professional. Any medication for these emesis should therefore be
suitable for self-administration by the patient. Injectable medications are
unlikely to be suitable in this context. It appears that current practice is to
provide patients initially with oral antiemetics in tablet form. Tablets are
not, however, particularly suitable for patients who are nauseous and may vomit.
Prior clinical trials for Emitasol have demonstrated that metoclopramide is
absorbed and effective when given intranasally. Phase I trials indicated that
the overall amount of metoclopramide which reaches the plasma is very similar
whether the drug is given intranasally, intravenously or orally. Given the
similarity in uptake of the three dosage forms, similarity might also be
expected in their clinical performance. For acute emesis the expected similarity
in performance has been demonstrated for the intranasal and intravenous dosage
forms. For example, in a prior phase III study, Emitasol provided protection
against acute emesis comparable to that previously reported for intravenous
metoclopramide. RiboGene therefore anticipates that intranasal metoclopramide
may be effective for controlling delayed onset emesis, an activity suggested for
oral metoclopramide in the clinical literature.
According to the American Cancer Society, about 1.3 million new patients are
diagnosed with cancer in the United States each year, many of which are treated
with chemotherapy. Chemotherapy is typically administered as a series of
separate courses over a period of several months. In total, therefore, the
number of courses of chemotherapy administered to cancer patients each year in
the United States is estimated to be over a million. Additionally, according to
the Center for Disease Control, there are 16 million diabetics in the United
States, of which 40 to 50 percent may show signs of gastroparesis.
Although Emitasol will be in a Phase III clinical trial for the treatment of
diabetic gastroparesis, substantial additional development, clinical testing and
investment will be required prior to seeking any regulatory approval for
commercialization of this product. There can be no assurance that clinical
trials of Emitasol will demonstrate the safety and efficacy of the product to
the extent necessary to obtain regulatory approvals for the indications being
studied, or at all. The failure to demonstrate adequately the safety and
efficacy of Emitasol could delay or prevent regulatory approval of the product.
RIBOGENE'S DRUG DISCOVERY PROCESS
RiboGene has established antibacterial, antifungal and antiviral drug
discovery programs. Within each program, RiboGene's drug discovery process
consists of four phases: (1) target identification; (2) assay development; (3)
lead discovery; and (4) lead optimization. In the first phase of the process,
RiboGene uses its accumulated translation specific expertise and know-how in
combination with functional genetics and microbial genomics to identify and
select the pathogen specific translation mechanism targets for use in its drug
discovery programs. When pathogen specific translation mechanism targets have
been identified and validated, RiboGene scientists use a variety of techniques
to design and implement translation-based assays to identify and characterize
compounds active against these targets. Once a pathogen specific translation
mechanism target has been incorporated into a high-throughput assay, RiboGene
scientists use these assays to screen compound libraries to identify potential
lead compounds suitable for lead optimization. Lead optimization involves the
use of contemporary medicinal and combinatorial chemistry techniques to enhance
the potency, selectivity, pharmacokinetic and other properties of potential
leads identified using RiboGene's assays. In its antibacterial program, RiboGene
has two principal targets, deformylase and ppGpp degradase, for which it
conducts research in collaboration with Dainippon. Deformylase is in the lead
optimization phase, and ppGpp degradase is in the lead discovery phase. RiboGene
has several additional antibacterial targets, to which it has retained rights
to, that are in the assay development phase. In its antifungal program, several
targets, are in the lead discovery phase. In its antiviral program, which is
currently focused exclusively on the hepatitis C virus or HCV, RiboGene has one
target, HCV NS5A/
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PKR, in the assay development phase. As of June 30, 1999, RiboGene has shifted
all of its drug discovery resources to its antibacterial program.
COLLABORATIVE AND RESEARCH AGREEMENTS
THE DAINIPPON AGREEMENTS
In January 1998, RiboGene entered into a research agreement with Dainippon
in connection with RiboGene's two principal antibacterial targets, deformylase
and ppGpp degradase. Under the research agreement, Dainippon and RiboGene agreed
to collaborate in a research program directed at accelerating the discovery of
antibacterial drugs that have activity against either of these two bacterial
specific targets. Dainippon has agreed to provide antibacterial research and
development support internally at Dainippon and research reimbursements over a
three-year period, subject to extension upon mutual agreement by both parties.
RiboGene received $2.0 million of this support in 1998 and another $2.0 million
for the 1999 research year in February 1999. Under the terms of the research
agreement, the duties and responsibilities of Dainippon and RiboGene are
determined by a research committee comprised of representatives from both
companies. RiboGene's initial responsibilities include assay development and
lead discovery. Both parties are responsible for in vitro testing against
pathogens and lead optimization. Dainippon is responsible for in vivo evaluation
and preclinical development. Dainippon may terminate the research agreement at
any time after January 27, 1999 upon 180 days' written notice to RiboGene.
Also in January 1998, RiboGene entered into a license agreement with
Dainippon. Under the license agreement, RiboGene granted Dainippon exclusive,
worldwide rights to develop and market all antibacterial products discovered by
the parties during the joint research collaboration to have activity against
deformylase or ppGpp degradase. Under the terms of the license agreement,
Dainippon has responsibility for all development activities necessary to
commercialize potential lead compounds resulting from the Dainippon
collaboration, including preclinical testing, clinical development, submission
for regulatory approval, manufacturing and marketing. RiboGene is entitled to
receive milestone payments of up to $10.0 million for each product developed
upon the achievement of mostly late-stage clinical and regulatory milestones,
consisting of up to $5.0 million through approval in Japan and up to $5.0
million through approval in a major market other than Japan, and royalties on
worldwide sales of any products that may result from the collaboration. RiboGene
also has an option in Europe and the United States to co-promote any products
resulting from the Dainippon collaboration. If RiboGene elects to co-promote, it
will receive a co-promotion fee, in addition to royalties on product sales,
equal to at least the fully-burdened cost of each of the RiboGene's sales
representatives that promote the products, plus an additional co-promotion fee.
In connection with the Dainippon collaboration, RiboGene and Dainippon
entered into a stock purchase agreement to purchase shares of RiboGene Series G
preferred stock, under which Dainippon made an initial equity investment in
RiboGene of $2.0 million by purchasing 756,144 shares of RiboGene Series G
preferred stock. These shares of preferred stock automatically converted into
53,988 shares of RiboGene common stock upon the closing of RiboGene's initial
public offering. Dainippon also received registration rights relating to these
shares of preferred stock. In exchange for an increase in the royalty rate to be
received by RiboGene, RiboGene issued an additional 230,000 shares of RiboGene
common stock to Dainippon in September 1998. There can be no assurance that
RiboGene or Dainippon will be successful in developing or commercializing any
drugs or products under the Dainippon agreements. There can be no assurance that
any milestones will be achieved or that any royalties contemplated by the
Dainippon agreements will ever be made. In addition, there can be no assurance
that the Dainippon agreements will not be terminated by Dainippon prior to their
expiration.
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THE ROBERTS PHARMACEUTICAL AGREEMENT
In July 1998, RiboGene entered into an option and license agreement with
Roberts Pharmaceutical for the development of Emitasol, for treatment of
diabetic gastroparesis and delayed onset emesis in cancer chemotherapy patients.
In addition, Roberts Pharmaceutical made a $10.0 million equity investment in
RiboGene by purchasing 1,428,572 shares of RiboGene Series A preferred stock at
$7.00 per share. Holders of the RiboGene Series A preferred stock are entitled
to non-cumulative dividends, when and if declared by the RiboGene board of
directors, and have a liquidation preference, prior to any declared dividends,
equal to the original issue price of $7.00 per share. The RiboGene Series A
preferred stock is convertible into common stock on a one-for-one basis.
However, on or following each of the first three annual anniversary dates of the
stock issuance, the holders of the RiboGene Series A preferred stock can convert
up to 33%, 50% and 100% of their shares.
Under the terms of the option and license agreement, Roberts Pharmaceutical
will conduct clinical trials using Emitasol and, if those are successful, submit
a New Drug Application for Emitasol. If FDA regulatory approval is obtained,
Roberts Pharmaceutical will have 60 days to exercise an exclusive option for a
license to market Emitasol in North America. Roberts Pharmaceutical has agreed
to make a payment to RiboGene of up to $10.0 million upon the exercise of the
option and to pay a royalty on product sales. RiboGene will provide up to $7.0
million in funding for the development of Emitasol through completion of Phase
III trials and the submission of a New Drug Application, with the balance
provided by Roberts Pharmaceutical.
LICENSE AGREEMENTS
CRINOS INDUSTRIA FARMACOBIOLOGICA SPA. In January 1994, as part of its
acquisition of Emitasol and other intranasal products from Hyline Laboratories,
Inc., RiboGene entered into a license agreement with Crinos. The agreement
grants Crinos an exclusive license to manufacture and market Emitasol in Italy.
RiboGene will receive a royalty on net sales of Emitasol in Italy. The agreement
expires 10 years after the first commercial sale in Italy subject to automatic
renewal for three-year periods. In October 1996, the agreement was amended to
grant Crinos a non-exclusive worldwide license to manufacture Emitasol. The
amendment provides that RiboGene will receive additional royalties on all supply
arrangements between Crinos and any licensees of RiboGene to Emitasol. RiboGene
may terminate the license agreement in the event Crinos fails to pay minimum
royalties. RiboGene also retains the right to all data generated by Crinos on
Emitasol, including clinical and manufacturing information.
Crinos has received governmental approval to market Emitasol in Italy.
Crinos launched this product under the tradename Pramidin in April 1999.
Pramidin is marketed in two dosage forms under the names Pramidin 10, which
includes 200 mg of active ingredient and Pramidin 20, which includes 400 mg of
active ingredient.
CSC PHARMACEUTICALS HANDELS GMBH. In April 1997, RiboGene entered into an
agreement with CSC Pharmaceuticals. The agreement grants CSC Pharmaceuticals an
exclusive license to market and sell Emitasol in Austria, Poland, Bulgaria, the
Czech Republic, Slovakia, Hungary, Rumania, the Community of Independent States
and eight other Eastern European countries. CSC Pharmaceuticals has agreed to
pay a royalty to RiboGene based on net sales within the countries listed above.
The agreement will expire on a country-by-country basis 10 years after the first
commercial sale in that country. RiboGene can terminate the license if CSC
Pharmaceuticals does not obtain approval in any country contained in the
agreement by April 16, 1999. To date, CSC Pharmaceuticals has filed for
regulatory approval in Austria, Poland, Hungary, Czech Republic and the
Commonwealth of Independent States.
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PATENTS AND PROPRIETARY RIGHTS
RiboGene believes that patents and other proprietary rights are important to
its business. RiboGene's policy is to file patent applications to protect
technology, inventions and improvements to its inventions that are considered
important to the development of its business. RiboGene's commercial success will
depend on its ability, and the ability of any licensors, to obtain patent
protection for its products and technologies, both in the United States and in
other countries. The patent positions of pharmaceutical and biotechnology firms
can be highly uncertain and involve complex legal and technical questions for
which important legal principles are largely unresolved issues, thus making it
difficult to predict the breadth of claims which would be found allowable in any
particular case.
RiboGene owns (1) one provisional application, (2) two pending patent
applications and some corresponding foreign applications relating to its
antibacterial drug discovery program, (3) two issued U.S. patents, (4) a pending
application and corresponding foreign applications, (5) an issued Australian
patent relating to its antifungal drug discovery program, (6) an issued United
States patent, and (7) two pending United States patent applications and
corresponding foreign applications relating to its antiviral drug discovery
program.
RiboGene is an assignee, along with McGill University, of two issued U.S.
patents and a pending U.S. patent application generally relating to
translational control of gene expression. RiboGene is an exclusive licensee
under a University of Washington pending United States application and
corresponding foreign applications directed to HCV NS5A/PKR. There can be no
assurance that any of these patent applications, or any patent applications
which RiboGene may acquire in the future, will issue as patents, that any issued
patents will afford adequate protection to the RiboGene or not be challenged,
invalidated, circumvented or infringed, or that any rights granted under the
patents will afford competitive advantages to the RiboGene.
In addition to patent protection, RiboGene also relies to a significant
extent upon trade secret protection for its confidential and proprietary
information, including many of the RiboGene's key discovery technologies. There
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
RiboGene's trade secrets or disclose the technology. To protect its trade
secrets, it is RiboGene's policy to require its employees, consultants,
scientific advisory board members and parties to collaboration and licensing
agreements to execute confidentiality agreements upon the commencement of
employment, the consulting relationship or the collaboration or licensing
arrangement, as the case may be, with RiboGene. In the case of employees, the
agreements also provide that all inventions resulting from work performed by
them while employed by RiboGene will be the exclusive property of RiboGene. In
the case of scientific advisory board members, the agreements also provide that
any confidential information that results from work performed for RiboGene will
be the exclusive property of RiboGene. RiboGene will continue to require its
employees, consultants, scientific advisory board members, collaborators and
licensees to execute confidentiality agreements and inventions assignment
agreements upon the commencement of employment, the consulting relationship or
the collaboration or license with RiboGene. There can be no assurance, however,
that these agreements will not be breached or that they will provide meaningful
protection of RiboGene's trade secrets or adequate remedies in the event of
unauthorized use or disclosure of the information, that RiboGene can
meaningfully protect its rights in its unpatented proprietary technology through
other means, that any obligation to maintain the confidentiality of its
proprietary technology will not be breached by employees, consultants, advisors,
collaborators, licensees or others, or that others will not independently
develop the same or substantially equivalent technology. The loss of trade
secret protection of any of RiboGene's key discovery technologies would
materially and adversely affect RiboGene's competitive position and could have a
material adverse effect on RiboGene's business, financial condition and results
of operations. Finally, disputes may arise as to the ownership of proprietary
rights to the extent that outside collaborators, licensees or consultants apply
technology information developed
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independently by them or others to RiboGene projects or apply RiboGene
technology to other projects and, if adversely determined, these disputes would
have a material adverse effect on RiboGene's business, financial condition and
results of operations.
RiboGene has in the past acquired intellectual property that falls outside
the field of infectious diseases and translational control. These acquired
products include Emitasol, for emesis associated with chemotherapy, Migrastat,
for migraine, and intranasal benzodiazepines for various conditions such as
anxiety, seizures, panic attacks and sleep disorders. RiboGene has licensed
rights to Emitasol in North America, Italy, Austria and some former Eastern
European countries. The Italian licensee received approval to market Emitasol in
Italy. There can be no assurance that the other foreign licensees, or future
licensees, will obtain the necessary regulatory approvals to market Emitasol, or
that, in the event approvals are obtained, that Emitasol will achieve market
acceptance in these countries, or that RiboGene will ever realize royalties on
sales of Emitasol in such countries.
COMPETITION
The biotechnology and pharmaceutical industries are intensely competitive
and subject to rapid and significant technological change. Many of the drugs
which RiboGene is developing will be competing with existing therapies. In
addition, a number of companies are pursuing the development of pharmaceuticals
which target the same diseases and conditions RiboGene is targeting, using
technology similar to the RiboGene technology, as well as alternative discovery
technologies, including antisense, gene therapy and genomics. RiboGene faces
competition from pharmaceutical and biotechnology companies both in the United
States and abroad. Many of RiboGene's competitors, particularly large
pharmaceutical companies, have substantially greater financial, technical and
human resources than RiboGene. In addition, unlike RiboGene, many of these
competitors have experience in undertaking preclinical studies and clinical
trials of new pharmaceutical products, obtaining the necessary regulatory
approvals and manufacturing and marketing products. In addition, academic
institutions, government agencies, and other public and private organizations
conducting research may seek patent protection with respect to potentially
competing products or technologies and may establish exclusive collaborative or
licensing relationships with competitors of RiboGene.
RiboGene believes that its ability to compete is dependent, in part, upon
its abilities to create and maintain scientifically advanced technology and to
develop and commercialize pharmaceutical products based on this technology, as
well as its ability to attract and retain qualified personnel, obtain patent
protection or otherwise develop proprietary technology or processes and secure
sufficient capital resources for the expected substantial time period between
technological conception and commercial sales of products based upon RiboGene's
technology.
There can be no assurance that RiboGene's competitors will not succeed in
developing technologies and drugs that are more effective or less costly than
any which are being developed by RiboGene or which would render RiboGene's
technology and future drugs obsolete and noncompetitive. In addition, RiboGene's
competitors may succeed in obtaining FDA or other regulatory approvals for drug
candidates more rapidly than RiboGene. Companies that complete clinical trials,
obtain required regulatory agency approvals and commence commercial sale of
their drugs before their competitors may achieve a significant competitive
advantage, including some patent and FDA marketing exclusivity rights that would
delay RiboGene's ability to market some products. There can be no assurance that
drugs resulting from RiboGene's research and development efforts, or from the
joint efforts of RiboGene and its existing or future collaborative partners,
will be able to compete successfully with competitors' existing products or
products under development or that they will obtain regulatory approval in the
United States or elsewhere.
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GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and other
countries will be a significant factor in the production and marketing of any
pharmaceutical products that ultimately may be developed by RiboGene. All of
RiboGene's products will require regulatory approval by governmental agencies
prior to commercialization. Therapeutic drug products intended for human use are
subject to rigorous preclinical and clinical testing requirements and extensive
review and approval procedures by the FDA in the United States and similar
health authorities in other countries. Various statutes and regulations also
govern or affect the clinical testing, safety, efficacy, manufacturing,
labeling, storage, record keeping, advertising and marketing and distribution of
drug products. Failure to comply with these regulations could result in, among
other things, delays in obtaining required marketing authorizations, warning
letters, recalls, suspension or termination of production, product seizures,
injunctions, civil penalties and criminal prosecution.
As it relates to its drug discovery efforts, RiboGene currently is engaged
in the preliminary stages of drug discovery and does not expect to submit an
application for FDA marketing approval of any therapeutic product drug for a
number of years. Once RiboGene identifies a pharmaceutical candidate for
potential commercial development, it will be subject to a lengthy and uncertain
regulatory review process. The steps ordinarily required before a new
biopharmaceutical product may be marketed in the United States include: (1) drug
discovery and screening activities; (2) preclinical testing; (3) the submission
to the FDA of an IND which must become effective before clinical trials may
commence; (4) adequate and well-controlled clinical trials to establish the
safety and effectiveness of the drug for its intended use; (5) the submission of
an New Drug Application to the FDA; and (vi) FDA review and approval of the NDA
prior to any commercial sale or distribution.
Preclinical testing includes laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the safety and efficacy of the
product. Preclinical tests must be conducted in compliance with good laboratory
practice regulations. The results of preclinical tests are submitted to the FDA
as part of an IND. Unless the FDA objects to an IND, the IND will become
effective 30 days following its receipt by the FDA. In addition, the FDA may, at
any time, impose a clinical hold on an ongoing trial, requiring the suspension
of the trial until the agency authorizes its re-commencement. There can be no
assurance that submission of an IND will result in FDA authorization to commence
clinical trials or that FDA authorization will lead to ultimate FDA approval of
a marketing application for the product.
Clinical trials involve the administration of the investigational product to
human subjects under the supervision of qualified principal investigators.
Clinical trials must be conducted in accordance with good clinical practices
under protocols submitted to the FDA as part of the IND. In addition, each
clinical trial must be approved and conducted under the auspices of an
Institutional Review Board, which will consider, among other things, ethical
factors, the safety of the human subjects and the potential liability of the
institution conducting the investigation.
Clinical trials ordinarily are conducted in three sequential phases and
generally take an average of five years, but may take longer. In some cases the
phases may overlap. Phase I represents the initial introduction of the drug to a
small group of healthy subjects to test for safety, dosage tolerance, and the
essential characteristics of the drug. Phase II involves studies in a limited
number of patients to test the safety and efficacy of the drug at different
dosages. Phase III trials involve large-scale evaluation of safety and
effectiveness, usually (though not necessarily) in comparison with a placebo or
an existing treatment. The results of the preclinical and clinical testing are
submitted to the FDA in the NDA. In some cases, the FDA may require additional
trials to be conducted following marketing approval to confirm safety and
effectiveness. There can be no assurance that Phase I, Phase II or Phase III
testing will be completed successfully within any specified time period, if at
all, with respect to any potential products that may be developed by RiboGene,
its collaborators or future collaborators. Furthermore,
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the FDA may suspend clinical trials at any time if it decides that patients are
being exposed to a significant health risk.
All data obtained from a comprehensive development program are submitted as
an NDA to the FDA. Although the FDA is required by law to review applications
within 180 days of their filing, in practice longer times are typically
required. Review generally takes an average of at least 15 months but may take
longer. The FDA frequently requests that additional information be submitted
requiring significant additional review time.
Any potential products of RiboGene will be subject to demanding and
time-consuming NDA or similar approval procedures in countries where RiboGene
intends to market its products. Regulations vary country by country. The process
of obtaining required FDA marketing approvals, including a review of
manufacturing process and facilities used to produce the products, can be
costly, time consuming and subject to unanticipated delays. The FDA may refuse
to approve an application if it believes that applicable regulatory criteria are
not satisfied. The FDA may also require additional testing of a drug product as
a condition of marketing approval. There can be no assurance that approvals of
any potential products that may be developed by RiboGene and its collaborative
partners will be granted on a timely basis, if at all. Even if granted,
marketing approval will be limited to specific therapeutic indications, and
RiboGene and its collaborative partners will be subject to periodic inspection
for compliance with good manufacturing practices and other applicable regulatory
requirements relating to labeling, advertising, record keeping, and reporting to
FDA of adverse experiences and other information.
In order to export any drug outside of the United States prior to FDA
approval to market in the United States, RiboGene must submit an export permit
application to the FDA. Whether or not FDA approval is obtained, approval of a
potential product by comparable regulatory authorities may be necessary in other
countries prior to marketing the product in such countries. The review and
approval procedures vary from country to country, can involve additional testing
and the time required may differ from that required for FDA approval. In
addition, product licensing, pricing and reimbursement requirements vary widely
from country to country. There can be no assurance that RiboGene will meet and
sustain any of these requirements.
RiboGene's research and development activities involve the controlled use of
hazardous materials, chemicals and various radioactive materials. RiboGene is
subject to federal, state and local laws and regulations governing the use,
storage, handling and disposal of these materials and certain waste products.
Although RiboGene believes that its safety procedures for handling and disposing
of these materials comply with the standards prescribed by state and federal
laws and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of this type of an
accident, RiboGene could be held liable for any damages that result and any
liability could exceed the resources of RiboGene.
FACILITIES
RiboGene currently leases approximately 30,000 square feet of laboratory and
office space in Hayward, California under a lease expiring in November 2012,
that provides for annual rent of approximately $531,000, which includes
amortization of $2.0 million of tenant improvements paid by the landlord.
RiboGene has sublet 5,000 square feet of this facility through February 28,
2001. In connection with the lease, RiboGene issued to the landlord a six-year
warrant to purchase 17,850 shares of RiboGene common stock at $31.51 per share.
LEGAL PROCEEDINGS
RiboGene is not subject to any material legal proceedings.
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RIBOGENE SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected historical financial information of RiboGene has been
derived from RiboGene's historical financial statements, and should be read in
conjunction with the financial statements and the notes, which are included in
this prospectus/joint proxy statement.
The selected historical financial information of RiboGene as of and for the
years ended December 31, 1994, 1995, 1996, 1997 and 1998 has been derived from
the financial statements audited by Ernst & Young LLP, independent auditors. The
selected historical financial information provided below relating to RiboGene
for the six months ended June 30, 1998 and 1999 is derived from the unaudited
financial statements of RiboGene. In RiboGene's management's opinion, all
adjustments, which consist of normal recurring adjustments, considered necessary
for fair presentation of interim financial information have been included.
Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999.
The financial statement data provided below should be read in conjunction
with, and is qualified in its entirety by reference to, the financial statements
and the related notes included elsewhere in this prospectus/joint proxy
statement "RiboGene Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract research........................ $ -- $ -- $ 1,112 $ 1,668 $ 2,569 $ 1,388 $ 1,003
Grants................................... 238 407 975 1,303 594 403 --
Royalty revenue.......................... -- -- -- -- -- -- 4
--------- --------- --------- --------- --------- --------- ---------
Total revenues............................. 238 407 2,087 2,971 3,163 1,791 1,007
Total operating expenses................... 11,633 7,421 5,668 7,077 10,329 3,615 7,564
--------- --------- --------- --------- --------- --------- ---------
Loss from operations....................... (11,395) (7,014) (3,581) (4,106) (7,166) (1,824) (6,557)
Interest income (expense), net............. (42) (240) (282) (7) 605 (35) 380
--------- --------- --------- --------- --------- --------- ---------
Net loss................................... (11,437) (7,254) (3,863) (4,113) (6,561) (1,859) (6,177)
Deemed dividend upon conversion of
preferred stock.......................... -- -- -- -- (7,989) (7,989) --
--------- --------- --------- --------- --------- --------- ---------
Net loss attributable to common
stockholders............................. $ (11,437) $ (7,254) $ (3,863) $ (4,113) $ (14,550) $ (9,848) $ (6,177)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share--basic and diluted...... $ (300.97) $ (164.86) $ (52.92) $ (41.13) $ (4.49) $ (10.59) $ (1.09)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in computing net loss per
share-- basic and diluted................ 38 44 73 100 3,244 930 5,660
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.............................. $ 4,416 $ 1,897 $ 1,981 $ 2,167 $ 29,518 $ 18,696 $ 25,693
Working capital (deficit).................. 2,133 (1,762) (954) (1,745) 26,261 15,864 20,911
Total assets............................... 5,105 2,404 2,657 4,312 31,820 20,110 28,256
Long-term obligations...................... 3,192 2,656 1,494 477 5,718 379 6,198
Accumulated deficit........................ (20,467) (27,721) (31,584) (35,697) (42,258) (37,556) (48,435)
Total stockholders' equity (deficit)....... (504) (4,029) (1,956) (162) 22,755 16,573 17,131
</TABLE>
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RIBOGENE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. RiboGene's and the combined company's actual results
could differ materially from those discussed below. Factors that could cause or
contribute to these differences include, but are not limited to, those discussed
in the sections entitled "Risk Factors," and "Business of RiboGene," as well as
those discussed elsewhere in this prospectus/joint proxy statement.
OVERVIEW
Up until the time of the announcement of the merger with Cypros, RiboGene
was a drug discovery company focused on the identification of novel lead
compounds and the development of potential drug candidates for the treatment of
infectious diseases. RiboGene has refocused its efforts and modified its
strategy emphasizing its clinical development program on Emitasol and its drug
antibacterial discovery efforts RiboGene was founded in May 1989 to develop
laboratory equipment for cell-free protein synthesis. In January 1993, RiboGene
discontinued development of the lab equipment and began to focus its research
and development efforts on the identification of novel lead compounds and the
development of potential drug candidates for the treatment of infectious
diseases. Simultaneously with the shift in focus to infectious disease drug
discovery, in 1993 and later in 1994, RiboGene in-licensed and acquired the
rights to in-process research and development, including patents and other
intellectual property related to intranasal formulations and the corresponding
administration of metoclopramide, propranolol and specific benzodiazepines. One
of the potential products acquired by RiboGene was Emitasol, an intranasal
formulation of metoclopramide for the treatment of diabetic gastroparesis and
the prevention of emesis (nausea and vomiting) following chemotherapy. In April
1999, RiboGene's marketing partner, Crinos Industria Farmacobiologics S.p.A.
launched an intranasal metaclopramide spray in Italy under the trade name
Pramidin. RiboGene anticipates that royalty revenues in Italy from the sale of
this product line will not be significant.
In July 1998, RiboGene entered into an option and license agreement with
Roberts Pharmaceutical Corporation for the development of Emitasol. In addition,
Roberts Pharmaceutical made a $10 million equity investment in RiboGene by
purchasing 1,428,572 shares of Series A non-voting preferred stock at $7.00 per
share. Under the terms of the option and license agreement, Roberts
Pharmaceutical will conduct clinical trials using Emitisol and, if those are
successful, submit a New Drug Application for Emitasol. If FDA regulatory
approval is obtained, Roberts Pharmaceutical will have 60 days to exercise an
option for an exclusive license to market Emitasol in North America. Roberts
Pharmaceutical has agreed to make a payment to RiboGene of up to $10 million
upon the exercise of the option and to pay a royalty on product sales. RiboGene
will provide up to, but not in excess of, $7 million in funding for the
development of Emitasol through the completion of Phase III trials and the
submission of a New Drug Application, with the balance, if any, provided by
Roberts Pharmaceutical.
RiboGene has generated no revenue for the direct sales of products and has
generated only $4,000 in royalty revenues and, through June 30, 1999, has
incurred cumulative net losses of approximately $48.4 million and, at June 30,
1999, had net stockholders' equity of $17.1 million. RiboGene expects to incur
significant operating losses over the next several years due primarily to
product acquisitions, expanded development efforts, preclinical and clinical
testing of its product candidates and commercialization activities. RiboGene
does not anticipate significant revenues from product sales for a number of
years, if ever. RiboGene's sources of revenues for the next several years will
be payments from strategic collaborations, if any, royalties and interest
income. Specific payments under collaborations are or will be contingent upon
RiboGene or its collaborators achieving specific milestones as to which there
can be no assurance that the milestones will be achieved. Results of operations
may vary significantly from quarter to quarter depending on, among other
factors, the progress of RiboGene's research and development efforts, results of
clinical testing, the timing of
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expenses, the establishment of collaborative research agreements and the receipt
of grants or milestone payments.
RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
For the six month period ended June 30, 1999, RiboGene's revenues consisted
of $1.0 million of research support revenues earned from the Dainippon
collaboration and $4,000 in royalty revenues from the initial sales of Pramidin
in Italy. For the six-month period ended June 30, 1998, RiboGene's revenues
consisted of $1.4 million in revenues earned from the collaboration agreements
with Abbott and Dainippon and $403,000 in federal grants. Revenue earned from
the Abbott collaboration, which ended on April 13, 1998, was $556,000 for the
six-month period ended June 30, 1998. Further revenue earned under the Dainippon
collaboration, which began in February 1998, was $832,000 for the six-month
period ended June 30, 1998. The revenues earned under the awarded research
grants were completed in August of 1998. Revenues earned under research grants
are determined by the timing of the award from the issuing agency. As a result,
research grant revenue earned in one period is not predictive of research grant
revenue to be earned in future periods.
Research and development expenses were $5.2 million for the six months ended
June 30, 1999, compared to $2.6 million for the six months ended June 30, 1998.
This $2.6 million, or 98% increase resulted from the commencement of Emitisol
development activities, personnel and supply costs, relating to the
establishment of RiboGene's medicinal chemistry capabilities, and non-cash
charges for the deferred compensation relating to stock options granted to
employees and consultants during 1997 and 1998. Research and development
expenses represented approximately 68% of total operating expenses of $7.6
million in the six months ended June 30, 1999, as compared to 72% of total
operating expenses of $3.6 million in the six month period ended June 30, 1998.
General and administrative expenses were $2.4 million for the six months
ended June 30, 1999, compared to $1.0 million for the six months ended June 30,
1998. The $1.4 million or 137% increase was due to additional operating costs
associated with RiboGene's status as a publicly held company, travel,
consultants, legal and other professional services associated with increased
business development activities, forgiveness of debt to officers and directors,
non cash charges for deferred compensation relating to stock options and
warrants granted to employees and consultants.
For the six months ended June 30, 1999, RiboGene reported net interest
income of $380,000 as compared to interest expenses of $35,000 for the six month
ended June 30, 1998. This interest income results from interest earned in the
investment of proceeds from RiboGene's initial public offering, concurrent
private placement, bank borrowing and sale of preferred stock, which occurred in
1998.
The net loss for the six-month period ended June 30, 1999 was $6.2 million,
compared with $1.9 million for the six-month period ended June 30, 1998. The
$4.3 million, or $233% increase resulted from the changes in revenue and
operating expenses discussed above.
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
For the year ended December 31, 1998, RiboGene's revenues consisted of
revenues from collaboration agreements and federal grants from the National
Institutes of Health. Revenue earned under the Dainippon collaboration, which
began in February 1998, amounted to $1.8 million for the year ended December 31,
1998. Revenue earned under the Abbott collaboration agreement was $736,000 and
$1.7 million for the years ended December 31, 1998 and 1997, respectively. The
Abbott collaboration agreement ended in April 1998. Revenues from federal grants
for the year ended December 31, 1998 were $594,000 as compared to $1.3 million
in the year ended December 31, 1997. The decrease in grant revenues results from
the completion of three grants during 1997 and four grants
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during 1998. Revenues earned under research grants are determined by the timing
of the award from the issuing agency and services performed by RiboGene. As a
result, research grant revenue earned in one period is not predictive of
research grant revenue to be earned in future periods.
Research and development expenses increased $3.2 million or 77%, to
approximately $7.3 million for the year ended December 31, 1998, from $4.1
million in the year ended December 31, 1997. This increase resulted from
equipment and facility costs associated with RiboGene's new laboratories and
recruiting and other costs for the addition of research personnel to expand
medicinal chemistry capabilities and the anti-infective drug discovery programs.
RiboGene also recorded a $747,000 one-time non-cash charge to research and
development expense in 1998 upon the issuance of 230,000 shares of RiboGene's
common stock to Dainippon. RiboGene also initiated its development effort with
Roberts on Emitasol in the fall of 1998. Research and development expenses
represented approximately 71% of total operating expenses of $10.3 million in
the year ended December 31, 1998, as compared to 58% of total operating expenses
of $7.1 million in the year ended December 31, 1997.
General and administration expenses increased $1.5 million, or 96%, to $3.0
million for the year ended December 31, 1998, from $1.6 million in the year
period ended December 31, 1997. This increase is due to additional operating
costs associated with RiboGene's new facility, increased business development
costs, and additional internal staff, legal, accounting, and reporting costs
associated with public company status.
RiboGene recognized net interest income of $605,000 for the year ended
December 31, 1998 compared to net interest expense of $7,000 for the year ended
December 31, 1997. This change results from interest income earned on the
short-term investment of the proceeds from RiboGene's initial public offering
and the equity investment from Roberts Pharmaceutical.
The net loss for the year ended December 31, 1998 was $6.6 million an
increase of $2.5 million, or 60%, from the net loss of $4.1 million for the year
ended December 31, 1997. The increase resulted from the changes in revenue and
operating expenses discussed above.
RiboGene recorded a deemed dividend of $8.0 million in 1998 upon conversion
of Series F preferred stock to common stock concurrent with the closing of
RiboGene's initial public offering. The Series F preferred stock contained
anti-dilution provisions that resulted in the holders of Series F preferred
stockholders receiving an additional 1,141,317 shares of common stock upon
conversion.
As of December 31, 1998, RiboGene had a federal net operating loss
carryforward of approximately $34.8 million available to offset future taxable
income, if any. RiboGene also had federal research and development tax credit
carryforwards of approximately $575,000 and state development tax credit
carryforwards of $375,000. The net operating loss carryforward will begin to
expire incrementally at various dates beginning from 2004 through 2018, if not
utilized. Utilization of the net operating losses and credits may be subject to
substantial annual limitation due to the change in ownership provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization. See Note 7 of RiboGene's Notes to Financial Statements.
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
For the year ended December 31, 1997, RiboGene's revenues consisted of
revenues from the Abbott agreements and federal grants. Revenues earned under
the Abbott agreements were $1.7 million for the year ended December 31, 1997, as
compared to $1.1 million for the year ended December 31, 1996. The increase is
attributable to RiboGene's research support payments beginning in May 1996 and,
as a result, the 1996 period includes only eight months of support revenue as
compared to 12 months of support revenue during 1997. Revenues from the federal
grants for the year ended December 31, 1997 were $1.3 million as compared to
$975,000 for the year ended December 31, 1996.
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The increase in grant revenue results from the funding of two grants that were
awarded in the fourth quarter of 1996. Revenues earned under research grants are
determined by the timing of the award from the issuing agency. As a result,
research grant revenue earned in one period is not predictive of research grant
revenue to be earned in future periods.
Research and development expenses were $4.1 million in 1997 compared to $4.3
million in 1996. Although RiboGene discontinued the external activities
involving Emitasol and RG-201 in 1996, research and development expenses in 1997
remained the same as compared to 1996 due to an increase in RiboGene's
scientific staff to support its infectious disease drug discovery programs.
Research and development expenses represented approximately 58% of total
operating expenses of $7.1 million in 1997 as compared to 76% of total operating
expenses of $5.7 million in 1996.
General and administrative expenses increased $179,000, or 13%, to $1.6
million in 1997, from $1.4 million in 1996. This increase was the result of
additional administrative costs associated with a 1997 increase in RiboGene's
scientific staff.
Financial advisory costs consist of a one-time, non-cash charge of $1.3
million, and $96,000 of accrued expenses, which were recognized as an expense
upon the signing of a financial advisory agreement in June 1997 with a placement
agent who assisted RiboGene with the issuance of the Series F preferred stock.
The $1.3 million one-time, non-cash charge for financial advisory costs
represents the fair value of options issued to the placement agent under the
financial advisory agreement.
Net interest expense decreased $275,000, or 98%, to $7,000 in 1997, from
$282,000 in 1996. This decrease resulted from the repayment of debt and
conversion of promissory notes issued to some of RiboGene's investors in 1996.
The net loss for the year ended December 31, 1997 was $4.1 million, an
increase of $250,000, or 6%, from the net loss of $3.9 million for 1996, due to
the changes in revenue and operating expenses discussed above. The net loss of
$4.1 million included the $1.4 million one-time charge, $1.3 million of which is
non-cash, described above for expense associated with the signing of the
financial advisory agreement with the Series F placement agent. Exclusive of the
$1.4 million charge, the net loss would have decreased by $1.1 million or 30%
from $3.9 million to $2.7 million.
LIQUIDITY AND CAPITAL RESOURCES
RiboGene has financed its operations since inception primarily through
public offerings of common stock, private sales of common stock and preferred
stock, warrants, federal grants, collaborations, the issuance of short-term
convertible notes and equipment financing arrangements. Through June 30, 1999,
RiboGene has raised approximately $67.4 million from the sale of common stock
and preferred stock, warrants and short-term convertible notes, $3.5 million
from federal grants and $6.4 million from corporate collaborations. RiboGene's
capital expenditures and payments under capital lease obligations aggregate
approximately $3.1 million through June 30, 1999, and cash used to fund
operating activities since inception totaled $34.8 million.
At June 30, 1999, RiboGene had cash and cash equivalents and short-term
investments of approximately $25.7 million and working capital of $20.9 million.
Net cash used in operations was $3.9 million for the six months ended June 30,
1999, compared to cash used of $1.6 million for the six months ended June 30,
1998. The increase of $2.3 million was primarily due to increased research and
development and general and administrative expenses discussed above. RiboGene
has a policy of investing excess funds in investment grade, interest-bearing
securities primarily with an expected maturity of one-and-one-half years or
less.
RiboGene will require substantial additional funds to continue and expand
its development activities, conduct preclinical studies and expand
administrative capabilities. RiboGene estimates that at
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its planned rate of spending, existing cash and cash equivalents, and the
interest income earned on those funds proceeds, will be sufficient for the
purposes specified in this prospectus/joint proxy statement and to allow
RiboGene to maintain its current and planned operations, including compliance
with compensating balance covenant requirements, into the second half of 2000.
There can be no assurance, however, that RiboGene's assumptions regarding its
future level of expenditures and operating losses will prove to be accurate.
RiboGene's future funding requirements will depend on many factors, including
(1) any expansion or acceleration and the breadth of RiboGene's research and
development programs; (2) the results of research and development, preclinical
studies and clinical trials conducted by RiboGene or its collaborative partners
or licensees; (3) the acquisition and licensing of technologies or compounds;
(4) RiboGene's ability to maintain existing and establish new corporate
relationships and research collaborations; (5) RiboGene's ability to manage
growth; (6) competing technological and market developments; (7) the time and
costs involved in filing, prosecuting, defending and enforcing patent and
intellectual property claims; (8) the receipt of licensing or milestone fees
from its current or future collaborative and license arrangements, if
established; (9) the continued funding of governmental research grants; (10) the
timing of regulatory approvals. On August 4, 1999, RiboGene entered into a
definitive merger agreement with Cypros. RiboGene expects that, pending approval
by the stockholders of RiboGene and the shareholders of Cypros and satisfaction
or waiver of conditions to the merger, the merger will close by the end of 1999.
RiboGene anticipates that it will consolidate its operations with those of
Cypros and eliminate any redundant functions including facilities and general
and administration capabilities. In conjunction with the merger, RiboGene may
decide to divest, spin-off or eliminate some or all of its drug discovery
programs. Prior to June 30, 1999, RiboGene had active drug discovery programs
focusing on bacterial, fungal and viral infections. After the end of the
quarter, RiboGene has focused all of its drug discovery efforts on
antibacterials.
IMPACT OF YEAR 2000 ISSUE
The year 2000 issue refers to the inability of older computer hardware and
software to accept four-digit codes for the year field in a set of data.
Beginning in the year 2000, four-digit codes will be necessary to distinguish
between 1900 base-year dates and 2000 base-year dates. The inability to
recognize a date using "00" as the year 2000 rather than the year 1900 could
result in a system failure or miscalculations causing disruptions in RiboGene's
operations or activities, including, among other things, RiboGene's research and
development efforts.
RiboGene has developed a formal plan to address this issue including a
complete inventory and assessment of all systems. The plan's objective is to
ensure an uninterrupted transition into year 2000.
In conjunction with the above described plan, RiboGene has completed its
assessment with respect to its critical systems and at this time has not
uncovered any reason for it to believe that these systems critical to the core
business will not function properly with respect to dates in the years 1999,
2000 and beyond. Additionally, in connection with its move to new facilities
late in 1997, RiboGene improved, upgraded and replaced many of its systems.
Based on written representations from manufacturers of these systems, RiboGene
believes that these new systems are year 2000 compliant.
While RiboGene believes all systems critical to its core business are now
year 2000 compliant, RiboGene anticipates having the remainder of the internal
systems year 2000 compliant by the fall of 1999. To date, RiboGene has incurred
minimal expenses related to year 2000 compliance. Currently, however, RiboGene
has no contingency plans in place in the event it does not fully complete its
year 2000 readiness program by such time.
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MARKET RATE RISK
RiboGene's exposure to market rate risk for changes in interest rates
relates primarily to RiboGene's investment portfolio and bank borrowings.
RiboGene does not use derivative financial instruments in its investment
portfolio. RiboGene places its investment with high quality issuers and follows
internally developed guidelines to limit the amount of credit exposure to any
one issuer. Additionally, in an attempt to limit interest rate risk, RiboGene
follows guidelines to limit the average and longest single maturity dates.
RiboGene is averse to principal loss and ensures the safety and preservation of
its invested funds by limiting default, market and reinvestment risk. RiboGene's
investments include money market accounts, commercial paper and corporate notes,
and all of those investments held in RiboGene's portfolio as of December 31,
1998, mature in 1999 and 2000.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT OF CYPROS
The following table provides information regarding the beneficial ownership
of Cypros common stock as of September 20, 1999 by (1) all persons known by
Cypros to own beneficially 5% or more of the outstanding shares of Cypros common
stock, (2) each director of Cypros, (3) the Chief Executive Officer of Cypros
and Cypros' other executive officers each of whose aggregate compensation during
the fiscal year ended July 31, 1999 exceeded $100,000, and (4) all officers and
directors of Cypros as a group. Except as otherwise indicated, Cypros believes
that the beneficial owners of Cypros common stock listed below, based on
information furnished by the owners, have sole investment and voting power with
respect to the shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE OF
NAME AND ADDRESS OWNED TOTAL
- -------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
President and Fellows of Harvard College
c/o Harvard Management Company, Inc.
600 Atlantic Avenue
Boston, MA 02210............................................ 1,637,500 10.4%
Paul J. Marangos(1)
2714 Loker Avenue West
Carlsbad, California 92008.................................. 1,554,411 9.9%
Bernard B. Levine
P.O. Box 2635
La Jolla, CA 92038-2635..................................... 1,273,082 8.1%
David W. Nassif(2)............................................ 170,374 1.1%
Robert A. Vukovich(3)......................................... 139,124 *
Digby W. Barrios(4)........................................... 104,124 *
Zofia E. Dziewanowska(5)...................................... 95,156 *
Brian W. Sullivan(6).......................................... 47,916 *
Virgil D. Thompson(7)......................................... 43,438 *
Robert F. Allnutt(8).......................................... 31,960 *
All officers and directors, as a group (9 persons)(9)......... 2,203,169 13.4%
</TABLE>
- --------------------------
* Less than one percent.
(1) Includes 3,124 shares issuable upon options exercisable within 60 days.
(2) Includes 3,958 shares issuable upon options exercisable within 60 days.
(3) Includes 1,376 shares issuable upon options exercisable within 60 days.
(4) Includes 1,376 shares issuable upon options exercisable within 60 days.
(5) Includes 4,740 shares issuable upon options exercisable within 60 days.
(6) Includes 1,563 shares issuable upon options exercisable within 60 days.
(7) Includes 2,418 shares issuable upon options exercisable within 60 days.
(8) Includes 1,876 shares issuable upon options exercisable within 60 days.
(9) Includes 24,597 shares issuable upon options exercisable within 60 days.
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BENEFICIAL SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT OF RIBOGENE
The following table provides information regarding the ownership of RiboGene
common stock as of September 15, 1999 by: (1) each stockholder who is known by
RiboGene to own beneficially more than 5% of RiboGene common stock; (2)
RiboGene's Chief Executive Officer and the other executive officers of RiboGene
each of whose aggregate compensation during the fiscal year ended December 31,
1998 exceeded $100,000; (3) each director of RiboGene; and (4) all directors and
executive officers of RiboGene as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED(1)
-----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------------------------------------------ ---------- -----------
<S> <C> <C>
Dr. Lindsay Rosenwald(2) ............................................... 1,235,948 19.17%
787 Seventh Avenue
New York, NY 10019
Abbott Laboratories .................................................... 682,495 11.80%
100 Abbott Park Road
Abbott Park, IL 60064
The Aries Trust(3) ..................................................... 487,343 8.26%
787 Seventh Avenue
New York, NY 10019
Digby Barrios(4)........................................................ 4,777 *
Charles J. Casamento(5)................................................. 273,262 4.59%
Laura S. Lehman(6)...................................................... 37,316 *
Timothy E. Morris(7).................................................... 91,957 1.58%
Frank J. Sasinowski(8).................................................. 2,500 *
Jon S. Saxe(9).......................................................... 4,775 *
Roger G. Stoll, Ph.D.(10)............................................... 2,500 *
All executive officers and directors as a group (7 persons)(11)......... 417,087 6.92%
</TABLE>
- --------------------------
* Less than one percent
(1) Calculated in accordance with Rule 13d-3 promulgated under the Exchange Act
based on 5,783,954 shares of capital stock outstanding as of September 15,
1999.
(2) Includes 480,378 shares issuable upon exercise of outstanding placement
agent unit options, 368,596 shares held by The Aries Trust and 202,870
shares by the Aries Fund. Also includes 118,747 shares issuable upon
exercise of outstanding RiboGene Class A Warrants and placement agent unit
options held by The Aries Trust and 65,357 shares issuable upon exercise of
RiboGene Class A Warrants and placement agent unit options held by the
Aries Fund. Dr. Rosenwald is the general partner of the Aries Fund and the
investment manager to The Aries Trust. Dr. Rosenwald disclaims beneficial
ownership of the securities held by the Aries Fund and The Aries Trust,
except to the extent of his pecuniary interest therein, if any.
(3) Includes 118,747 shares issuable upon the exercise of RiboGene Class A
Warrants and placement agent unit options held by The Aries Trust.
(4) Consists of options to purchase 4,777 shares exercisable within 60 days of
September 15, 1999.
(5) Includes 7,274 shares held by various family members of Mr. Casamento that
Mr. Casamento may be deemed to beneficially own; 47,444 shares subject to
repurchase as of September 15, 1999; and options to the purchase of 173,180
shares exercisable within 60 days of September 15, 1999.
(6) Includes 26,890 shares subject to repurchase as of September 15, 1999. Ms.
Lehman resigned from RiboGene as of July 31, 1999.
(7) Includes 26,084 shares subject to repurchase as of September 15, 1999 and
options to purchase 54,460 shares exercisable within 60 days of September
15, 1999. Mr. Morris intends to resign from RiboGene effective as of
October 1, 1999.
(8) Consists of options to purchase 2,500 shares exercisable within 60 days of
September 15, 1999.
(9) Includes options to purchase 1,741 shares exercisable within 60 days of
September 15, 1999.
(10) Consists of options to purchase 2,500 shares exercisable within 60 days of
September 15, 1999.
(11) See footnotes (4)--(10) for the beneficial ownership of RiboGene's
executive officers and directors.
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DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF CYPROS CAPITAL STOCK
The authorized capital stock of Cypros consists of 30,000,000 shares of
common stock and 1,000,000 shares of preferred stock. As of the record date,
there were 15,735,007 shares of Cypros common stock outstanding held
beneficially by approximately 2,400 shareholders and no shares of Cypros
preferred stock outstanding. Cypros' common stock is listed on the AMEX under
the symbol CYP.
CYPROS COMMON STOCK. Holders of Cypros common stock are entitled to one
vote per share on all matters to be voted upon by the shareholders. Subject to
preferences that may be applicable to any outstanding Cypros preferred stock,
the holders of Cypros common stock are entitled to receive ratably any
dividends, as may be declared from time to time by the Cypros board of directors
out of legally available funds. In the event of a liquidation, dissolution or
winding up of Cypros, the holders of Cypros common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
liquidation rights of Cypros preferred stock, if any. The Cypros common stock
has no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to the Cypros common stock.
All outstanding shares of Cypros common stock are fully paid and non-assessable,
and the shares of Cypros common stock to be issued and outstanding upon
consummation of the merger will be fully paid and non-assessable.
CYPROS PREFERRED STOCK. The Cypros board has the authority to issue the
shares of Cypros preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed on any unissued
and undesignated shares of Cypros preferred stock and to fix the number of
shares constituting a series and the designations of the series, without any
further vote or action by the shareholders. Cypros has designated all of the
1,000,000 shares of Cypros preferred stock as Series A preferred stock, with no
shares of Cypros Series A preferred stock outstanding. Cypros is soliciting
Cypros shareholder approval of the amendment of its articles of incorporation
that would, among other things, authorize an aggregate of 7,500,000 shares of
Cypros preferred stock. The amendment will also designate shares of Cypros
Series A preferred stock for issuance in the merger. The number shares
designated as Cypros Series A preferred stock will be determined as of the day
prior to the date of the Cypros special meeting. Although it presently has no
intention to authorize or issue any other series of Cypros preferred stock, upon
approval of the amendment to the articles of incorporation, the Cypros board,
without shareholder approval, would be able to issue up to the remaining shares
of Cypros preferred stock with voting and conversion and other rights,
preferences and privileges which could adversely affect the voting power or
other rights of the holders of Cypros common stock. The issuance of Cypros
preferred stock may also have the effect of delaying, deferring or preventing a
change in control of Cypros. For a description of the rights, preferences and
privileges of the Cypros Series A preferred stock, see "Amendment to the
Articles of Incorporation."
The Cypros board may issue additional shares of Cypros common stock and if
the amendment of the articles of incorporation is approved, designate and issue
one or more classes or series of Cypros preferred stock, having the number of
shares, up to the amount of the difference between the total Cypros preferred
stock authorized and the number of designated Cypros Series A preferred stock
shares, designations, relative voting rights, dividend rates, liquidation and
other rights, preferences and limitations as determined by the Cypros board
without shareholder approval. The board's ability to so designate and issue
additional preferred stock could impede a takeover or change in control of
Cypros, that shareholders might view as being in their best interests.
CYPROS TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for
the Cypros common stock is American Securities Transfer & Trust, Inc.
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DESCRIPTION OF RIBOGENE CAPITAL STOCK
RiboGene's authorized capital stock consists of 30,000,000 shares of common
stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par
value $0.001 per share. As of September 15, 1999, 5,783,954 shares of RiboGene
common stock were issued and outstanding and 1,428,572 shares of RiboGene
preferred stock were issued and outstanding.
COMMON STOCK. The holders of RiboGene common stock are entitled to one vote
per share on all matters submitted to a vote of stockholders. Cumulative voting
rights for the election of directors is not authorized by RiboGene's charter,
which means that the holders of a majority of the votes can elect all of the
directors then standing for election. Subject to the preferences of RiboGene
preferred stock, the holders of RiboGene common stock are entitled to receive a
proportional distribution of any dividends that may be declared by RiboGene's
board of directors. In the event of liquidation, dissolution or winding up of
RiboGene, holders of RiboGene common stock are entitled to share equally in all
assets remaining after payment of liabilities and the liquidation preference to
any holders of RiboGene preferred stock. Holders of RiboGene common stock have
no preemptive, subscription, redemption, conversion or other subscription
rights, and there are no sinking fund provisions applicable to the RiboGene
common stock. All currently outstanding shares of RiboGene common stock are duly
authorized, validly, issued, fully paid and nonassessable.
PREFERRED STOCK. RiboGene's charter authorizes RiboGene's board of
directors to issue up to 5,000,000 shares of RiboGene preferred stock in one or
more series. RiboGene's board of directors previously designated 1,428,572
shares of RiboGene preferred stock as RiboGene Series A preferred stock, all of
which were issued to Roberts Pharmaceutical Corporation. The board of directors
of RiboGene is authorized to issue up to an additional 3,571,428 shares of
RiboGene preferred stock without additional stockholder approval. RiboGene's
board of directors may also fix the rights of any unissued shares of RiboGene
preferred stock and fix the number of shares of any series as well as the
designations of the series.
The holders of RiboGene Series A preferred stock are entitled to receive
non-cumulative dividends payable when, as and if declared by RiboGene's board of
directors. In the event of any liquidation, dissolution or winding up of
RiboGene, the holders of RiboGene Series A preferred stock will be entitled to
receive, prior to any distribution of any of the assets of RiboGene to the
holders of RiboGene common stock, an amount equal to $7.00 per share plus all
declared but unpaid dividends, if any. Each holder of RiboGene Series A
preferred stock currently has the right to convert, at its option, one-third of
the shares of RiboGene Series A preferred stock then held by the holder and an
additional one-third of the shares of RiboGene Series A preferred stock on each
of December 1, 1999 and December 1, 2000. Each share of RiboGene Series A
preferred stock is convertible into one share of RiboGene common stock, subject
to adjustments for stock splits, stock dividends or combinations of outstanding
shares of RiboGene common stock. The RiboGene Series A preferred stock has no
voting rights. RiboGene has granted Roberts Pharmaceutical rights to include
shares of RiboGene common stock issuable upon conversion of the RiboGene Series
A preferred stock in future registrations of RiboGene common stock, as well as
the right to demand RiboGene to register the shares of RiboGene common stock,
subject to specific conditions.
WARRANTS. At August 31, 1999, there were warrants outstanding to purchase
(1) an aggregate of 50,000 shares of RiboGene common stock at an exercise price
of $2.50, (2) an aggregate of 50,000 shares of RiboGene common stock at an
exercise price of $3.00 per share, (3) an aggregate of 50,000 shares of RiboGene
common stock at exercise of $4.20 per share, (4) an aggregate of 25,000 shares
of RiboGene common stock at an exercise price of $6.00 per share, (5) an
aggregate of 1,931 shares of common stock at an exercise price of $11.65, (6) an
aggregate of 16,838 shares of common stock at an exercise price of $15.14, (7)
an aggregate of 20,111 shares of RiboGene common stock at an exercise price of
$31.51 per share, and (8) an aggregate of 230,000 shares of RiboGene common
stock at an
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exercise price of $11.55 per share. In addition, RiboGene has 2,282,663
outstanding Class A warrants exercisable into an aggregate of 162,967 shares of
RiboGene common stock at an exercise price per share of $7.00. Each warrant
contains provisions for the adjustment of the exercise price and the aggregate
number of shares issuable upon the exercise of the warrant under specific
circumstances, including stock dividends, stock splits, reorganizations,
reclassification and consolidations. Each warrant may be exercised, without the
payment of cash, for an adjusted number of shares of RiboGene common stock. The
warrants have terms expiring from August 1999 to March 2007. Warrant holders
have also been granted registration rights under specific circumstances.
At August 31, 1999, 508,643 placement agent unit options were outstanding,
at an exercise price of $1.24 per placement agent unit option. Each placement
agent unit option entitles the holder to purchase shares of RiboGene common
stock and a Class A warrant. The Class A warrants expire in June 2003. The
placement agent unit options expire in December 2007. The aggregate number of
shares of RiboGene common stock issuable upon exercise of the placement agent
unit options is 654,008. An aggregate of 40,739 Class A warrants are issuable
upon exercise of the placement agent unit options.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER AND BYLAW PROVISIONS. The following
summary description of the provisions of the Delaware General Corporation Law
and RiboGene's certificate of incorporation and bylaws is not intended to be
complete. You should read each of these documents carefully.
Under RiboGene's charter, RiboGene's board of directors has the authority to
issue up to 5,000,000 shares of RiboGene preferred stock and to determine the
powers, rights, preferences and privileges of those shares without any further
vote or action by RiboGene's stockholders. RiboGene's Board of Directors
previously designated 1,428,572 shares of RiboGene preferred stock as RiboGene
Series A preferred stock. The rights of the holders of RiboGene common stock
will be subject to, and may be adversely affected by, the rights of the holders
of the RiboGene Series A preferred stock and any other RiboGene preferred stock
that may be issued in the future. See "--Preferred Stock" for further discussion
of the rights, preferences and privileges of the RiboGene Series A preferred
stock.
RiboGene is subject to the provisions of Section 203 of the Delaware General
Corporation Law. Section 203 prohibits a publicly-held Delaware corporation from
engaging in a business combination with an interested stockholder for a period
of three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. A business combination includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder.
Subject to exceptions, an interested stockholder is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock.
RiboGene's charter also provides that any action required or permitted to be
taken by the stockholders of RiboGene at an annual meeting or special meeting of
stockholders may only be taken if properly brought before the meeting and may
not be taken by written action in lieu of a meeting. RiboGene's charter further
provides that special meetings of the stockholders may only be called by the
Chairman of the RiboGene board of directors, the Chief Executive Officer, the
RiboGene board of directors or by any person or persons holding at least 10% of
the outstanding capital stock. This provision may discourage another person or
entity from making a tender offer for RiboGene common stock, because the person
or entity, even if it acquired a majority of the outstanding voting securities
of RiboGene, would be able to take action as a stockholder, such as electing new
directors or approving a merger, only at a duly called stockholders meeting, and
not by written consent. Under RiboGene's bylaws, in order for any matter to be
considered properly brought before a meeting, a stockholder must comply with
specific requirements regarding advance notice to RiboGene. This provision could
have
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the effect of delaying until the next stockholders meeting stockholder actions
which are favored by holders of a majority of the outstanding voting securities
of RiboGene.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. RiboGene's charter and bylaws require the
affirmative vote of the holders of at least two-thirds of the shares of capital
stock of RiboGene issued and outstanding and entitled to vote to amend or repeal
any of the provisions described in the prior paragraph. RiboGene's charter
contains provisions permitted under the General Corporation Law of Delaware
relating to the liability of directors. The provisions eliminate a director's
liability for monetary damages for a breach of fiduciary duty, except in some
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. Further, RiboGene's charter contains provisions to
indemnify RiboGene's directors and officers to the fullest extent permitted by
the General Corporation Law of Delaware. RiboGene believes that these provisions
assist RiboGene in attracting and retaining qualified individuals to serve as
directors.
TRANSFER AGENT AND REGISTRAR. The transfer agent for the RiboGene common
stock is American Stock Transfer & Trust Company, 40 Wall Street, New York, New
York 10005. RiboGene acts as the transfer agent for the RiboGene preferred
stock.
COMPARISON OF SHAREHOLDERS' RIGHTS
The rights of Cypros shareholders are governed by Cypros' articles of
incorporation, bylaws, and the California Corporations Code. The rights of
RiboGene stockholders are currently governed by RiboGene's certificate of
incorporation, its bylaws and the General Corporation Law of Delaware. Upon
consummation of the merger, RiboGene stockholders will become shareholders of
Cypros with their rights as shareholders governed by the California Corporations
Code and Cypros' articles of incorporation and bylaws.
The following is a summary of similarities and differences between the
rights of Cypros shareholders and RiboGene stockholders under the foregoing
governing documents and applicable law. This summary does not purport to be a
complete statement of similarities and differences. The identification of
specific similarities and differences is not meant to indicate that other
equally or more significant similarities and differences do not exist. The
similarities and differences can be examined in full by reference to the
California Corporations Code, the General Corporation Law of Delaware and the
respective corporate documents of Cypros and RiboGene.
CAPITAL STOCK. The authorized capital stock of Cypros consists of
30,000,000 shares of common stock, no par value, of which 15,735,007 shares were
issued and outstanding on September 15, 1999, and 1,000,000 shares of preferred
stock, no par value, issuable in such series and with such rights, powers and
privileges as the Cypros Board shall determine. Cypros' articles of
incorporation authorize 1,000,000 shares as Series A preferred stock but
currently there are no shares of preferred stock outstanding and Cypros has no
present plan to issue any shares of Cypros preferred stock other than in
connection with the merger. If the amendment to Cypros' articles of
incorporation is approved by Cypros' shareholders, the authorized capital stock
of Cypros will consist of 75,000,000 shares of common stock, no par value and
7,500,000 shares of preferred stock, no par value. The authorized capital stock
of RiboGene consists of 30,000,000 shares of common stock, $.001 par value, of
which 5,788,016 shares were issued and outstanding on September 15, 1999, and
5,000,000 shares of preferred stock, $.001 par value, issuable in a series and
with the rights, powers and privileges as the RiboGene board determines.
RiboGene has designated 1,428,572 shares of RiboGene preferred stock as Series A
preferred stock, all of which are issued and outstanding.
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AMENDMENT OF BYLAWS. Under the General Corporation Law of Delaware, bylaws
may be amended by the holders of a majority of the outstanding shares entitled
to vote. However, a corporation may also confer the power to amend bylaws upon
the directors. The fact that such power has been so conferred upon the directors
does not divest the shareholders of their power to amend the bylaws. The
RiboGene bylaws state that they may be amended by the affirmative vote of at
least two-thirds of the voting stock or by the RiboGene board. Under the
California Corporations Code and the Cypros bylaws, the Cypros bylaws may be
amended or repealed either by the Cypros board or by the holders of at least a
majority in interest of the outstanding shares of Cypros entitled to vote or by
the Cypros board, except that under the Cypros bylaws a change in the authorized
number of directors may only be effected by a vote of at least a majority of the
outstanding shares entitled to vote.
AMENDMENT OF CYPROS ARTICLES OF INCORPORATION AND RIBOGENE'S CERTIFICATE OF
INCORPORATION. The General Corporation Law of Delaware provides that approval
of a majority of the outstanding stock entitled to vote thereon is required to
amend a certificate of incorporation. An amendment of the RiboGene charter must
be approved by the affirmative vote of at least a majority in interest of the
outstanding shares of stock entitled to vote. However, the affirmative vote of
at least two-thirds of all of the outstanding stock entitled to vote is required
to amend specific provisions of the RiboGene charter that relate to the election
of directors, amendment of the RiboGene bylaws, and the number of and election
or renewal of directors. Under the California Corporations Code, a corporation's
articles of incorporation may be amended by the approval of a majority of the
outstanding shares.
SPECIAL MEETINGS OF SHAREHOLDERS AND STOCKHOLDERS. Under the General
Corporations Law of Delaware, a special meeting of stockholders may be called by
the board of directors or by any other person authorized to do so in the
certificate of incorporation or the bylaws. The RiboGene charter permits a
special meeting to be called for any purpose by (1) the Chairman of the RiboGene
board, (2) the President, (3) the RiboGene board under a resolution adopted by a
majority of the total number of authorized directors, whether or not there exist
any vacancies in previously authorized directorships at the time the resolution
is presented to the RiboGene board for adoption or (4) by the holders of the
shares entitled to cast not less than ten percent of the votes at the meeting.
Under the California Corporations Code and the Cypros bylaws, a special
meeting of shareholders of Cypros may be called by the board of directors, the
Chairman of the board of directors, the President, a Vice President, the
Secretary of Cypros or the holders of shares entitled to cast not less than ten
percent of the votes of the meetings and the persons which are authorized by the
articles of incorporation or bylaws.
ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS OR STOCKHOLDERS. Under the
General Corporation Law of Delaware, unless otherwise provided in the RiboGene
charter, any action which may be taken at a meeting of stockholders may be taken
without a meeting and without prior notice if written consents for the action so
taken are signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take the action
at a meeting at which all stock entitled to vote were present and voted.
However, the RiboGene charter provides that following the closing of the initial
public offering of RiboGene, no action shall be taken by the stockholders by
written consent. RiboGene completed an initial public offering in May 1998.
Under the California Corporations Code, shareholders may execute an action
by written consent in lieu of a shareholder meeting. The Cypros bylaws provide
that any action which may be taken at a meeting of shareholders may be taken
without a meeting and without prior notice if written consents for the action so
taken are signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take the action
at a meeting at which all shares entitled to vote were present and voted. The
Cypros bylaws provide further that directors may not be elected by written
consent except by unanimous written consent of all shares entitled to vote for
the election of directors. However, any vacancy on the Cypros board may be
filled
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by written consent of a majority of the outstanding shares of Cypros entitled to
vote for the election of directors.
SIZE OF THE BOARD OF DIRECTORS. The General Corporation Law of Delaware
provides that the board of directors of a Delaware corporation must consist of
one or more members. The number of directors may be fixed by, or in the manner
provided in, the corporation's bylaws unless the certificate of incorporation
fixes the number of directors. The RiboGene certificate of incorporation
requires that the number of directors will be fixed exclusively by one or more
resolutions by the board of directors. The number of directors of RiboGene is
currently fixed at five.
The California Corporations Code allows the number of persons constituting
the board of directors to be fixed by the bylaws or the articles of
incorporation, or permits the bylaws to provide that the number of directors may
vary within a specified range, the exact number to be determined by the board of
directors. The California Corporations Code further provides that, in the case
of a variable board, the maximum number of directors may not exceed two times
the minimum number minus one. The Cypros bylaws currently provide that the
number of directors of Cypros will not be less than four nor more than seven.
The number of Cypros directors presently authorized is seven. Upon Cypros
shareholder approval of the proposal to amend the bylaws as described in this
prospectus/joint proxy statement, the Cypros bylaws will provide that the number
of directors of Cypros will not be less than four nor more than nine and that
the number of directors then authorized will be nine.
CLASSIFICATION OF BOARD OF DIRECTORS. The General Corporation Law of
Delaware permits, but does not require, a classified board of directors, divided
into as many as three classes with staggered terms under which one-half or
one-third of the directors are elected for terms of two or three years,
respectively. The California Corporations Code generally requires that directors
be elected annually but does permit a classified board of directors if the
corporation is listed. A listed corporation is defined under the California
Corporations Code as one which (1) is listed on the New York Stock Exchange or
American Stock Exchange or (2) with a class of securities designated as a
national market system security on and by the National Association of Securities
Dealers Automatic Quotation System if the corporation has at least 800 holders
of its equity securities. If eligible for the classes, the California
Corporations Code permits corporations to provide for a board of directors
divided into as many as three classes by adopting an amendment to their articles
of incorporation or bylaws, which amendment must be approved by the
shareholders. The size of the classes must be as even as possible, and any
change in number of classes must be approved by the shareholders. The RiboGene
certificate of incorporation and RiboGene bylaws provide that following the
closing of the initial public offering of RiboGene, the directors are divided
into a classified board. RiboGene completed an initial public offering in May
1998. The Cypros bylaws do not provide for a classified board.
CUMULATIVE VOTING. Under the General Corporation Law of Delaware,
cumulative voting in the election of directors is not available unless
specifically provided for in the certificate of incorporation. There is no
provision for cumulative voting in the RiboGene certificate of incorporation.
However, under the California Corporations Code, cumulative voting in the
election of directors is mandatory upon notice given by a shareholder at a
shareholders' meeting at which directors are to be elected. To cumulate votes, a
shareholder must give notice at the meeting, prior to the voting, of the
shareholder's intention to vote cumulatively. If any one shareholder gives such
a notice, all shareholders may cumulate their votes. The California Corporations
Code permits a company, by amending its articles of incorporation or bylaws, to
eliminate cumulative voting when the company is listed. The Cypros bylaws permit
any person entitled to vote at an election for directors to cumulate the votes
to which the person is entitled. However, no shareholder is entitled to cumulate
his, her or its votes unless the candidates for which the shareholder is voting
have been placed in nomination prior to the voting and a shareholder has given
notice at the meeting, prior to the vote, of an intention to cumulate votes.
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REMOVAL OF DIRECTORS. Under the General Corporation Law of Delaware, a
director of a corporation with a classified board of directors may be removed
only for cause, unless the certificate of incorporation otherwise provides. A
director of a corporation that does not have a classified board of directors or
cumulative voting may be removed with the approval of a majority of the
outstanding shares entitled to vote with or without cause. The RiboGene
certificate of incorporation provides that the board of directors or any
individual director may be removed from office at any time with cause by the
affirmative vote of the holders of the majority of the voting power of all the
outstanding stock entitled to vote thereon or without cause by the affirmative
vote of the holders of at least two-thirds of the outstanding stock entitled to
vote. Under the California Corporations Code, a director may be removed with or
without cause by the affirmative vote of a majority of the outstanding shares,
provided that the shares voted against removal would not be sufficient to elect
the director by cumulative voting. In addition, when, by the provisions of the
articles of incorporation, the holders of shares of a class or series, voting as
a class or series, are entitled to elect one or more directors, any director so
elected may be removed only by the applicable vote of holders of shares of that
class or series.
FILLING VACANCIES IN THE BOARD OF DIRECTORS. Under the General Corporations
Law of Delaware, vacancies may be filled by a majority of the directors then in
office (even though less than a quorum) unless otherwise provided in the
certificate of incorporation or bylaws. The General Corporations Law of Delaware
further provides that if, at the time of filling any vacancy, the directors then
in office constitute less than a majority of the board (as constituted
immediately prior to any increase), the Delaware Court of Chancery may, upon
application of any holder or holders of at least ten percent of the total number
of the outstanding stock having the right to vote for directors, summarily order
a special election be held to fill the vacancy or to replace directors chosen by
the board to fill the vacancies. The RiboGene certificate of incorporation holds
that any vacancies on the RiboGene board resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors, will, unless the
RiboGene board determines the vacancies should be filled by the stockholders, be
filled only by the affirmative vote of the majority of the directors then in
office, even though less than a quorum of the board of directors, and not by
stockholders.
Under the California Corporations Code, any vacancy on the board of
directors other than one created by removal of a director may be filled by the
board. If the number of directors in office is less than a quorum, a vacancy may
be filled by the unanimous written consent of the directors then in office, by
the affirmative vote of a majority of the directors at a properly noticed
meeting or by a sole remaining director. A vacancy created by removal of a
director may be filled by the board only if so authorized by a corporation's
articles of incorporation or by a bylaw approved by a corporation's
shareholders. Furthermore, if, after the filling of any vacancy by the directors
of a corporation, the directors then in office who have been elected by the
corporation's shareholders constitute less than a majority of the directors then
in office, then: (1) any holder of more than 5% of the corporation's voting
stock may call a special meeting of shareholders, or (2) the superior court of
the appropriate county may order a special meeting of the shareholders to elect
the entire board of directors of the corporation. The Cypros bylaws provide that
the shareholders may elect a director at any time to fill any vacancy not filled
by the directors. Any election by written consent, other than to fill a vacancy
created by removal, requires the consent of a majority of the outstanding shares
entitled to vote. Any election by written consent to fill a vacancy created by
removal requires the consent of all of the outstanding shares entitled to vote.
PAYMENT OF DIVIDENDS. The General Corporations Law of Delaware permits a
corporation to declare and pay dividends out of statutory surplus or, if there
is no surplus, out of net profits for the fiscal year in which the dividend is
declared and for the preceding fiscal year as long as the amount of capital of
the corporation following the declaration and payment of the dividend is not
less than the aggregate amount of capital represented by the issued and
outstanding stock of all classes having a
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preference upon the distribution of assets. In addition, the General
Corporations Law of Delaware generally provides that a corporation may redeem or
repurchase its shares only if the redemption or repurchase would not impair the
capital of the corporation. The RiboGene bylaws provide for the declaration of
dividends in accordance with the General Corporations Law of Delaware. The
RiboGene bylaws also provide that the RiboGene board may set aside as a reserve
any funds the RiboGene board believes necessary prior to the payment of
dividends. Under the California Corporations Code, any dividends or other
distributions to shareholders, such as redemptions, are limited to the greater
of (1) retained earnings or (2) an amount which would leave the corporation with
assets (excluding specified intangible assets) equal to at least 125% of its
liabilities (excluding specified deferred items) and current assets equal to at
least 100% (or, in specified circumstances, 125%) of its current liabilities.
APPRAISAL RIGHTS. Under both the California Corporations Code and the
General Corporation Law of Delaware, a shareholder of a corporation
participating in specific major corporate transactions may, under varying
circumstances, be entitled to appraisal (or dissenters') rights under which the
shareholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transaction. Under the General Corporation Law of Delaware, those rights are not
available (1) with respect to the sale, lease or exchange of all or
substantially all of the assets of a corporation, (2) with respect to a merger
or consolidation by a corporation, the shares of which are either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or are held of record by more than 2,000 holders if the
shareholders receive only shares of the surviving corporation or shares of any
other corporation which are either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders, plus cash in lieu of fractional shares, or (3) to
stockholders of a corporation surviving a merger if no vote of the stockholders
of the surviving corporation is required to approve the merger because the
merger agreement does not amend the existing certificate of incorporation, each
share of the surviving corporation outstanding prior to the merger is an
identical outstanding or treasury share after the merger, and the number of
shares to be issued in the merger does not exceed 20% of the shares of the
surviving corporation outstanding immediately prior to the merger and if other
conditions are met.
Shareholders of a California corporation whose shares are listed on a
national securities exchange or on a list of over-the-counter margin stocks
issued by the Board of Governors of the Federal Reserve System generally do not
have appraisal rights unless the holders of at least 5% of the class of
outstanding shares claim the right or unless the corporation or any law
restricts the transfer of the shares. Appraisal rights are unavailable, however,
if the shareholders of a corporation or the corporation itself, or both,
immediately after the reorganization will own equity securities constituting
more than five-sixths of the voting power of the surviving or acquiring
corporation or its parent entity.
INSPECTION OF BOOKS AND RECORDS. Under the General Corporation Law of
Delaware, any stockholder may inspect, for any proper purpose, a company's stock
ledger, a list of its stockholders and any other books and records. Under the
California Corporations Code and the Cypros bylaws, shareholders holding at
least 5% in aggregate of the outstanding voting shares of a corporation or who
hold at least 1% of those voting shares and have filed a Schedule 14A with the
SEC, shall have the absolute right to do either or both of the following: (1)
inspect and copy the record of shareholders' names and addresses and
shareholdings during usual business hours upon five days' prior written demand
upon the corporation, or (2) obtain from the transfer agent for the corporation,
upon written demand and upon tender of its usual charges for the list, a list of
shareholders' names and addresses, who are entitled to vote for election of
directors and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder after the date
of demand. The accounting books and records and minutes of proceedings of
shareholders and the Cypros
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board and committees of the Cypros board are open to inspection upon the written
demand on the corporation of any shareholder or holder of a voting trust
certificate at any reasonable time during usual business hours, for a purpose
reasonably related to the holder's interests as a shareholder or as the holder
of the voting trust certificate.
LIMITATION OF LIABILITY OF DIRECTORS. The laws of both Delaware and
California permit corporations to adopt a provision in their certificate of
incorporation or articles of incorporation, as the case may be, eliminating,
with specified exceptions, the personal liability of a director to the
corporation or its shareholders for monetary damages for breach of the
director's fiduciary duty as a director. Under the General Corporation Law of
Delaware, RiboGene may not eliminate or limit director monetary liability for:
- breaches of the director's duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or involving intentional misconduct or
a knowing violation of law;
- unlawful dividends, stock repurchases or redemptions; or
- transactions from which the director received an improper personal
benefit.
This limitation of liability provision also may not limit a director's
liability for violation of, or otherwise relieve directors from the necessity of
complying with federal or state securities laws, or affect the availability of
nonmonetary remedies such as injunctive relief or rescission. The RiboGene
certificate of incorporation eliminates the liability of the RiboGene board to
the fullest extent permissible under the General Corporation Law of Delaware.
The California Corporations Code does not permit the elimination of monetary
liability where the liability is based on:
- intentional misconduct or knowing and culpable violation of law;
- acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders, or that involve the
absence of good faith on the part of the director;
- receipt of any improper personal benefit;
- acts or omissions that show reckless disregard for the director's duty to
the corporation or its shareholders, where the director in the ordinary
course of performing a director's duties should have been aware of a risk
of serious injury to the corporation or its shareholders;
- acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders;
- interested transactions between the corporation and a director, in which a
director has a material financial interest; or
- liability for improper distributions, loans or guarantees. The Cypros
articles of incorporation eliminate the liability of the Cypros board to
the fullest extent permissible under California law.
INDEMNIFICATION. The General Corporation Law of Delaware generally permits
indemnification of expenses incurred in the defense or settlement of a
derivative or third-party action, provided there is a determination by a
disinterested quorum of the directors, by independent legal counsel or by the
stockholders, that the person seeking indemnification acted in good faith and in
a manner reasonably believed to be in or (in contrast to the California
Corporations Code) not opposed to the best interests of the corporation and,
with respect to a criminal proceeding, which the person had no reasonable cause
to believe his or her conduct was unlawful. Without court approval, however, no
indemnification may be made in respect of any derivative action in which the
person is adjudged liable to the
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corporation. The General Corporation Law of Delaware requires indemnification of
expenses when the individual being indemnified has successfully defended the
action on the merits or otherwise. The RiboGene bylaws state RiboGene will
indemnify the RiboGene board to the fullest extent not prohibited by the General
Corporation Law of Delaware. However, the corporation may modify the extent of
the indemnification by the individual contracts with its directors and executive
officers; provided that the corporation will not be required to indemnify any
director or officer in connection with any proceeding initiated by that person
unless (1) the indemnification is expressly required to be made by law, (2) the
proceeding was authorized by the RiboGene board, (3) the indemnification is
provided by RiboGene, in its sole discretion, under the powers vested in
RiboGene under the General Corporation Law of Delaware, or (4) the
indemnification is required to be made under other portions of the RiboGene
bylaws.
The California Corporations Code permits indemnification of expenses
incurred in derivative or third-party actions, except that with respect to
derivative actions (1) no indemnification may be made when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines the person is
entitled to indemnity for expenses, and then the indemnification may be made
only to the extent that the court determines, and (2) no indemnification may be
made without court approval in respect of amounts paid in settling or otherwise
disposing of an action or expenses incurred in defending an action which is
settled or otherwise disposed of without court approval.
Indemnification is permitted by the California Corporations Code only for
acts taken by the person seeking indemnification in good faith and believed to
be in the best interests of the corporation and its shareholders and with
respect to a criminal proceeding, which the person had no reasonable cause to
believe his conduct was unlawful, as determined by a majority vote of a quorum
of disinterested directors, independent legal counsel (if a quorum of
disinterested directors is not obtainable), a majority vote of a quorum of the
shareholders (excluding shares owned by the indemnified party), or the court
handling the action. The California Corporations Code requires indemnification
when the individual has successfully defended the action on the merits.
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws
or other corporate actions beyond that specifically authorized by law. The
Cypros bylaws include provisions that require Cypros to indemnify its directors
and executive officers to the fullest extent permitted by California law. The
Cypros bylaws also provide Cypros with the authority to indemnify its other
officers, employees and other agents as set forth in the California Corporations
Code.
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STOCKHOLDER AND SHAREHOLDER APPROVAL OF CERTAIN BUSINESS
COMBINATIONS. Section 203 of the General Corporation Law of Delaware prohibits
a corporation from engaging in a business combination with an interested
stockholder for three years following the date that the person becomes an
interested stockholder. With some exceptions, an interested stockholder is a
person or entity who or which owns 15% or more of the corporation's outstanding
voting stock, including any rights to acquire stock under an option, warrant,
agreement, arrangement or understanding, or upon the exercise of conversion or
exchange rights, and stock with respect to which the person has voting rights
only, or is an affiliate or associate of the corporation and was the owner of
15% or more of the voting stock at any time within the previous three years.
For purposes of Section 203, the term business combination is defined
broadly to include mergers of the corporation or a subsidiary with or caused by
the interested stockholder, sales or other dispositions of the interested
stockholder, except proportionately with the corporations other stockholders, of
assets of the corporation or a subsidiary equal to ten percent or more of the
aggregate market value of the corporation's consolidated assets or its
outstanding stock, the issuance or transfer by the corporation or a subsidiary
of stock of the corporation to the interested stockholder except for transfers
in a conversion or exchange or a pro rata distribution or other specific
transactions, none of which increase the interested stockholder's proportionate
ownership of any class or series of the corporation's stock, or receipt by the
interested stockholder, except proportionately as a stockholder, directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if:
- prior to the date at which the stockholder becomes an interested
stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder;
- the interested stockholder owns 85% of the corporation's voting stock upon
consummation of the transaction which made him or her an interested
stockholder, excluding from the number of shares outstanding those shares
owned by directors who are also officers of the target corporation and
shares held by employee stock plans which do not permit employees to
decide confidentially whether to accept a tender or exchange offer; or
- on or after the date the person becomes an interested stockholder, the
board approves the business combination and it is also approved at a
stockholder meeting by two-thirds of the voting stock not owned by the
interested stockholder.
Section 203 does not apply if the business combination is proposed prior to
the consummation or abandonment of and subsequent to the earlier of the public
announcement or a 20-day notice required under Section 203 of the proposed
transaction which:
- constitutes some (1) mergers or consolidations, (2) sales or other
transfers of assets having an aggregate market value equal to 50% or more
of the aggregate market value of all of the assets of the corporation
determined on a consolidated basis or the aggregate market value of all
the outstanding stock of the corporation, or (3) proposed tender or
exchange offer for 50% or more of the corporation's outstanding voting
stock;
- is with or by a person who was either not an interested stockholder during
the last three years or who became an interested stockholder with the
approval of the corporation's board of directors; and
- is approved or not opposed by a majority of the board members elected
prior to any person becoming an interested stockholder during the previous
three years, or their chosen successors.
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There is no equivalent provision to Section 203 in California. Under Section
1203 of the California Corporations Code, specified types of business
combinations with interested shareholders are subject to specified conditions,
including a requirement that a fairness opinion must be obtained and delivered
to the corporation's shareholders. The California Corporations Code requires
that holders of a California Corporation's common stock receive nonredeemable
common stock in a merger of the corporation with the holder, or an affiliate of
the holder, of more than 50% but less than 90% of its common stock, unless all
of the holders of its common stock consent to the transaction.
STOCKHOLDER AND SHAREHOLDER VOTING ON MERGERS AND SIMILAR TRANSACTIONS. The
laws of both California and Delaware generally require that a majority of the
shareholders of both acquiring and target corporations approve statutory
mergers. The General Corporation Law of Delaware does not require a stockholder
vote of the surviving corporation in a merger, unless the corporation provides
otherwise in its certificate of incorporation, if (1) the merger agreement does
not amend the existing certificate of incorporation, (2) each share of stock of
the surviving corporation outstanding before the merger is an identical
outstanding or treasury share after the merger, and (3) the number of shares to
be issued by the surviving corporation in the merger does not exceed 20% of the
shares outstanding immediately prior to the merger. The California Corporations
Code contains a similar exception to its voting requirements for reorganizations
where shareholders or the corporation itself, or both, immediately prior to the
reorganization will own immediately after the reorganization equity securities
constituting more than five-sixths of the voting power, assuming the conversion
of convertible equity securities, of the surviving or acquiring corporation or
its parent entity.
The laws of both California and Delaware also generally require that a sale
of all or substantially all of the assets of a corporation be approved by a
majority of the voting shares of the corporation transferring the assets.
With limited exceptions, the California Corporations Code also requires that
mergers, reorganizations, and similar transactions be approved by a majority
vote of each class of shares outstanding. In contrast, the General Corporation
Law of Delaware generally does not require class voting, except for amendments
to the certificate of incorporation that change the number of authorized shares
or the par value of shares of a specific class or that adversely affect the
class of shares.
LOANS TO DIRECTORS, OFFICERS AND EMPLOYEES. The General Corporation Law of
Delaware and the RiboGene bylaws permit RiboGene to make loans to, guarantee the
obligations of, or otherwise assists its officers or other employees when that
action, in the judgment of the directors, may reasonably be expected to benefit
RiboGene. The RiboGene bylaws also provide that this assistance may be with or
without interest and may be unsecured, or secured in the manner as the RiboGene
board shall approve, including, without limitation, a pledge of shares of stock
of RiboGene.
Under the California Corporations Code, any loan to or guaranty for the
benefit of a director or officer, including pursuant to an employee benefit
plan, of the corporation requires approval of holders of a majority of the
outstanding shares of the corporation. However, the California Corporations Code
provides that if a corporation has 100 or more shareholders of record, the
Cypros board alone may approve loans to or guaranties on behalf of an officer,
whether or not the officer is a director, or adopt an employee benefit plan
authorizing the loans or guarantees, by a vote sufficient without counting the
vote of any interested director or directors, if the Cypros board determines
that the loan, guaranty or plan may reasonably be expected to benefit the
corporation.
INTERESTED DIRECTOR TRANSACTIONS. Under the laws of both California and
Delaware, contracts or transactions between a corporation and one or more of its
directors or between a corporation and any other entity in which one or more of
its directors are directors or have a financial interest, are not void or
voidable because of the interest or because the director is present at a meeting
of the board which authorizes or approves the contract or transaction, provided
that specific conditions, such as obtaining
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the required approval and fulfilling the requirements of good faith and full
disclosure, are met. With specific exceptions, the conditions are similar under
the California Corporations Code and the General Corporation Law of Delaware.
Under the California Corporations Code and the General Corporation Law of
Delaware, either (1) the shareholders or the board of directors must approve the
contract or transaction in good faith after full disclosure of the material
facts and, in the case of board approval other than for a common directorship,
the California Corporations Code requires that the contract or transaction must
also be just and reasonable to the corporation, or (2) the contract or
transaction must have been fair (in Delaware) or, in the case of a common
directorship (in California), just and reasonable as to the corporation at the
time it was approved. The California Corporations Code explicitly places the
burden of proof of the just and reasonable nature of the contract or transaction
on the interested director.
Under the General Corporations Law of Delaware, if board approval is sought,
the contract or transaction must be approved by a majority of the disinterested
directors, even though less than a majority of a quorum. Under the California
Corporations Code, if shareholder approval is sought, the interested director is
not entitled to vote his or her shares at a shareholder meeting with respect to
any action regarding the contract or transaction. If board approval is sought,
the contract or transaction must be approved by a majority vote of a quorum of
the directors, without counting the vote of any interested directors, except
that interested directors may be counted for purposes of establishing a quorum.
SHAREHOLDER DERIVATIVE SUIT. Under the General Corporation Law of Delaware,
a person may only bring a derivative action on behalf of the corporation if the
person was a stockholder of the corporation at the time of the transaction in
question or his or her stock devolved upon him or her by operation of law after
the transaction. The California Corporations Code provides that a shareholder
bringing a derivative action on behalf of a corporation need not have been a
shareholder at the time of the transaction in question, provided that specific
criteria are met. The California Corporations Code also provides that the
corporation or the defendant in a derivative suit may, under specific
circumstances, make a motion to the court for an order requiring the plaintiff
shareholder to furnish a security bond. Delaware does not have a similar bonding
requirement.
DISSOLUTION. Under the General Corporation Law of Delaware, if the
dissolution is initiated by the board of directors it may be approved by the
holders of a majority of the corporation's shares. If the board of directors
does not approve the proposal to dissolve, it must be consented to in writing by
all stockholders entitled to vote. Under the California Corporations Code,
shareholders holding 50% or more of the total voting power may authorize a
corporation's dissolution, with or without the approval of the corporation's
board of directors. The board may cause the corporation to dissolve if (1) an
order for relief under Chapter 7 of the Federal bankruptcy law has been entered,
(2) no shares have been issued or (3) the corporation has disposed of all of its
assets and has not conducted any business for a period of five years preceding
the adopting of a resolution to dissolve.
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ADDITIONAL MATTERS FOR CONSIDERATION BY
CYPROS SHAREHOLDERS
Approval by the Cypros shareholders of all the proposals submitted for
approval by Cypros in this prospectus/joint proxy statement will be required to
complete the merger. If any Cypros proposal is not approved by the Cypros
shareholders, then the merger will not occur. THE CYPROS BOARD BELIEVES THAT THE
MERGER AND RELATED TRANSACTIONS ARE IN THE BEST INTERESTS OF CYPROS AND THE
CYPROS SHAREHOLDERS AND THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
MERGER PROPOSAL AND EACH OF THE OTHER PROPOSALS DESCRIBED BELOW.
AMENDMENT TO THE ARTICLES OF INCORPORATION
As a condition precedent to RiboGene's obligation to complete the merger,
Cypros is required to amend its articles of incorporation. Cypros shareholders
are requested to specifically approve the amendment of the Cypros articles of
incorporation to:
- change the name of Cypros to Questcor Pharmaceuticals, Inc.
- increase the authorized shares of Cypros common stock to 75,000,000,
- increase the authorized shares of Cypros preferred stock to 7,500,000,
- designate the number of shares of, and the rights, preferences and
privileges of Cypros Series A preferred stock, and
- authorize the board of directors to designate the rights, preferences and
privileges of additional shares of Cypros preferred stock.
CHANGE IN CYPROS' NAME
Cypros shareholders are requested to specifically approve the amendment to
Cypros' articles of incorporation to change the name of the company from Cypros
to Questcor Pharmaceuticals, Inc.
The Cypros board believes that the proposed new name of the company will
better reflect the combined capabilities of Cypros and RiboGene, and will be an
easily recognizable name for the combined company.
INCREASE IN AUTHORIZED COMMON STOCK AND PREFERRED STOCK AND BOARD AUTHORIZATION
TO DESIGNATE RIGHTS OF AND ISSUE PREFERRED STOCK
An increase in the authorized capital stock of Cypros is necessary to create
a sufficient number of shares of Cypros common stock and Cypros Series A
preferred stock for issuance in connection with the merger and for issuance of
Cypros common stock upon exercise of RiboGene stock options and warrants assumed
by Cypros in the merger. In addition, the additional authorized capital stock,
including the ability to designate the rights, preferences and privileges of
additional shares of Cypros preferred stock, will provide the board of directors
with additional flexibility to use its capital stock for business and financial
purposes in the future. The shares may be used, without further shareholder
approval, for various purposes, including, without limitation, raising capital,
providing equity incentives to employees, officers, directors and consultants,
establishing strategic relationships with other companies and expanding the
combined company's business through the acquisition of other businesses.
Under the Cypros articles of incorporation, no shareholder is entitled to
preemptive rights in respect of any future issuances of capital stock, and no
preemptive rights are contemplated in the proposed amendment. Except for the
issuance of shares of stock in connection with the merger and the amendment of
its stock option plans, Cypros does not presently contemplate seeking
shareholder
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approval for any future issuance of capital stock unless required to do so by an
obligation imposed by applicable law, a regulatory authority or a third party.
The additional shares of capital stock that would become available for
issuance if the amendment of the Cypros articles of incorporation is approved
could also be used by Cypros to oppose a hostile takeover attempt or delay or
prevent changes in control or management. For example, without further
shareholder approval, the board of directors could strategically sell shares of
Cypros stock in a private transaction to purchasers who would oppose a takeover
or favor then current board of directors. Although this proposal to increase the
authorized capital stock has been prompted by the board's desire to consummate
the merger and for other business and financial considerations, and not by the
threat of any hostile takeover attempt (nor is the board currently aware of any
such attempts directed at Cypros), nevertheless, shareholders should be aware
that approval of this amendment could facilitate future efforts by Cypros to
deter or prevent changes in control of Cypros, including transactions in which
the shareholders might otherwise receive a premium for their shares over then
current market prices.
The additional Cypros common stock to be authorized by approval of the
amendment would have rights identical to the currently outstanding Cypros common
stock. The issuance of the Cypros common stock in connection with the merger
would not affect the rights of the holders of currently outstanding Cypros
common stock, except for effects incidental to increasing the number of shares
of Cypros common stock outstanding, such as dilution of the earnings per share
and voting rights of current shareholders. The shares of Cypros Series A
preferred stock would have rights substantially identical to the rights of the
RiboGene Series A preferred stock currently outstanding. The board would also
have the authority to designate the relative rights of additional shares of
Cypros preferred stock that may be issued other than in connection with the
merger.
The Cypros board of directors has reserved 2,766,288 and 350,000 shares of
Cypros common stock for issuance upon exercise of options granted under its
stock option plan and its directors' equity incentive plan, respectively. In
addition, in connection with the merger, the board has reserved, subject to
shareholder approval of the respective plan amendments, an additional 4,733,712
and 400,000 shares of Cypros common stock for issuance under the stock option
plan and the directors' equity incentive plan, respectively. The board has also
reserved shares of common stock for issuance upon exercise of RiboGene options
and warrants assumed in connection with the merger, the number of which will be
determined upon determination of the final exchange ratio.
DESIGNATION OF CYPROS SERIES A PREFERRED STOCK
Newly designated Cypros Series A preferred stock will be issued to the
holder of RiboGene Series A preferred stock in the merger. The number of shares
of Cypros Series A preferred stock will be determined on the date before the
Cypros shareholder meeting, based on the final exchange ratio. The issuance of
the Cypros Series A preferred stock in the merger will affect the relative
rights of the holders of Cypros common stock. The holders of Cypros Series A
preferred stock will have priority distribution payment of $10 million in the
event of any liquidation, dissolution or winding up of Cypros, any consolidation
or merger in which Cypros' shareholders hold less than 50% of the voting stock
of the surviving company or any sale of all or substantially all of Cypros'
assets. After this priority distribution, all remaining assets will be
distributed among the holders of Cypros common stock. Otherwise, the issuance of
the Cypros Series A preferred stock will not affect the rights of the holders of
currently outstanding Cypros common stock, except for effects incidental to
increasing the number of outstanding shares of Cypros' voting stock, such as
dilution of the earnings per share and voting rights of current shareholders.
Each share of Cypros Series A preferred stock will entitle its holder to vote
the number of shares of common into which the share of Cypros Series A preferred
stock is convertible, which will initially be one, subject to proportional
adjustments for stock splits, stock distributions and similar events.
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The full text of the proposed amended and restated articles of incorporation
is attached as Annex B to this prospectus/joint proxy statement.
Approval of the amendment of the Cypros articles of incorporation will
require the affirmative vote of the holders of a majority of the shares of
outstanding Cypros common stock. As a result, abstentions and broker non-votes
are equivalent to negative votes for purposes of approving this proposal.
THE CYPROS BOARD BELIEVES THAT APPROVAL OF THE AMENDMENT OF THE CYPROS
ARTICLES OF INCORPORATION IS IN THE BEST INTEREST OF CYPROS AND ITS SHAREHOLDERS
AND UNANIMOUSLY RECOMMENDS THAT THE CYPROS SHAREHOLDERS VOTE IN FAVOR OF THIS
PROPOSAL.
AMENDMENT TO BYLAWS
Cypros shareholders are requested to specifically approve the amendment of
the Cypros bylaws to change the number of authorized members of the board of
directors. The amendment of the bylaws, which is a condition to RiboGene's
obligation to complete the merger, changes the size of the board of directors to
permit the appointment of four new members of the board of directors upon
consummation of the merger. The full text of the bylaw amendment is provided
below. Cypros shareholders are urged to read the bylaw amendment in its
entirety.
"Section 2--Number and Qualification of Directors. The number of
directors of the Corporation shall be not less than four (4) nor more
than nine (9). The exact number of directors shall be nine (9) until
changed, within the limits specified above, by a bylaw amending this
Section 2, duly adopted by the board of directors or by the shareholders.
The indefinite number of directors may be changed, or a definite number
fixed without provision for an indefinite number, by a duly adopted
amendment to the articles of incorporation or by an amendment to this
bylaw duly adopted by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote. No amendment may
change the stated maximum number of authorized directors to a number
greater than two (2) times the stated minimum number of directors minus
one (1)."
Approval of the proposed amendment of the bylaws will require the
affirmative vote of the holders of a majority of the shares of outstanding
common stock of Cypros. As a result, abstentions and broker non-votes are
equivalent to negative votes for purposes of approving this proposal.
THE CYPROS BOARD BELIEVES THAT APPROVAL OF THE AMENDMENT OF THE CYPROS
BYLAWS IS IN THE BEST INTERESTS OF CYPROS AND ITS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT THE CYPROS SHAREHOLDERS VOTE IN FAVOR OF THIS PROPOSAL.
AMENDMENT TO 1992 STOCK OPTION PLAN
Cypros shareholders are requested to specifically approve the amendment of
the Cypros stock option plan to increase the number of shares of common stock
reserved for issuance under the stock option plan to 7,500,000. The increase in
the number of shares reserved for issuance under the stock option plan, which is
a condition precedent to RiboGene's obligation to complete the merger, will
accommodate the RiboGene stock options being assumed in the merger and provide
additional reserved shares for future issuance of the combined company.
In August 1992, the Cypros board of directors and shareholders adopted the
Cypros 1992 Stock Option Plan and reserved 500,000 shares of common stock for
issuance under it. In January 1995, the shareholders approved an increase in the
number of shares reserved under the plan to 1,000,000 and in May 1995, the
number of shares reserved increased as a result of a 2.5:1.0 stock split. In
November 1997 the Cypros board of directors adopted, and the Cypros shareholders
later approved, an
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amendment to the stock option plan to increase the number of shares authorized
for issuance it to 2,766,288 shares.
The essential features of the stock option plan are outlined below:
GENERAL
The stock option plan provides for the grant of both incentive and
nonstatutory stock options. Incentive stock options granted under the stock
option plan are intended to qualify as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986. Nonstatutory stock
options granted under the stock option plan are intended not to qualify as
incentive stock options under the Internal Revenue Code. See "--Federal Income
Tax Information" below for a discussion of the tax treatment of incentive and
nonstatutory stock options. As of September 15, 1999, options to purchase an
aggregate 1,993,479 shares were outstanding under the stock option plan, 130,122
shares had been issued upon exercise of options issued under the stock option
plan and 272,539 shares remained available for future grants under the stock
option plan. The essential features of the stock option plan are outlined below.
PURPOSE
The stock option plan was adopted to provide a means by which selected
officers and employees of and consultants to Cypros and its affiliates could be
given an opportunity to purchase stock in Cypros, to assist in retaining the
services of employees holding key positions, to secure and retain the services
of persons capable of filling such positions and to provide incentives for such
persons to exert maximum efforts for the success of Cypros.
ADMINISTRATION
The stock option plan is administered by Cypros' board of directors. The
Cypros board has the power to construe and interpret the stock option plan and,
subject to its provisions, to determine the persons to whom and the dates on
which options will be granted, the number of shares to be subject to each
option, the time or times during the term of each option within which all or a
portion of the option may be exercised, the exercise price, the type of
consideration and other terms of the option. The Cypros board of directors is
authorized to delegate administration of the stock option plan to a committee
composed of not fewer than two members of the Cypros board. The Cypros board has
delegated administration of the stock option plan to the Stock Option Committee
of the Cypros board, whose members are not eligible for options under the stock
option plan. The Compensation Committee of the board, however, determines the
number of stock options for each executive officer. In addition, the stock
option plan contains a provision granting the Cypros board the power to limit
the directors who may serve as members of the Compensation Committee and the
Stock Option Committee to those who are outside directors under Section 162(m)
of the Internal Revenue Code. As used in this prospectus/joint proxy statement
with respect to the stock option plan, the board refers to the Stock Option
Committee and the Compensation Committee, as applicable, as well as to the
Cypros board of directors itself.
ELIGIBILITY
Incentive stock options may be granted under the stock option plan only to
employees (including directors if they are also key employees) of Cypros and its
affiliates. Selected employees, directors and consultants are eligible to
receive nonstatutory stock options under the stock option plan.
No incentive stock option may be granted under the stock option plan to any
person who, at the time of the grant, owns or is deemed to own stock possessing
more than 10% of the total combined voting power of Cypros or its affiliate,
unless the option exercise price is at least 110% of the fair
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market value of the stock subject to the option on the date of grant and the
term of the option does not exceed five years from the date of grant. For stock
options granted under the stock option plan, the aggregate fair market value,
determined at the time of grant, of the shares of Cypros common stock with
respect to which the options are exercisable for the first time by an option
holder during any calendar year (under all the plans of Cypros and its
affiliates) may not exceed $100,000. In addition, the stock option plan contains
a per-employee, per-calendar year limitation on the number of options that may
be granted equal to 100,000. However, the Compensation Committee or the Stock
Option Committee may determine in some future circumstances that it would be in
the best interests of Cypros and its shareholders to grant options to purchase a
greater number of shares to a single employee during a calendar year.
COMMON STOCK SUBJECT TO THE STOCK OPTION PLAN
If options granted under the stock option plan expire or otherwise terminate
without being exercised, the Cypros common stock not purchased under the options
again becomes available for issuance under the stock option plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
stock option plan. Individual option grants may be more restrictive as to any or
all of the permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
under the stock option plan may not be less than the fair market value of the
common stock subject to the option on the date of the option grant. The exercise
price of nonstatutory options under the stock option plan may not be less than
85% of the fair market value of the common stock subject to the option on the
date of the option grant. In some cases, the exercise price of an option granted
under the stock option plan may not be less than 110% of fair market value. At
September 22, 1999, the closing price of Cypros' common stock as reported on the
AMEX was $1.9375 per share.
The exercise price of options granted under the stock option plan must be
paid either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the board (1) by delivery of other common stock of Cypros, (2)
pursuant to a deferred payment arrangement or (3) in any other form of legal
consideration acceptable to the Cypros board.
OPTION EXERCISE. Options granted under the stock option plan may become
exercisable in cumulative increments, or vest, as determined by the Cypros
board. Shares covered by currently outstanding options under the stock option
plan typically vest monthly over a 48-month period during the option holder's
employment or services as a consultant. Shares covered by options granted in the
future under the stock option plan may be subject to different vesting terms.
The Cypros board has the power to accelerate the time during which an option may
be exercised. In addition, nonstatutory options granted under the stock option
plan may permit exercise prior to vesting, but in the event the option holder
may be required to enter into an early exercise stock purchase agreement that
allows Cypros to repurchase shares not yet vested at their exercise price should
the option holder leave the employ of Cypros before vesting. To the extent
provided by the terms of an option, an option holder may satisfy any federal,
state or local tax withholding obligation relating to the exercise of the option
by a cash payment upon exercise by authorizing Cypros to withhold a portion of
the stock otherwise issuable to the option holder, by delivering already-owned
stock of Cypros or by a combination of these means.
TERM. The maximum term of options under the stock option plan is ten years,
except that in some cases the maximum term is five years. Options under the
stock option plan terminate three
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months after the termination of the option holder's employment or relationship
as a director or consultant of Cypros or its affiliate unless (a) the
termination of employment is due to the person's permanent and total disability,
as defined in the Internal Revenue Code, in which case the option may, but need
not, provide that it may be exercised at any time within twelve months of the
termination; (b) the option holder dies while employed by or serving as a
consultant or director of Cypros or its affiliate, or within three months after
termination of the relationship, in which case the option may, but need not,
provide that it may be exercised, to the extent the option was exercisable at
the time of the option holder's death, within 12 months of the option holder's
death by the person or persons to whom the rights to the option pass by will or
by the laws of descent and distribution; or (c) the option by its terms
specifically provides otherwise. Individual options by their terms may provide
for exercise within a longer period of time following termination of employment
or the consulting relationship. The option term may also be extended in the
event that exercise of the option within these periods is prohibited for
specified reasons.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the stock option plan or
subject to any option granted under it, including through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise, the stock option plan and
options outstanding under the plan will be appropriately adjusted as to the
class and the maximum number of shares subject to such plan, the maximum number
of shares which may be granted to an employee during a calendar year, and the
class, number of shares and price per share of stock subject to the outstanding
options.
EFFECT OF CERTAIN CORPORATE EVENTS
The stock option plan provides that, in the event of a dissolution or
liquidation of Cypros, any outstanding options under the stock option plan will
terminate if not exercised prior to the event. The stock option plan also
provides that in the event of a specified type of merger or other corporate
reorganization, to the extent permitted by law, any surviving corporation will
be required to either assume options outstanding under the stock option plan or
substitute similar options for those outstanding under the plan, or the
outstanding options will continue in full force and effect. In the event that
any surviving corporation declines to assume or continue options outstanding
under the stock option plan, or to substitute similar options, then with respect
to options held by persons then performing services for Cypros, the vesting of
such options shall accelerate immediately before the event, but all the
accelerated options and any other outstanding options will terminate if not
exercised prior to the event.
DURATION, AMENDMENT AND TERMINATION
The Cypros board may suspend or terminate the stock option plan without
shareholder approval or ratification at any time or from time to time. Unless
sooner terminated, the stock option plan will terminate in August 2002.
The Cypros board may also amend the stock option plan at any time or from
time to time. However, no amendment will be effective unless approved by the
shareholders within twelve months before or after its adoption by the board if
the amendment would;
- modify the requirements as to eligibility for participation, to the extent
the modification requires shareholder approval in order for the 1992 Plan
to satisfy Section 422 of the Internal Revenue Code or Rule 16b-3 of the
Exchange Act;
- increase the number of shares reserved for issuance upon exercise of
options; or
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- change any other provision of the stock option plan in any other way if
the modification requires shareholder approval in order to comply with
Rule 16b-3 of the Exchange Act or satisfy the requirements of Section 422
of the Internal Revenue Code.
RESTRICTIONS ON TRANSFER
Under the stock option plan, an option may not be transferred by the option
holder otherwise than by will or by the laws of descent and distribution, except
that a nonstatutory stock option may be transferable upon the terms and
conditions as the Cypros board determines in its discretion. During the lifetime
of an option holder, an option may be exercised only by the option holder. In
addition, shares subject to repurchase by Cypros under an early exercise stock
purchase agreement may be subject to restrictions on transfer which the board
deems appropriate.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the stock option
plan are intended to be eligible for the favorable federal income tax treatment
accorded incentive stock options under the Internal Revenue Code.
There generally are no federal income tax consequences to the option holder
or Cypros by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the option
holder's alternative minimum tax liability, if any.
If an option holder holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is granted
and at least one year from the date on which the shares are transferred to the
option holder upon exercise of the option, any gain or loss on a disposition of
such stock will be long-term capital gain or loss. Generally, if the option
holder disposes of the stock before the expiration of either of these holding
periods, in which case the disposition is considered to be a disqualifying
disposition, at the time of disposition, the option holder will realize taxable
ordinary income equal to the lesser of (1) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (2) the option
holder's actual gain, if any, on the purchase and sale. The option holder's
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term or short-term depending on whether
the stock was held for more than one year. Slightly different rules may apply to
option holders who acquire stock subject to certain repurchase options or who
are subject to Section 16(b) of the Exchange Act.
To the extent the option holder recognizes ordinary income by reason of a
disqualifying disposition, Cypros will generally be entitled, subject to the
requirement of reasonableness, the provisions of Section 162(m) of the Internal
Revenue Code and the satisfaction of a tax reporting obligation, to a
corresponding business expense deduction in the tax year in which the
disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
stock option plan generally have the following federal income tax consequences:
There are no tax consequences to the option holder or Cypros by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the option holder normally will recognize taxable ordinary income equal
to the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, Cypros is required
to withhold from regular wages or supplemental wage payments an amount based on
the ordinary income recognized. Subject to the requirement of reasonableness,
the provisions of Section 162(m) of the Internal Revenue Code and the
satisfaction of a tax reporting obligation, Cypros will generally be entitled to
a business expense deduction equal to the taxable ordinary income realized by
the option holder. Upon disposition of the stock, the option holder will
recognize a capital gain or loss equal to
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the difference between the selling price and the sum of the amount paid for the
stock plus any amount recognized as ordinary income upon exercise of the option.
This gain or loss will be long or short-term depending on whether the stock was
held for more than one year. Slightly different rules apply to option holders
who acquire stock subject to repurchase options or who are subject to Section
16(b) of the Exchange Act.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. Section 162(m) of the Internal
Revenue Code denies a deduction to any publicly held corporation for
compensation paid to covered employees in a taxable year to the extent that
compensation exceeds $1 million for a covered employee. It is possible that
compensation attributable to stock options, when combined with all other types
of compensation received by a covered Cypros employee, may cause this limitation
to be exceeded in any particular year.
Some kinds of compensation, including qualified performance-based
compensation, are disregarded for purposes of the deduction limitation. Under
Section 162(m), compensation attributable to stock options will qualify as
performance-based compensation, provided that the option is granted by a
compensation committee comprised solely of outside directors, and either: (1)
the option plan contains a per-employee limitation on the number of shares for
which options may be granted during a specified period, the per-employee
limitation is approved by the shareholders, and the exercise price of the option
is no less than the fair market value of the stock on the date of grant; or (2)
the option is granted or exercisable only upon the achievement, as certified in
writing by the compensation committee, of an objective performance goal
established in writing by the compensation committee while the outcome is
substantially uncertain, and the option is approved by the shareholders.
Approval of the proposed amendment of the stock option plan will require the
affirmative vote of a majority of the shares present in person or represented by
proxy at the Cypros special meeting. Abstentions and broker non-votes are
counted towards a quorum but are not counted for any purpose in determining
whether this proposal is approved.
THE CYPROS BOARD BELIEVES THAT APPROVAL OF THE AMENDMENT OF THE STOCK OPTION
PLAN IS IN THE BEST INTERESTS OF CYPROS AND ITS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT THE CYPROS SHAREHOLDERS VOTE IN FAVOR OF THIS PROPOSAL.
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AMENDMENT TO
1993 NON-EMPLOYEE DIRECTORS' EQUITY INCENTIVE PLAN
Cypros shareholders are requested to specifically approve the amendment of
the Cypros directors' equity incentive plan to increase the number of shares of
common stock reserved for issuance under it to 750,000 and to modify the
provisions relating to acceleration of vesting upon a change in control, to
cause vesting of outstanding options to accelerate upon consummation of the
merger. The amendment to increase the number of shares reserved for issuance
under the directors' equity incentive plan, which is a condition precedent to
RiboGene's obligation to complete the merger, will accommodate the RiboGene
non-employee directors' stock options being assumed in the merger and to provide
additional reserved shares for future issuance by Cypros.
In June 1993, the Cypros board of directors adopted, and the Cypros
shareholders later approved, the directors' equity incentive plan and reserved
100,000 shares of common stock for issuance under it. In May 1995, the number of
shares reserved under the plan increased to 250,000 as a result of a 2.5 for 1
stock split of the Company's capital stock. In October 1998, the Cypros board
adopted and the Cypros shareholders later approved an amendment to the plan to
increase the aggregate number of shares authorized for issuance under the plan
to 350,000 shares and, to provide for the automatic grant to non-employee
directors of stock bonus awards comprised of $2,000 of common stock for each
Cypros board meeting attended by such director on or after the annual meeting.
GENERAL
The directors' equity incentive plan provides for the automatic grant of
nonstatutory stock options to purchase shares of Cypros common stock to
non-employee directors of Cypros. As of September 20, 1999, options to purchase
an aggregate of 261,500 shares were outstanding under the directors' equity
incentive plan, 23,130 shares had been issued as stock bonuses under the
directors' equity incentive plan, no shares had been issued upon exercise of
options issued under the directors' equity incentive plan and 65,370 shares
remained available for future grants under the directors' equity incentive plan.
The essential features of the directors' equity incentive plan are outlined
below.
PURPOSE
The purpose of the directors' equity incentive plan is to retain the
services of persons now serving as non-employee directors of Cypros, to attract
and to retain the services of persons capable of serving on the Cypros board of
directors and to provide incentives for these persons to exert maximum efforts
to promote the success of Cypros.
ADMINISTRATION
The directors' equity incentive plan is administered by the Cypros board of
directors. The Cypros board has the final authority to construe and interpret
the directors' equity incentive plan and options and stock bonus awards granted
under the directors' equity incentive plan, and to establish, amend and revoke
rules and regulations for its administration. The board is authorized to
delegate administration of the directors' equity incentive plan to a committee
of not fewer than two members of the board.
ELIGIBILITY
The directors' equity incentive plan provides that options and stock bonus
awards may be granted only to non-employee directors. A non-employee director
for purposes of the directors' equity incentive plan is defined in the plan as a
director of Cypros and its affiliates who is not otherwise an employee of Cypros
or any affiliate. Four of Cypros' five current directors are eligible to
participate in the directors' equity incentive plan. No non-employee director
who owns, directly or indirectly, shares representing 10% or more of the total
outstanding shares of any class of stock of Cypros will be eligible
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for the grant of stock options under the directors' equity incentive plan,
however, those directors will be eligible for the grant of stock bonus awards.
COMMON STOCK SUBJECT TO THE DIRECTORS' EQUITY INCENTIVE PLAN
If options granted under the directors' equity incentive plan expire or
otherwise terminate without being exercised, the common stock not purchased
pursuant to such options again becomes available for issuance under the
directors' equity incentive plan.
TERMS OF OPTIONS
Each option under the directors' equity incentive plan is subject to the
following terms and conditions:
NON-DISCRETIONARY GRANTS. Option grants under the directors' equity
incentive plan are non-discretionary. Currently, under the directors' equity
incentive plan, each non-employee director will be automatically granted an
option to purchase 25,000 shares of common stock upon becoming a member of the
board of directors. After becoming a board member, so long as the director
continues to serve on the board, on January 1 of each year, the director will be
automatically granted an option to purchase 10,000 shares of Cypros common
stock.
OPTION EXERCISE. An option granted under the directors' equity incentive
plan will vest in 48 equal monthly installments over a four-year period from the
date of grant. The vesting is conditioned upon continued service as a director
or employee of or consultant to Cypros or its affiliate.
EXERCISE PRICE; PAYMENT. The exercise price of an option granted under the
directors' equity incentive plan is equal to 85% of the fair market value of the
Cypros common stock subject to the option on the date the option is granted.
TRANSFERABILITY; TERM. Under the directors' equity incentive plan, an
option may not be transferred by the option holder, except by will or the laws
of descent and distribution. During the lifetime of an option holder, an option
may be exercised only by the option holder. The term of each option commences on
the date it is granted and, unless sooner terminated as described in this
prospectus/joint proxy statement, expires on the date ten years from the date of
grant. If the option holder's service as a non-employee director of Cypros
terminates for any reason or for no reason, the option will terminate on the
earlier of the expiration date under the directors' equity incentive plan, the
date three months following the date of termination of service or the date seven
months following the date of grant. However, if the termination of service is
due to the option holder's death or permanent and total disability, the option
will terminate on the earlier of the expiration date under the plan or 18 months
following the date of the option holder's death or disability. In any and all
circumstances, an option may be exercised following termination of the option
holder's service as a non-employee director of Cypros only as to that number of
shares as to which it was exercisable on the date of termination of the service.
OTHER PROVISIONS. The option agreement may contain other terms, provisions
and conditions not inconsistent with the directors' equity incentive plan as may
be determined by the Cypros board.
TERMS OF STOCK BONUS AWARDS
The directors' equity incentive plan provides that each non-employee
director shall receive stock bonus awards comprised of $2,000 of Cypros common
stock for each board meeting attended on or after the annual meeting. For
purposes of these stock bonus awards, the fair market value of the Cypros common
stock on the date of grant is determined by the 10-day average of the closing
sales price for the common stock of Cypros as quoted on the AMEX for the 10
market trading days
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immediately preceding the date of the Cypros board meeting at which the stock
bonus award will be granted. Stock bonus awards will be 100% vested on the date
of grant.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the directors' plan or
subject to any option or stock bonus award granted under the directors' equity
incentive plan, including through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise, the directors' equity incentive plan and
options and stock bonus awards outstanding under the directors' equity incentive
plan will be appropriately adjusted as to the class and the maximum number of
shares subject to the plan and the class, number of shares and price per share
of stock subject to outstanding options and stock bonus awards.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of certain mergers, reverse mergers or consolidations of
Cypros, the surviving corporation will be obligated to assume all options
granted under the directors' equity incentive plan. Under the directors' equity
incentive plan, as amended, upon the occurrence of certain additional change of
control events such as:
- a dissolution or liquidation of Cypros;
- a sale of substantially all of the assets of Cypros;
- an acquisition of a majority of the beneficial ownership of Cypros; and
- a greater than 50% shift in the current board of directors without prior
board approval, the surviving corporation shall similarly be obligated to
assume all options granted under the directors' equity incentive plan.
On August 4, 1999, the Cypros board approved, and Cypros shareholder
approval is also being sought by this prospectus/joint proxy statement for an
amendment to the directors' equity incentive plan under which the acquisition of
at least 40% of the beneficial ownership of Cypros will also cause the vesting
of all outstanding options under the directors' equity incentive plan to
accelerate.
DURATION, AMENDMENT AND TERMINATION
The Cypros board of directors may amend, suspend or terminate the directors'
equity incentive plan at any time or from time to time. No amendment will be
effective unless approved by the shareholders of Cypros within 12 months before
or after its adoption by the Cypros board if the amendment would
- increase the number of shares reserved for options and stock bonus awards
under the directors' equity incentive plan;
- modify the requirements as to eligibility for participation in the plan
(to the extent the modification requires shareholder approval in order for
the plan to comply with the requirements of Rule 16b-3 of the Exchange
Act; or
- modify the plan in any other way if the modification requires shareholder
approval in order for the directors' equity incentive plan to meet the
requirements of Rule 16b-3 of the Exchange Act.
FEDERAL INCOME TAX INFORMATION
STOCK OPTIONS. Stock options granted under the directors' equity incentive
plan are subject to federal income tax treatment under rules governing options
that are not incentive stock options. The
137
<PAGE>
following is only a summary of the effect of federal income taxation upon the
option holder and Cypros with respect to the grant and exercise of options under
the directors' equity incentive plan, does not purport to be complete and does
not discuss the income tax laws of any state or foreign country in which an
option holder may reside.
Options granted under the directors' equity incentive plan are nonstatutory
options. There are no tax consequences to the option holder or Cypros by reason
of the grant of nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the option holder normally will recognize taxable ordinary income equal
to the excess of the stock's fair market value on the date of exercise over the
option exercise price. Upon disposition of the stock, the option holder will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for the stock plus any amount recognized as
ordinary income upon exercise of the option. The capital gain or loss will be
long-term or short-term depending on the length of time the stock was held.
Capital gain from the sale of assets that have a holding period of more than one
year is subject to federal income tax at a maximum rate of 20%.
STOCK BONUS AWARDS. Stock bonus awards granted under the directors' equity
incentive plan generally have the following federal income tax consequences:
Upon acquisition of stock under a stock bonus award, the recipient normally
will recognize taxable ordinary income equal to the excess of the stock's fair
market value over the purchase price, if any. Upon disposition of the stock, the
recipient will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for the stock, if any, plus any
amount recognized as ordinary income upon acquisition or vesting of the stock.
The capital gain or loss will be long-term or short-term depending on the length
of time the stock was held from the date ordinary income was measured. Slightly
different rules may apply to persons who acquire stock subject to forfeiture
under Section 16(b) of the Exchange Act.
Approval of the amendment of the directors' equity incentive plan vote of a
majority of the shares present in person or represented by proxy at the Cypros
special meeting. Abstentions and broker non-votes are counted towards a quorum
but are not counted for any purpose in determining whether this proposal is
approved.
THE CYPROS BOARD BELIEVES THAT APPROVAL OF THE AMENDMENT OF THE DIRECTORS'
EQUITY INCENTIVE PLAN IS IN THE BEST INTERESTS OF CYPROS AND ITS SHAREHOLDERS
AND UNANIMOUSLY RECOMMENDS THAT THE CYPROS SHAREHOLDERS VOTE IN FAVOR OF THIS
PROPOSAL.
LEGAL MATTERS
The validity of the shares of Cypros common stock and Cypros Series A
preferred stock to be issued in connection with the merger and the tax-free
nature of the transaction will be passed upon for Cypros by Cooley Godward LLP,
San Diego, California. Certain tax matters related to the merger will be passed
upon for RiboGene by Latham & Watkins, San Diego, California.
REPRESENTATIVES OF INDEPENDENT AUDITORS
Representatives of Ernst & Young LLP expect to be present at each of the
Cypros special meeting and the RiboGene special meeting, and, while the
representatives have stated that they do not plan to make a statement at the
meetings, they will be available to respond to appropriate questions from
stockholders in attendance.
138
<PAGE>
SHAREHOLDER PROPOSALS
Cypros shareholders who wish to submit proposals for Cypros' 2000 Annual
Meeting of Shareholders must have submitted the proposal to Cypros, 2714 Loker
Avenue West, Carlsbad, CA 92009, Attention: Secretary, in advance of August 20,
1999, for inclusion, if appropriate, in Cypros' proxy statement and form of
proxy relating to its 2000 Annual Meeting. Unless a shareholder who wishes to
bring a matter before the shareholders at Cypros' 2000 Annual Meeting of
Shareholders notifies Cypros of the matter prior to November 4, 1999, management
will have discretionary authority to vote all shares for which it has proxies in
opposition to the matter.
The deadline for submitting a stockholder proposal for inclusion in
RiboGene's proxy statement and form of proxy for RiboGene's 2000 annual meeting
of stockholders is December 18, 1999. The deadline for submitting a stockholder
proposal or a nomination for director that is not to be included in such
statement and proxy is not later than the close of business on the 60th day nor
earlier than the close of business on the 90th day prior to the first
anniversary of the preceding year's annual meeting. If the merger is completed,
RiboGene will have only one stockholder (the combined company) and therefore
will not conduct a 2000 annual meeting.
EXPERTS
The financial statements of Cypros Pharmaceutical Corporation as of July 31,
1999 and 1998 and for each of the three years in the period ended July 31, 1999
included in this prospectus/joint proxy statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report appearing
elsewhere in this prospectus/joint proxy statement, and are included in reliance
upon such report given on the authority of said firm as experts in accounting
and auditing.
The financial statements of RiboGene, Inc. as of December 31, 1998 and 1997
and for each of the three years in the period ended December 31, 1998 included
in this prospectus/joint proxy statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere in this
prospectus/joint proxy statement, and are included in reliance upon such report
given on the authority of said firm as experts in accounting and auditing.
139
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CYPROS PHARMACEUTICAL CORPORATION
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................................................... F-2
Balance Sheets as of July 31, 1999 and 1998............................................................... F-3
Statements of Operations for the years ended July 31, 1999, 1998 and 1997................................. F-4
Statements of Shareholders' Equity for the years ended July 31, 1999, 1998 and 1997....................... F-5
Statements of Cash Flows for the years ended July 31, 1999, 1998 and 1997................................. F-6
Notes to Financial Statements............................................................................. F-7
RIBOGENE, INC.
Report of Ernst & Young LLP, Independent Auditors......................................................... F-17
Balance Sheets as of December 31, 1998 and 1997........................................................... F-18
Statements of Operations for the years ended December 31, 1998, 1997 and 1996............................. F-19
Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996................... F-20
Statements of Cash Flows for the year ended December 31, 1998, 1997 and 1996.............................. F-21
Notes to Financial Statements............................................................................. F-22
Unaudited Condensed Balance Sheets as of June 30, 1999 and December 31, 1998.............................. F-35
Unaudited Condensed Statements of Operations for the three months and six months ended June 30, 1999 and
1998.................................................................................................... F-36
Unaudited Condensed Statements of Cash Flows for the six months ended June 30, 1999 and 1998.............. F-37
Notes to Financial Statements............................................................................. F-38
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Cypros Pharmaceutical Corporation
We have audited the accompanying balance sheets of Cypros Pharmaceutical
Corporation as of July 31, 1999 and 1998, and the related statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended July 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cypros Pharmaceutical
Corporation at July 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended July 31, 1999, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
August 23, 1999
F-2
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31,
-----------------------------
ASSETS 1999 1998
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (NOTES 1 AND 3)........................ $ 2,509,386 $ 3,015,890
Short-term investments, held to maturity (NOTES 1 AND 3)......... 2,964,689 10,428,580
Accounts receivable, less allowances of $15,000 at July 31, 1999
and $0 at July 31, 1998........................................ 391,888 516,886
Inventories (NOTE 3)............................................. 205,207 83,078
Prepaid expenses and other current assets........................ 112,540 214,765
------------- -------------
Total current assets........................................... 6,183,710 14,259,199
Investment grade securities, non-current portion (NOTES 1 AND 3)... 1,788,749 --
Property, equipment and leasehold improvements, net (NOTES 3 AND
4)............................................................... 1,471,565 1,063,566
Purchased technology, net of accumulated amortization of $3,015,613
and $2,118,226 at July 31, 1999 and 1998 (NOTE 2)................ 3,266,100 4,163,487
Licenses and patents, net of accumulated amortization of $193,082
and $160,212 at July 31, 1999 and 1998, respectively (NOTE 1).... 158,215 176,927
Other assets....................................................... 270,525 72,461
------------- -------------
Total assets................................................... $ 13,138,864 $ 19,735,640
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 497,985 $ 551,191
Accrued compensation............................................. 201,024 125,434
Other accrued liabilities........................................ 63,565 15,641
Current portion of long-term debt (NOTE 4)....................... 53,616 97,477
Current portion of capital lease obligations (NOTE 5)............ 105,892 91,740
------------- -------------
Total current liabilities...................................... 922,082 881,483
Long-term debt, less current portion (NOTE 4)...................... 6,541 59,408
Capital lease obligations, less current portion (NOTE 5)........... 140,380 157,656
Deferred rent...................................................... 155,854 125,761
Shareholders' equity: (NOTE 6)
Common stock, 30,000,000 shares authorized, 15,711,877 shares
issued and outstanding as of July 31, 1999 and 1998,
respectively................................................... 41,497,174 41,328,470
Deferred compensation............................................ (69,441) (87,334)
Accumulated deficit.............................................. (29,513,726) (22,729,804)
------------- -------------
Total shareholders' equity..................................... 11,914,007 18,511,332
------------- -------------
Total liabilities and shareholders' equity..................... $ 13,138,864 $ 19,735,640
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales............................................................ $ 2,518,181 $ 3,445,955 $ 2,428,348
Cost of sales........................................................ 771,099 770,437 538,725
------------- ------------- -------------
Gross profit......................................................... 1,747,082 2,675,518 1,889,623
Operating expenses:
Sales and marketing................................................ 1,702,754 1,309,963 993,765
General and administrative......................................... 3,326,891 3,246,619 2,396,465
Clinical testing and regulatory.................................... 2,438,285 2,521,386 1,967,334
Research and development........................................... 547,836 822,225 1,032,486
Depreciation and amortization...................................... 1,238,872 1,239,217 1,075,431
------------- ------------- -------------
Total operating expenses............................................. 9,254,638 9,139,410 7,465,481
------------- ------------- -------------
Loss from operations................................................. (7,507,556) (6,463,892) (5,575,858)
Research grant income................................................ 51,178 169,834 98,785
Interest and other income, net....................................... 589,739 809,254 662,421
Rental income, net................................................... 82,717 171,062 --
Amortization of discount and costs on mandatorily
convertible notes.................................................. -- (259,127) (1,860,051)
------------- ------------- -------------
Net loss............................................................. $ (6,783,922) $ (5,572,869) $ (6,674,703)
------------- ------------- -------------
------------- ------------- -------------
Net loss per share:
Basic and diluted.................................................... $ (0.43) $ (0.37) $ (0.54)
------------- ------------- -------------
------------- ------------- -------------
Weighted average shares outstanding:
Basic and diluted.................................................... 15,711,877 15,186,984 12,303,274
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JULY 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------------- DEFERRED ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT COMPENSATION DEFICIT EQUITY
------------ ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JULY 31, 1996............. 11,613,748 $ 23,421,428 $ (304,309) $ (10,482,232) $ 12,634,887
Conversion of mandatorily
convertible notes................ 953,907 3,972,538 -- -- 3,972,538
Issuance of common stock, net of
offering costs................... 1,075,000 4,714,507 -- -- 4,714,507
Exercise of stock options.......... 7,750 21,963 -- -- 21,963
Forfeitures of stock options....... -- (52,568) 52,568 -- --
Deferred compensation related to
grant of stock options........... -- 266,925 (266,925) -- --
Amortization of deferred
compensation..................... -- -- 356,716 -- 356,716
Net loss........................... -- -- -- (6,674,703) (6,674,703)
------------ ------------- ------------- -------------- -------------
BALANCE AT JULY 31, 1997............. 13,650,405 32,344,793 (161,950) (17,156,935) 15,025,908
Conversion of mandatorily
convertible notes................ 1,205,446 4,025,588 -- -- 4,025,588
Issuance of B Warrants............. 856,026 4,707,576 -- -- 4,707,576
Deferred compensation related to
grant of stock options........... -- 250,513 (250,513) -- --
Amortization of deferred
compensation..................... -- -- 325,129 -- 325,129
Net loss........................... -- -- -- (5,572,869) (5,572,869)
------------ ------------- ------------- -------------- -------------
BALANCE AT JULY 31, 1998............. 15,711,877 41,328,470 (87,334) (22,729,804) 18,511,332
Deferred compensation related to
grant of stock options........... -- 168,704 (168,704) -- --
Amortization of deferred
compensation..................... -- -- 186,597 -- 186,597
Net loss........................... -- -- -- (6,783,922) (6,783,922)
------------ ------------- ------------- -------------- -------------
BALANCE AT JULY 31, 1999............. 15,711,877 $ 41,497,174 $ (69,441) $ (29,513,726) $ 11,914,007
------------ ------------- ------------- -------------- -------------
------------ ------------- ------------- -------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................................... $ (6,783,922) $ (5,572,869) $ (6,674,703)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of deferred compensation..................................... 186,597 325,129 356,716
Depreciation and amortization............................................. 1,272,509 1,239,217 1,075,431
Amortization of discount and costs on mandatorily convertible notes....... -- 259,127 1,860,051
Deferred rent expense..................................................... 30,093 (3,404) (16,215)
Gain on the sale of equipment............................................. (5,752) -- --
Write off of patent....................................................... -- 41,311 --
Changes in operating assets and liabilities, net of effects from
acquisitions:
Accounts receivable................................................... 124,998 (161,461) (205,799)
Inventory............................................................. (122,129) 10,099 (29,791)
Prepaid expenses and other current assets............................. 102,225 (139,727) (13,629)
Accounts payable...................................................... (53,206) 185,805 246,294
Other accrued liabilities............................................. 123,514 (87,361) (56,948)
------------ ------------ ------------
Net cash flows used in operating activities................................. (5,125,073) (3,904,134) (3,458,593)
INVESTING ACTIVITIES
Purchase of short-term investments.......................................... (1,147,531) (12,481,352) (18,980,414)
Proceeds from the maturity of short-term investments........................ 6,822,673 11,518,333 16,443,288
Investment in purchased technology.......................................... -- -- (2,014,048)
Installment payment for purchased technology................................ -- (1,272,000) (200,000)
Purchase of property, equipment and leasehold improvements.................. (651,468) (587,265) (239,941)
Proceeds from the sale of equipment......................................... 11,000 -- --
Increase in licenses and patents............................................ (14,159) (97,482) (82,460)
(Increase) decrease in deposits and other assets............................ (198,064) 23,064 21,375
------------ ------------ ------------
Net cash flows provided by (used in) investing activities................... 4,822,451 (2,896,702) (5,052,200)
FINANCING ACTIVITIES
Issuance of common stock, net............................................... -- 4,707,576 4,736,470
Cash paid for repurchase of mandatorily convertible notes................... -- (1,873) --
Issuance of long-term debt.................................................. -- 209,406 --
Repayment of long-term debt................................................. (96,728) (93,888) (99,282)
Repayments of capital leases obligations.................................... (107,154) (106,205) (93,299)
------------ ------------ ------------
Net cash flows (used in) provided by financing activities................... (203,882) 4,715,016 4,543,889
------------ ------------ ------------
Decrease in cash and cash equivalents....................................... (506,504) (2,085,820) (3,966,904)
Cash and cash equivalents at beginning of year.............................. 3,015,890 5,101,710 9,068,614
------------ ------------ ------------
Cash and cash equivalents at end of year.................................... $ 2,509,386 $ 3,015,890 $ 5,101,710
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest...................................................... $ 47,441 $ 132,269 $ 123,997
------------ ------------ ------------
------------ ------------ ------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Mandatorily convertible notes............................................... $ -- $ 4,025,588 $ 3,972,538
------------ ------------ ------------
------------ ------------ ------------
Equipment financed under capital leases..................................... $ 104,030 $ 100,608 $ 79,992
------------ ------------ ------------
------------ ------------ ------------
Purchased asset obligation.................................................. $ -- $ -- $ 1,200,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
Cypros Pharmaceutical Corporation (the "Company") was incorporated in San
Diego, California on November 2, 1990. The Company develops and markets
acute-care, hospital-based products. The Company is currently marketing three
products, Ethamolin-Registered Trademark-, Glofil and Inulin, will be launching
two burn/wound care products and is developing two drugs, Cordox-TM- and
Ceresine-TM-. In addition, the Company is manufacturing and selling to NutraMax
Products, Inc. ("NutraMax") its topical triple antibiotic wound product in
rolled stock for conversion by NutraMax into finished adhesive strips and
patches and distribution by NutraMax into the over-the-counter market. The
Company's pre-clinical and clinical development programs focus on cytoprotective
drugs designed to reduce ischemia (low blood flow) induced tissue damage in
acute-care settings and Cordox-TM- is in late-stage clinical trial in sickle
cell crisis.
CASH, CASH EQUIVALENTS AND INVESTMENTS
The Company considers highly liquid investments with original maturities of
three months or less when acquired to be cash equivalents. Investments consist
of certificates of deposit, money market funds, U.S. government obligations and
investment grade corporate debt securities. The Company has established
guidelines relative to diversification and maturities that maintain safety and
liquidity. The Company has not experienced any losses on its cash equivalents or
investments. Management believes the credit risk associated with these
investments is limited due to the nature of the investments.
Management determines the appropriate classification of debt securities at
the time of purchase. Debt securities are classified as held-to-maturity when
the Company has the positive intent and the ability to hold the securities to
maturity. Held-to-maturity securities are carried at cost, adjusted for
amortization of premiums and accretion of discounts. Interest, dividends and
amortization on the securities classified as held-to-maturity are included in
interest income.
CONCENTRATION OF CREDIT RISK
The Company extends credit to its customers, primarily hospitals and large
pharmaceutical companies conducting clinical research, in connection with its
product sales.
The Company has not experienced significant credit losses on its customer
accounts. Two customers individually accounted for 21% and 20% of current year
sales.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market value.
DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost and depreciated over the estimated
useful lives of the assets (generally five years) using the straight-line
method. Leasehold improvements are amortized over the lesser of the estimated
useful lives (seven years) or the remaining term of the lease.
F-7
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PURCHASED TECHNOLOGY
Purchased technology associated with the acquisitions of Glofil, Inulin and
Ethamolin is stated at cost and amortized over the period estimated to be
benefited (seven years).
LICENSE AND PATENT COSTS
The Company capitalizes certain costs related to license rights and patent
applications. Capitalized costs are amortized over the estimated economic lives
of the license rights and patents (generally six years) commencing at the time
the license rights are granted or the patents are issued.
ACCOUNTING STANDARD ON IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, the Company regularly evaluates its long-lived assets
for indicators of possible impairment. To date, no such indicators have been
identified.
REVENUE RECOGNITION
Revenues from product sales of Ethamolin and whole vials of Glofil and
Inulin are recognized upon shipment. Revenues from Glofil unit dose sales are
recognized upon receipt by the Company of monthly sales reports from its
third-party distributor. The Company is not obligated to accept returns of
products sold that have reached their expiration date.
Revenues from Nutra Max Products are recorded at the time of shipment of
product to NutraMax. The Company is obligated to accept a return of the triple
antibiotic wound product in rolled stock within forty-eight hours of shipment.
NET LOSS PER SHARE
Under SFAS No. 128, EARNINGS PER SHARE, basic and diluted loss per share is
based on net loss for the relevant period, divided by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share gives effect to all potential dilutive common shares outstanding during
the period such as options, warrants, and convertible securities, and
contingently issuable shares. All potential dilutive common stock equivalents
have been excluded from the calculation of diluted loss per share as their
inclusion would have been antidilutive.
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under SFAS No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, when the
exercise price of the Company's employee stock options equals or exceeds the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
F-8
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING STANDARDS
COMPREHENSIVE INCOME
Effective August 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME." SFAS 130 requires that all components of comprehensive
income, including net income, be reported in the financial statements in the
period in which they are recognized.
"Comprehensive income" is defined as the change in equity during the period
from transactions and other events and circumstances from non-owner sources. Net
income and other comprehensive income, including unrealized gains and losses on
investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income. The Company's comprehensive net loss and net loss are the
same, and therefore, the adoption of SFAS 130 did not have an impact on the
Company's financial statements.
SEGMENT INFORMATION
Effective August 1, 1998, the Company adopted SFAS No. 131, DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS 131 redefines
segments and requires companies to report financial and descriptive information
about their operating segments. The Company has determined that it operates in
one business segment and therefore the adoption of SFAS 131 does not affect the
Company's financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the financial statements. Actual
results could differ from those estimates.
2. ACQUISITION
On November 4, 1996, the Company acquired the New Drug Application, the U.S.
trademark for Ethamolin Injection and the finished goods inventory on hand at
closing from Schwarz Pharma, Inc., a Delaware corporation. The total purchase
price was $3,286,642, of which the Company paid $2,086,642 in cash from its
working capital and issued a $1,200,000 8% note which was paid in full during
fiscal year 1998.
The acquisition was accounted for using the purchase method and,
accordingly, the financial statements include the operations of the acquired
business from the date of acquisition. The following
F-9
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
2. ACQUISITION (CONTINUED)
unaudited pro forma data reflects the combined results of operations of the
Company as if the Ethamolin acquisition had occurred on August 1, 1996:
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31, 1997
-------------
<S> <C>
Net sales...................................................................... $ 2,752,691
Net loss....................................................................... (6,394,987)
Net loss per share............................................................. (0.52)
</TABLE>
3. FINANCIAL STATEMENT DETAILS
SHORT-TERM INVESTMENTS
All short-term investments of the Company are classified as
held-to-maturity. The following is a summary of held-to-maturity investments at
amortized cost at July 31:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Corporate debt securities............................................................ $ 4,753,438 $ 9,933,424
Money market funds................................................................... 2,284,314 2,656,423
U.S. government obligations.......................................................... -- 495,156
------------ -------------
7,037,752 13,085,003
Less amounts classified as cash equivalents.......................................... (2,284,314) (2,656,423)
Less investment grade securities, non-current........................................ (1,788,749) --
------------ -------------
Short-term investments............................................................... $ 2,964,689 $ 10,428,580
------------ -------------
------------ -------------
</TABLE>
As of July 31, 1999 and 1998, the difference between cost and estimated fair
value of the held-to-maturity investments was not significant. Of the
above-referenced 1999 investments, $2,964,689 mature at various dates through
July 31, 2000 and $1,788,749 will mature at various dates after July 31, 2000
through August 6, 2001.
INVENTORIES
Inventories consist of the following at July 31:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Raw materials.............................................................................. $ 68,808 $ 2,087
Finished goods............................................................................. 156,399 80,991
Less reserves.............................................................................. (20,000) --
---------- ---------
$ 205,207 $ 83,078
---------- ---------
---------- ---------
</TABLE>
F-10
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
3. FINANCIAL STATEMENT DETAILS (CONTINUED)
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the following at
July 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Laboratory equipment.................................................................. $ 1,003,534 $ 756,525
Office equipment, furniture and fixtures.............................................. 753,501 783,446
Leasehold improvements................................................................ 869,093 353,149
------------ ------------
2,626,128 1,893,120
Less accumulated depreciation and amortization........................................ (1,154,563) (829,554)
------------ ------------
$ 1,471,565 $ 1,063,566
------------ ------------
------------ ------------
</TABLE>
Depreciation and amortization expense totaled $325,009, $299,993 and
$252,453 for the years ended July 31, 1999, 1998 and 1997, respectively.
4. LONG-TERM DEBT
Long-term debt consists of the following at July 31:
<TABLE>
<CAPTION>
1999 1998
--------- ----------
<S> <C> <C>
Note payable to a pharmaceutical company due November 1999, collateralized by certain
purchased assets totaling $234,000, bearing interest at 8% until November 1998 and 4%
thereafter, payable in three semiannual installments, starting November 1998, of $39,300,
$46,200 and $48,500, plus interest....................................................... $ 49,250 $ 142,025
Note payable to a leasing company due November 2001, collateralized by real property,
bearing interest at 10%, payable in 53 monthly installments of $438 including interest... 10,907 14,860
--------- ----------
60,157 156,885
Less current portion....................................................................... (53,616) (97,477)
--------- ----------
Total...................................................................................... $ 6,541 $ 59,408
--------- ----------
--------- ----------
</TABLE>
5. COMMITMENTS
LEASES
The Company leases its office and research facilities under operating lease
agreements and certain equipment under capital lease agreements.
F-11
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
5. COMMITMENTS (CONTINUED)
Minimum future obligations under both operating and capital leases as of
July 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
------------ -----------
<S> <C> <C>
2000................................................................................... $ 537,369 $ 122,940
2001................................................................................... 655,982 68,255
2002................................................................................... 411,091 60,207
2003................................................................................... 282,760 26,307
2004................................................................................... 149,293 --
Thereafter............................................................................. 91,440 --
------------ -----------
$ 2,127,935 277,709
------------
------------
Less amounts representing interest..................................................... (31,437)
-----------
Present value of net minimum lease payments............................................ 246,272
Current portion of capital lease obligations........................................... (105,892)
-----------
Long-term capital lease obligations.................................................... $ 140,380
-----------
-----------
</TABLE>
Rent expense totaled $509,188, $445,095 and $420,697 for the years ended
July 31, 1999, 1998 and 1997, respectively. The net book value of the equipment
acquired under capital leases totaled $215,140 and $224,601 (net of accumulated
amortization of $402,223 and $288,732) at July 31, 1999 and 1998, respectively.
Rent expense comprises the cost associated with three buildings leased by
the Company: its current headquarters located at 2714 Loker Avenue West in
Carlsbad, California, its former headquarters located at 2732 Loker Avenue West
and a production facility located at 777 Northwest Blue Parkway in Lee's Summit,
Missouri. In April 1996, the Company subleased its former headquarters for the
remainder of the original lease term plus an additional 36 month option. Net
sublease income totaled $82,717, $171,062 and $62,870 for the years ended July
31, 1999, 1998 and 1997, respectively. Scheduled aggregate future sublease
income at July 31, 1999 is approximately $912,472.
MANDATORILY CONVERTIBLE NOTES
During 1996, the Company issued $8 million in principal amount of
non-interest bearing mandatorily convertible notes. The Notes were convertible
at the option of the investors into shares of the Company's common stock at
various dates from January 31, 1997 through July 31, 1999. The Notes were all
converted at various dates through July 31, 1998, except for $1,873 which was
paid in cash.
LICENSE AGREEMENTS
The Company has licenses to various patents for Cordox and Ceresine, its two
clinical development programs, for the remaining term of the patents. The
license agreements require payments of cash, warrants or the issuance of stock
options to the licensors upon accomplishment of various milestones and the
payment of royalties to the licensors upon the commercial sale of products
incorporating the licensed compound. The only remaining significant development
milestone under
F-12
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
5. COMMITMENTS (CONTINUED)
these agreements is the requirement that the Company pay the licensor of Cordox
$250,000 upon the filing of a New Drug Application with the Food and Drug
Administration for the approval to market that compound. In the event milestone
or royalty payments to the licensor of Cordox are not made by the Company within
specified time periods, that licensor may elect to terminate the license
agreement and all rights thereunder. Such a termination could have a significant
adverse impact upon the Company.
6. SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Company has authorized 1,000,000 shares of convertible preferred stock.
As of July 31, 1999 and 1998, no such shares were issued or outstanding.
WARRANTS
As of July 31, 1997, 4,673,512 Redeemable Class B Warrants were outstanding.
In November 1997, the Company received net proceeds of $4,707,576 from the
exercise of 856,026 Redeemable Class B Warrants and the concurrent issuance of
856,026 shares of common stock. During fiscal year 1998, all Redeemable Class B
Warrants expired and none are outstanding at July 31, 1999.
STOCK OPTION PLANS
Pro forma information regarding net loss and loss per share is required by
SFAS 123, and has been determined as if the Company has accounted for its
employee stock options under the fair value method set forth in SFAS 123. The
fair value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1999, 1998 and 1997: risk-free interest rates of 6.0%; dividend
yields of 0%; volatility factors of the expected market price of the Company's
common stock of 85% for 1999 and 79% for 1998 and 84% for 1997; and the
weighted-average life of the options of eight years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a single reliable
measure of the fair value of its employee stock options. For purposes of pro
forma disclosures, the estimated fair value of the options is amortized to
expense over the options' vesting period. The Company's pro forma net loss for
the years ended July 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Pro forma net loss................................................... $ 10,477,490 $ (6,844,607) $ (7,658,837)
------------- ------------- -------------
------------- ------------- -------------
Pro forma net loss per share, basic and diluted...................... $ (0.67) $ (0.45) $ (0.62)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-13
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
6. SHAREHOLDERS' EQUITY (CONTINUED)
As of July 31, 1999, 2,766,288 shares of common stock were reserved for
issuance under the stock option plan (the "1992 Plan"). The 1992 Plan provides
for the grant of incentive and nonstatutory stock options with various vesting
periods, generally four years, to employees, directors and consultants. The
exercise price of incentive stock options must equal at least the fair market
value on the date of grant, and the exercise price of nonstatutory stock options
may be no less than 85% of the fair market value on the date of grant. The
maximum term of options granted under the 1992 Plan is ten years.
As of July 31, 1999, 350,000 shares of common stock were reserved for
issuance under the directors' equity incentive plan (the "1993 Plan"). The 1993
Plan provides for the granting of 25,000 options to purchase common stock upon
appointment as a non-employee director, an additional 10,000 options each
January thereafter upon reappointment, and a bonus award of $2,000 in common
stock (the "Stock Bonus") for each board meeting attended. Options vest over
four years. The exercise price of the options is 85% of the fair market value on
the date of grant. The maximum term of options granted under the 1993 Plan is
ten years.
The number of shares of common stock issued with each Stock Bonus is equal
to $2,000 divided by the ten-day average of the closing sales price for the
common stock as quoted on the American Stock Exchange, Inc. for the ten trading
days immediately preceding the date of the board meeting at which the Stock
Bonus is earned. Stock Bonuses are 100% vested on the date of the grant.
The following table summarizes stock option activity under the 1992 and 1993
Plans:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED AVERAGE
OUTSTANDING EXERCISE PRICE
----------- -----------------
<S> <C> <C>
Balance at July 31, 1996.......................................................... 1,355,812 $ 4.21
Granted......................................................................... 309,499 $ 4.33
Exercised....................................................................... (7,750) $ 2.83
Canceled........................................................................ (219,125) $ 4.47
-----------
Balance at July 31, 1997.......................................................... 1,438,436 $ 4.25
Granted......................................................................... 749,700 $ 4.85
Canceled........................................................................ (295,647) $ 5.08
-----------
Balance at July 31, 1998.......................................................... 1,892,489 $ 4.36
Granted......................................................................... 570,550 $ 2.78
Canceled........................................................................ (194,353) $ 3.44
-----------
Balance at July 31, 1999.......................................................... 2,268,686 $ 3.94
-----------
-----------
</TABLE>
At July 31, 1999, options to purchase 1,427,110 shares of common stock were
exercisable and there were 847,602 shares available for future grant.
The weighted average grant-date fair value for the options granted during
1999, 1998 and 1997 were $2.14, $3.74 and $3.40, respectively.
F-14
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
6. SHAREHOLDERS' EQUITY (CONTINUED)
Exercise prices and weighted average remaining contractual life for the
options outstanding as of July 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- --------------------------------------------------------------------------- OPTIONS EXERCISABLE
RANGE OF WEIGHTED AVERAGE -----------------------------
EXERCISE REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
PRICE NUMBER OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ------------------- ------------------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
$1.44 97,500 3.05 $ 1.44 97,500 $ 1.44
$2.20--$2.46 302,050 7.63 $ 2.36 130,614 $ 2.28
$2.50--$2.88 193,000 9.30 $ 2.69 21,373 $ 2.74
$3.00--$4.06 710,229 6.15 $ 3.58 523,626 $ 3.58
$4.12--$4.93 202,200 5.99 $ 4.53 185,353 $ 4.53
$5.00--$5.62 689,750 6.77 $ 5.27 394,792 $ 5.27
$6.00--$6.80 42,499 3.38 $ 6.36 42,290 $ 6.23
$7.86--$7.88 31,458 6.07 $ 7.87 31,562 $ 7.87
------------------- ----------
2,268,686 $ 3.94 1,427,110
------------------- ----------
------------------- ----------
</TABLE>
The Company has recorded deferred compensation for the difference between
the price of options granted and the fair value of the Company's common stock.
Deferred compensation is amortized to expense during the vesting period of the
related stock or options.
7. INCOME TAXES
The Company accounts for income taxes using the liability method under
Financial Accounting Standards Board Statement No. 109, Accounting for Income
Taxes. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
as of July 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Purchased technology............................................................. $ 54,000 $ 267,000
-------------- -------------
Total deferred tax liabilities..................................................... 54,000 267,000
-------------- -------------
Deferred tax assets:
Net operating loss carryforwards................................................. 8,351,000 6,439,000
Capitalized research and development costs....................................... 735,000 569,000
Research and development tax credit carryforwards................................ 1,115,000 836,000
Other--net....................................................................... 93,000 53,000
-------------- -------------
Total deferred tax assets.......................................................... 10,294,000 7,897,000
Valuation allowance................................................................ (10,240,000) (7,630,000)
-------------- -------------
Net deferred tax assets............................................................ $ -- $ --
-------------- -------------
-------------- -------------
</TABLE>
F-15
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
7. INCOME TAXES (CONTINUED)
At July 31, 1999, the Company has federal and California tax net operating
loss carryforwards of approximately $23,052,000 and $4,926,000, respectively.
The federal tax loss carryforwards will begin to expire in 2007, unless
previously utilized. The California tax loss carryforwards will continue to
expire in 2000, unless previously utilized (approximately $591,000 expired in
1999). The Company also has federal and California research and development tax
credit carryforwards of approximately $901,000 and $329,000, respectively, which
will begin expiring in 2007 unless previously utilized. The above carryforwards
were determined as if the Company were filing a tax return at July 31, 1999;
however, for tax return purposes the Company uses a calendar year end.
In accordance with the Internal Revenue Code, the use of the Company's net
operating loss and credit carryforwards may be limited upon cumulative changes
in ownership of more than 50%.
The valuation allowance increased $2,610,000 from July 31, 1998 to July 31,
1999 due principally to the increase in deferred tax assets resulting from the
increase in tax net operating loss carryforwards. Realization of deferred tax
assets is dependent on future earnings, the timing and amount of which will be
dependent on scientific success, results of clinical trials and regulatory
approval of the Company's products currently under development. Accordingly, the
full valuation reserve has been established to reflect these uncertainties.
8. LEGAL PROCEEDINGS
In July 1998, the Company was served with a complaint in the United States
Bankruptcy Court for the Southern District of New York by the Trustee for the
liquidation of the business of A. R. Baron & Co., Inc. ("A. R. Baron") and the
Trustee of The Baron Group, Inc. (the "Baron Group"), the parent of A. R. Baron.
The complaint alleges that A. R. Baron and the Baron Group made certain
preferential or fraudulent transfers of funds to the Company prior to the
commencement of bankruptcy proceedings involving A. R. Baron and the Baron
Group. The Trustee is seeking return of the funds totaling $3.2 million. The
Company believes that the Trustee's claims are unfounded and is contesting the
allegations in the complaint vigorously. The Company contends that the transfers
challenged by the Trustee related to (i) the exercise by A. R. Baron in 1995 of
unit purchase options issued to it in 1992 as part of its negotiated
compensation for underwriting the Company's initial public offering and (ii) the
repayment by the Baron Group of the principal and interest (at 12% per annum)
payments and certain loan extension fees related to certain collateralized loans
made to it by the Company in 1995 and 1996.
9. SUBSEQUENT EVENT
On August 4, 1999,the Company announced that it had entered into a
definitive agreement to acquire all of the shares of RiboGene, Inc. in a
stock-for-stock transaction. The agreement was approved by the Board of
Directors of both companies. The consummation of the merger is expected to occur
sometime during the fall of 1999, and is subject to various conditions,
including, but not limited to approval by the stockholders of both companies.
The acquisition is structured to be a tax-free reorganization and will be
accounted for under the purchase method, whereby purchase price will be
allocated to the underlying assets and liabilities based upon their estimated
fair values.
F-16
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
RiboGene, Inc.
We have audited the accompanying balance sheets of RiboGene, Inc. as of
December 31, 1998 and 1997, and the related statements of operations, cash flows
and stockholders' equity (deficit) for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RiboGene, Inc. at December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
February 12, 1999
F-17
<PAGE>
RIBOGENE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 4)...................................................... $ 12,815 $ 2,045
Short term investments.................................................................. 16,703 122
Prepaid expenses and other current assets............................................... 90 85
---------- ----------
Total current assets.................................................................. 29,608 2,252
---------- ----------
Property and equipment, net............................................................. 1,389 471
Deferred offering costs................................................................. -- 1,142
Deferred financing costs................................................................ 622 290
Other assets............................................................................ 201 157
---------- ----------
$ 31,820 $ 4,312
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................................................ $ 1,456 $ 1,402
Accrued liabilities..................................................................... 206 478
Deferred revenue--related parties....................................................... 167 556
Accrued development cost--related party................................................. 400 --
Other current liabilities............................................................... 845 469
Current portion of capital lease obligations............................................ 158 174
Current portion of notes payable........................................................ 115 918
---------- ----------
Total current liabilities............................................................. 3,347 3,997
---------- ----------
Long-term portion of capital lease obligations.......................................... 224 289
Long-term portion of notes payable...................................................... 5,482 --
Other noncurrent liabilities............................................................ 12 188
Commitments
Stockholders' equity (deficit):
Preferred stock, 5,000,000 shares, $0.001 par value and
18,932,344 shares, no par value, authorized at December
31, 1998 and 1997, respectively; issuable in series;
1,428,572 and 14,377,595 shares issued and outstanding at
December 31, 1998 and 1997, respectively (aggregate
liquidation preference of $10,000,000 at December 31, 1998)........................... 1 33,533
Common stock, 30,000,000 shares, $0.001 par value, and
50,000,000 shares, no par value, authorized at December
31, 1998 and 1997, respectively; 5,774,421 and 103,845
shares issued and outstanding at December 31, 1998 and
1997, respectively.................................................................... 6 1,839
Additional paid-in capital.............................................................. 66,990 1,672
Notes receivable from stockholders...................................................... (147) (147)
Accumulated other comprehensive loss.................................................... (26) --
Deferred compensation................................................................... (1,811) (1,362)
Accumulated deficit..................................................................... (42,258) (35,697)
---------- ----------
Total stockholders' equity (deficit).................................................. 22,755 (162)
---------- ----------
$ 31,820 $ 4,312
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-18
<PAGE>
RIBOGENE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Revenue:
Contract research revenue from related parties................................. $ 2,569 $ 1,668 $ 1,112
Grant revenue.................................................................. 594 1,303 975
---------- --------- ---------
Total revenue.................................................................. 3,163 2,971 2,087
---------- --------- ---------
Operating expenses:
Research and development....................................................... 7,296 4,130 4,296
General and administrative..................................................... 3,033 1,551 1,372
Financial advisory costs (Note 6).............................................. -- 1,396 --
---------- --------- ---------
Total operating expenses....................................................... 10,329 7,077 5,668
---------- --------- ---------
Loss from operations........................................................... (7,166) (4,106) (3,581)
Interest income (expense), net................................................. 605 (7) (282)
---------- --------- ---------
Net loss....................................................................... (6,561) (4,113) (3,863)
Deemed dividend upon conversion of preferred stock (Note 6).................... (7,989) -- --
---------- --------- ---------
Net loss attributable to common stockholders..................................... $ (14,550) $ (4,113) $ (3,863)
---------- --------- ---------
---------- --------- ---------
Basic net loss per common share.................................................. $ (4.49) $ (41.13) $ (52.92)
---------- --------- ---------
---------- --------- ---------
Weighted average shares of common stock outstanding.............................. 3,244 100 73
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes.
F-19
<PAGE>
RIBOGENE, INC
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM DECEMBER 31, 1995 TO DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995...... 9,441,884 $ 23,571 44,272 $ 175 $ --
Exercise of common stock options
and purchase rights.............. -- -- 39,101 115 --
Issuance of Series E preferred
stock at $2.25 per share for cash
and the conversion of notes
payable and accrued interest, net
of issuance costs of $92......... 2,653,048 5,878 -- -- --
Net loss--year ended December 31,
1996............................. -- -- -- -- --
----------- --------- --------- ----------- -----------
Balances at December 31, 1996...... 12,094,932 29,449 83,373 290 --
Exercise of common stock options
and purchase rights, net of
repurchases...................... -- -- 20,472 69 --
Sale of Series F preferred stock
and common stock warrants at
$2.25 per unit, net of issuance
costs of $1,052.................. 2,282,663 4,084 -- -- --
Unit options and warrants issued... -- -- -- -- 1,672
Deferred compensation.............. -- -- -- 1,480 --
Amortization of deferred
compensation..................... -- -- -- -- --
Net loss--year ended December 31,
1997............................. -- -- -- -- --
----------- --------- --------- ----------- -----------
Balances at December 31, 1997...... 14,377,595 33,533 103,845 1,839 1,672
Sale of Series G preferred stock at
$2.645 per share, net of issuance
cost of $19...................... 756,144 1,981 -- -- --
Deferred compensation.............. -- -- -- -- 635
Amortization of deferred
compensation..................... -- -- -- -- --
Conversion of preferred stock to
common stock upon closing of the
initial public offering and
reincorporation in Delaware in
May 1998......................... (15,133,739) (35,514) 2,385,039 (1,836) 37,350
Issuance of common stock at $7.00
per share upon initial public
offering, net of issuance cost of
$3,879........................... -- -- 2,871,429 3 16,218
Exercise of Placement Agent
Options.......................... -- -- 68,759 -- --
Sale of Series A non-voting,
convertible preferred stock at
$7.00 per share.................. 1,428,572 1 -- -- 9,999
Common Stock issued to
collaboration partner............ -- -- 230,000 -- 747
Exercise of common stock options,
purchase rights and grants of
restricted stock................. -- -- 115,349 -- 289
Warrants issued in connection with
loan............................. -- -- -- -- 80
Comprehensive loss:
Net loss-year ended December 31,
1998........................... -- -- -- -- --
Net unrealized loss on
investments.................... -- -- -- -- --
Total comprehensive loss....... -- -- -- -- --
----------- --------- --------- ----------- -----------
Balances at December 31, 1998...... 1,428,572 $ 1 5,774,421 $ 6 $ 66,990
----------- --------- --------- ----------- -----------
----------- --------- --------- ----------- -----------
<CAPTION>
NOTES TOTAL
RECEIVABLE STOCKHOLDERS
FROM DEFERRED ACCUMULATED ACCUMULATED OTHER EQUITY
SHAREHOLDERS COMPENSATION DEFICIT COMPREHENSIVE LOSS (DEFICIT)
------------- --------------- ------------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995...... $ (54) $ -- $ (27,721) $ -- $ (4,029)
Exercise of common stock options
and purchase rights.............. (57) -- -- -- 58
Issuance of Series E preferred
stock at $2.25 per share for cash
and the conversion of notes
payable and accrued interest, net
of issuance costs of $92......... -- -- -- -- 5,878
Net loss--year ended December 31,
1996............................. -- -- (3,863) -- (3,863)
------ ------- ------------- ----- -------------
Balances at December 31, 1996...... (111) -- (31,584) -- (1,956)
Exercise of common stock options
and purchase rights, net of
repurchases...................... (36) -- -- -- 33
Sale of Series F preferred stock
and common stock warrants at
$2.25 per unit, net of issuance
costs of $1,052.................. -- -- -- -- 4,084
Unit options and warrants issued... -- -- -- -- 1,672
Deferred compensation.............. -- (1,480) -- -- --
Amortization of deferred
compensation..................... -- 118 -- -- 118
Net loss--year ended December 31,
1997............................. -- -- (4,113) -- (4,113)
------ ------- ------------- ----- -------------
Balances at December 31, 1997...... (147) (1,362) (35,697) -- (162)
Sale of Series G preferred stock at
$2.645 per share, net of issuance
cost of $19...................... -- -- -- -- 1,981
Deferred compensation.............. -- (635) -- -- --
Amortization of deferred
compensation..................... -- 461 -- -- 461
Conversion of preferred stock to
common stock upon closing of the
initial public offering and
reincorporation in Delaware in
May 1998......................... -- -- -- -- --
Issuance of common stock at $7.00
per share upon initial public
offering, net of issuance cost of
$3,879........................... -- -- -- -- 16,221
Exercise of Placement Agent
Options.......................... -- -- -- -- --
Sale of Series A non-voting,
convertible preferred stock at
$7.00 per share.................. -- -- -- -- 10,000
Common Stock issued to
collaboration partner............ -- -- -- -- 747
Exercise of common stock options,
purchase rights and grants of
restricted stock................. -- (275) -- -- 14
Warrants issued in connection with
loan............................. -- -- -- -- 80
Comprehensive loss:
Net loss-year ended December 31,
1998........................... -- -- (6,561) -- (6,561)
Net unrealized loss on
investments.................... -- -- -- (26) (26)
-------------
Total comprehensive loss....... -- -- -- -- (6,587)
------ ------- ------------- ----- -------------
Balances at December 31, 1998...... $ (147) $ (1,811) $ (42,258) $ (26) $ 22,755
------ ------- ------------- ----- -------------
------ ------- ------------- ----- -------------
</TABLE>
See accompanying notes.
F-20
<PAGE>
RIBOGENE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................................... $ (6,561) $ (4,113) $ (3,863)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................... 251 140 168
Amortization of warrants and deferred compensation............................. 509 118 --
Accrued interest on bridge notes converted to preferred stock.................. -- -- 44
Issuance of common stock to collaboration partner.............................. 747 -- --
Non-cash financial advisory costs.............................................. -- 1,300 --
Changes in assets and liabilities:
Prepaid expenses and other current assets...................................... (5) (23) (66)
Other assets................................................................... (44) 50 (162)
Accounts payable............................................................... 54 903 205
Deferred revenue--related party................................................ (389) -- 556
Accrued expenses and other current and noncurrent liabilities.................. 328 (180) (25)
---------- --------- ---------
Net cash used in operating activities............................................ (5,110) (1,805) (3,143)
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................ (1,079) -- (14)
Purchases of short-term investments............................................ (18,857) (4,577) --
Maturities of short-term investments........................................... 2,250 4,577 --
---------- --------- ---------
Net cash provided by (used in) investing activities.............................. (17,686) -- (14)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt.................................................. -- -- 1,893
Proceeds from long-term debt................................................... 5,632 -- --
Repayment of short-term debt................................................... -- -- (1,500)
Repayment of notes payable..................................................... (953) (1,000) (1,000)
Principal payments on capital lease obligations................................ (171) (106) (151)
Deferred offering costs........................................................ 1,142 (1,142) --
Deferred financing costs....................................................... (300) -- --
Proceeds from issuances of common stock and warrants, net of repurchases and
repayment of stockholder notes and issuances costs........................... 16,235 33 58
Net proceeds from issuances of convertible preferred stock and warrants........ 11,981 4,084 3,941
---------- --------- ---------
Net cash provided by financing activities........................................ 33,566 1,869 3,241
---------- --------- ---------
Net increase in cash and cash equivalents........................................ 10,770 64 84
Cash and cash equivalents at beginning of period................................. 2,045 1,981 1,897
---------- --------- ---------
Cash and cash equivalents at end of period....................................... $ 12,815 $ 2,045 $ 1,981
---------- --------- ---------
---------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest........................................................... $ 346 $ 210 $ 335
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Equipment purchased under capital leases......................................... $ 91 $ 326 $ 95
---------- --------- ---------
---------- --------- ---------
Conversion of debt obligations and accrued interest to preferred stock........... $ -- $ -- $ 1,937
---------- --------- ---------
---------- --------- ---------
Deferred compensation related to stock option grants............................. $ 635 $ 1,480 $ --
---------- --------- ---------
---------- --------- ---------
Warrants issued in connection with lease and borrowing transactions.............. $ 80 $ 372 $ --
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes.
F-21
<PAGE>
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
RiboGene, Inc. (the "Company") was incorporated in the State of California
on May 5, 1989. The Company was originally founded to develop laboratory
equipment for cell-free protein synthesis. In January 1993, the Company
discontinued development of the lab equipment and began to focus its research
and development efforts on the identification of novel leads and the development
of potential drug candidates for the treatment of infectious diseases. The
Company's research effort initially focused on infections caused by fungi and
viruses. In 1996, the Company expanded its research efforts to include
infections caused by bacteria. During 1998, the Company was reincorporated in
the State of Delaware and completed an initial public offering (see Note 6).
Also during 1998, the Company significantly expanded its chemistry operations
and established new collaborations. Accordingly, the Company is no longer
classified as a development stage company.
The Company has sustained operating losses since inception and expects such
losses to continue as it furthers its research and development programs. From
inception to December 31, 1998, the Company incurred cumulative net losses of
approximately $42,258,000. The Company will need to obtain additional funds from
outside sources to continue its research and development activities, fund
operating expenses and pursue regulatory approvals for its products under
development. Management believes that sufficient funds are available to support
planned operations through at least mid-2001. The Company may seek to fund its
operations thereafter through collaborative arrangements and through public or
private financings, including debt or equity financings.
All common stock and common per share amounts have been retroactively
restated to reflect a one-for - 14 reverse stock split which was effected in May
1998 (see Note 6). All references to the numbers of shares and share prices
retroactively reflect post-split activity.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS AND SHORT TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity from the
date of purchase of three months or less to be cash equivalents.
The Company classifies its investments as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, if any, reported in a separate component of stockholders'
equity. As of December 31, 1998, the amortized cost of the Company's investments
approximated their fair value. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are included
in income. The Company has not experienced any realized gains or losses on its
cash equivalents. The cost of securities sold is based on the specific
F-22
<PAGE>
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
identification method. Cash and cash equivalents and short-term investments at
December 31, 1998 and 1997 consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Demand deposits with banks and money market funds.............. $ 12,815 $ 2,045
Corporate debt securities and instruments
- Maturing 1999.............................................. 13,133 --
- Maturing 2000.............................................. 3,570 --
--------- ---------
$ 29,518 $ 2,045
--------- ---------
--------- ---------
</TABLE>
DEFERRED OFFERING COSTS
Costs related to offering of the Company's stock were deferred until the
completion of the offering and were offset against proceeds from the offering.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives of the assets which range from four to five years. Assets recorded under
capital leases are amortized using the straight-line method over the shorter of
the useful life or the lease term.
REVENUE RECOGNITION
Revenue earned under collaborative research agreements is recognized as the
related services are performed and research expenses are incurred. Amounts
received in advance of services to be performed are recorded as deferred revenue
until the related expenses are incurred. Non-refundable milestone payments,
which do not require the Company to perform additional services, are recognized
as revenue in the period earned. The Company has not received nor recognized as
revenue any milestone payments to date.
The Company has received government grants which support the Company's
research effort in specific research projects. These grants generally provide
for reimbursement of approved costs incurred as defined in the various awards.
NET LOSS PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128") and the
provisions of Securities and Exchange Commission Staff Accounting Bulletin No.
98. SFAS 128 requires the presentation of basic earnings (loss) per share and
diluted earnings (loss) per share, if more dilutive, for all periods presented.
In accordance with SFAS 128, basic net loss per share has been computed
using the weighted-average number of shares of common stock outstanding during
the period.
F-23
<PAGE>
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the calculation of basic net loss per share
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Net loss attributable to common stockholders...... $ (14,550) $ (4,113) $ (3,863)
---------- --------- ---------
---------- --------- ---------
Weighted average shares of common stock
outstanding..................................... 3,244 100 73
---------- --------- ---------
Basic net loss per common share $ (4.49) $ (41.13) $ (52.92)
---------- --------- ---------
---------- --------- ---------
</TABLE>
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of the convertible preferred stock that
automatically converted upon completion of the Company's initial public offering
(using the as-if converted method) from the original date of issuance. Pro forma
net loss per share for the year ended December 31, 1998 and 1997 was $3.43 and
$1.95, respectively. Shares used in computing the pro forma net loss per share
were 4,248,000 and 2,109,000 for the years ended December 31, 1998 and 1997,
respectively.
Diluted net loss per share has not been presented separately as, due to the
Company's net loss position, it is anti-dilutive. Had the Company been in a net
income position at December 31, 1998 and 1997, shares used in calculating
diluted earnings per share would have included the effect of an additional
2,410,000 and 1,290,000 shares related to the Company's outstanding stock
options and warrants (prior to the application of the treasury stock method),
respectively.
ACCOUNTING FOR STOCK OPTIONS AND WARRANTS
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected
to account for stock options and purchase rights granted to employees using the
intrinsic value method and, accordingly, does not recognize compensation expense
for options and purchase rights granted to employees with exercise prices which
are not less than fair value of the underlying common stock.
For equity awards to non-employees, including lenders and lessors, the
Company applies the Black-Scholes method to determine the fair value of such
instruments. The value is recognized as expense over the period of services
received or the term of the related financing.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), and Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130
establishes standards for reporting comprehensive income and was adopted by the
Company during 1998. The Company has determined that it operates in a single
segment and the impact of adopting SFAS 131 on its financial statement
disclosures was not material.
F-24
<PAGE>
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SFAS 131 establishes standards for annual and interim disclosures of operating
segments, product and services, geographic areas and major customers.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------- ------------
<S> <C> <C>
Laboratory equipment................................... $ 1,538,000 $ 734,000
Office and computer equipment.......................... 615,000 352,000
Furniture and fixtures................................. 312,000 231,000
Leasehold improvements................................. 47,000 52,000
------------- ------------
2,512,000 1,369,000
Less accumulated depreciation and amortization......... (1,123,000) (898,000)
------------- ------------
Property and equipment, net............................ $ 1,389,000 $ 471,000
------------- ------------
------------- ------------
</TABLE>
Property and equipment includes approximately $2,124,000 and $781,000 of
equipment under capital leases and loans to finance capital purchases for the
years ended December 31, 1998 and 1997, respectively, that are pledged as
security for the related lease obligations. Accumulated amortization related to
financed assets totaled $549,000 and $338,000 for the years ended December 31,
1998 and 1997, respectively.
3. DEVELOPMENT AND COLLABORATION AGREEMENTS
In January 1998, the Company entered into a collaboration with Dainippon for
two of its targets in the antibacterial program. As part of the Dainippon
Collaboration, Dainippon has agreed to provide the Company with research support
payments over three years, and fund additional research and development at
Dainippon. In February 1998, Dainippon made a payment of $2,000,000, of which
$1,833,000 was recognized by the Company as revenue through December 31, 1998,
based on costs incurred during the period. Collaborative research payments from
Dainippon are non-refundable. The Company may also be entitled to receive
milestone payments upon the achievement of mostly late-stage clinical and
regulatory milestones in the amount of up to $10,000,000, consisting of up to
$5,000,000 in milestones through approval in Japan and an additional $5,000,000
through approval in one other major market territory, for each product developed
through the collaboration. RiboGene also has the right to co-promote, in Europe
and the U.S., any products resulting from the collaboration. In connection with
this agreement, Dainippon also purchased 756,144 shares of Series G preferred
stock, which converted to common stock upon the Company's initial public
offering (see Note 6).
In September, 1998, the Company issued Dainippon 230,000 shares of common
stock in exchange for an increased royalty interest in the sales from future
products, as defined in the collaboration agreement between the Company and
Dainippon. As a result of this transaction, the Company recognized a $747,000
one-time non-cash charge to research and development expense during 1998,
representing the fair market value of the common stock at the date of issuance.
F-25
<PAGE>
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. DEVELOPMENT AND COLLABORATION AGREEMENTS (CONTINUED)
In July, 1998, the Company entered into an option and license agreement with
Roberts Pharmaceutical Corporation ("Roberts") for the development of Emitasol,
an intranasally administered drug being developed for the treatment of diabetic
gastroparesis and for the prevention of delayed onset emesis. Roberts also made
a $10,000,000 equity investment in RiboGene by purchasing 1,428,572 shares of
Series A non-voting convertible preferred stock (the "Series A preferred stock")
at $7.00 per share. Holders of the Series A preferred stock are entitled to
non-cumulative dividends, when and if declared by the Board of Directors, and
have a liquidation preference, prior to any declared dividends, equal to the
original issue price of $7.00 per share. The Series A preferred stock is
convertible into common stock on a one-for-one basis, provided, however, that on
or following each of the first three annual anniversary dates of the stock
issuance, the holders of the Series A preferred stock can only convert up to
33%, 50% and 100% of their shares, respectively. Additionally, holders of the
Series A preferred stock may request that the Company register up to 20% of the
converted shares in any twelve-month period.
Under the terms of the option and license agreement, Roberts will conduct
clinical trials using Emitasol and, if those are successful, submit a New Drug
Application ("NDA") for Emitasol. If FDA regulatory approval is obtained,
Roberts will have 60 days to exercise an exclusive option for a license to
market Emitasol in North America. Roberts has agreed to make a payment to
RiboGene of up to $10,000,000 upon the exercise of the option and to pay a
royalty on product sales. RiboGene will provide up to $7,000,000 in funding for
the development of Emitasol through completion of Phase III trials and the
submission of an NDA, with the balance, if any, provided by Roberts. As of
December 31, 1998, the Company had recognized approximately $400,000 of
development expenses for costs incurred by Roberts through that date.
In July, 1998, the Company entered into a material transfer, screening and
collaboration agreement with EnzyMed to screen and test compounds provided by
EnzyMed. The Company and EnzyMed will develop a mutually agreed upon plan for
the development of compounds that meet certain criteria. Future revenues, if
any, resulting from the sale of any compound discovered as part of this
collaboration will be shared by each party by a predetermined formula based on a
percentage of risk taken by each party. The agreement may be terminated at any
time upon written notice which would be effective 30 days after the end of any
current four-month screening period.
In September 1997, the Company entered into a material transfer and
screening agreement with ArQule, Inc. ("ArQule") a combinatorial chemistry
company which grants the Company access to ArQule's proprietary combinatorial
chemistry libraries. The Company is actively screening compounds supplied by
ArQule in certain of its assays. If the Company detects activity with one of
these compounds, the Company will have an opportunity to enter into a
collaboration agreement for such compounds. This agreement can be terminated by
the Company upon 30 days notice without any further obligation.
In April 1996, the Company entered into collaborative research and license
agreements with Abbott Laboratories ("Abbott") to discover and develop
antifungal products identified using the Company's drug discovery technology.
This agreement granted Abbott the exclusive worldwide right to develop and
market antifungal products discovered with the Company. Abbott agreed to make
contract research payments of up to $5,000,000 for the Company's antifungal
research activity over a three-year period. Specifically, the Company's
activities included screening compound samples, the identification
F-26
<PAGE>
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. DEVELOPMENT AND COLLABORATION AGREEMENTS (CONTINUED)
of new targets and the design and implementation of assays incorporating these
targets. The Company had no obligation to incur expenses in excess of the funds
provided by Abbott. During 1996 and 1997, Abbott made payments of $1,668,000 in
each year pursuant to this agreement, of which $1,112,000 and $1,668,000,
respectively, was recognized as revenue based on costs incurred during the
period. Collaborative research payments from Abbott were non-refundable. On
February 6, 1998, Abbott notified the Company of its intent to end its research
collaboration with the Company effective April 8, 1998. During 1998, the Company
recognized $736,000 in revenue from Abbott, consisting of $556,000 which had
been deferred at December 31, 1997 and a final additional payment of $180,000.
There are no future performance obligations of either the Company or Abbott.
In April 1997, the Company entered into an agreement with the University of
Washington, which was amended in October 1997, pursuant to which RiboGene
received an exclusive worldwide license to certain patent rights and technology.
Under the agreement, the Company paid an upfront license fee and has agreed to
pay a minimal quarterly license maintenance fee and a milestone payment of
$250,000 upon the approval of an NDA for a compound developed using the licensed
patent rights. Once a compound is selected for development, the Company will be
obligated to complete certain development milestones at its own expense. To
date, no compound has been selected for development.
4. NOTES PAYABLE
In December 1998, the Company received $5,000,000 in proceeds from the
issuance of a long-term note payable to a bank. The note requires monthly
interest only payments at prime plus 1.0%. The rate at December 31, 1998 was
8.75%. The principal is due at the end of the three-year term. The loan is
collateralized by a perfected security interest in all the unencumbered assets
of the Company and requires that the Company maintain its depository accounts
with the bank with a minimum of $5,000,000 in aggregate cash and depository
balances. The Company is also required to comply with financial covenants based
on certain ratios. At December 31, 1998, the Company was in compliance with all
required covenants. In connection with this financing arrangement, the Company
issued to the placement agent a warrant to purchase 50,000 shares of common
stock at an exercise price of $2.50 per share. The warrant expires in December
2003. The warrant has been assigned a value of $80,000, which is being amortized
over the term of the loan along with an additional $300,000 in placement and
bank fees paid by the Company. The valuation of the warrant was determined using
the Black-Scholes method with the following assumptions: an expected life of 5
years; an expected volatility factor of 0.7; risk free interest rate of 5%; a
dividend yield of 0%; and an estimated fair value of the underlying common stock
at the date of grant of $2.94.
In September 1998, the Company entered into a $2,000,000 arrangement for
financing capital purchases. The loan is collateralized by the underlying
equipment, payable over a four-year term at an interest rate of 7.2% plus an
index rate based on U.S. Treasury Notes. At December 31, 1998, $620,000 was
outstanding under notes from this arrangement at an interest rate of 12.72%.
F-27
<PAGE>
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
5. COMMITMENTS
The Company leases certain facilities and laboratory and office equipment.
Future minimum lease payments under such noncancelable leases at December 31,
1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
CAPITAL OPERATING
LEASES LEASES
----------- -------------
<S> <C> <C>
1999.................................................... $ 207,000 $ 630,000
2000.................................................... 226,000 617,000
2001.................................................... 33,000 630,000
2002.................................................... -- 654,000
2003.................................................... -- 672,000
Thereafter.............................................. -- 7,211,000
----------- -------------
Total minimum payments required....................... 466,000 $ 10,414,000
-------------
-------------
Less amount representing interest....................... (84,000)
Present value of future lease payments.................. 382,000
Less current portion.................................... (158,000)
-----------
Long-term portion....................................... $ 224,000
-----------
-----------
</TABLE>
Rent expense for operating leases was approximately $891,000, $347,000 and
$213,000 in the years ended December 31, 1998, 1997 and 1996, respectively. In
1997, the Company entered into a facility lease which provides for scheduled
rent increases annually over the 15-year term. The rent is being recognized as
expense on a straight-line basis and the actual cash flow is included in the
future minimum lease payment schedule above. In connection with the facility
lease, the Company issued to the landlord a six year warrant to purchase 17,850
shares of common stock at $31.51 per share. The warrant was assigned a value of
$290,000 which is being amortized over the vesting period of the warrant. Such
valuation was determined using the Black-Scholes method with the following
assumptions: an expected life of six years; an expected volatility factor of
0.7; a risk-free interest rate of 6%; a dividend yield of 0%; and an estimated
fair value of the underlying common stock of $30.00.
In January 1994, the Company entered into a five-year consulting agreement
that provides for payments of $50,000 per quarter from January 1995 through
December 1999. In 1995, the Company determined it would no longer require the
services of the consultant at a level commensurate with the amounts payable in
1996 through 1999, and therefore the remaining present value of the unpaid
balance (discounted at 10.5%) amounting to $646,000 was recognized as expense in
the accompanying statement of operations.
6. STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING
In June 1998, the Company consummated an initial public offering (the
"Offering") with the issuance of 2,300,000 shares of common stock at a price of
$7.00 per share. Concurrently with the closing of the Offering, the Company sold
571,429 additional shares of common stock at $7.00 per
F-28
<PAGE>
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. STOCKHOLDERS' EQUITY (CONTINUED)
share to Abbott in a private placement. Proceeds from the Offering and private
placement net of issuance costs were $16,221,000.
The Company filed a Certificate of Amendment in the State of Delaware to
effect a one-for-14 reverse stock split of all outstanding shares of common
stock, and common stock options and warrants in May 1998. As a result of the
reverse stock split, each share of Series A through E and G preferred stock
converted into 0.0714 of a share of common stock. Each share of Series F
preferred stock converted into 0.6429 of a share of common stock. The Series F
preferred stock contained certain antidilution provisions that resulted in the
Series F preferred stock holders receiving an additional 1,141,317 shares of
common stock upon conversion. The value of this additional common stock,
$7,989,000, has been deemed to be equivalent of a preferred stock dividend. The
Company recorded the deemed dividend at the time of conversion by offsetting
charges and credits to additional paid in capital, without any effect on total
stockholders' equity. The amount increased the loss allocable to common
stockholders, in the calculation of basic net loss per share for the year ended
December 31, 1998. Following the Offering, the Company filed a Restated
Certificate of Incorporation to reduce the authorized stock of the Company such
that the Company is authorized to issue 5,000,000 shares of $0.001 par value
preferred stock, and 30,000,000 shares of $0.001 par value common stock.
PREFERRED STOCK
At December 31, 1998, 1,428,572 shares of Series A non-voting convertible
preferred stock were issued and outstanding, pursuant to a stock purchase
agreement with Roberts Pharmaceutical Corporation (see Note 3).
PLACEMENT AGENT UNIT OPTIONS
In connection with the sale of Series F preferred stock in 1997, the Company
issued the placement agent an option to purchase units (the "Placement Agent
Units") that consisted of one share of Series F preferred stock and one Class A
common stock warrant. In addition, the Company entered into a two-year Financial
Advisory Agreement with the placement agent pursuant to which the Company issued
the placement agent options to purchase additional Placement Agent Units. As a
result of certain anti-dilution provisions upon the closing of the Company's
initial public offering, options to acquire a total of 733,755 shares of common
stock and 40,739 Class A Warrants with an aggregate option exercise price of
approximately $708,000 became exercisable. The options to acquire Placement
Agent Units issued pursuant to the Financial Advisory Agreement have been
assigned a value of $1,300,000 which has been expensed and included in the loss
from operations for the year ended December 31, 1997, as the Company did not
believe it would receive future services commensurate with this amount. The
value of the Placement Agent Units was determined at the date of issuance using
the Black-Scholes method with valuation assumptions as follows: expected life of
10 years; risk free interest rate of 6%; an expected volatility factor of .5; a
dividend yield of 0%; and a fair value of the underlying units of $4.34. The
fair value of the underlying units was determined by reference to the price paid
by investors in the Series F preferred stock financing, giving consideration to
the fact that each Placement Agent Unit consisted of two shares of Series F
preferred stock and one Class A warrant. The Company also accrued an additional
$96,000 of fees due to the placement agent.
F-29
<PAGE>
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
From time to time, the Company issued warrants in connection with equity,
financing, debt, and lease arrangements. The Company had outstanding warrants at
December 31, 1998 as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE REMAINING
PER SHARE OF CONTRACTUAL LIFE
CLASS OF STOCK SHARES COMMON STOCK (IN YEARS)
- ------------------------------------------- --------- ----------------- ---------------------
<S> <C> <C> <C>
Class A common stock warrants.............. 162,967 $ 7.00 4.5
Other common stock warrants................ 200,157 $ 14.44 2.1
---------
Total.................................. 363,124 $ 11.10 3.2
---------
---------
</TABLE>
At December 31, 1997 and 1996, there were outstanding warrants to acquire,
328,224 and 108,348 shares of common stock (on an as-converted to common stock
basis), respectively, at weighted average exercise prices per common share of
$12.22 and $14.64 respectively. During 1998, 15,100 warrants expired, and no
warrants were exercised, cancelled or forfeited in 1996, 1997 or 1998. All
warrants were fully exercisable upon issuance.
STOCK OPTION PLANS
For employees and consultants, the Company has three stock option plans (the
"Plans"), the 1993 Stock Plan, the 1997 Equity Incentive Plan and the 1998
Non-Officer Employee Stock Option Plan. Under the terms of the Plans, the Board
of Directors may grant stock purchase rights and stock options. Stock purchase
rights may not be issued at less than 85% of the fair value of the common stock
at the date of grant and generally provide the Company with a repurchase right
in the event of termination of employment which lapses over periods specified by
the Board of Directors. Options granted pursuant to the Plans may be either
incentive stock options or nonstatutory stock options, at the discretion of the
Board of Directors. Incentive stock options may be granted to employees with
exercise prices of no less than the fair market value and nonstatutory options
may be granted to employees or consultants at exercise prices of no less than
85% of the fair value of the common stock on the grant date, as determined by
the Board of Directors. If, at the time the Company grants an option, the
optionee directly or by attribution owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company, the option
price shall be at least 110% of the fair market value and the option shall not
be exercised more than five years after the date of grant. Except as noted
above, options expire no more than 10 years after the date of grant or earlier
if employment is terminated. Options become exercisable as determined by the
Board of Directors, generally over a period of four years. Through December 31,
1998, a total of 1,695,357 shares have been reserved for issuance under the
Plans.
Additionally, the Company has a stock option plan for its Board of
Directors, the 1997 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). The Directors' Plan provides for automatic grants of options to purchase
shares of common stock to non-employee directors of the Company. There are
80,000 shares of common stock reserved for issuance under the Directors' Plan.
F-30
<PAGE>
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes option activity under the Plans and the
Directors' Plan:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
NUMBER OF PRICE
OPTIONS PER SHARE
---------- -------------
<S> <C> <C>
Balance at December 31, 1995...................... 157,488 $ 3.22
Granted with exercise prices equal to fair
value........................................... 11,127 $ 3.22
Granted with exercise prices greater than fair
value........................................... 2,142 $ 31.51
Exercised......................................... (20,823) $ 2.66
Canceled.......................................... (20,868) $ 3.36
----------
Balance at December 31, 1996...................... 129,066 $ 3.78
Granted with exercise prices equal to fair
value........................................... 73,824 $ 3.15
Exercised......................................... (6,850) $ 3.75
Canceled.......................................... (9,540) $ 3.16
----------
Balance at December 31, 1997...................... 186,500 $ 3.57
Granted with exercise prices equal to fair
value........................................... 864,259 $ 2.58
Granted with exercise price below fair value...... 579,000 $ 5.56
Exercised......................................... (115,355) $ 2.54
Canceled.......................................... (240,668) $ 5.46
----------
Balance at December 31, 1998...................... 1,273,736 $ 3.54
----------
----------
</TABLE>
In December 1998, the Board of Directors authorized the cancellation and
regrant of employee options to purchase 206,900 shares of common stock effective
as of the close of business on December 11, 1998 at an exercise price equal to
the then fair value of the Company's common stock of $2.375 per share. Under the
terms of the option exchange, the new options maintain the same vesting and
expiration terms. The Company's officers did not participate in the option
exchange.
Through December 31, 1998, the Board of Directors granted 56,007 common
stock purchase rights under the Plans, all of which have been exercised for cash
and promissory notes. Of this amount, 5,146 shares have been repurchased through
December 31, 1998 and 14,288 shares are subject to the Company's repurchase
right or vesting at December 31, 1998 which generally lapses over four years.
The promissory notes bear interest at 5.29% to 6.73%. At December 31, 1998,
303,660 shares were available for future grant or sale.
During 1998, the Board of Directors granted the Company's officers, 110,000
shares of restricted stock and 430,000 shares of incentive stock options out of
the 1997 Equity Incentive Plan. 129,000 of such options are subject to
stockholder approval. The incentive stock options have an exercise price equal
to the grant date fair value of the Company's common stock of $2.50 per share.
The restricted stock and the incentive stock options are subject to vesting
based on the performance of the Company's
F-31
<PAGE>
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. STOCKHOLDERS' EQUITY (CONTINUED)
common stock, such that the initial 25% is vested when the target stock price of
$5.00 is attained as measured by a 90 day trailing period, and then for each
$1.00 further increase in stock price, an additional 25% of the shares shall
vest. The restricted stock and incentive options will automatically vest after
seven years. The Company will record compensation expense for the restricted
stock as the shares vest. All of the restricted stock is subject to the
Company's repurchase right, which lapses over the vesting period.
The following table summarizes information about options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------
WEIGHTED- OPTIONS EXERCISABLE
AVERAGE ----------------------
WEIGHTED- REMAINING WEIGHTED-
AVERAGE CONTRACTUAL AVERAGE
EXERCISE EXERCISE LIFE EXERCISE
PRICE NUMBER PRICE (IN YEARS) NUMBER PRICE
- --------------- ---------- ----------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C>
$ 2.10--$2.80 732,890 $ 2.38 8.34 418,174 $ 2.30
$ 3.00--$3.38 127,908 $ 3.16 8.18 62,723 $ 3.15
$ 4.20--$5.63 410,795 $ 5.12 8.61 73,546 $ 3.27
$31.51 2,143 $ 31.51 7.72 2,143 $ 31.51
---------- ---------
1,273,736 $ 3.39 8.41 556,586 $ 2.64
---------- ---------
---------- ---------
</TABLE>
At December 31, 1997, 94,916 options were exercisable.
For certain options granted in 1997 and 1998, the Company has recognized
deferred compensation expense of approximately $1,480,000 and $635,000,
respectively. These amounts are being amortized to expense over the vesting
period of the options. A total of $118,000 and $461,000 was amortized to
compensation expense in 1997 and 1998, respectively.
During 1996, the Company adopted SFAS 123. Using the Black-Scholes method to
value options and stock purchase rights granted to employees subsequent to its
initial public offering and the minimum value method prior to the offering
resulted in a pro forma net loss of $14,930,000 and $4,175,000 and a pro forma
net loss per share of $4.60 and $41.75 for the year ended December 31, 1998 and
1997, respectively. The effect on historical net loss and net loss per share
amounts in 1996 was immaterial and has not be presented. In future years, the
applications of SFAS 123 may result in a pro forma net loss which is materially
different from actual reported results. The valuation methods were applied using
the following weighted average assumptions for 1995, 1996, 1997, and 1998
respectively; risk free interest rates of 6.34%, 6.35%, 6.0% and 5.0%, an
expected option life of 5 years and no annual dividends. Since newly public
companies do not have a statistical measure of historical volatility, an
expected volatility factor of 0.7 was used in 1998, which is comparable to
similarly situated companies in the biotechnology industry. The weighted-average
fair value of options and stock purchase rights granted with exercise prices
equal to the fair value of the Company's stock on the date of grant during 1995,
1996, 1997 and 1998 was $0.85, $0.85, $0.80 and $2.58, respectively.
F-32
<PAGE>
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. STOCKHOLDERS' EQUITY (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
In March 1998, the Board of Directors adopted the Employee Stock Purchase
Plan (the "Purchase Plan") covering an aggregate of 600,000 shares of common
stock. The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions at a price equal to the lower of 85% of the fair
market value at the beginning or end of the applicable offering period. No
shares were issued under the Purchase Plan through December 31, 1998.
RESERVED SHARES
The Company has reserved shares of common stock for future issuance as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Stock option and purchase plans:
Outstanding options......................................................... 1,273,736
Employee Stock Purchase Plan................................................ 600,000
Convertible preferred stock issued and outstanding.......................... 1,428,572
Upon exercise of Placement Agent Unit Options............................... 733,755
Class A warrants (including Class A warrants underlying Placement Agent Unit
Options).................................................................. 203,706
Common stock warrants....................................................... 200,157
Reserved for future grant or sale........................................... 303,660
------------
4,743,586
------------
------------
</TABLE>
7. INCOME TAXES
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net operating loss carryforward........................... $ 12,100,000 $ 10,430,000
Research and development credit carryforward.............. 1,100,000 950,000
Capitalized research and development...................... 600,000 1,050,000
Acquired research and development......................... 1,300,000 1,400,000
Other..................................................... 600,000 486,000
-------------- --------------
Gross deferred tax assets................................. 15,700,000 14,316,000
Valuation allowance....................................... (15,700,000) (14,316,000)
-------------- --------------
Net Deferred tax assets................................... $ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
The valuation allowance increased by $1,436,000 and $1,500,000 for the years
ended December 31, 1996 and 1997, respectively.
F-33
<PAGE>
RIBOGENE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
7. INCOME TAXES (CONTINUED)
As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $34,800,000. The Company also had federal and
state research and development tax credit carryforwards of approximately
$700,000 and $500,000, respectively. The net operating loss and credit
carryforwards will expire at various dates beginning on 2004 through 2018, if
not utilized.
The Tax Reform Act of 1986 contains provisions that limit the utilization of
net operating loss and tax credit carryforwards if there has been a "change of
ownership" as described in Section 382 of the Internal Revenue Code may limit
the Company's utilization of its net operating loss and tax credit
carryforwards.
8. SUBSEQUENT EVENTS
WARRANTS
In January 1999, the Company entered into an arrangement for services with a
consultant. In connection with this arrangement, the Company agreed to issue
warrants to purchase 125,000 shares of common stock at prices ranging from $3.00
to $4.20 per share based on the completion of certain contractual milestones.
The warrants will generally vest fully six months after the date of grant and be
exercisable for a period of five years from grant date. The Company will record
compensation expense as the services are provided.
F-34
<PAGE>
RIBOGENE, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED) (NOTE 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 10,214 $ 12,815
Short-term investments.............................................................. 15,479 16,703
Prepaid expenses and other current assets........................................... 145 90
----------- ------------
Total current assets.............................................................. 25,838 29,608
Property and equipment, net........................................................... 1,699 1,389
Deferred financing costs.............................................................. 534 622
Other assets.......................................................................... 185 201
----------- ------------
$ 28,256 $ 31,820
----------- ------------
----------- ------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 753 $ 1,456
Accrued development costs--related party............................................ 1,285 400
Accrued liabilities................................................................. 301 206
Deferred revenue--related party..................................................... 1,167 167
Other current liabilities........................................................... 952 845
Current portion of capital lease obligations........................................ 159 158
Current portion of notes payable.................................................... 310 115
----------- ------------
Total current liabilities......................................................... 4,927 3,347
----------- ------------
Long-term portion of capital lease obligations........................................ 144 224
Long-term portion of notes payable.................................................... 6,042 5,482
Other noncurrent liabilities.......................................................... 12 12
Stockholders' equity:
Preferred Stock, 5,000,000 shares, $0.001 par value, authorized at June 30, 1999 and
December 31, 1998, issuable in series; 1,428,572 shares issued and outstanding at
June 30, 1999 and December 31, 1998 (aggregate liquidation preference of
$10,000,000 at June 30, 1999 and December 31, 1998)............................... 1 1
Common stock, 30,000,000 shares, $0.001 par value, authorized at June 30, 1999 and
December 31, 1998; 5,783,956 and 5,774,421 shares issued and outstanding at June
30, 1999 and December 31, 1998, respectively...................................... 6 6
Additional paid-in capital............................................................ 67,139 66,990
Notes receivable from stockholders.................................................... (1) (147)
Deferred compensation................................................................. (1,491) (1,811)
Accumulated deficit................................................................... (48,435) (42,258)
Accumulated other comprehensive loss.................................................. (88) (26)
----------- ------------
Total stockholders' equity........................................................ 17,131 22,755
----------- ------------
$ 28,256 $ 31,820
----------- ------------
----------- ------------
</TABLE>
See accompanying notes.
F-35
<PAGE>
RIBOGENE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Contract research revenue from related parties....................... $ 503 $ 639 $ 1,003 $ 1,388
Grant revenue........................................................ -- 146 -- 403
Royalty revenue...................................................... 4 -- 4 --
--------- --------- --------- ---------
Total revenue...................................................... 507 785 1,007 1,791
--------- --------- --------- ---------
Operating expenses:
Research and development............................................. 2,454 1,428 5,165 2,604
General and administrative........................................... 1,237 550 2,399 1,011
--------- --------- --------- ---------
Total operating expenses........................................... 3,691 1,978 7,564 3,615
--------- --------- --------- ---------
Loss from operations................................................... (3,184) (1,193) (6,557) (1,824)
Interest income (expense), net......................................... 155 34 380 (35)
--------- --------- --------- ---------
Net loss............................................................... (3,029) (1,159) (6,177) (1,859)
Deemed dividend upon conversion of preferred stock..................... -- (7,989) -- (7,989)
--------- --------- --------- ---------
Net loss attributable to common stockholders........................... $ (3,029) $ (9,148) $ (6,177) (9,848)
--------- --------- --------- ---------
Basic net loss per common share........................................ $ (0.54) $ (5.24) $ (1.09) $ (10.59)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares of common stock outstanding.................... 5,661 1,746 5,660 930
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-36
<PAGE>
RIBOGENE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1999 1998
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................................................... $ (6,177) $ (1,859)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................................ 236 111
Amortization of warrants and deferred compensation....................................... 538 304
Forgiveness of stockholder notes......................................................... 146 --
Other.................................................................................... -- 10
Changes in assets and liabilities:
Prepaid expenses and other current assets................................................ (55) (119)
Other assets............................................................................. 16 (28)
Accounts payable......................................................................... (703) (472)
Deferred revenue--related parties........................................................ 1,000 611
Accrued expenses and other liabilities................................................... 1,087 (131)
--------- ----------
Net cash used in operating activities.................................................... (3,912) (1,573)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment........................................................ (546) (206)
Purchases of short-term investments........................................................ (6,233) (10,586)
Maturities of short-term investments....................................................... 7,395 --
--------- ----------
Net cash used in investing activities...................................................... 616 (10,792)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt............................................................... 881 --
Repayment of notes payable................................................................. (126) (1,000)
Principal payments on capital lease obligations............................................ (79) (108)
Deferred offering costs.................................................................... -- 1,142
Proceeds from issuances of common stock and warrants, net of issuance costs, repurchases
and repayment of stockholder notes....................................................... 19 16,444
Net proceeds from issuance of convertible preferred stock and warrants..................... -- 1,978
--------- ----------
Net cash provided by financing activities.................................................. 695 18,456
--------- ----------
Net increase in cash and cash equivalents.................................................. (2,601) 6,091
Cash and cash equivalents at beginning period.............................................. 12,815 2,045
--------- ----------
Cash and cash equivalents at end of period................................................. $ 10,214 $ 8,136
--------- ----------
--------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest..................................................................... $ 496 $ 285
--------- ----------
--------- ----------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Equipment purchased under capital leases................................................... $ -- $ 81
--------- ----------
--------- ----------
Deferred compensation related to stock option grants....................................... $ -- $ 635
--------- ----------
--------- ----------
</TABLE>
See accompanying notes.
F-37
<PAGE>
RIBOGENE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of RiboGene, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles and applicable Securities and Exchange Commission
regulations for interim financial information. These financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The unaudited financial
statements are intended to be read in conjunction with the audited financial
statements and footnotes thereto for the year ended December 31, 1998, contained
in the Company's Annual Report filed on Form 10-K with the Securities and
Exchange Commission on March 31, 1999. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for fair presentation of interim financial information have been included.
Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999.
2. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity from the
date of purchase of three months or less to be cash equivalents.
The Company classifies its investments as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, if any, reported in accumulated other comprehensive loss. As
June 30, 1999, the amortized cost of the Company's investments approximated
their fair value. The Company's comprehensive loss for the six month period
ended June 30, 1999 and 1998, approximated the Company's net loss. Realized
gains and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in income. The Company has not
experienced any realized gains or losses on its cash equivalents. The cost of
securities sold is based on the specific identification method. Cash and cash
equivalents and short-term investments at June 30, 1999 and December 31, 1998,
consist of the following (in thousands) at fair value:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Demand deposits with banks and investment in money market
funds.......................................................... $ 10,214 $ 12,815
Corporate debt securities, including accrued interest
Maturing 1999................................................ 6,830 13,133
Maturing 2000................................................ 8,649 3,570
--------- ------------
$ 25,693 $ 29,518
--------- ------------
--------- ------------
</TABLE>
3. NOTES PAYABLE
In December 1998, the Company received $5,000,000 in proceeds from the
issuance of a long-term note payable to a bank. The note required monthly
interest only payments at prime plus 1%. The rate at June 30, 1999 was 8.75%.
The principal is due at the end of the three-year term. The loan is
collateralized by a perfected security interest in all the unencumbered assets
of the Company and requires that the Company maintain its depository accounts
with the bank with a minimum of $5,000,000 in aggregate cash and depository
balances. The Company is also required to comply with
F-38
<PAGE>
RIBOGENE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. NOTES PAYABLE (CONTINUED)
financial covenants based on certain ratios. At June 30, 1999, the Company was
in compliance with all required covenants.
4. NET LOSS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), basic net loss per share has been computed
using the weighted-average number of shares of common stock outstanding during
the period, excluding certain shares which are subject to the Company's
contractual right of repurchase.
Pro forma net loss per share giving effect to the conversion of the
convertible preferred stock that automatically converted upon completion of the
Company's initial public offering (using the as-if converted method) from the
original date of issuance for the three and six months ended June 30, 1998 was
$2.69 and $3.35, respectively. Shares used in computing the pro forma net loss
per share were 3,397,000 and 2,936,000 for the three and six months ended June
30, 1998.
Diluted net loss per share has not been presented separately as, due to the
Company's net loss position, it is antidilutive. Had the Company been in a net
income position at June 30, 1999, shares used in calculating diluted earnings
per share may have included the effect of up to an additional 2,435,457 total
shares related to outstanding stock options and warrants (prior to the
application of the treasury stock method), and 1,428,572 shares related to
convertible preferred stock.
5. STOCK OPTIONS AND WARRANTS
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected
to account for stock options and purchase rights granted to employees using the
intrinsic value method and, accordingly, does not recognize compensation expense
for options and purchase rights granted to employees with exercise prices which
are not less than fair value of the underlying common stock.
For equity awards to non-employees, including lenders and lessors, the
Company applies the Black-Scholes method to determine the fair value of such
instruments. The value is recognized as expense over the period of services
received or the term of the related financing.
6. SUBSEQUENT EVENT
On August 5, 1999, the Company signed a definitive merger agreement to form
a fully integrated pharmaceutical marketing and late stage product development
company with Cypros Pharmaceutical Corporation ("Cypros"). Structurally, the
Company will be merged with a subsidiary of Cypros and become a wholly owned
subsidiary of Cypros. As a result of their merger, each outstanding share of
RiboGene common stock will be converted into the right to receive approximately
1.494 shares of Cypros common stock based on the fully diluted capitalization of
both companies as of the signing of the agreement. The exchange ratio is subject
to adjustment if the market price of Cypros common stock is more than $2.47 or
less than $1.46 as of the closing. The final exchange ratio would also reflect
changes in the fully diluted capitalization of the two companies through
closing. The transaction is structured to be a tax-free reorganization and will
be accounted for as a purchase. The merger is subject to customary closing
conditions and shareholder approval and is expected to close in late 1999. For a
further discussion of the proposed merger, see Item 5 herein.
F-39
<PAGE>
ANNEX A
AGREEMENT AND PLAN REORGANIZATION
AMONG:
CYPROS PHARMACEUTICAL CORPORATION
A CALIFORNIA CORPORATION;
CYPROS ACQUISITION CORPORATION,
A DELAWARE CORPORATION;
AND
RIBOGENE, INC.,
A DELAWARE CORPORATION;
DATED AS OF AUGUST 4, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<C> <S> <C>
1. DESCRIPTION OF TRANSACTION........................................................................... A-1
1.1 Merger of Merger Sub into the Company............................................................ A-1
1.2 Effect of the Merger............................................................................. A-1
1.3 Closing; Effective Time.......................................................................... A-1
1.4 Charters and Bylaws; Directors and Officers...................................................... A-2
1.5 Conversion of Securities......................................................................... A-2
1.6 Company Warrants................................................................................. A-4
1.7 Employee Stock Purchase Plan..................................................................... A-4
1.8 Closing of the Company's Transfer Books.......................................................... A-4
1.9 Exchange of Certificates......................................................................... A-5
1.10 Tax Consequences................................................................................ A-6
1.11 Accounting Consequences......................................................................... A-6
1.12 Further Action.................................................................................. A-6
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................................ A-6
2.1 Due Organization; Subsidiaries; Etc.............................................................. A-6
2.2 Certificate of Incorporation and Bylaws.......................................................... A-7
2.3 Capitalization, Etc.............................................................................. A-7
2.4 SEC Filings; Financial Statements; Accounting Controls........................................... A-8
2.5 Absence of Certain Changes or Events............................................................. A-9
2.6 Title to Assets.................................................................................. A-9
2.7 Proprietary Assets............................................................................... A-9
2.8 Contracts........................................................................................ A-10
2.9 Permits; Compliance with Legal Requirements...................................................... A-12
2.10 Certain Business Practices...................................................................... A-12
2.11 Tax Matters..................................................................................... A-12
2.12 Employee Benefit Plans.......................................................................... A-13
2.13 Insurance....................................................................................... A-14
2.14 Transactions with Affiliates.................................................................... A-14
2.15 Litigation...................................................................................... A-14
2.16 Properties...................................................................................... A-14
2.17 Environmental Matters........................................................................... A-15
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
-----------
<C> <S> <C>
2.18 Company Action.................................................................................. A-15
2.19 Enforceability.................................................................................. A-15
2.20 Governmental Consents; No Conflicts............................................................. A-15
2.21 Year 2000 Preparedness.......................................................................... A-16
2.22 Regulatory Matters.............................................................................. A-16
2.23 Certain Collaboration Agreements................................................................ A-17
2.24 Vote Required................................................................................... A-17
2.25 Fairness Opinion................................................................................ A-17
2.26 Financial Advisor............................................................................... A-17
2.27 Voting Agreements; Preferred Stock Waiver....................................................... A-17
2.28 Disclosure...................................................................................... A-18
2.29 Company Rights Plan............................................................................. A-18
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.............................................. A-19
3.1 Due Organization; Subsidiaries; Etc.............................................................. A-19
3.2 Articles of Incorporation and Bylaws............................................................. A-19
3.3 Capitalization, Etc.............................................................................. A-19
3.4 SEC Filings; Financial Statements; Accounting Controls........................................... A-20
3.5 Absence of Certain Changes or Events............................................................. A-21
3.6 Title to Assets.................................................................................. A-21
3.7 Proprietary Assets............................................................................... A-21
3.8 Contracts........................................................................................ A-22
3.9 Permits; Compliance with Legal Requirements...................................................... A-23
3.10 Certain Business Practices...................................................................... A-24
3.11 Tax Matters..................................................................................... A-24
3.12 Employee Benefit Plans.......................................................................... A-25
3.13 Insurance....................................................................................... A-25
3.14 Transactions with Affiliates.................................................................... A-26
3.15 Litigation...................................................................................... A-26
3.16 Properties...................................................................................... A-26
3.17 Environmental Matters........................................................................... A-26
3.18 Parent Action................................................................................... A-27
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3.19 Enforceability.................................................................................. A-27
3.20 Governmental Consents; No Conflicts............................................................. A-27
3.21 Year 2000 Preparedness.......................................................................... A-27
3.22 Regulatory Matters.............................................................................. A-28
3.23 Vote Required................................................................................... A-28
3.24 Fairness Opinion................................................................................ A-28
3.25 Financial Advisor............................................................................... A-28
3.26 Voting Agreements............................................................................... A-29
3.27 Disclosure...................................................................................... A-29
3.28 Interim Operations of Merger Sub................................................................ A-29
4. CERTAIN COVENANTS OF PARENT, MERGER SUB AND THE COMPANY.............................................. A-29
4.1 Company Access and Investigation................................................................. A-29
4.2 Operation of the Company's Business.............................................................. A-30
4.3 No Solicitation.................................................................................. A-32
4.4 Parent Access and Investigation.................................................................. A-33
4.5 Operation of Parent's Business................................................................... A-34
4.6 No Solicitation.................................................................................. A-36
5. ADDITIONAL COVENANTS OF THE PARTIES.................................................................. A-37
5.1 Registration Statement; Prospectus/Proxy Statement............................................... A-37
5.2 Company Stockholders' Meeting.................................................................... A-37
5.3 Parent Shareholders' Meeting..................................................................... A-38
5.4 Regulatory Approvals............................................................................. A-39
5.5 Stock Options.................................................................................... A-40
5.6 Employee Benefits................................................................................ A-40
5.7 Indemnification of Officers and Directors........................................................ A-40
5.8 Additional Agreements............................................................................ A-41
5.9 Disclosure....................................................................................... A-41
5.10 Affiliate Agreements............................................................................ A-41
5.11 Tax Matters..................................................................................... A-41
5.12 Listing......................................................................................... A-42
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5.13 Certain Parent Regulatory Matters............................................................... A-42
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB......................................... A-42
6.1 Accuracy of Representations...................................................................... A-42
6.2 Performance of Covenants......................................................................... A-43
6.3 Effectiveness of Registration Statement.......................................................... A-43
6.4 Stockholder Approval............................................................................. A-43
6.5 Consents......................................................................................... A-43
6.6 Agreements and Documents......................................................................... A-43
6.7 Company Rights Plan.............................................................................. A-44
6.8 Directors and Officers........................................................................... A-44
6.9 Listing.......................................................................................... A-44
6.10 No Restraints................................................................................... A-44
6.11 No Governmental Litigation...................................................................... A-44
7. CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY.................................................... A-44
7.1 Accuracy of Representations...................................................................... A-44
7.2 Performance of Covenants......................................................................... A-45
7.3 Effectiveness of Registration Statement.......................................................... A-45
7.4 Stockholder Approval............................................................................. A-45
7.5 Consents......................................................................................... A-45
7.6 Agreements and Documents......................................................................... A-45
7.7 Listing.......................................................................................... A-46
7.8 No Restraints.................................................................................... A-46
7.9 No Governmental Litigation....................................................................... A-46
8. TERMINATION.......................................................................................... A-46
8.1 Termination...................................................................................... A-46
8.2 Effect of Termination............................................................................ A-47
8.3 Expenses; Termination Fees....................................................................... A-47
9. MISCELLANEOUS PROVISIONS............................................................................. A-48
9.1 Amendment........................................................................................ A-48
9.2 Waiver........................................................................................... A-48
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9.3 No Survival of Representations and Warranties.................................................... A-49
9.4 Entire Agreement; Counterparts................................................................... A-49
9.5 Applicable Law; Jurisdiction..................................................................... A-49
9.6 Disclosure Schedules............................................................................. A-49
9.7 Attorneys' Fees.................................................................................. A-49
9.8 Assignability.................................................................................... A-49
9.9 Notices.......................................................................................... A-50
9.10 Severability.................................................................................... A-50
9.11 Cooperation..................................................................................... A-50
9.12 Construction.................................................................................... A-51
</TABLE>
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made and entered
into as of August 4, 1999, by and among: CYPROS PHARMACEUTICAL CORPORATION, a
California corporation ("Parent"); CYPROS ACQUISITION CORPORATION, a Delaware
corporation and a wholly owned subsidiary of Parent ("Merger Sub"); and
RIBOGENE, INC., a Delaware corporation (the "Company"). Certain capitalized
terms used in this Agreement are defined in Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub into the Company in accordance with this Agreement and the Delaware General
Corporation Law (the "Merger"). Upon consummation of the Merger, Merger Sub will
cease to exist, and the Company will become a wholly owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Code. For financial reporting
purposes, it is intended that the Merger be accounted for as a "purchase."
C. The respective boards of directors of Parent, Merger Sub and the Company
have approved and adopted this Agreement and approved the Merger.
D. In order to induce Parent and the Company to enter into this Agreement
and to consummate the Merger, certain shareholders of Parent and stockholders
the Company are entering into Voting Agreements pursuant to which they are
agreeing to vote in favor of the adoption and approval of this Agreement and the
approval of the Merger.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the Delaware General
Corporation Law (the "DGCL").
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward llp, located at 4365 Executive Drive, Suite 1100, San Diego,
California, at 10:00 a.m. on a date to be mutually agreed by the parties (the
"Closing Date"), which shall be no later than the second business day after the
satisfaction or waiver of the conditions set forth in Sections 6 and 7.
Contemporaneously with or as promptly as practicable after the Closing, the
parties hereto shall cause a properly executed certificate of merger conforming
to the requirements of the DGCL (the "Certificate of Merger") to be filed with
the Secretary of State of the State of Delaware. The Merger shall take effect at
the time the Certificate of Merger is filed with the Secretary of State of the
State of Delaware or at such later time as may be specified in the Certificate
of Merger (the "Effective Time").
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1.4 CHARTERS AND BYLAWS; DIRECTORS AND OFFICERS. Unless otherwise
determined by Parent and the Company prior to the Effective Time:
(A) Parent shall take all necessary actions, including expanding the size
of its board of directors, such that the directors and officers of Parent
immediately after the Effective Time shall be the individuals identified on
Exhibit B;
(B) the Articles of Incorporation of Parent shall be amended and restated
as of the Effective Time to (i) increase the authorized common stock and
preferred stock of Parent, (ii) establish blank check preferred stock, (iii)
designate the rights, preferences and privileges of the Parent Preferred Stock,
and (iv) effect such other amendments as are set forth in the form of Amended
and Restated Articles of Incorporation attached hereto as Exhibit C (the
"Amended Articles"), and the Bylaws of Parent shall be amended and restated as
of the Effective Time to increase the authorized number of directors on the
Board of Directors;
(C) the Certificate of Incorporation of the Surviving Corporation shall be
amended and restated as of the Effective Time to conform to the Certificate of
Incorporation of Merger Sub as in effect immediately prior to the Effective
Time;
(D) the Bylaws of the Surviving Corporation shall be amended and restated
as of the Effective Time to conform to the Bylaws of Merger Sub as in effect
immediately prior to the Effective Time; and
(E) the directors and officers of the Surviving Corporation immediately
after the Effective Time shall be the respective individuals identified in
Exhibit B.
1.5 CONVERSION OF SECURITIES.
(A) Subject to Sections 1.5(b) through (e), at the Effective Time, by
virtue of the Merger and without any further action on the part of Parent,
Merger Sub, the Company or any stockholder of the Company:
(I) any shares of Company Common Stock then held by the Company or any
Subsidiary of the Company (or held in the Company's treasury) shall be
canceled and retired and shall cease to exist at the Effective Time, and no
consideration shall be delivered in exchange therefor;
(II) any shares of Company Common Stock then held by Parent, Merger Sub
or any other Subsidiary of Parent shall be canceled and retired and shall
cease to exist at the Effective Time, and no consideration shall be
delivered in exchange therefor;
(III) each share of the common stock, $0.001 par value per share, of
Merger Sub then outstanding shall be converted into one share of common
stock of the Surviving Corporation;
(IV) except as provided in clauses "(i)" and "(ii)" of this sentence,
each share of Company Common Stock then outstanding shall be converted into
the right to receive (A) one share of Parent Common Stock multiplied by (B)
the Exchange Ratio (as defined in Section 1.5(b)(ii) (Parent and the Company
agree that as of the date of this Agreement (without taking into account any
of the potential adjustments provided in this Agreement), the Exchange Ratio
would be 1.494).
(V) each share of Company Preferred Stock then outstanding shall be
converted into the right to receive (A) one share of Parent Preferred Stock
multiplied by (B) the Exchange Ratio.
(B) For purposes of this Agreement:
(I) The term "Company Outstanding Shares" shall mean, as of the close of
business on the day immediately preceding the date of the Company
Stockholders' Meeting, the sum of (A) the total number of outstanding shares
of Company Common Stock, (B) the total number of shares of
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Company Common Stock into which all outstanding Company Preferred Stock is
then convertible in accordance with the Company Certificate of
Incorporation, (C) the total number of shares of Company Common Stock which
are issuable upon exercise of all outstanding Company Options, and (D) the
total number of shares of Company Common Stock issuable upon exercise of all
outstanding Company Warrants.
(II) The term "Exchange Ratio" shall mean a fraction equal to (A) the
Merger Shares divided by (B) the Company Outstanding Shares.
(III) The term "Merger Shares" shall mean the total number of Parent
Outstanding Shares multiplied by a fraction, the numerator of which is 45
and the denominator of which is 55; PROVIDED, HOWEVER, that (I) in the event
the average closing price of Parent's Common Stock as reported on the
American Stock Exchange, Inc. ("AMEX") for the twenty (20) trading days
(whether or not such stock is actually traded on any such day) ending the
day immediately preceding the date of the Parent Shareholders' Meeting (the
"Parent Closing Price") exceeds the closing price per share of Parent's
Common Stock as reported on AMEX on the date this Agreement is executed (the
"Signing Date Closing Price") by more than twenty percent (20%) of the
Signing Date Closing Price, then the total Merger Shares shall equal
$36,921,567 divided by the Parent Closing Price; (II) in the event the
Parent Closing Price is less than the Signing Date Closing Price by an
amount equal to more than twenty-nine percent (29%) of the Signing Date
Closing Price, then the total Merger Shares shall equal $21,839,666 divided
by the Parent Closing Price and (III) the total Merger Shares shall be
reduced by 403,549 shares.
(IV) The term "Parent Outstanding Shares" shall mean, as of the close of
business on the day immediately preceding the date of the Parent
Shareholders' Meeting, the sum of (A) the total number of outstanding shares
of Parent Common Stock, (B) the total number of shares of Parent Common
Stock which are issuable upon exercise of all outstanding Parent Options,
and (C) the total number of shares of Parent Common Stock issuable upon
exercise of all Outstanding Parent Warrants.
(C) If any shares of Company Common Stock outstanding immediately prior to
the Effective Time are subject to vesting conditions, a repurchase option, risk
of forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with the Company or under which the Company has any
rights (as in effect immediately prior to the Effective Time), then the shares
of Parent Common Stock issued in exchange for such shares of Company Common
Stock will be subject to the same vesting conditions, repurchase option, risk of
forfeiture or other terms and conditions in accordance with such applicable
restricted stock purchase agreement or other agreement with the Company, and the
certificates representing such shares of Parent Common Stock shall accordingly
be marked with appropriate legends. The Company shall take all action that may
be necessary to ensure that, from and after the Effective Time, Parent is
entitled to exercise any such repurchase option or other right set forth in any
such restricted stock purchase agreement or other agreement.
(D) No fractional shares of Parent Common Stock or Parent Preferred Stock
shall be issued in connection with the Merger, and no certificates or scrip for
any such fractional shares shall be issued. Any holder of Company Common Stock
or Company Preferred Stock who would otherwise be entitled to receive a fraction
of a share of Parent Common Stock or Parent Preferred Stock (after aggregating
all fractional shares of Parent Common Stock or Parent Preferred Stock issuable
to such holder, as applicable) shall, in lieu of such fraction of a share and
upon surrender of such holder's Company Stock Certificate(s) (as defined in
Section 1.8), be paid in cash the dollar amount (rounded to the nearest whole
cent), without interest, determined by multiplying such fraction by the Parent
Closing Price.
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(E) All rights with respect to Company Common Stock under Company Options
outstanding immediately prior to the Effective Time, if any, shall be converted
into and become rights with respect to Parent Common Stock, and Parent shall
assume each Company Option in accordance with the terms (as in effect
immediately prior to the Effective Time) of the Company's 1993 Stock Plan, 1997
Equity Incentive Plan, 1998 Non-Officer Equity Incentive Plan and 1997
Non-Employee Directors' Stock Option Plan and the stock option agreements by
which such options are evidenced, other than provisions contained in such plans
and agreements which grant the plan administrator discretion with respect to the
terms and provisions of such plans and agreements. From and after the Effective
Time, (i) each Company Option assumed by Parent may be exercised solely for
shares of Parent Common Stock, (ii) the number of shares of Parent Common Stock
subject to each Company option shall be equal to the number of shares of Company
Common Stock subject to such Company Option immediately prior to the Effective
Time multiplied by the Exchange Ratio, rounding to the nearest whole share,
(iii) the per share exercise price under each such Company Option shall be
adjusted by dividing the per share exercise price under each such Company Option
by the Exchange Ratio and rounding to the nearest cent and (iv) the term,
exercisability, vesting schedule and other provisions of such Company Option
shall otherwise remain unchanged.
1.6 COMPANY WARRANTS. At the Effective Time, Parent shall assume each
Company Warrant in accordance with the terms (as in effect as of the date
hereof) of such Company Warrant (except to the extent that a holder of a Company
Warrant has elected to require the Company to repurchase such Common Warrant in
accordance with its terms). From and after the Effective Time, (i) each Company
Warrant assumed by Parent may be exercised solely for shares of Parent Common
Stock, (ii) the number of shares of Parent Common Stock subject to each Company
Warrant shall be equal to the number of shares of Company Common Stock subject
to such Company Warrant immediately prior to the Effective Time multiplied by
the Exchange Ratio, rounding to the nearest whole share, (iii) the per share
exercise price under each such Company Warrant shall be equal to the per share
exercise price under such Company Warrant divided by the Exchange Ratio,
rounding to the nearest cent and (iv) any restriction on the exercise of any
Company Warrant shall continue in full force and effect and the term,
exercisability and other provisions of such Company Warrant shall otherwise
remain unchanged. The Company shall take all action that may be necessary (under
the Company Warrants and otherwise) to effectuate the provisions of this Section
1.6 and to ensure that, from and after the Effective Time, holders of Company
Warrants have no rights with respect thereto other than those specifically
provided herein.
1.7 EMPLOYEE STOCK PURCHASE PLAN. As of the Effective Time, the Company's
1997 Employee Stock Purchase Plan ("ESPP") shall be terminated. The rights of
participants in the ESPP with respect to any offering period then underway under
the ESPP shall be determined by treating the last business day prior to the
Effective Time as the last day of such offering period and by making such other
pro-rata adjustments as may be necessary to reflect the reduced offering period
but otherwise treating such offering period as a fully effective and completed
offering period for all purposes of such Plan. Prior to the Effective Time, the
Company shall take all actions (including, if appropriate, amending the terms of
the ESPP) that are necessary to give effect to the transactions contemplated by
this Section 1.7.
1.8 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time: (a) all
shares of Company Common Stock and Company Preferred Stock outstanding
immediately prior to the Effective Time shall automatically be canceled and
retired and shall cease to exist, and all holders of certificates representing
shares of Company Common Stock and Company Preferred Stock that were outstanding
immediately prior to the Effective Time shall cease to have any rights as
stockholders of the Company; and (b) the stock transfer books of the Company
shall be closed with respect to all shares of Company Common Stock and Company
Preferred Stock outstanding immediately prior to the Effective Time. No further
transfer of any such shares of Company Common Stock or Company Preferred Stock
shall be
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made on such stock transfer books after the Effective Time. If, after the
Effective Time, a valid certificate previously representing any shares of
Company Common Stock or Company Preferred Stock (a "Company Stock Certificate")
is presented to the Exchange Agent (as defined in Section 1.9) or to the
Surviving Corporation or Parent, such Company Stock Certificate shall be
canceled and shall be exchanged as provided in Section 1.9.
1.9 EXCHANGE OF CERTIFICATES.
(A) American Securities Transfer & Trust, Inc. or such other reputable bank
or trust company selected by Parent (and reasonably acceptable to the Company)
prior to the Closing Date shall act as exchange agent in the Merger (the
"Exchange Agent"). Promptly after the Effective Time, Parent shall deposit with
the Exchange Agent (i) certificates representing the shares of Parent Common
Stock issuable pursuant to this Section 1, (ii) the certificates representing
the shares of Parent Preferred Stock issuable pursuant to this Section 1, and
(iii) cash sufficient to make payments in lieu of fractional shares in
accordance with Section 1.5(d). The shares of Parent Common Stock and cash
amounts so deposited with the Exchange Agent, together with any dividends or
distributions received by the Exchange Agent with respect to such shares, are
referred to collectively as the "Exchange Fund."
(B) As soon as reasonably practicable after the Effective Time, the
Exchange Agent will mail to the record holders of Company Stock Certificates (i)
a letter of transmittal in customary form and containing such provisions as
Parent may reasonably specify (including a provision confirming that delivery of
Company Stock Certificates shall be effected, and risk of loss and title to
Company Stock Certificates shall pass, only upon delivery of such Company Stock
Certificates to the Exchange Agent), and (ii) instructions for use in effecting
the surrender of Company Stock Certificates in exchange for certificates
representing Parent Common Stock or Parent Preferred Stock (as the case may be).
Upon surrender of a Company Stock Certificate to the Exchange Agent for
exchange, together with a duly executed letter of transmittal and such other
documents as may be reasonably required by the Exchange Agent or Parent, (1) the
holder of such Company Stock Certificate shall be entitled to receive in
exchange therefor a certificate representing the number of whole shares of
Parent Common Stock or Parent Preferred Stock that such holder has the right to
receive pursuant to the provisions of Section 1.5 (and cash in lieu of any
fractional share of Parent Common Stock or Parent Preferred Stock), and (2) the
Company Stock Certificate so surrendered shall be canceled. Until surrendered as
contemplated by this Section 1.9(b), each Company Stock Certificate shall be
deemed, from and after the Effective Time, to represent only the right to
receive shares of Parent Common Stock (and cash in lieu of any fractional share
of Parent Common Stock) or Parent Preferred Stock (and cash in lieu of any
fractional share of Parent Preferred Stock), as the case may be, as contemplated
by Section 1. If any Company Stock Certificate shall have been lost, stolen or
destroyed, Parent may, in its discretion and as a condition precedent to the
issuance of any certificate representing Parent Common Stock or Parent Preferred
Stock, require the owner of such lost, stolen or destroyed Company Stock
Certificate to provide an appropriate affidavit and to deliver a bond (in such
sum as Parent may reasonably direct) as indemnity against any claim that may be
made against the Exchange Agent, Parent or the Surviving Corporation with
respect to such Company Stock Certificate.
(C) No dividends or other distributions declared or made with respect to
Parent Common Stock or Parent Preferred Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Company Stock
Certificate with respect to the shares of Parent Common Stock or Parent
Preferred Stock which such holder has the right to receive upon surrender
thereof until such holder surrenders such Company Stock Certificate in
accordance with this Section 1.9 (at which time such holder shall be entitled,
subject to the effect of applicable escheat or similar laws, to receive all such
dividends and distributions, without interest).
(D) Any portion of the Exchange Fund that remains undistributed to holders
of Company Stock Certificates as of the date one year after the date on which
the Merger becomes effective shall be
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delivered to Parent upon demand, and any holders of Company Stock Certificates
who have not theretofore surrendered their Company Stock Certificates in
accordance with this Section 1.9 shall thereafter look only to Parent for
satisfaction of their claims for Parent Common Stock or Parent Preferred Stock,
cash in lieu of fractional shares of Parent Common or Parent Preferred Stock and
any dividends or distributions with respect to Parent Common Stock or Parent
Preferred Stock.
(E) Each of the Exchange Agent, Parent and the Surviving Corporation shall
be entitled to deduct and withhold from any consideration payable or otherwise
deliverable pursuant to this Agreement to any holder or former holder of Company
Common Stock or Company Preferred Stock such amounts as may be required to be
deducted or withheld therefrom under the Code or any provision of state, local
or foreign tax law or under any other applicable Legal Requirement. To the
extent such amounts are so deducted or withheld, such amounts shall be treated
for all purposes under this Agreement as having been paid to the Person to whom
such amounts would otherwise have been paid.
(F) Neither Parent nor the Surviving Corporation shall be liable to any
holder or former holder of Company Common Stock or Company Preferred Stock or to
any other Person with respect to any shares of Parent Common Stock or Parent
Preferred Stock (or dividends or distributions with respect thereto), or for any
cash amounts, delivered to any public official pursuant to any applicable
abandoned property law, escheat law or similar Legal Requirement.
1.10 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
1.11 ACCOUNTING CONSEQUENCES. For financial reporting purposes, the Merger
is intended to be accounted for as a "purchase."
1.12 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full right,
title and possession of and to all rights and property of Merger Sub and the
Company, the officers and directors of the Surviving Corporation and Parent
shall be fully authorized (in the name of Merger Sub, in the name of the Company
and otherwise) to take such action.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub, except as set
forth in the Company Disclosure Schedule, as follows:
2.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(A) The Company and each of its Subsidiaries ("Company Subsidiaries") is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation. The Company and each Company
Subsidiary has all necessary power and authority to: (i) conduct its business in
the manner in which its business is currently being conducted; (ii) own and use
its assets in the manner in which its assets are currently owned and used; and
(iii) perform its obligations under all Contracts by which it is bound. There
are no Company Subsidiaries other than RiboGene AG. The Company does not own or
hold directly or indirectly, any debt or equity securities of, or have any other
interest in any Entity other than RiboGene AG and the Company has not entered
into any contract or otherwise become obligated to acquire any such interest.
(B) The Company does not own directly or indirectly, through any Company
Subsidiary or otherwise, any Parent Stock.
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(C) The Company and each Company Subsidiary is qualified to do business as
a foreign corporation, and is in good standing, under the laws of all
jurisdictions where the nature of its business requires such qualification and
where the failure to be so qualified would reasonably be expected to have a
Material Adverse Effect on the Company.
(D) The Company owns all of the outstanding equity interests in RiboGene
AG, a German company, which has been funded by the Company as set forth on
Schedule 2.1(d). RiboGene AG has not begun any business operations.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS. Complete and accurate copies
of the Company's Certificate of Incorporation, including any Certificate of
Designation, and Bylaws (or comparable charter documents), each as amended to
date, of the Company are filed as exhibits to the Company SEC Documents. The
Company has delivered to Parent accurate and complete copies of the certificate
of incorporation, bylaws and other charter and organizational documents of the
Company and each Company Subsidiary, including all amendments thereto.
2.3 CAPITALIZATION, ETC.
(A) The authorized capital stock of the Company consists of: (i) 30,000,000
shares of Company Common Stock, $.001 par value per share, of which 5,788,642
shares have been issued and are outstanding as of the date of this Agreement;
and (ii) 5,000,000 shares of Preferred Stock, $.001 par value per share, of
which 1,428,572 shares have been issued and are outstanding. All of the
outstanding shares of Company Common Stock and Company Preferred Stock have been
duly authorized and validly issued, and are fully paid and nonassessable. Except
as set forth in Schedule 2.3(a) of the Company Disclosure Schedule: (i) none of
the outstanding shares of Company Common Stock or Company Preferred Stock is
entitled or subject to any preemptive right, right of participation, right of
maintenance or any similar right; (ii) none of the outstanding shares of Company
Common Stock or Company Preferred Stock is subject to any right of first refusal
in favor of the Company; and (iii) there is no Contract relating to the voting
or registration of, or restricting any Person from purchasing, selling, pledging
or otherwise disposing of (or granting any option or similar right with respect
to), any shares of Company Common Stock or Company Preferred Stock. The Company
is not under any obligation or bound by any Contract pursuant to which it may
become obligated to repurchase, redeem or otherwise acquire any outstanding
shares of Company Common Stock or Company Preferred Stock. The Company is the
sole owner of each outstanding share of capital stock and/or other equity
interests in each Company Subsidiary. The exercise prices of all of the Company
Warrants exceed the Signing Date Closing Price.
(B) As of the date of this Agreement: 1,191,489 shares of Company Common
Stock are subject to issuance pursuant to outstanding options to purchase shares
of Company Common Stock. (Stock options granted by the Company pursuant to the
Company's stock option plans and otherwise are referred to in this Agreement as
"Company Options."). The Company has made available to Parent (A) accurate and
complete copies of all stock option plans pursuant to which the Company has ever
granted stock options, and the forms of all stock option agreements evidencing
such options and (B) a list detailing (i) each Company Option outstanding as of
the date of this Agreement; (ii) the particular plan (if any) pursuant to which
such Company Option was granted; (iii) the name of the optionee; (iv) the number
of shares of Company Common Stock subject to such Company Option; (v) the
exercise price of such Company Option; (vi) the date on which such Company
Option was granted; (vii) the applicable vesting schedules, and the extent to
which such Company Option is vested and exercisable as of the date of this
Agreement; and (vii) the date on which such Company Option expires. As of the
date of this Agreement, 585,818 shares of Company Common Stock are reserved for
future issuance pursuant to the Company's 1997 Employee Stock Purchase Plan (the
"ESPP").
(C) Except as set forth in Schedule 2.3(c) of the Company Disclosure
Schedule, there is no: (i) outstanding subscription, option (other than Company
Options described under Section 2.3(b)), call,
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warrant or right (whether or not currently exercisable) to acquire any shares of
the capital stock or other securities of the Company or any Company Subsidiary;
(ii) outstanding security, instrument or obligation that is or may become
convertible into or exchangeable for any shares of the capital stock or other
securities of the Company or any Company Subsidiary; (iii) stockholder rights
plan (or similar plan commonly referred to as a "poison pill") or Contract under
which the Company or any Company Subsidiary is or may become obligated to sell
or otherwise issue any shares of its capital stock or any other securities; or
(iv) to the best of the knowledge of the Company, condition or circumstance that
may give rise to or provide a basis for the assertion of a claim by any Person
to the effect that such Person is entitled to acquire or receive any shares of
capital stock or other securities of the Company or any Company Subsidiary.
(D) All outstanding shares of Company Common Stock and all outstanding
shares of Company Preferred Stock have been issued and granted in compliance
with (i) all applicable securities laws and other applicable Legal Requirements,
and (ii) all requirements set forth in applicable Contracts.
2.4 SEC FILINGS; FINANCIAL STATEMENTS; ACCOUNTING CONTROLS.
(A) The Company has delivered or made available (including through the SEC
EDGAR system) to Parent accurate and complete copies of all registration
statements, proxy statements and other statements, reports, schedules, forms and
other documents filed by the Company with the SEC or AMEX since December 31,
1996, and all amendments thereto (the "Company SEC Documents"). All statements,
reports, schedules, forms and other documents required to have been filed by the
Company with the SEC or AMEX have been so filed and were prepared and timely
filed and complied in all material respects with the applicable requirements of
the Securities Act, the Exchange Act and all other applicable laws and
regulations. As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing): (i) each of the Company SEC Documents complied in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act (as the case may be); and (ii) none of the Company SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(B) The financial statements (including any related notes) contained in the
Company SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered (except as may be indicated in
the notes to such financial statements or, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC, and except that the unaudited financial
statements may not contain footnotes and are subject to normal and recurring
year-end adjustments which will not, individually or in the aggregate, be
material in amount), and (iii) fairly present the consolidated financial
position of the Company as of the respective dates thereof and the consolidated
results of operations and cash flows of the Company and its subsidiaries for the
periods covered thereby.
(C) The Company has delivered to Parent an unaudited consolidated balance
sheet of the Company and its subsidiaries as of June 30, 1999 (the "Company
Unaudited Interim Balance Sheet"), and the related unaudited consolidated
statement of operations, statement of stockholders' equity and statement of cash
flows of the Company and its subsidiaries for the six (6) months then ended. The
financial statements referred to in this Section 2.4(c): (i) were prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with the basis on which the financial statements referred to in
Section 2.4(b) were prepared (except that such financial statements do not
contain footnotes and are subject to normal and recurring year-end adjustments
which will not, individually or in the aggregate, be material in amount), and
(ii) fairly present the consolidated
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financial position of the Company and its subsidiaries as of June 30, 1999 and
the consolidated results of operations and cash flows of the Company and its
subsidiaries for the periods covered thereby.
(D) The Company and each Company Subsidiary maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1999, there has
not been (a) any change, or any development or combination of changes or
developments that has had or would reasonably be expected to have a Material
Adverse Effect on the Company, (b) any damage, destruction or loss of any of the
assets of the Company, whether or not covered by insurance, that has had or
would reasonably be expected to have a Material Adverse Effect on the Company,
or (c) any transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary course
of business) which would be prohibited by Section 4.2 if it were to occur or be
effected between the date of this Agreement and the Effective Time.
2.6 TITLE TO ASSETS. The Company owns, and has good, valid and marketable
title to, or, in the case of leased assets, valid leasehold interests in, all
assets reflected on the Company Unaudited Interim Balance Sheet. All of said
assets are owned or leased by the Company free and clear of any material
Encumbrances, except for (1) any lien for current taxes not yet due and payable,
(2) minor liens that have arisen in the ordinary course of business and that do
not (in any case or in the aggregate) materially detract from the value of the
assets subject thereto or materially impair the operations of the Company, and
(3) liens described in Schedule 2.6 of the Company Disclosure Schedule.
2.7 PROPRIETARY ASSETS.
(A) The Company owns, licenses or otherwise possess legally enforceable
rights to use and exploit all Proprietary Assets that are owned by or licensed
to the Company or any Company Subsidiary or used in or necessary for the
operation of the Company's or any Company Subsidiary's respective businesses as
currently conducted (the "Company Proprietary Assets"), except to the extent
that the failure to have such rights has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Company.
(B) The Company has delivered to Parent a list of all patents and patent
applications and all registered and unregistered trademarks, trade names,
service marks and copyrights, and all applications with respect therefor,
included in the Company Proprietary Assets, including the jurisdictions in which
each such Company Proprietary Asset has been issued or registered or in which
any application for such issuance and registration has been filed, and has made
available to Parent all licenses, sublicenses and other agreements to which the
Company is a party and pursuant to which any Person is authorized to use any
Company Proprietary Asset, and all licenses, sublicenses and other agreements to
which the Company is a party and pursuant to which it is authorized to use any
Proprietary Asset held or used by a third party (other than "shrink wrap"
licenses with respect to commercially available software programs costing less
than $10,000) ("Third Party Proprietary Assets").
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(C) To the Company's knowledge, there is no unauthorized use, disclosure,
infringement or misappropriation of any Company Proprietary Asset, or any Third
Party Proprietary Asset to the extent licensed by or through the Company by any
third party, including any employee or former employee of the Company, except
such as would not have a Material Adverse Effect on the Company. Neither the
Company nor any Company Subsidiary has entered into any agreement to indemnify
any other Person against any charge of infringement of any Company Proprietary
Asset.
(D) Neither the Company nor any Company Subsidiary is, or will as a result
of the execution and delivery of this Agreement or the performance of its
obligations under this Agreement be, in breach of any license, sublicense or
other agreement relating to any Company Proprietary Asset or Third Party
Proprietary Asset, except for such breaches that would not have a Material
Adverse Effect on the Company.
(E) All patents, registered trademarks, registered service marks or
copyright registrations owned by the Company or any Company Subsidiary are valid
and subsisting. Except for actions which would not reasonably be expected to
have a Material Adverse Effect on the Company, neither the Company nor any
Company Subsidiary (i) is a party to any Legal Proceeding which involves a claim
of infringement of any Third Party Proprietary Asset or (ii) has brought any
Legal Proceeding for infringement of any Company Proprietary Asset or breach of
any license or agreement involving a Company Proprietary Asset against any third
party, which action is continuing. To the Company's knowledge, the manufacture,
marketing, licensing or sale of any Company Proprietary Asset or products does
not infringe any Third Party Proprietary Asset.
(F) The Company has secured agreements with all consultants and employees
who prior to the date of this Agreement contributed to the creation or
development of any Company Proprietary Asset regarding the rights to such
contributions that the Company does not already own by operation of law in the
form substantially identical to the form of Proprietary Information and
Inventions Agreement previously made available to Parent.
(G) The Company has taken all reasonable and appropriate steps to protect
and preserve the confidentiality of all Company Proprietary Assets not otherwise
protected by patents, patent applications or copyrights ("Confidential
Information"). All use, disclosure or appropriation of Confidential Information
owned by the Company by or to any third party has been pursuant to the terms of
a written agreement between the Company and such third party, and all use,
disclosure or appropriation of Confidential Information not owned by the Company
has been pursuant to the terms of a written agreement between the Company and
the owner of such Confidential Information, or is otherwise lawful.
2.8 CONTRACTS.
(A) Except as identified as an exhibit to a Company SEC Document, neither
the Company nor any Company Subsidiary is a party to, or bound by, any Material
Company Contract. For purposes of this Agreement, a "Material Company Contract"
shall be deemed to be any Contract filed or required to be filed as an exhibit
to the Company's Annual Report on Form 10-K for the year ended December 31, 1998
or as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, and any Contract:
(I) relating to the employment or engagement of, or the performance of
services by, any employee, consultant or independent contractor in excess of
$100,000 per year;
(II) restricting in any manner the Company's or any Company
Subsidiary's right or ability to (A) compete with any other Person, (B)
acquire or transfer any product, technology or other asset from or to any
other Person, or (C) develop or distribute any Company Proprietary Asset;
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(III) that (A) provides for the receipt or expenditure by the Company
or any Company Subsidiary of cash or other consideration in excess of
$100,000; (B) relates to the performance of services by or on behalf of the
Company or any Company Subsidiary having a value in excess of $100,000; (C)
was entered into outside the ordinary course of business; or (D) is material
and cannot be terminated by the Company without penalty with 30 days notice
or less;
(IV) relating to the acquisition, issuance or transfer of any
securities;
(V) creating or relating to the creation of any Encumbrance with
respect to any of the Company Proprietary Assets or other assets having a
value in excess of $100,000;
(VI) involving or incorporating any guaranty, pledge, performance,
completion bond, indemnity or contribution or surety arrangement; or
(VII) creating or relating to any partnership, joint venture, research
or development collaboration, license agreement, or any other Contract by
which the Company or any Company Subsidiary is obligated or has the right to
share any revenues, profits, losses, costs or Liabilities.
(B) Except as would not, individually or in the aggregate, have a Material
Adverse Effect on the Company, all Material Company Contracts are in full force
and effect and are enforceable against the Company and, to the Company's
knowledge, are enforceable against the other parties thereto, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, as limited by laws relating to the availability of
specific performance, injunctive relief, or by general equitable principles, and
to the extent any indemnification or contribution provisions thereof may be
limited by applicable federal or state securities laws. Neither the Company nor
any Company Subsidiary has breached, or received in writing any claim or threat
that it has breached, in any material respect, and no default has occurred
under, any of the Material Company Contracts and, to the Company's knowledge,
(i) none of the other contracting parties has violated or breached, and no
default has occurred under any of the Material Company Contracts, and (ii) other
than the transactions contemplated hereby, no event has occurred, and no
circumstance or condition exists which with the giving of notice or the lapse of
time, or both, will, or could reasonably be expected to, result in a violation,
breach or default under any Material Company Contract or give any Person the
right to cancel, terminate or modify any Material Company Contract. To the
Company's knowledge, no party to a Material Company Contract currently in effect
has given notice to the Company or any Company Subsidiary of intent to terminate
such Material Company Contract in a way that would have a Material Adverse
Effect on the Company. The Company has provided Parent or Parent's counsel with
access to true and complete copies of each of the Material Company Contracts.
Consummation of the transactions contemplated by this Agreement and each other
agreement to be entered into by the Company in connection herewith will not (and
will not give any Person a right to) cancel, terminate or modify any material
rights of, or accelerate or increase any material obligation of, the Company
under any Material Company Contract.
(C) The Company and each Company Subsidiary possess all material
Governmental Authorizations which are required in order to operate their
respective businesses as presently conducted, and the Company and each Company
Subsidiary is in compliance in all material respects with all such Governmental
Authorizations. Each such Governmental Authorization is identified in Schedule
2.8(c) of the Company Disclosure Schedule. Each such Governmental Authorization
is valid and in full force and effect and will remain so until consummation of
the transactions contemplated by this Agreement, except where the failure to
comply would not have a Material Adverse Effect on the Company.
(D) Except as set forth in Schedule 2.8(d) of the Company Disclosure
Schedule, there are no claims made or, to the Company's knowledge, threatened
against the Company or any Company Subsidiary under each Material Company
Contract presently or heretofore in effect to the extent such
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claims, individually or in the aggregate, have had or would reasonably be
expected to have a Material Adverse Effect on the Company.
2.9 PERMITS; COMPLIANCE WITH LEGAL REQUIREMENTS. The Company and each
Company Subsidiary holds all permits, licenses, vacancies, order and appeals
which are material to the operation of the Company and the Company Subsidiaries.
The Company and each Company Subsidiary is, and has at all times since January
1, 1997 been, in compliance with all applicable Legal Requirements, except where
the failure to comply with such Legal Requirements has not had and would not
reasonably be expected to have a Material Adverse Effect on the Company. Since
January 1, 1997, neither the Company nor any Company Subsidiary has received any
notice or other communication from any Governmental Body or other Person
regarding any actual or possible violation of, or failure to comply with, any
Legal Requirement.
2.10 CERTAIN BUSINESS PRACTICES. Neither the Company nor any Company
Subsidiary nor (to the best of the knowledge of the Company) any director,
officer, agent or employee of the Company or any Company Subsidiary has (i) used
any funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or (iii) made any other unlawful payment.
2.11 TAX MATTERS.
(A) Each Tax Return required to be filed by or on behalf of the Company and
each Company Subsidiary with any Governmental Body with respect to any taxable
period ending on or before the Closing Date (the "Company Returns") (i) has been
or will be filed on or before the applicable due date, and (ii) has been, or
will be when filed, prepared in all material respects in compliance with all
applicable Legal Requirements. All amounts shown on the Company Returns to be
due on or before the Closing Date have been or will be paid on or before the
Closing Date.
(B) The Company Unaudited Interim Balance Sheet fully accrues all actual
and contingent liabilities for Taxes with respect to all periods through
December 31, 1998 in accordance with generally accepted accounting principles.
The Company will establish, in the ordinary course of business and consistent
with its past practices, reserves adequate for the payment of all Taxes for the
period from December 31, 1998 through the Closing Date, and will disclose the
amount of such reserves to Parent no later than 10 business days prior to the
Closing Date. Since December 31, 1998, the Company has not incurred any
Liability for any Tax other than in the ordinary course of its business.
(C) No Company Return has ever been examined or audited by any Governmental
Body. No extension or waiver of the limitation period applicable to any of the
Company Returns has been granted (by the Company or any other Person), and no
such extension or waiver has been requested from the Company.
(D) No claim or Legal Proceeding is pending or, to the best of the
knowledge of the Company, has been threatened against or with respect to the
Company in respect of any material Tax. There are no unsatisfied liabilities for
material Taxes (including liabilities for interest, additions to tax and
penalties thereon and related expenses) with respect to any notice of deficiency
or similar document received by the Company with respect to any material Tax
(other than liabilities for Taxes asserted under any such notice of deficiency
or similar document which are being contested in good faith by the Company and
with respect to which adequate reserves for payment have been established on the
Company Unaudited Interim Balance Sheet). There are no liens for material Taxes
upon any of the assets of the Company except liens for current Taxes not yet due
and payable. The Company has not entered into or become bound by any agreement
or consent pursuant to Section 341(f) of the Code (or any comparable provision
of state or foreign Tax laws). The Company has not been and it will not be
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required to include any adjustment in taxable income for any tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code (or any comparable
provision under state or foreign Tax laws) as a result of transactions or events
occurring, or accounting methods employed, prior to the Closing.
(E) There is no agreement, plan, arrangement or other Contract covering any
employee or independent contractor or former employee or independent contractor
of the Company that, considered individually or considered collectively with any
other such Contracts, will, or could reasonably be expected to, give rise
directly or indirectly to the payment of any amount that would not be deductible
pursuant to Section 280G or Section 162 of the Code (or any comparable provision
under state or foreign Tax laws). The Company is not, nor has it ever been, a
party to or bound by any tax indemnity agreement, tax sharing agreement, tax
allocation agreement or similar Contract.
2.12 EMPLOYEE BENEFIT PLANS.
(A) Schedule 2.12(a) of the Company Disclosure Schedule identifies each
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance or termination pay, medical, life, disability or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement sponsored, maintained, contributed to or
required to be contributed to by the Company and/or each Company Subsidiary for
the benefit of any current or former employee, consultant, officer or director
of the Company or any Company Subsidiary (other than those plans, programs and
agreements disclosed in the Company SEC Documents).
(B) Except as set forth in Schedule 2.12(b) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary maintains, sponsors or
contributes to, nor has at any time in the past maintained, sponsored or
contributed to, any employee pension benefit plan (as defined in Section 3(2) of
ERISA, whether or not excluded from coverage under specific Titles or Subtitles
of ERISA) for the benefit of employees or former employees of the Company or any
Company Subsidiary. Except as set forth in Schedule 2.12(b) of the Company
Disclosure Schedule, neither the Company nor any Company Subsidiary maintains,
sponsors or contributes to, nor has at any time in the past maintained,
sponsored or contributed to, nor has any obligation or liability (whether
accrued, contingent or otherwise) with respect to, any employee benefit plan (as
defined in Section 3(3) of ERISA) or any other plan, policy, program,
arrangement or agreement that is: (i) subject to Section 302 or Title IV of
ERISA or Section 412 of the Code, (ii) a multi employer plan (as defined in
Section 3(37) or 4001(a)(3) of ERISA), or (iii) provides welfare benefits to
employees or former employees (or their dependents) of the Company or any
Company Subsidiary following retirement or other termination of employment
(except as required by Section 4980B of the Code or Title I, Subtitle B, Part 6
of ERISA).
(C) Each of the plans identified in Schedule 2.12(a) of the Company
Disclosure Schedule intended to be qualified under Section 401(a) of the Code
has received a favorable determination from the Internal Revenue Service, and
the Company is not aware of any reason why any such determination letter should
be revoked. Each of the plans, programs and agreements identified in Schedule
2.12(a) of the Company Disclosure Schedule has been maintained in compliance in
all material respects with its terms and, both as to form and in operation, with
the requirements prescribed by any and all applicable statutes, orders, rules
and regulations, including without limitation, ERISA and the Code. The Company
has delivered to Parent, with respect to each plan, program or agreement
identified in Schedule 2.12(a) of the Company Disclosure Schedule, a copy of:
(i) the document under which such plan, program or agreement is maintained and
all amendments thereto (and all related funding instruments), (ii) the most
recent determination letter issued by the Internal Revenue Service (if
applicable) and (iii) the most recent Form 5500 filed with the Internal Revenue
Service with respect to such plan, program or agreement (if applicable).
(D) Except as disclosed in Schedule 2.12(d) of the Company Disclosure
Schedule or in the Company SEC Documents, neither the execution, delivery or
performance of this Agreement, nor the
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consummation of the Merger or any of the other transactions contemplated by this
Agreement, will result in any payment (including any bonus, golden parachute or
severance payment) to any current or former employee or director of the Company
(whether or not under any plan), or materially increase the benefits payable
under any plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(E) The Company and each Company Subsidiary is in compliance with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, wages, bonuses and terms and conditions of employment, including
employee compensation matters, except where the failure to be in compliance
would not have a Material Adverse Effect on the Company.
2.13 INSURANCE. The Company has made available to Parent a copy of all
material insurance policies and all material self insurance programs and
arrangements relating to the business, assets and operations of the Company and
each Company Subsidiary. Each of such insurance policies is in full force and
effect. Since January 1, 1997, the Company has not received any notice or other
communication regarding any actual or possible (a) cancellation or invalidation
of any insurance policy, (b) refusal of any coverage or rejection of any
material claim under any insurance policy, or (c) material adjustment in the
amount of the premiums payable with respect to any insurance policy. Except as
set forth in Schedule 2.13 of the Company Disclosure Schedule, there is no
pending workers' compensation or other claim under or based upon any insurance
policy of the Company or any Company Subsidiary.
2.14 TRANSACTIONS WITH AFFILIATES. Except as set forth in the Company SEC
Documents or as contemplated by this Agreement, since the date of the Company's
last proxy statement filed with the SEC, no event has occurred that would be
required to be reported by the Company pursuant to Item 404 of Regulation S-K
promulgated by the SEC. Schedule 2.14 of the Company Disclosure Schedule
identifies each person who is (or who may be deemed to be) an "affiliate" (as
that term is used in Rule 145 under the Securities Act) of the Company as of the
date of this Agreement.
2.15 LITIGATION. There is no Legal Proceeding pending or, to the Company's
knowledge, threatened by or before any court or Governmental Authority that
involves the Company or any Company Subsidiary or any of the assets owned or
used by the Company or any Company Subsidiary. Neither the Company nor any
Company Subsidiary is a party to any decree, order, writ, injunction, judgment
or arbitration award (or agreement entered into in any Legal Proceeding) with
respect to its properties, assets, personnel or business activities.
2.16 PROPERTIES. Schedule 2.16 of the Company Disclosure Schedule sets
forth each lease of real and personal property to which the Company and each
Company Subsidiary is a party (the "Company Leases"). The Company has previously
made available to Parent complete and accurate copies of all the Company Leases.
Each of the Company Leases is valid, binding and enforceable in accordance with
its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, as limited by laws
relating to the availability of specific performance, injunctive relief, or by
general equitable principles, and to the extent any indemnification or
contribution provisions thereof may be limited by applicable federal or state
securities laws. Neither the Company nor any Company Subsidiary has breached,
nor received in writing any claim or threat that it has breached, in any
material respect, and no default has occurred under any of the Company Leases
and, to the Company's knowledge, (i) none of the other contracting parties has
violated or breached, and no default has occurred under any of the Company
Leases, and (ii) other than the transactions contemplated hereby, no event has
occurred, and no circumstance or condition exists which with the giving of
notice or the lapse of time, or both, will, or could reasonably be expected to,
result in a violation, breach or default under any of the Company Leases or give
any Person the right to cancel, terminate or modify any of the Company Leases.
Neither the Company nor any Company Subsidiary owns any real property.
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2.17 ENVIRONMENTAL MATTERS. To the knowledge of the Company, no current
owner of any property leased or controlled by the Company or any Company
Subsidiary has received any notice (in writing or otherwise), whether from a
Governmental Body, citizens group, employee or otherwise, that alleges that such
current or prior owner or the Company or any Company Subsidiary is not in
compliance with any Environmental Law. The Company has not received any notice
or information that any property that is leased to, controlled by or used by the
Company or any Company Subsidiary, or any surface water, groundwater and soil
associated with or adjacent to such property, is not in clean and healthful
condition or that it is not free of any material environmental contamination.
For purposes of this Section 2.17: (i) "Environmental Law" means any federal,
state, local or foreign Legal Requirement relating to pollution or protection of
human health or the environment (including ambient air, surface water, ground
water, land surface or subsurface strata), including any law or regulation
relating to emissions, discharges, releases or threatened releases of Materials
of Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern; and (ii) "Materials of Environmental
Concern" include chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products and any other substance that is now or
hereafter regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment.
2.18 COMPANY ACTION. The board of directors of the Company (at a meeting
duly called and held) has (a) unanimously determined that the Merger is in the
best interests of the Company and its stockholders, (b) unanimously approved
this Agreement and the Merger in accordance with the provisions of Section 251
of the DGCL, (c) unanimously recommended the adoption and approval of this
Agreement and the Merger by the stockholders of the Company and directed that
the Merger be submitted for consideration by the Company's stockholders at the
Company Stockholders' Meeting, (d) taken all necessary steps to render Section
203 of the DGCL inapplicable to the Merger and the other transactions
contemplated by this Agreement and (e) adopted a resolution having the effect of
causing the Company not to be subject, to the extent permitted by applicable
law, to any state takeover law that may purport to be applicable to the Merger
and the other transactions contemplated by this Agreement.
2.19 ENFORCEABILITY. The Company has all requisite corporate power and
authority to execute, deliver and, subject to obtaining requisite stockholder
approval, to perform its obligations under this Agreement and all other
agreements, documents and instruments contemplated hereby to which it is or will
become a party. The execution and delivery of this Agreement and the other
agreements, documents and instruments contemplated hereby have been duly and
validly authorized by the board of directors of the Company, and no other
corporate proceedings on the part of the Company are necessary for the Company
to authorize any of such agreements, documents or instruments and no such
corporate proceedings (other than the approval of the Company Stockholders) are
necessary to enable the Company to consummate the Merger or any of the other
transactions contemplated by this Agreement. All agreements, documents and
instruments to be executed in connection with the Merger (a) have been (or will
be) duly executed and delivered by duly authorized officers of the Company and
(b) constitute (or, when executed by the Company, will constitute) legal, valid
and binding obligations of the Company enforceable against it in accordance with
their terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, as limited by laws relating to the
availability of specific performance, injunctive relief, or by general equitable
principles, and to the extent any indemnification or contribution provisions
thereof may be limited by applicable federal or state securities laws.
2.20 GOVERNMENTAL CONSENTS; NO CONFLICTS. Except as may be required by the
Exchange Act, the Securities Act, state securities or blue sky laws, the DGCL,
the NASD bylaws and the rules and
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regulations of AMEX (as they relate to the S-4 Registration Statement and the
prospectus/joint proxy statement) (collectively, the "Applicable Regulatory
Requirements"), there is no requirement applicable to the Company or any Company
Subsidiary to make any filing with, or to obtain any permit, authorization, or
Consent of, any Governmental Authority as a condition to the consummation of the
Merger or any of the other transactions contemplated by this Agreement. Neither
the execution and delivery of this Agreement and the other agreements, documents
and instruments contemplated hereby by the Company nor the consummation by the
Company of the Merger or any of the other transactions contemplated by this
Agreement will (a) violate the Certificate of Incorporation or Bylaws of the
Company, (b) result in a default (or with notice or lapse of time or both would
result in a default) under, or materially impair the rights of the Company or
any Company Subsidiary or materially alter the rights or obligations of any
third party under, or require the Company or any Company Subsidiary to make any
material payment or become subject to any material liability to any third party
under, or give rise to any right of termination, amendment, cancellation,
acceleration, repurchase, put or call under, any of the terms, conditions or
provisions of any Material Company Contract, (c) result in the creation of any
material (individually or in the aggregate) Encumbrance on any of the assets of
the Company or any Company Subsidiary or (d) conflict with or violate any law,
statute, rule, regulation, judgment, order, writ, injunction, decree or
arbitration award applicable to the Company or any Company Subsidiary or any of
their assets, which conflict or violation has had or would reasonably be
expected to have a Material Adverse Effect on the Company.
2.21 YEAR 2000 PREPAREDNESS. There are no issues related to the Company's
or any Company Subsidiary's preparedness for the Year 2000 (including, without
limitation, any issues relating to the Company's or Company Subsidiary's
internal computer systems and each Constituent Component of those systems and
all computer related products and each Constituent Component of such products)
that are of a character required to be described or referred to in the Company
SEC Documents by the Securities Act or by the Exchange Act which have not been
accurately described in the Company SEC Documents. "Constituent Component" means
all software (including operating systems, programs, packages and utilities),
firmware, hardware, networking components, and peripherals provided as part of
the configuration. Except as otherwise disclosed in the Company SEC Documents,
the Company has inquired of material vendors as to their preparedness for the
Year 2000 and has disclosed in the Company Disclosure Schedule or Company SEC
Documents any issues that might reasonably be expected to result in any Material
Adverse Effect on the Company.
2.22 REGULATORY MATTERS.
(A) Except as disclosed on Schedule 2.22(a) of the Company Disclosure
Schedule, the Company has obtained and is in compliance in all material respects
with all certifications, approvals and clearances from the United States Food
and Drug Administration (the "FDA") and all state, local and foreign equivalents
(collectively, the "FDA, etc.") necessary in order to carry out its business and
the businesses of each Company Subsidiary as currently conducted, including
without limitation to develop pharmaceutical products in any and all geographic
areas in which the Company or any Company Subsidiary is currently, or has
previously, developed pharmaceutical products.
(B) All nonclinical laboratory studies of pharmaceutical products have been
and are being conducted in all material respects in compliance with all
applicable federal, state, local and foreign laws, rules and regulations
(including, without limitation, any reporting requirements thereof) and with
accepted standards of good laboratory practice. All clinical trials of
pharmaceutical products have been and are being conducted in all material
respects in compliance with all applicable federal, state, local and foreign
laws, rules and regulations (including, without limitation, any reporting
requirements thereof) and with accepted standards of good clinical practice.
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(C) Neither the Company nor any Company Subsidiary, nor any officer,
employee or agent of the Company or any Company Subsidiary has made any untrue
statement of a material fact or fraudulent statement to the FDA, etc. or failed
to disclose a material fact required to be disclosed to the FDA, etc. The
Company has provided Parent with copies of any and all notice of inspectional
observations, establishment inspection reports and any other documents received
from the FDA, etc. that indicate or suggest material lack of compliance with the
regulatory requirements of the FDA, etc. The Company has made available to
Parent for review all correspondence to or from the FDA, etc., minutes of
meetings with the FDA, etc., written reports of phone conversations, visits or
other contact with the FDA, etc., notices of inspectional observations,
establishment inspection reports, and all other documents in its possession
concerning communications to or from the FDA, etc., or prepared by the FDA,
etc., which bear in any way on the Company's or its Subsidiaries' compliance
with regulatory requirements of the FDA, etc. or on the likelihood of timing of
approval of any pharmaceutical products.
2.23 CERTAIN COLLABORATION AGREEMENTS. The Company has not received any
notice of nor is the Company aware that, since December 31, 1998, there has been
any material adverse change or event with respect to any of the Company's or any
Company Subsidiary's research programs, including with respect to either of the
Company's collaboration arrangements with Dainippon Pharmaceutical Co., Ltd.
("Dainippon") and/or Roberts Pharmaceutical Co. ("Roberts") (together, the
"Collaboration Agreements"). Each of the Collaboration Agreements is in full
force and effect and the Company is not aware that either Dainippon or Roberts
(or Shire Pharmaceuticals Group Plc as the prospective successor in interest to
Roberts) intends to terminate its Collaboration Agreement with the Company
within 12 months of the date of this Agreement and relations between the Company
and such parties are good.
2.24 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the shares of Company Common Stock outstanding on the record date for the
Company Stockholders' Meeting (the "Required Company Stockholder Vote") is the
only vote of the holders of any class or series of the Company's capital stock
necessary to approve and consummate this Agreement, the Merger and the other
transactions contemplated by this Agreement.
2.25 FAIRNESS OPINION. The Company's board of directors has received the
written opinion of Rabobank International, financial advisor to the Company,
dated the date of this Agreement, to the effect that the Exchange Ratio is fair
to the stockholders of the Company from a financial point of view. The Company
has furnished an accurate and complete copy of said written opinion to Parent.
2.26 FINANCIAL ADVISOR. Except for Rabobank International, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or any of the other transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company. The Company has furnished to Parent accurate and complete copies of
all agreements under which any such fees, commissions or other amounts have been
paid or may become payable and all indemnification and other agreements related
to the engagement of Rabobank International.
2.27 VOTING AGREEMENTS; PREFERRED STOCK WAIVER. Each member of the board
of directors and each executive officer of the Company has agreed on behalf of
himself and his affiliates to vote in favor of the Merger at the Company
Stockholders' Meeting and has executed and delivered to Parent a Voting
Agreement substantially in the form attached hereto as Exhibit E-1. The holder
of the Company Preferred Stock has, on behalf of itself and its affiliates,
waived its right to receive a distribution pursuant to its liquidation
preference in connection with the transactions contemplated under this Agreement
and has executed and delivered to Parent a Waiver and Voting Agreement in
substantially the form attached hereto as Exhibit E-2.
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2.28 DISCLOSURE.
(A) The copies of all documents furnished by the Company pursuant to the
terms of this Agreement are complete and accurate copies of the original, as
such documents may have been amended to date.
(B) None of the representations and warranties of the Company contained in
Section 2 of this Agreement or in any other Section of this Agreement or the
information disclosed in the Company Disclosure Schedule contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
(C) None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in the Form S-4 registration statement
to be filed with the SEC by Parent in connection with the issuance of the Merger
Shares (the "S-4 Registration Statement") will, at the time the S-4 Registration
Statement is filed with the SEC or at the time the S-4 Registration Statement
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. None of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in the prospectus/joint proxy statement, will, at the time the
prospectus/joint proxy statement is mailed to the stockholders of the Company or
the shareholders of Parent, at the time of the Company Stockholders' Meeting or
the Parent Shareholders' Meeting and as of the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
Notwithstanding the foregoing, no representation or warranty is made by the
Company with respect to statements made about the Parent or Merger Sub or based
on information supplied by Parent or Merger Sub or any of their representatives
which is contained in the S-4 Registration Statement or the prospectus/joint
proxy statement. The prospectus/joint proxy statement will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder.
2.29 COMPANY RIGHTS PLAN. The execution, delivery and performance of this
Agreement and the consummation of the Merger will not cause any change, effect
or result under the Company Rights Plan which is adverse to the interests of
Parent. Without limiting the generality of the foregoing, the Company has taken
all necessary actions to (i) render the Company Rights Plan inapplicable to the
Merger and the other transactions contemplated by this Agreement, including the
Company Affiliate Agreements and/or the Voting Agreements, (ii) ensure that (y)
neither Parent nor Merger Sub, nor any of their affiliates shall be deemed to
have become an Acquiring Person or a Transaction Person (as such terms are
defined in the Company Rights Plan) pursuant to the Company Rights Plan by
virtue of the execution of this Agreement, the Company Affiliate Agreements
and/or the Voting Agreements, the consummation of the Merger or the consummation
of the other transactions contemplated hereby and (z) a Distribution Date, or a
Transaction (as such terms are defined in the Company Rights Plan) or similar
event does not occur by reason of the execution of this Agreement, the Company
Affiliate Agreements and the Voting Agreements, the consummation of the Merger,
or the consummation of the other transactions contemplated hereby and (iii)
provide that the Final Expiration Date (as defined in the Company Rights Plan)
shall be immediately prior to the Effective Time. The Company hereby covenants
and agrees that it will take all necessary action to cause this representation
to remain true.
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3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company, except as set
forth in the Parent Disclosure Schedule, as follows:
3.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(A) Parent and each of its Subsidiaries ("Parent Subsidiaries") is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation. Parent and each Parent Subsidiary has
all necessary power and authority to: (i) conduct its business in the manner in
which its business is currently being conducted; (ii) own and use its assets in
the manner in which its assets are currently owned and used; and (iii) perform
its obligations under all Contracts by which it is bound. There are no Parent
Subsidiaries other than Merger Sub. Parent does not own or hold directly or
indirectly, any debt or equity securities of, or have any other interest in any
Entity other than Merger Sub and Parent has not entered into any contract or
otherwise become obligated to acquire any such interest.
(B) Parent does not own directly or indirectly, through any Parent
Subsidiary or otherwise, any Company Stock.
(C) Parent and each Parent Subsidiary is qualified to do business as a
foreign corporation, and is in good standing, under the laws of all
jurisdictions where the nature of its business requires such qualification and
where the failure to be so qualified would reasonably be expected to have a
Material Adverse Effect on Parent.
3.2 ARTICLES OF INCORPORATION AND BYLAWS. Complete and accurate copies of
the Parent's Restated Articles of Incorporation, including any Certificate of
Designation, and Bylaws (or comparable charter documents), each as amended to
date, of the Parent are filed as exhibits to the Parent SEC Documents. Parent
has made available to the Company accurate and complete copies of the
certificate of incorporation, bylaws and other charter and organizational
documents of the Parent and each Parent Subsidiary, including all amendments
thereto.
3.3 CAPITALIZATION, ETC.
(A) The authorized capital stock of the Parent consists of: (i) 30,000,000
shares of Parent Common Stock of no par value per share, of which 15,711,877
shares have been issued and are outstanding as of the date of this Agreement;
and (ii) 1,000,000 shares of Preferred Stock, no par value per share, of which
no shares are issued and outstanding. All of the outstanding shares of Parent
Common Stock have been duly authorized and validly issued, and are fully paid
and nonassessable. Except as set forth in Schedule 3.3(a) of the Parent
Disclosure Schedule: (i) none of the outstanding shares of Parent Common Stock
is entitled or subject to any preemptive right, right of participation, right of
maintenance or any similar right; (ii) none of the outstanding shares of Parent
Common Stock is subject to any right of first refusal in favor of the Parent;
and (iii) there is no Contract relating to the voting or registration of, or
restricting any Person from purchasing, selling, pledging or otherwise disposing
of (or granting any option or similar right with respect to), any shares of
Parent Common Stock or Parent Preferred Stock. Parent is not under any
obligation or bound by any Contract pursuant to which it may become obligated,
to repurchase, redeem or otherwise acquire any outstanding shares of Parent
Common Stock. Parent is the sole owner of each outstanding share of capital
stock and/or other equity interests in each Parent Subsidiary.
(B) As of the date of this Agreement, 2,268,686 shares of Parent Common
Stock are subject to issuance pursuant to outstanding options to purchase shares
of Parent Common Stock. (Stock options granted by Parent pursuant to Parent's
stock option plans and otherwise are referred to in this Agreement as "Parent
Options."). Parent has made available to the Company (A) accurate and complete
copies of all stock option plans pursuant to which Parent has ever granted stock
options, and the forms of all stock option agreements evidencing such options
and (B) a list detailing (i) each Parent
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Option outstanding as of the date of this Agreement; (ii) the particular plan
(if any) pursuant to which such Parent Option was granted; (iii) the name of the
optionee; (iv) the number of shares of Parent Common Stock subject to such
Parent Option; (v) the exercise price of such Parent Option; (vi) the date on
which such Parent Option was granted; (vii) the applicable vesting schedules,
and the extent to which such Parent Option is vested and exercisable as of the
date of this Agreement; and (viii) the date on which such Parent Option expires.
(C) Except as set forth in Schedule 3.3(c) of the Parent Disclosure
Schedule, there is no: (i) outstanding subscription, option (other than Parent
Options described under Section 3.3(b)), call, warrant or right (whether or not
currently exercisable) to acquire any shares of the capital stock or other
securities of Parent; (ii) outstanding security, instrument or obligation that
is or may become convertible into or exchangeable for any shares of the capital
stock or other securities of Parent; (iii) shareholder rights plan (or similar
plan commonly referred to as a "poison pill") or Contract under which Parent is
or may become obligated to sell or otherwise issue any shares of its capital
stock or any other securities; or (iv) to the best of the knowledge of Parent,
condition or circumstance that may give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such Person is entitled to
acquire or receive any shares of capital stock or other securities of Parent or
any Parent Subsidiary.
(D) All outstanding shares of Parent Common Stock have been issued and
granted in compliance with (i) all applicable securities laws and other
applicable Legal Requirements, and (ii) all requirements set forth in applicable
Contracts.
3.4 SEC FILINGS; FINANCIAL STATEMENTS; ACCOUNTING CONTROLS.
(A) Parent has delivered or made available (including through the SEC EDGAR
system) to the Company accurate and complete copies of all registration
statements, proxy statements and other statements, reports, schedules, forms and
other documents filed by Parent with the SEC, Nasdaq or AMEX since December 31,
1996, and all amendments thereto (the "Parent SEC Documents"). All statements,
reports, schedules, forms and other documents required to have been filed by
Parent with the SEC, Nasdaq or AMEX have been so filed and were prepared and
timely filed and complied in all material respects with the applicable
requirements of the Securities Act, the Exchange Act and all other applicable
laws and regulations. As of the time it was filed with the SEC (or, if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing): (i) each of the Parent SEC Documents complied in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act (as the case may be); and (ii) none of the Parent SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(B) The financial statements (including any related notes) contained in the
Parent SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered (except as may be indicated in
the notes to such financial statements or, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC, and except that the unaudited financial
statements may not contain footnotes and are subject to normal and recurring
year-end adjustments which will not, individually or in the aggregate, be
material in amount), and (iii) fairly present the consolidated financial
position of Parent as of the respective dates thereof and the consolidated
results of operations and cash flows of Parent and its subsidiaries for the
periods covered thereby.
(C) Parent has delivered to the Company an unaudited consolidated balance
sheet of Parent and its subsidiaries as of April 30, 1999 (the "Parent Unaudited
Interim Balance Sheet"), and the related unaudited consolidated statement of
operations, statement of shareholders' equity and statement of
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cash flows of Parent and its subsidiaries for the nine (9) months then ended.
The financial statements referred to in this Section 3.4(c): (i) were prepared
in accordance with generally accepted accounting principles applied on a basis
consistent with the basis on which the financial statements referred to in
Section 3.4(b) were prepared (except that such financial statements do not
contain footnotes and are subject to normal and recurring year-end adjustments
which will not, individually or in the aggregate, be material in amount), and
(ii) fairly present the consolidated financial position of Parent and its
subsidiaries as of April 30, 1999 and the consolidated results of operations and
cash flows of Parent and its subsidiaries for the periods covered thereby.
(D) Parent and each Parent Subsidiary maintains a system of accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since April 30, 1999, there has
not been (a) any change, or any development or combination of changes or
developments that has had or would reasonably be expected to have a Material
Adverse Effect on Parent, (b) any damage, destruction or loss of any of the
assets of Parent, whether or not covered by insurance, that has had or would
reasonably be expected to have a Material Adverse Effect on Parent, or (c) any
transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of business)
which would be prohibited by Section 4.5 if it were to occur or be effected
between the date of this Agreement and the Effective Time.
3.6 TITLE TO ASSETS. Parent owns, and has good, valid and marketable title
to, or, in the case of leased assets, valid leasehold interests in, all assets
reflected on the Parent Unaudited Interim Balance Sheet. All of said assets are
owned or leased by Parent free and clear of any material Encumbrances, except
for (1) any lien for current taxes not yet due and payable, (2) minor liens that
have arisen in the ordinary course of business and that do not (in any case or
in the aggregate) materially detract from the value of the assets subject
thereto or materially impair the operations of Parent, and (3) liens described
in Schedule 3.6 of the Parent Disclosure Schedule.
3.7 PROPRIETARY ASSETS.
(A) Parent owns, licenses or otherwise possess legally enforceable rights
to use and exploit all Proprietary Assets that are owned or licensed to Parent
or any Parent Subsidiary or used in or necessary for the operation of Parent's
or any Parent Subsidiary's respective businesses as currently conducted (the
"Parent Proprietary Assets"), except to the extent that the failure to have such
rights has not had, and would not reasonably be expected to have, a Material
Adverse Effect on Parent.
(B) Parent has delivered to the Company a list of all patents and patent
applications and all registered and unregistered trademarks, trade names,
service marks and copyrights, and all applications with respect therefor,
included in the Parent Proprietary Assets, including the jurisdictions in which
each such Parent Proprietary Asset has been issued or registered or in which any
application for such issuance and registration has been filed, and has made
available to the Company all licenses, sublicenses and other agreements to which
Parent is a party and pursuant to which any Person is authorized to use any
Parent Proprietary Asset, and all licenses, sublicenses and other agreements to
which Parent is a party and pursuant to which it is authorized to use any Third
Party Proprietary Assets.
(C) To Parent's knowledge, there is no unauthorized use, disclosure,
infringement or misappropriation of any Parent Proprietary Asset, or any Third
Party Proprietary Asset to the extent
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licensed by or through Parent by any third party, including any employee or
former employee of Parent, except such as would not have a Material Adverse
Effect on Parent. Neither Parent nor any Parent Subsidiary has entered into any
agreement to indemnify any other Person against any charge of infringement of
any Parent Proprietary Asset.
(D) Neither Parent nor any Parent Subsidiary is, or will as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement be, in breach of any license, sublicense or other agreement
relating to any Parent Proprietary Asset or Third Party Proprietary Asset,
except for such breaches that would not have a Material Adverse Effect on
Parent.
(E) All patents, registered trademarks, registered service marks or
copyright registrations owned by Parent or any Parent Subsidiary are valid and
subsisting. Except for actions which would not reasonably be expected to have a
Material Adverse Effect on Parent, neither Parent nor any Parent Subsidiary (i)
is a party to any Legal Proceeding which involves a claim of infringement of any
Third Party Proprietary Asset or (ii) has brought any Legal Proceeding for
infringement of any Parent Proprietary Asset or breach of any license or
agreement involving a Parent Proprietary Asset against any third party, which
action is continuing. To Parent's knowledge, the manufacture, marketing,
licensing or sale of any Parent Proprietary Asset or products does not infringe
any Third Party Proprietary Asset.
(F) Parent has secured agreements with all consultants and employees who
prior to the date of this Agreement contributed to the creation or development
of any Parent Proprietary Asset regarding the rights to such contributions that
Parent does not already own by operation of law in the form substantially
identical to the form of Proprietary Information and Inventions Agreement
previously made available to the Company.
(G) Parent has taken all reasonable and appropriate steps to protect and
preserve the confidentiality of all Parent Proprietary Assets not otherwise
protected by patents, patent applications or copyrights ("Confidential
Information"). All use, disclosure or appropriation of Confidential Information
owned by Parent by or to any third party has been pursuant to the terms of a
written agreement between Parent and such third party, and all use, disclosure
or appropriation of Confidential Information not owned by Parent has been
pursuant to the terms of a written agreement between Parent and the owner of
such Confidential Information, or is otherwise lawful.
3.8 CONTRACTS.
(A) Except as identified as an exhibit to a Parent SEC Document, neither
Parent nor any Parent Subsidiary is a party to, or bound by, any Material Parent
Contract. For purposes of this Agreement, a "Material Parent Contract" shall be
deemed to be any Contract filed or required to be filed as an exhibit to
Parent's Annual Report on Form 10-K for the year ended July 31, 1998 or as an
exhibit to Parent's Quarterly Reports on Form 10-Q for the quarters ended
October 31, 1998, January 31, 1999 and April 30, 1999, and any Contract:
(I) relating to the employment or engagement of, or the performance of
services by, any employee, consultant or independent contractor in excess of
$100,000 per year;
(II) restricting in any manner Parent's or any Parent Subsidiary's
right or ability to (A) compete with any other Person, (B) acquire or
transfer any product, technology or other asset from or to any other Person,
or (C) develop or distribute any Parent Proprietary Asset;
(III) that (A) provides for the receipt or expenditure by Parent or any
Parent Subsidiary of cash or other consideration in excess of $100,000; (B)
relates to the performance of services by or on behalf of Parent or any
Parent Subsidiary having a value in excess of $100,000; (C) was entered into
outside the ordinary course of business; or (D) is material and cannot be
terminated by Parent without penalty with 30 days notice or less;
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(IV) relating to the acquisition, issuance or transfer of any
securities;
(V) creating or relating to the creation of any Encumbrance with
respect to any of the Parent Proprietary Assets or other assets having a
value in excess of $100,000;
(VI) involving or incorporating any guaranty, pledge, performance,
completion bond, indemnity or contribution or surety arrangement; or
(VII) creating or relating to any partnership, joint venture, research
or development collaboration, license agreement, or any other Contract by
which Parent or any Parent Subsidiary is obligated or has the right to share
any revenues, profits, losses, costs or Liabilities.
(B) Except as would not, individually or in the aggregate, have a Material
Adverse Effect on Parent, all Material Parent Contracts are in full force and
effect and are enforceable against Parent and, to Parent's knowledge, are
enforceable against the other parties thereto, except as enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors' rights generally, as
limited by laws relating to the availability of specific performance, injunctive
relief, or by general equitable principles, and to the extent any
indemnification or contribution provisions thereof may be limited by applicable
federal or state securities laws. Neither Parent nor any Parent Subsidiary has
breached, or received in writing any claim or threat that it has breached, in
any material respect, and no default has occurred under, any of the Material
Parent Contracts and, to Parent's knowledge, (i) none of the other contracting
parties has violated or breached, and no default has occurred under any of the
Material Parent Contracts, and (ii) other than the transactions contemplated
hereby, no event has occurred, and no circumstance or condition exists which
with the giving of notice or the lapse of time, or both, will, or could
reasonably be expected to, result in a violation, breach or default under any
Material Parent Contract or give any Person the right to cancel, terminate or
modify any Material Parent Contract. To Parent's knowledge, no party to a
Material Parent Contract currently in effect has given notice to Parent or any
Parent Subsidiary of intent to terminate such Material Parent Contract in a way
that would have a Material Adverse Effect on Parent. Parent has provided the
Company or the Company's counsel with access to true and complete copies of each
of the Material Parent Contracts. Consummation of the transactions contemplated
by this Agreement and each other agreement to be entered into by Parent in
connection herewith will not (and will not give any Person a right to) cancel,
terminate or modify any material rights of, or accelerate or increase any
material obligation of, Parent under any Material Parent Contract.
(C) Parent and each Parent Subsidiary possess all material Governmental
Authorizations which are required in order to operate their respective
businesses as presently conducted, and Parent and each Parent Subsidiary is in
compliance in all material respects with all such Governmental Authorizations.
Each such Governmental Authorization is identified in Schedule 3.8(c) of the
Parent Disclosure Schedule. Each such Governmental Authorization is valid and in
full force and effect and will remain so until consummation of the transactions
contemplated by this Agreement, except where the failure to comply would not
have a Material Adverse Effect on Parent.
(D) Except as set forth in Schedule 3.8(d) of the Parent Disclosure
Schedule, there are no claims made or, to Parent's knowledge, threatened against
Parent or any Parent Subsidiary under each Material Parent Contract presently or
heretofore in effect to the extent such claims, individually or in the
aggregate, have had or would reasonably be expected to have a Material Adverse
Effect on Parent.
3.9 PERMITS; COMPLIANCE WITH LEGAL REQUIREMENTS. Parent and each Parent
Subsidiary holds all permits, licenses, vacancies, order and appeals which are
material to the operation of Parent and the Parent Subsidiaries. Parent and each
Parent Subsidiary is, and has at all times since January 1, 1997 been, in
compliance with all applicable Legal Requirements, except where the failure to
comply with such Legal Requirements has not had and would not reasonably be
expected to have a Material
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Adverse Effect on Parent. Since January 1, 1997, neither Parent nor any Parent
Subsidiary has received any notice or other communication from any Governmental
Body or other Person regarding any actual or possible violation of, or failure
to comply with, any Legal Requirement.
3.10 CERTAIN BUSINESS PRACTICES. Neither Parent nor any Parent Subsidiary
nor (to the best of the knowledge of Parent) any director, officer, agent or
employee of Parent or any Parent Subsidiary has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.
3.11 TAX MATTERS.
(A) Each Tax Return required to be filed by or on behalf of Parent and each
Parent Subsidiary with any Governmental Body with respect to any taxable period
ending on or before the Closing Date (the "Parent Returns") (i) has been or will
be filed on or before the applicable due date, and (ii) has been, or will be
when filed, prepared in all material respects in compliance with all applicable
Legal Requirements. All amounts shown on the Parent Returns to be due on or
before the Closing Date have been or will be paid on or before the Closing Date.
(B) The Parent Unaudited Interim Balance Sheet fully accrues all actual and
contingent liabilities for Taxes with respect to all periods through December
31, 1998 in accordance with generally accepted accounting principles. Parent
will establish, in the ordinary course of business and consistent with its past
practices, reserves adequate for the payment of all Taxes for the period from
December 31, 1998 through the Closing Date, and will disclose the amount of such
reserves to the Company no later than 10 business days prior to the Closing
Date. Since December 31, 1998, Parent has not incurred any Liability for any Tax
other than in the ordinary course of its business.
(C) No Parent Return has ever been examined or audited by any Governmental
Body. No extension or waiver of the limitation period applicable to any of the
Parent Returns has been granted (by Parent or any other Person), and no such
extension or waiver has been requested from Parent.
(D) No claim or Legal Proceeding is pending or, to the best of the
knowledge of Parent, has been threatened against or with respect to Parent in
respect of any material Tax. There are no unsatisfied liabilities for material
Taxes (including liabilities for interest, additions to tax and penalties
thereon and related expenses) with respect to any notice of deficiency or
similar document received by Parent with respect to any material Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or similar
document which are being contested in good faith by Parent and with respect to
which adequate reserves for payment have been established on the Parent
Unaudited Interim Balance Sheet). There are no liens for material Taxes upon any
of the assets of Parent except liens for current Taxes not yet due and payable.
Parent has not entered into or become bound by any agreement or consent pursuant
to Section 341(f) of the Code (or any comparable provision of state or foreign
Tax laws). Parent has not been and it will not be required to include any
adjustment in taxable income for any tax period (or portion thereof) pursuant to
Section 481 or 263A of the Code (or any comparable provision under state or
foreign Tax laws) as a result of transactions or events occurring, or accounting
methods employed, prior to the Closing.
(E) There is no agreement, plan, arrangement or other Contract covering any
employee or independent contractor or former employee or independent contractor
of Parent that, considered individually or considered collectively with any
other such Contracts, will, or could reasonably be expected to, give rise
directly or indirectly to the payment of any amount that would not be deductible
pursuant to Section 280G or Section 162 of the Code (or any comparable provision
under state or foreign Tax laws). Parent is not, nor has it ever been, a party
to or bound by any tax indemnity agreement, tax sharing agreement, tax
allocation agreement or similar Contract.
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3.12 EMPLOYEE BENEFIT PLANS.
(A) Schedule 3.12(a) of the Parent Disclosure Schedule identifies each
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance or termination pay, medical, life, disability or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement sponsored, maintained, contributed to or
required to be contributed to by Parent and/or each Parent Subsidiary for the
benefit of any current or former employee, consultant, officer or director of
Parent or any Parent Subsidiary (other than those plans, programs and agreements
disclosed in the Parent SEC Documents).
(B) Except as set forth in Schedule 3.12(b) of the Parent Disclosure
Schedule, neither Parent nor any Parent Subsidiary maintains, sponsors or
contributes to, nor has at any time in the past maintained, sponsored or
contributed to, any employee pension benefit plan (as defined in Section 3(2) of
ERISA, whether or not excluded from coverage under specific Titles or Subtitles
of ERISA) for the benefit of employees or former employees of Parent or any
Parent Subsidiary. Except as set forth in Schedule 3.12(b) of the Parent
Disclosure Schedule, neither Parent nor any Parent Subsidiary maintains,
sponsors or contributes to, nor has at any time in the past maintained,
sponsored or contributed to, nor has any obligation or liability (whether
accrued, contingent or otherwise) with respect to, any employee benefit plan (as
defined in Schedule 3(3) of ERISA) or any other plan, policy, program,
arrangement or agreement that is: (i) subject to Section 302 or Title IV of
ERISA or Section 412 of the Code, (ii) a multi employer plan (as defined in
Section 3(37) or 4001(a)(3) of ERISA), or (iii) provides welfare benefits to
employees or former employees (or their dependents) of Parent or any Parent
Subsidiary following retirement or other termination of employment (except as
required by Section 4980B of the Code or Title I, Subtitle B, Part 6 of ERISA).
(C) Each of the plans identified in Schedule 3.12(a) of the Parent
Disclosure Schedule intended to be qualified under Section 401(a) of the Code
has received a favorable determination from the Internal Revenue Service, and
Parent is not aware of any reason why any such determination letter should be
revoked. Each of the plans, programs and agreements identified in Schedule
3.12(a) of the Parent Disclosure Schedule has been maintained in compliance in
all material respects with its terms and, both as to form and in operation, with
the requirements prescribed by any and all applicable statutes, orders, rules
and regulations, including without limitation, ERISA and the Code. Parent has
delivered to the Company with respect to each plan, program or agreement
identified in Schedule 3.12(a) of the Parent Disclosure Schedule, a copy of: (i)
the document under which such plan, program or agreement is maintained and all
amendments thereto (and all related funding instruments), (ii) the most recent
determination letter issued by the Internal Revenue Service (if applicable) and
(iii) the most recent Form 5500 filed with respect to such plan, program or
agreement (if applicable).
(D) Except as disclosed in Schedule 3.12(d) of the Parent Disclosure
Schedule or in the Parent SEC Documents, neither the execution, delivery or
performance of this Agreement, nor the consummation of the Merger or any of the
other transactions contemplated by this Agreement, will result in any payment
(including any bonus, golden parachute or severance payment) to any current or
former employee or director of Parent (whether or not under any plan), or
materially increase the benefits payable under any plan, or result in any
acceleration of the time of payment or vesting of any such benefits.
(E) Parent and each Parent Subsidiary is in compliance with all applicable
Legal Requirements and Contracts relating to employment, employment practices,
wages, bonuses and terms and conditions of employment, including employee
compensation matters, except where the failure to be in compliance would not
have a Material Adverse Effect on Parent.
3.13 INSURANCE. Parent has made available to the Company a copy of all
material insurance policies and all material self insurance programs and
arrangements relating to the business, assets and operations of Parent and each
Parent Subsidiary. Each of such insurance policies is in full force and effect.
Since January 1, 1997, Parent has not received any notice or other communication
regarding any
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actual or possible (a) cancellation or invalidation of any insurance policy, (b)
refusal of any coverage or rejection of any material claim under any insurance
policy, or (c) material adjustment in the amount of the premiums payable with
respect to any insurance policy. Except as set forth in Schedule 3.13 of the
Parent Disclosure Schedule, there is no pending workers' compensation or other
claim under or based upon any insurance policy of Parent or any Parent
Subsidiary.
3.14 TRANSACTIONS WITH AFFILIATES. Except as set forth in Schedule 3.14 of
the Parent Disclosure Schedule or the Parent SEC Documents or as contemplated by
this Agreement, since the date of Parent's last proxy statement filed with the
SEC, no event has occurred that would be required to be reported by Parent
pursuant to Item 404 of Regulation S-K promulgated by the SEC. Schedule 3.14 of
the Parent Disclosure Schedule identifies each person who is (or who may be
deemed to be) an "affiliate" (as that term is used in Rule 145 under the
Securities Act) of Parent as of the date of this Agreement.
3.15 LITIGATION. Except as disclosed in Parent SEC Documents, there is no
Legal Proceeding pending or, to Parent's knowledge, threatened by or before any
court or Governmental Authority that involves Parent or any Parent Subsidiary or
any of the assets owned or used by Parent or any Parent Subsidiary. Neither
Parent nor any Parent Subsidiary is a party to any decree, order, writ,
injunction, judgment or arbitration award (or agreement entered into in any
Legal Proceeding) with respect to its properties, assets, personnel or business
activities.
3.16 PROPERTIES. Schedule 3.16 of the Parent Disclosure Schedule sets
forth each lease of real and personal property to which Parent and each Parent
Subsidiary is a party (the "Parent Leases"). Parent has previously made
available to the Company complete and accurate copies of all the Parent Leases.
Each of the Parent Leases is valid, binding and enforceable in accordance with
its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, as limited by laws
relating to the availability of specific performance, injunctive relief, or by
general equitable principles, and to the extent any indemnification or
contribution provisions thereof may be limited by applicable federal or state
securities laws. Neither Parent nor any Parent Subsidiary has breached, nor
received in writing any claim or threat that it has breached, in any material
respect, and no default has occurred under any of the Parent Leases and, to
Parent's knowledge, (i) none of the other contracting parties has violated or
breached, and no default has occurred under any of the Parent Leases, and (ii)
other than the transactions contemplated hereby, no event has occurred, and no
circumstance or condition exists which with the giving of notice or the lapse of
time, or both, will, or could reasonably be expected to, result in a violation,
breach or default under any of the Parent Leases or give any Person the right to
cancel, terminate or modify any of the Parent Leases. Neither Parent nor any
Parent Subsidiary owns any real property.
3.17 ENVIRONMENTAL MATTERS. To the knowledge of Parent, no current owner
of any property leased or controlled by the Parent or any Parent Subsidiary has
received any notice (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that such current or prior
owner or Parent or any Parent Subsidiary is not in compliance with any
Environmental Law. Parent has not received any notice or information that any
property that is leased to, controlled by or used by Parent or any Parent
Subsidiary, or any surface water, groundwater and soil associated with or
adjacent to such property, is not in clean and healthful condition or that it is
not free of any material environmental contamination. For purposes of this
Section 3.17: (i) "Environmental Law" means any federal, state, local or foreign
Legal Requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern; and (ii) "Materials of Environmental Concern" include
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products
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and any other substance that is now or hereafter regulated by any Environmental
Law or that is otherwise a danger to health, reproduction or the environment.
3.18 PARENT ACTION. The board of directors of Parent (at a meeting duly
called and held) has (a) unanimously determined that the Merger is in the best
interests of Parent and its shareholders, (b) unanimously approved this
Agreement and the Merger in accordance with the provisions of Section 1200 of
the CCC, (c) unanimously recommended the adoption and approval of this Agreement
and the Merger by the shareholders of Parent and directed that the Merger be
submitted for consideration by Parent's shareholders at the Parent Shareholders'
Meeting, and (d) adopted a resolution having the effect of causing Parent not to
be subject, to the extent permitted by applicable law, to any state takeover law
that may purport to be applicable to the Merger and the other transactions
contemplated by this Agreement.
3.19 ENFORCEABILITY. Parent has all requisite corporate power and
authority to execute, deliver and, subject to obtaining requisite shareholder
approval, to perform its obligations under this Agreement and all other
agreements, documents and instruments contemplated hereby to which it is or will
become a party. The execution and delivery of this Agreement and the other
agreements, documents and instruments contemplated hereby have been duly and
validly authorized by the board of directors of Parent, and no other corporate
proceedings on the part of Parent are necessary for Parent to authorize any of
such agreements, documents or instruments and no such corporate proceedings
(other than the approval of the Parent Shareholders) are necessary to enable
Parent to consummate the Merger or any of the other transactions contemplated by
this Agreement. All agreements, documents and instruments to be executed in
connection with the Merger (a) have been (or will be) duly executed and
delivered by duly authorized officers of Parent and (b) constitute (or, when
executed by Parent, will constitute) legal, valid and binding obligations of
Parent enforceable against it in accordance with their terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors' rights
generally, as limited by laws relating to the availability of specific
performance, injunctive relief, or by general equitable principles, and to the
extent any indemnification or contribution provisions thereof may be limited by
applicable federal or state securities laws.
3.20 GOVERNMENTAL CONSENTS; NO CONFLICTS. Except as may be required under
the Applicable Regulatory Requirements, there is no requirement applicable to
Parent or any Parent Subsidiary to make any filing with, or to obtain any
permit, authorization, or Consent of, any Governmental Authority as a condition
to the consummation of the Merger or any of the other transactions contemplated
by this Agreement. Neither the execution and delivery of this Agreement and the
other agreements, documents and instruments contemplated hereby by Parent nor
the consummation by Parent of the Merger or any of the other transactions
contemplated by this Agreement will (a) violate the Articles of Incorporation or
Bylaws of Parent, (b) result in a default (or with notice or lapse of time or
both would result in a default) under, or materially impair the rights of Parent
or any Parent Subsidiary or materially alter the rights or obligations of any
third party under, or require Parent or any Parent Subsidiary to make any
material payment or become subject to any material liability to any third party
under, or give rise to any right of termination, amendment, cancellation,
acceleration, repurchase, put or call under, any of the terms, conditions or
provisions of any Material Parent Contract, (c) result in the creation of any
material (individually or in the aggregate) Encumbrance on any of the assets of
Parent or any Parent Subsidiary or (d) conflict with or violate any law,
statute, rule, regulation, judgment, order, writ, injunction, decree or
arbitration award applicable to Parent or any Parent Subsidiary or any of their
assets, which conflict or violation has had or would reasonably be expected to
have a Material Adverse Effect on Parent.
3.21 YEAR 2000 PREPAREDNESS. There are no issues related to Parent's or
any Parent Subsidiary's preparedness for the Year 2000 (including, without
limitation, any issues relating to Parent's or Parent Subsidiary's internal
computer systems and each Constituent Component of those systems and all
computer related products and each Constituent Component of such products) that
are of a character
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required to be described or referred to in the Parent SEC Documents by the
Securities Act or by the Exchange Act which have not been accurately described
in the Parent SEC Documents. Except as otherwise disclosed in the Parent SEC
Documents, Parent has inquired of material vendors as to their preparedness for
the Year 2000 and has disclosed in the Parent Disclosure Schedule or Parent SEC
Documents any issues that might reasonably be expected to result in any Material
Adverse Effect on Parent.
3.22 REGULATORY MATTERS.
(A) Except as disclosed on Schedule 3.22(a) of the Parent Disclosure
Schedule, Parent has obtained and is in compliance in all material respects with
all certifications, approvals and clearances from the FDA, etc. necessary in
order to carry out its business and the businesses of each Parent Subsidiary as
currently conducted, including without limitation developing pharmaceutical
products in any and all geographic areas in which Parent or any Parent
Subsidiary is currently, or have previously, developed pharmaceutical products.
(B) All nonclinical laboratory studies of pharmaceutical products have been
and are being conducted in all material respects in compliance with all
applicable federal, state, local and foreign laws, rules and regulations
(including, without limitation, any reporting requirements thereof) and with
accepted standards of good laboratory practice. All clinical trials of
pharmaceutical products have been and are being conducted in all material
respects in compliance with all applicable federal, state, local and foreign
laws, rules and regulations (including, without limitation, any reporting
requirements thereof) and with accepted standards of good clinical practice.
(C) Neither Parent nor any Parent Subsidiary nor any officer, employee or
agent of Parent or any Parent Subsidiary has made any untrue statement of a
material fact or fraudulent statement to the FDA, etc. or failed to disclose a
material fact required to be disclosed to the FDA, etc. Parent has provided the
Company with copies of any and all notice of inspectional observations,
establishment inspection reports and any other documents received from the FDA,
etc. that indicate or suggest material lack of compliance with the regulatory
requirements of the FDA, etc. Parent has made available to the Company for
review all correspondence to or from the FDA, etc., minutes of meetings with the
FDA, etc., written reports of phone conversations, visits or other contact with
the FDA, etc., notices of inspectional observations, establishment inspection
reports, and all other documents in its possession concerning communications to
or from the FDA, etc., or prepared by the FDA, etc., which bear in any way on
Parent's or any Parent Subsidiary's compliance with regulatory requirements of
the FDA, etc. or on the likelihood of timing of approval of any pharmaceutical
product.
3.23 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the shares of Parent Common Stock outstanding on the record date for the Parent
Shareholders' Meeting (the "Required Parent Shareholder Vote") is the only vote
of the holders of any class or series of Parent's capital stock necessary to
approve and consummate this Agreement, the Merger and the other transactions
contemplated by this Agreement.
3.24 FAIRNESS OPINION. Parent's board of directors has received the
written opinion of EVEREN Securities, Inc., financial advisor to Parent, dated
the date of this Agreement, to the effect that the Merger is fair to the
shareholders of Parent from a financial point of view. Parent has furnished an
accurate and complete copy of said written opinion to the Company.
3.25 FINANCIAL ADVISOR. Except for EVEREN Securities, Inc., no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or any of the other transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent. Parent has furnished to the Company accurate and complete copies of all
agreements under which any such fees, commissions or other amounts have been
paid or may become payable and all indemnification and other agreements related
to the engagement of EVEREN Securities, Inc.
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3.26 VOTING AGREEMENTS. Each member of the board of directors and each
executive officer of Parent has agreed on behalf of himself and his affiliates
to vote in favor of the Merger at the Parent Shareholders' Meeting and has
executed and delivered to the Company a Voting Agreement substantially in the
form attached hereto as Exhibit E-3.
3.27 DISCLOSURE.
(A) The copies of all documents furnished by Parent pursuant to the terms
of this Agreement are complete and accurate copies of the original, as such
documents may have been amended to date.
(B) None of the representations and warranties of Parent contained in
Section 3 of this Agreement or in any other Section of this Agreement or the
information disclosed in the Parent Disclosure Schedule contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
(C) None of the information supplied or to be supplied by Parent for
inclusion or incorporation by reference in the Form S-4 registration statement
to be filed with the SEC by the Company in connection with the issuance of the
Merger Shares (the "S-4 Registration Statement") will, at the time the S-4
Registration Statement is filed with the SEC or at the time the S-4 Registration
Statement becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. None of the
information supplied or to be supplied by Parent for inclusion or incorporation
by reference in the prospectus/joint proxy statement, will, at the time the
prospectus/joint proxy statement is mailed to the shareholders of Parent or the
stockholders of the Company, at the time of the Parent Shareholders' Meeting or
the Company Shareholders' Meeting and as of the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
Notwithstanding the foregoing, no representation or warranty is made by Parent
with respect to statements made about the Company or Merger Sub or based on
information supplied by the Company or Merger Sub or any of their
representatives which is contained in the S-4 Registration Statement or the
prospectus/joint proxy statement. The prospectus/joint proxy statement will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations promulgated by the SEC thereunder.
3.28 INTERIM OPERATIONS OF MERGER SUB. Merger Sub was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
4. CERTAIN COVENANTS OF PARENT, MERGER SUB AND THE COMPANY
4.1 Company Access and Investigation. During the period from the date of
this Agreement through the Effective Time (the "Pre-Closing Period"), the
Company shall, and shall cause the respective Representatives of the Company to:
(a) provide Parent and Parent's Representatives with reasonable access to the
Company's Representatives, personnel and assets and to all existing books,
records, Tax Returns, work papers and other documents and information relating
to the Company; and (b) provide Parent and Parent's Representatives with such
copies of the existing books, records, Tax Returns, work papers and other
documents and information relating to the Company, and with such additional
financial, operating and other data and information regarding the Company, as
Parent may reasonably request. Without limiting the generality of the foregoing,
during the Pre-Closing Period, the Company shall promptly provide Parent with
copies of:
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(I) all material operating and financial reports prepared by the
Company and each Company Subsidiary for the Company's senior management,
including (A) copies of the unaudited monthly consolidated balance sheets of
the Company and the related unaudited monthly consolidated statements of
operations, statements of stockholders' equity and statements of cash flows
and (B) copies of any sales forecasts, marketing plans, development plans,
discount reports, write-off reports, hiring reports and capital expenditure
reports prepared for the Company's senior management;
(II) any written materials or communications sent by or on behalf of
the Company to its stockholders;
(III) any material notice, document or other communication sent by or
on behalf of the Company or any Company Subsidiary to any party to any
Company Contract or sent to the Company or any Company Subsidiary by any
party to any Company Contract (other than any communication that relates
solely to routine commercial transactions between the Company and the other
party to any such Company Contract and that is of the type sent in the
ordinary course of business and consistent with past practices); and
(IV) any notice, report or other document received by the Company or
any Company Subsidiary from, or filed with or sent by the Company or any
Company Subsidiary to any Governmental Body.
4.2 OPERATION OF THE COMPANY'S BUSINESS.
(A) During the Pre-Closing Period: (i) the Company shall ensure that the
Company and each Company Subsidiary conducts its business and operations (A) in
the ordinary course and in accordance with past practices and (B) in compliance
with all applicable Legal Requirements and the requirements of all Company
Contracts that constitute Material Company Contracts; (ii) the Company shall use
all reasonable efforts to ensure that the Company and each Company Subsidiary
preserves intact its current business organization, keeps available the services
of its current officers and other employees and maintains its relations and
goodwill with all suppliers, customers, landlords, creditors, licensors,
licensees, employees, consultants and other Persons having business
relationships with the Company or a Company Subsidiary; (iii) the Company shall
keep in full force all insurance policies referred to in Section 2.13; and (iv)
the Company shall (to the extent requested by Parent) cause its officers and the
officers of each Company Subsidiary to report regularly to Parent concerning the
status of the Company's and each Company Subsidiary's business.
(B) During the Pre-Closing Period, the Company shall not, except as set
forth on Schedule 4.2(b), (without the prior written consent of Parent), and
shall not permit any Company Subsidiary to:
(I) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other
securities (except for any repurchase of Company Warrants in accordance with
their existing terms);
(II) sell, issue, grant or authorize the issuance or grant of (A) any
capital stock or other security, (B) any option, call, warrant or right to
acquire any capital stock or other security, or (C) any instrument
convertible into or exchangeable for any capital stock or other security
(except that the Company may issue shares and grant options to purchase
shares of Company Common Stock under stock option plans approved by its
board of directors and stockholders totaling up to 100,000 shares and issue
shares of Company Common Stock (w) upon the valid exercise of Company
Options outstanding as of the date of this Agreement or such additional
options, (x) pursuant to the ESPP, (y) upon the exercise of Company Warrants
outstanding as of the date of this Agreement and (z) upon the conversion of
Company Preferred Stock outstanding as of the date of this Agreement);
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(III) amend or waive any of its rights under, or accelerate the vesting
under, any provision of any of the Company's stock option plans, any
provision of any agreement evidencing any outstanding stock option or any
restricted stock purchase agreement, other than pursuant to agreements in
existence on the date hereof, copies of which have been provided to the
other parties hereto, or otherwise modify any of the terms of any
outstanding option, warrant or other security or any related Contract;
(IV) amend or permit the adoption of any amendment to its certificate
of incorporation or bylaws or other charter or organizational documents,
adopt any shareholder rights plan ("poison pill") or effect or become a
party to any merger, consolidation, amalgamation, share exchange, business
combination, recapitalization, reclassification of shares, stock split,
division or subdivision of shares, reverse stock split, consolidation of
shares or similar transaction;
(V) form any Subsidiary or acquire any equity interest or other
interest in any other Entity or any other business;
(VI) make any capital expenditure in excess of $100,000;
(VII) enter into or become bound by, or permit any of the assets owned
or used by it to become bound by, any Company Collaboration Agreement or any
Material Company Contract, or amend or terminate, or waive or exercise any
Company Collaboration Agreement or any material right or remedy under, any
Material Company Contract, other than in the ordinary course of business
consistent with past practices;
(VIII) acquire, lease or license any right or other asset from any
other Person or sell or otherwise dispose of, or lease or license, any right
or other asset to any other Person (except in each case for immaterial
assets (other than Company Proprietary Assets) acquired, leased, licensed or
disposed of by the Company in the ordinary course of business and consistent
with past practices), or waive or relinquish any material right;
(IX) lend money to any Person, or incur or guarantee any indebtedness;
(X) establish, adopt or amend any employee benefit plan, pay any bonus
or make any profit-sharing or similar payment to, or increase the amount of
the wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees;
(XI) prepay any material claim, Liability or obligation, or pay,
discharge or satisfy any material unliquidated or contingent Liability;
(XII) enter into or amend any employment agreement, severance
agreement, special pay arrangement with respect to termination of employment
or other similar arrangement or agreement with any director, officer or
employee of the Company,
(XIII) make or fail to make any material election concerning the term,
scope or termination of any real property lease, or waive any material
provision of any such lease or enter into any new real property lease;
(XIV) engage in any transaction with any stockholder, director, officer
or employee other than in the ordinary course of business consistent with
past practice;
(XV) make any Tax election;
(XVI) commence or settle any Legal Proceeding;
(XVII) enter into any material transaction or take any other material
action outside the ordinary course of business or inconsistent with past
practices; or
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(XVIII) agree or commit to take any of the actions described in
clauses"(i)" through "(xviii)" of this Section 4.2(b).
(C) During the Pre-Closing Period, the Company shall promptly notify Parent
in writing of: (i) the discovery by the Company of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes a material inaccuracy in any representation or
warranty made by the Company in this Agreement; (ii) any event, condition, fact
or circumstance that occurs, arises or exists after the date of this Agreement
and that would cause or constitute a material inaccuracy in any representation
or warranty made by the Company in this Agreement if (A) such representation or
warranty had been made as of the time of the occurrence, existence or discovery
of such event, condition, fact or circumstance, or (B) such event, condition,
fact or circumstance had occurred, arisen or existed on or prior to the date of
this Agreement; (iii) any material breach of any covenant or obligation of the
Company; and (iv) any event, condition, fact or circumstance that would make the
timely satisfaction of any of the conditions set forth in Section 6 or Section 7
impossible or unlikely or that has had or could reasonably be expected to have a
Material Adverse Effect on the Company or any Company Subsidiary. Without
limiting the generality of the foregoing, the Company shall promptly advise
Parent in writing of any Legal Proceeding or other claim threatened, commenced
or asserted against or with respect to the Company or any Company Subsidiary. No
notification given to Parent pursuant to this Section 4.2(c) shall limit,
modify, amend or otherwise affect any of the representations, warranties,
covenants or obligations of the Company contained in this Agreement.
4.3 NO SOLICITATION.
(A) The Company shall not directly or indirectly, and shall not authorize
or permit any Representative of the Company directly or indirectly to, (i)
solicit, initiate, encourage or induce the making, submission or announcement of
any Company Acquisition Proposal or take any action that could reasonably be
expected to lead to any inquiries related to or the making of a Company
Acquisition Proposal, (ii) furnish any information regarding the Company or any
Company Subsidiary to any Person in connection with or in response to any
inquiry relating to a Company Acquisition Proposal, (iii) engage in discussions
or negotiations with any Person with respect to any Company Acquisition
Proposal, (iv) approve, endorse or recommend any Company Acquisition Proposal or
(v) enter into any letter of intent or similar document or any Contract
contemplating or otherwise relating to any Company Acquisition Transaction;
PROVIDED, HOWEVER, that prior to the adoption and approval of this Agreement by
the Required Company Stockholder Vote, the Company shall not be prohibited by
this Section 4.3(a) from (A) furnishing nonpublic information regarding the
Company or any Company Subsidiary to, or entering into discussions with, any
Person in response to a Company Superior Offer that is submitted by such Person
(and not withdrawn) relating to a Company Acquisition Transaction if (1) neither
the Company nor any Representative of the Company shall have violated any of the
restrictions set forth in this Section 4.3, (2) the board of directors of the
Company concludes in good faith, based upon the advice of its outside legal
counsel, that the failure to provide information in response to a written
request by a Person making a Company Acquisition Proposal and the failure to
consider the Company Acquisition Proposal would be reasonably likely to
constitute a breach of its fiduciary obligations to the Company's stockholders
under applicable law, (3) prior to furnishing any such nonpublic information to,
or entering into discussions with, such Person, the Company gives Parent written
notice of the identity of such Person, the terms and conditions of such Company
Superior Offer and of the Company's intention to furnish nonpublic information
to, or enter into discussions with, such Person, and it receives from such
Person an executed confidentiality agreement containing customary limitations on
the use and disclosure of all nonpublic written and oral information furnished
to such Person by or on behalf of the Company and (4) prior to furnishing any
such nonpublic information to such Person, the Company furnishes such nonpublic
information to Parent (to the extent such nonpublic information has not been
previously furnished by the Company to
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Parent), (B) withdrawing or modifying its unanimous recommendation referred to
in Section 5.2(b) following receipt of a Company Superior Offer if after duly
considering the advice of outside counsel to the Company, the board of directors
of the Company determines in good faith that failure to do so would be
reasonably likely to constitute a breach of its fiduciary obligations to the
Company's stockholders under applicable law, or (C) complying with Rule 14e-2
promulgated under the Exchange Act with regard to a Company Acquisition
Transaction. Without limiting the generality of the foregoing, the Company
acknowledges and agrees that any violation of any of the restrictions set forth
in the preceding sentence by any of its Representatives, whether or not such
Representative is purporting to act on behalf of the Company, shall be deemed to
constitute a breach of this Section 4.3 by the Company. Nothing contained in
this Section 4.3 shall limit the Company's obligation to call, give notice of,
convene and hold the Company Stockholders' Meeting in accordance with Section
5.2.
(B) The Company shall promptly advise Parent orally and in writing of any
Company Acquisition Proposal (including the identity of the Person making or
submitting such Company Acquisition Proposal and the terms thereof) that is made
or submitted by any Person during the Pre-Closing Period regardless of whether
the Company intends to furnish any information to the Person making any such
Company Acquisition Proposal. The Company shall keep Parent fully informed with
respect to the status of any such Company Acquisition Proposal and any
modification or proposed modification thereto. Prior to entering into any
agreement or Contract with any Person in response to a Company Superior Offer,
the Company shall give Parent the opportunity to match such Company Superior
Offer by providing Parent with the terms of such Company Superior Offer in
writing and allowing Parent three (3) business days to respond with a new offer.
Each amendment or modification to any proposed Company Acquisition Transaction
or Company Superior Offer shall be considered a new and separate proposal for a
Company Acquisition Transaction or Company Superior Offer for the purposes of
this Agreement.
(C) The Company shall immediately cease and cause to be terminated any
existing discussions with any Person that relate to any Company Acquisition
Proposal.
4.4 PARENT ACCESS AND INVESTIGATION. During the Pre-Closing Period, Parent
shall, and shall cause the respective Representatives of Parent to: (a) provide
the Company and the Company's Representatives with reasonable access to Parent's
Representatives, personnel and assets and to all existing books, records, Tax
Returns, work papers and other documents and information relating to Parent; and
(b) provide the Company and the Company's Representatives with such copies of
the existing books, records, Tax Returns, work papers and other documents and
information relating to Parent, and with such additional financial, operating
and other data and information regarding Parent, as the Company may reasonably
request. Without limiting the generality of the foregoing, during the
Pre-Closing Period, Parent shall promptly provide the Company with copies of:
(I) all material operating and financial reports prepared by Parent and
each Parent Subsidiary for Parent's senior management, including (A) copies
of the unaudited monthly consolidated balance sheets of Parent and the
related unaudited monthly consolidated statements of operations, statements
of shareholders' equity and statements of cash flows and (B) copies of any
sales forecasts, marketing plans, development plans, discount reports,
write-off reports, hiring reports and capital expenditure reports prepared
for Parent's senior management;
(II) any written materials or communications sent by or on behalf of
Parent to its shareholders;
(III) any material notice, document or other communication sent by or
on behalf of Parent or any Parent Subsidiary to any party to any Parent
Contract or sent to Parent or any Parent Subsidiary by any party to any
Parent Contract (other than any communication that relates solely to routine
commercial transactions between Parent and the other party to any such
Parent
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Contract and that is of the type sent in the ordinary course of business and
consistent with past practices); and
(IV) any notice, report or other document received by Parent or any
Parent Subsidiary from, or filed with or sent by Parent or any Parent
Subsidiary to any Governmental Body.
4.5 OPERATION OF PARENT'S BUSINESS.
(A) During the Pre-Closing Period: (i) Parent shall ensure that Parent and
each Parent Subsidiary conducts its business and operations (A) in the ordinary
course and in accordance with past practices and (B) in compliance with all
applicable Legal Requirements and the requirements of all Parent Contracts that
constitute Material Parent Contracts; (ii) Parent shall use all reasonable
efforts to ensure that Parent and each Parent Subsidiary preserves intact its
current business organization, keeps available the services of its current
officers and other employees and maintains its relations and goodwill with all
suppliers, customers, landlords, creditors, licensors, licensees, employees,
consultants and other Persons having business relationships with Parent or a
Parent Subsidiary; (iii) Parent shall keep in full force all insurance policies
referred to in Section 3.13; and (iv) Parent shall (to the extent requested by
the Company) cause its officers and the officers of each Parent Subsidiary to
report regularly to the Company concerning the status of Parent's and each
Parent's and each Parent Subsidiary's business.
(B) During the Pre-Closing Period, Parent shall not, except as set forth in
Schedule 4.5(b) (without the prior written consent of the Company), and shall
not permit any Parent Subsidiary to:
(I) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other
securities;
(II) sell, issue, grant or authorize the issuance or grant of (A) any
capital stock or other security, (B) any option, call, warrant or right to
acquire any capital stock or other security, or (C) any instrument
convertible into or exchangeable for any capital stock or other security
(except that Parent may issue shares and grant options to purchase shares of
Parent Common Stock under stock option plans approved by its board of
directors and shareholders totaling up to 100,000 and issue shares of Parent
Common Stock (x) upon the valid exercise of Parent Options outstanding as of
the date of this Agreement or such additional options, and (y) upon the
exercise of Parent Warrants outstanding as of the date of this Agreement),
and except that Parent may amend its stock option plan(s) to authorize
additional shares of Parent Common Stock for issuance thereunder in
connection with the conversion of the Company Options at the Effective Time
("Parent Option Plan Amendments");
(III) amend or waive any of its rights under, or accelerate the vesting
under, any provision of any of Parent's stock option plans, any provision of
any agreement evidencing any outstanding stock option or any restricted
stock purchase agreement, other than pursuant to agreements in existence on
the date hereof, copies of which have been provided to the other parties
hereto, or otherwise modify any of the terms of any outstanding option,
warrant or other security or any related Contract;
(IV) amend or permit the adoption of any amendment to its articles of
incorporation (other than the Amended Articles) or bylaws or other charter
or organizational documents, adopt any shareholder rights plan ("poison
pill") or effect or become a party to any merger, consolidation,
amalgamation, share exchange, business combination, recapitalization,
reclassification of shares, stock split, division or subdivision of shares,
reverse stock split, consolidation of shares or similar transaction;
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(V) form any Subsidiary or acquire any equity interest or other
interest in any other Entity or any other business;
(VI) make any capital expenditure in excess of $100,000;
(VII) enter into or become bound by, or permit any of the assets owned
or used by it to become bound by, any Parent Collaboration Agreement or any
Material Parent Contract, or amend or terminate, or waive or exercise any
material right or remedy under, any Parent Collaboration Agreement or any
Material Parent Contract, other than in the ordinary course of business
consistent with past practices;
(VIII) acquire, lease or license any right or other asset from any
other Person or sell or otherwise dispose of, or lease or license, any right
or other asset to any other Person (except in each case for immaterial
assets (other than Parent Proprietary Assets) acquired, leased, licensed or
disposed of by Parent in the ordinary course of business and consistent with
past practices), or waive or relinquish any material right;
(IX) lend money to any Person, or incur or guarantee any indebtedness;
(X) establish, adopt or amend any employee benefit plan, pay any bonus
or make any profit-sharing or similar payment to, or increase the amount of
the wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees;
(XI) prepay any material claim, Liability or obligation, or pay,
discharge or satisfy any material unliquidated or contingent Liability;
(XII) enter into or amend any employment agreement, severance
agreement, special pay arrangement with respect to termination of employment
or other similar arrangement or agreement with any director, officer or
employee of Parent,
(XIII) make or fail to make any material election concerning the term,
scope or termination of any real property lease, or waive any material
provision of any such lease or enter into any new real property lease;
(XIV) engage in any transaction with any shareholder, director, officer
or employee other than in the ordinary course of business consistent with
past practice;
(XV) make any Tax election;
(XVI) commence or settle any Legal Proceeding;
(XVII) enter into any material transaction or take any other material
action outside the ordinary course of business or inconsistent with past
practices; or
(XVIII) agree or commit to take any of the actions described in clauses
"(i)" through "(xviii)" of this Section 4.5(b).
(C) During the Pre-Closing Period, Parent shall promptly notify the Company
in writing of: (i) the discovery by Parent of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes a material inaccuracy in any representation or
warranty made by Parent in this Agreement; (ii) any event, condition, fact or
circumstance that occurs, arises or exists after the date of this Agreement and
that would cause or constitute a material inaccuracy in any representation or
warranty made by Parent in this Agreement if (A) such representation or warranty
had been made as of the time of the occurrence, existence or discovery of such
event, condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement; (iii) any material breach of any covenant or obligation of Parent;
and (iv) any event, condition, fact or circumstance that would make
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the timely satisfaction of any of the conditions set forth in Section 6 or
Section 7 impossible or unlikely or that has had or could reasonably be expected
to have a Material Adverse Effect on Parent or any Parent Subsidiary. Without
limiting the generality of the foregoing, Parent shall promptly advise the
Company in writing of any Legal Proceeding or other claim threatened, commenced
or asserted against or with respect to Parent or any Parent Subsidiary. No
notification given to the Company pursuant to this Section 4.5(c) shall limit,
modify, amend or otherwise affect any of the representations, warranties,
covenants or obligations of Parent contained in this Agreement.
4.6 NO SOLICITATION.
(A) Parent shall not directly or indirectly, and shall not authorize or
permit any Representative of Parent directly or indirectly to, (i) solicit,
initiate, encourage or induce the making, submission or announcement of any
Parent Acquisition Proposal or take any action that could reasonably be expected
to lead to any inquiries related to or the making of a Parent Acquisition
Proposal, (ii) furnish any information regarding Parent or any Parent Subsidiary
to any Person in connection with or in response to any inquiry relating to a
Parent Acquisition Proposal, (iii) engage in discussions or negotiations with
any Person with respect to any Parent Acquisition Proposal, (iv) approve,
endorse or recommend any Parent Acquisition Proposal or (v) enter into any
letter of intent or similar document or any Contract contemplating or otherwise
relating to any Parent Acquisition Transaction; PROVIDED, HOWEVER, that prior to
the adoption and approval of this Agreement by the Required Parent Shareholder
Vote, Parent shall not be prohibited by this Section 4.6(a) from (A) furnishing
nonpublic information regarding Parent or any Parent Subsidiary to, or entering
into discussions with, any Person in response to a Parent Superior Offer that is
submitted by such Person (and not withdrawn) relating to a Parent Acquisition
Transaction if (1) neither Parent nor any Representative of Parent shall have
violated any of the restrictions set forth in this Section 4.6, (2) the board of
directors of Parent concludes in good faith, based upon the advice of its
outside legal counsel, that the failure to provide information in response to a
written request by a Person making a Parent Acquisition Proposal and the failure
to consider the Parent Acquisition Proposal would be reasonably likely to
constitute a breach of its fiduciary obligations to Parent's shareholders under
applicable law, (3) at least five (5) business days prior to furnishing any such
nonpublic information to, or entering into discussions with, such Person, Parent
gives the Company written notice of the identity of such Person, the terms and
conditions of such Parent Superior Offer and of Parent's intention to furnish
nonpublic information to, or enter into discussions with, such Person, and it
receives from such Person an executed confidentiality agreement containing
customary limitations on the use and disclosure of all nonpublic written and
oral information furnished to such Person by or on behalf of Parent and (4)
prior to furnishing any such nonpublic information to such Person, Parent
furnishes such nonpublic information to the Company (to the extent such
nonpublic information has not been previously furnished by Parent to the
Company), (B) withdrawing or modifying its unanimous recommendation referred to
in Section 5.3(b) following receipt of a Parent Superior Offer if after duly
considering the advice of outside counsel to Parent, the board of directors of
Parent determines in good faith that failure to do so would be reasonably likely
to constitute a breach of its fiduciary obligations to Parent's shareholders
under applicable law, or (C) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a Parent Acquisition Transaction. Without limiting
the generality of the foregoing, Parent acknowledges and agrees that any
violation of any of the restrictions set forth in the preceding sentence by any
of its Representatives, whether or not such Representative is purporting to act
on behalf of Parent, shall be deemed to constitute a breach of this Section 4.6
by Parent. Nothing contained in this Section 4.6 shall limit Parent's obligation
to call, give notice of, convene and hold the Parent Shareholders' Meeting in
accordance with Section 5.3.
(B) Parent shall promptly advise the Company orally and in writing of any
Parent Acquisition Proposal (including the identity of the Person making or
submitting such Parent Acquisition Proposal and the terms thereof) that is made
or submitted by any Person during the Pre-Closing Period regardless of whether
Parent intends to furnish any information to the Person making any such Parent
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Acquisition Proposal. Parent shall keep the Company fully informed with respect
to the status of any such Parent Acquisition Proposal and any modification or
proposed modification thereto. Prior to entering into any agreement or Contract
with any Person in response to a Parent Superior Offer, Parent shall give the
Company the opportunity to match such Parent Superior Offer by providing the
Company with the terms of such Parent Superior Offer in writing and allowing the
Company five (5) business days to respond with a new offer. Each amendment or
modification to any proposed Parent Acquisition Transaction or Parent Superior
Offer shall be considered a new and separate proposal for a Parent Acquisition
Transaction or Parent Superior Offer for the purposes of this Agreement.
(C) Parent shall immediately cease and cause to be terminated any existing
discussions with any Person that relate to any Parent Acquisition Proposal.
5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 REGISTRATION STATEMENT; PROSPECTUS/PROXY STATEMENT.
(A) As promptly as practicable after the date of this Agreement, Parent and
the Company shall prepare and cause to be filed with the SEC the
Prospectus/Proxy Statement and Parent shall prepare and cause to be filed with
the SEC the Form S-4 Registration Statement, in which the Prospectus/Proxy
Statement will be included as a prospectus. Each of Parent and the Company shall
use all reasonable efforts to cause the Form S-4 Registration Statement and the
Prospectus/Proxy Statement to comply with the rules and regulations promulgated
by the SEC, to respond promptly to any comments of the SEC or its staff and to
have the Form S-4 Registration Statement declared effective under the Securities
Act as promptly as practicable after it is filed with the SEC. Each of the
Company and Parent will use all reasonable efforts to cause the Prospectus/Proxy
Statement to be mailed to their respective stockholders as promptly as
practicable after the Form S-4 Registration Statement is declared effective
under the Securities Act. Parent and the Company shall promptly furnish to the
other party all information concerning it and its stockholders that may be
required or reasonably requested in connection with any action contemplated by
this Section 5.1. If any event relating to the Company or Parent occurs, or if
the Company or Parent becomes aware of any information, that should be disclosed
in an amendment or supplement to the Form S-4 Registration Statement or the
Prospectus/Proxy Statement, then the Company or Parent, as the case may be,
shall promptly inform the other party thereof and shall cooperate with such
party in filing such amendment or supplement with the SEC and, if appropriate,
in mailing such amendment or supplement to the stockholders of the Company and
Parent.
(B) Prior to the Effective Time, Parent shall use all reasonable efforts to
obtain all regulatory approvals needed to ensure that the Parent Common Stock to
be issued in the Merger will be registered or qualified under the securities law
of every jurisdiction of the United States in which any registered holder of
Company Common Stock has an address of record on the record date for determining
the stockholders entitled to notice of and to vote at the Company Stockholders'
Meeting; PROVIDED, HOWEVER, that Parent shall not be required (i) to qualify to
do business as a foreign corporation in any jurisdiction in which it is not now
qualified or (ii) to file a general consent to service of process in any
jurisdiction.
5.2 COMPANY STOCKHOLDERS' MEETING.
(A) The Company shall take all action necessary under all applicable Legal
Requirements to call, give notice of, convene and duly hold a meeting of the
holders of Company capital stock entitled to vote on the Merger to consider, act
upon and vote upon the adoption and approval of this Agreement and the approval
of the Merger and the transactions contemplated hereby to the extent stockholder
approval is required under applicable law or by contractual arrangement (the
"Company Stockholders'
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Meeting"). The Company Stockholders' Meeting will be held as promptly as
practicable after the Form S-4 Registration Statement is declared effective
under the Securities Act. The Company shall ensure that the Company
Stockholders' Meeting is called, noticed, convened, held and conducted, and that
all proxies solicited in connection with the Company Stockholders' Meeting are
solicited, in compliance with all applicable Legal Requirements. The Company's
obligation to call, give notice of, convene and hold the Company Stockholders'
Meeting in accordance with this Section 5.2(a) shall not be limited or otherwise
affected by the commencement, disclosure, announcement or submission of any
Company Superior Offer or other Company Acquisition Proposal, or by any
withdrawal, amendment or modification of the unanimous recommendation of the
board of directors of the Company with respect to the Merger.
(B) Subject to Section 5.2(c): (i) the board of directors of the Company
shall unanimously recommend that the Company's stockholders vote in favor of and
adopt and approve this Agreement and approve the Merger at the Company
Stockholders' Meeting; (ii) the Prospectus/Proxy Statement shall include a
statement to the effect that the board of directors of the Company has
unanimously recommended that the Company's stockholders vote in favor of and
adopt and approve this Agreement and approve the Merger at the Company
Stockholders' Meeting; and (iii) neither the board of directors of the Company
nor any committee thereof shall withdraw, amend or modify, or propose or resolve
to withdraw, amend or modify, in a manner adverse to Parent, the unanimous
recommendation of the board of directors of the Company that the Company's
stockholders vote in favor of and adopt and approve this Agreement and approve
the Merger. For the purposes of this Agreement, said unanimous recommendation of
the board of directors of the Company shall be deemed to have been modified in a
manner adverse to Parent if said recommendation shall no longer be unanimous.
(C) Nothing in Section 5.2(b) shall prevent the board of directors of the
Company from withdrawing, amending or modifying its recommendation in favor of
the Merger at any time prior to the adoption and approval of this Agreement by
the Required Company Stockholder Vote if (i) a Company Superior Offer is made to
the Company and is not withdrawn, (ii) neither the Company nor any of its
Representatives shall have violated any of the restrictions set forth in Section
4.3, (iii) the board of directors of the Company concludes in good faith, based
upon the advice of its outside counsel, that the failure to withdraw, amend or
modify such unanimous recommendation would reasonably be likely to constitute a
breach of the board of directors' fiduciary obligations to the Company's
stockholders under applicable law. Nothing contained in Section 4.3 or this
Section 5.2 shall limit the Company's obligation to call, give notice of,
convene and hold the Company Stockholders' Meeting (regardless of whether the
unanimous recommendation of the board of directors of the Company shall have
been withdrawn, amended or modified) provided that nothing contained in this
Section 5.2 shall require the Company to call, give notice of, convene or hold
the Company Stockholders' Meeting in the event this Agreement is terminated
pursuant to Section 8.1.
5.3 PARENT SHAREHOLDERS' MEETING.
(A) Parent shall take all action necessary under all applicable Legal
Requirements to call, give notice of, convene and hold a meeting of the holders
of Parent Common Stock (the "Parent Shareholders' Meeting") to consider, act
upon and vote upon (i) the adoption and approval of this Agreement and the
approval of the Merger, (ii) the amendment and restatement of Parent's Articles
of Incorporation as provided in Section 1.4, (iii) an amendment of Parent's
Bylaws to increase the authorized number of directors of Parent to not less than
four (4) nor more than nine (9), (iv) an increase of the number of shares
reserved for issuance under Parent's stock option plan and directors' equity
incentive plan to 7,500,000 and 750,000, respectively, and (v) the other matters
contemplated by this Agreement (collectively, the "Parent Proposals"). The
Parent Shareholders' Meeting will be held as promptly as practicable after the
Form S-4 Registration Statement is declared effective under the Securities Act.
The Parent shall ensure that the Parent Shareholders' Meeting is called,
noticed, convened, held and conducted, and that all proxies solicited in
connection with the Parent
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Shareholders' Meeting are solicited, in compliance with all applicable Legal
Requirements. Parent's obligation to call, give notice of, convene and hold the
Parent Shareholders' Meeting in accordance with this Section 5.3(a) shall not be
limited or otherwise affected by the commencement, disclosure, announcement or
submission of any Parent Superior Offer or other Parent Acquisition Proposal, or
by any withdrawal, amendment or modification of the unanimous recommendation of
the board of directors of the Parent with respect to the Merger.
(B) Subject to Section 5.3(c): (i) the board of directors of Parent shall
unanimously recommend that Parent's shareholders vote in favor of and adopt and
approve this Agreement and approve the Merger and the other matters contemplated
by this Agreement, including, but not limited to, the Parent Proposals at the
Parent Shareholders' Meeting; (ii) the Prospectus/Proxy Statement shall include
a statement to the effect that the board of directors of the Parent has
unanimously recommended that the Parent's shareholders vote in favor of and
adopt and approve this Agreement and approve the Merger and the Parent Proposals
at the Parent Shareholders' Meeting; and (iii) neither the board of directors of
the Parent nor any committee thereof shall withdraw, amend or modify, or propose
or resolve to withdraw, amend or modify, in a manner adverse to Parent, the
unanimous recommendation of the board of directors of the Parent that the
Parent's shareholders vote in favor of and adopt and approve this Agreement and
approve the Merger and the Parent Proposals. For the purposes of this Agreement,
said unanimous recommendation shall be deemed to have been modified in a manner
adverse to the Company if said recommendation shall no longer be unanimous.
(C) Nothing in Section 5.3(b) shall prevent the board of directors of
Parent from withdrawing, amending or modifying its recommendation in favor of
the Merger at any time prior to the adoption and approval of this Agreement by
the Required Parent Shareholder Vote if (i) a Parent Superior Offer is made to
the Parent and is not withdrawn, (ii) neither Parent nor any of its
Representatives shall have violated any of the restrictions set forth in Section
4.6, (iii) the board of directors of the Parent concludes in good faith, based
upon the advice of its outside counsel, that the failure to withdraw, amend or
modify such unanimous recommendation would reasonably be likely to constitute a
breach of the board of directors' fiduciary obligations to Parent's shareholders
under applicable law. Nothing contained in Section 4.6 or this Section 5.3 shall
limit Parent's obligation to call, give notice of, convene and hold the Parent
Shareholders' Meeting (regardless of whether the unanimous recommendation of the
board of directors of Parent shall have been withdrawn, amended or modified)
provided that nothing contained in this Section 5.3 shall require Parent to
call, give notice of, convene or hold the Parent Shareholders' Meeting in the
event this Agreement is terminated pursuant to Section 8.1.
5.4 REGULATORY APPROVALS. Each party shall use all reasonable efforts to
file, as promptly as practicable after the date of this Agreement, all notices,
reports and other documents required to be filed by such party with any
Governmental Body with respect to the Merger and the other transactions
contemplated by this Agreement, and to submit promptly any additional
information requested by any such Governmental Body. The Company and Parent
shall respond as promptly as practicable to any inquiries or requests received
from any state attorney general or other Governmental Body in connection with
antitrust or related matters. Each of the Company and Parent shall (1) give the
other party prompt notice of the commencement of any Legal Proceeding by or
before any Governmental Body with respect to the Merger or any of the other
transactions contemplated by this Agreement, (2) keep the other party informed
as to the status of any such Legal Proceeding, and (3) promptly inform the other
party of any communication to or from any Governmental Body regarding the
Merger. The Company and Parent will consult and cooperate with one another, and
will consider in good faith the views of one another, in connection with any
analysis, appearance, presentation, memorandum, brief, argument, opinion or
proposal made or submitted in connection with any Legal Proceeding under or
relating to the any federal or state antitrust or fair trade law. In addition,
except as may be prohibited by any Governmental Body or by any Legal
Requirement, in connection with any Legal Proceeding under or relating to any
federal or state antitrust or fair trade law or any other
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similar Legal Proceeding, each of the Company and Parent will permit authorized
Representatives of the other party to be present at each meeting or conference
relating to any such Legal Proceeding and to have access to and be consulted in
connection with any document, opinion or proposal made or submitted to any
Governmental Body in connection with any such Legal Proceeding.
5.5 STOCK OPTIONS.
(A) Parent shall file with the SEC, within 30 days after the date on which
the Merger becomes effective, a registration statement on Form S-8 relating to
the shares of Parent Common Stock issuable with respect to the Company Options
assumed by Parent in accordance with Section 1.5(e).
(B) The Company shall take all action that may be necessary (under the
plans pursuant to which Company Options are outstanding and otherwise) to
effectuate the provisions of Section 1.5(e) and this Section 5.5 and to ensure
that, from and after the Effective Time, holders of Company Options have no
rights with respect thereto other than those specifically provided in Section
1.5(e).
5.6 EMPLOYEE BENEFITS. Parent shall, and shall cause the Surviving
Corporation to, from and after the Effective Time, (i) comply with the health,
vacation and other employee benefit plans of the Company and any Company
Subsidiary in accordance with their terms, (ii) provide employees of the Company
and any Company Subsidiary prior to the Effective Time who remain as employees
of the Surviving Corporation (or any subsidiary thereof) or Parent with employee
benefit plans no less favorable in the aggregate than those provided to
similarly situated employees of Parent, (iii) provide employees of the Company
and any Company Subsidiary prior to the Effective Time who remain as employees
of the Surviving Corporation or Parent credit for years of service with the
Company or any Company Subsidiary prior to the Effective Time for (A) the
purpose of eligibility and vesting but not benefit accrual under the Parent's
health, pension, vacation and other employee benefit plans, and (B) any and all
pre-existing condition limitations and eligibility waiting periods under health
and other employee benefit plans of Parent, and (iv) cause to be credited to any
deductible out-of-pocket expense under any health and other employee benefit
plans of Parent any deductibles or out-of-pocket expenses incurred by employees
of the Company and their beneficiaries and dependents during the portion of the
calendar year prior to their participation in the health and other employee
benefit plans of Parent. Parent shall, and shall cause the Surviving Corporation
to, honor in accordance with their terms, all health, pension, vacation and
other employee benefit plans of the Company and any Company Subsidiary (subject
to compliance and conformity with employee benefit plans of Parent), vested or
accrued benefit obligations to, and contractual rights of, current and former
employees of the Company and the Company Subsidiaries.
5.7 INDEMNIFICATION OF OFFICERS AND DIRECTORS.
(A) All rights to indemnification existing in favor of those Persons who
are directors and officers of the Company as of the date of this Agreement (the
"Indemnified Persons") for acts and omissions occurring prior to the Effective
Time, as provided in the Company's Bylaws (as in effect as of the date of this
Agreement) and as provided in the indemnification agreements between the Company
and said Indemnified Persons (as in effect as of the date of this Agreement),
shall survive the Merger and shall be observed by the Surviving Corporation to
the fullest extent available under Delaware law for a period of six years from
the Effective Time.
(B) From the Effective Time until the fifth anniversary of the Effective
Time, the Surviving Corporation shall maintain in effect, for the benefit of the
Indemnified Persons with respect to acts or omissions occurring prior to the
Effective Time, the existing policy of directors' and officers' liability
insurance maintained by the Company as of the date of this Agreement (the
"Existing Policy"); PROVIDED, HOWEVER, that (i) the Surviving Corporation may
substitute for the Existing Policy a policy or policies of comparable coverage,
and (ii) the Surviving Corporation shall not be required to pay an annual
premium for the Existing Policy (or for any substitute policies) in excess of
200% of the current
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premium. In the event any future annual premium for the Existing Policy (or any
substitute policies) exceeds such limit, the Surviving Corporation shall reduce
the amount of coverage of the Existing Policy (or any substitute policies) to
the amount of coverage that can be obtained for a premium that exceeds such
limits.
5.8 ADDITIONAL AGREEMENTS. Parent and the Company shall use all reasonable
efforts to take, or cause to be taken, all actions necessary to effectuate the
Merger and make effective the other transactions contemplated by this Agreement.
Without limiting the generality of the foregoing, each party to this Agreement
(i) shall make all filings (if any) and give all notices (if any) required to be
made and given by such party in connection with the Merger and the other
transactions contemplated by this Agreement, (ii) shall use all reasonable
efforts to obtain each Consent (if any) required to be obtained (pursuant to any
applicable Legal Requirement or Contract, or otherwise) by such party in
connection with the Merger or any of the other transactions contemplated by this
Agreement, and (iii) shall use all reasonable efforts to lift any restraint,
injunction or other legal bar to the Merger. Parent and the Company shall
promptly deliver to the other party a copy of each such filing made, each such
notice given and each such Consent obtained by the Parent or Company, as the
case may be, during the Pre-Closing Period.
5.9 DISCLOSURE. Parent and the Company shall consult with each other
before issuing any press release or otherwise making any public statement with
respect to the Merger or any of the other transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, neither Parent nor
the Company shall, and neither shall permit any Subsidiary or Representative to,
make any disclosure regarding the Merger or any of the other transactions
contemplated by this Agreement unless (a) the other party shall have approved
such disclosure or (b) the disclosing party shall have been advised in writing
by its outside legal counsel that such disclosure is required by applicable law.
5.10 AFFILIATE AGREEMENTS. The Company shall cause each Person who is or
becomes (or may be deemed to be) an "affiliate" (as that term is used in Rule
145 under the Securities Act) of the Company to execute and deliver to Parent,
prior to the date of the mailing of the Prospectus/Proxy Statement to the
Company's stockholders, an Affiliate Agreement in the form of Exhibit F.
5.11 TAX MATTERS. At or prior to the filing of the Form S-4 Registration
Statement, the Company and Parent shall execute and deliver to Cooley Godward
llp and to Latham & Watkins tax representation letters in customary form.
Parent, Merger Sub and the Company shall each confirm to Cooley Godward llp and
to Latham & Watkins the accuracy and completeness as of the Effective Time of
the tax representation letters delivered pursuant to the immediately preceding
sentence. Parent and the Company shall use all reasonable efforts prior to the
Effective Time to cause the Merger to qualify as a tax free reorganization under
Section 368(a)(1) of the Code. Following delivery of the tax representations
letters pursuant to the first sentence of this Section 5.11, each of Parent and
the Company shall use its reasonable efforts to cause Cooley Godward llp and
Latham & Watkins, respectively, to deliver to it a tax opinion satisfying the
requirements of Item 601 of Regulation S-K promulgated under the Securities Act.
In rendering such opinions, each of such counsel shall be entitled to rely on
the tax representation letters referred to in this Section 5.11.
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5.12 LISTING. Parent shall use all reasonable efforts to cause the shares
of Parent Common Stock being issued in the Merger to be approved for listing
(subject to notice of issuance) on AMEX.
5.13 CERTAIN PARENT REGULATORY MATTERS.
(A) Parent will by August 31, 1999 take all steps necessary to complete
Parent's Lee's Summit, Kansas manufacturing facility for Sildaflo and to
validate the facility, equipment and cleaning methods in material
compliance with "current good manufacturing practices" (cGMPs), as
defined in Parts 210 and 211 of Title 21 of the Code of Federal
Regulations (1998), and any guidance documents issued by the agency that
purport to interpret these regulations, and in accordance with any
requirement set forth in the approved new drug application (NDA) for
Sildaflo. Parent will consult with the Company and its advisors on a
regular basis regarding the foregoing manufacturing facility and, if
requested by the Company, will engage a drug GMP consultant of the
Company's choice at the Company's expense to evaluate the facility for
compliance with federal, state and local drug manufacturing standards.
Any request by the Company or any consultant of the Company that results
in any delay shall cause the August 31 date to be extended by the length
of the delay.
(B) Parent will have the manufacturing processes for Sildaflo and the
related analytical methods validated by November 30, 1999 and will file
with the FDA all necessary application(s) for approvals from the FDA to
manufacture, test and label Sildaflo by that date. Parent will consult
with the Company and its advisors on a regular basis regarding such
applications and approvals and will permit the Company's FDA counsel to
review and comment on any and all FDA applications prior to submitting
them to the FDA. The Company acknowledges that on that date, Parent will
have only three (3) months stability data on Sildaflo.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
6.1 ACCURACY OF REPRESENTATIONS.
(A) Without limiting the effect or independence of the condition set forth
in Section 6.1(b), the representations and warranties of the Company
contained in this Agreement shall have been accurate in all respects as
of the date of this Agreement (except to the extent such representations
and warranties which are expressly stated to be made as of an earlier
date, which shall be true and correct in all respects as of such date),
it being understood that for the purposes of determining the accuracy of
such representations and warranties each of the following shall be
disregarded: (i) any "Material Adverse Effect" qualification or any other
materiality qualifications contained in such representations and
warranties, (ii) any inaccuracy that does not, together will all other
inaccuracies, have a Company Material Adverse Effect, (iii) any
inaccuracy that results from general business or economic conditions,
(iv) any inaccuracy that results from conditions generally affecting the
industry in which the Company or the Company's Subsidiaries competes, (v)
any inaccuracy that results from the announcement or pendency of the
Merger or any of the transactions contemplated hereby, and (vi) any
inaccuracy that results from or relates to the taking of any action
contemplated by this Agreement.
(B) Without limiting the effect or independence of the condition set forth
in Section 6.1(a), the representations and warranties of the Company
contained in this Agreement (except to the extent such representations
and warranties which are expressly stated to be made as of an earlier
date, which shall be true and correct in all respects as of such date)
shall be accurate in all respects as of the Closing Date, it being
understood that for the purposes of
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determining the accuracy of such representations and warranties each of
the following shall be disregarded: (i) any "Material Adverse Effect"
qualification or any other materiality qualifications contained in such
representations and warranties, (ii) any inaccuracy that does not,
together with all other inaccuracies, have a Company Material Adverse
Effect, (iii) any inaccuracy that results from general business or
economic conditions, (iv) any inaccuracy that results from conditions
generally affecting the industry in which the Company or the Company's
Subsidiaries competes, (v) any inaccuracy that results from the
announcement or pendency of the Merger or any of the transactions
contemplated hereby, and (vi) any inaccuracy that results from the taking
of any action contemplated by this Agreement.
6.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that the Company
is required to comply with or to perform at or prior to the Closing shall have
been complied with and performed, except where the failure to perform such
covenants or obligations would not have a Material Adverse Effect on the Company
or Parent.
6.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The Form S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the Form S-4 Registration Statement.
6.4 STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been duly
adopted and approved, and the Merger shall have been duly approved, by the
Required Company Stockholder Vote and by the Required Parent Shareholder Vote
and the Parent Proposals shall have been approved as required by applicable law.
6.5 CONSENTS. All Consents required to be obtained by the Company that are
specifically set forth on Exhibit G attached hereto shall have been obtained and
shall be in full force and effect.
6.6 AGREEMENTS AND DOCUMENTS. Parent shall have received the following
agreements and documents, each of which shall be in full force and effect:
(A) an employment agreement in substantially the form attached hereto as
Exhibit H which shall have been executed and delivered by Parent and
Charles J. Casamento, and such agreement shall become effective as of the
Closing Date;
(B) a separation and consulting agreement in substantially the form attached
hereto as Exhibit I-1 which shall have been executed and delivered by
Parent and Paul J. Marangos and such agreement shall become effective as
of the Closing Date, and an executive severance benefits agreement shall
have been executed and delivered by Parent and Dr. Marangos in
substantially the form attached hereto as Exhibit I-2 (or a similar
agreement which provides Dr. Marangos with an equivalent economic benefit
as reflected therein) and such agreement shall become effective as of or
prior to the Closing Date;
(C) a legal opinion of Cooley Godward llp dated as of the Closing Date and
addressed to Parent, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Code (it being
understood that, in rendering such opinion, Cooley Godward llp may rely
upon the tax representation letters referred to in Section 5.11);
PROVIDED, HOWEVER, that if Cooley Godward llp does not render such
opinion or withdraws or modifies such opinion, this condition shall
nonetheless be deemed satisfied if Latham & Watkins, counsel to the
Company, renders such opinion to Parent.
(D) a certificate executed on behalf of the Company by its Chief Executive
Officer confirming that the conditions set forth in Sections 6.1, 6.2,
6.4, 6.5 and 6.7, have been duly satisfied; and
(E) except as set forth on Exhibit B, the written resignations of all
officers and directors of the Company, effective as of the Effective
Time.
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6.7 COMPANY RIGHTS PLAN. All necessary actions shall have been taken to
extinguish and cancel all outstanding Rights under the Company Rights Plan or
render such Company Rights Plan inapplicable to the Merger and the other
transactions contemplated by this Agreement.
6.8 DIRECTORS AND OFFICERS. All of the persons listed in Exhibit B shall
have been duly appointed as directors and officers of Parent and Merger Sub, as
applicable.
6.9 LISTING. The shares of Parent Common Stock to be issued in the Merger
shall have been approved for listing (subject to notice of issuance) on AMEX.
6.10 NO RESTRAINTS. No temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Merger shall have
been issued by any court of competent jurisdiction and remain in effect, and
there shall not be any Legal Requirement applicable to the Merger that makes
consummation of the Merger illegal.
6.11 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Legal Proceeding in which a Governmental Body is or is threatened to become
a party or is otherwise involved, and neither Parent nor the Company shall have
received any communication from any Governmental Body in which such Governmental
Body indicates the possibility of commencing any Legal Proceeding or taking any
other action: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by this
Agreement; (b) relating to the Merger and seeking to obtain from Parent or any
of its Subsidiaries, or the Company or any of its Subsidiaries, any damages or
other relief that may be material to Parent and the Company, taken as a whole,
following the Merger; (c) seeking to prohibit or limit in any material respect
Parent's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Company; or (d) which
would materially and adversely affect the right of Parent or the Company to own
the assets or operate the business of the Company following the Merger.
7. CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY
The obligation of the Company to effect the Merger and otherwise consummate
the transactions contemplated by this Agreement are subject to the satisfaction,
at or prior to the Closing, of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS.
(A) Without limiting the effect or independence of the condition set forth
in Section 7.1(b), the representations and warranties of Parent and
Merger Sub contained in this Agreement shall have been accurate in all
respects as of the date of this Agreement (except to the extent such
representations and warranties which are expressly stated to be made as
of an earlier date, which shall be true and correct in all respects as of
such date), it being understood that for the purposes of determining the
accuracy of such representations and warranties each of the following
shall be disregarded: (i) any "Material Adverse Effect" qualification or
any other materiality qualifications contained in such representations
and warranties, (ii) any inaccuracy that does not, together will all
other inaccuracies, have a Parent Material Adverse Effect, (iii) any
inaccuracy that results from general business or economic conditions,
(iv) any inaccuracy that results from conditions generally affecting the
industry in which Parent or Parent's Subsidiaries competes, (v) any
inaccuracy that results from the announcement or pendency of the Merger
or any of the transactions contemplated hereby, and (vi) any inaccuracy
that results from or relates to the taking of any action contemplated by
this Agreement.
(B) Without limiting the effect or independence of the condition set forth
in Section 7.1(a), the representations and warranties of Parent and
Merger Sub contained in this Agreement (except to the extent such
representations and warranties which are expressly stated to be made as
of
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an earlier date, which shall be true and correct in all respects as of
such date) shall be accurate in all respects as of the Closing Date, it
being understood that for the purposes of determining the accuracy of
such representations and warranties each of the following shall be
disregarded: (i) any "Material Adverse Effect" qualification or any other
materiality qualifications contained in such representations and
warranties, (ii) any inaccuracy that does not, together with all other
inaccuracies, have a Parent Material Adverse Effect, (iii) any inaccuracy
that results from general business or economic conditions, (iv) any
inaccuracy that results from conditions generally affecting the industry
in which Parent or Parent's Subsidiaries competes, (v) any inaccuracy
that results from the announcement or pendency of the Merger or any of
the transactions contemplated hereby, and (vi) any inaccuracy that
results from the taking of any action contemplated by this Agreement.
7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed, except where the
failure to perform such covenants or obligations would not have a Material
Adverse Effect on the Company or Parent.
7.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The Form S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the Form S-4 Registration Statement.
7.4 STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been duly
adopted and approved, and the Merger shall have been duly approved, by the
Required Company Stockholder Vote and by the Required Parent Shareholder Vote
and the Parent Proposals shall have been approved as required by applicable law.
7.5 CONSENTS. All Consents required to be obtained by Parent that are
specifically set forth on Exhibit J attached hereto shall have been obtained and
shall be in full force and effect.
7.6 AGREEMENTS AND DOCUMENTS. Parent and the Company shall have received the
following agreements and documents, each of which shall be in full force and
effect:
(a) an employment agreement in substantially the form attached hereto as
Exhibit H which shall have been executed and delivered by Parent and
Charles J. Casamento, and such agreement shall become effective as of the
Closing Date;
(b) a separation and consulting agreement in substantially the form attached
hereto as Exhibit I-1 which shall have been executed and delivered by
Parent and Paul J. Marangos and such agreement shall become effective as
of the Closing Date, and an executive severance benefits agreement shall
have been executed and delivered by Parent and Dr. Marangos in
substantially the form attached hereto as Exhibit I-2 (or a similar
agreement which provides Dr. Marangos with an equivalent economic benefit
as reflected therein) and such agreement shall become effective as of or
prior to the Closing Date;
(c) a legal opinion of Latham & Watkins, dated as of the Closing Date, to
the effect that the Merger will constitute a reorganization within the
meaning of Section 368 of the Code (it being understood that, in
rendering such opinion, Latham & Watkins may rely upon the tax
representation letters referred to in Section 5.11); PROVIDED, HOWEVER,
that if Latham & Watkins does not render such opinion or withdraws or
modifies such opinion, this condition shall nonetheless be deemed
satisfied if Cooley Godward llp, counsel to Parent, renders such opinion
to the Company; and
(d) a certificate executed on behalf of Parent by an executive officer of
Parent, confirming that conditions set forth in Sections 7.1, 7.2, 7.4,
7.5, 7.7 and 7.8 and 7.9 have been duly satisfied.
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7.7 LISTING. The shares of Parent Common Stock to be issued in the Merger
shall have been approved for listing (subject to notice of issuance) on AMEX.
7.8 NO RESTRAINTS. No temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Merger by the
Company shall have been issued by any court of competent jurisdiction and remain
in effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger by the Company
illegal.
7.9 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened any
Legal Proceeding in which a Governmental Body is or is threatened to become a
party or is otherwise involved, and neither Parent nor the Company shall have
received any communication from any Governmental Body in which such Governmental
Body indicates the possibility of commencing any Legal Proceeding or taking any
other action: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by this
Agreement; (b) relating to the Merger and seeking to obtain from the Company or
any of its Subsidiaries, or Parent or any of its Subsidiaries, any damages or
other relief that may be material to the Company and Parent, taken as a whole,
following the Merger; (c) seeking to prohibit or limit in any material respect
Parent's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Company; or (d) which
would materially and adversely affect the right of the Company or Parent to own
the assets or operate the business of Parent following the Merger.
8. TERMINATION
8.1 TERMINATION. This Agreement may be terminated prior to the Effective
Time (whether before or after approval of the Merger by the Required Company
Stockholder Vote and/or the Required Parent Shareholder Vote):
(A) by mutual written consent of Parent and the Company duly authorized by
the boards of directors of Parent and the Company;
(B) by either Parent or the Company if the Merger shall not have been
consummated by December 31, 1999; provided that the right to terminate
this Agreement under this Section 8.1(b) shall not be available to any
party if the failure to consummate the Merger is the result of willful
breach of this Agreement by the party seeking to terminate this
Agreement;
(C) by either Parent or the Company if a court of competent jurisdiction or
other Governmental Body shall have issued a final and nonappealable
order, decree or ruling, or shall have taken any other action, having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger;
(D) by either Parent or the Company if (i) the Parent Shareholders' Meeting
(including any adjournments thereof) shall have been held and completed
and Parent's shareholders shall have taken a final vote on a proposal to
approve and adopt this Agreement and approve the Merger and approve the
Amended Articles, and (ii) this Agreement, the Merger and the Amended
Articles shall not have been approved by the Required Parent Shareholder
Vote; PROVIDED HOWEVER, that Parent shall not be permitted to terminate
this Agreement pursuant to this Section 8.1(d) if the failure of Parent's
shareholders to approve this Agreement, the Merger or the Amended
Articles is attributable to a failure on the part of Parent to perform
any material obligation required to have been performed by Parent under
this Agreement; PROVIDED FURTHER HOWEVER, that Parent shall not be
permitted to terminate this Agreement pursuant to this Section 8.1(d)
unless Parent shall have paid to the Company any fee required to be paid
to the Company pursuant to Section 8.3(b)(i);
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(E) by either Parent or the Company if (i) the Company Stockholders' Meeting
(including any adjournments thereof) shall have been held and completed
and the Company's stockholders shall have taken a final vote on a
proposal to approve and adopt this Agreement and approve the Merger, and
(ii) this Agreement and the Merger shall not have been approved by the
Required Company Stockholder Vote; PROVIDED HOWEVER, that the Company
shall not be permitted to terminate this Agreement pursuant to this
Section 8.1(e) if the failure of the Company's stockholders to approve
this Agreement and the Merger is attributable to a failure on the part of
the Company to perform any material obligation required to have been
performed by the Company under this Agreement; PROVIDED FURTHER HOWEVER,
that the Company shall not be permitted to terminate this Agreement
pursuant to this Section 8.1(e) unless the Company shall have paid to
Parent any fee required to be paid to Parent pursuant to Section
8.3(b)(ii);
(F) by Parent if the total Merger Shares (as determined under Section
1.5(b)(iii)) would equal or exceed the total number of Parent Outstanding
Shares;
(G) by (i) Parent (at any time prior to the adoption and approval of this
Agreement and the Merger by the Required Company Stockholder Vote) if a
Company Triggering Event shall have occurred, or (ii) the Company (at any
time prior to the adoption and approval of this Agreement and the Merger
by the Required Parent Shareholder Vote) if a Parent Triggering Event
shall have occurred;
(H) by Parent if any of the Company's covenants contained in this Agreement
shall have been breached or if any of the Company's representations and
warranties contained in this Agreement shall have been inaccurate or
breached whereby such breach or inaccuracy (after taking into account all
such breaches and inaccuracies) shall have resulted in a Material Adverse
Effect on the Company; PROVIDED, HOWEVER, that Parent may not terminate
this Agreement under this Section 8.1(h) on account of any such breach or
inaccuracy that is curable by the Company unless the Company fails to
cure such inaccuracy or breach within 15 days after receiving written
notice from Parent of such inaccuracy or breach;
(I) by the Company if any of Parent's covenants contained in this Agreement
shall have been breached or if any of Parent's representations and
warranties contained in this Agreement shall have been inaccurate or
breached whereby such breach or inaccuracy (after taking into account all
such breaches and inaccuracies) shall have resulted in a Material Adverse
Effect on Parent; PROVIDED, HOWEVER, that the Company may not terminate
this Agreement under this Section 8.1(i) on account of any such breach or
inaccuracy that is curable by Parent unless Parent fails to cure such
inaccuracy or breach within 15 days after receiving written notice from
the Company of such inaccuracy or breach.
8.2 EFFECT OF TERMINATION. The termination of this Agreement shall be
effected by the delivery by the party terminating this Agreement to each other
party of a written notice of such termination, specifying the basis for such
termination and the Section of this Agreement pursuant to which such termination
is being effected. In the event this Agreement is terminated pursuant to Section
8.1, this Agreement shall be of no further force or effect; PROVIDED, HOWEVER,
that (i) this Section 8.2, Section 8.3 and Section 9 shall survive the
termination of this Agreement and shall remain in full force and effect, and
(ii) the termination of this Agreement shall not relieve any party from any
liability for any inaccuracy in or breach of any representation, warranty or
covenant contained in this Agreement.
8.3 EXPENSES; TERMINATION FEES.
(A) Except as set forth in this Section 8.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such expenses,
whether or not the Merger is consummated; PROVIDED, HOWEVER,that
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(i) Parent and the Company shall share equally all fees and expenses,
other than attorneys' fees, incurred in connection with the filing,
printing and mailing of the Form S-4 Registration Statement and the
Prospectus/Proxy Statement and any amendments or supplements thereto.
(B) In consideration of the substantial time, expense and forgoing other
opportunities invested by the parties in connection with this Agreement
and the transactions contemplated by this Agreement,
(I) In the event this Agreement is terminated by Parent or the Company
pursuant to Section 8.1(d), by Parent pursuant to Section 8.1(f) or
by the Company pursuant to Section 8.1(g)(ii), then, in either such
case, Parent shall pay to the Company, in cash at the time specified
in the next sentence, a nonrefundable fee in the amount of
$1,000,000. In the case of termination of this Agreement by Parent
pursuant to Section 8.1(d), the fee referred to in the preceding
sentence shall be paid by Parent prior to such termination, and in
the case of termination of this Agreement by the Company pursuant to
Section 8.1(d) or Section 8.1(g)(ii), or by Parent pursuant to
Section 8.1(f), the fee referred to in the preceding sentence shall
be paid by Parent within two business days after such termination.
(II) In the event this Agreement is terminated by Parent or the Company
pursuant to Section 8.1(e) or by Parent pursuant to Section
8.1(g)(i), then the Company shall pay to Parent, in cash at the time
specified in the next sentence, a nonrefundable fee in the amount of
$1,000,000. In the case of termination of this Agreement by the
Company pursuant to Section 8.1(e), the fee referred to in the
preceding sentence shall be paid by the Company prior to such
termination, and in the case of termination of this Agreement by
Parent pursuant to Section 8.1(e) or Section 8.1(g)(i), the fee
referred to in the preceding sentence shall be paid by the Company
within two business days after such termination.
9. MISCELLANEOUS PROVISIONS
9.1 AMENDMENT. This Agreement may be amended with the approval of the
respective boards of directors of the Company and Parent at any time (whether
before or after the adoption and approval of this Agreement and the approval of
the Merger by the stockholders of the Company); PROVIDED, HOWEVER, that after
any such adoption and approval of this Agreement and approval of the Merger by
the Company's stockholders, no amendment shall be made which by law requires
further approval of the stockholders of the Company without the further approval
of such stockholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
9.2 WAIVER.
(A) No failure on the part of either party to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of
either party in exercising any power, right, privilege or remedy under
this Agreement, shall operate as a waiver of such power, right, privilege
or remedy; and no single or partial exercise of any such power, right,
privilege or remedy shall preclude any other or further exercise thereof
or of any other power, right, privilege or remedy.
(B) Neither party shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or
remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such party; and any such waiver shall not be
applicable or have any effect except in the specific instance in which it
is given.
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9.3 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Agreement or in any certificate
delivered pursuant to this Agreement shall survive the Merger.
9.4 ENTIRE AGREEMENT; COUNTERPARTS. This Agreement and the other agreements
referred to herein constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof and thereof. This Agreement may be executed
in several counterparts, each of which shall be deemed an original and all of
which shall constitute one and the same instrument
9.5 APPLICABLE LAW; JURISDICTION. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. In any action between the parties arising out of or relating to
this Agreement or any of the transactions contemplated by this Agreement: (a)
each of the parties irrevocably and unconditionally consents and submits to the
exclusive jurisdiction and venue of the state and federal courts located in the
State of California; (b) each of the parties irrevocably waives the right to
trial by jury; and (c) each of the parties irrevocably consents to service of
process by first class certified mail, return receipt requested, postage
prepaid, to the address at which such party is to receive notice in accordance
with Section 9.9.
9.6 DISCLOSURE SCHEDULES.
(A) The Company shall prepare and deliver to Parent concurrently herewith a
Company Disclosure Schedule which has been duly executed on behalf of the
Company by its President and which contains exceptions to the Company's
representations and warranties made in Section 2 of this Agreement. The
Company Disclosure Schedule shall be arranged in separate parts
corresponding to the numbered and lettered sections contained in Section
2, and the information disclosed in any numbered or lettered part shall
be deemed to relate to and to qualify the representations or warranties
set forth in the corresponding numbered or lettered section in Section 2.
(B) Parent shall prepare and deliver to the Company concurrently herewith a
Parent Disclosure Schedule which has been duly executed on behalf of
Parent by its President and which contains exceptions to Parent's
representations and warranties made in Section 3 of this Agreement. The
Parent Disclosure Schedule shall be arranged in separate parts
corresponding to the numbered and lettered sections contained in Section
3, and the information disclosed in any numbered or lettered part shall
be deemed to relate to and to qualify the representations or warranties
set forth in the corresponding numbered or lettered section in Section 3.
(C) The Company Disclosure Schedule and the Parent Disclosure Schedule and
the information, descriptions and disclosures contained therein will be
deemed to be automatically disclosed in any other part of the Company
Disclosure Schedule or the Parent Disclosure Schedule, as applicable,
where a cross reference to such part is made or where the relevance of
such information, descriptions or disclosures to such part is reasonably
apparent.
9.7 ATTORNEYS' FEES. In any action at law or suit in equity to enforce this
Agreement or the rights of any of the parties hereunder, the prevailing party in
such action or suit shall be entitled to receive a reasonable sum for its
attorneys' fees and all other reasonable costs and expenses incurred in such
action or suit.
9.8 ASSIGNABILITY. This Agreement shall be binding upon, and shall be
enforceable by and inure solely to the benefit of, the parties hereto and their
respective successors and assigns; PROVIDED, HOWEVER,
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that neither this Agreement nor any of Parent's rights or the Company's rights
hereunder may be assigned by Parent or the Company, as applicable, without the
prior written consent of the Company or Parent, as applicable, and any attempted
assignment of this Agreement or any of such rights by the Company without such
consent shall be void and of no effect. Nothing in this Agreement, express or
implied, is intended to or shall confer upon any Person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
9.9 NOTICES. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received (a) when delivered by hand, or (b)
after sent by registered mail or, by courier or express delivery service or by
facsimile to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone number
as such party shall have specified in a written notice given to the other
parties hereto):
if to Parent:
Cypros Pharmaceutical Corporation
2714 Loker Avenue West
Carlsbad, CA 92008
Fax: (760) 929-7548
Attention: Chief Financial Officer
if to Merger Sub:
Cypros Acquisition Corporation
2714 Loker Avenue West
Carlsbad, CA 92008
Fax: (760) 929-7548
Attention: Secretary
if to the Company:
RiboGene, Inc.
26118 Research Road
Hayward, CA 94545
Fax: (510) 293-2596
Attention: Chief Executive Officer
9.10 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereunder are not affected in any manner adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereunder be consummated as originally
contemplated to the fullest extent possible.
9.11 COOPERATION. Each of the Company and Parent agrees to cooperate fully
with the other and to execute and deliver such further documents, certificates,
agreements and instruments and to take such
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other actions as may be reasonably requested by the other party to evidence or
reflect the transactions contemplated by this Agreement and to carry out the
intent and purposes of this Agreement.
9.12 CONSTRUCTION.
(A) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender
shall include the masculine and neuter genders; and the neuter gender
shall include masculine and feminine genders.
(B) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(C) As used in this Agreement, the words "include" and "including," and
variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(D) Except as otherwise indicated, all references in this Agreement to
"Sections," "Exhibits" and "Schedules" are intended to refer to Sections
of this Agreement and Exhibits or Schedules to this Agreement.
(E) The bold-faced headings contained in this Agreement are for convenience
of reference only, shall not be deemed to be a part of this Agreement and
shall not be referred to in connection with the construction or
interpretation of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the date first above written.
CYPROS PHARMACEUTICAL CORPORATION
By: /s/ Paul J. Marangos
------------------------------------------------------------------------------
Name: Paul J. Marangos
---------------------------------------------------------------------------
Title: CEO
----------------------------------------------------------------------------
CYPROS ACQUISITION CORPORATION
By: /s/ David W. Nassif
------------------------------------------------------------------------------
Name: David W. Nassif
---------------------------------------------------------------------------
Title: Chief Financial Officer and
Secretary
----------------------------------------------------------------------------
RIBOGENE, INC.
By: /s/ Charles J. Casamento
------------------------------------------------------------------------------
Name: Charles J. Casamento
---------------------------------------------------------------------------
Title: Chairman, President and CEO
----------------------------------------------------------------------------
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<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Reorganization
to which this Exhibit A is attached, as it may be amended from time to time.
AMEX. "AMEX" shall mean the American Stock Exchange, Inc.
AMENDED ARTICLES. "Amended Articles" shall have the meaning ascribed
thereto in Section 1.4(a).
APPLICABLE REGULATORY REQUIREMENTS. "Applicable Regulatory Requirements"
shall have the meaning ascribed thereto in Section 2.20.
CCC. "CCC" shall mean the California Corporation Code.
CERTIFICATE OF MERGER. "Certificate of Merger" shall have the meaning
ascribed thereto in Section 1.3.
CLOSING; CLOSING DATE. "Closing" and "Closing Date" shall have the meanings
ascribed thereto in Section 1.3.
CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
COMPANY ACQUISITION PROPOSAL. "Company Acquisition Proposal" shall mean any
offer, proposal or inquiry (other than an offer or proposal by Parent)
contemplating or otherwise relating to any Company Acquisition Transaction.
COMPANY ACQUISITION TRANSACTION. "Company Acquisition Transaction" with
respect to the Company shall mean any transaction or series of transactions
involving:
(A) any merger, consolidation, amalgamation, share exchange, business
combination, issuance of securities, acquisition of securities, tender
offer, exchange offer or other similar transaction (i) in which the Company
or any Company Subsidiary is a constituent company or involving the capital
stock of the Company or any Company Subsidiary, (ii) in which a Person or
"group" (as defined in the Exchange Act and the rules promulgated
thereunder) of Persons directly or indirectly acquires the Company or any
Company Subsidiary or more than 20% of the Company's or any Company
Subsidiary's business or directly or indirectly acquires beneficial or
record ownership of securities representing, or exchangeable for or
convertible into, more than 20% of the outstanding securities of any class
of voting securities of the Company or any Company Subsidiary, or (iii) in
which the Company or any Company Subsidiary issues securities representing
more than 20% of the outstanding securities of any class of voting
securities of the Company or any Company Subsidiary;
(B) any sale, lease, exchange, transfer, license, acquisition or
disposition of more than 20% of the assets of the Company or any Company
Subsidiary or assets which generate more than 20% of the Company's revenue
or 20% of the revenue of any Company Subsidiary; or
(C) any liquidation or dissolution of the Company or any Company
Subsidiary;
PROVIDED, HOWEVER, that a Company Collaboration Agreement shall not be
deemed to be a Parent Acquisition Transaction.
COMPANY COLLABORATION AGREEMENT. "Company Collaboration Agreement" shall
mean any collaboration or other similar transaction with a pharmaceutical or
biotechnology company, to the
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extent such collaboration or other similar transaction relates primarily to the
licensing of technology relating to the Company's drug discovery business.
COMPANY COMMON STOCK. "Company Common Stock" shall mean the Common Stock,
$0.01 par value per share, of the Company.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall mean the
Company Disclosure Schedule that has been prepared by the Company with respect
to the representations and warranties of the Company made in Section 2 in
accordance with the requirements of Section 9.6(a) of the Agreement and that has
been delivered by the Company to Parent on the date of the Agreement and signed
by the President of the Company.
COMPANY LEASES. "Company Leases" shall have the meaning ascribed thereto in
Section 2.16.
COMPANY OPTIONS. "Company Options" shall have the meaning ascribed thereto
in Section 2.3(b).
COMPANY OUTSTANDING SHARES. "Company Outstanding Shares" shall have the
meaning ascribed thereto in Section 1.5(b)(i).
COMPANY PREFERRED STOCK. "Company Preferred Stock" shall mean the Preferred
Stock, $0.001 par value per share, of the Company.
COMPANY PROPRIETARY ASSETS. "Company Proprietary Assets" shall have the
meaning ascribed thereto in Section 2.7.
COMPANY RETURNS. "Company Returns" shall have the meaning ascribed thereto
in Section 2.11(a).
COMPANY RIGHTS PLAN. "Company Rights Plan" shall mean that certain Rights
Agreement dated as of July 1, 1999, by and between the Company and American
Stock Transfer & Trust Company as Rights Agent.
COMPANY SEC DOCUMENTS. "Company SEC Documents" shall have the meaning
ascribed thereto in Section 2.4(a).
COMPANY STOCKHOLDERS' MEETING. "Company Stockholders" Meeting shall have
the meaning ascribed thereto in Section 5.2.
COMPANY SUBSIDIARIES. "Company Subsidiaries" shall have the meaning
ascribed thereto in Section 2.1(a).
COMPANY SUPERIOR OFFER. "Company Superior Offer" shall mean an unsolicited,
bona fide written offer made by a third party relating to any Company
Acquisition Transaction on terms that the board of directors of the Company
determines, in its reasonable judgment, based upon the advice of its financial
advisor and upon consultation with its counsel, to be more favorable to the
Company's stockholders than the terms of the Merger; PROVIDED, HOWEVER, that any
such offer shall not be deemed to be a "Company Superior Offer" if any financing
required to consummate the transaction contemplated by such offer is not
committed (in a writing signed by a Person that the board of directors of the
Company reasonably believes has the financial ability to meet such commitment)
and the board of directors of the Company does not reasonably believe that such
financing is likely to be obtained by such third party on a timely basis.
COMPANY TRIGGERING EVENT. A "Company Triggering Event" shall be deemed to
have occurred if: (i) the board of directors of the Company shall have failed to
unanimously recommend or shall for any reason have withdrawn or shall have
amended or modified in a manner adverse to Parent its
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unanimous recommendation in favor of, the adoption and approval of the Agreement
or the approval of the Merger; (ii) the Company shall have failed to include in
the Prospectus/Proxy Statement the unanimous recommendation of the board of
directors of the Company in favor of the adoption and approval of the Agreement
and the approval of the Merger; (iii) the board of directors of the Company
fails to reaffirm its unanimous recommendation in favor of the adoption and
approval of the Agreement and the approval of the Merger within ten business
days after Parent requests in writing that such unanimous recommendation be
reaffirmed; (iv) the board of directors of the Company shall have approved,
endorsed or recommended any Company Acquisition Transaction; (v) the Company
shall have entered into any letter of intent or similar document or any Contract
relating to any Company Acquisition Transaction; (vi) the Company shall have
failed to hold the Company Stockholders' Meeting as promptly as practicable
after the Form S-4 Registration Statement is declared effective under the
Securities Act; (vii) a tender or exchange offer relating to securities of the
Company shall have been commenced and the Company shall not have sent to its
securityholders, within ten business days after the commencement of such tender
or exchange offer, a statement disclosing that the Company recommends rejection
of such tender or exchange offer; (viii) a Company Acquisition Transaction is
publicly announced, and the Company fails to issue a press release announcing
its opposition to such Company Acquisition Transaction within ten business days
after such Company Acquisition Transaction is announced; (ix) the Company
breaches or is deemed to have breached any of its obligations under Section 4.3
of the Agreement, or (x) a Person or group (as defined in the Exchange Act and
the rules promulgated thereunder) shall have acquired more than fifty percent
(50%) of the Company's voting securities (excluding Persons or groups that as of
the date of this Agreement, hold more than fifty percent (50%) of the Company's
voting securities or that may be deemed to have acquired such percentage upon
execution of the Voting Agreements).
COMPANY UNAUDITED INTERIM BALANCE SHEET. "Company Unaudited Interim Balance
Sheet" shall have the meaning ascribed thereto in Section 2.4(c).
COMPANY WARRANTS. "Company Warrants" shall mean the outstanding warrants to
purchase Company Common Stock.
CONFIDENTIAL INFORMATION. "Confidential Information" shall have the
meanings ascribed thereto in Section 2.7(g) and in Section 3.7(g), as the case
may be.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization)
required by any party to be obtained under any Contract or Legal Requirement in
connection with the transactions contemplated by this Agreement.
CONSTITUENT COMPONENT. "Constituent Component" shall have the meaning
ascribed thereto in Section 2.21.
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, option, warranty,
purchase order, license, sublicense, insurance policy, benefit plan or legally
binding commitment or undertaking of any nature.
DGCL. "DGCL" shall mean the Delaware General Corporation Law.
EFFECTIVE TIME. "Effective Time" shall have the meaning ascribed thereto in
Section 1.3.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction
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on the receipt of any income derived from any asset, any restriction on the use
of any asset and any restriction on the possession, exercise or transfer of any
other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any company
limited by shares, limited liability company or joint stock company), firm,
society or other enterprise, association, organization or entity.
ENVIRONMENTAL LAW. "Environmental Law" shall have the meaning ascribed
thereto in Section 2.17.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
ESPP. "ESPP" shall have the meaning ascribed thereto in Section 1.5(a)(i).
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
EXCHANGE AGENT. "Exchange Agent" shall have the meaning ascribed thereto in
Section 1.9(a).
EXCHANGE FUND. "Exchange Fund" shall have the meaning ascribed thereto in
Section 1.9(a).
EXCHANGE RATIO. "Exchange Ratio" shall have the meaning ascribed thereto in
Section 1.5(b)(ii).
EXISTING POLICY. "Existing Policy" shall have the meaning ascribed thereto
in Section 5.7(b).
FDA; FDA, ETC. "FDA" and FDA, etc." shall each have the meaning ascribed
thereto in Section 2.22(a).
FORM S-4 REGISTRATION STATEMENT. "Form S-4 Registration Statement" shall
mean the registration statement on Form S-4 to be filed with the SEC by Parent
pursuant to Section 5.1 in connection with issuance of Parent Common Stock in
the Merger, as said registration statement may be amended prior to the time it
is declared effective by the SEC.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, variance, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, ministry, fund, foundation, center, organization,
unit, body or Entity and any court or other tribunal).
INDEMNIFIED PERSONS. "Indemnified Persons" shall have the meaning ascribed
thereto in Section 5.7.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree,
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rule, regulation, ruling or requirement issued, enacted, adopted, promulgated,
implemented or otherwise put into effect by or under the authority of any
Governmental Body (or under the authority of AMEX).
LIABILITIES. "Liabilities" or "Liability" shall mean any liability or
obligation of any kind or nature, secured or unsecured (whether absolute,
accrued, contingent or otherwise, and whether due or to become due).
MATERIAL ADVERSE EFFECT. "Material Adverse Effect" shall mean, with respect
to any Person, any event, circumstance, change or effect that is or could
reasonably be expected to be materially adverse to the business, operations,
properties, condition (financial or otherwise) or assets of such Person and its
subsidiaries taken as a whole. In no event shall any of the following constitute
a Material Adverse Effect: (i) a change in the trading prices of either the
Company's or Parent's equity securities between the date hereof and the
Effective Time, in and of itself; (ii) conditions, events, circumstances,
changes or effects generally affecting the industry in which either the Company
or Parent operates or arising from changes in general business or economic
conditions; (iii) conditions, events, circumstances, changes or effects directly
attributable to out-of-pocket fees and expenses (including without limitation
legal, accounting and financial consulting fees and expenses) incurred in
connection with the transactions contemplated by this Agreement; (iv) any
conditions, events, circumstances, changes or effects resulting from any change
in law or generally accepted accounting principles, which affect generally
entities such as Parent or the Company; (v) any conditions, events,
circumstances, changes or effects (including without limitation, delays in
customer orders, a reduction in sales, a disruption in supplier, distributor or
similar relationships or a loss of employees) resulting from the announcement or
pendency of any of the transactions contemplated by this Agreement; or (vi) any
conditions, events, circumstances, changes or effects resulting from compliance
by the Company or Parent with, or the taking of any action contemplated by, the
terms of this Agreement.
MATERIAL COMPANY CONTRACT. "Material Company Contract" shall have the
meaning ascribed thereto in Section 2.8(a).
MATERIAL PARENT CONTRACT. "Material Parent Contract shall have the meaning
ascribed thereto in Section 3.8(a).
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental Concern"
shall have the meaning ascribed thereto in Section 2.17.
MERGER SHARES. "Merger Shares" shall have the meaning ascribed thereto in
Section 1.5(b)(iii).
NASDAQ. "Nasdaq" shall mean the Nasdaq Stock Market, Inc.
MERGER. "Merger" shall have the meaning ascribed thereto in Recital A of
this Agreement.
PARENT ACQUISITION PROPOSAL. "Parent Acquisition Proposal" shall mean any
offer, proposal or inquiry (other than an offer or proposal by the Company)
contemplating or otherwise relating to any Parent Acquisition Transaction.
PARENT ACQUISITION TRANSACTION. "Parent Acquisition Transaction" with
respect to Parent shall mean any transaction or series of transactions
involving:
(A) any merger, consolidation, amalgamation, share exchange, business
combination, issuance of securities, acquisition of securities, tender
offer, exchange offer or other similar transaction (i) in which Parent or
any Parent Subsidiary is a constituent company or involving the capital
stock of Parent or any Parent Subsidiary, (ii) in which a Person or "group"
(as defined in the Exchange Act and the rules promulgated thereunder) of
Persons directly or indirectly acquires Parent or any Parent Subsidiary or
more than 20% of Parent's or any Parent Subsidiary's business or directly or
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indirectly acquires beneficial or record ownership of securities
representing, or exchangeable for or convertible into, more than 20% of the
outstanding securities of any class of voting securities of Parent or any
Parent Subsidiary, or (iii) in which Parent or any Parent Subsidiary issues
securities representing more than 20% of the outstanding securities of any
class of voting securities of Parent or any Parent Subsidiary;
(B) any sale, lease, exchange, transfer, license, acquisition or
disposition of more than 20% of the assets of Parent or any Parent
Subsidiary or assets which generate more than 20% of Parent's revenue or 20%
of the revenue of any Parent Subsidiary; or
(C) any liquidation or dissolution of Parent or any Parent Subsidiary;
PROVIDED, HOWEVER, that a Parent Collaboration Agreement shall not be deemed
to be a Parent Acquisition Transaction.
PARENT COLLABORATION AGREEMENT. "Parent Collaboration Agreement" shall mean
any collaboration or other similar transaction with a pharmaceutical or
biotechnology company, to the extent such collaboration or other similar
transaction relates primarily to the licensing of technology relating to
Parent's drug discovery or drug development (pre-clinical or clinical) business.
PARENT COMMON STOCK. "Parent Common Stock" shall mean the Common Stock, no
par value per share, of Parent.
PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" shall mean the
Parent Disclosure Schedule that has been prepared by Parent with respect to the
representations and warranties of Parent made in Section 3 in accordance with
the requirements of Section 9.6(b) of the Agreement and that has been delivered
by the Parent to the Company on the date of the Agreement and signed by the
President of Parent.
PARENT LEASES. "Parent Leases" shall have the meaning ascribed thereto in
Section 3.16.
PARENT OPTION PLAN AMENDMENT. "Parent Option Plan Amendment" shall have the
meaning ascribed thereto in Section 4.5(b)(ii).
PARENT OPTIONS. "Parent Options" shall mean outstanding stock options
granted by Parent pursuant to Parent's stock option plans.
PARENT OUTSTANDING SHARES. "Parent Outstanding Shares" shall have the
meaning ascribed thereto in Section 1.5(b)(iv).
PARENT PREFERRED STOCK. "Parent Preferred Stock" shall mean the Series A
Preferred Stock, no par value per share of Parent.
PARENT PROPOSAL. "Parent Proposal" shall have the meaning ascribed thereto
in Section 5.3(a).
PARENT PROPRIETARY ASSETS. "Parent Proprietary Assets" shall have the
meaning ascribed thereto in Section 3.7(a).
PARENT RETURNS. "Parent Returns" shall have the meaning ascribed thereto in
Section 3.11(a).
PARENT SEC DOCUMENTS. "Parent SEC Documents shall have the meaning ascribed
thereto in Section 3.4(a).
PARENT SHAREHOLDERS' MEETING. "Parent Shareholders' Meeting" shall have the
meaning ascribed thereto in Section 5.3.
PARENT SUBSIDIARIES. "Parent Subsidiaries" shall have the meaning ascribed
thereto in Section 3.1.
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PARENT SUPERIOR OFFER. "Parent Superior Offer" shall mean an unsolicited,
bona fide written offer made by a third party relating to any Parent Acquisition
Transaction on terms that the board of directors of Parent determines, in its
reasonable judgment, based upon the advice of its financial advisor and upon
consultation with its counsel, to be more favorable to Parent's stockholders
than the terms of the Merger; PROVIDED, HOWEVER, that any such offer shall not
be deemed to be a "Parent Superior Offer" if (1) any financing required to
consummate the transaction contemplated by such offer is not committed (in a
writing signed by a Person that the board of directors of Parent reasonably
believes has the financial ability to meet such commitment) and the board of
directors of Parent does not reasonably believe that such financing is likely to
be obtained by such third party on a timely basis.
PARENT TRIGGERING EVENT. A "Parent Triggering Event" shall be deemed to have
occurred if: (i) the board of directors of Parent shall have failed to
unanimously recommend or shall for any reason have withdrawn or shall have
amended or modified in a manner adverse to Parent its unanimous recommendation
in favor of, the adoption and approval of the Agreement or the approval of the
Merger; (ii) Parent shall have failed to include in the Prospectus/Proxy
Statement the unanimous recommendation of the board of directors of Parent in
favor of the adoption and approval of the Agreement and the approval of the
Merger; (iii) the board of directors of Parent fails to reaffirm its unanimous
recommendation in favor of the adoption and approval of the Agreement and the
approval of the Merger within ten business days after Parent requests in writing
that such unanimous recommendation be reaffirmed; (iv) the board of directors of
Parent shall have approved, endorsed or recommended any Parent Acquisition
Transaction; (v) Parent shall have entered into any letter of intent or similar
document or any Contract relating to any Parent Acquisition Transaction; (vi)
Parent shall have failed to hold Parent Shareholders' Meeting as promptly as
practicable after the Form S-4 Registration Statement is declared effective
under the Securities Act; (vii) a tender or exchange offer relating to
securities of Parent shall have been commenced and Parent shall not have sent to
its securityholders, within ten business days after the commencement of such
tender or exchange offer, a statement disclosing that Parent recommends
rejection of such tender or exchange offer; (viii) a Parent Acquisition
Transaction is publicly announced, and Parent fails to issue a press release
announcing its opposition to such Parent Acquisition Transaction within ten
business days after such Parent Acquisition Transaction is announced; (ix)
Parent breaches or is deemed to have breached any of its obligations under
Section 4.6 of the Agreement, or (x) a Person or group (as defined in the
Exchange Act and the rules promulgated thereunder) shall have acquired more than
fifty percent (50%) of Parent's voting securities (excluding Persons or groups
that as of the date of this Agreement, hold more than fifty percent (50%) of
Parent's voting securities or that may be deemed to have acquired such
percentage upon execution of the Voting Agreements).
PARENT UNAUDITED INTERIM BALANCE SHEET. "Parent Unaudited Interim Balance
Sheet" shall have the meaning ascribed thereto in Section 3.4(c).
PARENT WARRANTS. "Parent Warrants" shall mean the outstanding warrants to
purchase Parent Common Stock.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PRE-CLOSING PERIOD. "Pre-Closing Period" shall have the meaning ascribed
thereto in Section 4.1.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, source code, algorithm, invention, design,
blueprint, engineering drawing, proprietary product, technology,
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proprietary right or other intellectual property right or intangible asset; and
(b) right to use or exploit any of the foregoing.
PROSPECTUS/PROXY STATEMENT. "Prospectus/Proxy Statement" shall mean the
proxy statement to be sent to the Company's stockholders in connection with the
Company Stockholders' Meeting.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors, affiliates, Subsidiaries
and representatives.
REQUIRED COMPANY STOCKHOLDER VOTE. "Required Company Stockholder Vote"
shall have the meaning ascribed thereto in Section 2.23.
REQUIRED PARENT SHAREHOLDER VOTE. "Required Parent Shareholder Vote" shall
have the meaning ascribed thereto in Section 3.23.
S-4 REGISTRATION STATEMENT. "S-4 Registration Statement" shall have the
meaning ascribed thereto in Section 2.27(c).
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
SIGNING DATE CLOSING PRICE. "Signing Date Closing Price" shall have the
meaning ascribed thereto in Section 1.5(b)(iii).
SUBSIDIARY. An entity shall be deemed to be a "Subsidiary" of another
Person if such Person directly or indirectly owns, beneficially or of record,
(a) an amount of voting securities of other interests in such Entity that is
sufficient to enable such Person to elect at leased a majority of the members of
such Entity's board of directors or other governing body, or (b) at least 50% of
the outstanding equity or financial interests or such Entity.
SURVIVING CORPORATION. "Surviving Corporation" shall have the meaning
ascribed thereto in Section 1.1.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, estimated tax,
unemployment tax, national health insurance tax, excise tax, ad valorem tax,
transfer tax, stamp tax, sales tax, use tax, property tax, business tax,
withholding tax or payroll tax), levy, assessment, tariff, duty (including any
customs duty), deficiency or fee, and any related charge or amount (including
any fine, penalty or interest), imposed, assessed or collected by or under the
authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
THIRD PARTY PROPRIETARY ASSETS. "Third Party Proprietary Assets" shall have
the meaning ascribed thereto in Section 2.7(b).
VOTING AGREEMENT. "Voting Agreement" shall have the meaning ascribed
thereto in Recital D.
A-60
<PAGE>
ANNEX B
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CYPROS PHARMACEUTICAL CORPORATION
A CALIFORNIA CORPORATION
Paul J. Marangos and David W. Nassif hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of Cypros Pharmaceutical Corporation, a California corporation
(the "Corporation").
TWO: The Articles of Incorporation of this corporation are hereby amended
and restated to read as follows:
I.
The name of the Corporation is QUESTCOR PHARMACEUTICALS, INC. (the
"Corporation").
II.
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is eighty-two million
five hundred thousand (82,500,000) shares, seventy-five million (75,000,000)
shares of which shall be Common Stock (the "Common Stock") and seven million
five hundred thousand (7,500,000) shares of which shall be Preferred Stock (the
"Preferred Stock").
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in these Restated Articles of Incorporation, to fix or alter
the rights, preferences, privileges and restrictions granted to or imposed upon
any wholly unissued series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of them; and to
increase or decrease the number of shares of any series prior or subsequent to
the issue of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
C. ( )(1) of the authorized shares of Preferred
Stock are hereby designated "Series A Preferred Stock" (the "Series A
Preferred").
- ------------------------
(1) The exact number of shares to be designated as Series A Preferred Stock
will be determined in accordance with the Agreement and Plan of
Reorganization to which a copy of these Amended and Restated Articles of
Incorporation are attached as Exhibit C (the "Merger Agreement"), on the day
immediately preceding the Parent Shareholders' Meeting (as defined in the
Merger Agreement) based on the Exchange Ratio (as defined in the Merger
Agreement). Such exact number will be determined and presented, along with
this form of Amended and Restated Articles of Incorporation, for approval by
the Corporation's shareholders at the Parent Shareholders' Meeting. Unless
otherwise indicated therein, proxies received by the Corporation's
management will be voted in favor of such exact number and this form of
Amended and Restated Articles of Incorporation.
B-1
<PAGE>
D. The rights, preferences, privileges, restrictions and other matters
relating to Common Stock and the Series A Preferred are as follows:
1. DIVIDENDS. Holders of Series A Preferred shall be entitled to
receive dividends concurrently with dividends on the Common Stock, if any,
on an as-converted basis, when and as declared by the Board of Directors,
out of funds legally available therefor. Such dividends shall be payable
only when, as and if declared by the Board of Directors and shall be
non-cumulative.
2. VOTING RIGHTS. The holder of each share of Series A Preferred shall
be entitled to the number of votes equal to the number of shares of Common
Stock into which each share of Series A Preferred could be converted on the
record date for the vote or written consent of shareholders and, except as
otherwise required by law or provided herein, shall have voting rights and
powers equal to the voting rights and powers of Common Stock. The holder of
each share of Series A Preferred shall be entitled to notice of any
shareholders' meeting in accordance with the bylaws of the Corporation and
shall vote with holders of Common Stock upon the election of directors and
upon any other matter submitted to a vote of shareholders, except those
matters required by law to be submitted to a class vote. Fractional votes
shall not, however, be permitted and any fractional voting rights resulting
from the above formula (after aggregating all shares of Common Stock into
which shares of Series A Preferred held by each holder could be converted)
shall be rounded to the nearest whole number (with one-half rounded upward
to one). Each holder of Common Stock shall be entitled to one (1) vote for
each share of Common Stock held.
3. LIQUIDATION RIGHTS.
(A) Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of the Common Stock, the holders of
Series A Preferred shall be entitled to be paid out of the assets of the
Corporation an amount per share of Series A Preferred equal to the
"Original Issue Price" plus all declared and unpaid dividends on the
Series A Preferred (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares) for
each share of Series A Preferred held by them. The Original Issue Price
of the Series A Preferred shall be ( ) per share (2).
If, upon any liquidation, distribution, or winding up, the assets of the
Corporation available for distribution to the Series A Preferred shall be
insufficient to make payment in full to all holders of Series A Preferred
of the liquidation preference set forth in this Section 3(a), then such
assets shall be distributed among the holders of Series A Preferred at
the time outstanding, ratably in proportion to the full amounts to which
they would otherwise be respectively entitled. After payment of the full
liquidation preference of the Series A Preferred as set forth in this
Section 3(a), the entire assets of the Corporation legally available for
distribution, if any, shall be distributed ratably to the holders of the
Common Stock.
(B) The following events shall be considered a liquidation under
this Section:
(I) any consolidation or merger of the Corporation with or into
any other corporation or other entity or person, or any other
corporate reorganization, in each case in which the shareholders of
the Corporation immediately prior to such consolidation, merger or
reorganization, own less than 50% of the Corporation's voting power
immediately after such consolidation, merger or reorganization, or
any transaction or series of related transactions in which in excess
of 50% of the Corporation's voting power is transferred (an
"Acquisition"); or
- ------------------------
(2) To be determined and filled in at the Parent Shareholders' Meeting by
dividing $7.00 [the existing Issue Price] by the Exchange Ratio in
accordance with footnote (1) above.
B-2
<PAGE>
(II) a sale, lease or other disposition of all or substantially
all of the assets of the Corporation (an "Asset Transfer").
4. CONVERSION RIGHTS. The holders of the Series A Preferred shall have
the following rights with respect to the conversion of the Series A
Preferred into shares of Common Stock (the "Conversion Shares"):
(A) OPTIONAL CONVERSION.
(I) On or after the First Anniversary and subject to and in
compliance with the provisions of this Section 4(a), each holder of
Series A Preferred shall have the right, at its option, to convert up
to a number of shares of Series A Preferred equal to the number of
shares of such Series A Preferred then held by such holder multiplied
by a fraction, the numerator of which shall be one (1), and the
denominator of which shall be three (3) on the First Anniversary, and
reduced by one (1) each successive anniversary following the First
Anniversary, such that one-third ( 1/3) of the shares held by a
holder may be converted on the First Anniversary, and all shares held
by a holder may be converted on the date that is two years
thereafter. "First Anniversary" shall mean December 1, 1998.
(II) The number of shares of Common Stock to which a holder of
Series A Preferred shall be entitled upon conversion shall be the
product obtained by multiplying the "Series A Conversion Rate" then
in effect (determined as provided in Section 4(b)) by the number of
shares of Series A Preferred being converted.
(B) SERIES A CONVERSION RATE. The conversion rate in effect at any
time for conversion of the Series A Preferred (the "Series A Conversion
Rate") shall be the quotient obtained by dividing the Original Issue
Price of the Series A Preferred by the "Series A Preferred Price" as
defined in Section 4(c).
(C) SERIES A PREFERRED PRICE. The conversion price for the Series A
Preferred shall initially be the Original Issue Price of the Series A
Preferred (the "Series A Preferred Price"). Such initial Series A
Preferred Price shall be adjusted from time to time in accordance with
this Section 4. All references to the Series A Preferred Price herein
shall mean the Series A Preferred Price as so adjusted.
(D) CLOSING PRICE. "Closing Price" with respect to a share of
Common Stock shall mean the closing sale price or the average of the
reported closing bid and asked prices, as the case may be, on the
principal national security exchange or quotation system on which the
Common Stock is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities or
quotation system, the average of the closing bid and asked prices of the
Common Stock on the over-the-counter market as reported by the National
Quotation Bureau Incorporated, or a similar generally accepted reporting
service, or if not so available, in such manner as furnished by any New
York Stock Exchange member firm selected from time to time by the Board
of Directors for that purpose, or a price determined in good faith by the
Board of Directors, whose determination shall be conclusive and described
in a Board Resolution, and
(E) CURRENT MARKET VALUE. "Current Market Value" of a share of
Common Stock shall mean the average of the daily Closing Prices per share
of Common Stock for the ten (10) consecutive trading days immediately
prior to the date in question.
(F) MECHANICS OF CONVERSION. Each holder of Series A Preferred who
desires to convert the same into shares of Common Stock pursuant to this
Section 4 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any
B-3
<PAGE>
transfer agent for the Series A Preferred, and shall give written notice
to the Corporation at such office that such holder elects to convert the
same. Such notice shall state the number of shares of Series A Preferred
being converted. Thereupon, the Corporation shall promptly issue and
deliver at such office to such holder a certificate or certificates for
the number of shares of Common Stock to which such holder is entitled and
shall promptly pay in cash or, to the extent sufficient funds are not
then legally available therefor, in Common Stock (at the Common Stock's
Current Market Value as of the date of such conversion), any declared and
unpaid dividends on the shares of Series A Preferred being converted as
well as promptly pay in cash any payment in lieu of issuing a fractional
share as set forth in Section 4(n). Such conversion shall be deemed to
have been made at the close of business on the date of such surrender of
the certificates representing the shares of Series A Preferred to be
converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the
record holder of such shares of Common Stock on such date.
(G) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the date that
the first share of Series A Preferred is issued by the Corporation (the
"Original Issue Date") effect a subdivision of the outstanding Common
Stock without a corresponding subdivision of the Preferred Stock, the
Series A Preferred Price in effect immediately before that subdivision
shall be proportionately decreased. Conversely, if the Corporation shall
at any time or from time to time after the Original Issue Date combine
the outstanding shares of Common Stock into a smaller number of shares
without a corresponding combination of the Preferred Stock, the Series A
Preferred Price in effect immediately before the combination shall be
proportionately increased. Any adjustment under this Section 4(g) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
(H) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after the Original Issue
Date makes, or fixes a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common
Stock, in each such event provision shall be made so that the holders of
the Series A Preferred shall receive upon conversion thereof, in addition
to the number of shares of Common Stock receivable thereupon, the amount
of other securities of the Corporation which they would have received had
their Series A Preferred been converted into Common Stock on the date of
such event and had they thereafter, during the period from the date of
such event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 4 with
respect to the rights of the holders of the Series A Preferred or with
respect to such other securities by their terms.
(I) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If
at any time or from time to time after the Original Issue Date, the
Common Stock issuable upon the conversion of the Series A Preferred is
changed into the same or a different number of shares of any class or
classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock
dividend or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section 4), in any such event each holder
of Series A Preferred shall have the right thereafter to convert such
stock into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change
by holders of the maximum number of shares of Common Stock into which
such shares of Series A Preferred could have been converted immediately
prior to such recapitalization, reclassification or change, all subject
to further
B-4
<PAGE>
adjustment as provided herein or with respect to such other securities or
property by the terms thereof.
(J) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If
at any time or from time to time after the Original Issue Date, there is
a capital reorganization of the Common Stock (other than an Acquisition
or Asset Transfer as defined in Section 3(b) or a recapitalization,
subdivision, combination, reclassification, exchange or substitution of
shares provided for elsewhere in this Section 4), as a part of such
capital reorganization, provision shall be made so that the holders of
the Series A Preferred shall thereafter be entitled to receive upon
conversion of the Series A Preferred the number of shares of stock or
other securities or property of the Corporation to which a holder of the
maximum number of shares of Common Stock deliverable upon conversion
would have been entitled on such capital reorganization, subject to
adjustment in respect of such stock or securities by the terms thereof.
In any such case, appropriate adjustment shall be made in the application
of the provisions of this Section 4 with respect to the rights of the
holders of Series A Preferred after the capital reorganization to the end
that the provisions of this Section 4 (including adjustment of the Series
A Preferred Price then in effect and the number of shares issuable upon
conversion of the Series A Preferred) shall be applicable after that
event and be as nearly equivalent as practicable.
(K) CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Series A Preferred Price for the number of shares of
Common Stock or other securities issuable upon conversion of the Series A
Preferred, if the Series A Preferred is then convertible pursuant to this
Section 4, the Corporation, at its expense, shall compute such adjustment
or readjustment in accordance with the provisions hereof and prepare a
certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered
holder of Series A Preferred at the holder's address as shown in the
Corporation's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based.
(L) NOTICES OF RECORD DATE. Upon (i) any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
or other distribution, or (ii) any acquisition or other capital
reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation with or into any other corporation, or
any voluntary or involuntary dissolution, liquidation or winding up of
the Corporation, the Corporation shall mail to each holder of Series A
Preferred at least twenty (20) days prior to the record date specified
therein a notice specifying (1) the date on which any such record is to
be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (2) the date on which any
such acquisition, reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected
to become effective, and (3) the date, if any, that is to be fixed as to
when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such acquisition,
reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up.
B-5
<PAGE>
(M) CONVERSION BY THE CORPORATION.
(I) Subject to Section 403(a)(3) and Section 301.5(d) of the
California Corporations Code, so long as the average of the daily
Closing Prices per share of Common Stock for the fifteen (15)
consecutive trading days immediately prior to the date in question is
at least $12.00 per share (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like), each share of
Series A Preferred, at the option of the Corporation upon notice to
the holders of Series A Preferred, shall automatically be converted
into shares of Common Stock; PROVIDED, HOWEVER, that no such
automatic conversion shall occur if, as a result of such conversion,
the Conversion Shares in the aggregate would constitute 20% or more
of the then issued and outstanding shares of Common Stock. Upon
automatic conversion, any declared and unpaid dividends shall be paid
in accordance with the provisions of Section 4(f);
(II) Upon written notice to the holders of Series A Preferred by
the Corporation, the outstanding shares of Series A Preferred shall
be converted automatically without any further action by the holders
of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent;
PROVIDED, HOWEVER, that the Corporation shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless the certificates evidencing such shares
of Series A Preferred are either delivered to the Corporation or its
transfer agent as provided below, or the holder notifies the
Corporation or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred
by it in connection with such certificates. Upon the occurrence of
such automatic conversion of the Series A Preferred, the holders of
Series A Preferred shall surrender the certificates representing such
shares at the office of the Corporation or any transfer agent for the
Series A Preferred. Thereupon, there shall be issued and delivered to
such holder promptly at such office and in its name as shown on such
surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the
shares of Series A Preferred surrendered were convertible on the date
on which such automatic conversion occurred, and any declared and
unpaid dividends shall be paid in accordance with the provisions of
Section 4(f).
(N) FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of Series A Preferred. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A Preferred by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the
issuance of any fractional share. If, after the aforementioned
aggregation, the conversion would result in the issuance of any
fractional share, the Corporation shall, in lieu of issuing any
fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's Current Market Value on the date of
conversion.
(O) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred, such number of its
shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Series A Preferred. If at
any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding
shares of the Series A Preferred, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
B-6
<PAGE>
(P) NOTICES. Any notice required by the provisions of this Section
4 shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by
facsimile if sent during normal business hours of the recipient; if not,
then on the next business day, (iii) five (5) days after having been sent
by registered or certified mail, return receipt requested, postage
prepaid, or (iv) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written
verification of receipt. All notices shall be addressed to each holder of
record at the address of such holder appearing on the books of the
Corporation.
(Q) PAYMENT OF TAXES. The Corporation will pay all taxes (other
than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock
upon conversion of shares of Series A Preferred, excluding any tax or
other charge imposed in connection with any transfer involved in the
issue and delivery of shares of Common Stock in a name other than that in
which the shares of Series A Preferred so converted were registered.
5. NO REISSUANCE OF SERIES A PREFERRED. No share or shares of Series A
Preferred acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued; and in addition, the Articles of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized stock.
6. RESIDUAL RIGHTS. All rights accruing to the outstanding shares of
the Corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock.
IV.
A. The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
B. The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the General Corporation Law of California) for breach
of duty to the Corporation and its shareholders through bylaw provisions or
through agreements with agents, or both, in excess of the indemnification
otherwise permitted by Section 317 of the General Corporation Law of California,
subject to the limits on such excess indemnification set forth in Section 204 of
the General Corporation Law of California. If, after the effective date of this
Article, California law is amended in a manner which permits a corporation to
limit the monetary or other liability of its directors or to authorize
indemnification of, or advancement of such defense expenses to, its directors or
other persons, in any such case to a greater extent than is permitted on such
effective date, the references in this Article to "California law" shall to that
extent be deemed to refer to California law as so amended.
C. Any repeal or modification of this Article shall only be prospective and
shall not effect the rights under this Article in effect at the time of the
alleged occurrence of any action or omission to act giving rise to liability."
THREE: The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the Board of Directors of this
Corporation.
FOUR: The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 of the California Corporations Code. The Corporation
has one class of stock outstanding and such class of stock is entitled to vote
with respect to the amendment herein set forth. The total number of outstanding
shares of Common Stock of the Corporation is . The number of shares
voting in favor of the amendment equaled or exceeded the vote required. The
percentage vote required was more than fifty percent (50%) of the outstanding
Common Stock voting as a class.
B-7
<PAGE>
The undersigned, Paul J. Marangos and David W. Nassif, the President and
Secretary, respectively, of CYPROS PHARMACEUTICAL CORPORATION, declare under
penalty of perjury under the laws of the State of California that the matters
set out in the foregoing Certificate are true of their own knowledge.
Executed at , California on , 1999.
--------------------------------------
Paul J. Marangos, President
--------------------------------------
David W. Nassif, Secretary
B-8
<PAGE>
ANNEX C
[LOGO]
August 4, 1999
Board of Directors
Cypros Pharmaceutical Corporation
2714 Loker Ave West
Carlsbad, CA 92008
Gentlemen:
We understand that Cypros Pharmaceutical Corporation ("Cypros," "CYP" or the
"Company") has proposed to acquire 100% of the outstanding capital stock of
RiboGene, Inc. ("RiboGene" or "RBO"). On a fully diluted basis, current Cypros
and RiboGene shareholders will own approximately 55% and 45% of the combined
entity, respectively. Based on CYP's closing stock price of $2.125 per share as
of August 3, 1999, approximately 8.7 million shares of CYP's common stock and
Cypros Series A Preferred Stock convertible into 2.2 million shares of common
stock would be issued in the proposed transaction (the "Merger"). Under the
terms of the Merger, based on CYP's closing stock price of $2.125 per share as
of August 3, 1999, each share of RiboGene stock would be exchanged for 1.494
shares of Cypros stock. Under the terms of the Merger, RiboGene's outstanding
warrants and options will be converted into warrants and options to purchase
Cypros stock.
Cypros has retained EVEREN Securities, Inc. ("EVEREN") to render an opinion
(the "Opinion") to the Board of Directors of Cypros as to whether the Merger is
fair, from a financial point of view, to the Company and its shareholders as of
the date hereof. This Opinion does not constitute a recommendation to Cypros or
to any Cypros shareholder. The purchase price and the amount and/or type of
consideration to be paid to RiboGene in the Merger was determined through
negotiations between the independent committees of RiboGene and Cypros.
In formulating the Opinion, EVEREN has:
(i) reviewed the Agreement and Plan of Merger to be dated as of the date
hereof by and between Cypros and RiboGene;
(ii) reviewed CYP's definitive proxy statement dated February 16, 1999,
CYP's annual reports on Form 10-K for the years ended July 31, 1997 and
1998, and CYP's Forms 10-Q for the six month periods ended January 31,
1999 and nine months ended April 30, 1999;
(iii) reviewed certain non-public operating and financial information
relating to CYP's and RBO's businesses prepared by the respective
management teams;
(iv) reviewed certain sections of various publicly available equity research
reports on Roberts Pharmaceutical pertaining to development and
commercialization of RiboGene's compound, Emitasol;
(v) reviewed RiboGene's definitive proxy statement dated May 17, 1999,
RiboGene's annual reports on Form 10-K for the year ended December 31,
1998, and RiboGene's Form 10-Q for the three month period ended March
31, 1999;
(vi) reviewed publicly available financial data and stock market performance
data of other biotechnology and emerging pharmaceutical companies which
we deemed comparable to Cypros and RiboGene, respectively;
(vii) reviewed the purchase price multiples of recent acquisitions for
selected companies which we deemed generally comparable to RiboGene;
and
(viii) conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
C-1
<PAGE>
[LOGO]
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to us by the management of Cypros and RiboGene. We
have further relied upon the assurances of each management team that they are
unaware of any factors that would make the information provided to us incomplete
or misleading. In arriving at our Opinion, we have not performed any independent
valuation or appraisal of the assets of Cypros or RiboGene. For purposes of this
Opinion, we assumed that the per share value of CYP's common stock was equal to
its closing market price on August 3, 1999.
In arriving at our Opinion, we have considered such factors as we have
deemed relevant including, but not limited to the following:
A. the consideration to be paid to the RiboGene stockholders pursuant to the
Merger (the "Merger Consideration") relative to a discounted cash flow
valuation;
B. the Merger Consideration as compared to the valuations and multiples of
publicly traded biotechnology and emerging pharmaceutical companies;
C. the Merger Consideration multiples of the Merger as compared to the
merger consideration multiples of comparable biotechnology and emerging
pharmaceutical merger transactions;
D. the relative financial contributions of Cypros and RiboGene as compared
to the post-Merger ownership interests of Cypros and RiboGene
shareholders; and
E. the historical stock price performance of RiboGene relative to the Merger
Consideration.
Our Opinion is necessarily based on the economic, market, and other
conditions as in effect on, and the information made available to us as of the
date hereof. We disclaim any undertaking or obligation to advise any person of
any change in any fact or matter affecting our Opinion which may come or be
brought to our attention after the date of this Opinion.
Pursuant to the terms of an engagement letter dated April 27, 1999 (the
"Engagement Letter") and an amendment to our Engagement Letter dated July 28,
1999, Cypros has agreed to pay EVEREN certain fees in consideration of acting as
financial advisor to Cypros and rendering this Opinion.
It is understood that this Opinion may be included in its entirety in any
proxy statement or other document distributed to shareholders of the Company in
connection with the Merger and this constitutes our express written approval for
that purpose. However, no summary of, or excerpt from, this Opinion may be used,
and no published public reference (other than as provided in the preceding
sentence) to this Opinion letter may be made without our prior express written
approval, which shall not be unreasonably withheld.
This Opinion does not constitute a recommendation to any shareholder of
Cypros as to how such shareholder should vote, or as to any other actions which
such shareholder should take in conjunction with the Merger. This Opinion
relates solely to the question of fairness to Cypros and its shareholders, from
a financial point of view, of the Merger as currently proposed. Further, we
express no Opinion herein as to the structure, terms or effect of any other
aspect of the Merger.
Based on the foregoing, we are of the opinion that the Merger is fair, from
a financial point of view, to the Company and its shareholders as of the date
hereof.
Very truly yours,
EVEREN Securities, Inc.
By: /s/ KATHRYN BURRER HYER
- ----------------------------
Kathryn Burrer Hyer
Managing Director
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[LOGO]
RABOBANK INTERNATIONAL LOGO
ANNEX D
PERSONAL AND CONFIDENTIAL
August 4, 1999
Board of Directors
RiboGene, Inc.
26118 Research Road
Hayward, CA 94545
Gentlemen:
We understand that RiboGene, Inc. ("RiboGene") and Cypros Pharmaceutical
Corporation ("Cypros") propose to enter into an Agreement and Plan of
Reorganization (the "Agreement") to which Cypros, Cypros Acquisition
Corporation, a special purpose, wholly-owned subsidiary of Cypros, and RiboGene
are parties. As provided in the Agreement, each share of RiboGene common stock
will be converted into the right to receive one share of Cypros common stock
multiplied by the "Exchange Ratio." The "Exchange Ratio" is the fraction equal
to the "Merger Shares" divided by the "Company Outstanding Shares."
"Merger Shares" shall mean the total number of "Parent Outstanding Shares"
multiplied by a fraction, the numerator of which is 45 and the denominator of
which is 55, except that (i) in the event that the average closing price of
Cypros common stock for the twenty trading days ending the day immediately
preceding the date of Cypros' shareholders' meeting (defined as the "Parent
Closing Price") is more than 20% greater than the closing price per share on the
date of the Agreement, then the total Merger Shares shall equal $36,921,567
divided by the Parent Closing Price; (ii) in the event that the Parent Closing
Price is more than 29% less than the closing price per share on the date of the
Agreement, then the Merger Shares shall equal $21,839,666 divided by the Parent
Closing Price; and (iii) the total Merger Shares shall be reduced by 403,549
shares. All rights with respect to RiboGene common stock under RiboGene options,
if any, shall be converted into and become rights with respect to Cypros common
stock in accordance with the terms of the agreements evidencing such stock
options, provided that the per share exercise price of each option shall be
adjusted in accordance with the Exchange Ratio. Cypros shall assume each
RiboGene warrant in accordance with the terms of such warrant, provided that the
per share exercise price of each warrant shall be adjusted in accordance with
the Exchange Ratio. After the merger, RiboGene will operate as a wholly-owned
subsidiary of Cypros.
"Company Outstanding Shares" shall mean the sum of (a) the total number of
outstanding shares of common stock of RiboGene, (b) the total number of shares
of RiboGene common stock into which all outstanding shares of RiboGene preferred
stock is then convertible, (c) the total number of shares of RiboGene common
stock which are issuable upon the exercise of all outstanding RiboGene options
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and (d) the total number of shares of RiboGene common stock issuable upon the
exercise of all outstanding RiboGene warrants.
"Parent Outstanding Shares" shall mean the sum of (a) the total number of
outstanding shares of common stock of Cypros, (b) the total number of shares of
Cypros common stock which are issuable upon the exercise of all outstanding
Cypros options and (c) the total number of shares of Cypros common stock
issuable upon the exercise of all outstanding Cypros warrants.
You have requested our opinion as to the fairness of the Exchange Ratio,
from a financial point of view, to the stockholders of RiboGene. In arriving at
our opinion, we have reviewed, among other things, the Annual Report to
Stockholders of RiboGene for the fiscal year ended December 31, 1998, the Annual
Report on Form 10-K of RiboGene for the fiscal year ended December 31, 1998, and
the Prospectus pursuant to Rule 424(b)(4) filed on May 28, 1998; the Annual
Reports to Stockholders of Cypros for the three fiscal years ended July 31,
1996, July 31, 1997 and July 31, 1998, respectively, and the Annual Reports on
Form 10-K of Cypros for the three fiscal years ended July 31, 1996, July 31,
1997 and July 31, 1998, respectively; the Quarterly Report on Form 10-Q of
RiboGene for the period ending March 31, 1999; the Quarterly Reports on Form
10-Q of Cypros for the periods ending October 31, 1998, January 31, 1999 and
April 30, 1999, respectively; certain unaudited interim financial reports of
RiboGene and Cypros; certain other communications from RiboGene and Cypros to
their respective stockholders; the draft of the Agreement dated July 30,1999, as
supplemented by adjustment to the pricing mechanism as reflected in the second
paragraph of this letter; and certain internal financial analyses and forecasts
for RiboGene and Cypros prepared by their respective managements, including
proforma financial forecasts for the combined company prepared by RiboGene's
management. We also held discussions with members of the senior management of
RiboGene and Cypros regarding the strategic rationale for, and the potential
benefits of, the merger and the past and the current business operations,
financial condition and future prospects of their respective companies. In
addition, we (i) reviewed the implied premium to the RiboGene common
shareholders of the exchange of their shares with newly issued Cypros shares
pursuant to the Exchange Ratio as compared to recent and historical share price
performance of RiboGene, (ii) compared certain financial information for
RiboGene and Cypros with publicly available financial information and stock
price performance for certain other companies which we deemed relevant; (iii)
reviewed the financial terms of certain recent business combinations which we
deemed relevant; (iv) compared various measures of the relative contributions to
the combined company of RiboGene and Cypros with the relative ownership of the
combined company after giving effect to the transaction; and (v) conducted such
other studies and analyses as we considered appropriate.
We have relied with your consent upon the accuracy and completeness of all
of the financial and other information reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In that
regard, we have assumed with your consent that the financial forecasts prepared
by the managements of RiboGene and Cypros have been reasonably prepared on a
basis reflecting the best available estimates and judgements of RiboGene and
Cypros. We also have not made an independent evaluation or appraisal of the
assets and liabilities of RiboGene or Cypros. We assumed that the consummation
of the transaction contemplated by the Agreement would be accounted for as a
purchase of RiboGene by Cypros under generally accepted accounting principles.
Further, we have assumed that the final form of the Agreement will be
substantially similar to the draft of the Agreement dated July 30, 1999 with the
exception of adjustment to the pricing mechanism reflected in the second
paragraph of this letter.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on information made available to us as of, the
date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Our opinion expressed herein is provided for
the information and assistance of the Board of Directors of RiboGene in
connection with its consideration of the
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transaction contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any shareholder of RiboGene should vote with respect to
such transaction. Our opinion does not discuss the relative merits of the
transaction and any other transactions or business strategies discussed by the
Board of Directors as alternatives to the transaction or the decision of the
Board of Directors to proceed with this transaction.
Rabobank International ("Rabobank"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions. Rabobank will receive a
fee from RiboGene for rendering this opinion.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
stockholders of RiboGene.
Very truly yours,
/s/ RABOBANK INTERNATIONAL, NEW YORK BRANCH
RABOBANK INTERNATIONAL, NEW YORK BRANCH
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ANNEX E
CYPROS PHARMACEUTICAL CORPORATION
FORM OF VOTING AGREEMENT
THIS VOTING AGREEMENT is entered into as of August 4, 1999 by and between
CYPROS PHARMACEUTICAL CORPORATION, a California corporation ("Parent"), and
("Stockholder").
RECITALS
A. Parent, CYPROS ACQUISITION CORPORATION, a Delaware corporation and a
wholly owned subsidiary of Parent ("Merger Sub") and RIBOGENE, INC., a Delaware
corporation ("Company"), are entering into an Agreement and Plan of
Reorganization of even date herewith (as amended from time to time, the "Merger
Agreement"; capitalized terms used but not otherwise defined in this Voting
Agreement have the meanings assigned to such terms in the Merger Agreement),
which provides (subject to the conditions set forth therein) for the merger of
Merger Sub with and into the Company (the "Merger").
B. Stockholder is the record and beneficial owner of that number of shares
of Common Stock, Preferred Stock and other securities of the Company set forth
on the signature page hereof.
C. As a condition to the willingness of Parent to enter into the Merger
Agreement, Parent has required that Stockholder agree, and in order to induce
Parent to enter into the Merger Agreement and for other valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Stockholder has
agreed to enter into this Voting Agreement with regard to the Subject Shares (as
defined herein).
AGREEMENT
The parties to this Voting Agreement, intending to be legally bound, agree
as follows:
SECTION 1. NO TRANSFER OF SUBJECT SHARES.
1.1 SUBJECT SHARES. "Subject Shares" shall mean: (i) all securities of the
Company (including shares of Company Common Stock and all options, warrants and
other rights to acquire shares of Company Common Stock) Owned by Stockholder as
of the date of this Agreement; and (ii) all additional securities of the Company
(including all additional shares of Company Common Stock and all additional
options, warrants and other rights to acquire shares of Company Common Stock) of
which Stockholder acquires Ownership during the period from the date of this
Agreement through the Expiration Date (as defined in Section 1.2(b)). For
purposes of this Agreement, Stockholder shall be deemed to "Own" or to have
acquired "Ownership" of a security if Stockholder: (i) is the record owner of
such security; or (ii) is the "beneficial owner" (within the meaning of Rule
13d-3 under the Exchange Act) of such security.
1.2 NO DISPOSITION OR ENCUMBRANCE OF SUBJECT SHARES.
(A) Stockholder hereby covenants and agrees that, prior to the Expiration
Date, Stockholder will not, directly or indirectly, (i) offer, sell, offer to
sell, contract to sell, pledge, grant any option to purchase or otherwise
dispose of or transfer (or announce any offer, sale, offer of sale, contract of
sale or grant of any option to purchase or other disposition or transfer of) any
Subject Shares to any Person
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other than Parent or Parent's designee, (ii) create or permit to exist any
Encumbrance with respect to any of the Subject Shares, (iii) reduce his, her or
its beneficial ownership of, interest in or risk relating to any of the Subject
Shares or (iv) commit or agree to do any of the foregoing.
(B) As used in this Voting Agreement, the term "Expiration Date" shall mean
the earlier of the date upon which the Merger Agreement is validly terminated or
the date upon which the Merger becomes effective.
1.3 NO TRANSFER OF VOTING RIGHTS. Stockholder covenants and agrees that,
prior to the Expiration Date, Stockholder will not deposit any of the Subject
Shares into a voting trust or grant another proxy (except as provided herein) or
enter into a voting agreement with respect to any of the Subject Shares.
SECTION 2. VOTING OF SUBJECT SHARES
2.1 VOTING AGREEMENT. Stockholder hereby agrees that, prior to the
Expiration Date, at any meeting of the stockholders of the Company, however
called, and in any written action by consent of stockholders of the Company,
unless otherwise directed in writing by Parent, Stockholder shall vote the
Subject Shares:
(A) in favor of the Merger, the execution and delivery by the Company of
the Merger Agreement and the adoption and approval of the terms thereof and in
favor of each of the other actions contemplated by the Merger Agreement and any
action required in furtherance hereof and thereof;
(B) against any action or agreement that would result in a breach of any
representation, warranty, covenant or obligation of Company in the Merger
Agreement; and
(C) against the following actions (other than the Merger and the
transactions contemplated by the Merger Agreement): (i) any Company Acquisition
Transaction; (ii) any change in a majority of the board of directors of the
Company; (iii) any amendment to the Company's certificate of incorporation and
bylaws; (iv) any material change in the capitalization of the Company or the
Company's corporate structure; or (v) any other action which is intended, or
could reasonably be expected to, impede, interfere with, delay, postpone,
discourage or adversely affect the Merger or any of the other transactions
contemplated by the Merger Agreement or this Voting Agreement.
Prior to the Expiration Date, Stockholder shall not enter into any agreement
or understanding with any Person to vote or give instructions in any manner
inconsistent with clause "(a)", "(b)" or "(c)" of this Section 2.1.
2.2 PROXY; FURTHER ASSURANCES.
(A) Contemporaneously with the execution of this Voting Agreement,
Stockholder shall deliver to Parent a proxy in the form attached hereto as
Exhibit A, which shall be irrevocable to the fullest extent permitted by law
prior to the Expiration Date and which shall be coupled with an interest, with
respect to the Subject Shares (the "Proxy").
(B) Stockholder shall perform such further acts and execute such further
documents and instruments as may reasonably be required to vest in Parent the
power to carry out and give effect to the provisions of this Voting Agreement.
SECTION 3. WAIVER OF APPRAISAL RIGHTS
Stockholder hereby waives any rights of appraisal and any dissenters' rights
that Stockholder may have in connection with the Merger.
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SECTION 4. NO SOLICITATION
Stockholder covenants and agrees that, during the period commencing on the
date of this Voting Agreement and ending on the Expiration Date, Stockholder
shall not, directly or indirectly, and shall not authorize or permit any
Representative of Stockholder, directly of indirectly, to: (i) solicit,
initiate, encourage or induce the making, submission or announcement of any
Company Acquisition Proposal or take any action that could reasonably be
expected to lead to a Company Acquisition Proposal; (ii) furnish any information
regarding Company or any Company Subsidiary to any Person in connection with or
in response to any inquiry relating to any Company Acquisition Proposal; (iii)
engage in discussions or negotiations with any Person with respect to any
Company Acquisition Proposal; (iv) approve, endorse or recommend any Company
Acquisition Proposal; or (v) enter into any letter of intent or similar document
or any Contract contemplating or otherwise relating to any Company Acquisition
Transaction. The foregoing provision shall not prevent Stockholder from acting
in accordance with Stockholder's fiduciary duties as a director or officer of
Company, provided Stockholder complies with the provisions of Section 4.3(a) of
the Merger Agreement. Stockholder shall immediately cease and cause to be
terminated any existing discussions with any Person that relate to any Company
Acquisition Proposal.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Stockholder hereby represents and warrants to Parent as follows:
5.1 DUE AUTHORIZATION, ETC. Stockholder has all requisite power and
capacity to execute and deliver this Voting Agreement and to perform his, her or
its obligations hereunder. This Voting Agreement has been duly executed and
delivered by Stockholder and constitutes a legal, valid and binding obligation
of Stockholder, enforceable against Stockholder in accordance with its terms.
5.2 NO CONFLICTS, REQUIRED FILINGS AND CONSENTS.
(A) The execution and delivery of this Voting Agreement by Stockholder do
not, and the performance of this Voting Agreement by Stockholder will not: (i)
conflict with or violate any order, decree or judgment applicable to Stockholder
or by which he or any of his properties is bound or affected; or (ii) result in
any breach of or constitute a default (with notice or lapse of time, or both)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of an Encumbrance on the Subject
Shares pursuant to, any Contract to which Stockholder is a party or by which
Stockholder or any of his properties is bound or affected.
(B) The execution and delivery of this Voting Agreement by Stockholder do
not, and the performance of this Voting Agreement by Stockholder will not,
require any Consent of any Person.
5.3 TITLE TO SUBJECT SHARES. As of the date hereof, Stockholder Owns in
the aggregate (including shares owned of record and shares owned beneficially)
the number of issued and outstanding shares of Company Common Stock set forth
below Stockholder's name on the signature page hereof, and the number of
options, warrants and other rights to acquire shares of Company Common Stock set
forth below Stockholder's name on the signature page hereof, and does not
directly or indirectly Own, any shares of capital stock of the Company, or any
option, warrant or other right to acquire any shares of capital stock of the
Company, other than the shares and options, warrants and other rights set forth
below Stockholder's name on the signature page hereof.
5.4 ACCURACY OF REPRESENTATIONS. The representations and warranties
contained in this Voting Agreement are accurate in all respects as of the date
of this Voting Agreement and will be accurate in all respects at all times
through the Expiration Date, as if made on that date.
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SECTION 6. COVENANTS OF STOCKHOLDER
6.1 FURTHER ASSURANCES. From time to time and without additional
consideration, Stockholder will execute and deliver, or cause to be executed and
delivered, such additional or further arrangements, proxies, consents and other
instruments as Parent may reasonably request for the purpose of effectively
carrying out and furthering the intent of this Voting Agreement.
6.2 LEGEND. After the execution of this Voting Agreement and upon Parent's
request, Stockholder shall instruct Company to cause each certificate of
Stockholder evidencing the Subject Shares to bear a legend in the following
form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED OR
OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE TERMS AND
CONDITIONS OF THE VOTING AGREEMENT DATED AS OF AUGUST 4, 1999, AS IT MAY BE
AMENDED, EXECUTED BY THE REGISTERED HOLDER OF THIS CERTIFICATE, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER.
SECTION 7. MISCELLANEOUS
7.1 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Voting Agreement or in any
certificate delivered pursuant to this Voting Agreement shall survive the
Merger.
7.2 INDEMNIFICATION. Without in any way limiting any of the rights or
remedies otherwise available to Parent, Stockholder shall hold harmless and
indemnify Parent from and against any damages suffered or incurred by Parent and
that arise from any breach of any representation, warranty, covenant or
obligation of Stockholder contained herein.
7.3 EXPENSES. All costs and expenses incurred in connection with the
transactions contemplated by this Voting Agreement shall be paid by the party
incurring such costs and expenses.
7.4 NOTICES. Any notice or other communication required or permitted to be
delivered to any party under this Voting Agreement shall be in writing and shall
be deemed properly delivered, given and received (a) when delivered by hand, or
(b) two business days after sent by registered mail or, by courier or express
delivery service or by facsimile to the address or facsimile telephone number
set forth beneath the name of such party below (or to such other address or
facsimile telephone number as such party shall have specified in a written
notice given to the other parties hereto):
if to Stockholder:
at the address set forth below Stockholder's signature on the
signature page hereto;
if to Parent:
CYPROS PHARMACEUTICAL CORPORATION
2714 Loker Avenue West
Carlsbad, CA 92008
Attention: Chief Financial Officer
Facsimile: (760) 929-7549
with a copy to:
Cooley Godward LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121-2128
Attention: M. Wainwright Fishburn, Jr., Esq.
Facsimile: (619) 453-3555
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7.5 SEVERABILITY. Any term or provision of this Voting Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Voting Agreement or affecting the validity or enforceability of any of the terms
or provisions of this Voting Agreement in any other jurisdiction. If any
provision of this Voting Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
7.6 ENTIRE AGREEMENT. This Voting Agreement and any documents delivered by
the parties in connection herewith constitute the entire agreement and supersede
all prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof and thereof. This Voting
Agreement may be executed in several counterparts, each of which shall be deemed
an original and all of which shall constitute one and the same instrument
7.7 ASSIGNABILITY. This Voting Agreement shall be binding upon, and shall
be enforceable by and inure solely to the benefit of, the parties hereto and
their respective successors and assigns; PROVIDED, HOWEVER,that neither this
Voting Agreement nor any portion hereof shall be assignable (whether by
operation of law or otherwise and including, for this purpose, a change in
control as an assignment) by the Stockholder. Nothing in this Voting Agreement,
express or implied, is intended to or shall confer upon any Person any right,
benefit or remedy of any nature whatsoever under or by reason of this Voting
Agreement.
7.8 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Voting Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that Parent shall be entitled to an injunction or
injunctions to prevent breaches of this Voting Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which Parent is entitled at law or in equity.
7.9 APPLICABLE LAW; JURISDICTION. This Voting Agreement shall be governed
by, and construed in accordance with, the laws of the State of California,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof. In any action between the parties arising out of
or relating to this Voting Agreement or any of the transactions contemplated by
this Voting Agreement: (a) each of the parties irrevocably and unconditionally
consents and submits to the exclusive jurisdiction and venue of the state and
federal courts located in the State of California; (b) if any such action is
commenced in a state court, then, subject to applicable law, no party shall
object to the removal of such action to any federal court located in the
Southern District of California; (c) each of the parties irrevocably waives the
right to trial by jury; and (d) each of the parties irrevocably consents to
service of process by first class certified mail, return receipt requested,
postage prepaid, to the address at which such party is to receive notice in
accordance with Section 7.4.
7.10 ATTORNEY'S FEES. In any action at law or suit in equity to enforce
this Voting Agreement or the rights of any of the parties hereunder, the
prevailing party in such action or suit shall be entitled to receive a
reasonable sum for its attorneys' fees and all other reasonable costs and
expenses incurred in such action or suit.
7.11 CONSTRUCTION.
(A) For purposes of this Voting Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include masculine and feminine genders.
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(B) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Voting
Agreement.
(C) As used in this Voting Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(D) Except as otherwise indicated, all references in this Voting
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of
this Voting Agreement and Exhibits to this Voting Agreement.
(E) The bold-faced headings contained in this Voting Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Voting Agreement and shall not be referred to in connection with the
construction or interpretation of this Voting Agreement.
[The remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, Parent and Stockholder have caused this Voting Agreement
to be executed as of the date first written above.
CYPROS PHARMACEUTICAL CORPORATION
By: __________________________________
Name: ________________________________
Title: _______________________________
______________________________________
Name:_________________________________
Address: _____________________________
_____________________________
_____________________________
Facsimile: ___________________________
Number of issued and outstanding
shares of Company Common Stock owned
of record as of the date of this
Voting Agreement:
______________________________________
Number of additional issued and
outstanding shares of Company Common
Stock owned beneficially (but not of
record) as of the date of this Voting
Agreement:
______________________________________
Number of options, warrants and other
rights to acquire shares of Company
Common Stock owned of record as of the
date of this Voting Agreement:
______________________________________
Number of additional options, warrants
and other rights to acquire shares of
Company Common Stock owned
beneficially (but not of record) as of
the date of this Voting Agreement:
______________________________________
[Signature page to Voting Agreement]
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EXHIBIT A
FORM OF IRREVOCABLE PROXY
IRREVOCABLE PROXY
The undersigned stockholder of RiboGene, Inc., a Delaware corporation
("Company"), hereby irrevocably (to the fullest extent permitted by law)
appoints and constitutes Paul J. Marangos, David W. Nassif and Cypros
Pharmaceutical Corporation, a California corporation ("Parent"), and each of
them, the attorneys and proxies of the undersigned with respect to (i) the
shares of capital stock of Company owned by the undersigned as of the date of
this proxy, which shares are specified on the final page of this proxy and (ii)
any and all other shares of capital stock of Company which the undersigned may
acquire after the date hereof. (The shares of the capital stock of Company
referred to in clauses (i) and (ii) of the immediately preceding sentence are
collectively referred to as the "Shares.") Upon the execution hereof, all prior
proxies given by the undersigned with respect to any of the Shares are hereby
revoked, and no subsequent proxies will be given with respect to any of the
Shares.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with the Voting Agreement, dated as of the date hereof, between
Parent and the undersigned (the "Voting Agreement"), and is granted in
consideration of Parent entering into the Agreement and Plan of Reorganization,
dated as of the date hereof, among Parent, Cypros Acquisition Corporation, a
Delaware corporation and wholly owned subsidiary of Parent, and the Company (the
"Merger Agreement"). Unless otherwise indicated, capitalized terms used but not
otherwise defined in this proxy have the meanings ascribed to such terms in the
Merger Agreement.
Each attorney and proxy named above will be empowered, and may exercise this
proxy at any meeting of the stockholders of the Company, however called, or in
any written action by consent of stockholders of the Company, to vote the Shares
at any time prior to the Expiration Date (as defined in the Voting Agreement):
1. in favor of the Merger, the execution and delivery by the Company of the
Merger Agreement and the adoption and approval of the terms thereof and in favor
of each of the other actions contemplated by the Merger Agreement and any action
required in furtherance hereof and thereof;
2. against any action or agreement that would result in a breach of any
representation, warranty, covenant or obligation of Company in the Merger
Agreement; and
3. against the following actions (other than the Merger and the
transactions contemplated by the Merger Agreement): (i) any Company Acquisition
Transaction; (ii) any change in a majority of the board of directors of the
Company; (iii) any amendment to the Company's certificate of incorporation; (iv)
any material change in the capitalization of the Company or the Company's
corporate structure; or (v) any other action which is intended, or could
reasonably be expected to, impede, interfere with, delay, postpone, discourage
or adversely affect the Merger or any of the other transactions contemplated by
the Merger Agreement or the Voting Agreement.
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The Stockholder may vote the Shares on all other matters.
Any obligation of the Stockholder hereunder shall be binding upon the heirs,
successors and assigns of the Stockholder (including any transferee of any of
the Shares).
This proxy shall terminate upon the Expiration Date (as defined in the
Voting Agreement).
Dated: August 4, 1999
______________________________________
______________________________________
Name:
Number of Shares of Company Common
Stock owned of record or beneficially
as of the date of this proxy:
______________________________________
E-9
<PAGE>
ANNEX F
RIBOGENE, INC.
FORM OF VOTING AGREEMENT
THIS VOTING AGREEMENT is entered into as of August 4, 1999 by and between
RIBOGENE, INC., a Delaware corporation ("Company"), and
("Shareholder").
RECITALS
A. CYPROS PHARMACEUTICAL CORPORATION, a California corporation ("Parent"),
CYPROS ACQUISITION CORPORATION, a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub") and the Company, are entering into an
Agreement and Plan of Reorganization of even date herewith (as amended from time
to time, the "Merger Agreement"; capitalized terms used but not otherwise
defined in this Voting Agreement have the meanings assigned to such terms in the
Merger Agreement), which provides (subject to the conditions set forth therein)
for the merger of Merger Sub with and into the Company (the "Merger").
B. Shareholder is the record and beneficial owner of that number of shares
of Common Stock, Preferred Stock and other securities of the Parent set forth on
the signature page hereof.
C. As a condition to the willingness of the Company to enter into the
Merger Agreement, the Company has required that Shareholder agree, and in order
to induce the Company to enter into the Merger Agreement and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Shareholder has agreed to enter into this Voting Agreement with regard to the
Subject Shares (as defined herein).
AGREEMENT
The parties to this Voting Agreement, intending to be legally bound, agree
as follows:
SECTION 1. NO TRANSFER OF SUBJECT SHARES.
1.1 SUBJECT SHARES. "Subject Shares" shall mean: (i) all securities of
Parent (including shares of Parent Common Stock and all options, warrants and
other rights to acquire shares of Parent Common Stock) Owned by Shareholder as
of the date of this Agreement; and (ii) all additional securities of Parent
(including all additional shares of Parent Common Stock and all additional
options, warrants and other rights to acquire shares of Parent Common Stock) of
which Shareholder acquires Ownership during the period from the date of this
Agreement through the Expiration Date (as defined in Section 1.2(b)). For
purposes of this Agreement, Shareholder shall be deemed to "Own" or to have
acquired "Ownership" of a security if Shareholder: (i) is the record owner of
such security; or (ii) is the "beneficial owner" (within the meaning of Rule
13d-3 under the Exchange Act) of such security.
1.2 NO DISPOSITION OR ENCUMBRANCE OF SUBJECT SHARES.
(A) Shareholder hereby covenants and agrees that, prior to the Expiration
Date, Shareholder will not, directly or indirectly, (i) offer, sell, offer to
sell, contract to sell, pledge, grant any option to purchase or otherwise
dispose of or transfer (or announce any offer, sale, offer of sale, contract of
sale or grant of any option to purchase or other disposition or transfer of) any
Subject Shares to any Person other than the Company or Company's designee, (ii)
create or permit to exist any Encumbrance with
F-1
<PAGE>
respect to any of the Subject Shares, (iii) reduce his, her or its beneficial
ownership of, interest in or risk relating to any of the Subject Shares or (iv)
commit or agree to do any of the foregoing.
(B) As used in this Voting Agreement, the term "Expiration Date" shall mean
the earlier of the date upon which the Merger Agreement is validly terminated or
the date upon which the Merger becomes effective.
1.3 NO TRANSFER OF VOTING RIGHTS. Shareholder covenants and agrees that,
prior to the Expiration Date, Shareholder will not deposit any of the Subject
Shares into a voting trust or grant another proxy (except as provided herein) or
enter into a voting agreement with respect to any of the Subject Shares.
SECTION 2. VOTING OF SUBJECT SHARES
2.1 VOTING AGREEMENT. Shareholder hereby agrees that, prior to the
Expiration Date, at any meeting of the shareholders of Parent, however called,
and in any written action by consent of shareholders of Parent, unless otherwise
directed in writing by the Company, Shareholder shall vote the Subject Shares:
(A) in favor of the issuance of the Merger Shares, the Merger, the
execution and delivery by Parent of the Merger Agreement and the adoption and
approval of the terms thereof and in favor of each of the other actions
contemplated by the Merger Agreement and any action required in furtherance
hereof and thereof;
(B) against any action or agreement that would result in a breach of any
representation, warranty, covenant or obligation of Parent in the Merger
Agreement; and
(C) against the following actions (other than the Merger and the
transactions contemplated by the Merger Agreement): (i) any Parent Acquisition
Transaction; (ii) any change in a majority of the board of directors of Parent;
(iii) any amendment to Parent's articles of incorporation and bylaws; (iv) any
material change in the capitalization of Parent or Parent's corporate structure;
or (v) any other action which is intended, or could reasonably be expected to,
impede, interfere with, delay, postpone, discourage or adversely affect the
Merger or any of the other transactions contemplated by the Merger Agreement or
this Voting Agreement.
Prior to the Expiration Date, Shareholder shall not enter into any agreement or
understanding with any Person to vote or give instructions in any manner
inconsistent with clause "(a)", "(b)" or "(c)" of this Section 2.1.
2.2 PROXY; FURTHER ASSURANCES.
(A) Contemporaneously with the execution of this Voting Agreement,
Shareholder shall deliver to the Company a proxy in the form attached hereto as
Exhibit A, which shall be irrevocable to the fullest extent permitted by law
prior to the Expiration Date and which shall be coupled with an interest, with
respect to the Subject Shares (the "Proxy").
(B) Shareholder shall perform such further acts and execute such further
documents and instruments as may reasonably be required to vest in the Company
the power to carry out and give effect to the provisions of this Voting
Agreement.
SECTION 3. WAIVER OF APPRAISAL RIGHTS
Shareholder hereby waives any rights of appraisal and any dissenters' rights
that Shareholder may have in connection with the Merger.
F-2
<PAGE>
SECTION 4. NO SOLICITATION
Shareholder covenants and agrees that, during the period commencing on the
date of this Voting Agreement and ending on the Expiration Date, Shareholder
shall not, directly or indirectly, and shall not authorize or permit any
Representative of Shareholder, directly of indirectly, to: (i) solicit,
initiate, encourage or induce the making, submission or announcement of any
Parent Acquisition Proposal or take any action that could reasonably be expected
to lead to a Parent Acquisition Proposal; (ii) furnish any information regarding
Parent or any Parent Subsidiary to any Person in connection with or in response
to any inquiry relating to any Parent Acquisition Proposal; (iii) engage in
discussions or negotiations with any Person with respect to any Parent
Acquisition Proposal; (iv) approve, endorse or recommend any Parent Acquisition
Proposal; or (v) enter into any letter of intent or similar document or any
Contract contemplating or otherwise relating to any Parent Acquisition
Transaction. The foregoing provision shall not prevent Shareholder from acting
in accordance with Shareholder's fiduciary duties as a director or officer of
Parent, provided Shareholder complies with the provisions of Section 4.6(a) of
the Merger Agreement. Shareholder shall immediately cease and cause to be
terminated any existing discussions with any Person that relate to any Parent
Acquisition Proposal.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
Shareholder hereby represents and warrants to the Company as follows:
5.1 DUE AUTHORIZATION, ETC. Shareholder has all requisite power and
capacity to execute and deliver this Voting Agreement and to perform his, her or
its obligations hereunder. This Voting Agreement has been duly executed and
delivered by Shareholder and constitutes a legal, valid and binding obligation
of Shareholder, enforceable against Shareholder in accordance with its terms.
5.2 NO CONFLICTS, REQUIRED FILINGS AND CONSENTS.
(A) The execution and delivery of this Voting Agreement by Shareholder do
not, and the performance of this Voting Agreement by Shareholder will not: (i)
conflict with or violate any order, decree or judgment applicable to Shareholder
or by which he or any of his properties is bound or affected; or (ii) result in
any breach of or constitute a default (with notice or lapse of time, or both)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of an Encumbrance on the Subject
Shares pursuant to, any Contract to which Shareholder is a party or by which
Shareholder or any of his properties is bound or affected.
(B) The execution and delivery of this Voting Agreement by Shareholder do
not, and the performance of this Voting Agreement by Shareholder will not,
require any Consent of any Person.
5.3 TITLE TO SUBJECT SHARES. As of the date hereof, Shareholder Owns in
the aggregate (including shares owned of record and shares owned beneficially)
the number of issued and outstanding shares of Parent Common Stock set forth
below Shareholder's name on the signature page hereof, and the number of
options, warrants and other rights to acquire shares of Parent Common Stock set
forth below Shareholder's name on the signature page hereof, and does not
directly or indirectly Own, any shares of capital stock of the Company, or any
option, warrant or other right to acquire any shares of capital stock of the
Company, other than the shares and options, warrants and other rights set forth
below Shareholder's name on the signature page hereof.
5.4 ACCURACY OF REPRESENTATIONS. The representations and warranties
contained in this Voting Agreement are accurate in all respects as of the date
of this Voting Agreement and will be accurate in all respects at all times
through the Expiration Date, as if made on that date.
F-3
<PAGE>
SECTION 6. COVENANTS OF SHAREHOLDER
6.1 FURTHER ASSURANCES. From time to time and without additional
consideration, Shareholder will execute and deliver, or cause to be executed and
delivered, such additional or further arrangements, proxies, consents and other
instruments as the Company may reasonably request for the purpose of effectively
carrying out and furthering the intent of this Voting Agreement.
6.2 LEGEND. After the execution of this Voting Agreement and upon the
request of the Company, Shareholder shall instruct Parent to cause each
certificate of Shareholder evidencing the Subject Shares to bear a legend in the
following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED OR
OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE TERMS AND
CONDITIONS OF THE VOTING AGREEMENT DATED AS OF AUGUST 4, 1999, AS IT MAY BE
AMENDED, EXECUTED BY THE REGISTERED HOLDER OF THIS CERTIFICATE, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER.
SECTION 7. MISCELLANEOUS
7.1 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Voting Agreement or in any
certificate delivered pursuant to this Voting Agreement shall survive the
Merger.
7.2 INDEMNIFICATION. Without in any way limiting any of the rights or
remedies otherwise available to the Company, Shareholder shall hold harmless and
indemnify the Company from and against any damages suffered or incurred by the
Company and that arise from any breach of any representation, warranty, covenant
or obligation of Shareholder contained herein.
7.3 EXPENSES. All costs and expenses incurred in connection with the
transactions contemplated by this Voting Agreement shall be paid by the party
incurring such costs and expenses.
7.4 NOTICES. Any notice or other communication required or permitted to be
delivered to any party under this Voting Agreement shall be in writing and shall
be deemed properly delivered, given and received (a) when delivered by hand, or
(b) two business days after sent by registered mail or, by courier or express
delivery service or by facsimile to the address or facsimile telephone number
set forth beneath the name of such party below (or to such other address or
facsimile telephone number as such party shall have specified in a written
notice given to the other parties hereto):
if to Shareholder:
at the address set forth below Shareholder's
signature on the signature page hereto;
if to the Company:
Ribogene, Inc.
26118 Research Road
Hayward, CA 94545
Attention: Chief Executive Officer
Facsimile: (510) 732-7741
F-4
<PAGE>
with a copy to:
Latham & Watkins
701 B Street
Suite 2100
San Diego, CA 92101-8197
Attention: David Hahn, Esq.
Facsimile: (619) 696-7419
7.5 SEVERABILITY. Any term or provision of this Voting Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Voting Agreement or affecting the validity or enforceability of any of the terms
or provisions of this Voting Agreement in any other jurisdiction. If any
provision of this Voting Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
7.6 ENTIRE AGREEMENT. This Voting Agreement and any documents delivered by
the parties in connection herewith constitute the entire agreement and supersede
all prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof and thereof. This Voting
Agreement may be executed in several counterparts, each of which shall be deemed
an original and all of which shall constitute one and the same instrument
7.7 ASSIGNABILITY. This Voting Agreement shall be binding upon, and shall
be enforceable by and inure solely to the benefit of, the parties hereto and
their respective successors and assigns; PROVIDED, HOWEVER,that neither this
Voting Agreement nor any portion hereof shall be assignable (whether by
operation of law or otherwise and including, for this purpose, a change in
control as an assignment) by the shareholder. Nothing in this Voting Agreement,
express or implied, is intended to or shall confer upon any Person any right,
benefit or remedy of any nature whatsoever under or by reason of this Voting
Agreement.
7.8 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Voting Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the Company shall be entitled to an injunction or
injunctions to prevent breaches of this Voting Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which the Company is entitled at law or in equity.
7.9 APPLICABLE LAW; JURISDICTION. This Voting Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof. In any action between the parties arising out of
or relating to this Voting Agreement or any of the transactions contemplated by
this Voting Agreement: (a) each of the parties irrevocably and unconditionally
consents and submits to the exclusive jurisdiction and venue of the state and
federal courts located in the State of California; (b) if any such action is
commenced in a state court, then, subject to applicable law, no party shall
object to the removal of such action to any federal court located in the
Southern District of California; (c) each of the parties irrevocably waives the
right to trial by jury; and (d) each of the parties irrevocably consents to
service of process by first class certified mail, return receipt requested,
postage prepaid, to the address at which such party is to receive notice in
accordance with Section 7.4.
7.10 ATTORNEY'S FEES. In any action at law or suit in equity to enforce
this Voting Agreement or the rights of any of the parties hereunder, the
prevailing party in such action or suit shall be entitled to receive a
reasonable sum for its attorneys' fees and all other reasonable costs and
expenses incurred in such action or suit.
F-5
<PAGE>
7.11 CONSTRUCTION.
(A) For purposes of this Voting Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
masculine and feminine genders.
(B) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Voting Agreement.
(C) As used in this Voting Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(D) Except as otherwise indicated, all references in this Voting Agreement
to "Sections" and "Exhibits" are intended to refer to Sections of this Voting
Agreement and Exhibits to this Voting Agreement.
(E) The bold-faced headings contained in this Voting Agreement are for
convenience of reference only, shall not be deemed to be a part of this Voting
Agreement and shall not be referred to in connection with the construction or
interpretation of this Voting Agreement.
[The remainder of this page intentionally left blank]
F-6
<PAGE>
IN WITNESS WHEREOF, the Company and Shareholder have caused this Voting
Agreement to be executed as of the date first written above.
RIBOGENE, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
SHAREHOLDER
Name: __________________________________
Address: _______________________________
_______________________________
_______________________________
Facsimile: _____________________________
Number of issued and outstanding shares
of Parent Common Stock owned of record
as of the date of this Voting Agreement:
________________________________________
Number of additional issued and
outstanding shares of Parent Common
Stock owned beneficially (but not of
record) as of the date of this Voting
Agreement:
________________________________________
Number of options, warrants and other
rights to acquire shares of Parent
Common Stock owned of record as of the
date of this Voting Agreement:
________________________________________
Number of additional options, warrants
and other rights to acquire shares of
Parent Common Stock owned beneficially
(but not of record) as of the date of
this Voting Agreement:
________________________________________
[Signature page to Voting Agreement]
F-7
<PAGE>
EXHIBIT A
FORM OF IRREVOCABLE PROXY
IRREVOCABLE PROXY
The undersigned shareholder of South, a California corporation ("Parent"),
hereby irrevocably (to the fullest extent permitted by law) appoints and
constitutes Charles J. Casamento, Timothy E. Morris and RiboGene, Inc., a
Delaware corporation ("Company"), and each of them, the attorneys and proxies of
the undersigned with respect to (i) the shares of capital stock of Parent owned
by the undersigned as of the date of this proxy, which shares are specified on
the final page of this proxy and (ii) any and all other shares of capital stock
of Parent which the undersigned may acquire after the date hereof. (The shares
of the capital stock of Parent referred to in clauses (i) and (ii) of the
immediately preceding sentence are collectively referred to as the "Shares.")
Upon the execution hereof, all prior proxies given by the undersigned with
respect to any of the Shares are hereby revoked, and no subsequent proxies will
be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with the Voting Agreement, dated as of the date hereof, between the
Company and the undersigned (the "Voting Agreement"), and is granted in
consideration of the Company entering into the Agreement and Plan of Merger and
Reorganization, dated as of the date hereof, among Parent, South Acquisition
Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent, and the
Company (the "Merger Agreement"). Unless otherwise indicated, capitalized terms
used but not otherwise defined in this proxy have the meanings ascribed to such
terms in the Merger Agreement.
Each attorney and proxy named above will be empowered, and may exercise this
proxy at any meeting of the shareholders of the Parent, however called, or in
any written action by consent of shareholders of Parent, to vote the Shares at
any time prior to the Expiration Date (as defined in the Voting Agreement):
1. in favor of the issuance of the Merger Shares, the Merger, the execution
and delivery by Parent of the Merger Agreement and the adoption and approval of
the terms thereof and in favor of each of the other actions contemplated by the
Merger Agreement and any action required in furtherance hereof and thereof;
2. against any action or agreement that would result in a breach of any
representation, warranty, covenant or obligation of Parent in the Merger
Agreement; and
3. against the following actions (other than the Merger and the
transactions contemplated by the Merger Agreement): (i) any Parent Acquisition
Transaction; (ii) any change in a majority of the board of directors of Parent;
(iii) any amendment to Parent's articles of incorporation; (iv) any material
change in the capitalization of Parent or Parent's corporate structure; or (v)
any other action which is intended, or could reasonably be expected to, impede,
interfere with, delay, postpone, discourage or adversely affect the Merger or
any of the other transactions contemplated by the Merger Agreement or the Voting
Agreement.
The Shareholder may vote the Shares on all other matters.
Any obligation of the Shareholder hereunder shall be binding upon the heirs,
successors and assigns of the Shareholder (including any transferee of any of
the Shares).
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<PAGE>
This proxy shall terminate upon the Expiration Date (as defined in the Voting
Agreement).
Dated: August 4, 1999
SHAREHOLDER
________________________________________
Name:
Number of Shares of Parent Common Stock
owned of record or beneficially as of
the date of this proxy:
________________________________________
F-9
<PAGE>
ANNEX G
DISSENTERS' RIGHTS UNDER CALIFORNIA LAW
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
1300. [SHORT FORM MERGER; PURCHASE OF SHARES AT FAIR MARKET VALUE;
"DISSENTING SHARES" AND DISSENTING SHAREHOLDER].
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the
corporation entitled to vote on the transaction and each shareholder of a
subsidiary corporation in a short-form merger may, by complying with this
chapter, require the corporation in which the shareholder holds shares to
purchase for cash at their fair market value the shares owned by the
shareholder which are dissenting shares as defined in subdivision (b).
The fair market value shall be determined as of the day before the first
announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split,
or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by
the Board of Governors of the Federal Reserve System, and the notice of
meeting of shareholders to act upon the reorganization summarizes this
Section and Sections 1301, 1302, 1303 and 1304; provided, however, that
this provision does not apply to any shares with respect to which there
exists any restriction on transfer imposed by the corporation or by any
law or regulation; and provided, further, that this provision does not
apply to any class of shares described in 3 subparagraph (A) or (B) if
demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not
voted in favor of the reorganization or, (B) if described in subparagraph
(A) or (B) or paragraph (1) (without regard to the provisos in that
paragraph), were voted against the reorganization, or which were held of
record on the effective date of a short-form merger; provided, however,
that subparagraph (A) rather than subparagraph (B) of this paragraph
applies in any case were the approval required by Section 1201 is sought
by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with
Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
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1301. [DISSENTER'S RIGHTS; DEMAND ON CORPORATION FOR PURCHASE OF SHARES]
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs
(3) and (4) of subdivisions (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its
outstanding shares (Section 152) within 10 days after the date of such
approval, accompanied by a copy of Sections 1300, 1302, 1303, 1304 and
this section, a statement of the price determined by the corporation to
represent the fair market value of the dissenting shares, and a brief
description of the procedure to be followed if the shareholder desires to
exercise the shareholder's right under such sections. The statement of
price constitutes an offer by the corporation to purchase at the price
stated any dissenting shares as defined in subdivisions (b)of Section
1300, unless they lose their status as dissenting shares under Section
1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and
who desires the corporation to purchase such shares shall make written
demand upon the corporation for the purchase of such shares and payment
to the shareholder in cash of their fair market value. The demand is not
effective for any purpose unless it is received by the corporation or any
transfer agent thereof (1) in the case of shares describe in clause (i)
or (ii) of paragraph (1) of subdivision (b) of Section 1300 (without
regard to the provisos in that paragraph), not later than the date of the
shareholders' meeting to vote upon the reorganization, or (2) in any
other case within 30 days after the date on which the notice of the
approval by the outstanding shares pursuant to subdivision (a) or the
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to
be the fair market value of those shares as of the day before the
announcement of the proposed reorganization or short form merger. The
statement of fair market value constitutes an offer by the shareholder to
sell the shares at such price.
1302. [DISSENTING SHARES, STAMPING OR ENDORSING].
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
1303. [DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST; TIME
OF PAYMENT].
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the
legal rate on judgments from the date of the agreement. Any
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<PAGE>
agreements fixing the fair market value of any dissenting shares as
between the corporation and the holders thereof shall be filed with the
secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or
contractual conditions to reorganization are satisfied, whichever is
later, and in the case of certificated securities, subject to surrender
of the certificates therefor, unless provided otherwise by agreement.
1304. [DISSENTERS ACTIONS; JOINDER; CONSOLIDATION; APPOINTMENT OF
APPRAISERS].
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market values
of the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after
the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, but not thereafter, may file a complaint in
the superior court of the proper county praying the court to determine
whether the shares are dissenting shares or the fair market value of the
dissenting shares or both or may intervene in any action pending on such
a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting
shares is in issue, the court shall determine, or shall appoint one or
more impartial appraisers to determine, the fair market value of the
shares.
1305. [APPRAISERS DUTY AND REPORT; COURT JUDGMENT; PAYMENT; APPEAL; COSTS
OF ACTION].
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and
file a report in the office of the clerk of the court. Thereupon, on the
motion of any party, the report shall be submitted to the court and
considered on such evidence as the court considers relevant. If the court
finds the report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the
court, the court shall determine the fair market vale of the dissenting
shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market
value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has
intervened, is entitled to require the corporation to purchase, with
interest thereon at the legal rate from the date on which judgment was
entered.
(d) Any such judgment shall be payable forthwith with respect to under
certificated securities and, with respect to certificated securities,
only upon the endorsement and delivery to the corporation of the
certificates for the shares described in the judgment. Any party may
appeal from the judgment.
G-3
<PAGE>
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as
the court considers equitable, but, if the appraisal exceeds the price
offered by the corporation, the corporation shall pay the costs
(including in the discretion of the court attorneys' fees, fees of expert
witnesses and interest at the legal rate on judgments from the date of
compliance with Section 1300, 1301 and 1302 if the value awarded by the
court for the shares is more than 125 percent of the price offered by the
corporation under subdivision (a) of Section 1301).
1306. [DISSENTING SHAREHOLDERS; EFFECT OF PREVENTION OF PAYMENT OF FAIR
MARKET VALUE].
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
1307. [DISSENTING SHARES, DISPOSITION OF DIVIDENDS].
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
1308. [DISSENTING SHARES, RIGHTS AND PRIVILEGES].
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
1309. [DISSENTING SHARES, LOSS OF STATUS].
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this
chapter all necessary expenses incurred in such proceedings and
reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of
the shares, and neither files a complaint or intervenes in a pending
action as provided in Section 1304, within six months after the date on
which notice of the approval by the outstanding shares or notice pursuant
to subdivisions (i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
G-4
<PAGE>
1310. [SUSPENSION OF CERTAIN PROCEEDINGS WHILE LITIGATION IS PENDING].
If litigation is instituted to test the sufficiency of regularity of the
votes of the shareholder in authorizing a reorganization, any proceedings under
Section 1304 and 1305 shall be suspended until final determination of such
litigation.
1311. [CHAPTER INAPPLICABLE TO CERTAIN CLASSES OF SHARES].
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
1312. [VALIDITY OF REORGANIZATION OR SHORT FORM MERGER, ATTACK ON;
SHAREHOLDERS' RIGHTS; BURDEN OF PROOF].
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have
any right or law or in equity to attack the validity of the
reorganization or short-form merger, or to have the reorganization or
short-form merger set aside or rescinded, except in an action to test
whether the number of shares required to authorize or approve the
reorganization have been legally voted in favor thereof; but any holder
of shares of a class whose terms and provisions specifically set forth
the amount to be paid in respect to them in the event of a reorganization
or short-form merger is entitled to payment in accordance with those
terms and provisions or,
if the principal terms of the reorganization are approved pursuant to
subdivision (b) of Section 1202, is entitled to payment in accordance with the
terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with,
another party to the reorganization or short-form merger, subdivision (a)
shall not apply to any shareholder of such party who has not demanded
payment of cash for such shareholder's shares pursuant to this chapter;
but if the shareholder institutes any action to attack the validity of
the reorganization or short-form merger or to have the reorganization or
short-form merger set aside or rescinded, the shareholder shall not
thereafter have any right to demand payment of cash for the shareholder's
shares pursuant to this chapter. The court in any action attacking the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10
days, prior notice to the corporation and upon a determination by the
court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such
shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with,
another party to the reorganization or short-form merger, in any action
to attack the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded, (1)
a party to a reorganization or short-form merger which controls another
party to the reorganization or short-form merger shall have the burden of
proving that the transaction is just and reasonable as to the
shareholders of the controlled party, and (2) a person who controls two
or more parties to a reorganization shall have the burden of proving that
the transaction is just and reasonable as to the shareholders of any
party so controlled.
G-5
<PAGE>
EXHIBIT 3.6
CERTIFICATE OF INCORPORATION
OF
CYPROS ACQUISITION CORPORATION
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is Cypros Acquisition Corporation.
II.
The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, and
the name of the registered agent of the corporation in the State of Delaware at
such address is The Corporation Trust Company.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue only one class of stock, to be
designated Common Stock. The total number of shares of Common Stock presently
authorized is One Million (1,000,000) shares, each having a par value of
one-tenth of one cent ($0.001).
B. ELECTION OF DIRECTORS
1. Directors shall be elected at each annual meeting of stockholders
to hold office until the next annual meeting. Each director shall hold office
either until the expiration of the term for which elected or appointed and until
a successor has been elected and qualified, or until such director's death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
2. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to
1.
<PAGE>
Section 2115(b) of the California General Corporation Law ("CGCL"). During
such time or times that the corporation is subject to Section 2115(b) of the
CGCL, every stockholder entitled to vote at an election for directors may
cumulate such stockholder's votes and give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of
votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit. No stockholder, however, shall be
entitled to so cumulate such stockholder's votes unless (a) the names of such
candidate or candidates have been placed in nomination prior to the voting
and (b) the stockholder has given notice at the meeting, prior to the voting,
of such stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest
number of votes, up to the number of directors to be elected, are elected.
C. REMOVAL
1. During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual
director may be removed from office at any time without cause by the
affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote on such removal; provided, however, that unless the
entire Board is removed, no individual director may be removed when the votes
cast against such director's removal, or not consenting in writing to such
removal, would be sufficient to elect that director if voted cumulatively at
an election which the same total number of votes were cast (or, if such
action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.
2. At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section C.1 above shall not apply and the Board of Directors or any director
may be removed from office at any time (a) with cause by the affirmative vote
of the holders of a majority of the voting power of all then-outstanding
shares of voting stock of the corporation entitled to vote at an election of
directors or (b) without cause by the affirmative vote of the holders of a
majority of the voting power of all then-outstanding shares of voting stock
of the corporation, entitled to vote at an election of directors.
V.
A. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by the Board
of Directors in the manner provided in the Bylaws.
B. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may
be altered or amended or new Bylaws adopted by the stockholders entitled to
vote. The Board of Directors shall also have the power to adopt, amend or
repeal Bylaws.
2.
<PAGE>
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the CGCL) for breach of duty to the corporation
and its stockholders through bylaw provisions or through agreements with the
agents, or through stockholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times that the corporation is subject to Section 2115(b) of the CGCL, to
the limits on such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this reservation.
VIII.
The name and the mailing address of the Sole Incorporator is as follows:
Jennifer J. Riddell
4365 Executive Drive, Suite 1100
San Diego, CA 92121
IN WITNESS WHEREOF, this Certificate has been subscribed this 3rd day of
August 1999 by the undersigned who affirms that the statements made herein are
true and correct.
/s/ JENNIFER J. RIDDELL
------------------------------------
JENNIFER J. RIDDELL
Sole Incorporator
3.
<PAGE>
EXHIBIT 3.7
BYLAWS
OF
CYPROS ACQUISITION CORPORATION
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office. . . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III STOCKHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . . . 1
Section 4. Place of Meetings. . . . . . . . . . . . . . . . . . . . . 1
Section 5. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . 1
Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . . 3
Section 7. Notice of Meetings . . . . . . . . . . . . . . . . . . . . 4
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 9. Adjournment and Notice of Adjourned Meetings . . . . . . . 5
Section 10. Voting Rights. . . . . . . . . . . . . . . . . . . . . . . 5
Section 11. Joint Owners of Stock. . . . . . . . . . . . . . . . . . . 5
Section 12. List of Stockholders . . . . . . . . . . . . . . . . . . . 6
Section 13. Action Without Meeting . . . . . . . . . . . . . . . . . . 6
Section 14. Organization . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 15. Number and Term of Office. . . . . . . . . . . . . . . . . 7
Section 16. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 17. Term of Directors. . . . . . . . . . . . . . . . . . . . . 7
Section 18. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 19. Resignation. . . . . . . . . . . . . . . . . . . . . . . . 8
Section 20. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 21. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Annual Meetings. . . . . . . . . . . . . . . . . . . . . . 9
(b) Regular Meetings . . . . . . . . . . . . . . . . . . . . . 9
(c) Special Meetings . . . . . . . . . . . . . . . . . . . . . 9
(d) Telephone Meetings . . . . . . . . . . . . . . . . . . . . 9
(e) Notice of Meetings . . . . . . . . . . . . . . . . . . . .10
i.
<PAGE>
(f) Waiver of Notice . . . . . . . . . . . . . . . . . . . . .10
Section 22. Quorum and Voting. . . . . . . . . . . . . . . . . . . . .10
Section 23. Action Without Meeting . . . . . . . . . . . . . . . . . .10
Section 24. Fees and Compensation. . . . . . . . . . . . . . . . . . .10
Section 25. Committees . . . . . . . . . . . . . . . . . . . . . . . .11
(a) Executive Committee. . . . . . . . . . . . . . . . . . . .11
(b) Other Committees . . . . . . . . . . . . . . . . . . . . .11
(c) Term . . . . . . . . . . . . . . . . . . . . . . . . . . .11
(d) Meetings . . . . . . . . . . . . . . . . . . . . . . . . .11
Section 26. Organization . . . . . . . . . . . . . . . . . . . . . . .12
ARTICLE V OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Section 27. Officers Designated. . . . . . . . . . . . . . . . . . . .12
Section 28. Tenure and Duties of Officers. . . . . . . . . . . . . . .12
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . .12
(b) Duties of Chairman of the Board of Directors . . . . . . .12
(c) Duties of President. . . . . . . . . . . . . . . . . . . .13
(d) Duties of Vice Presidents. . . . . . . . . . . . . . . . .13
(e) Duties of Secretary. . . . . . . . . . . . . . . . . . . .13
(f) Duties of Chief Financial Officer. . . . . . . . . . . . .13
Section 29. Delegation of Authority. . . . . . . . . . . . . . . . . .14
Section 30. Resignations . . . . . . . . . . . . . . . . . . . . . . .14
Section 31. Removal. . . . . . . . . . . . . . . . . . . . . . . . . .14
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION. . . . . . . . . . . . . . . . . . . .14
Section 32. Execution of Corporate Instruments . . . . . . . . . . . .14
Section 33. Voting of Securities Owned by the Corporation. . . . . . .14
ARTICLE VII SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . .15
Section 34. Form and Execution of Certificates . . . . . . . . . . . .15
Section 35. Lost Certificates. . . . . . . . . . . . . . . . . . . . .15
Section 36. Transfers. . . . . . . . . . . . . . . . . . . . . . . . .15
ii.
<PAGE>
Section 37. Fixing Record Dates. . . . . . . . . . . . . . . . . . . .16
Section 38. Registered Stockholders. . . . . . . . . . . . . . . . . .17
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . . . .17
Section 39. Execution of Other Securities. . . . . . . . . . . . . . .17
ARTICLE IX DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Section 40. Declaration of Dividends . . . . . . . . . . . . . . . . .17
Section 41. Dividend Reserve . . . . . . . . . . . . . . . . . . . . .18
ARTICLE X FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . .18
Section 42. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . .18
ARTICLE XI INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . .18
Section 43. Indemnification of Directors, Executive Officers, Other
Officers, Employees and ther Agents. . . . . . . . . . . .18
(a) Directors and Executive Officers . . . . . . . . . . . . .18
(b) Other Officers, Employees and Other Agents . . . . . . . .18
(c) Expenses . . . . . . . . . . . . . . . . . . . . . . . . .18
(d) Enforcement. . . . . . . . . . . . . . . . . . . . . . . .19
(e) Non-Exclusivity of Rights. . . . . . . . . . . . . . . . .20
(f) Survival of Rights . . . . . . . . . . . . . . . . . . . .20
(g) Insurance. . . . . . . . . . . . . . . . . . . . . . . . .20
(h) Amendments . . . . . . . . . . . . . . . . . . . . . . . .20
(i) Saving Clause. . . . . . . . . . . . . . . . . . . . . . .20
(j) Certain Definitions. . . . . . . . . . . . . . . . . . . .20
ARTICLE XII NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Section 44. Notices. . . . . . . . . . . . . . . . . . . . . . . . . .21
(a) Notice to Stockholders . . . . . . . . . . . . . . . . . .21
(b) Notice to Directors. . . . . . . . . . . . . . . . . . . .21
(c) Affidavit of Mailing . . . . . . . . . . . . . . . . . . .21
(d) Time Notices Deemed Given. . . . . . . . . . . . . . . . .22
(e) Methods of Notice. . . . . . . . . . . . . . . . . . . . .22
(f) Failure to Receive Notice. . . . . . . . . . . . . . . . .22
iii.
<PAGE>
(g) Notice to Person with Whom Communication Is Unlawful . . .22
(h) Notice to Person with Undeliverable Address. . . . . . . .22
ARTICLE XIII AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . .23
Section 45. Amendments . . . . . . . . . . . . . . . . . . . . . . . .23
ARTICLE XIV LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . . .23
Section 46. Loans to Officers. . . . . . . . . . . . . . . . . . . . .23
ARTICLE XV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . .23
Section 47. Annual Report. . . . . . . . . . . . . . . . . . . . . . .23
iv.
<PAGE>
BYLAWS
OF
CYPROS ACQUISITION CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
Offices
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware, as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
ARTICLE III
Stockholders' Meetings
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the principal office of the corporation required
to be maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors. Nominations of persons
for election to the Board of Directors of the corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by
any stockholder of the corporation who was a stockholder of record at the time
of giving of notice provided for in the following paragraph,
1.
<PAGE>
who is entitled to vote at the meeting and who complied with the notice
procedures set forth in Section 5.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of Section 5(a) of
these Bylaws, (i) the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation, (ii) such other business must be
a proper matter for stockholder action under the General Corporation Law of
Delaware, (iii) if the stockholder, or the beneficial owner on whose behalf
any such proposal or nomination is made, has provided the corporation with a
Solicitation Notice (as defined in this Section 5(b)), such stockholder or
beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a
proxy statement and form of proxy to holders of a percentage of the
corporation's voting shares reasonably believed by such stockholder or
beneficial owner to be sufficient to elect the nominee or nominees proposed
to be nominated by such stockholder, and must, in either case, have included
in such materials the Solicitation Notice, and (iv) if no Solicitation Notice
relating thereto has been timely provided pursuant to this section, the
stockholder or beneficial owner proposing such business or nomination must
not have solicited a number of proxies sufficient to have required the
delivery of such a Solicitation Notice under this Section 5. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on
the ninetieth (90th) day nor earlier than the close of business on the one
hundred twentieth (120th) day prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of
the annual meeting is advanced more than thirty (30) days prior to or delayed
by more than thirty (30) days after the anniversary of the preceding year's
annual meeting, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the one hundred twentieth (120th)
day prior to such annual meeting and not later than the close of business on
the later of the ninetieth (90th) day prior to such annual meeting or the
tenth (10th) day following the day on which public announcement of the date
of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving
of a stockholder's notice as described above. Such stockholder's notice
shall set forth: (A) as to each person whom the stockholder proposed to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "1934 Act") and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (B) as to any other business that
the stockholder proposes to bring before the meeting, a brief description of
the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (C) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal
is made (i) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner, (ii) the class and number
of shares of the corporation which are owned beneficially and of record by
such stockholder and such beneficial owner, and (iii)
2.
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whether either such stockholder or beneficial owner intends to deliver a
proxy statement and form of proxy to holders of, in the case of the proposal,
at least the percentage of the corporation's voting shares required under
applicable law to carry the proposal or, in the case of a nomination or
nominations, a sufficient number of holders of the corporation's voting
shares to elect such nominee or nominees (an affirmative statement of such
intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of
Section 5(b) of these Bylaws to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
corporation at least one hundred (100) days prior to the first anniversary of
the preceding year's annual meeting, a stockholder's notice required by this
Section 5 shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the corporation not later than
the close of business on the tenth (10th) day following the day on which such
public announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5,
in order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption)
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or (iv) by the holders of shares entitled to cast not less than twenty
percent (20%) of the votes at the meeting, and shall be held at such place,
on such date, and at such time as the Board of Directors shall fix. At any
time or times that the corporation is subject to Section 2115(b) of the
California General Corporation Law ("CGCL"), stockholders holding five
percent (5%) or more of the outstanding shares shall have the right to call a
special meeting of stockholders as set forth in Section 18(c) herein.
(b) If a special meeting is properly called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business
may be transacted at such special meeting otherwise than specified in such
notice. The Board of Directors shall determine the time and place of such
special meeting, which shall be held not less than thirty-five (35) nor more
than one hundred twenty (120) days after the date of the receipt of the
request. Upon determination of the time and place of the meeting, the
officer receiving the request shall cause notice to be given to the
stockholders entitled to vote, in accordance with the provisions of Section 7
of these Bylaws. If the notice is not given within sixty (60) days after the
receipt of the request, the person or persons properly requesting the meeting
may set the time and place of the meeting and give the notice. Nothing
contained in this paragraph (b) shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the
Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law
or the Certificate of Incorporation, written notice of each meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at
such meeting, such notice to specify the place, date and hour and purpose or
purposes of the meeting. Notice of the time, place and purpose of any
meeting of stockholders may be waived in writing, signed by the person
entitled to notice thereof, either before or after such meeting, and will be
waived by any stockholder by his attendance thereat in person or by proxy,
except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Any
stockholder so waiving notice of such meeting shall be bound by the
proceedings of any such meeting in all respects as if due notice thereof had
been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote
shall constitute a quorum for the transaction of business. In the absence of
a quorum, any meeting of stockholders may be adjourned, from time to time,
either by the chairman of the meeting or by vote of the holders of a majority
of the shares represented thereat, but no other business shall be transacted
at such meeting. The stockholders present at a duly called or convened
meeting, at which a quorum is present, may continue to transact business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, in all matters other than the
election of directors, the affirmative vote of a majority of shares
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present in person or represented by proxy duly authorized at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy duly authorized at the
meeting and entitled to vote on the election of directors. Where a separate
vote by a class or classes or series is required, except where otherwise
provided by the statute or by the Certificate of Incorporation or these
Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy duly authorized, shall
constitute a quorum entitled to take action with respect to that vote on that
matter. Except where otherwise provided by statute or by the Certificate of
Incorporation or these Bylaws, the affirmative vote of the majority
(plurality, in the case of the election of directors) of the outsanding
shares of such class or classes or series present in person or represented by
proxy duly authorized at the meeting shall be the act of such class or
classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any
meeting of stockholders, whether annual or special, may be adjourned from
time to time either by the chairman of the meeting or by the vote of a
majority of the shares casting votes. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the corporation may transact any business
which might have been transacted at the original meeting. If the adjournment
is for more than thirty (30) days or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the
stock records of the corporation on the record date, as provided in Section
12 of these Bylaws, shall be entitled to vote at any meeting of stockholders.
Every person entitled to vote or execute consents shall have the right to do
so either in person or by an agent or agents authorized by a proxy granted in
accordance with Delaware law. An agent so appointed need not be a
stockholder. No proxy shall be voted after three (3) years from its date of
creation unless the proxy provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, tenants by the entirety, or otherwise, or if two (2) or more persons
have the same fiduciary relationship respecting the same shares, unless the
Secretary is given written notice to the contrary and is furnished with a
copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect: (a) if only one (1) votes, his act binds all; (b) if more
than one (1) votes, the act of the majority so voting binds all; (c) if more
than one (1) votes, but the vote is evenly split on any particular matter,
each faction may vote the securities in question proportionally, or may apply
to the Delaware Court of Chancery for relief as provided in the Delaware
General Corporation Law, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a
majority or even-split for the purpose of subsection (c) shall be a majority
or even-split in interest.
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SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and
make, at least ten (10) days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not specified, at the place where the meeting is to be held.
The list shall be produced and kept at the time and place of meeting during
the whole time thereof and may be inspected by any stockholder who is
present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within
sixty (60) days of the earliest dated consent delivered to the corporation in
the manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to
its registered office in the State of Delaware, its principal place of
business or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made
to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the Delaware General Corporation Law if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed
under such section shall state, in lieu of any statement required by such
section concerning any vote of stockholders, that written consent has been
given in accordance with Section 228 of the Delaware General Corporation Law.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent,
the President, or, if the President is absent, a chairman of the meeting
chosen by a majority in interest of the stockholders entitled to vote,
present in person or by proxy, shall act as chairman. The Secretary, or, in
his absence, an Assistant Secretary directed to do so by the President, shall
act as secretary of the meeting.
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(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject
to such rules and regulations of the Board of Directors, if any, the chairman
of the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of
such chairman, are necessary, appropriate or convenient for the proper
conduct of the meeting, including, without limitation, establishing an agenda
or order of business for the meeting, rules and procedures for maintaining
order at the meeting and the safety of those present, limitations on
participation in such meeting to stockholders of record of the corporation
and their duly authorized and constituted proxies and such other persons as
the chairman shall permit, restrictions on entry to the meeting after the
time fixed for the commencement thereof, limitations on the time allotted to
questions or comments by participants and regulation of the opening and
closing of the polls for balloting on matters which are to be voted on by
ballot. Unless and to the extent determined by the Board of Directors or the
chairman of the meeting, meetings of stockholders shall not be required to be
held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed by the Board of Directors from
time to time. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient.
SECTION 16. POWERS. The powers of the corporation shall be
exercised, its business conducted and its property controlled by the Board of
Directors, except as may be otherwise provided by statute or by the
Certificate of Incorporation.
SECTION 17. TERM OF DIRECTORS.
(a) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
directors shall be elected at each annual meeting of stockholders for a term
of one year. Each director shall serve until his successor is duly elected
and qualified or until his death, resignation or removal. No decrease in the
number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
(b) No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the CGCL. During
such time or times that the corporation is subject to Section 2115(b) of the
CGCL, every stockholder entitled to vote at an election for directors may
cumulate such stockholder's votes and give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of
votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit. No stockholder, however, shall be
entitled to so cumulate such stockholder's votes unless (a) the names of such
candidate or candidates have
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been placed in nomination prior to the voting and (b) the stockholder has
given notice at the meeting, prior to the voting, of such stockholder's
intention to cumulate such stockholder's votes. If any stockholder has given
proper notice to cumulate votes, all stockholders may cumulate their votes
for any candidates who have been properly placed in nomination. Under
cumulative voting, the candidates receiving the highest number of votes, up
to the number of directors to be elected, are elected.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such
vacancies or newly created directorships shall be filled by stockholders, be
filled only by the affirmative vote of a majority of the directors then in
office, even though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the director for which the vacancy was
created or occurred and until such director's successor shall have been
elected and qualified. A vacancy in the Board of Directors shall be deemed
to exist under this Bylaw in the case of the death, removal or resignation of
any director.
(b) If at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than
a majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for
such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen
by the directors then in offices as aforesaid, which election shall be
governed by Section 211 of the Delaware General Corporation Law.
(c) At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy, the
directors then in office who have been elected by stockholders shall
constitute less than a majority of the directors then in office, then
(i) any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for those directors may call a special meeting of
stockholders; or
(ii) the Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of the stockholders, to be held to elect the entire board, all in
accordance with Section 305(c) of the CGCL, the term of office of any
director shall terminate upon that election of a successor. (CGCL Section
305(c).
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to
specify whether it will be effective at a particular time, upon receipt by
the Secretary or at the pleasure of the Board of Directors. If no such
specification is made, it shall be deemed effective at the pleasure of the
Board of Directors. When one or more directors shall resign from the Board
of Directors, effective at a future date, a
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majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until
his successor shall have been duly elected and qualified.
SECTION 20. REMOVAL.
(a) Subject to any limitations imposed by applicable law (and
assuming the corporation is not subject to Section 2115 of the CGCL), the
Board of Directors or any director may be removed from office at any time (i)
with cause by the affirmative vote of the holders of a majority of the voting
power of all then-outstanding shares of voting stock of the corporation
entitled to vote at an election of directors or (ii) without cause by the
affirmative vote of the holders of a majority of the voting power of all
then-outstanding shares of voting stock of the corporation, entitled to vote
at an election of directors.
(b) During such time or times that the corporation is subject
to Section 2115(b) of the CGCL, the Board of Directors or any individual
director may be removed from office at any time without cause by the
affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote on such removal; provided, however, that unless the
entire Board is removed, no individual director may be removed when the votes
cast against such director's removal, or not consenting in writing to such
removal, would be sufficient to elect that director if voted cumulatively at
an election which the same total number of votes were cast (or, if such
action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.
SECTION 21. MEETINGS
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may
be held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for a regular meeting
of the Board of Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may
be held at any time and place within or without the State of Delaware
whenever called by the Chairman of the Board, the President or any two of the
directors.
(d) TELEPHONE MEETINGS. Any member of the Board of
Directors, or of any committee thereof, may participate in a meeting by means
of conference telephone or similar
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communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex,
or by electronic mail or other electronic means, during normal business
hours, at least twenty-four (24) hours before the date and time of the
meeting, or sent in writing to each director by first class mail, postage
prepaid, at least three (3) days before the date of the meeting. Notice of
any meeting may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called
or noticed, or wherever held, shall be as valid as though had at a meeting
duly held after regular call and notice, if a quorum be present and if,
either before or after the meeting, each of the directors not present shall
sign a written waiver of notice. All such waivers shall be filed with the
corporate records or made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a
greater number and except with respect to indemnification questions arising
under Section 43 hereof, for which a quorum shall be one-third of the exact
number of directors fixed from time to time, a quorum of the Board of
Directors shall consist of a majority of the exact number of directors fixed
from time to time by the Board of Directors in accordance with the
Certificate of Incorporation; PROVIDED, HOWEVER, at any meeting, whether a
quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting
of the Board of Directors, without notice other than by announcement at the
meeting.
(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different
vote be required by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing,
and such writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to
such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of
Directors, a fixed sum and expenses of attendance, if
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any, for attendance at each regular or special meeting of the Board of
Directors and at any meeting of a committee of the Board of Directors.
Nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity as an officer, agent, employee,
or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint
an Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and
provided in the resolution of the Board of Directors shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to (i)
approving or adopting, or recommending to the stockholders, any action or
matter expressly required by the Delaware General Corporation Law to be
submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time
to time, appoint such other committees as may be permitted by law. Such
other committees appointed by the Board of Directors shall consist of one (1)
or more members of the Board of Directors and shall have such powers and
perform such duties as may be prescribed by the resolution or resolutions
creating such committees, but in no event shall any such committee have the
powers denied to the Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of
Directors shall serve a term on the committee coexistent with such member's
term on the Board of Directors. The Board of Directors, subject to any
requirements of any outstanding series of Preferred Stock, the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee.
The membership of a committee member shall terminate on the date of his death
or voluntary resignation from the committee or from the Board of Directors.
The Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members
of the committee. The Board of Directors may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place
of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places
as are determined by the Board of Directors, or by any such committee, and
when notice thereof has been given to each member of such committee, no
further notice of such regular meetings need be given thereafter. Special
meetings
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of any such committee may be held at any place which has been determined from
time to time by such committee, and may be called by any director who is a
member of such committee, upon written notice to the members of such
committee of the time and place of such special meeting given in the manner
provided for the giving of written notice to members of the Board of
Directors of the time and place of special meetings of the Board of
Directors. Notice of any special meeting of any committee may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends such special
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. A majority of the authorized number of members
of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed
or is absent, the President, or if the President is absent, the most senior
Vice President, (if a director) or, in the absence of any such person, a
chairman of the meeting chosen by a majority of the directors present, shall
preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation
shall include, if and when designated by the Board of Directors, the Chairman
of the Board of Directors, the Chief Executive Officer, the President, one or
more Vice Presidents, the Secretary, the Chief Financial Officer, the
Treasurer and the Controller, all of whom shall be elected at the annual
organizational meeting of the Board of Directors. The Board of Directors may
also appoint one or more Assistant Secretaries, Assistant Treasurers,
Assistant Controllers and such other officers and agents with such powers and
duties as it shall deem necessary. The Board of Directors may assign such
additional titles to one or more of the officers as it shall deem
appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law.
The salaries and other compensation of the officers of the corporation shall
be fixed by or in the manner designated by the Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure
of the Board of Directors and until their successors shall have been duly
elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board
of Directors. If the office of any officer becomes vacant for any reason,
the vacancy may be filled by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The
Chairman of the Board of Directors, when present, shall preside at all
meetings of the stockholders and the Board of Directors. The Chairman of the
Board of Directors shall perform other duties commonly
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incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors shall designate from time to time. If
there is no President, then the Chairman of the Board of Directors shall also
serve as the Chief Executive Officer of the corporation and shall have the
powers and duties prescribed in paragraph (c) of this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is
present. Unless some other officer has been elected Chief Executive Officer
of the corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of
the corporation. The President shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may
assume and perform the duties of the President in the absence or disability
of the President or whenever the office of President is vacant. The Vice
Presidents shall perform other duties commonly incident to their office and
shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record
all acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings
of the stockholders and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other
duties given him in these Bylaws and other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time. The President may
direct any Assistant Secretary to assume and perform the duties of the
Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the
corporation in a thorough and proper manner and shall render statements of
the financial affairs of the corporation in such form and as often as
required by the Board of Directors or the President. The Chief Financial
Officer, subject to the order of the Board of Directors, shall have the
custody of all funds and securities of the corporation. The Chief Financial
Officer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time. The President
may direct the Treasurer or any Assistant Treasurer, or the Controller or any
Assistant Controller to assume and perform the duties of the Chief Financial
Officer in the absence or disability of the Chief Financial Officer, and each
Treasurer and Assistant Treasurer and each Controller and Assistant
Controller shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time.
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SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other
officer or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the
person or persons to whom such notice is given, unless a later time is
specified therein, in which event the resignation shall become effective at
such later time. Unless otherwise specified in such notice, the acceptance
of any such resignation shall not be necessary to make it effective. Any
resignation shall be without prejudice to the rights, if any, of the
corporation under any contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of
the directors in office at the time, or by the unanimous written consent of
the directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of
Directors may, in its discretion, determine the method and designate the
signatory officer or officers, or other person or persons, to execute on
behalf of the corporation any corporate instrument or document, or to sign on
behalf of the corporation the corporate name without limitation, or to enter
into contracts on behalf of the corporation, except where otherwise provided
by law or these Bylaws, and such execution or signature shall be binding upon
the corporation.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall
be signed by such person or persons as the Board of Directors shall authorize
so to do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any
amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation
for itself, or for other parties in any capacity, shall be voted, and all
proxies with respect thereto shall be executed, by the person authorized so
to do by resolution of the Board of Directors, or, in the absence of such
authorization, by the Chairman of the Board of Directors, the Chief Executive
Officer, the President, or any Vice President.
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ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent
with the Certificate of Incorporation and applicable law. Every holder of
stock in the corporation shall be entitled to have a certificate signed by or
in the name of the corporation by the Chairman of the Board of Directors, or
the President or any Vice President and by the Treasurer or Assistant
Treasurer or the Secretary or Assistant Secretary, certifying the number of
shares owned by him in the corporation. Any or all of the signatures on the
certificate may be facsimiles. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued with the same
effect as if he were such officer, transfer agent, or registrar at the date
of issue. Each certificate shall state upon the face or back thereof, in
full or in summary, all of the powers, designations, preferences, and rights,
and the limitations or restrictions of the shares authorized to be issued or
shall, except as otherwise required by law, set forth on the face or back a
statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights. Within a reasonable time after the
issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section
or otherwise required by law or with respect to this section a statement that
the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or oter special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same
class and series shall be identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates
shall be issued in place of any certificate or certificates theretofore
issued by the corporation alleged to have been lost, stolen, or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost, stolen, or destroyed. The corporation may
require, as a condition precedent to the issuance of a new certificate or
certificates, the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to agree to indemnify the
corporation in such manner as it shall require or to give the corporation a
surety bond in such form and amount as it may direct as indemnity against any
claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
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(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the Delaware General Corporation Law.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the Board of Directors may fix, in advance, a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall, subject to applicable law, not be more than sixty
(60) nor less than ten (10) days before the date of such meeting. If no
record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for
the adjourned meeting.
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which date shall not be more than
ten (10) days after the date upon which the resolution fixing the record date
is adopted by the Board of Directors. Any stockholder of record seeking to
have the stockholders authorize or take corporate action by written consent
shall, by written notice to the Secretary, request the Board of Directors to
fix a record date. The Board of Directors shall promptly, but in all events
within ten (10) days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has been fixed
by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is required by applicable law, shall be the
first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business
or an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed
by the Board of Directors and prior action by the Board of Directors is
required by law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a
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record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is
fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and
shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person whether or not it
shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may
be authorized by the Board of Directors, and the corporate seal impressed
thereon or a facsimile of such seal imprinted thereon and attested by the
signature of the Secretary or an Assistant Secretary, or the Chief Financial
Officer or Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where
any such bond, debenture or other corporate security shall be authenticated
by the manual signature, or where permissible facsimile signature, of a
trustee under an indenture pursuant to which such bond, debenture or other
corporate security shall be issued, the signatures of the persons signing and
attesting the corporate seal on such bond, debenture or other corporate
security may be the imprinted facsimile of the signatures of such persons.
Interest coupons appertaining to any such bond, debenture or other corporate
security, authenticated by a trustee as aforesaid, shall be signed by the
Treasurer or an Assistant Treasurer of the corporation or such other person
as may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who shall have
signed or attested any bond, debenture or other corporate security, or whose
facsimile signature shall appear thereon or on any such interest coupon,
shall have ceased to be such officer before the bond, debenture or other
corporate security so signed or attested shall have been delivered, such
bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased
to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital
stock of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting.
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Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the Certificate of Incorporation and
applicable law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there
may be set aside out of any funds of the corporation available for dividends
such sum or sums as the Board of Directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or for such other purpose as the Board of
Directors shall think conducive to the interests of the corporation, and the
Board of Directors may modify or abolish any such reserve in the manner in
which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this
Article XI, "executive officers" shall have the meaning defined in Rule 3b-7
promulgated under the 1934 Act) to the fullest extent not prohibited by the
Delaware General Corporation Law or any other applicable law; PROVIDED,
HOWEVER, that the corporation may modify the extent of such indemnification
by individual contracts with its directors and executive officers; and,
PROVIDED, FURTHER, that the corporation shall not be required to indemnify
any director or executive officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the corporation, (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to the powers
vested in the corporation under the Delaware General Corporation Law or any
other applicable law or (iv) such indemnification is required to be made
under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law or any
other applicable law. The Board of Directors shall have the power to delegate
the determination of whether indemnification shall be given to any such
person to such officers or other persons as the Board of Directors shall
determine.
(c) EXPENSES. The corporation shall advance to any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he
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is or was a director or executive officer, of the corporation, or is or was
serving at the request of the corporation as a director or executive officer
of another corporation, partnership, joint venture, trust or other
enterprise, prior to the final disposition of the proceeding, promptly
following request therefor, all expenses incurred by any director or
executive officer in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it should
be determined ultimately that such person is not entitled to be indemnified
under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to
an officer of the corporation (except by reason of the fact that such officer
is or was a director of the corporation, in which event this paragraph shall
not apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if
such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, that the facts known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in
or not opposed to the best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights
and be effective to the same extent and as if provided for in a contract
between the corporation and the director or executive officer. Any right to
indemnification or advances granted by this Bylaw to a director or executive
officer shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (i) the claim for indemnification
or advances is denied, in whole or in part, or (ii) no disposition of such
claim is made within ninety (90) days of request therefor. The claimant in
such enforcement action, if successful in whole or in part, shall be entitled
to be paid also the expense of prosecuting his claim. In connection with any
claim for indemnification, the corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law
or any other applicable law for the corporation to indemnify the claimant for
the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear
and convincing evidence that such person acted in bad faith or in a manner
that such person did not believe to be in or not opposed to the best
interests of the corporation, or with respect to any criminal action or
proceeding that such person acted without reasonable cause to believe that
his conduct was lawful. Neither the failure of the corporation (including
its Board of Directors, independent legal counsel or its stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he has
met the applicable standard of conduct set forth in the Delaware General
Corporation Law or any other applicable law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel
or its stockholders) that the claimant has not
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met such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant has not met the applicable standard of
conduct. In any suit brought by a director or executive officer to enforce a
right to indemnification or to an advancement of expenses hereunder, the
burden of proving that the director or executive officer is not entitled to
be indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such
person may have or hereafter acquire under any applicable statute, provision
of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts
with any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law or any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person
by this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the
Delaware General Corporation Law, or any other applicable law, the
corporation, upon approval by the Board of Directors, may purchase insurance
on behalf of any person required or permitted to be indemnified pursuant to
this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer
to the full extent not prohibited by any applicable portion of this Bylaw
that shall not have been invalidated, or by any other applicable law. If
this Section 43 shall be invalid due to the application of the
indemnification provisions of another jurisdiction, then the corporation
shall indemnify each director and executive officer to the full extent under
applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the giving
of testimony in, any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
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(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Bylaw with respect to
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references
to "serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties
on, or involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be
in the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions
of these Bylaws, notice is required to be given to any stockholder, it shall
be given in writing, timely and duly deposited in the United States mail,
postage prepaid, and addressed to his last known post office address as shown
by the stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to
any director may be given by the method stated in subsection (a), or by
overnight delivery service, facsimile, telex or telegram, except that such
notice other than one which is delivered personally shall be sent to such
address as such director shall have filed in writing with the Secretary, or,
in the absence of such filing, to the last known post office address of such
director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed
by a duly authorized and competent employee of the corporation or its
transfer agent appointed with respect to the class of stock affected,
specifying the name and address or the names and addresses of the stockholder
or stockholders, or director or directors, to whom any such notice or
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notices was or were given, and the time and method of giving the same, shall
in the absence of fraud, be prima facie evidence of the facts therein
contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or
by overnight delivery service, as above provided, shall be deemed to have
been given as at the time of mailing, and all notices given by facsimile,
telex or telegram shall be deemed to have been given as of the sending time
recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the
same method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any
other permissible method or methods may be employed in respect of any other
or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy
any privilege or benefit, or be required to act, or within which any director
may exercise any power or right, or enjoy any privilege, pursuant to any
notice sent him in the manner above provided, shall not be affected or
extended in any manner by the failure of such stockholder or such director to
receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person
shall not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such
person. Any action or meeting which shall be taken or held without notice to
any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given. In the event that the
action taken by the corporation is such as to require the filing of a
certificate under any provision of the Delaware General Corporation Law, the
certificate shall state, if such is the fact and if notice is required, that
notice was given to all persons entitled to receive notice except such
persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate
of Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person
during the period between such two consecutive annual meetings, or (ii) all,
and at least two, payments (if sent by first class mail) of dividends or
interest on securities during a twelve-month period, have been mailed
addressed to such person at his address as shown on the records of the
corporation and have been returned undeliverable, the giving of such notice
to such person shall not be required. Any action or meeting which shall be
taken or held without notice to such person shall have the same force and
effect as if such notice had been duly given. If any such person shall
deliver to the corporation a written notice setting forth his then current
address, the requirement that notice be given to such person shall be
reinstated. In the event that the action taken by the corporation is such as
to require the filing of a certificate under any provision of the Delaware
General Corporation Law, the certificate need not state that notice was not
given to persons to whom notice was not required to be given pursuant to this
paragraph.
22.
<PAGE>
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, these Bylaws may be amended or repealed and new Bylaws adopted by the
stockholders entitled to vote. The Board of Directors shall also have the
power, if such power is conferred upon the Board of Directors by the Certificate
of Incorporation, to adopt, amend, or repeal Bylaws (including, without
limitation, the amendment of any Bylaw setting forth the number of Directors who
shall constitute the whole Board of Directors).
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in these Bylaws shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
ARTICLE XV
MISCELLANEOUS
SECTION 47. ANNUAL REPORT.
(a) Subject to the provisions of paragraph (b) of this Bylaw,
the Board of Directors shall cause an annual report to be sent to each
stockholder of the corporation not later than one hundred twenty (120) days
after the close of the corporation's fiscal year. Such report shall include a
balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year, accompanied by
any report thereon of independent accounts or, if there is no such report, the
certificate of an authorized officer of the corporation that such statements
were prepared without audit from the books and records of the corporation. When
there are more than 100 stockholders of record of the corporation's shares, as
determined by Section 605 of the CGCL, additional information as required by
Section 1501(b) of the CGCL shall also be contained in such report, provided
that if the corporation has a class of securities registered under Section 12 of
the 1934 Act, that Act shall take precedence. Such report shall be sent to
stockholders at least fifteen (15) days prior to the next annual meeting of
stockholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of record
of the corporation's shares, the requirement of sending of an annual report to
the stockholders of the corporation is hereby expressly waived.
23.
<PAGE>
Exhibit 4.2
Number __ ________ Shares
CYPROS PHARMACEUTICAL CORPORATION
(A California Corporation)
SERIES A PREFERRED STOCK
THIS CERTIFIES THAT _________________________ is the registered holder of
_________________ Shares of the Series A Preferred Stock of CYPROS
PHARMACEUTICAL CORPORATION (hereinafter, the "Corporation"), transferable only
on the books of the Corporation by the holder hereof, in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed or
assigned.
This Certificate and shares represented thereby shall be held subject to all the
provisions of the Articles of Incorporation and the Bylaws of the Corporation, a
copy of each of which is on file at the office of the Corporation, and made a
part thereof as fully as though the provisions of said Certificate of
Incorporation and Bylaws were imprinted in full on this certificate, to all of
which the holder of this certificate, by acceptance hereof, assents and agrees
to be bound. Any stockholder may obtain from the principal office of the
Corporation, upon request and without charge, a statement of the number of the
shares constituting each class or series of stock and the designation thereof;
and a copy of the rights, preferences, privileges, and restrictions granted to
or imposed upon the respective classes or series of stock and upon the holders
thereof by said Certificate of Incorporation and the Bylaws.
The shares of the Series A Preferred Stock are convertible at the times and on
the terms set forth in the Articles of Incorporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by
its duly authorized officers this ___ day of ____________, 1999.
President Secretary
<PAGE>
FOR VALUE RECEIVED ____________________ I DO HEREBY SELL, ASSIGN, AND TRANSFER
UNTO ________________ SHARES REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT _________________, AS ATTORNEY TO TRANSFER
THE SAID SHARES REGISTER OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF
SUBSTITUTION IN THE PREMISES.
DATED ___________, 19__
IN PRESENCE OF
----------------------------------------------------------------
(Witness) (Stockholder)
(Stockholder)
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
THE SHARES OF PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR UNLESS SUCH SALE OR TRANSFER COMPLIES WITH THE
PROVISIONS OF RULE 144 UNDER THE ACT IN THE OPINION OF COUNSEL TO THE COMPANY OR
THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING
THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE ACT.
<PAGE>
Exhibit 5.1
[LETTERHEAD]
September 23, 1999
Cypros Pharmaceutical Corporation
2714 Loker Avenue West
Carlsbad, CA 92008
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Cypros Pharmaceutical Corporation (the "Company") of a
Registration Statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") to register up to
10,783,770 shares of the Company's Common Stock and up to 2,134,534 shares of
the Company's Preferred Stock (together, the "Shares").
In connection with this opinion, we have examined and relied upon the
Registration Statement and related Prospectus/Joint Proxy Statement, the
Agreement and Plan of Reorganization dated August 4, 1999 (the "Merger
Agreement"), the Company's Restated Articles of Incorporation, as amended, the
Company's Restated Bylaws, as amended, the form of Amended and Restated Articles
of Incorporation (the "Amended Articles") that has been approved by the Board of
Directors and will be voted upon by the Company's shareholders at the special
meeting to approve the merger as contemplated in the Merger Agreement, and the
originals or copies, certified to our satisfaction, of such records, documents,
certificates, memoranda and other instruments as we deem necessary as a basis
for this opinion. We have assumed the genuineness and authenticity of all
documents submitted to us as originals, the conformity to originals of all
documents submitted to us as copies thereof and the due execution and delivery
of all documents where due execution and delivery are a prerequisite to the
effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that, assuming that prior to the issuance of the Shares (i) the shareholders
of the Company approve the Merger Agreement and the transactions contemplated
thereby (including the issuance of the Shares to the stockholders of
RiboGene, Inc. in the transaction) and approve the Amended Articles, and (ii)
the Amended Articles are accepted for filing by the California Secretary of
State, the Shares, when issued in accordance with the Registration Statement
and the Merger Agreement, will be validly issued, fully paid and
nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus/Joint Proxy Statement and to the filing of this opinion as an exhibit
to the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
/s/ M. Wainwright Fishburn
M. Wainwright Fishburn
<PAGE>
Exhibit 8.1
[COOLEY GODWARD LETTERHEAD]
September 23, 1999
Cypros Pharmaceutical Corporation
2714 Loker Avenue West
Carlsbad, California 92008
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Form S-4
Registration Statement (the "Registration Statement") filed pursuant to the
Agreement and Plan of Reorganization dated as of August 4, 1999 (the
"Reorganization Agreement") by and among Cypros Pharmaceutical Corporation, a
California corporation ("Parent"), Cypros Acquisition Corporation, a Delaware
corporation and wholly owned subsidiary of Parent ("Merger Sub"), and
RiboGene, Inc., a Delaware corporation (the "Company").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All
section references, unless otherwise indicated, are to the Internal Revenue
Code of 1986, as amended (the "Code").
We have acted as counsel to Parent and Merger Sub in connection with the
Merger. As such, and for the purpose of rendering this opinion, we have
examined, and are relying upon (without any independent investigation or
review thereof) the truth and accuracy, at all relevant times, of the
statements, covenants, representations and warranties contained in the
following documents (including all exhibits and schedules attached thereto):
(A) the Reorganization Agreement;
(B) the Registration Statement;
(C) those certain tax representation letters dated September 23,
1999 and delivered to us by Parent, Merger Sub and the Company containing
certain representations of Parent, Merger Sub and the Company (the "Tax
Representation Letters"); and
(D) such other instruments and documents related to the
formation, organization and operation of Parent, Merger Sub and the Company
and related to the consummation of the Merger and the other transactions
contemplated by the Reorganization Agreement as we have deemed necessary or
appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
<PAGE>
Cypros Pharmaceutical Corporation
September 23, 1999
Page Two
(A) Original documents submitted to us (including signatures
thereto) are authentic, documents submitted to us as copies conform to the
original documents, and that all such documents have been (or will be by the
Effective Time) duly and validly executed and delivered where due execution
and delivery are a prerequisite to the effectiveness thereof;
(B) All representations, warranties and statements made or
agreed to by Parent, Merger Sub and the Company, their managements,
employees, officers, directors and stockholders in connection with the
Merger, including, but not limited to, those set forth in the Reorganization
Agreement (including the exhibits thereto) and the Tax Representation Letters
are true and accurate at all relevant times;
(C) All covenants contained in the Reorganization Agreement
(including exhibits thereto) and the Tax Representation Letters are performed
without waiver or breach of any material provision thereof;
(D) The Merger will be reported by Parent and the Company on
their respective federal income tax returns in a manner consistent with the
opinion set forth below;
(E) Any representation or statement made "to the best of
knowledge" or similarly qualified is correct without such qualification; and
(F) The opinion dated September 23, 1999 rendered by Latham &
Watkins to the Company pursuant to the Reorganization Agreement has been
delivered and has not been withdrawn.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are
of the opinion that, for federal income tax purposes, the Merger will be a
reorganization within the meaning of Section 368(a) of the Code.
In addition to your request for our opinion on this specific matter of
federal income tax law, you have asked us to review the discussion of federal
income tax issues contained in the Registration Statement. We have reviewed
the discussion entitled "Material Federal Income Tax Consequences" contained
in the Registration Statement and believe that, insofar as it relates to
statements of law and legal conclusions, is correct in all material respects.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as
specifically set forth herein, and this opinion may not be relied upon except
with respect to the consequences specifically discussed herein. No opinion is
expressed as to the federal income tax treatment that
<PAGE>
Cypros Pharmaceutical Corporation
September 23, 1999
Page Three
may be relevant to a particular investor in light of personal circumstances
or to certain types of investors subject to special treatment under the
federal income tax laws (for example, financial institutions, insurance
companies, foreign individuals and entities, tax-exempt entities, dealers in
securities, persons who are subject to the alternative minimum tax provisions
of the Code, persons who acquired their shares of Company capital stock
pursuant to the exercise of an employee option (or otherwise as
compensation), or persons who acquired Company capital stock as part of an
integrated investment, such as a "hedge," "straddle," or other risk reduction
transaction, composed of Company capital stock and one or more other
positions).
No opinion is expressed as to any transaction other than the Merger as
described in the Reorganization Agreement, or as to any transaction
whatsoever, including the Merger, if all of the transactions described in the
Reorganization Agreement are not consummated in accordance with the terms of
the Reorganization Agreement and without waiver of any material provision
thereof. To the extent that any of the representations, warranties,
statements and assumptions material to our opinion and upon which we have
relied are not accurate and complete in all material respects at all relevant
times, our opinion would be adversely affected and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service
or any court of law, tribunal, administrative agency or other governmental
body. The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given
that future legislative, judicial or administrative changes or
interpretations would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, by rendering this opinion, we undertake no
responsibility to advise you of any new developments in the application or
interpretation of the federal income tax laws.
This opinion is being delivered solely in connection with the filing of the
Registration Statement. It is intended for the benefit of Parent, Merger Sub
and the stockholders of Parent and may not be relied upon or utilized for any
other purpose or by any other person and may not be made available to any
other person without our prior written consent.
<PAGE>
Cypros Pharmaceutical Corporation
September 23, 1999
Page Four
We consent to the reference to our firm under the caption "Material Federal
Income Tax Consequences" in the Proxy Statement included in the Registration
Statement and to the reproduction and filing of this opinion as an exhibit to
the Registration Statement.
Sincerely,
COOLEY GODWARD LLP
/s/ SUSAN COOPER PHILPOT
- ------------------------
Susan Cooper Philpot
<PAGE>
Exhibit 8.2
[Latham & Watkins Letterhead]
September 23, 1999
RiboGene, Inc.
26118 Research Road
Hayward, California 94545
Re: Tax Consequences of Merger of RiboGene, Inc. and
Cypros Pharmaceutical Corporation
Gentlemen:
You have requested our opinion with respect to certain federal
income tax consequences of the proposed merger and reorganization (the
"Merger") pursuant to the Agreement and Plan of Reorganization, dated as of
August 4, 1999 (the "Agreement"), among RiboGene, Inc., a Delaware
corporation ("RiboGene"), Cypros Pharmaceutical Corporation, a California
corporation ("Cypros"), and Cypros Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of Cypros ("Sub"). This opinion is
being delivered to you in connection with the Form S-4 Registration
Statement/Proxy Statement/Prospectus (the "Proxy Statement") filed with
respect to the Merger. For purposes of this opinion, all capitalized terms,
unless otherwise specified, have the meanings assigned to them in the
Agreement.
In rendering our opinion, we have examined and relied upon the
accuracy and completeness of the facts, information, statements and
representations contained in the Agreement and in the Proxy Statement. In
connection with this opinion, we have also relied upon statements and
representations made to us via certificates by Cypros, Sub and RiboGene with
respect to certain factual matters (the "Certificates"), which statements and
representations we have neither investigated nor verified. The opinions
expressed herein are conditioned on the initial and continuing accuracy of
the facts, information, statements and representations set forth in the
documents, the Certificates and filings referred to above. We have assumed
that all such facts, information, statements and representations qualified by
the knowledge and belief of Cypros, RiboGene or Sub will be complete and
accurate as of the Effective Time as though not so qualified. In our
examination, we have assumed the genuineness of all signatures, the
conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
documents.
We hereby consent to the use of our name under the caption "Material
Federal Income Tax Consequences" in the Proxy Statement and to the filing of
this opinion with the Securities and Exchange Commission as an exhibit to the
Proxy Statement. In giving such consent, we do not admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
<PAGE>
In rendering our opinion, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury Regulations promulgated thereunder, pertinent judicial authorities
and published rulings and other pronouncements of the Internal Revenue
Service, all as of the date hereof. We express no opinion as to the tax
consequences of the Merger under any laws other than the federal income tax
laws of the United States.
This opinion does not address the tax consequences of any
transaction effected prior to or after the Merger (whether or not such
transactions were effected in connection with the Merger), including, without
limitation, the exercise of Company Options, Company Warrants, or rights to
purchase shares of capital stock of RiboGene in anticipation of the Merger or
the conversion of Company Preferred Stock into Company Common Stock. This
opinion also does not address the United States federal income tax
considerations applicable to shareholders or other persons subject to special
treatment under United States federal income tax law, including, for example,
RiboGene shareholders who acquired their Company Common Stock or Company
Preferred Stock through an exercise of Company Options or Company Warrants or
rights or otherwise as compensation, persons who acquired options, warrants
or rights to purchase Parent Common Stock through an exchange or conversion
of Company Options or Company Warrants, shareholders who are dealers in
securities or insurance companies, shareholders who are foreign persons and
shareholders who hold their stock as part of a hedge, straddle or conversion
transaction.
We have assumed that (i) all parties to the Agreement, and to any
other documents reviewed by us, have acted, and will act, in accordance with
the terms of the Agreement and such other documents, (ii) the Merger will be
consummated at the Effective Time pursuant to the terms and conditions set
forth in the Agreement without the waiver or modification of any such terms
and conditions, and (iii) the Merger is authorized by and will be effected
pursuant to applicable state law. We have also assumed that (i) the opinion
dated September 23, 1999 rendered by Cooley Godward LLP to Cypros pursuant to
the Agreement has been delivered and has not been withdrawn, and (ii) the
Merger will be reported by RiboGene and Cypros on their respective federal
income tax returns in a manner consistent with the opinion set forth below.
Based solely on and subject to (a) the qualifications and
limitations set forth herein, and (b) the qualifications, limitations,
representations and assumptions contained in the portion of the Proxy
Statement captioned "Material Federal Income Tax Consequences" and in the
Certificates, we are of the opinion that (i) for federal income tax purposes,
the Merger will be treated as a reorganization within the meaning of section
368(a) of the Code, and (ii) the statements in the Proxy Statement set forth
under the caption "Material Federal Income Tax Consequences," to the extent
such statements constitute matters of law, summaries of legal
<PAGE>
matters or legal conclusions, are the material United States federal income
tax consequences of the Merger under applicable law.
Except as set forth above, we express no other opinion as to the tax
consequences of the Merger and related transactions to any party under
federal, state, local or foreign laws. Our opinion is not binding on the
Internal Revenue Service or the courts, and there is no assurance that the
Internal Revenue Service will not assert a contrary position. Furthermore, no
assurance can be given that future legislative, judicial or administrative
changes, on either a prospective or retroactive basis, would not adversely
affect the accuracy of the conclusions herein. If all of the transactions
described in the Agreement are not consummated in accordance with the terms
of such Agreement or if all of the representations, warranties, statements
and assumptions upon which we relied are not true and accurate at all
relevant times, our opinion might be adversely affected and may not be relied
upon.
We are furnishing this opinion solely to RiboGene and its
shareholders in connection with the Merger, and this opinion is not to be
relied upon by any other person for any other purpose.
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE>
Exhibit 10.7
AMENDMENT NO. 4 TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 4 TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the
"Agreement") is made and entered into effective as of December 7, 1998 (this
"Amendment") by and between Cypros Pharmaceutical Corporation, a California
corporation (the "Company") and Paul J. Marangos ("Executive"). The Company and
Executive are hereinafter collectively referred to as the "Parties," and
individually referred to as "Party."
For good and valuable consideration, receipt of which is hereby
acknowledged by the Company and Executive, the Parties, intending to be legally
bound, agree that Section 3 and Section 4 of the Agreement is hereby amended and
restated in its entirety as follows:
"3. TERM OF EMPLOYMENT.
3.1. Subject to earlier termination as provided in this Agreement,
Executive shall be employed pursuant to the terms of this Agreement for a term
beginning September 1, 1992 and expiring at midnight on August 31, 2001. After
the expiration of such term, this Agreement shall continue from month to month
in the absence of written notice to the contrary from either Party to the
other."
"4. COMPENSATION OF EXECUTIVE.
4.1. During the term of this Agreement, the Company shall pay Executive
a salary (the "Base Salary") of Two Hundred Forty One Thousand Five Hundred
Dollars ($241,500) per year, payable in regular periodic payments in accordance
with Company policy. Such salary shall be prorated for any partial year of
employment on the basis of a 365-day year."
IN WITNESS WHEREOF, the Parties have executed this Amendment No. 4 as
of the date first above written.
The Company:
Cypros Pharmaceutical Corporation,
a California corporation
By: /s/ David W. Nassif
------------------------------------
David W. Nassif
Senior Vice President and Chief Financial
Officer
Executive:
Paul J. Marangos
------------------------------------
Paul J. Marangos
<PAGE>
Exhibit 10.8
EMPLOYMENT AGREEMENT
between
CYPROS PHARMACEUTICAL CORPORATION,
a California Corporation
and
Brian W. Sullivan, Ph.D.
January 18, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Employment.......................................................................................3
2. Loyal and Conscientious Performance: Noncompetition..............................................4
3. Term of Employment...............................................................................4
4. Compensation of Executive........................................................................4
5. Termination......................................................................................5
6. Death or Disability During Term of Employment....................................................6
7. Confidential Information: Executive's Duties Upon Termination....................................6
8. Assignment and Binding Effect....................................................................9
9. Notices..........................................................................................9
10. Choice of Law....................................................................................10
11. Integration......................................................................................10
12. Amendment........................................................................................10
13. Waiver...........................................................................................10
14. Severability.....................................................................................10
15. Interpretation; Construction.....................................................................10
16. Representations and Warranties...................................................................11
</TABLE>
2
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective as of January 18, 1999 by and between Cypros Pharmaceutical
Corporation, a California corporation (the "Company"), and Brian W. Sullivan,
Ph.D. ("Executive"). The Company and Executive are hereinafter collectively
referred to as the "Parties", and individually referred to as "Party".
RECITALS:
A. The Company desires to retain Executive as an executive with the
Company.
B. The Executive desires to be employed by the Company pursuant to an
employment agreement with the Company and the Compensation Committee of the
Board of Directors of the Company has determined that it is in the best
interests of the Company to award such an agreement to Executive.
AGREEMENT:
In consideration of the foregoing premises and the mutual covenants
herein contained, and for other good and valuable consideration, the Parties,
intending to be legally bound, agree as follows:
1. EMPLOYMENT.
1. 1. The Company hereby employs Executive, and Executive hereby
accepts employment by the Company, upon the terms and conditions set forth in
this Agreement.
1.2. Executive shall be the Vice President of Product Development of
the Company and shall serve in such other capacity or capacities as the
President and/or the Board of Directors of the Company may from time to time
prescribe.
1.3. Executive shall do and perform all services, acts or things
necessary or advisable to manage and conduct the business of the Company,
provided, however, that at all times during his employment Executive shall be
subject to the direction and policies from time to time established by the Board
of Directors of the Company.
1.4. Unless the Parties otherwise agree in writing, during the term of
this Agreement, Executive shall perform the services he is required to perform
pursuant to this Agreement at the Company's offices, located at 2714 Loker
Avenue West, Carlsbad, Califomia, 92008, or at any other place at which the
Company maintains an office; provided, however, that the Company may from time
to time require Executive to travel temporarily to other locations in connection
with the Company's business.
3
<PAGE>
2. LOYAL AND CONSCIENTIOUS PERFORMANCE: NONCOMPETITION.
2.1. During his employment by the Company, Executive shall devote his
full energies, interest, abilities and productive time to the proper and
efficient performance of his duties under this Agreement.
2.2. During the term of this Agreement, Executive shall not engage in
competition with the Company, either directly or indirectly, in any manner or
capacity, as adviser, principal, agent, partner, officer, director, employee,
member of any association or otherwise, in any phase of the business of
developing, manufacturing and marketing medical products which are in the same
field of use or which otherwise compete with the products or proposed products
of the Company. Ownership by Executive, as a passive investment, of less than
one percent (1%) of the outstanding shares of capital stock of any corporation
with one or more classes of its capital stock listed on a national securities
exchange or publicly traded in the over-the-counter market shall not constitute
a breach of this paragraph.
3. TERM OF EMPLOYMENT.
3.1. Subject to earlier termination as provided in this Agreement, Executive
shall be employed pursuant to the terms of this Agreement for a term beginning
January 18, 1999 and expiring at midnight on January 17, 2002. After the
expiration of such term, this Agreement shall continue from month to month in
the absence of written notice to the contrary from either Party to the other.
4. COMPENSATION OF EXECUTIVE
4.1. During the term of this Agreement, the Company shall pay Executive
a salary (the "Base Salary") of One Hundred Twenty Thousand Dollars ($120,000)
per year, payable in regular periodic payments in accordance with Company
policy. Such salary shall be prorated for any partial year of employment on the
basis of a 365-day fiscal year.
4.2. Executive's compensation may be changed from time to time by
mutual agreement of Executive and the Board of Directors of the Company.
4.3. Executive's performance shall be reviewed by the Board of
Directors of the Company on a periodic basis (but not less than once in each
fiscal year during the term of this Agreement) and the Board may in its sole
discretion, award such bonuses to Executive as shall be appropriate or desirable
based on Executive's performance.
4.4. All of Executive's compensation shall be subject to customary
withholding taxes and any other employment taxes as are commonly required to be
collected or withheld by the Company.
4
<PAGE>
4.5. The Company may also from time to time grant stock options to the
Executive. Such option shall be subject to a stock option agreement in the form
approved by the Board of Directors. Any such option shall be subject to a
vesting schedule as described in the employee stock option agreement.
4.6. Executive shall be eligible to participate in and be covered by
any vacation, pension and profit sharing, life insurance, accident insurance,
health insurance, hospitalization, disability, medical reimbursement or other
plan(s) maintained from time to time by the Company for its employees.
5. TERMINATION.
5.1. The Company may terminate Executive's employment under this
Agreement "for cause" by delivery of written notice to Executive specifying the
cause or causes relied upon for such termination. Grounds for the Company to
terminate this Agreement "for cause" shall be limited to the occurrence of any
of the following events:
5.1.1. Executive's engaging or in any manner participating in
any activity which is competitive with or intentionally injurious to the Company
or which violates any provision of Section 7 of this Agreement;
5.1.2. Executive's commission of any fraud against the Company
or use or appropriation for his personal use or benefit of any funds or
properties of the Company not authorized by the Board of Directors to be so used
or appropriated;
5.1.3. Executive's conviction of any crime involving moral
turpitude; or
5.1.4. Executive willfully breaches or habitually neglects
duties he is required to perform after written demand for the performance of
such duties is made by the Chief Executive Officer of the Company, provided that
Executive shall be given a thirty (30) day opportunity to cure any such claim
hereunder pursuant to a written notice by the Chief Executive Officer. In the
case of any termination under this paragraph, the Company will have no liability
or responsibility to Executive for salary, bonus or any other employee benefits.
The Company may also terminate Executive's employment without cause
upon delivery of written notice. In such case, Executive shall be entitled to
receive Base Salary and other accrued benefits including continued vesting of
Executive's stock for a period of six (6) months from the date of termination
specified in the written notice.
Any notice of termination given pursuant to this Section 5.1 shall
effect termination as of the date specified in such notice or, in the event no
such date is specified, on the last day of the month in which such notice is
delivered or deemed delivered as provided in Section 9 below.
5.2. The parties may mutually agree at any time to terminate this
Agreement upon such terms and conditions as may be agreed upon in writing.
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5.3. This Agreement shall terminate without notice upon the date of
Executive's death or the date when Executive becomes "completely disabled" as
that term is defined in Section 6.2.
6. DEATH OR DISABILITY DURING TERM OF EMPLOYMENT.
6.1. Upon termination of Executive's employment pursuant to Section
5.3, Executive or his estate or personal representative, as the case may be,
shall be entitled to receive Executive's Base Salary for a period of six (6)
months following the date of death or the date when Executive becomes completely
disabled, unless the Company has equivalent life insurance or disability
insurance in place.
6.2. The term "completely disabled" as used in this Agreement shall
mean the inability of Executive to perform his duties under this Agreement
because he has become permanently disabled within the meaning of any policy of
disability income insurance covering employees of the Company then in force. In
the event the Company has no policy of disability income insurance covering
employees of the Company in force when Executive becomes disabled, the term
"completely disabled" shall mean the inability of Executive to perform his
duties under this Agreement by reason of any incapacity, physical or mental,
which the Board of Directors of the Company, based upon medical advice or an
opinion provided by a licensed physician acceptable to the Board of Directors of
the Company, determines to have incapacitated Executive from satisfactorily
performing all of his usual services for the Company during the foreseeable
future. Based upon such medical advice or opinion, the action of the Board of
Directors of the Company shall be, final and binding and the date such action is
taken shall be the date of such complete disability for purposes of this
Agreement.
7. CONFIDENTIAL INFORMATION: EXECUTIVE'S DUTIES UPON TERMINATION.
7.1. Executive recognizes that his employment with the Company will
involve contact with information of substantial value to the Company, which is
not old and generally known in the trade, and which gives the Company an
advantage over its competitors who do not know or use it, including but not
limited to, techniques, designs, drawings, processes, inventions, developments,
equipment, prototypes, sales and customer information, and business and
financial information relating to the business, products, practices and
techniques of the Company, (hereinafter referred to as "Confidential
Information"). Executive will at all times regard and preserve as confidential
such Confidential Information obtained by Executive from whatever source and
will not, either during his employment with the Company or thereafter, publish
or disclose any part of such Confidential Information in any manner at any time,
or use the same except on behalf of the Company, without the prior written
consent of the Company. Further, both during Executive's employment and
thereafter, Executive will refrain from any acts or omissions that would reduce
the value of such Confidential Information to the Company.
7.2. Executive will promptly disclose in writing to the official
designated by the Company to receive such disclosures, complete information
concerning each and every
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invention, discovery, improvement, device, design, apparatus, practice,
process, method or product (hereinafter referred to as "Inventions"), whether
Executive considers them patentable or not, made, developed, perfected,
devised, conceived or first reduced to practice by Executive, either solely
or in collaboration with others, during the period of Executive's employment
by the Company and up to and including a period of twelve (12) months after
termination of Executive's employment with the Company, whether or not during
regular working hours, relating either directly or indirectly to the
business, products, practices or techniques of the Company, or to the
Company's actual or demonstrably anticipated research or development, or
resulting from any work performed by Executive for the Company.
7.3. Executive hereby agrees that any and all of said Inventions made,
developed, perfected, devised, conceived or reduced to practice by Executive
during the period of Executive's employment by the Company, and any other
Inventions made, developed, perfected, devised, conceived or reduced to practice
by Executive during said period of twelve (12) months after termination of
Executive's employment with the Company, if based upon the Confidential
Information of the Company, relating either directly or indirectly to the
business, products, practices or techniques of the Company or the Company's
actual or demonstrably anticipated research or development, or resulting from
any work performed by Executive for the Company, are the sole property of the
Company, and Executive hereby assigns and agrees to assign to the Company, its
successors and assigns, any and all of Executive's right, title and interest in
and to any and all of said Inventions, and any patent applications or Letters
Patent thereon.
This Agreement shall not apply to any Inventions which qualify fully under
the provisions of Section 2870 of the California Labor Code, as amended from
time to time. Executive understands that Section 2870 provides that no
assignment is required of any Invention for which no equipment, supplies,
facilities, or trade secret information of the Company was used and which was
developed entirely on Executive's own time without using any of the Company's
equipment, supplies, facilities, or trade secret information, except for those
Inventions that either:
(i) relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company; or
(ii) result from any work performed by Executive for the Company.
7.4. Nothing in this Agreement shal1 limit or be construed to limit
Executive's right to use or publish information which (a) was in the public
domain before Executive's employment commenced, (b) was known to Executive free
from any claim of other third parties before Executive's employment, (c) was
developed or acquired independently by the Executive, or (d) becomes public
knowledge without breach by Executive of any obligations of confidence to the
Company.
7.5. Executive will, at any time during his employment or thereafter,
upon request and without further compensation therefore, but at no expense to
Executive, do all lawful acts including the execution of papers and oaths and
the giving of testimony, that in the opinion of the
7
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Company, its successors and assigns, may be necessary or desirable for
obtaining, sustaining, reissuing, or enforcing Letters Patent in the United
States and throughout the world for any and all of said Inventions, and for
perfecting, recording, and maintaining the title of the Company, its
successors and assigns, to the Inventions, and to any patent applications
made and any Letters Patent granted for the Inventions in the United States
and throughout the world.
7.6. Executive will keep complete, accurate and authentic accounts,
notes, data, and records of any and all of the Inventions in the manner and form
requested by the Company. Such accounts, notes, data and records, including all
copies thereof, shall be the property of the Company, and, upon its request,
Executive will promptly surrender the same to it, or if not previously
surrendered, Executive will promptly surrender the same to the Company at the
conclusion of his employment.
7.7. Executive agrees that he will also surrender to the Company, at
its request, or at the conclusion of him employment, all accounts, notes, data,
sketches, drawings and other documents and records, and all material and
physical items of any kind, including all reproductions and copies thereof, that
relate in any way to the business, products, practices or techniques of the
Company or contain Confidential Information, whether created by Executive, or
which come into Executive's possession by reason of Executive's employment with
the Company, and Executive agrees further that all. of the foregoing are the
property of the Company.
7.8. Executive agrees that he will not disclose to the Company or
induce the Company to use any invention or confidential information belonging to
any third party.
7.9. Executive understands that the Company may enter into agreements
or arrangements that may be subject to laws and regulations which impose
obligations, restrictions and limitations on it with respect to Inventions and
patents which may be acquired by it or which may be conceived or developed by
employees, consultants or other agents rendering services to it. Executive
agrees that he shall be bound by all such obligations, restrictions and
limitations applicable to any said invention conceived or developed by Executive
during the period of his employment with the Company and shall take any and all
further action which may be required to discharge such obligations and to comply
with such restrictions and limitations.
7.10. Executive will exercise reasonable care, consistent with good
business judgment, to preserve in good working order subject to reasonable wear
and tear from authorized usage, and to prevent loss of any equipment,
instruments or accessories of the Company in Executive's custody for the purpose
of making demonstrations, implementing trials, carrying out development work, or
otherwise conducting the business of the Company. Upon request, Executive will
promptly surrender the same to the Company at the conclusion of Executive's
employment with the Company, or if not surrendered, Executive will account to
the Company to its reasonable satisfaction as to the present location of all
such instruments or accessories giving the business purpose of their placement
at such location. At the conclusion of Executive's employment with the Company,
Executive agrees to return such instruments or accessories to the Company or to
account for the same to the Company's reasonable satisfaction.
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7.11. Executive affirms that he has no agreement with any other party
that would preclude his compliance with his obligations under this Agreement as
set forth above.
7.12. At the conclusion of him employment with the Company, Executive
agrees to give a written statement to the company certifying that he has
complied with him obligations under this Section 7 as set forth above and
acknowledging his continuing obligations to disclose Inventions, to do certain
lawful acts relating to United States and foreign Letters Patent on the
Inventions, and to preserve as confidential and refrain from using the Company's
Confidential Information.
8. ASSIGNMENT AND BINDING EFFECT.
8.1. This Agreement shall be binding upon and inure to the benefit of
Executive and Executive's heirs, executors, administrators and legal
representatives. Neither this Agreement nor any rights or obligations under this
Agreement shall be assignable by Executive. This Agreement shall be binding upon
and inure to the benefit of the Company and its successors, assigns and legal
representatives.
9. NOTICES.
9.1. All notices or demands of any kind required or permitted to be
given by the Company or Executive under this Agreement shall be given in writing
and shall be personally delivered (and receipted for) or mailed by certified
mail, return receipt requested, postage prepaid, addressed as follows:
(i) If to the Company:
Chief Executive Officer
Cypros Pharmaceutical Corporation
2714 Loker Avenue West
Carlsbad, CA 92008
(ii) If to Executive:
Brian W. Sullivan
2714 Loker Avenue West
Carlsbad, CA 92008
Any such written notice shall be deemed received when personally delivered or
three (3) days after its deposit in the United States mail as specified above.
Either Party may change its address for notices by giving notice to the other
Party in the manner specified in this section.
10. CHOICE OF LAW.
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10.1. This Agreement is made in San Diego, California. This Agreement
shall be construed and interpreted in accordance with the laws of the State of
California.
11. INTEGRATION.
11.1. This Agreement contains the entire agreement of the parties
relating to the subject matter of this Agreement, and supersedes all prior oral
and written employment agreements or arrangements between the Parties.
12. AMENDMENT.
12.1. This Agreement cannot be amended or modified except by a written
agreement signed by Executive and the Company.
13. WAIVER.
13.1. No term, covenant or condition of this Agreement or any breach
thereof shall be deemed waived, except with the written consent of the Party
against whom the waiver is claimed, and any waiver of any such term, covenant,
condition or breach shall not be deemed to be a waiver of any preceding or
succeeding breach of the same or any other term, covenant, condition or breach.
14. SEVERABILITY.
14. 1. The unenforceability, invalidity or illegality of any provision
of this Agreement shall not render any other provision of this Agreement
unenforceable, invalid or illegal.
15. INTERPRETATION: CONSTRUCTION.
15.1. The headings set forth in this Agreement are for convenience of
reference only and shall not be used in interpreting this Agreement. This
Agreement has been drafted by legal counsel representing the Company, but
Executive has been encouraged, and has had the opportunity to consult with, him
own independent counsel and tax advisors with respect to the terms of this
Agreement. The Parties acknowledge that each Party and its counsel has reviewed
and revised, or had an opportunity to review and revise, this Agreement, and the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement.
16. REPRESENTATIONS AND WARRANTIES
16.1. Executive represents and, warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing each
of the terms and covenants
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contained in this Agreement, and that his execution and performance of this
Agreement will not violate or breach any other agreement between Executive
and any other person or entity.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
The Company:
Cypros Pharmaceutical Corporation,
a California corporation
By: /s/ David W. Nassif
-------------------------------------
David W. Nassif
Senior Vice President and Chief Financial
Officer
Executive:
/s/ Brian W. Sullivan
-------------------------------------
Brian W. Sullivan, Ph.D.
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EXHIBIT 10.9
CYPROS PHARMACEUTICAL CORPORATION
1993 NON-EMPLOYEE DIRECTORS' EQUITY INCENTIVE PLAN
Adopted by the Board of Directors on June 8, 1993
Amended by the Board of Directors January 10, 1994
Approved by the Shareholders January 18, 1994
Amended by the Board of Directors on November 14, 1997
Approved by the Board of Directors on October 29, 1998
Approved by the Shareholders February 16, 1999
1. PURPOSE.
(a) The purpose of the Amended and Restated 1993 Non-Employee Directors'
Equity Incentive Plan (the "Plan") is to provide a means by which each director
of Cypros Pharmaceutical Corporation, a California corporation (the "Company"),
who is not otherwise an employee of the Company or of any Affiliate of the
Company (each such person being hereafter referred to as a "Non-Employee
Director") will be given an opportunity to purchase stock of the Company and
will receive stock bonus awards.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the options issued under the Plan not be
incentive stock options as that term is used in Section 422 of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To construe and interpret the Plan and options and stock bonus
awards granted under it, and to establish, amend and revoke rules and
regulations for its administration. The Board, in the exercise of this power,
may correct any defect, omission
1.
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or inconsistency in the Plan or in any option agreement, in a manner and to
the extent it shall deem necessary or expedient to make the Plan fully
effective.
(ii) To amend the Plan as provided in paragraph 11.
(iii) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to options or issued
pursuant to stock bonus awards granted under the Plan shall not exceed in the
aggregate three hundred fifty thousand (350,000) shares of the Company's common
stock. If any option granted under the Plan shall for any reason expire or
otherwise terminate without having been exercised in full, the stock not
purchased under such option shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options and stock bonus awards shall be granted only to Non-Employee
Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who is, on or after January 1, 1993, elected for the
first time to be a Non-Employee Director of the Company shall, upon the date
of his or her initial election to be a Non-Employee Director by the Board or
shareholders of the Company (or, if later, the date of amendment of the Plan
by the Board to include this provision), be automatically granted an option
to purchase twenty-five thousand (25,000) shares of common stock of the
Company on the terms and conditions set forth herein. Thereafter, so long as
he or she is a Non-Employee Director of the Company and the Plan remains in
effect, each Non-Employee Director shall, upon January 1 of each year
beginning in 1997, be automatically granted an option to purchase ten
thousand (10,000) shares of common
2.
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stock of the Company on the terms and conditions set forth herein.
Notwithstanding the foregoing, no Non-Employee Director who owns, directly or
indirectly, shares representing ten percent (10%) or more of the total
outstanding shares of any class of stock of the Company shall be eligible for
the grant of an option pursuant to this Section 5.
(b) Each Non-Employee Director shall be granted shares of common stock
of the Company with a fair market value equal to two thousand dollars
($2,000) at each Board meeting he or she attends beginning on or after the
1999 Annual Shareholders' Meeting; provided, however, that no stock bonus
award shall be made prior to approval of the Plan by the shareholders,
pursuant to paragraph 11. For purposes of these stock bonus awards, fair
market value means the ten-day average of the closing sales price for the
common stock of the Company as quoted on the American Stock Exchange on the
ten (10) market trading days immediately preceding the date of the Board
meeting at which the stock bonus award shall be granted, as reported in The
Wall Street Journal or such other source as the Board deems reliable. Stock
bonus awards shall be one hundred percent (100%) vested on the date of grant.
6. OPTION PROVISIONS.
Each option shall contain the following terms and conditions:
(a) No option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) The exercise price of each option shall be eighty-five percent
(85%) of the fair market value of the stock subject to such option on the
date such option is granted.
(c) The purchase price of stock acquired pursuant to an option shall be
paid, to the extent permitted by applicable statutes and regulations, either
(1) in cash at the time the option is exercised, or (2) by delivery to the
Company of shares of common stock of the Company that have been held for the
requisite period necessary to avoid a charge to the Company's reported
earnings and valued at the fair market value on the date of exercise, or (3)
by a combination of such methods of payment.
(d) Except as otherwise expressly provided in an optionholder's option
agreement, an option shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable during the lifetime of
the person to whom the option is granted only by such person or by his or her
guardian or legal representative. The person to whom the option is granted
may, by delivering written notice to the Company in a form satisfactory to
the Company, designate a third party who, in the event of the death of the
optionholder, shall thereafter be entitled to exercise the option.
3.
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(e) An option shall vest with respect to each optionholder in
forty-eight (48) equal monthly installments over the four (4) year period
commencing on the date of grant, provided that the optionholder has, during
the entire month prior to such vesting date, continuously served as a
Non-Employee Director or as an Employee of or Consultant to the Company or
any Affiliate of the Company, whereupon such Option shall become fully
exercisable in accordance with its terms with respect to that portion of the
shares represented by that installment.
(f) The Company may require any optionholder, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising
any such option: (1) to give written assurances satisfactory to the Company
as to the optionholder's knowledge and experience in financial and business
matters; and (2) to give written assurances satisfactory to the Company
stating that such person is acquiring the stock subject to the option for
such person's own account and not with any present intention of selling or
otherwise distributing the stock. These requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (i) the issuance
of the shares upon the exercise of the option has been registered under a
then-currently-effective registration statement under the Securities Act of
1933, as amended (the "Securities Act"), or (ii), as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then-applicable
securities laws.
(g) Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are
not then so registered, the Company has determined that such exercise and
issuance would be exempt from the registration requirements of the Securities
Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
grant stock bonus awards and issue and sell shares of stock upon exercise of
the options granted under the Plan; provided, however, that this undertaking
shall not require the Company to register under the Securities Act either the
Plan, any option granted under the Plan, or any stock issued or issuable
pursuant to any stock bonus award or option. If the Company is unable to
obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
stock under the Plan, the Company shall be relieved from any liability for
failure to grant stock bonus awards or issue and sell stock upon exercise of
such options.
4.
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8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionholder nor any person to whom an option is
transferred under subparagraph 6(d) shall be deemed to be the holder of, or
to have any of the rights of a holder with respect to, any shares subject to
such option unless and until such person has satisfied all requirements for
exercise of the option pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the
service of the Company or any Affiliate or shall affect any right of the
Company, its Board or shareholders or any Affiliate to terminate the service
of any Non-Employee Director with or without cause.
(c) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through him or her,
shall have any right, title or interest in or to any shares of common stock
of the Company or any option reserved for the purposes of the Plan except as
to such shares of common stock, if any, as shall have been reserved for him
or her pursuant to a stock bonus award or option granted to him or her.
(d) In connection with each option granted pursuant to the Plan, it
shall be a condition precedent to the Company's obligation to issue or
transfer shares to a Non-Employee Director, or an affiliate of such
Non-Employee Director, or to evidence the removal of any restrictions on
transfer, that such Non-Employee Director make arrangements satisfactory to
the Company to insure that the amount of any federal or other withholding tax
required to be withheld with respect to such sale or transfer, or such
removal or lapse, is made available to the Company for timely payment of such
tax.
(e) Throughout the term of any option and upon the grant of stock bonus
awards, the Company shall deliver to the holder of such option or award, not
later than one hundred twenty (120) days after the close of each of the
Company's fiscal years, such financial and other information regarding the
Company as comprises the annual report to the shareholders of the Company
provided for in the bylaws of the Company.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option or stock bonus award granted under the Plan (through merger,
consolidation,
5.
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reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or otherwise), the Plan and
outstanding options and stock bonus awards will be appropriately adjusted in
the class(es) and maximum number of shares subject to the Plan and the
class(es) and number of shares and price per share of stock subject to
outstanding options and awards.
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a sale of all or substantially all of the assets of the Company; (3) a
merger or consolidation in which the Company is not the surviving
corporation; (4) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; (5) an
acquisition by any person, entity or group within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any comparable or successor provisions (excluding any
employee benefit plan, or related trust, sponsored or maintained by the
Company or an Affiliate) of the beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule)
of securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors; or (6)
individuals who, as of the date of the adoption of this Plan, are members of
the Board (the "Incumbent Board"), cease for any reason to constitute at
least fifty percent (50%) of the Board (if the election, or nomination for
election, by the Company's shareholders of any new director was approved by
vote of at least fifty (50%) of the Incumbent Board, such new director shall
be considered as a member of the Incumbent Board), then any surviving
corporation, other than the Company, shall assume any options outstanding
under the Plan or shall substitute similar options for those outstanding
under the Plan or, if the Company is the surviving corporation, such options
shall continue in full force and effect.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
Except as provided in paragraph 10 relating to adjustments upon changes in
stock, no amendment shall be effective unless approved by the shareholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for options and stock
bonus awards under the Plan;
(ii) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires shareholder approval in
order for the Plan to comply with the requirements of Rule 16b-3 promulgated
under the Exchange Act); or
6.
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(iii) Modify the Plan in any other way if such modification
requires shareholder approval in order for the Plan to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
(b) Rights and obligations under any option or stock bonus award
granted before any amendment of the Plan shall not be altered or impaired by
such amendment of the Plan unless (i) the Company requests the consent of the
person to whom the option or award was granted and (ii) such person consents
in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on June 7, 2003. No options or
stock bonus awards may be granted under the Plan while the Plan is suspended
or after it is terminated.
(b) Rights and obligations under any option or stock bonus award
granted while the Plan is in effect shall not be altered or impaired by
suspension or termination of the Plan, except with the consent of the person
to whom the option or award was granted.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective upon adoption by the Board of
Directors, subject to the condition subsequent that the Plan is approved by the
shareholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable and
no stock bonus award shall be granted unless and until the condition of
subparagraph 13(a) above has been met.
7.
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Exhibit 10.18
CYPROS PHARMACEUTICAL CORPORATION
INDEMNITY AGREEMENT
This Agreement is made and entered into as of the ___ day of _________, 199__
by and between Cypros Pharmaceutical Corporation, a California corporation
(the "Corporation"), and ______________________ ("Indemnitee").
RECITALS
WHEREAS, Indeninitee performs a valuable service to the Corporation in his
capacity as __________________ of the Corporation;
WHEREAS, the shareholders of the Corporation have adopted provisions in the
Articles of Incorporation (the "Articles") and the Bylaws (the "Bylaws") of the
Corporation providing for the indemnification of the directors, executive
officers, officers, employees and other agents of the Corporation, including
persons serving at the request of the Corporation in such capacities with other
corporations or enterprises, as authorized by the California Corporations Code,
as amended (the 'Code");
WHEREAS, the Articles, the Bylaws and the Code, by their non-exclusive
nature, permit contracts between the Corporation and its directors, executive
officers, officers, employees and other agents with respect to indemnification
of such persons; and
WHEREAS, in order to induce Indemnitee to continue to serve as ____________
of the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as after the
date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE Corporation. Indemnitee will serve, at the will of
the Corporation or under separate contract, if any such contract exists, as
__________________ of the Corporation or as a director, executive officer,
officer or other fiduciary of an affiliate of the Corporation (including any
employee benefit plan of the Corporation) faithfully and to the best of his
ability so long as he is duly elected and qualified in accordance with the
provisions of the Bylaws or other applicable charter documents of the
Corporation or such affiliate; provided, however, that Indemnitee may at any
time and for any reason resign from such position (subject to any contractual
obligation that Indemnitee may have assumed apart from this Agreement) and that
the Corporation or any affiliate shall have no obligation under this Agreement
to continue Indemnitee in any such position.
2. INDEMNITY. Subject to a determination pursuant to Section 8 hereof,
the Corporation hereby agrees to hold harmless and indemnify Indemnitee:
a. against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in
settlement, and any other amounts that Indemnitee becomes
legally obligated to pay because of any claim or claims made
against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative (including an
action by or in the right of the Corporation) to which
Indemnitee is, was or at any time (even after termination of
his employment with the Corporation) becomes a party, or is
threatened to be made a party, by reason of the fact that
Indemnitee is, was or at any time becomes a director, executive
officer, officer, employee or other agent of the Corporation,
or is or was serving (even prior to the date hereof) or at any
time serves at the request of the Corporation as a director,
executive officer, officer, employee or other agent of another
<PAGE>
corporation, partnership,joint venture, trust, employee benefit
plan or other enterprise; and
b. otherwise to the fullest extent not prohibited by the Articles,
the Bylaws or the Code.
3. LIMITATIONS ON ADDITIONAL INDEMNITY. To the extent that any of the
matters set forth in subsections (a) through (k)) of this Section 3 are
successfully established by the Corporation as defenses in accordance with the
provisions of Section 9 hereof, no indemnity pursuant to Section 2 hereof will
be payable by the Corporation:
a. on account of any claim against Indemnitee for an accounting of
profits made from the purchase or sale by Indemnitee of securities of the
Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
b. on account of Indemnitee's conduct from which Indemnitee
derived an improper personal benefit;
c. on account of Indemnitee's conduct that he believed to be
contrary to the best interests of the Corporation or its shareholders or that
involved the absence of good faith on the part of Indemnitee;
d. on account of Indemnitee's conduct that constituted intentional
misconduct or a knowing and culpable violation of law;
e. on account of Indemnitee's conduct that showed a reckless
disregard for the Indemnitee's duty to the Corporation or its shareholders in
circumstances in which Indemnitee was aware, or should have been aware, in the
ordinary course of performing his duties, of a risk of serious injury to the
Corporation or its shareholders;
f. on account of Indemnitee's conduct that constituted an
unexcused pattern of inattention that amounted to an abdication of Indemnitee's
duty to the Corporation or its shareholders;
g. on account of Indemnitee's conduct which constituted a
violation of the Indemnitee's duties under Sections 310 or 316 of the Code;
h. for which payment is actually made to Indemnitee under a valid
and collectible insurance policy or under a valid and enforceable indemnity
clause, bylaw or agreement, except in respect of any excess beyond payment under
such insurance, clause, bylaw or agreement;
i. if indemnification is not lawful (and, in this respect, both
the Corporation and Indemnitee have been advised that the Securities and
Exchange Commission believes that indemnification for liabilities arising under
the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication);
j. in connection with any proceeding (or part thereof) initiated
by Indemnitee, or any proceeding by Indemnitee against the Corporation or its
directors, executive officers, officers, employees or other agents, unless (i)
such indemnification is expressly required to be made by law, (ii)
2
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the proceeding was authorized by the Board of Directors of the Corporation,
(iii) such indemnification is provided by the Corporation, in its sole
discretion, pursuant to the powers vested in the Corporation under the Code, or
(iv) the proceeding is initiated pursuant to Section 9 hereof;
k. with respect to any action by or in the right of the
Corporation:
i. if the Indemnitee is adjudged to be liable to the
Corporation in performance of the Indemnitee's duty to the Corporation and its
shareholders, unless and only to the extent that the court in which such action
is or was pending shall determine upon application that, in view of all of the
circumstances of the case, the Indemnitee is fairly and reasonably entitled to
indemnity for expenses, and then only to the extent that the court shall
determine;
ii. for expenses incurred in defending a pending action which
is settled or otherwise disposed of without court approval; or
iii. for amounts paid in settling or otherwise disposing of a
pending action without court approval; and
l. to the extent, and only to the extent, that indemnification
with respect to such action (i) would be inconsistent with the Articles or
Bylaws, or a resolution of the shareholders or agreement of the Corporation
prohibiting or otherwise limiting such indemnification and in effect at the time
of the accrual of the action or (ii) would be inconsistent with any condition
expressly imposed by a court in approving a settlement, unless Indemnitee, has
been successful on the merits or unless the indemnification has been approved by
the shareholders of the Corporation in accordance with Section 153 of the Code
(with the shares of the Indemnitee not being entitled to vote thereon).
4. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Indemnitee is a
director, executive officer, officer, employee, or other agent of the
corporation (or is serving or had served at the request of the Corporation as a
director, executive officer, officer, employee, or other agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Indemnitee shall be subject
to any possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal, arbitrational, administrative or
investigative, by reason of the fact that Indemnitee had served in the capacity
referred to herein.
5. PARTIAL INDEMNIFICATION. Indemnitee shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement, and any other amounts that Indemnitee becomes legally
obligated to pay in connection with any action, suit or proceeding referred to
in Section 2 hereof even if not entitled hereunder to indemnification for the
total amount thereof, and the Corporation shall indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled.
6. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Indemnitee of notice of the commencement of any action, suit or
proceeding, Indemnitee will, if a claim in respect thereof is to be made against
the Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Indemnitee otherwise than under this
Agreement. With respect to any such action, suit or proceeding as to which
Indemnitee notifies the Corporation of the commencement thereof:
a. the Corporation will be entitled to participate therein at its
own expense;
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<PAGE>
b. except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Corporation to
Indemnitee of its election to assume the defense thereof, the Corporation will
not be liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof
except for reasonable costs of investigation or otherwise as provided below.
Indemnitee shall have the right to employ separate counsel in such action, suit
or proceeding but the fees and expenses of such counsel incurred after notice
from the Corporation of its assumption of the defense thereof shall be at the
expenses of Indemnitee unless (i) the employment of counsel by Indemnitee has
been authorized by the Corporation, (ii) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Corporation and
Indemnitee in the conduct of the defense of such action, or (iii) the
Corporation shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the reasonable fees and expenses of
Indemnitee's separate counsel shall be at the expense of the Corporation. The
Corporation shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Corporation or as to which Indemnitee
shall have made the conclusion provided for in clause (ii) above; and
c. the Corporation shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitee's written consent, which may be
given or withheld in Indemnitee's sole discretion.
7. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Indemnitee in connection with such proceeding upon receipt of an
undertaking by or on behalf of Indemnitee to repay said amounts if it shall be
determined ultimately that Indemnitee is not entitled to be indemnified under
the provisions of this Agreement, the Bylaws, the Articles, the Code or
otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant
to Section 8, no advance shall be made by the Corporation if a determination is
reasonably and promptly made by the Board of Directors by a majority vote of a
quorum consisting of directors who are not parties to the proceeding (or, if no
such quorum exists, by independent legal counsel mutually acceptable to both the
Corporation and Indemnitee in a written opinion) that the facts known to the
decision-making party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in the best interests of the Corporation and its
shareholders.
8. DETERMINATION BY THE CORPORATION. To the extent required by the
Code, promptly after receipt of A request for indemnification hereunder made by
Indemnitee (and in any event within 90 days), the Corporation shall make A
reasonable, good faith determination as to whether indemnification of Indemnitee
is proper under the Code by means of:
a. a majority vote of a quorum consisting of directors who are
not parties to such proceeding;
b. if such quorum is not obtainable, by independent legal counsel
in a written opinion; or
4
<PAGE>
c. approval or ratification by the affirmative vote of a majority
of the shares of the Corporation represented and voting at a duly held meeting
at which a quorum is present (which shares voting affirmatively also constitute
at least a majority of the required quorum) or by written consent of a majority
of the outstanding shares entitled to vote; where in each case the shares owned
by the person to be indemnified shall not be considered entitled to vote
thereon.
Such determination shall be reasonably made in good faith by the decision making
party based upon the facts known to the decision-making party at the time such
determination is made.
9. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee
in the forum in which the proceeding is or was pending. or, if such forum is not
available or a determination is made that such forum is not convenient, in any
court of competent jurisdiction if (i) the claim for indemnification or advances
is denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. Indemnitee, in such enforcement
action, if successful in whole or in part, shall be entitled to be paid also the
expense of prosecuting his claim. The Corporation shall be entitled to raise by
pleading as an affirmative defense to any action for which a claim for
indemnification is made under Section 2 hereof that Indemnitee is not entitled
to indemnification because of the limitations set forth in Section 3 hereof.
Neither the failure of the Corporation (including its Board of Directors, its
shareholders or independent legal counsel) to have made a determination prior to
the commencement of such enforcement action that indemnification of Indemnitee
is proper in the circumstances, nor an actual determination by the Corporation
(including its Board of Directors, its shareholders or independent legal
counsel) that such indemnification is improper shall be a defense to the action
or create a presumption that Indemnitee is not entitled to indemnification under
this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Indemnitee by
this Agreement shall not be exclusive of any other right which Indemnitee may
have or hereafter acquired under any statute, provision of the Articles or
Bylaws, agreement, vote of shareholders or directors, or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding office.
12. SURVIVAL OF RIGHTS.
a. The rights conferred on Indemnitee by this Agreement shall
continue after Indemnitee has ceased to be a director, executive officer,
officer, employee or other agent of the Corporation or to serve at the request
of the Corporation as a director, executive officer, officer, employee or other
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise and shall inure to the benefit of Indemnitee's
heirs, executors and administrators.
b. The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
bad taken place.
5
<PAGE>
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify
Indemnitee to the fullest extent provided by the Articles, the Bylaws, the Code
or any other applicable law.
14. GOVERNING Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of California as applied to contracts
entered into in California, between California residents and to be performed
entirely within California.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
a. if to Indemnitee, at the address indicated below his signature hereunder.
b. if to the Corporation, to
Cypros Pharmaceutical Corporation
2714 Loker Avenue West
Carlsbad, California 92008
Attention: Chief Financial Officer
or to such other address as may have been furnished to Indemnitee by the
Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
"Corporation" CYPROS PHARMACEUTICAL CORPORATION
By_____________________
Its__________________________
"Indemnitee" _____________________________
6
<PAGE>
Exhibit 10.19
EXECUTIVE
SEVERANCE BENEFITS AGREEMENT
This EXECUTIVE SEVERANCE BENEFITS AGREEMENT (the "Agreement") is entered
into this day of , 1999 (the "Effective Date"), between DR. PAUL
J. MARANGOS ("Executive") and CYPROS PHARMACEUTICAL CORPORATION (the
"Company"). This Agreement is intended to provide Executive with the
compensation and benefits described herein upon the occurrence of specific
events. Certain capitalized terms used in this Agreement are defined in
Article 4.
The Company and Executive hereby agree as follows:
ARTICLE 1
SCOPE OF AND CONSIDERATION FOR THIS AGREEMENT
1.1 Executive is currently employed by the Company.
1.2 The Company and Executive wish to set forth the compensation and
benefits which Executive shall be entitled to receive in the event Executive's
employment with the Company is terminated under the circumstances described
herein following the Transaction.
1.3 The duties and obligations of the Company to Executive under this
Agreement shall be in consideration for Executive's past services to the Company
and his continued employment with the Company.
1.4 In the event of the Transaction, this Agreement shall supersede any
other agreement relating to cash severance benefits, health benefits and
stock option vesting, including, but not limited to, all employment
agreements between Executive and the Company and all amendments thereto.
ARTICLE 2
SEVERANCE BENEFITS
2.1 SEVERANCE BENEFITS. A Covered Termination (as defined in Article 4)
entitles Executive to receive the following benefits set forth in Sections 2.2,
2.3, 2.4, and 2.5. The parties acknowledge and agree that the payment of such
benefits are conditioned upon and subject to the completion of the Transaction.
2.2 SEVERANCE PAYMENT. Executive shall receive a severance payment equal to
twenty-four (24) months of his Base Salary. Such amount shall be paid in a lump
sum upon the Payment Date (as defined in Article 4) and shall be subject to all
required tax withholding.
2.3 BONUS. The Company shall pay to Executive a cash bonus upon the Payment
Date (as defined in Article 4), equal to Twenty-Five Thousand Dollars
($25,000.00). Such amount shall be subject to all required tax withholding.
1.
<PAGE>
2.4 HEALTH AND DISABILITY BENEFITS. Provided that Executive elects
continued coverage under federal COBRA law, the Company shall (i) pay the
premiums of Executive's group health insurance coverage (including medical and
dental) under COBRA, including coverage for Executive's eligible dependents, for
a maximum period of eighteen (18) months following a Covered Termination, and
(ii) reimburse Executive for the amount of such monthly premiums on a monthly
basis for six (6) months after Executive's COBRA coverage expires; PROVIDED,
HOWEVER, that (x) the Company shall pay premiums for Executive's eligible
dependents only for coverage for which those eligible dependents were enrolled
immediately prior to the Covered Termination and (y) the Company's obligation to
pay or reimburse such premiums shall cease immediately upon Executive's
eligibility for comparable group health insurance provided by a new employer of
Executive. No premium payments will be made following the effective date of
Executive's coverage by a comparable health insurance plan of a subsequent
employer. For the balance of the period that Executive is entitled to coverage
under federal COBRA law, if any, Executive shall be entitled to maintain such
coverage at Executive's own expense. The Company will use its best efforts to
continue Executive's participation in the Company's long term and short term
disability policies, as well as Executive's individual long term disability
policy. The Company will pay for the premiums of such coverage for the same
period of time that the Company pays for Executive's group health insurance
premiums under COBRA and reimburses Executive for the amount of such premiums.
2.5 OPTION VESTING AND EXERCISABILITY. If Executive's employment with the
Company terminates due to a Covered Termination, then all outstanding options of
Executive to purchase the Company's common stock (or the stock of a successor to
the Company by reason of assumption or substitution of options) shall
immediately vest and become exercisable. All such options shall be exercisable
until the date two (2) years after the date of Executive's termination of
employment. During the period when Executive's stock options are exercisable,
the Company agrees to provide reasonable consultation concerning SEC regulations
governing his options and Executive's status as a former officer. Such advice
shall be obtained by Executive from the Chief Financial Officer of the Company,
who shall obtain any necessary legal advice for this purpose at the Company's
expense.
2.6 MITIGATION. Except as otherwise specifically provided herein, Executive
shall not be required to mitigate damages or the amount of any payment provided
under this Agreement by seeking other employment or otherwise, nor shall the
amount of any payment provided for under this Agreement be reduced by any
compensation earned by Executive as a result of employment by another employer
or by any retirement benefits received by Executive after the date of the
Covered Termination.
ARTICLE 3
LIMITATIONS AND CONDITIONS ON BENEFITS
3.1 TERMINATION OF BENEFITS. Benefits under this Agreement shall terminate
immediately if the Executive, at any time, violates any proprietary information
or confidentiality obligation to the Company.
2.
<PAGE>
3.2 NON-DUPLICATION OF BENEFITS. Executive is not eligible to receive
benefits under this Agreement more than one time.
3.
<PAGE>
ARTICLE 4
DEFINITIONS
For purposes of the Agreement, the following terms are defined as
follows:
4.1 "BASE SALARY" means Executive's annual base salary as in effect during
the last regularly scheduled payroll period immediately preceding the Covered
Termination.
4.2 "BOARD" means the Board of Directors of the Company.
4.3 "CAUSE" means that, in the reasonable determination of the Company or,
in the case of the Chief Executive Officer, the Board, Executive:
(a) has committed an act that materially injures the business of the
Company;
(b) has refused or failed to follow lawful and reasonable directions of
the Board or the appropriate individual to whom Executive reports;
(c) has willfully or habitually neglected Executive's duties for the
Company; or
(d) has been convicted of a felony involving moral turpitude that is
likely to inflict or has inflicted material injury on the business of the
Company.
Notwithstanding the foregoing, Cause shall not exist based on conduct
described in clause (b) or clause (c) unless the conduct described in such
clause has not been cured within fifteen (15) days following Executive's receipt
of written notice from the Company or the Board, as the case may be, specifying
the particulars of the conduct constituting Cause.
4.4 "INVOLUNTARY TERMINATION WITHOUT CAUSE" means Executive's dismissal or
discharge other than for Cause. The termination of Executive's employment as a
result of Executive's death or disability will not be deemed to be an
Involuntary Termination Without Cause.
4.5 "TRANSACTION" means the closing of the Merger as defined under the
Merger Agreement among the Company, Cypros Acquisition Corporation and RiboGene,
Inc., dated as of August 4th, 1999.
4.6 "COMPANY" means Cypros Pharmaceutical Corporation or, following the
Transaction, the surviving entity resulting from the Transaction.
4.7 "COVERED TERMINATION" means an Involuntary Termination Without Cause or
a resignation by Executive, for any reason, occurring within six (6) months
before or thirteen (13) months after the effective date of the Transaction;
provided that if Executive resigns, he shall provide at least three (3) weeks'
notice prior to termination.
4.
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4.8 "PAYMENT DATE" means (a) in the event of an Involuntary Termination
Without Cause, the date of such termination and (b) in the event of a
resignation by Executive (i) if the resignation occurs prior to the Transaction,
then the Payment Date shall be the day following the Transaction and (ii) if the
resignation occurs on or after the date of Transaction, then the Payment Date
shall be the effective date of the resignation.
ARTICLE 5
GENERAL PROVISIONS
5.1 EMPLOYMENT STATUS; EMPLOYMENT AGREEMENT SUPERCEDED. This Agreement does
not constitute a contract of employment or impose upon Executive any obligation
to remain as an employee, or impose on the Company any obligation (i) to retain
Executive as an employee, (ii) to change the status of Executive as an at-will
employee, or (iii) to change the Company's policies regarding termination of
employment. In the event of any conflict between the provisions of this
Agreement and the provisions of any other previously existing employment,
severance or other similar agreement, then the provisions of this Agreement
shall govern.
5.2 NOTICES. Any notices provided hereunder must be in writing, and such
notices or any other written communication shall be deemed effective upon the
earlier of personal delivery (including personal delivery by facsimile) or the
third day after mailing by first class mail, to the Company at its primary
office location and to Executive at Executive's address as listed in the
Company's payroll records. Any payments made by the Company to Executive under
the terms of this Agreement shall be delivered to Executive either in person or
at the address as listed in the Company's payroll records.
5.3 SEVERABILITY. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
5.4 WAIVER. If either party should waive any breach of any provisions of
this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
5.5 ARBITRATION. Unless otherwise prohibited by law or specified below, all
disputes, claims and causes of action, in law or equity, arising from or
relating to this Agreement or its enforcement, performance, breach, or
interpretation shall be resolved solely and exclusively by final and binding
arbitration held in San Diego County, California through American Arbitration
Association ("AAA") under the then existing AAA arbitration rules. However,
nothing in this section is intended to prevent either party from obtaining
injunctive relief in court to prevent irreparable harm pending the conclusion of
any such arbitration. Each party in any such arbitration shall be responsible
for its own attorneys' fees, costs and necessary disbursement;
5.
<PAGE>
PROVIDED, HOWEVER, that in the event one party refuses to arbitrate and the
other party seeks to compel arbitration by court order, if such other party
prevails, it shall be entitled to recover reasonable attorneys' fees, costs
and necessary disbursements. Pursuant to California Civil Code Section 1717,
each party warrants that it was represented by counsel in the negotiation and
execution of this Agreement, including the attorneys' fees provision herein.
5.6 COMPLETE AGREEMENT. This Agreement constitutes the entire agreement
between Executive and the Company and is the complete, final, and exclusive
embodiment of their agreement with regard to this subject matter. This Agreement
wholly supersedes all written and oral agreements with respect to cash severance
benefits and health benefits to Executive in the event of employment termination
(other than any outstanding loans by the Company to Executive), including, but
not limited to, all employment agreements between Executive and the Company and
all amendments thereto. This Agreement is entered into without reliance on any
promise or representation other than those expressly contained herein.
5.7 AMENDMENT OR TERMINATION OF AGREEMENT. This Agreement may be changed or
terminated only upon the mutual written consent of the Company and Executive.
The written consent of the Company to a change or termination of this Agreement
must be signed by an executive officer of the Company after such change or
termination has been approved by the Board.
5.8 COUNTERPARTS. This Agreement may be executed in separate counterparts,
any one of which need not contain signatures of more than one party, but all of
which taken together will constitute one and the same Agreement.
5.9 HEADINGS. The headings of the Articles and Sections hereof are inserted
for convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
5.10 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Executive, and the Company, and any
surviving entity resulting from the Transaction; PROVIDED, HOWEVER, that
Executive may not assign any duties hereunder and may not assign any rights
hereunder without the written consent of the Company, which consent shall not be
withheld unreasonably.
5.11 CHOICE OF LAW. All questions concerning the construction, validity and
interpretation of this Agreement will be governed by the law of the State of
California, without regard to such state's conflict of laws rules.
5.12 NON-PUBLICATION. The parties mutually agree not to disclose publicly
the terms of this Agreement except to the extent that disclosure is mandated by
applicable law or to respective advisors (E.G., attorneys, accountants).
5.13 CONSTRUCTION OF AGREEMENT. In the event of a conflict between the text
of the Agreement and any summary, description or other information regarding the
Agreement, the text of the Agreement shall control.
6.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
Effective Date written above.
Date: _____________________________ PAUL J. MARANGOS,
an individual
___________________________________
Date: _____________________________ CYPROS PHARMACEUTICAL CORPORATION,
a California corporation
By:________________________________
Name:______________________________
Title:_____________________________
7.
<PAGE>
Exhibit 10.20
SEPARATION AND CONSULTING AGREEMENT
This SEPARATION AND CONSULTING AGREEMENT (this "Agreement") is made and
entered into by and between PAUL J. MARANGOS ("Dr. Marangos") and CYPROS
PHARMACEUTICAL CORPORATION (the "Company"), as of the last date on which this
Agreement is executed by either party.
WHEREAS, Dr. Marangos has tendered his resignation as Chief Executive
Officer and all other positions he may hold with the Company (other than his
position as a member of the Board of Directors of the Company, which position he
will retain until his successor is elected and has qualified, or until his
earlier death, resignation or removal) and wishes to enter into a consulting
relationship with the Company;
WHEREAS, the Company has accepted Dr. Marangos' resignation as Chief
Executive Officer and all other positions he may hold with the Company (other
than his position as a member of the Board of Directors of the Company), and
wishes to provide Dr. Marangos with certain benefits in consideration of his
service to the Company and the promises and covenants of Dr. Marangos as
contained herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is agreed by and between the parties hereto as follows:
1. RESIGNATION. Dr. Marangos has tendered and the Company has accepted
Dr. Marangos' resignation as Chief Executive Officer and all other positions he
may hold with the Company (other than his position as a member of the Board of
Directors of the Company, which position he will retain until his successor is
elected and has qualified, or until his earlier death, resignation or removal),
effective _______________, 1999 (the "Separation Date").
2. ACCRUED SALARY AND PAID TIME OFF. The Company will pay Dr. Marangos
all accrued salary, and all accrued and unused paid time off earned prior to the
Separation Date, subject to standard payroll deductions and withholdings. Dr.
Marangos is entitled to this payment regardless of whether he signs this
Agreement.
3. EXPENSE REIMBURSEMENT. Within ten (10) business days of the
Separation Date, Dr. Marangos will submit his final documented expense
reimbursement statement reflecting all business expenses he incurred through the
Separation Date, if any, for which he seeks reimbursement. The Company shall
reimburse Dr. Marangos' expenses pursuant to Company policy and regular business
practice.
4. COMPANY ACKNOWLEDGEMENT. The Company acknowledges that it is not
aware of any breach by Dr. Marangos of his contractual, statutory or common law
duties to the Company as of the Separation Date.
5. RELEASE OF CLAIMS. In exchange for a payment of Twenty-Five Thousand
Dollars ($25,000.00) ("Release Payment"), and the consulting agreement described
in Section 6
1.
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herein, Executive agrees to execute a release (the "Release") in the form
attached hereto and incorporated herein as Exhibit A. Such Release shall
specifically relate to all of Executive's rights and claims in existence at
the time of such execution and shall confirm Executive's obligations under
the Company's standard form of proprietary information and inventions
agreement. It is understood that, as specified in the applicable Release,
Executive has a certain number of calendar days to consider whether to
execute such Release, and Executive may revoke such Release within seven (7)
calendar days after execution. In the event Executive does not execute such
Release within the applicable period, or if Executive revokes such Release
within the subsequent seven (7) day period, no payments shall be payable
under this Agreement, and this Agreement shall be null and void. Executive
shall be paid the Release Payment in a lump sum on the Effective Date of the
Release as defined in the Release.
6. CONSULTING AGREEMENT. Dr. Marangos shall serve as a consultant to
the Company under the terms specified herein. The consulting relationship shall
commence on the Separation Date and continue through the first anniversary
thereof (the "Consulting Period").
(a) CONSULTING SERVICES. Dr. Marangos agrees to provide consulting
services to the Company in any area of his expertise upon request by the
Company's Chief Executive Officer or the Board of Directors. He agrees to
exercise the highest degree of professionalism and utilize his expertise and
creative talents in performing these services. Dr. Marangos agrees to make
himself available to perform such consulting services throughout the Consulting
Period, up to a maximum of thirty (30) hours during the first month of the
Consulting Period and ten (10) hours per month thereafter.
(b) CONSULTING FEES AND BENEFITS.
(i) CONSULTING FEES. Dr. Marangos shall receive One Hundred
Twenty-Five Thousand Dollars ($125,000.00) as consulting fees for the entire
Consulting Period (the "Consulting Fees"). The Consulting Fees will be payable
in a lump sum on the Separation Date.
(ii) TAXES AND WITHHOLDING. The Company will not withhold from
the Consulting Fees any amount for taxes, social security or other payroll
deductions. The Company will issue Dr. Marangos a Form 1099 with respect to Dr.
Marangos' Consulting Fees. Dr. Marangos acknowledges that he will be entirely
responsible for payment of all appropriate taxes, and he hereby does and will
indemnify and hold the Company harmless from any liability for his failure to
timely pay any taxes, penalties or interest which may be assessed by any taxing
authority.
(iii) OTHER COMPENSATION. Except as expressly provided herein
and under Dr. Marangos' Executive Severance Benefits Agreement with the Company
dated August 4, 1999, Dr. Marangos acknowledges that he will not receive (nor is
he entitled to) any additional compensation, severance or benefits (including,
but not limited to, life insurance and disability insurance).
2.
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(c) LIMITATIONS ON AUTHORITY. Dr. Marangos shall have no
responsibilities or authority as a consultant to the Company other than as
provided for above. Dr. Marangos hereby agrees not to represent or purport to
represent the Company in any manner whatsoever to any third party unless
authorized by the Company, in writing, to do so.
(d) COVENANT NOT TO COMPETE. In exchange for the Company's agreement
to pay Dr. Marangos an additional Fifty Thousand Dollars ($50,000.00) as
provided in this Section 5(d), Dr. Marangos agrees that during the Consulting
Period, Dr. Marangos will not directly or indirectly render services of any
nature to, otherwise become employed by, or participate or engage in any
business or entity which directly or indirectly competes with the business of
the Company or any of its affiliates ("Covenant not to Compete"). Assuming Dr.
Marangos' continued compliance with this Section 5(d), the Company will pay Dr.
Marangos the sum of Fifty Thousand Dollars ($50,000.00) plus eight percent (8%)
interest in equal monthly installments during the Consulting Period. If Dr.
Marangos fails to comply with the Covenant not to Compete during the Consulting
Period, the Company will no longer be obligated to make any payment to Dr.
Marangos pursuant to this Section 5(d).
(e) OTHER WORK ACTIVITIES. Subject to the Covenant not to Compete
stated in Section 5(d) herein, throughout the Consulting Period, Dr. Marangos
retains the right to engage in employment, consulting, or other work
relationships in addition to his work for the Company. The Company will make
reasonable arrangements to enable Dr. Marangos to perform his work for the
Company at such times and in such a manner so that it will not interfere with
other activities in which he may engage.
7. ATTORNEY FEES. The Company agrees that, as part of this Agreement,
it will reimburse Executive for his reasonable attorneys fees and disbursements
incurred in connection with the review of this Agreement and other related
agreements in an amount not to exceed Six Thousand Dollars ($6,000.00).
8. NONSOLICITATION. Dr. Marangos agrees that during the Consulting
Period, he will not, either directly or through others, solicit or attempt to
solicit any employee, consultant, or independent contractor of the Company to
terminate his or her relationship with the Company in order to become an
employee, consultant or independent contractor to or for any other person or
entity.
9. COMPANY PROPERTY. Within ten (10) days of the Separation Date, Dr.
Marangos agrees to return to the Company all Company documents (and all copies
thereof) and other Company property in his possession, or his control,
including, but not limited to, Company files, notes, drawings, records, business
plans and forecasts, financial information, specifications, computer-recorded
information, tangible property, credit cards, entry cards, identification badges
and keys; and, any materials of any kind which contain or embody any proprietary
or confidential material of the Company (and all reproductions thereof). Dr.
Marangos agrees that, as of the Separation Date, he will neither use nor possess
Company property, except such property which any officer or the Board
specifically authorizes him to use or possess for the sole purpose of performing
his duties under this Agreement or his duties as a Director of the Company.
3.
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10. PROPRIETARY INFORMATION OBLIGATIONS. Dr. Marangos hereby agrees to
be bound throughout the Consulting Period by the terms of his Proprietary
Information and Inventions Agreement (the "Proprietary Information Agreement"),
a copy of which is attached hereto as Exhibit B, certain obligations under which
continue after the termination of the Consulting Period, as specified in the
Proprietary Information Agreement. However, inventions which he may make during
this period without reference to proprietary information of the Company, and
which are not derived from such information, shall remain Dr. Marangos' sole
property.
11. NONDISPARAGEMENT. Dr. Marangos and the Company agree that neither
party will at any time disparage the other in any manner likely to be harmful to
the other party, its business reputation, or the personal or business reputation
of its Directors, stockholders or employees, provided that each party shall
respond accurately and fully to any question, inquiry or request for information
when required by legal process.
12. CONFIDENTIALITY. The provisions of this Agreement shall be held in
strictest confidence by Dr. Marangos and the Company and shall not be publicized
or disclosed in any manner whatsoever. Notwithstanding the prohibition in the
preceding sentence: (a) the parties may disclose this Agreement in confidence to
their respective attorneys, accountants, auditors, tax preparers, and financial
advisors; (b) the Company may disclose this Agreement as necessary to fulfill
standard or legally required corporate reporting or disclosure requirements; and
(c) the parties may disclose this Agreement insofar as such disclosure may be
necessary to enforce its terms or as otherwise required by law. In particular
(and without limitation), Dr. Marangos agrees not to discuss this Agreement with
present or former Company employees or other personnel, except to the extent
necessary to explain his consulting relationship with the Company or to carry
out his duties under this Agreement.
13. NO ADMISSIONS. It is understood and agreed by Dr. Marangos and the
Company that this Agreement represents a compromise settlement of various
matters, and that the promises and payments in consideration of this Agreement
shall not be construed to be an admission of any liability or obligation by
either party to the other party or to any other person.
14. ENTIRE AGREEMENT. This Agreement, including Exhibits A and B,
constitutes the complete, final and exclusive embodiment of the entire agreement
between Dr. Marangos and the Company with regard to the subject matter hereof.
It is entered into without reliance on any promise or representation, written or
oral, other than those expressly contained herein. It may not be modified except
in a writing signed by Dr. Marangos and a duly authorized officer of the
Company. Each party has carefully read this Agreement, has been afforded the
opportunity to be advised of its meaning and consequences by his or its
respective attorneys, and signed the same of his or its own free will.
15. SUCCESSORS AND ASSIGNS. This Agreement shall bind the heirs,
personal representatives, successors, assigns, executors, and administrators of
each party, and inure to the benefit of each party, its heirs, successors and
assigns. However, because of the unique and personal nature of Dr. Marangos'
duties under this Agreement, Dr. Marangos agrees not to delegate the performance
of his duties under this Agreement.
4.
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16. APPLICABLE LAW. This Agreement shall be deemed to have been entered
into and shall be construed and enforced in accordance with the laws of the
State of California as applied to contracts made and to be performed entirely
within California.
17. SEVERABILITY. If a court of competent jurisdiction determines that
any term or provision of this Agreement is invalid or unenforceable, in whole or
in part, then the remaining terms and provisions hereof shall be unimpaired.
Such court will have the authority to modify or replace the invalid or
unenforceable term or provision with a valid and enforceable term or provision
that most accurately represents the parties' intention with respect to the
invalid or unenforceable term or provision.
18. SECTION HEADINGS. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
19. COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly authorized and caused this
Agreement to be executed as follows:
Date: ____________________________ PAUL J. MARANGOS,
an individual
__________________________________
Date: ____________________________ CYPROS PHARMACEUTICAL CORPORATION,
a California corporation
By:_______________________________
Name:_____________________________
Title:____________________________
5.
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EXHIBIT A
RELEASE
Certain capitalized terms used in this Release are defined in the
Separation and Consulting Agreement (the "Agreement") which I, PAUL J. MARANGOS,
have executed and of which this Release is a part.
I hereby confirm my obligations under CYPROS PHARMACEUTICAL
CORPORATION'S (the Company) Proprietary Information and Inventions Agreement.
I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any claims I may
have against the Company.
Except as otherwise set forth in this Release, I hereby release, acquit
and forever discharge the Company, its parents and subsidiaries, and their
officers, directors, agents, servants, employees, shareholders, successors,
assigns and affiliates, of and from any and all claims, liabilities, demands,
causes of action, costs, expenses, attorneys fees, damages, indemnities and
obligations of every kind and nature, in law, equity, or otherwise, known and
unknown, suspected and unsuspected, disclosed and undisclosed (other than any
claim for indemnification I may have as a result of any third party action
against me based on my employment with the Company), arising out of or in any
way related to agreements, events, acts or conduct at any time prior to the date
I execute this Release, including, but not limited to: all such claims and
demands directly or indirectly arising out of or in any way connected with my
employment with the Company or the termination of that employment, including but
not limited to, claims of intentional and negligent infliction of emotional
distress, any and all tort claims for personal injury, claims or demands related
to salary, bonuses, commissions, stock, stock options, or any other ownership
interests in the Company, vacation pay, fringe benefits, expense reimbursements,
severance pay, or any other form of disputed compensation; claims pursuant to
any federal, state or local law or cause of action including, but not limited
to, the federal Civil Rights Act of 1964, as amended; the federal Age
Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal
Employee Retirement Income Security Act of 1974, as amended; the federal
Americans with Disabilities Act of 1990; the California Fair Employment and
Housing Act, as amended; tort law; contract law; statutory law; common law;
wrongful discharge; discrimination; fraud; defamation; emotional distress; and
breach of the implied covenant of good faith and fair dealing; PROVIDED,
HOWEVER, that nothing in this paragraph shall be construed in any way to release
the Company from its obligation to indemnify me pursuant to the Company's
indemnification obligation pursuant to agreement or applicable law.
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under ADEA. I also acknowledge that the consideration
given under the Agreement for the waiver and release in the preceding paragraph
hereof is in addition to anything of value to
1.
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which I was already entitled. I further acknowledge that I have been advised
by this writing, as required by the ADEA, that: (A) my waiver and release do
not apply to any rights or claims that may arise on or after the date I
execute this Release; (B) I have the right to consult with an attorney prior
to executing this Release; (C) I have twenty-one (21) days to consider this
Release (although I may choose to voluntarily execute this Release earlier);
(D) I have seven (7) days following the execution of this Release by the
parties to revoke the Release; and (E) this Release shall not be effective
until the date upon which the revocation period has expired, which shall be
the eighth day after this Release is executed by me ("Effective Date").
Date: __________________________ ________________________________
PAUL J. MARANGOS
2.
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EXHIBIT 10.21
EXECUTIVE
SEVERANCE BENEFITS AGREEMENT
This EXECUTIVE SEVERANCE BENEFITS AGREEMENT (the "AGREEMENT") is
entered into as of the ___ day of ________, 1999 (the "Effective Date"),
between DAVID W. NASSIF ("EXECUTIVE") and CYPROS PHARMACEUTICAL CORPORATION
(the "COMPANY"). This Agreement is intended to provide Executive with the
compensation and benefits described herein upon the occurrence of specific
events. Certain capitalized terms used in this Agreement are defined in
Article 4.
The Company and Executive hereby agree as follows:
ARTICLE 1
SCOPE OF AND CONSIDERATION FOR THIS AGREEMENT
1.1 Executive is currently employed by the Company.
1.2 The Company and Executive wish to set forth the compensation and
benefits which Executive shall be entitled to receive in the event Executive's
employment with the Company is terminated under the circumstances described
herein following a Change in Control.
1.3 The duties and obligations of the Company to Executive under this
Agreement shall be in consideration for Executive's past services to the
Company, Executive's continued employment with the Company, and Executive's
execution of a release in accordance with Section 3.1.
1.4 This Agreement shall supersede any other agreement relating to cash
severance benefits, health benefits and stock option vesting in the event of
Executive's severance from employment with the Company following a Change in
Control.
ARTICLE 2
SEVERANCE BENEFITS
2.1 SEVERANCE BENEFITS. A Covered Termination (as defined in Article 4)
entitles Executive to receive the following benefits set forth in Sections 2.2,
2.3, 2.4, and 2.5. The parties acknowledge and agree that the payment of such
benefits are conditioned upon and subject to the closing of the Change in
Control transaction.
2.2 SEVERANCE PAYMENT. Executive shall receive a severance payment equal
to twelve (12) months of his Base Salary. The severance payment shall be paid in
a lump sum upon the Payment Date and shall be subject to all required tax
withholding.
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2.3 BONUS.
(a) The Company shall pay to Executive a cash bonus upon the later of
the date of the Covered Termination or the closing of the Change in Control
transaction, equal to the amount payable according to the terms of Executive's
Bonus Agreement dated January 18, 1999, a copy of which is attached hereto as
Exhibit A. Such amount shall be subject to all required tax withholding.
(b) Notwithstanding anything herein to the contrary, Executive shall
be entitled to receive compensation under a retention bonus agreement with the
Company in connection with any Change in Control transaction.
2.4 HEALTH AND DISABILITY BENEFITS. Provided that Executive elects
continued coverage under federal COBRA law, the Company shall pay the premiums
of Executive's group health insurance coverage, including coverage for
Executive's eligible dependents, for a maximum period of twelve (12) months
following a Covered Termination; PROVIDED, HOWEVER, that (i) the Company shall
pay premiums for Executive's eligible dependents only for coverage for which
those eligible dependents were enrolled immediately prior to the Covered
Termination and (ii) the Company's obligation to pay such premiums shall cease
immediately upon Executive's eligibility for group health insurance provided by
a new employer of Executive. No premium payments will be made following the
effective date of Executive's coverage by a health insurance plan of a
subsequent employer. For the balance of the period that Executive is entitled to
coverage under federal COBRA law, if any, Executive shall be entitled to
maintain such coverage at Executive's own expense. The Company will use its best
efforts to continue Executive's participation in the Company's long term and
short term disability policies, as well as Executive's individual long term
disability policy. The Company will pay for the premiums of such coverage for
the same period of time that the Company pays for Executive's group health
insurance premiums under COBRA.
2.5 OPTION VESTING AND EXERCISABILITY. If Executive's employment with the
Company terminates due to a Covered Termination, then all outstanding options of
Executive to purchase the Company's common stock (or the stock of a successor to
the Company by reason of assumption or substitution of options) shall
immediately vest and become exercisable. All such options shall be exercisable
until the date two (2) years after the date of Executive's termination of
employment. During the period when Executive's stock options are exercisable,
the Company agrees to provide reasonable consultation concerning SEC regulations
governing his options and Executive's status as a former officer. Such advice
shall be obtained by Executive from the Chief Financial Officer of the Company,
who shall obtain any necessary legal advice for this purpose at the Company's
expense.
2.6 MITIGATION. Except as otherwise specifically provided herein,
Executive shall not be required to mitigate damages or the amount of any payment
provided under this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for under this Agreement be reduced by
any compensation earned by Executive as a result of employment by another
employer or by any retirement benefits received by Executive after the date of
the Covered Termination.
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ARTICLE 3
LIMITATIONS AND CONDITIONS ON BENEFITS
3.1 RELEASE PRIOR TO PAYMENT OF BENEFITS. Upon the occurrence of a
Covered Termination, and prior to the payment of any benefits under this
Agreement on account of such Covered Termination, Executive shall execute a
release (the "Release") in the form attached hereto and incorporated herein as
Exhibit B. Such Release shall specifically relate to all of Executive's rights
and claims in existence at the time of such execution and shall confirm
Executive's obligations under the Company's standard form of proprietary
information and inventions agreement. It is understood that, as specified in the
applicable Release, Executive has a certain number of calendar days to consider
whether to execute such Release, and Executive may revoke such Release within
seven (7) calendar days after execution. In the event Executive does not execute
such Release within the applicable period, or if Executive revokes such Release
within the subsequent seven (7) day period, no benefits shall be payable under
this Agreement, and this Agreement shall be null and void.
3.2 TERMINATION OF BENEFITS. Benefits under this Agreement shall
terminate immediately if the Executive, at any time, violates any proprietary
information or confidentiality obligation to the Company.
3.3 NON-DUPLICATION OF BENEFITS. Executive is not eligible to receive
benefits under this Agreement more than one time.
ARTICLE 4
DEFINITIONS
For purposes of the Agreement, the following terms are defined as
follows:
4.1 "BASE SALARY" means Executive's annual base salary as in effect
during the last regularly scheduled payroll period immediately preceding the
Covered Termination.
4.2 "BOARD" means the Board of Directors of the Company.
4.3 "CAUSE" means that, in the reasonable determination of the Company
or, in the case of the Chief Executive Officer, the Board, Executive:
(a) has committed an act that materially injures the business of the
Company;
(b) has refused or failed to follow lawful and reasonable directions of
the Board or the appropriate individual to whom Executive reports;
(c) has willfully or habitually neglected Executive's duties for the
Company; or
(d) has been convicted of a felony involving moral turpitude that is
likely to inflict or has inflicted material injury on the business of the
Company.
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Notwithstanding the foregoing, Cause shall not exist based on conduct
described in clause (b) or clause (c) unless the conduct described in such
clause has not been cured within fifteen (15) days following Executive's receipt
of written notice from the Company or the Board, as the case may be, specifying
the particulars of the conduct constituting Cause.
4.4 "INVOLUNTARY TERMINATION WITHOUT CAUSE" means Executive's dismissal
or discharge other than for Cause. The termination of Executive's employment as
a result of Executive's death or disability will not be deemed to be an
Involuntary Termination Without Cause.
4.5 "CHANGE IN CONTROL" means
(a) a sale of substantially all of the assets of the Company;
(b) a merger or consolidation in which the Company is not the
surviving corporation (other than a merger or consolidation in which
shareholders immediately before the merger or consolidation have, immediately
after the merger or consolidation, equal or greater stock voting power);
(c) a reverse merger in which the Company is the surviving corporation
but the shares of the Company's common stock outstanding immediately preceding
the merger are converted by virtue of the merger into other property, whether in
the form of securities, cash or otherwise (other than a reverse merger in which
shareholders immediately before the merger have, immediately after the merger,
greater stock voting power); or
(d) any transaction or series of related transactions in which in
excess of 40% of the Company's voting power is transferred.
4.6 "COMPANY" means Cypros Pharmaceutical Corporation or, following a
Change in Control, the surviving entity resulting from such transaction.
4.7 "COVERED TERMINATION" means an Involuntary Termination Without Cause
or a resignation by Executive, for any reason, occurring within six (6) months
before or thirteen (13) months after the effective date of a Change in Control
of the Company; provided that if Executive resigns, he shall provide at least
three (3) weeks' notice prior to termination.
4.8 "PAYMENT DATE" means (a) in the event of an Involuntary Termination
Without Cause, the date of such termination and (b) in the event of a
resignation by Executive (i) if the resignation occurs prior to the closing of
the Change in Control transaction, then the Payment Date shall be the date of
the closing of the Change in Control transaction and (ii) if the resignation
occurs on or after the date of the closing of the Change in Control transaction,
then the Payment Date shall be the effective date of the resignation.
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ARTICLE 5
GENERAL PROVISIONS
5.1 EMPLOYMENT STATUS; EMPLOYMENT AGREEMENT SUPERCEDED. This Agreement
does not constitute a contract of employment or impose upon Executive any
obligation to remain as an employee, or impose on the Company any obligation (i)
to retain Executive as an employee, (ii) to change the status of Executive as an
at-will employee, or (iii) to change the Company's policies regarding
termination of employment. In the event of any conflict between the provisions
of this Agreement and the provisions of any other previously existing
employment, severance or other similar agreement, then the provisions of this
Agreement shall govern.
5.2 NOTICES. Any notices provided hereunder must be in writing, and such
notices or any other written communication shall be deemed effective upon the
earlier of personal delivery (including personal delivery by facsimile) or the
third day after mailing by first class mail, to the Company at its primary
office location and to Executive at Executive's address as listed in the
Company's payroll records. Any payments made by the Company to Executive under
the terms of this Agreement shall be delivered to Executive either in person or
at the address as listed in the Company's payroll records.
5.3 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
5.4 WAIVER. If either party should waive any breach of any provisions of
this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
5.5 ARBITRATION. Unless otherwise prohibited by law or specified below,
all disputes, claims and causes of action, in law or equity, arising from or
relating to this Agreement or its enforcement, performance, breach, or
interpretation shall be resolved solely and exclusively by final and binding
arbitration held in San Diego County, California through American Arbitration
Association ("AAA") under the then existing AAA arbitration rules. However,
nothing in this section is intended to prevent either party from obtaining
injunctive relief in court to prevent irreparable harm pending the conclusion of
any such arbitration. Each party in any such arbitration shall be responsible
for its own attorneys' fees, costs and necessary disbursement; PROVIDED,
however, that in the event one party refuses to arbitrate and the other party
seeks to compel arbitration by court order, if such other party prevails, it
shall be entitled to recover reasonable attorneys' fees, costs and necessary
disbursements. Pursuant to California Civil Code Section 1717, each party
warrants that it was represented by counsel in the negotiation and execution of
this Agreement, including the attorneys' fees provision herein.
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5.6 COMPLETE AGREEMENT. This Agreement, including Exhibits A and B,
constitutes the entire agreement between Executive and the Company and is the
complete, final, and exclusive embodiment of their agreement with regard to this
subject matter, wholly superseding all written and oral agreements with respect
to cash severance benefits and health benefits to Executive in the event of
employment termination other than any outstanding loans by the Company to
Executive. It is entered into without reliance on any promise or representation
other than those expressly contained herein.
5.7 AMENDMENT OR TERMINATION OF AGREEMENT. This Agreement may be changed
or terminated only upon the mutual written consent of the Company and Executive.
The written consent of the Company to a change or termination of this Agreement
must be signed by an executive officer of the Company after such change or
termination has been approved by the Board.
5.8 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
5.9 HEADINGS. The headings of the Articles and Sections hereof are
inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning thereof.
5.10 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Executive, and the Company, and any
surviving entity resulting from a Change in Control and upon any other person
who is a successor by merger, acquisition, consolidation or otherwise to the
business formerly carried on by the Company, and their respective successors,
assigns, heirs, executors and administrators, without regard to whether or not
such person actively assumes any rights or duties hereunder; PROVIDED, HOWEVER,
that Executive may not assign any duties hereunder and may not assign any rights
hereunder without the written consent of the Company, which consent shall not be
withheld unreasonably.
5.11 CHOICE OF LAW. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the law of the State of
California, without regard to such state's conflict of laws rules.
5.12 NON-PUBLICATION. The parties mutually agree not to disclose publicly
the terms of this Agreement except to the extent that disclosure is mandated by
applicable law or to respective advisors (E.G., attorneys, accountants).
5.13 CONSTRUCTION OF AGREEMENT. In the event of a conflict between the
text of the Agreement and any summary, description or other information
regarding the Agreement, the text of the Agreement shall control.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
Effective Date written above.
CYPROS PHARMACEUTICAL CORPORATION DAVID W. NASSIF
By:
--------------------------------- ----------------------------------
Name:
-------------------------------
Title:
------------------------------
Exhibit A: Bonus Agreement
Exhibit B: Release
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EXHIBIT 10.22
RETENTION BONUS AGREEMENT
THIS RETENTION BONUS AGREEMENT (this "Agreement") is made and entered into
effective as of _________, 1999 (the "Effective Date"), between Cypros
Pharmaceutical Corporation, a California corporation (the "Company"), and
______________ ("Employee").
RECITALS
A. Employee is presently employed by Cypros Pharmaceutical Corporation.
B. Cypros Pharmaceutical Corporation, Cypros Acquisition Corporation and
Ribogene, Inc. have entered into an Agreement and Plan of Reorganization, dated
as of August 4, 1999 (the "Merger Agreement"), which provides that Cypros
Acquisition Corporation will merge with and into Ribogene, Inc. under certain
terms and subject to certain conditions (the "Merger").
C. Employee occupies a key position with the Company, and the Company may
require the services of Employee for a certain period of time in order to
effectively administer certain aspects of the Company's business through the
date of the Merger and thereafter.
D. The Company desires to offer Employee a retention bonus as an
incentive for Employee to remain in the employment of the Employer (as defined
below) until (i) the closing of the Merger; or, (ii) if the Company deems the
Employee to be integral in facilitating the integration of the merged companies,
then until 90 days after the closing of the Merger (the "Incentive Date").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and with reference to the above recitals, the parties hereby
agree as follows:
1. RETENTION BONUSES.
(a) INTERIM BONUS UPON MERGER. In the event that the Employee is
employed by the Employer on the date of the Merger, then the Company shall pay
to Employee an interim retention bonus, in a lump sum payment, in an amount
equal to 100% of Employee's base salary (determined based on Employee's rate of
base salary) for the period from the Effective Date to the date of the Merger.
For purposes of this Section 1(a), the rate of Employee's base salary for such
period shall be the rate of Employee's base salary in effect on the date of the
Merger (or, if greater, the rate of Employee's base salary in effect on the
Effective Date). Such lump sum payment shall be made within 10 days following
the date of the Merger.
(b) BONUS ON INCENTIVE DATE. In the event that the Company provides
notice to Employee prior to the Merger that Employee is eligible for a retention
bonus under this Section 1(b), the Merger occurs, and Employee is employed by
the Employer on the Incentive Date, then the Company shall pay to Employee a
retention bonus, in a lump sum payment, in an amount equal to 100% of Employee's
base salary (determined based on Employee's rate of base salary) for the period
from the Effective Date to the Incentive Date, reduced by the amount (if any) of
the interim retention bonus to which Employee is entitled under Section 1(a).
For purposes of this Section 1(b), the rate of Employee's base salary for such
period shall be the rate
1.
<PAGE>
of Employee's base salary in effect on the date of the Incentive Date (or, if
greater, the rate of Employee's base salary in effect on the Effective Date).
Such lump sum payment shall be made within 10 days following the Incentive Date.
(c) TERMINATION OF MERGER AGREEMENT. In the event that the Merger
Agreement is terminated prior to the occurrence of the Merger, and Employee is
employed by the Employer on the date of the termination of the Merger Agreement,
the Company shall pay to Employee a retention bonus, in a lump sum payment, in
an amount equal to 100% of Employee's base salary (determined based on
Employee's rate of base salary) for the period from the Effective Date to March
31, 2000. For purposes of this Section 1(c), the rate of Employee's base salary
for such period shall be the rate of Employee's base salary in effect on the
date of termination of the Merger Agreement (or, if greater, the rate of
Employee's base salary in effect on the Effective Date). Such lump sum payment
shall be made within 10 days following the date of termination of the Merger
Agreement.
(d) DEFINITION OF RETENTION BONUS. For purposes of this Agreement,
the "Retention Bonuses" shall mean the retention bonus or bonuses to be paid
pursuant to Section 1(a), 1(b) or 1(c).
2. TERMINATION BONUS.
(a) Termination prior to Merger. In the event that Employee's
employment by the Employer is terminated by the Employer without Cause (as
defined below) prior to the date of the Merger, then the Company shall pay to
Employee a termination bonus, in a lump sum payment, in an amount equal to 100%
of Employee's base salary (determined based on Employee's rate of base salary)
for the period from the Effective Date to March 31, 2000; provided, however,
that no Termination Bonus under this Section 2(a) shall be paid to Employee if
Employee becomes entitled to a Retention Bonus under Section 1(c) above prior to
such termination of employment. Such lump sum payment shall be made within 10
days following Employee's termination of employment.
(b) TERMINATION ON OR AFTER MERGER. In the event that the Merger
occurs, and Employee's employment by the Employer is terminated by the Employer
without Cause (as defined below) on or after the date of the Merger and prior to
the Incentive Date, then the Company shall pay to Employee a termination bonus,
in a lump sum payment, in an amount equal to 100% of Employee's base salary
(determined based on Employee's rate of base salary) for the period from the
date of the Effective Date to March 31, 2000, reduced by the amount (if any) of
the interim retention bonus to which Employee is entitled under Section 1(a).
Such lump sum payment shall be made within 10 days following Employee's
termination of employment.
(c) RATE OF BASE SALARY. For purposes of this Section 2, the rate of
Employee's base salary shall be the rate of base salary in effect immediately
prior to Employee's termination of employment (or, if greater, the rate of
Employee's base salary in effect as of the Effective Date). Also, for purposes
of this Section 2, in the event that Employee ceases to be employed by the
Employer (as defined below) because Employee's employer ceases to be a direct or
indirect, majority-owned subsidiary of the Company (whether by stock sale,
merger or
2.
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other transaction), such Employee's employment by the Employer shall be treated
as terminated by the Employer without Cause.
(d) DEFINITION OF TERMINATION BONUS. For purposes of this Agreement,
the "Termination Bonus" shall mean the termination bonus to be paid pursuant to
Section 2(a) or 2(b).
3. DEFINITION OF TERMS. For purposes of this Agreement, the "Employer"
shall mean the Company and its direct and indirect majority-owned subsidiaries,
as determined from time to time, and "Cause" shall mean (i) a material and
willful violation of any federal or state law by Employee, (ii) the commission
of a fraud by Employee against the Employer, (iii) Employee's repeated
unexplained or unjustified absence from the Employer, or (iv) Employee's gross
negligence or willful misconduct where such gross negligence or willful
misconduct has resulted or is likely to result in substantial and material
damage to the Employer.
4. SEVERANCE BENEFITS. This Agreement shall not affect Employee's
eligibility or entitlement to receive benefits under the Cypros Pharmaceutical
Corporation Severance Benefits Plan or any Executive Severance Benefits
Agreement.
5. OTHER PROVISIONS.
(a) WITHHOLDING. The Retention Bonus or Termination Bonus payable to
Employee shall be subject to applicable taxes and withholding.
(b) OTHER RIGHTS AND AGREEMENTS. This Agreement does not create any
rights to employment rights or other rights not specifically set forth herein
with respect to Employee. This Agreement contains the entire understanding of
the Company and Employee with respect to the subject matter hereof.
(c) AMENDMENT. This Agreement may be amended or revised only by
written agreement signed by an authorized officer of the Company and Employee.
(d) APPLICABLE LAW. This Agreement shall be construed and enforced
in accordance with the laws of the State of California, without giving effect to
the principles of conflict of laws thereof.
(e) WAIVER. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by Employee and by an authorized officer of the Company
(other than Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(f) ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement may be settled at the option of either party by
binding arbitration in the County of Alameda, California, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction. Punitive
damages shall not be awarded.
3.
<PAGE>
(g) NO ASSIGNMENT OF BENEFITS. The rights of any person to payment
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (h) shall be
void.
(h) AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS. This Agreement
shall inure to the benefit of and shall be binding upon the Company and its
respective successors and assigns, including any purchaser of all or
substantially all of its assets, and shall be binding upon Employee's assigns,
executors, administrators, Beneficiaries, or their legal representatives. As
used in this Agreement, the "Company" shall include any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by operation of
law, or otherwise.
(i) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CYPROS PHARMACEUTICAL CORPORATION
By:
----------------------------------------
Title:
----------------------------------
Date:
--------------------
"EMPLOYEE"
By:
----------------------------------------
Print Name
------------------------------------------
Signature
Date:
--------------------
4.
<PAGE>
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
OF CHARLES J. CASAMENTO
This Employment Agreement (the "Agreement") is made and entered
into as of August 4, 1999, by and between Cypros Pharmaceutical Corporation,
a California corporation (the "Company"), and Charles J. Casamento
("Executive").
RECITALS
A. Executive has heretofore been employed as President and
Chief Executive Officer of RiboGene, Inc., a Delaware corporation
("RiboGene"), and has served as the Chairman of the Board of Directors of
RiboGene.
B. The Company, Cypros Acquisition Corporation and RiboGene
have entered into the Agreement and Plan of Reorganization dated as of August
4, 1999 (the "Merger Agreement"), which provides that Cypros Acquisition
Corporation will merge with and into RiboGene, on the terms and subject to
certain conditions (the "Merger").
C. RiboGene and Executive are parties to the Letter
Agreement, dated May 11, 1993, pursuant to which Executive has been employed
by RiboGene (the "Prior Employment Agreement").
D. RiboGene and Executive are also parties to the Change of
Control Agreement dated as of July 20, 1995, pursuant to which Executive is
entitled to certain benefits upon termination of employment (the "Prior
Change of Control Agreement").
E. RiboGene and Executive are also parties to the Stock
Option Agreements listed on Exhibit A hereto (the "Prior Stock Option
Agreements") and the Restricted Stock Agreement dated as of December 21,
1998, as amended as of July 30, 1999 (the "Prior Restricted Stock Agreement").
F. The Company desires to retain the services of the
Executive, and Executive desires to be employed by the Company, effective as
of the Merger, on the terms and subject to the conditions set forth in this
Agreement.
G. This Agreement will supercede the Prior Employment
Agreement and the Prior Change of Control Agreement, and such Agreements
shall terminate effective on the Merger.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and with reference to the above recitals, the
parties hereby agree as follows:
<PAGE>
ARTICLE 1.
EFFECTIVE DATE;
TERM OF EMPLOYMENT AND
PRIOR AGREEMENTS
1.1 MERGER EFFECTIVE TIME. This Agreement shall become effective as
of the "Effective Time" (as defined in the Merger Agreement), and the date
during which the "Effective Time" occurs shall be referred to herein as the
"Effective Date." In the event that the Merger does not occur, this Agreement
shall not become effective and shall be null and void.
1.2 TERM OF EMPLOYMENT. Subject to extension in accordance with
Section 1.3, the term of this Agreement shall commence on the Effective Date
and shall continue until December 31, 2001 (the "Initial Term"), unless
terminated earlier in accordance with Article 6 of this Agreement. On the
last day of the Term (as defined below), Executive shall immediately resign
from all positions with the Company.
1.3 EXTENSION OF TERM. The term of this Agreement shall be
automatically extended by one year on December 31, 2001 (and each anniversary
thereof), unless either party elects not to so extend the term of the
Agreement. A party shall elect not to extend the term of this Agreement by
notifying the other party, in writing, of such election not less than six
months prior to the last day of the term of the Agreement then in effect. Any
extension shall become effective immediately following six months prior to
the last day of the term of the Agreement then in effect. For purposes of
this Agreement, the "Term" shall mean the period commencing on the Effective
Date and ending on the last day of the Initial Term (or the term of this
Agreement, as extended in accordance with this Section 1.3).
1.4 TERMINATION OF PRIOR AGREEMENTS.
(a) Effective as of the "Effective Time" (as defined in the
Merger Agreement), the Prior Employment Agreement and Executive's employment
by RiboGene thereunder shall terminate. Except as otherwise provided in this
Agreement, such termination shall not affect Executive's rights to
compensation, benefits and expense reimbursements under the Prior Employment
Agreement relating to the period prior to the Effective Time. As provided in
Sections 3.4 and 3.5, the Prior Stock Options and the Prior Restricted Stock
shall not become fully vested upon the Merger pursuant to Section 3(c) of the
Prior Employment Agreement, and Executive shall not receive salary
continuation benefits under Section 6 of the Prior Employment Agreement.
Effective as of the "Effective Time" (as defined in the Merger Agreement),
Executive shall hereby waive any and all rights under the Prior Employment
Agreement relating to the period on or after the "Effective Time" (including,
without limitation, any right to full vesting of the Prior Stock Options or
the Prior Restricted Stock as a result of the Merger and any right to salary
continuation benefits under Section 6 of the Prior Employment Agreement).
(b) Effective as of the Effective Time, the Prior Change in
Control Agreement shall terminate, and Executive shall waive any and all
rights under such Agreement.
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ARTICLE 2.
EMPLOYMENT, DUTIES AND DIRECTORSHIP
2.1 EMPLOYMENT. During the Term, the Company shall employ
Executive, and Executive shall accept employment with the Company, upon the
terms and subject to the conditions set forth in this Agreement.
2.2 POSITION. During the Term, Executive shall serve as President
and Chief Executive Officer of the Company, and shall hold such other
position or positions as the parties mutually agree in writing. Executive
shall report directly to the Board of Directors of the Company (the "Board").
As President and Chief Executive Officer, Executive shall have overall
responsibility for directing the Company toward the achievement of its
business objectives as developed by the Board. Upon the termination of
Executive's employment hereunder in accordance with Section 6, Executive
shall immediately resign as President and Chief Executive Officer of the
Company (and from all other positions with the Company).
2.3 DUTIES. During the Term, Executive shall devote his full
business time, attention and energies to the business of the Company and use
his best efforts to promote the interest of the Company. Executive shall
perform such duties, services and responsibilities incident to the
Executive's positions which are reasonably consistent with such positions and
shall act in accordance with the policies and directives of the Company as
determined from time to time.
2.4 PRINCIPAL LOCATION. The principal location at which Executive's
services are to be performed shall be at the Company's principal offices.
2.5 DIRECTORSHIP; TERMINATION OF DIRECTORSHIP.
(a) During the Term, Executive shall serve as Chairman of
the board, subject to election and reelection by the Company's shareholders
in accordance with the Company's Articles of Incorporation and Bylaws.
Executive shall devote such time to the business of the Company as is
necessary for the fulfillment of Executive's duties as Chairman of the Board.
During the Term, Executive shall not be paid a fee for serving as Chairman of
the Board or as a Director. The Company shall reimburse Executive for
reasonable expenses incurred in connection with his service as Chairman of
the Board and a member of the Board.
(b) During the Term, the Company shall nominate Executive as
a member of the Board, shall recommend that Executive be appointed, elected
or reelected as a member of the Board, and shall include Executive on the
management slate of Board member candidates recommended for election to the
Company's shareholders for each annual meeting of the Company's shareholders
held during the Term and at which Board members are elected.
(c) On the last day of the Term (or upon the termination of
Executive's employment hereunder in accordance with Article 6), Executive
shall immediately resign as Chairman of the Board and as a member of the
Board.
2.6 OTHER ACTIVITIES. Subject to Article 9, Executive may engage in
other activities and invest his personal assets in other businesses or
ventures to the extent that such other
3
<PAGE>
activities, businesses or ventures to not materially interfere with the
performance of his duties under this Agreement.
ARTICLE 3.
SALARY, BONUS AND STOCK OPTIONS
3.1 BASE SALARY. During the Term, the Company shall pay Executive a
base salary ("Base Salary") at an annual rate of not less than $341,250 prior
to January 1, 2000, and at an annual rate of not less than $375,000
thereafter, subject to increase as provided in this Section 3.1. Such annual
rate shall be reviewed by the Board at least annually and may be increased
(but not reduced) by the Board in such amounts as the Board deems appropriate
in its sole discretion.
3.2 ANNUAL BONUS. The Company shall provide Executive with the
opportunity to receive an annual bonus ("Bonus") for each fiscal year of the
Company, ending during the Term. The annual bonus opportunity (the "Bonus
Opportunity") shall be 50% of the Executive's annual rate of base salary, and
the Board shall determine the terms and conditions under which Executive
shall receive all or a portion of the Bonus Opportunity for each fiscal year
of the Company after consultation with Executive. To the extent that
Executive is entitled to receive all or a portion of the Bonus Opportunity
with respect to a fiscal year of the Company, such payment shall be made
within 60 days following the end of such fiscal year.
3.3 NEW OPTIONS.
(a) NEW FOUR YEAR OPTION. Effective as of the Effective
Date, the Company shall grant to Executive an option (the "New Four Year
Option") representing the right to purchase 403,549 shares of Common Stock,
no par value, of the Company ("Company Common Stock"). The New Four Year
Option shall be exercisable at an exercise price equal to the closing price
of the Company Common Stock on the Effective Date. The New Four Year Option
shall vest and become exercisable over a period of four (4) years commencing
on the date of grant, on a cumulative basis, at the rate of one quarter (1/4)
of the number of shares of Company Common Stock subject to the New Four Year
Option on the first anniversary of the date of grant and one forty-eighth
(1/48) of the number of shares of Company Common Stock subject to such New
Four Year Option on the last day of each calendar month following such date.
(b) NEW PERFORMANCE OPTION. Effective as of the Effective
Date, the Company shall also grant to Executive an option (the "New
Performance Option") representing the right to purchase 665,000 shares of
Company Common Stock. The New Performance Option shall be exercisable at an
exercise price equal to the closing price of the Company Common Stock on the
Effective Date. The New Performance Option shall become fully vested and
exercisable on the eighth anniversary of the date of grant, and shall vest
and become exercisable prior to such date upon the achievement of objective
performance targets to be determined in accordance with this Section 3.3(b).
As soon as reasonably practicable following the Effective Date, Executive
shall propose to the Board objective performance targets, the achievement of
which shall result in the vesting of the New Performance Option. The Board
and Executive shall each negotiate in good faith and use their reasonable
best efforts to mutually agree to the terms and conditions of the objective
performance targets to be achieved, and the portions of the New Performance
Option to be vested upon the achievement of such objective performance
targets.
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The Board and Executive shall enter into such agreement not later than
December 31, 1999 (or, if later, forty-five (45) days following the Effective
Date), and such agreement shall provide that the objective performance
targets are to be achieved during the period ending two (2) years from the
date of such agreement.
(c) Subject to Article 7, the New Four Year Option and the
New Performance Option (collectively, the "New Options") shall contain such
other terms and conditions as the Company and Executive shall mutually
determine. The Company shall reserve for issuance the shares of Company
Common Stock subject to the New Options and shall prepare and file with the
Securities and Exchange Commission a registration statement on Form S-8 (or
other appropriate form) registering the number of Company Common Stock
subject to the New Options. The Company shall take such actions as are
necessary to maintain the effectiveness of such registration statement during
the term of the New Options.
3.4 ASSUMPTION OF PRIOR STOCK OPTIONS.
(a) Executive holds certain options (the "Prior Stock
Options") to purchase shares of Common Stock, $0.01 par value, of RiboGene
("RiboGene Common Stock"), granted to Executive under the RiboGene, Inc. 1993
Stock Plan and the RiboGene, Inc. 1997 Equity Incentive Plan (the "RiboGene
Plans"). The Prior Stock Options were granted pursuant to the Prior Stock
Option Agreements listed in Exhibit A. The Company shall assume the Prior
Stock Options in accordance with the Merger Agreement and, upon such
assumption, the Prior Stock Options shall be converted into options to
purchase shares of Company Common Stock, subject to the vesting and
exercisability provisions and other terms and conditions specified by the
applicable RiboGene Plan, the applicable Prior Stock Option Agreement and
this Agreement.
(b) Executive shall hereby waive any right under the Prior
Employment Agreement, the RiboGene Plans and the applicable Prior Stock
Option Agreements to the full vesting of the Prior Stock Options as a result
of the Merger.
(c) The Company shall reserve for issuance the shares of
Company Common Stock subject to the Prior Stock Options and shall prepare and
file with the Securities and Exchange Commission a registration statement on
Form S-8 (or other appropriate form) registering the number of shares of
Company Common Stock subject to the Prior Stock Options. The Company shall
take such actions as are necessary to maintain the effectiveness of such
registration statement during the term of the Prior Stock Options.
3.5 SUBSTITUTION OF RESTRICTED STOCK.
(a) Executive holds shares of RiboGene Common Stock (the
"Prior Restricted Stock") subject to certain restrictions, awarded to
Executive under the RiboGene, Inc. 1997 Equity Incentive Plan. The Prior
Restricted Stock was granted pursuant to the Prior Restricted Stock
Agreement. The Company shall issue shares of Company Common Stock to
Executive in substitution for the Prior Restricted Stock in accordance with
the Merger Agreement and, upon such issuance, the Prior Restricted Stock
shall be surrendered for cancellation. Such shares of Company Common Stock
shall be subject to the restrictions, vesting and reacquisition provisions
and the other terms and conditions specified by the RiboGene, Inc. 1997
Equity Incentive Plan, the Prior Restricted Stock Agreement and this
Agreement.
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<PAGE>
(b) Executive shall hereby waive any right under the Prior
Employment Agreement, the RiboGene, Inc. 1997 Equity Incentive Plan and the
Prior Restricted Stock Agreement to the full vesting of the Prior Restricted
Stock as a result of the Merger.
3.6 WITHHOLDING. The Company shall deduct or withhold from the
compensation and benefits payable to Executive hereunder any and all sums
required for federal income and employment taxes and all state or local
income taxes now applicable or that may be enacted and become applicable
during the Term.
ARTICLE 4.
EMPLOYEE BENEFITS
4.1 EMPLOYEE BENEFITS. During the Term, the Company shall provide
Executive with the following benefits.
(a) BENEFIT PLANS. Executive shall be entitled to all ordinary
and customary perquisites afforded to executive employees of the Company, at
the Company's sole expense (except to the extent employee contributions may
be required under the Company's benefit plans as they may now or hereafter
exist), which shall in no event be less than the benefits afforded to
Executive on the date hereof and the other executive employees of the Company
as of the date hereof or from time to time, but in any event shall include
any qualified or non-qualified pension, profit sharing and savings plans, any
death benefit and disability benefit plans, life insurance coverages, any
medical, dental, health and welfare plans or insurance coverages and any
stock purchase programs that are approved by the Board on terms and
conditions at least as favorable as provided to Executive on the date hereof
and other senior executives of the Company as of the date hereof or from time
to time.
(b) MEDICAL EXPENSE REIMBURSEMENT. During the Term, the
Company shall provide health insurance benefits coverage under the Company's
health insurance plan for the benefit of the Executive and shall reimburse
the Executive for any medical expenses which are not covered pursuant to that
health insurance plan (but in no event shall the Company reimburse more than
$50,000 in medical expenses each calendar year). The Company shall pay
additional compensation to Executive in an amount necessary to reimburse
Executive, on an after-tax basis, for the additional income and employment
taxes incurred by Executive as a result of the uninsured health expenses
reimbursed by the Company.
(c) TERM LIFE INSURANCE. The Company shall pay the premiums
for a $1,000,000 term life insurance policy, the beneficiary or beneficiaries
of which shall be named by Executive. Such premiums shall be considered
compensation for federal income tax purposes and will be subject to income
tax withholding.
(d) DISABILITY INSURANCE. The Company shall pay or reimburse
Executive for premiums for long-term disability insurance that will provide
disability benefits in an amount not less than 80% of Executive's Base
Salary. Such insurance benefits shall be under such terms and conditions as
are mutually determined by the Company and Executive. Premium payments made
by the Company will be reported as compensation for federal income tax
purposes and will be subject to income tax withholding. The Company shall pay
additional compensation to
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Executive in an amount necessary to reimburse Executive, on an after-tax
basis, for the additional income and employment taxes incurred by Executive as a
result of the premium payments reimbursed by the Company.
4.2 VACATION. During the Term, Executive shall be entitled to four
weeks of paid vacation for each year of his employment hereunder, which, to
the extent unused in any given year, may be carried over in accordance with
the policies of the Company then in effect.
4.3 RELOCATION EXPENSES. The Company shall reimburse reasonable,
out-of-pocket expenses incurred by Executive in connection with any
relocation of Executive's principal place of employment, including legal
expenses, expenses incurred in connection with the sale of Executive's home
(such as brokerage fees and closing costs), expenses incurred by Executive in
purchasing a home (such as loan fees), travel expenses from San Francisco,
California to the principal offices of the Company for Executive and
Executive's wife (a maximum of three trips each, coach class) and moving
expenses. The Company shall pay additional compensation to Executive in an
amount necessary to reimburse Executive, on an after-tax basis, for the
additional income and employment taxes incurred by Executive as a result of
the reimbursement of such expenses.
4.4 TEMPORARY LIVING EXPENSES. For a six month period during the
Term, the Company shall pay the Executive up to $2,000 per month for
Executive's reasonable, out-of-pocket, temporary living expenses incurred by
Executive in connection with any relocation of Executive's principal place of
employment. The Company shall pay additional compensation to Executive in an
amount necessary to reimburse Executive, on an after-tax basis, for the
additional income and employment taxes incurred by Executive as a result of
the reimbursement of such expenses.
4.5 MORTGAGE ASSISTANCE LOAN. During the Term, in the event that
Executive is unable to sell his home in the San Francisco, California area
promptly following any relocation of Executive's principal place of
employment, the Company shall make available a bridge loan in an amount not
to exceed $900,000 to provide a down payment on a new home for Executive.
Such loan shall be due and payable on the earlier of six months following the
date of the loan, and 30 days following the sale of Executive's home in the
San Francisco, California area. The loan shall bear interest at the lowest
rate allowed by applicable law without imputing taxable income to Executive,
and such interest shall be due and payable on the maturity of the loan. The
loan shall have such other terms and conditions as the Company and Executive
mutually determine.
ARTICLE 5.
BUSINESS EXPENSES
5.1 BUSINESS EXPENSES. The Company shall pay or reimburse the
Executive for all reasonable and authorized business expenses incurred by the
Executive during the Term.
5.2 BUSINESS TRAVEL. The Company shall reimburse Executive for
expenses incurred for business-related travel. Notwithstanding the above, the
Company shall not pay or reimburse
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Executive for the costs of any business-related travel to the extent such
costs exceed the cost of business class.
5.3 DOCUMENTATION. As a condition to reimbursement under this
Article 5, Executive shall furnish to the Company adequate records and other
documentary evidence required by federal and state statutes and regulations
for the substantiation of each expenditure. Executive acknowledges and agrees
that failure to furnish the required documentation may result in the Company
denying all or part of the expense for which reimbursement is sought.
ARTICLE 6.
TERMINATION OF EMPLOYMENT
6.1 TERMINATION OF EMPLOYMENT. Notwithstanding the provisions of
Article 1, either the Company or Executive may terminate Executive's
employment hereunder during the Term upon, and only upon, the following terms
and conditions:
(a) INVOLUNTARY TERMINATION BY THE COMPANY FOR CAUSE. The
Company may terminate Executive's employment hereunder for "Cause" upon
fifteen (15) days' written notice to Executive. In such event, the Company
shall pay to Executive: (i) his Base Salary through the date of Executive's
termination of employment, and (ii) expenses incurred by Executive prior to
such termination of employment reimbursable under Article 5.
(b) TERMINATION UPON DISABILITY. The Company may terminate
Executive's employment hereunder in the event of Executive's "Disability"
upon sixty (60) days' written notice to Executive. In such event, the Company
shall pay to Executive: (i) his Base Salary until Executive begins to receive
benefits under the long term disability insurance provided under Section
4.1(b), but in no event following twelve (12) months after the date of
Executive's termination of employment, and (ii) expenses incurred by
Executive prior to such termination of employment reimbursable under Article
5. Such Base Salary shall be paid at the annual rate of his Base Salary in
effect on the date of Executive's termination of employment and shall be
payable not less frequently than semi-monthly in accordance with the
Company's executive compensation practices. For purposes of this subparagraph
(b), Executive's "Disability" shall mean a good faith determination by the
Board (acting without participation by Executive), based on competent and
independent medical evidence, that Executive, as a result of a mental or
physical disease or condition expected to continue indefinitely, is incapable
of performing a substantial portion of the services contemplated in this
Agreement.
(c) TERMINATION UPON DEATH. Executive's employment hereunder
shall terminate upon Executive's death. In such event, the Company shall pay
to Executive's estate: (i) his Base Salary until the earlier of twelve (12)
months after the date of Executive's death and the Expiration Date, and (ii)
expenses incurred by Executive reimbursable under Article 5.
(d) INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE. The
Company may terminate Executive's employment hereunder other than for "Cause"
upon ninety (90) days' written notice to Executive. In such event, the
Company shall pay to Executive: (i) his Base Salary until eighteen (18)
months after the date of Executive's termination of employment, and (ii)
expenses incurred by Executive prior to such termination of employment
reimbursable under
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Article 5. Such Base Salary shall be paid at the annual rate of Executive's
Base Salary in effect on the date of Executive's termination and shall be
payable not less frequently than semi-monthly in accordance with the
Company's executive compensation practices. In addition, the Company shall
pay to Executive a prorated bonus in an amount equal to Executive's Bonus
Opportunity for the fiscal year of the Company in which such termination of
employment occurs, multiplied by a fraction, the numerator of which is the
number of days during such fiscal year ending prior to such termination of
employment, and the denominator of which is 365. Such prorated bonus shall be
paid not later than 10 days following such termination of employment. In
addition, each of the Prior Stock Options (as assumed and converted as
provided in Section 3.4) held by Executive shall become immediately vested on
the date of Executive's termination of employment and shall be exercisable in
full in accordance with the provisions of the plan and option agreement
pursuant to which such option was granted, and the Prior Restricted Stock (as
substituted as provided in Section 3.5) held by Executive shall become fully
vested, nonforfeitable and no longer subject to reacquisition or repurchase
by the Company or other restrictions on the date of Executive's termination
of employment. Finally, the New Options shall become vested and exercisable
during the eighteen (18) month period following Executive's termination of
employment with respect to the portions thereof that would have otherwise
become vested and exercisable in accordance with the terms thereof had
Executive continued in employment with the Company during such period.
(e) VOLUNTARY TERMINATION FOR GOOD REASON. Executive may
terminate Executive's employment hereunder for "Good Reason" upon sixty (60)
days' written notice to the Company. In such event, the Company shall pay to
Executive: (i) his Base Salary until eighteen (18) months following such
termination of employment, and (ii) expenses incurred by Executive prior to
such termination of employment reimbursable under Article 5. Such Base Salary
shall be paid at the annual rate of Executive's base salary in effect on the
date of Executive's termination and shall be payable not less frequently than
semi-monthly in accordance with the Company's executive compensation
practices. In addition, the Company shall pay to Executive a prorated bonus
in an amount equal to Executive's Bonus Opportunity for the fiscal year of
the Company in which such termination of employment occurs, multiplied by a
fraction, the numerator of which is the number of days during such fiscal
year ending prior to such termination of employment, and the denominator of
which is 365. Such prorated bonus shall be paid not later than 10 days
following such termination of employment. In addition, each of the Prior
Stock Options (as assumed and converted as provided in Section 3.4) held by
Executive shall become immediately vested on the date of Executive's
termination of employment and shall be exercisable in full in accordance with
the provisions of the plan and option agreement pursuant to which such option
was granted, and the Prior Restricted Stock (as substituted as provided in
Section 3.5) held by Executive shall become fully vested, nonforfeitable and
no longer subject to reacquisition or repurchase by the Company or other
restrictions on the date of Executive's termination of employment. Finally,
the New Options shall become vested and exercisable during the eighteen (18)
month period following Executive's termination of employment with respect to
the portions thereof that would have otherwise become vested and exercisable
in accordance with the terms thereof had Executive continued in employment
with the Company during such period.
(f) VOLUNTARY TERMINATION OTHER THAN FOR GOOD REASON.
Executive may terminate Executive's employment hereunder other than for "Good
Reason" upon sixty (60) days' written notice to the Company. In such event,
the Company shall pay to Executive: (i) his
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Base Salary through the date of Executive's termination of employment, and
(ii) expenses incurred by Executive prior to such termination of employment
reimbursable under Article 5. The Company shall have no further obligation to
pay Executive any Base Salary, Bonus or other compensation or benefits under
this Agreement.
6.2 TERMINATION OF OBLIGATIONS. In the event of the termination of
Executive's employment hereunder pursuant to this Article 6, the Company
shall have no obligation to pay Executive any Base Salary, Bonus or other
compensation or benefits, except as provided in this Article 6 or for
benefits due to Executive (and his dependents) under the terms of the
Company's employee benefit plans.
ARTICLE 7.
CHANGE IN CONTROL
7.1 TERMINATION FOLLOWING A CHANGE OF CONTROL.
(a) Subject to Section 7.3 below, if Executive's employment
with the Company is terminated by the Company (other than for "Cause" or
"Disability" or upon Executive's death) at any time within sixty (60) days
before, or within twelve (12) months after, a Change of Control, or is
terminated by Executive within six (6) months after a Change of Control,
Executive shall be entitled to receive a severance benefit, in a lump sum
payment, in an amount equal to eighteen (18) months of Base Salary at the
annual rate in effect immediately prior to the Change of Control (or, if
greater, the annual rate in effect on the date of termination). In addition,
the Company shall pay to Executive a prorated bonus in an amount equal to
Executive's Bonus Opportunity for the fiscal year of the Company in which
such termination of employment occurs, multiplied by a fraction, the
numerator of which is the number of days during such fiscal year ending prior
to such termination of employment, and the denominator of which is 365. Such
payments shall be paid not later than 10 days following such termination of
employment.
(b) In the event Executive is entitled to a severance
benefit pursuant to Section 7.1(a), then in addition to such severance
benefit, Executive shall receive 100% Company-paid health insurance coverage
as provided to such Executive (and his dependents, if applicable) immediately
prior to Executive's termination of employment (the "Company-Paid Coverage").
Company-Paid Coverage shall continue for eighteen (18) months following
termination of employment or until Executive becomes covered under another
employer's group health insurance plan, whichever occurs first. In addition,
for 18 months following the termination of the Company-Paid Coverage, the
Company shall provide Executive (and his dependents, if applicable) with the
health insurance coverage provided immediately prior to Executive's
termination of employment, at Executive's election and expense.
(c) In the event Executive is entitled to severance benefits
pursuant to Section 7.1(a), each of the Prior Stock Options (as assumed and
converted as provided in Section 3.4), the New Options and each other stock
option exercisable for shares of Company Common Stock held by Executive shall
become immediately vested on the date of Executive's termination of
employment and shall be exercisable in full in accordance with the provisions
of the plan and option agreement pursuant to which such option was granted.
Executive shall have the right to
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request an extension of the exercise period of each such stock option for a
period of one (1) year following the later of the end of the severance period
or the expiration of a lock-up agreement imposed on the Company's optionees
at the time of Executive's termination of employment. In addition, the Prior
Restricted Stock (as substituted as provided in Section 3.5) and each other
share of the Company's Common Stock held by Executive that is subject to a
forfeiture, reacquisition or repurchase option held by the Company shall
become fully vested, nonforfeitable and no longer subject to reacquisition or
repurchase by the Company or other restrictions on the date of Executive's
termination of employment.
(d) In the event Executive is entitled to severance benefits
pursuant to Section 7.1(a), any and all outstanding loans shall be forgiven
in their entirety. Any and all security for such loans shall also be rendered
free and clear on any claims, liens, or encumbrances. This provision shall
apply to all loans with Executive in existence as of the effective date of
this agreement and any future loans unless forgiveness of such future loans
under the conditions contained herein are expressly prohibited by the terms
and conditions of such future loans.
(e) Any payments and benefits under this Section 7.1 shall
be in lieu of any payments and benefits under Article 6. In the event
Executive is entitled to payments and benefits under this Article 7.1, the
Company shall have no further obligation to pay Executive any Base Salary,
Bonus or other compensation or benefits under this Agreement, except for
benefits due to Executive (or his dependents) under the terms of the
Company's employee benefit plans.
7.2 DEFINITION OF TERMS. The following terms referred to in
Articles 6 and 7 shall have the following meanings:
(a) CHANGE OF CONTROL. "Change of Control" shall mean the
occurrence of any of the following events (other than the Merger) that occur
following the Effective Date:
(i) OWNERSHIP. Any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power
represented by the Company's then outstanding voting securities; or
(ii) MERGER OR SALE OF ASSETS. A merger or consolidation
of the Company whether or not approved by the Board, other than a merger
or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the
total voting power represented by the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation, or the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets; or
(iii) CHANGE IN BOARD COMPOSITION. A change in the
composition of the Board, as a result of which fewer than a majority of
the directors are Incumbent
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Directors. "Incumbent Directors" shall mean directors who either (A) are
directors of the Company as of the Effective Date, or (B) are elected,
or nominated for election, to the Board with the affirmative votes of at
least a majority of the Incumbent Directors at the time of such election
or nomination (but shall not include an individual whose election or
nomination is in connection with an actual or threatened proxy contest
relating to the election of directors to the Company).
(b) CAUSE. "Cause" shall mean: (i) a material and willful
breach of any material term of this Agreement by Executive, (ii) willful
conduct by Executive that is materially injurious to the Company (or any
affiliate or successor thereto, whether financially or otherwise), or (iii)
Executive's conviction of a felony or a misdemeanor involving moral turpitude.
(c) GOOD REASON. "Good Reason" shall mean: (i) a material
diminution in Executive's position, power or duties relative to Executive's
position, power and duties in effect at any time during the Term, (ii) a
material breach of the Agreement by the Company; (iii) the relocation of the
Company's principal offices to a location to a location more than 50 miles
from the location of the Company's principal offices; or (iv) the failure of
Executive to be nominated as a Director, or the failure of Executive to be
elected as a Board member or as Chairman (other than as a result of
Executive's failure to stand for election), or the removal of Executive as
Chairman or as a Board member. During the period of notice set forth above,
the Company shall be afforded reasonable opportunity to establish, to the
reasonable satisfaction of Executive, that the "Good Reason" circumstances
referred to in Executive's notice were not present on the date of such
notice, or are no longer present, in which case Executive's employment and
service as Chairman hereunder shall not terminate under this subparagraph (c).
(d) DISABILITY. "Disability" shall mean that Executive has
been unable to perform his duties under this Agreement as the result of his
or her incapacity due to physical or mental illness, and such inability, at
least 26 weeks after its commencement, is determined to be total and
permanent by a physician selected by the Company or its insurer and
acceptable to Executive or Executive's legal representatives (such agreement
as to acceptability not to be unreasonably withheld).
7.3 LIMITATION OF PAYMENTS. To the extent that any of the payments
or benefits provided for in this Agreement or otherwise payable to Executive
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and, but for this
Section 7.3, would be subject to the excise tax imposed by Section 4999 of
the Code, the Company shall reduce the aggregate amount of such payments and
benefits such that the present value thereof (as determined under the Code
and the applicable regulations) is equal to 2.99 times Executive's "base
amount" as defined in Section 280G(b)(3) of the Code if, and only if, as a
result of such reduction, Executive would realize a greater amount from such
payments and benefits, after the payment of income, excise and other taxes
with respect to such payments and benefits.
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ARTICLE 8.
NO MITIGATION OR OFFSET; INSURANCE
8.1 NO MITIGATION OR OFFSET. The Executive shall not be required to
seek other employment or to reduce any severance benefit payable to him under
Article 6 or 7 hereof, and no severance benefit shall be reduced on account of
any compensation received by the Executive from other employment. The Company's
obligation to pay severance benefits under this Agreement shall not be reduced
by any amount owed by the Executive to the Company.
8.2 INDEMNIFICATION; INSURANCE.
(a) If the Executive is a party or is threatened to be made a
party to any threatened, pending or completed claim, action, suit or proceeding,
or appeal therefrom, whether civil, criminal, administrative, investigative or
otherwise, because he is or was an officer of the Company, or at the express
request of the Company is or was serving, for purposes reasonably understood by
him to be for the Company, as a director, officer, partner, employee, agent or
trustee (or in any other capacity of an association, corporation, general or
limited partnership, joint venture, trust or other entity), the Company shall
indemnify the Executive against any reasonable expenses (including attorneys'
fees and disbursements), and any judgments, fines and amounts paid in settlement
incurred by him in connection with such claim, action, suit, proceeding or
appeal therefrom to the extent such expenses, judgments, fines and amounts paid
in settlement were not advanced by the Company on his behalf pursuant to Section
8.2(b) below, to the fullest extent permitted under California law. The Company
shall provide the Executive with directors and officers liability insurance
coverage at least as favorable to the Executive as what the Company maintains as
of the date hereof or such greater coverage as the Company may maintain from
time to time.
(b) Upon the written request of the Executive specifying the
amount of a request advance and the intended use thereof, the Company shall
indemnify the Executive for his expenses (including attorneys' fees and
disbursements), judgments, fines and amounts paid in settlement incurred by him
in connection with such claim, action, suit, proceeding or appeal whether civil,
criminal, administrative, investigative or otherwise, in advance of the final
disposition of any such claim, action, suit, proceeding or appeal therefrom to
the fullest extent permitted under California law.
ARTICLE 9.
RESTRICTIVE COVENANTS
9.1 CONFIDENTIAL INFORMATION. In the course of his employment
hereunder, Executive may have access to confidential records, data, formulae,
customer lists, trade secrets, specifications, inventions and processes owned by
the Company. During the Term and thereafter, Executive shall not, directly or
indirectly, disclose such information to any person or use any such information,
except as required in the performance of Executive's duties hereunder. All
records, files, keys, drawings, documents, models, equipment and the like
relating to the Company's business, which Executive shall prepare, copy or use,
or with which Executive comes into contact, shall be and remain the Company's
sole property, shall not be removed from
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the Company's premises (except as necessary for the performance of the
Executive's duties) and shall be returned to the Company upon the expiration or
termination of the Term of Employment.
9.2 NON-COMPETITION AND NON-DISCLOSURE COVENANTS.
(a) COVENANT NOT TO COMPETE. Executive shall not, at any time
during the Term and the period during which payments are made by the Company to
Executive following the end of the Term in accordance with Article 6 or 7 (the
"Non-Compete Period");
(i) Either directly or indirectly, or solely or jointly
with other persons or entities, own, manage, operate, join, control,
consult with, render services for or participate in the ownership,
management, operation or control of, or be connected as an officer,
director, employee, partner, principal, agent, consultant or other
representative with, or permit his name to be used in connection with,
any profit or non-profit business, organization or entity (other than the
Company and its affiliates) which operates or engages in or owns an
interest in a "Competing Business;"
(ii) Lend any credit or money for the purposes of
establishing or operating any Competing Business, or otherwise give aid
or advice to any person, firm, association, corporation or entity
engaging in any Competing Business; or
(iii) Solicit, contact, divert or take away or attempt to
solicit, divert or take away any of the customers, potential customers,
business or patrons of the Company and its affiliates (or any of their
respective successors and assigns), directly or indirectly, by or for
himself, or as the agent of any other person or entity, or through others
as an agent or on behalf of a competitor of the Company.
Notwithstanding the foregoing, Executive may own publicly traded
securities issued by a Competing Business, provided that Executive shall not own
more than one percent (1%) of the value of any class of such securities
outstanding at such time.
A "Competing Business" as used in the Agreement shall refer to any
person or entity engaged in any of the businesses in which the Company or any of
its affiliates (or any of their respective successors and assigns) are engaged.
The restrictions contained in clauses (i) through (iii) above shall apply only
to Executive's actions within the cities, counties, states of the United States
and other countries where the Company and its affiliates do business during the
Non-Compete Period. The Company and Executive acknowledge and agree that the
duration, scope and geographic area for which this covenant is to be effective
are reasonable.
(b) SOLICITATION OF EMPLOYEES. Executive shall not, at any time
during the Non-Compete Period, directly or indirectly, by or for himself, or as
the agent of any other person or entity, or through others as an agent, in any
way solicit or induce, or attempt to solicit or induce, any employee, officer,
representative, consultant, or other agent of the Company or its affiliates,
whether such person is presently employed with the Company or an affiliate or
may hereinafter be so employed, to leave the Company's employ or the employ of a
the Company affiliate or otherwise interfere with the employment relationship
between any such person and the Company and its affiliates.
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(c) DISCLOSURE OF PROPRIETARY INFORMATION.
(i) In the course of Executive's employment with the
Company, Executive may have access to confidential records, data,
formulae, customer lists, trade secrets, specifications, inventions and
processes owned by the Company and its affiliates. During Executive's
employment with the Company and thereafter, Executive shall maintain in
strict confidence and shall not, directly or indirectly, use,
disseminate, disclose or publish, or use for his benefit or the benefit
of any person, firm, corporation or other entity, any confidential or
proprietary information or trade secrets of or relating to the Company
and its affiliates (or which the Company and its affiliates have a right
to use), including, without limitation, information with respect to the
Company's and its affiliates' operations, processes, products,
inventions, business practices, finances, principals, vendors, suppliers,
customers, potential customers, marketing methods, costs, prices,
contractual relationships, regulatory status, compensation paid to
employees or other terms of employment, and Executive shall not deliver
to any person, firm, corporation or other entity any document, record,
notebook, computer program or similar repository of or containing any
such confidential or proprietary information or trade secrets, except as
required in the faithful performance of Executive's duties during
employment with the Company; provided, however, that the foregoing
restriction shall not apply to (i) disclosure or use of Executive's
general business knowledge or any such information which becomes
generally available to the public in any manner or form through no fault
of Executive, (ii) disclosure or use of any such information with the
Company's prior written consent, or (iii) disclosure of any such
information required by a court or a governmental agency or competent
jurisdiction. In the event that Executive is so required or compelled to
make such disclosure, Executive shall cooperate with the Company to
preserve in full the confidentiality of all proprietary information whose
disclosure is not required or compelled.
(ii) All such information and trade secrets and all
records, files, keys, drawings, documents, models, equipment and the like
relating to the Company's and its affiliates' business, with which
Executive comes into contact, shall be and remain the sole property of
the Company and its affiliates, shall not be removed from the Company's
or its affiliate's premises (except as reasonably appropriate for the
performance of Executive's duties or with the Company's prior written
consent) and shall be returned to the Company and its affiliates upon
Executive's retirement or other termination of employment with the
Company.
(iii) The Company and Executive hereby stipulate and agree
that as between them the foregoing matters are important, material and
confidential proprietary information and trade secrets and affect the
successful conduct of the business of the Company and its affiliates (and
any successor or assignee of the Company and its affiliates). In the
event that, during Executive's employment with the Company or thereafter,
Executive becomes employed by any employer other than the Company,
Executive shall notify such employer of the terms of this paragraph not
later than the date on which Executive commences employment with such
employer.
(d) Normal Business Communications. Notwithstanding the
foregoing, Executive may engage in discussions and meetings with representatives
of a Competing Business
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in the normal course of the business of the Company during Executive's
employment with the Company.
9.3 ENFORCEMENT OF NON-COMPETITION AND NON-DISCLOSURE COVENANTS.
(a) The Company and Executive intend that the provisions of
Article 9 shall be fully enforceable as set forth herein. To the extent that any
court of competent jurisdiction finds that any such provision is enforceable by
reason of its duration or scope, the Company and Executive agree that it shall
be enforced insofar as it may be enforced within the limits of the law of that
jurisdiction, but that the Agreement as a whole shall be unaffected elsewhere.
(b) The Company and Executive recognize and acknowledge that
the Company, by the Agreement, has sought to prohibit competition and disclosure
of confidential information by Executive during Executive's employment with the
Company and thereafter, and that Executive's performance of services or
disclosure of confidential information in contravention of the Agreement or
other breach of the provisions of Article 9 would consequently cause immediate
and irreparable harm to the business and goodwill of the Company and its
affiliates, the exact amount of which will be difficult or impossible to
ascertain, and that damages, if any, and other remedies at law would be
inadequate. Accordingly, should Executive perform, or attempt or threaten to
perform, services or disclose confidential information in contravention of the
Agreement or otherwise breach the provisions of paragraph 8, the Company shall,
in addition to any and all other remedies available to it under the Agreement,
have the right to seek and obtain an injunction or other equitable relief,
restraining and preventing Executive from performing such services or disclosing
such information or breaching the provisions of Article 9.
(c) If Executive breaches any provision of Article 9, the
rights of Executive (or Executive's estate) to a benefit under the Agreement,
and the rights of a Surviving Spouse or any other person to a benefit under the
Agreement, shall be forfeited, unless the Committee determines that such
activity is not detrimental to the best interests of the Company and its
affiliates. Such forfeiture shall be in addition to any other remedy of the
Company under the Agreement or at law and in equity with respect to such breach.
However, if Executive ceases such activity and notifies the Committee of this
action, Executive's (or Executive's estate's) right to receive a benefit, and
any right of a Surviving Spouse or any other person to a benefit, may be
restored within 60 days of said notification, unless the Committee in its sole
discretion determines that the prior activity has caused serious injury to the
Company and its affiliates, which determination will be final and conclusive.
ARTICLE 10.
GENERAL PROVISIONS
10.1 ENTIRE AGREEMENT AND MODIFICATION. This Agreement and attached
schedules (which are incorporated herein and shall be treated as part of
thereof) are intended to be the final, complete and exclusive agreement between
the parties relating to the employment of the Executive by the Company with
respect to the Term and all prior or contemporaneous understandings,
representations and statements, oral or written, are merged herein.
Notwithstanding anything to the contrary, the terms and conditions of any stock
option
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agreement or restricted stock award agreement executed by the Executive prior to
the date hereof shall remain in effect. No modification, waiver, amendment,
discharge or change of this Agreement shall be valid unless the same is in
writing and signed by the party against which the enforcement thereof is or may
be sought.
10.2 NO WAIVER. No waiver, by conduct or otherwise, by any party of any
term, provision, or condition of this Agreement, shall be deemed or construed as
a further or continuing waiver of any such term, provision, or condition nor as
a waiver of a similar or dissimilar condition or provision at the same time or
at any prior or subsequent time.
10.3 REMEDIES NOT EXCLUSIVE. No remedy conferred by any of the specific
provisions of this Agreement is intended to be exclusive of any other remedy,
except as expressly provided in this Agreement or any Schedule thereto, and each
and every remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing in law or in equity or by
statute or otherwise. No failure by any party to exercise, and no delay in
exercising, any rights shall be construed or deemed to be a waiver thereof, nor
shall any single or partial exercise by any party preclude any other or future
exercise thereof or the exercise of any other right.
10.4 NOTICES. Except as otherwise provided in this Agreement, any
notice, approval, consent, waiver or other communication required or permitted
to be given or to be served upon any person in connection with this Agreement
shall be in writing. Such notice shall be personally served, sent by telegram,
tested telex, fax or cable, or sent prepaid by either registered or certified
mail with return receipt requested or Federal Express and shall be deemed given
(i) if personally served or by Federal Express, when delivered to the person to
whom such notice is addressed, (ii) if given by telegram, telex, fax or cable,
when sent or (iii) if given by mail, two business days following deposit in the
United States mail. Any notice given by telegram, telex, fax or cable shall be
confirmed in writing by overnight mail or Federal Express within 48 hours after
being sent. Such notices shall be addressed to the party to whom such notice is
to be given at the party's address set forth below or as such party shall
otherwise direct.
If to the Company: Cypros Pharmaceutical Corporation
2714 Loker Avenue West
Carlsbad, CA 92008
Attn: Corporate Secretary
If to the Executive: c/o RiboGene, Inc.
26118 Research Road
Hayward, CA 94545
10.5 ASSIGNMENT. This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive; any purported
assignment by the Executive in violation hereof shall be null and void. In the
event of any sale, transfer or other disposition of all or substantially all of
the Company's assets or business, whether by merger, consolidation or otherwise,
the Company may assign this Agreement and its rights hereunder; provided that
such assignment shall not limit the Company's liability under this Agreement to
the Executive.
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10.6 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of California, without giving effect to
the principles of conflict of laws thereof.
10.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one instrument.
10.8 SEVERABILITY. The provisions of this Agreement are agreed to be
severable, and if any provision, or application thereof, is held invalid or
unenforceable, then such holding shall not effect any other provision or
application.
10.9 ARBITRATION. Any controversy or claim arising out of, or related
to, this Agreement, or the breach thereof, shall be settled by binding
arbitration in the city or county in which the Company's principal offices are
located, in accordance with the rules then in effect of the American Arbitration
Association, and the arbitrator's decision shall be binding and final, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof. Each party hereto shall pay its or his own expenses incident to the
negotiation, preparation and resolution of any controversy or claim arising out
of, or related to, this Agreement, or the breach thereof, PROVIDED, HOWEVER, the
Company shall pay and be solely responsible for any attorneys' fees and expenses
and court or arbitration costs incurred by the Executive as a result of a claim
that the Company has breached or otherwise failed to perform this Agreement or
any provision hereof to be performed by the Company if the Executive prevails in
the contest in whole or in part.
10.10 INJUNCTIVE RELIEF. The Executive agrees that it would be difficult
to compensate Company fully for damages for any violation of the provisions of
this Agreement, including without limitation, the provisions of Article 9.
Accordingly, the Executive specifically agrees that the Company and its
successors and assigns shall be entitled to temporary and permanent injunctive
relief to enforce the provisions of this Agreement. This provision with respect
to injunctive relief shall not, however, diminish the right of the Company to
claim and recover damages in addition to injunctive relief.
18
<PAGE>
10.11 ATTORNEYS' FEES. If any legal action or other proceeding is
brought for the enforcement of the Agreement, or because of an alleged dispute,
breach or default in connection with any of the provisions of the Agreement, the
successful or prevailing party shall be entitled to recover attorneys' fees and
other expenses and costs incurred in that action or proceeding, in addition to
any other relief that may be granted.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY"
CYPROS PHARMACEUTICAL CORPORATION,
a California corporation
By: /s/ David W. Nassif
---------------------------------
Title: Senior Vice President and
C.F.O.
-------------------------
Date: August 4, 1999
"EXECUTIVE"
By: CHARLES J. CASAMENTO
/s/ Charles J. Casamento
---------------------------------
Signature
Date: August 4, 1999
19
<PAGE>
EXHIBIT A
EMPLOYMENT AGREEMENT
OF CHARLES J. CASAMENTO
1. Notice of Stock Option Grant under the RiboGene, Inc. 1993 Stock Plan,
dated as of July 14, 1993.
2. Notice of Stock Option Grant under the RiboGene, Inc. 1993 Stock Plan,
dated as of December 11, 1993.
3. Notice of Stock Option Grant under the RiboGene, Inc. 1993 Stock Plan,
dated as of May 11, 1994.
4. Notice of Stock Option Grant under the RiboGene, Inc. 1993 Stock Plan,
dated as of January 18, 1995.
5. Notice of Stock Option Grant under the RiboGene, Inc. 1993 Stock Plan,
dated as of November 17, 1995.
6. Notice of Stock Option Grant under the RiboGene, Inc. 1993 Stock Plan,
dated as of July 24, 1997.
7. Notice of Stock Option Grant under the RiboGene, Inc. 1997 Equity
Incentive Plan, dated as of June 4, 1998.
8. Notice of Stock Option Grant under the RiboGene, Inc. 1997 Equity
Incentive Plan, dated as of December 21, 1998, as amended as of July 30,
1999.
<PAGE>
EXHIBIT 10.24
CYPROS PHARMACEUTICAL CORPORATION
SEVERANCE BENEFITS PLAN
EFFECTIVE AS OF ______________, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Establishment of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Purpose of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
3. Change of Control Agreements. . . . . . . . . . . . . . . . . . . . . . . . . .1
4. Eligible Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
5. Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
6. Definition of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
7. Conditions to Receiving Benefits. . . . . . . . . . . . . . . . . . . . . . . .5
8. Termination of Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . .5
9. [Limitation on Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
10. Plan Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
11. Agreement Binding upon Successors and Assigns . . . . . . . . . . . . . . . . .7
12. Amendment or Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
13. No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
14. No Employment Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
15. Plan Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
16. Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
17. Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
18. Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
19. Claims Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
20. Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
21. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
</TABLE>
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
SEVERANCE BENEFITS PLAN
1. ESTABLISHMENT OF THE PLAN. Cypros Pharmaceutical Corporation, a
California corporation ("Cypros" or the "Company"), hereby establishes the
Cypros Pharmaceutical Corporation Severance Benefits Plan (the "Plan"),
effective as of , 1999, for the benefit of the eligible employees of the
Employer (as defined below). The Plan is an unfunded severance benefits plan,
which is an employee welfare benefit plan for purposes of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
2. PURPOSE OF THE PLAN. The Company, Cypros Acquisition Corporation
("Merger Sub") and RiboGene, Inc., a Delaware corporation ("RiboGene"), have
entered into the Agreement and Plan of Reorganization, dated as of August 4,
1999 (the "Merger Agreement"), which provides that Merger Sub will merge with
and into RiboGene, under certain terms and subject to certain conditions (the
"Merger"). Upon the Merger, RiboGene will become a wholly-owned subsidiary of
the Company. The Board of Directors of the Company (the "Board") recognizes
that the Merger may be a distraction to the employees of the Company and may
cause the employees of the Company to consider alternative employment
opportunities. The Board has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the continued
dedication and objectivity of the employees of the Company, notwithstanding the
possibility of the Merger (or the possibility, threat or occurrence of another
Change of Control (as defined below)). The Board believes that it is in the
best interests of the Company and its shareholders to provide the employees of
the Company and its subsidiaries with an incentive to continue in employment by
providing such employees with certain benefits upon termination of employment in
connection with a Change of Control.
3. ELIGIBLE EMPLOYEES.
(a) Except as provided in subsection (c), each full-time
employee of the Employer (as defined below) who is employed by the Employer on
or after the effective date of the Plan shall be eligible to receive benefits
under the Plan; PROVIDED, HOWEVER, that an employee who is first employed by the
Employer after a Change of Control (as defined in Section 5(a)) shall not be
eligible to receive benefits under the Plan. An employee of the Employer who is
eligible to receive benefits under the Plan shall be referred to herein as an
"Eligible Employee."
(b) For purposes of the Plan, the "Employer" shall mean the
Company and its direct and indirect, majority-owned subsidiaries, as determined
from time to time, and an employee of the Employer shall be treated as a
full-time employee if such employee is regularly scheduled to work for the
Company for not less than 40 hours per week.
(c) Notwithstanding the foregoing, an employee of the Employer
shall not be eligible to receive benefits under the Plan if such employee is:
(i) the Chief Executive Officer and President of the Company, (ii) the Chief
Financial Officer of the Company, (iii) a member of a collective bargaining unit
whose bargaining representative has bargained in good faith with the Employer
(or its bargaining representative) with respect to the types of benefits offered
under this Plan, except to the extent that the applicable collective bargaining
agreement provides for
<PAGE>
participation under the Plan by such employee, or (iv) a part-time, seasonal or
temporary employee.
4. BENEFITS.
(a) SEVERANCE BENEFITS. Subject to Sections 6, 7 and 8 below,
if an Eligible Employee's employment with the Employer is terminated at any time
within 60 days before, or within 12 months after, a Change of Control, and such
termination is as a result of Involuntary Termination (as defined below) other
than for Cause (as defined below), then such Eligible Employee shall be entitled
to receive a severance benefit, payable in a lump sum payment, determined as
follows:
(i) VICE PRESIDENTS. If such Eligible Employee holds
the position of Vice President of the Company, such Eligible Employee shall
receive a severance benefit in an amount equal to one (1) month of base salary
for each Year of Service (as defined below) with the Employer, determined as of
the date of such Eligible Employee's termination of employment; PROVIDED,
HOWEVER, that such severance benefit shall in any event not be less than nine
(9) months of base salary.
(ii) DIRECTORS. If such Eligible Employee holds the
position of Director of the Company, such Eligible Employee shall receive a
severance benefit in an amount equal to one (1) month of base salary for each
Year of Service with the Employer, determined as of the date of such Eligible
Employee's termination of employment; PROVIDED, HOWEVER, that such severance
benefit shall in any event not be less than six (6) months of base salary.
(iii) OTHER EMPLOYEES. If such Eligible Employee does not
hold the position of Vice President or Director of the Company, such Eligible
Employee shall receive a severance benefit in an amount equal to one (1) month
of base salary for each Year of Service with the Company, determined as of the
date of such Eligible Employee's termination of employment; PROVIDED, HOWEVER,
that such a severance benefit shall in any event be not less than three (3)
months of base salary.
For purposes of this Section 4(a), an Eligible Employee's monthly rate of base
salary shall be the greater of (i) the Eligible Employee's monthly rate of base
salary, determined as of the date of such Eligible Employee's termination of
employment with the Employer, or (ii) the Eligible Employee's monthly rate of
base salary in effect immediately prior to the Change of Control. Also for
purposes of this Section 4(a), Year of Service means the 12-month period
beginning on the Eligible Employee's date of hire and each anniversary
thereafter.
(b) In the event an Eligible Employee is entitled to severance
benefit pursuant to subsection 4(a), then in addition to such severance benefit,
such an Eligible Employee shall receive such health insurance benefits coverage
as is provided to such Eligible Employee (and his or her dependents, if
applicable) immediately prior to Eligible Employee's termination following
termination of employment. Such coverage shall continue for the number of months
determined under Section 4(a) for purposes of determining the amount of such
Eligible Employee's severance benefits, or until such Eligible Employee becomes
covered under another employer's group health insurance plan, whichever occurs
first. Such benefits coverage shall be under such terms and conditions
(including benefits, premiums, deductibles and co-payments) as
2
<PAGE>
are at least equal to those in effect immediately prior to the date of
termination of employment (or, if more favorable to such Eligible Employee, on
the date immediately prior to the Change in Control).
(c) In the event an Eligible Employee is entitled to severance
benefits pursuant to subsection 4(a), each stock option held by such Eligible
Employee exercisable for shares of the Company's Common Stock (or shares of The
Company's capital stock) shall immediately become fully vested and exercisable
as of the date of such Eligible Employee's termination of employment. Each such
stock option shall otherwise remain exercisable in accordance with the
provisions of the plan and option agreement pursuant to which the option was
granted, and such restricted shares of the Company's Common Stock shall
otherwise remain subject to the provisions of the Plan and Restricted Stock
Agreement pursuant to which such restricted shares were granted.
(d) The Board may, in its sole discretion, provide additional
severance or other benefits to an Eligible Employee. Such additional benefits
shall be subject to such terms and conditions as the Board determines.
5. DEFINITION OF TERMS. The following terms referred to in the Plan
shall have the following meanings:
(a) CHANGE OF CONTROL. "Change of Control" shall mean the
occurrence of any of the following events:
(i) OWNERSHIP. Any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing fifty percent
(50%) or more of the total voting power represented by the Company's then
outstanding voting securities; or
(ii) MERGER OR SALE OF ASSETS. A merger or consolidation
of the Company whether or not approved by the Board, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the shareholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
(iii) CHANGE IN BOARD COMPOSITION. A change in the
composition of the Board, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean directors
who either (A) are directors of the Company as of the date hereof or (B) are
elected, or nominated for election, to the Board with the affirmative votes of
at lest a majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company).
3
<PAGE>
(iv) EFFECT OF MERGER. The Merger shall be a "Change of
Control" for purposes of this Section 5(a).
(b) CAUSE. "Cause" shall mean, with respect to an Eligible
Employee: (i) a material and willful violation of any federal or state law by
such Eligible Employee, (ii) the commission of a fraud by such Eligible Employee
against the Employer, (iii) such Eligible Employee's repeated unexplained or
unjustified absence from the Employer, or (iv) such Eligible Employee's gross
negligence or willful misconduct where such gross negligence or willful
misconduct has resulted or is likely to result in substantial and material
damage to the Employer.
(c) INVOLUNTARY TERMINATION. "Involuntary Termination" shall
mean the termination of an Eligible Employee's employment with the Employer
either: (i) by the Employer, or (ii) by the Employee upon 30 days' prior
written notice to the Company as a result of any of the following: (A) a
material reduction in job responsibilities inconsistent with such Eligible
Employee's position with the Employer and such Employee's prior
responsibilities, (B) a reduction in the annual base compensation or bonus
opportunity of such Eligible Employee from the Employer, (C) a requirement that
such Eligible Employee perform services at a principal location that is more
than 50 miles from the principal location at which such Eligible Employee
performs services for the Employer, or (D) a material reduction in such Eligible
Employee's benefits. For purposes of this Section 5(c) and Sections 8(b), the
principal location at which each Eligible Employee performs services for the
Employer on the effective date of the Plan shall be the Company's principal
offices at 2714 Loker Avenue West, Carlsbad, CA 92008.
(d) DISABILITY. "Disability" shall mean, with respect to an
Eligible Employee, that such Employee has been unable to perform his or her
duties for the Employer as a result of incapacity due to physical or mental
illness, and such inability, at least 26 weeks after its commencement, is
determined to be total and permanent by a physician selected by the Company or
its insurer and acceptable to such Eligible Employee or such Eligible Employee's
legal representatives (such agreement as to acceptability not to be unreasonably
withheld).
6. CONDITIONS TO RECEIVING BENEFITS.
(a) GENERAL RELEASE OF CLAIMS. As a further condition to
receiving benefits under the Plan, an Eligible Employee shall waive any and all
claims against the Company. Such waiver shall be a general release of claims,
and shall be substantially in the form of the General Release attached as
Exhibit A hereto (or in such other form as the Company shall, in its sole
discretion, shall determine). The General Release shall be execute and
delivered by such Eligible Employee prior to receiving severance benefits under
the Plan.
(b) FAILURE TO SATISFY CONDITION. An Eligible Employee who
fails to satisfy any applicable condition under Section 6(a) shall not be
entitled to receive any benefits under the Plan.
7. TERMINATION OF ELIGIBILITY.
(a) EFFECT OF EMPLOYMENT AGREEMENT. In the event that, after
the effective date of the Plan, an Eligible Employee enters into an employment
agreement with the Employer that provides for employment of such Eligible
Employee by the Employer for a specified period of time, or provides for the
payment of compensation following termination of employment or
4
<PAGE>
other severance benefits, such Eligible Employee shall thereupon cease to be an
Eligible Employee; PROVIDED, HOWEVER, that an Eligible Employee shall not cease
to be an Eligible Employee under this Section 7(a) as a result of entering into
a retention bonus agreement with the Employer that specifically provides for
such Eligible Employee's continued eligibility under the Plan; and, PROVIDED,
FURTHER, that an Eligible Employee shall not cease to be an Eligible Employee
under this Section 7(a) unless such employment agreement provides for severance
benefits to such Eligible Employee that are equal to or greater than the
severance benefits to be provided under the terms of the Plan.
(b) EFFECT OF SUCCESSOR EMPLOYMENT. In the event that the
Employer sells, transfers or otherwise disposes of all or substantially all of
the assets or business related to any business unit, division, department or
operational unit of the Employer, and an Eligible Employee is offered employment
with the purchaser or other acquiror of such assets or business, or accepts
employment with such purchaser or acquiror, within 30 days following such
Eligible Employee's termination of employment with the Employer, such Eligible
Employee shall thereupon cease to be an Eligible Employee, unless such Eligible
Employee rejects such offer of employment, and the terms and conditions of
employment offered by the purchaser or other acquiror would result in any of the
following: (i) a material reduction in job responsibilities inconsistent with
such Eligible Employee's position with the Employer and such Eligible Employee's
prior responsibilities, (ii) a reduction in the annual base compensation or
bonus opportunity of such Eligible Employee from the Employer, (iii) a
requirement that such Eligible Employee perform services at a principal location
that is more than 50 miles from the principal location at which such Eligible
Employee performs services for the Employer, or (iv) a material reduction in
such Eligible Employee's benefits. For purposes of Section 7(b)(iv), a material
reduction in an Eligible Employee's benefits shall occur unless the terms and
conditions of employment offered by the purchaser or acquiror would provide for
severance benefits to such Eligible Employee that are equal to or greater than
the benefits to be provided under the terms of the Plan.
8. LIMITATION ON BENEFITS. To the extent that any of the payments or
benefits provided for in the Plan or otherwise payable to an Eligible Employee
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and, but for this Section
8, would be subject to the excise tax imposed by Section 4999 of the Code, the
Company shall reduce the aggregate amount of such payments and benefits such
that the present value thereof (as determined under the Code and the applicable
Regulations) is equal to 2.99 times such Eligible Employee's "base amount," as
defined in Section 280G(b)(3) of the Code.
9. PLAN ADMINISTRATION. The Administrator of the Plan shall be the
Company, or such individual or individuals or committee appointed by the Board
(or the Compensation Committee thereof) to perform certain duties under the
Plan. The Administrator shall serve as the "named fiduciary" within the meaning
of such term as defined in ERISA, and shall be responsible for administering the
Plan. The Administrator may delegate to other persons responsibilities for
performing certain of the duties of the Administrator under the terms of this
Plan and may seek such expert advice as the Administrator deems reasonably
necessary with respect to the Plan. The Administrator shall be entitled to rely
upon the information and advice furnished by such delegates and experts, unless
actually knowing such information and advice to be inaccurate or unlawful. The
Administrator shall have discretionary authority to interpret the
5
<PAGE>
Plan and determine entitlement to benefits under the Plan. Any determination by
the Administrator shall be final and binding, except to the extent found to be
an abuse of discretion by a court of competent jurisdiction. The Administrator
shall establish and maintain a reasonable claims procedure, including a
procedure for appeal of denied claims.
10. AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS. This Agreement
shall inure to the benefit of and shall be binding upon the Company and its
respective successors and assigns, including any purchaser of all or
substantially all of its assets, and shall be binding upon Employee's assigns,
executors, administrators, Beneficiaries, or their legal representatives. As
used in this Agreement, the "Company" shall include any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by operation of
law, or otherwise.
11. AMENDMENT OR TERMINATION. The Board may at any time terminate the
Plan or any part thereof, and may from time to time amend the Plan as it may
deem advisable; PROVIDED, HOWEVER, that, on or after a Change of Control, in the
case of any employee of the Employer who is an Eligible Employee immediately
prior to the Change of Control, neither the termination of the Plan nor any part
thereof nor any amendment of the Plan shall in any respect adversely affect the
rights of such employee under the terms of the Plan as in effect immediately
prior to such Change in Control.
12. NO ASSIGNMENT. No severance benefits under the Plan shall be
subject to sale, transfer, alienation, assignment or garnishment, and any
attempt to cause such severance benefits to be so subjected shall not be
recognized, except to the extent required by law.
13. NO EMPLOYMENT RIGHTS. The Plan shall not confer employment rights
upon any person. No person shall be entitled, by virtue of the Plan, to remain
in the employ of the Employer.
14. PLAN FUNDING. No eligible employee shall acquire by reason of
this Plan any right in or title to any assets, funds, or property of the
Employer. Any severance pay benefits which become payable under this Plan are
unfunded obligations of the Employer and shall be paid solely from the general
assets of the Employer and, furthermore, no shareholder, director, officer, or
employee of the Employer shall be individually or personally liable for any
severance pay benefits which become payable under the Plan.
15. APPLICABLE LAW. The Plan shall be governed and construed in
accordance with ERISA and in the event that any reference shall be made to State
law, the laws of the State of California (without reference to the choice of law
provisions thereof) shall apply.
16. PLAN YEAR. The plan year of the Plan shall be the calendar year.
17. WITHHOLDING. The Employer may cause such amounts to be withheld
from payment under the Plan as are necessary to satisfy any federal, state or
local law.
18. CLAIMS PROCEDURE. Any person claiming a benefit, requesting an
interpretation or ruling under the Plan, or requesting information under the
Plan shall present such a claim or request in writing to the Administrator. The
Administrator shall respond to the claim within 90 days unless special
circumstances require an extension of time of up to an additional 90 days.
6
<PAGE>
The Administrator shall notify the claimant of the special circumstances and the
date by which a decision is expected. If no response to a claim is received
within the prescribed time, it shall be deemed denied. If the claim is denied,
the Administrator shall give the claimant a written notice, including the
specific reason for denial, with reference to pertinent Plan provisions. The
denial shall include a description of any additional information necessary for
the claimant to perfect a claim, an explanation of why such information is
necessary and a description of the procedure for having the denied claim
reviewed. The claimant may request review of a denied claim by written notice
to the Administrator given within 90 days of the date of denial. The claimant
or authorized representative may submit a written application for review, may
review pertinent documents and may submit issues and comments in writing. The
Administrator shall decide whether to affirm or reverse the earlier denial and
give notice to the claimant. The decision on review shall be made within 60
days, unless special circumstances require an extension of time for up to an
additional 60 days. The Administrator shall give the claimant notice of such an
extension. The Administrator shall give the claimant written notice of the
decision on review, including specific references to Plan provisions on which
the decision is based. All decisions on review shall be final and bind all
parties concerned.
19. VALIDITY. The validity or enforceability of any provision or
provisions of the Plan shall not affect the validity or enforceability of any
other provision of the Plan, which other provisions shall remain in full force
and effect, nor shall the invalidity or unenforceability of a portion of any
provision of the Plan affect the validity or enforceability of the balance of
such provision.
20. HEADINGS. The headings of the paragraphs contained in the Plan
are for reference purposes only and shall not, in any way, affect the meaning or
interpretation of any provision of the Plan.
IN WITNESS WHEREOF, Cypros Pharmaceutical Corporation has caused this
Plan to be executed below by its duly authorized officer or representative
effective as of _________, 1999.
CYPROS PHARMACEUTICAL CORPORATION
By:
-------------------------------
Title:
----------------------------
7
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
SEVERANCE BENEFITS PLAN
FORM OF GENERAL RELEASE
1. GENERAL RELEASE BY EMPLOYEE. In consideration for certain
benefits under the Cypros Severance Pay Plan and other valuable consideration,
the receipt and adequacy of which are hereby acknowledged, ______________
("Employee") does hereby release and forever discharge the "Company Releasees"
herein, consisting of Cypros Pharmaceutical Corporation (the "Company") and each
of the Company's parents, subsidiaries, and affiliates, associates, members,
owners, stockholders, predecessors, successors, heirs, assigns, employees,
agents, directors, officers, partners, representatives, lawyers, and all persons
acting by, through, under, or in concert with them, or any of them, of and from
any and all manner of action or actions, causes or causes of action, in law or
in equity, suits, debts, liens, contracts, agreements, promises, liabilities,
claims, demands, damages, losses, costs or expenses, of any nature whatsoever,
known or unknown, fixed or contingent (hereinafter called "Claims"), which they
now have or may hereafter have against the Releasees by reason of any and all
acts, omissions, events or facts occurring or existing prior to the date hereof,
except as expressly provided herein. The Claims released hereunder include,
without limitation, any alleged breach of any employment agreement; any alleged
breach of any covenant of good faith and fair dealing, express or implied; any
alleged torts or other alleged legal restrictions relating to the Employee's
employment and the termination thereof; and any alleged violation of any
federal, state or local statute or ordinance including, without limitation,
Title VII of the Civil Rights Act of 1964, as amended, the Federal Age
Discrimination in Employment Act of 1967, as amended, and the California Fair
Employment and Housing Act. This Release shall also not apply to Employee's
right to retirement and/or employee welfare benefits that have vested and
accrued prior to his separation from employment with the Companies; or
Employee's rights to indemnification under Section 2802 of the California Labor
Code.
2. RELEASE OF UNKNOWN CLAIMS. EMPLOYEE ACKNOWLEDGES THAT HE OR SHE
IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH
PROVIDES AS FOLLOWS:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HER FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH, IF KNOWN BY HER MUST HAVE MATERIALLY
AFFECTED HER SETTLEMENT WITH THE DEBTOR."
EMPLOYEE BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS HE
OR SHE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW
PRINCIPLES OF SIMILAR EFFECT.
1.
<PAGE>
3. RELEASE OF AGE DISCRIMINATION CLAIMS AND RIGHTS UNDER THE OLDER
WORKERS' BENEFIT PROTECTION ACT. Employee agrees and expressly acknowledges
that this Agreement includes a waiver and release of all claims which Employee
has or may have under the Age Discrimination in Employment Act of 1967, as
amended, 29 U.S.C. Section 621, ET SEQ. ("ADEA"). The following terms and
conditions apply to and are part of the waiver and release of the ADEA claims
under this Agreement:
4. That this paragraph and this Agreement are written in a manner
calculated to be understood by Employee.
5. The waiver and release of claims under the ADEA contained in this
Agreement do not cover rights or claims that may arise after the date on which
Employee signs this Agreement.
6. This Agreement provides for consideration in addition to anything
of value to which Employee is already entitled.
7. Employee is advised to consult an attorney before signing this
Agreement.
8. Employee is granted twenty-one (21) days after Employee is
presented with this Agreement to decide whether or not to sign this Agreement.
If Employee executes this Agreement prior to the expiration of such period,
Employee does so voluntarily and after having had the opportunity to consult
with an attorney.
9. Employee will have the right to revoke the waiver and release of
claims under the ADEA within seven (7) days of signing this Release. In the
event this Release is revoked, the Release and the Agreement executed
concurrently herewith will be null and void in their entirety.
10. MANNER AND CONSEQUENCES OF REVOCATION OF RELEASE.
11. MANNER OF REVOCATION. In the event that Employee elects to revoke
this General Release, he or she shall deliver within the time period prescribed
above to the Chairperson of the Company's Board of Directors, a writing stating
that he or she is revoking this General Release and subscribed by the Employee.
12. CONSEQUENCES OF REVOCATION. In the event that Employee should
elect to revoke this General Release as described in the paragraph above, this
General Release shall be null and void in its entirety.
13. NO CLAIMS. Employee represents and warrants to the Releasees that
there has been no assignment or other transfer of any interest in any Claim
which Employee may have against the Releasees, or any of them. Employee agrees
to indemnify and hold harmless the Releasees released by him or her from any
liability, claims, demands, damages, costs, expenses and attorneys' fees
incurred as a result of any person asserting such assignment or transfer of any
right or claims under any such assignment or transfer from Employee.
2.
<PAGE>
14. INDEMNIFICATION. Employee agrees that if he or she hereafter
commence, join in, or in any manner seek relief through any suit arising out of,
based upon, or relating to any of the Claims released hereunder or in any manner
asserts against the Releasees any of the Claims released hereunder, then
Employee will pay to the Releasees against whom such claim(s) is asserted, in
addition to any other damages caused thereby, all attorneys' fees incurred by
such Releasees in defending or otherwise responding to said suit or Claim.
The Parties further understand and agree that neither the payment of
money nor the execution of this Release shall constitute or be construed as an
admission of any liability whatsoever by the Releasees.
"COMPANY"
By:
---------------------------------
Title:
------------------------------
Date:
-------------------------------
"EMPLOYEE"
By:
---------------------------------
Print Name
------------------------------------
Signature
Date:
-------------------------------
3.
<PAGE>
EXHIBIT 10.25
RIBOGENE, INC.
SEVERANCE BENEFITS PLAN
EFFECTIVE AS OF AUGUST, 4 1999
<PAGE>
RIBOGENE, INC.
SEVERANCE BENEFITS PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Establishment of the Plan..........................................1
2. Purpose of the Plan................................................1
3. Change of Control Agreements.......................................1
4. Eligible Employees.................................................1
5. Benefits...........................................................2
6. Definition of Terms................................................3
7. Conditions to Receiving Benefits...................................5
8. Termination of Eligibility.........................................5
9. Limitation on Benefits.............................................6
10. Plan Administration................................................6
11. Agreement Binding upon Successors and Assigns......................7
12. Amendment or Termination...........................................7
13. No Assignment......................................................7
14. No Employment Rights...............................................7
15. Plan Funding.......................................................7
16. Applicable Law.....................................................7
17. Plan Year..........................................................7
18. Withholding........................................................7
19. Claims Procedure...................................................7
20. Validity...........................................................8
21. Headings...........................................................8
</TABLE>
<PAGE>
RIBOGENE, INC.
SEVERANCE BENEFITS PLAN
1. ESTABLISHMENT OF THE PLAN. RiboGene, Inc., a Delaware corporation
(the "Company"), hereby establishes the RiboGene, Inc. Severance Benefits Plan
(the "Plan"), effective as of August 4, 1999, for the benefit of the eligible
employees of the Employer (as defined below). The Plan is an unfunded severance
benefits plan, which is an employee welfare benefit plan for purposes of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
2. PURPOSE OF THE PLAN. Cypros Pharmaceutical Corporation ("Parent"),
Cypros Acquisition Corporation ("Merger Sub") and the Company have entered into
the Agreement and Plan of Reorganization, dated as of August 4, 1999 (the
"Merger Agreement"), which provides that Merger Sub will merge with and into the
Company, under certain terms and subject to certain conditions (the "Merger").
Upon the Merger, the Company will become a wholly-owned subsidiary of Parent.
The Board of Directors of the Company (the "Board") recognizes that the Merger
(or the possibility of another acquisition of the Company or similar
transaction) may be a distraction to the employees of the Company and may cause
the employees of the Company to consider alternative employment opportunities.
The Board has determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued dedication and
objectivity of the employees of the Company, notwithstanding the possibility of
the Merger (or the possibility, threat or occurrence of another Change of
Control (as defined below)). The Board believes that it is in the best interests
of the Company and its shareholders to provide the employees of the Company and
its subsidiaries with an incentive to continue in employment by providing such
employees with certain benefits upon termination of employment in connection
with a Change of Control.
3. CHANGE OF CONTROL AGREEMENTS. The Company has previously entered
into certain Change of Control Agreements (the "Prior Change of Control
Agreements") with certain employees of the Company that provide for benefits in
the event of an employee's termination of employment with the Company following
a "Change of Control" (as defined in such Agreements). The Plan is intended to
provide benefits that are in lieu of (and not in addition to) the benefits that
would be provided to the employees of the Company under the Prior Change of
Control Agreements. As provided in Section 7(a), an Eligible Employee (as
defined below) must waive such Eligible Employee's rights under any Prior Change
of Control Agreement as a condition to receiving benefits under the Plan. An
Eligible Employee who fails to waive such Eligible Employee's rights under the
Prior Change of Control Agreement shall not be entitled to receive benefits
under the Plan.
4. ELIGIBLE EMPLOYEES.
(a) Except as provided in subsection (c), each full-time
employee of the Employer (as defined below) who is employed by the Employer on
or after the effective date of the Plan shall be eligible to receive benefits
under the Plan; PROVIDED, HOWEVER, that an employee who is first employed by the
Employer after a Change of Control (as defined in Section 6(a))
<PAGE>
shall not be eligible to receive benefits under the Plan. An employee of the
Employer who is eligible to receive benefits under the Plan shall be referred to
herein as an "Eligible Employee."
(b) For purposes of the Plan, the "Employer" shall mean the
Company and its direct and indirect, majority-owned subsidiaries, as determined
from time to time, and an employee of the Employer shall be treated as a
full-time employee if such employee is regularly scheduled to work for the
Company for not less than 40 hours per week.
(c) Notwithstanding the foregoing, an employee of the Employer
shall not be eligible to receive benefits under the Plan if such employee is:
(i) the Chief Executive Officer and President of the Company, (ii) is a member
of a collective bargaining unit whose bargaining representative has bargained in
good faith with the Employer (or its bargaining representative) with respect to
the types of benefits offered under this Plan shall not be an eligible employee
for purposes of the Plan, except to the extent that the applicable collective
bargaining agreement provides for participation under the Plan by such employee,
and (iii) is a part-time, seasonal or temporary employee.
5. BENEFITS.
(a) SEVERANCE BENEFITS. Subject to Sections 7, 8 and 9 below,
if an Eligible Employee's employment with the Employer is terminated at any time
within 60 days before, or within 12 months after, a Change of Control, and such
termination is as a result of Involuntary Termination (as defined below) other
than for Cause (as defined below), then such Eligible Employee shall be entitled
to receive a severance benefit, payable in a lump sum payment, determined as
follows:
(i) VICE PRESIDENTS. If such Eligible Employee holds the
position of Vice President of the Company, such Eligible Employee shall
receive a severance benefit in an amount equal to one (1) month of base
salary for each year of service with the Employer, determined as of the
date of such Eligible Employee's termination of employment; PROVIDED,
HOWEVER, that such severance benefit shall in any event not be less than
nine (9) months of base salary.
(ii) DIRECTORS. If such Eligible Employee holds the
position of Director of the Company, such Eligible Employee shall receive
a severance benefit in an amount equal to one (1) month of base salary
for each year of service with the Employer, determined as of the date of
such Eligible Employee's termination of employment; PROVIDED, HOWEVER,
that such severance benefit shall in any event not be less than six (6)
months of base salary.
(iii) OTHER EMPLOYEES. If such Eligible Employee does not
hold the position of Vice President or Director of the Company, such
Eligible Employee shall receive a severance benefit in an amount equal to
one (1) month of base salary for each year of service with the Company,
determined as of the date of such Eligible Employee's termination of
employment; PROVIDED, HOWEVER, that such a severance benefit shall in any
event be not less than three (3) months of base salary.
2
<PAGE>
For purposes of this Section 5(a), an Eligible Employee's monthly rate of base
salary shall be the greater of (i) the Eligible Employee's monthly rate of base
salary, determined as of the date of such Eligible Employee's termination of
employment with the Employer, or (ii) the Eligible Employee's monthly rate of
base salary in effect immediately prior to the Change of Control.
(b) In the event an Eligible Employee is entitled to severance
benefit pursuant to subsection 5(a), then in addition to such severance benefit,
such an Eligible Employee shall receive such health insurance benefits coverage
as is provided to such Eligible Employee (and his or her dependents, if
applicable) immediately prior to Eligible Employee's termination following
termination of employment. Such coverage shall continue for the number of months
determined under Section 5(a) for purposes of determining the amount of such
Eligible Employee's severance benefits, or until such Eligible Employee becomes
covered under another employer's group health insurance plan, whichever occurs
first. Such benefits coverage shall be under such terms and conditions
(including benefits, premiums, deductibles and co-payments) as are at least
equal to those in effect immediately prior to the date of termination of
employment (or, if more favorable to such Eligible Employee, on the date
immediately prior to the Change in Control).
(c) In the event an Eligible Employee is entitled to severance
benefits pursuant to subsection 5(a), each stock option held by such Eligible
Employee exercisable for shares of the Company's Common Stock (or shares of
Parent's capital stock) shall immediately become fully vested and exercisable as
of the date of such Eligible Employee's termination of employment. In addition,
in the event an Eligible Employee is entitled to severance benefits pursuant to
subsection 5(a), restricted shares of the Company's Common Stock (and restricted
shares of Parent's capital stock) held by such Eligible Employee shall
immediately become fully vested as of the date of such Eligible Employee's
termination of employment, and any reacquisition or repurchase right held by the
Company (or Parent) with respect to such shares shall immediately lapse as of
the date of such Eligible Employee's termination of employment. Each such stock
option shall otherwise remain exercisable in accordance with the provisions of
the plan and option agreement pursuant to which the option was granted, and such
restricted shares of the Company's Common Stock (and restricted shares of
Parent's capital stock) shall otherwise remain subject to the provisions of the
Plan and Restricted Stock Agreement pursuant to which such restricted shares
were granted.
(d) The Board may, in its sole discretion, provide additional
severance or other benefits to an Eligible Employee. Such additional benefits
shall be subject to such terms and conditions as the Board determines.
6. DEFINITION OF TERMS. The following terms referred to in the Plan
shall have the following meanings:
(a) CHANGE OF CONTROL. "Change of Control" shall mean the
occurrence of any of the following events:
(i) OWNERSHIP. Any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of
3
<PAGE>
securities of the Company representing fifty percent (50%) or more of the
total voting power represented by the Company's then outstanding voting
securities; or
(ii) MERGER OR SALE OF ASSETS. A merger or
consolidation of the Company whether or not approved by the Board,
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least
fifty percent (50%) of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the shareholders of
the Company approve a plan of complete liquidation of the Company or
an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(iii) CHANGE IN BOARD COMPOSITION. A change in the
composition of the Board, as a result of which fewer than a majority of
the directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the date
hereof or (B) are elected, or nominated for election, to the Board with
the affirmative votes of at lest a majority of the Incumbent Directors at
the time of such election or nomination (but shall not include an
individual whose election or nomination is in connection with an actual
or threatened proxy contest relating to the election of directors to the
Company).
(iv) EFFECT OF MERGER. The Merger shall be a "Change of
Control" for purposes of this Section 6(a).
(b) CAUSE. "Cause" shall mean, with respect to an Eligible
Employee: (i) a material and willful violation of any federal or state law by
such Eligible Employee, (ii) the commission of a fraud by such Eligible Employee
against the Employer, (iii) such Eligible Employee's repeated unexplained or
unjustified absence from the Employer, or (iv) such Eligible Employee's gross
negligence or willful misconduct where such gross negligence or willful
misconduct has resulted or is likely to result in substantial and material
damage to the Employer.
(c) INVOLUNTARY TERMINATION. "Involuntary Termination" shall
mean the termination of an Eligible Employee's employment with the Employer
either: (i) by the Employer, or (ii) by the Employee upon 30 days' prior written
notice to the Company as a result of any of the following: (A) a material
reduction in job responsibilities inconsistent with such Eligible Employee's
position with the Employer and such Employee's prior responsibilities, (B) a
reduction in the annual base compensation or bonus opportunity of such Eligible
Employee from the Employer, (C) a requirement that such Eligible Employee
perform services at a principal location that is more than 50 miles from the
principal location at which such Eligible Employee performs services for the
Employer, or (D) a material reduction in such Eligible Employee's benefits. For
purposes of this Section 6(c) and Sections 8(b) and (c), the principal location
at which each Eligible Employee performs services for the Employer on the
effective date of the Plan shall be the Company's principal offices at 26118
Research Road, Hayward, California 94545.
4
<PAGE>
(d) DISABILITY. "Disability" shall mean, with respect to an
Eligible Employee, that such Employee has been unable to perform his or her
duties for the Employer as a result of incapacity due to physical or mental
illness, and such inability, at least 26 weeks after its commencement, is
determined to be total and permanent by a physician selected by the Company or
its insurer and acceptable to such Eligible Employee or such Eligible Employee's
legal representatives (such agreement as to acceptability not to be unreasonably
withheld).
7. CONDITIONS TO RECEIVING BENEFITS.
(a) TERMINATION OF PRIOR CHANGE IN CONTROL AGREEMENT. As a
condition to receiving benefits under the Plan, an Eligible Employee shall agree
in writing to waive any and all rights under any Prior Change of Control
Agreement. Such waiver shall be in such form as the Company shall determine and
shall be executed and delivered by the Eligible Employee prior to receiving
benefits under the Plan.
(b) GENERAL RELEASE OF CLAIMS. As a further condition to
receiving benefits under the Plan, an Eligible Employee shall waive any and
all claims against the Company. Such waiver shall be a general release of
claims, and shall be substantially in the form of the General Release
attached as Exhibit A hereto (or in such other form as the Company shall, in
its sole discretion, shall determine). The General Release shall be execute
and delivered by such Eligible Employee prior to receiving benefits under the
Plan.
(c) FAILURE TO SATISFY CONDITIONS. An Eligible Employee who
fails to satisfy any applicable condition under Section 7(a) or (b) shall not be
entitled to receive any benefits under the Plan.
8. TERMINATION OF ELIGIBILITY.
(a) EFFECT OF EMPLOYMENT AGREEMENT. In the event that, after
the effective date of the Plan, an Eligible Employee enters into an employment
agreement with the Employer that provides for employment of such Eligible
Employee by the Employer for a specified period of time, or provides for the
payment of compensation following termination of employment or other severance
benefits, such Eligible Employee shall thereupon cease to be an Eligible
Employee; PROVIDED, HOWEVER, that an Eligible Employee shall not cease to be an
Eligible Employee under this Section 8(a) as a result of entering into a
retention bonus agreement with the Employer that specifically provides for such
Eligible Employee's continued eligibility under the Plan; and, PROVIDED,
FURTHER, that an Eligible Employee shall not cease to be an Eligible Employee
under this Section 8(a) unless such employment agreement provides for severance
benefits to such Eligible Employee that are equal to or greater than the
severance benefits to be provided under the terms of the Plan.
(b) EFFECT OF EMPLOYMENT WITH PARENT. In the event that, after
the Merger, an Eligible Employee is offered employment with Parent, or accepts
employment with Parent, such Eligible Employee shall thereupon cease to be an
Eligible Employee, unless such Eligible Employee rejects such offer of
employment, and the terms and conditions of employment offered by Parent would
result in any of the following: (i) a material reduction in job responsibilities
inconsistent with such Eligible Employee's position with the Employer and such
Eligible
5
<PAGE>
Employee's prior responsibilities, (ii) a reduction in the annual base
compensation or bonus opportunity of such Eligible Employee from the Employer,
(iii) a requirement that such Eligible Employee perform services at a principal
location that is more than 50 miles from the principal location at which such
Eligible Employee performs services for the Employer, or (iv) a material
reduction in such Eligible Employee's benefits. For purposes of Section
8(b)(iv), a material reduction in an Eligible Employee's benefits shall occur
unless the terms and conditions of employment offered by Parent would provide
for severance benefits to such Eligible Employee that are equal to or greater
than the benefits to be provided under the terms of the Plan.
(c) EFFECT OF SUCCESSOR EMPLOYMENT. In the event that the
Employer sells, transfers or otherwise disposes of all or substantially all of
the assets or business related to any business unit, division, department or
operational unit of the Employer, and an Eligible Employee is offered employment
with the purchaser or other acquiror of such assets or business, or accepts
employment with such purchaser or acquiror, within 30 days following such
Eligible Employee's termination of employment with the Employer, such Eligible
Employee shall thereupon cease to be an Eligible Employee, unless such Eligible
Employee rejects such offer of employment, and the terms and conditions of
employment offered by the purchaser or other acquiror would result in any of the
following: (i) a material reduction in job responsibilities inconsistent with
such Eligible Employee's position with the Employer and such Eligible Employee's
prior responsibilities, (ii) a reduction in the annual base compensation or
bonus opportunity of such Eligible Employee from the Employer, (iii) a
requirement that such Eligible Employee perform services at a principal location
that is more than 50 miles from the principal location at which such Eligible
Employee performs services for the Employer, or (iv) a material reduction in
such Eligible Employee's benefits. For purposes of Section 8(c)(iv), a material
reduction in an Eligible Employee's benefits shall occur unless the terms and
conditions of employment offered by the purchaser or acquiror would provide for
severance benefits to such Eligible Employee that are equal to or greater than
the benefits to be provided under the terms of the Plan.
9. LIMITATION ON BENEFITS. To the extent that any of the
payments or benefits provided for in the Plan or otherwise payable to an
Eligible Employee constitute "parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code") and, but for
this Section 9, would be subject to the excise tax imposed by Section 4999 of
the Code, the Company shall reduce the aggregate amount of such payments and
benefits such that the present value thereof (as determined under the Code and
the applicable Regulations) is equal to 2.99 time such Eligible Employee's "base
amount," as defined in Section 280G(b)(3) of the Code.
10. PLAN ADMINISTRATION. The Administrator of the Plan shall be
the Company, or such individual or individuals or committee appointed by the
Board (or the Compensation Committee thereof) to perform certain duties under
the Plan. The Administrator shall serve as the "named fiduciary" within the
meaning of such term as defined in ERISA, and shall be responsible for
administering the Plan. The Administrator may delegate to other persons
responsibilities for performing certain of the duties of the Administrator under
the terms of this Plan and may seek such expert advice as the Administrator
deems reasonably necessary with respect to the Plan. The Administrator shall be
entitled to rely upon the information and advice furnished by such delegates and
experts, unless actually knowing such information and advice to
6
<PAGE>
be inaccurate or unlawful. The Administrator shall have discretionary authority
to interpret the Plan and determine entitlement to benefits under the Plan. Any
determination by the Administrator shall be final and binding, except to the
extent found to be an abuse of discretion by a court of competent jurisdiction.
The Administrator shall establish and maintain a reasonable claims procedure,
including a procedure for appeal of denied claims.
11. AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS. This Agreement
shall inure to the benefit of and shall be binding upon the Company and its
respective successors and assigns, including any purchaser of all or
substantially all of its assets, and shall be binding upon Employee's assigns,
executors, administrators, Beneficiaries, or their legal representatives. As
used in this Agreement, the "Company" shall include any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by operation of
law, or otherwise.
12. AMENDMENT OR TERMINATION. The Board may at any time terminate the
Plan or any part thereof, and may from time to time amend the Plan as it may
deem advisable; PROVIDED, HOWEVER, that, on or after a Change of Control, in the
case of any employee of the Employer who is an Eligible Employee immediately
prior to the Change of Control, neither the termination of the Plan nor any part
thereof nor any amendment of the Plan shall in any respect adversely affect the
rights of such employee under the terms of the Plan as in effect immediately
prior to such Change in Control.
13. NO ASSIGNMENT. No severance benefits under the Plan shall be
subject to sale, transfer, alienation, assignment or garnishment, and any
attempt to cause such severance benefits to be so subjected shall not be
recognized, except to the extent required by law.
14. NO EMPLOYMENT RIGHTS. The Plan shall not confer employment rights
upon any person. No person shall be entitled, by virtue of the Plan, to remain
in the employ of the Employer.
15. PLAN FUNDING. No eligible employee shall acquire by reason of this
Plan any right in or title to any assets, funds, or property of the Employer.
Any severance pay benefits which become payable under this Plan are unfunded
obligations of the Employer and shall be paid solely from the general assets of
the Employer and, furthermore, no shareholder, director, officer, or employee of
the Employer shall be individually or personally liable for any severance pay
benefits which become payable under the Plan.
16. APPLICABLE LAW. The Plan shall be governed and construed in
accordance with ERISA and in the event that any reference shall be made to State
law, the laws of the State of California (without reference to the choice of law
provisions thereof) shall apply.
17. PLAN YEAR. The plan year of the Plan shall be the calendar year.
18. WITHHOLDING. The Employer may cause such amounts to be withheld
from payment under the Plan as are necessary to satisfy any federal, state or
local law.
19. CLAIMS PROCEDURE. Any person claiming a benefit, requesting an
interpretation or ruling under the Plan, or requesting information under the
Plan shall present such a claim or
7
<PAGE>
request in writing to the Administrator. The Administrator shall respond to the
claim within 90 days unless special circumstances require an extension of time
of up to an additional 90 days. The Administrator shall notify the claimant of
the special circumstances and the date by which a decision is expected. If no
response to a claim is received within the prescribed time, it shall be deemed
denied. If the claim is denied, the Administrator shall give the claimant a
written notice, including the specific reason for denial, with reference to
pertinent Plan provisions. The denial shall include a description of any
additional information necessary for the claimant to perfect a claim, an
explanation of why such information is necessary and a description of the
procedure for having the denied claim reviewed. The claimant may request review
of a denied claim by written notice to the Administrator given within 90 days of
the date of denial. The claimant or authorized representative may submit a
written application for review, may review pertinent documents and may submit
issues and comments in writing. The Administrator shall decide whether to affirm
or reverse the earlier denial and give notice to the claimant. The decision on
review shall be made within 60 days, unless special circumstances require an
extension of time for up to an additional 60 days. The Administrator shall give
the claimant notice of such an extension. The Administrator shall give the
claimant written notice of the decision on review, including specific references
to Plan provisions on which the decision is based. All decisions on review shall
be final and bind all parties concerned.
20. VALIDITY. The validity or enforceability of any provision or
provisions of the Plan shall not affect the validity or enforceability of any
other provision of the Plan, which other provisions shall remain in full force
and effect, nor shall the invalidity or unenforceability of a portion of any
provision of the Plan affect the validity or enforceability of the balance of
such provision.
21. HEADINGS. The headings of the paragraphs contained in the Plan are
for reference purposes only and shall not, in any way, affect the meaning or
interpretation of any provision of the Plan.
IN WITNESS WHEREOF, RiboGene, Inc. has caused this Plan to be
executed below by its duly authorized officer or representative effective as of
August 4, 1999.
RIBOGENE, INC.
By: /s/ Charles J. Casamento
_____________________________________
Title: President and Chief Executive Officer
_____________________________________
8
<PAGE>
EXHIBIT "A"
RIBOGENE, INC.
SEVERANCE BENEFITS PLAN
FORM OF GENERAL RELEASE
1. GENERAL RELEASE BY EMPLOYEE. In consideration for certain benefits
under the RiboGene, Inc. Severance Pay Plan and other valuable consideration,
the receipt and adequacy of which are hereby acknowledged, ______________
("Employee") does hereby release and forever discharge the "Company Releasees"
herein, consisting of RiboGene, Inc. (the "Company") and each of the Company's
parents, subsidiaries, and affiliates, associates, members, owners,
stockholders, predecessors, successors, heirs, assigns, employees, agents,
directors, officers, partners, representatives, lawyers, and all persons acting
by, through, under, or in concert with them, or any of them, of and from any and
all manner of action or actions, causes or causes of action, in law or in
equity, suits, debts, liens, contracts, agreements, promises, liabilities,
claims, demands, damages, losses, costs or expenses, of any nature whatsoever,
known or unknown, fixed or contingent (hereinafter called "Claims"), which they
now have or may hereafter have against the Releasees by reason of any and all
acts, omissions, events or facts occurring or existing prior to the date hereof,
except as expressly provided herein. The Claims released hereunder include,
without limitation, any alleged breach of any employment agreement; any alleged
breach of any covenant of good faith and fair dealing, express or implied; any
alleged torts or other alleged legal restrictions relating to the Employee's
employment and the termination thereof; and any alleged violation of any
federal, state or local statute or ordinance including, without limitation,
Title VII of the Civil Rights Act of 1964, as amended, the Federal Age
Discrimination in Employment Act of 1967, as amended, and the California Fair
Employment and Housing Act. This Release shall also not apply to Employee's
right to retirement and/or employee welfare benefits that have vested and
accrued prior to his separation from employment with the Companies; or
Employee's rights to indemnification under Section 2802 of the California Labor
Code.
2. RELEASE OF UNKNOWN CLAIMS. EMPLOYEE ACKNOWLEDGES THAT HE OR SHE IS
FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH
PROVIDES AS FOLLOWS:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HER FAVOR
AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY
HER MUST HAVE MATERIALLY AFFECTED HER SETTLEMENT WITH THE
DEBTOR."
EMPLOYEE BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS HE
OR SHE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW
PRINCIPLES OF SIMILAR EFFECT.
<PAGE>
3. RELEASE OF AGE DISCRIMINATION CLAIMS AND RIGHTS UNDER THE OLDER
WORKERS' BENEFIT PROTECTION ACT. Employee agrees and expressly acknowledges that
this Agreement includes a waiver and release of all claims which Employee has or
may have under the Age Discrimination in Employment Act of 1967, as amended, 29
U.S.C. ss. 621, ET SEQ. ("ADEA"). The following terms and conditions apply to
and are part of the waiver and release of the ADEA claims under this Agreement:
(a) That this paragraph and this Agreement are written in a
manner calculated to be understood by Employee.
(b) The waiver and release of claims under the ADEA
contained in this Agreement do not cover rights or claims that may
arise after the date on which Employee signs this Agreement.
(c) This Agreement provides for consideration in addition to
anything of value to which Employee is already entitled.
(d) Employee is advised to consult an attorney before
signing this Agreement.
(e) Employee is granted twenty-one (21) days (or forty-five
(45) days, if this Agreement is in connection with an exit incentive
or other employment termination program) after Employee is presented
with this Agreement to decide whether or not to sign this Agreement.
If Employee executes this Agreement prior to the expiration of such
period, Employee does so voluntarily and after having had the
opportunity to consult with an attorney.
(f) If this Agreement is in connection with an exit
incentive or other termination program, Employee has received the
information required to be disclosed under Section 7(f)(1)(H) of ADEA
and the regulations thereunder.
(g) Employee will have the right to revoke the waiver and
release of claims under the ADEA within seven (7) days of signing this
Release. In the event this Release is revoked, the Release and the
Agreement executed concurrently herewith will be null and void in
their entirety.
4. MANNER AND CONSEQUENCES OF REVOCATION OF RELEASE
(a) MANNER OF REVOCATION. In the event that Employee elects to
revoke this General Release, he or she shall deliver within the time period
prescribed above to the Chairperson of the Company's Board of Directors, a
writing stating that he or she is revoking this General Release and subscribed
by the Employee.
(b) CONSEQUENCES OF REVOCATION. In the event that Employee
should elect to revoke this General Release as described in the paragraph above,
this General Release shall be null and void in its entirety.
2
<PAGE>
5. NO CLAIMS. Employee represents and warrants to the Releasees that
there has been no assignment or other transfer of any interest in any Claim
which Employee may have against the Releasees, or any of them. Employee agrees
to indemnify and hold harmless the Releasees released by him or her from any
liability, claims, demands, damages, costs, expenses and attorneys' fees
incurred as a result of any person asserting such assignment or transfer of any
right or claims under any such assignment or transfer from Employee.
6. INDEMNIFICATION. Employee agrees that if he or she hereafter
commence, join in, or in any manner seek relief through any suit arising out of,
based upon, or relating to any of the Claims released hereunder or in any manner
asserts against the Releasees any of the Claims released hereunder, then
Employee will pay to the Releasees against whom such claim(s) is asserted, in
addition to any other damages caused thereby, all attorneys' fees incurred by
such Releasees in defending or otherwise responding to said suit or Claim.
The Parties further understand and agree that neither the payment
of money nor the execution of this Release shall constitute or be construed as
an admission of any liability whatsoever by the Releasees.
"COMPANY"
By: _____________________________________
Title:_______________________________
Date:_____________________________________
"EMPLOYEE"
By: _____________________________________
Print Name
_____________________________________
Signature
Date:_____________________________________
3
<PAGE>
EXHIBIT 10.26
RETENTION BONUS AGREEMENT
This Retention Bonus Agreement (the "Agreement") is made and
entered into effective as of August 4, 1999 (the "Effective Date"), between
RiboGene, Inc., a Delaware corporation (the "Company"), and Timothy E. Morris
("Employee").
RECITALS
A. Employee is presently employed by the Company.
B. Cypros Pharmaceutical Corporation ("Parent"), Cypros
Acquisition Corporation ("Merger Sub") and the Company have entered into an
Agreement and Plan of Reorganization, dated as of August 4, 1999 (the "Merger
Agreement"), which provides that Merger Sub will merge with and into the Company
under certain terms and subject to certain conditions (the "Merger").
C. Employee occupies a key position with the Company, and the
Company may require the services of Employee for a certain period of time in
order to effectively administer certain aspects of the Company's business
through the date of the Merger and thereafter.
D. The Company desires to offer Employee a retention bonus as
an incentive for Employee to remain in the employment of the Company through
June 30, 2000 or, if earlier, until Parent has hired a new Chief Financial
Officer.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and with reference to the above recitals, the
parties hereby agree as follows:
1. INCENTIVE DATE. For purposes of this Agreement, the "Incentive
Date" shall mean the earlier of:
(a) June 30, 2000, or
(b) the date of appointment of a new Chief Financial Officer.
For purposes of Section 1(b), Parent shall be treated as
having appointed a new Chief Financial Officer if the Chief Financial Officer of
Parent on the Effective Date has resigned or been removed from such position in
accordance with Parent's Bylaws, Parent's Board of Directors has appointed the
new Chief Financial Officer in accordance with Parent's Bylaws and the new Chief
Financial officer accepts such appointment.
2. RETENTION BONUS. Subject to Section 5, in the event that
the Merger occurs, and Employee is employed by the Employer as of the Incentive
Date, the Company shall pay to Employee a retention bonus (the "Retention
Bonus"), in a lump sum payment, in an amount equal to 100% of Employee's base
salary for the period from the Effective Date to the Incentive Date. For
purposes of this Section 2, the rate of Employee's base salary for such period
<PAGE>
shall be the rate of Employee's base salary in effect on the Incentive Date
(or, if greater, the rate of Employee's base salary in effect on the
Effective Date). Such lump sum payment shall be made within 10 days following
the Incentive Date. Upon 30 days written notice to the acquiring or surviving
corporation, Employee will also receive any and all severance benefits to
which he is entitled to under either his existing Change-In-Control Agreement
dated June 1995 or the RiboGene, Inc. Severance Benefits Plan, effective as
of August 4, 1999 or his employment agreement dated May 31, 1995 whichever
agreement is most beneficial to Employee. Any and all options to purchase
common stock and any and all restricted stock grants and restricted stock
bonus grants of common stock of the Company regardless of which Plan they
were issued from, shall become 100% vested and all repurchase rights and any
other restrictions shall lapse as of the Incentive Date. Together payments
and provisions made under the various severance plans listed above and the
treatment of options and restricted stock shall be known as the "Severance
Benefits."
In the event the Merger does not occur and Employee is
employed by Employer as of June 30, 2000, Employee shall receive, in a lump sum
payment an amount equal to 100% of Employee's base salary (as defined) from the
Effective Date to June 30, 2000.
During the term of this Agreement, Employee's principal place
of business shall be 26118 Research Road, Hayward, California or any other place
deemed appropriate by the Employee. Any request by Parent to change the
principal place of business without Employee's written consent shall constitute
a "termination of continuous service" for purposes of paying all of the
severance benefits listed above. Employee shall have the right to use any and
all office equipment supplied by the Company for as long as Employee deems
necessary and shall be entitled to keep such equipment even if he is no longer
providing services to the Company.
3. TERMINATION BONUS. Subject to Section 5, in the event that
the Merger occurs, and Employee's employment by the Employer is terminated by
the Company without Cause (as defined below) prior to the Incentive Date, the
Employer shall pay to Employee a termination bonus (the "Termination Bonus"), in
a lump sum payment, in an amount equal to 50% of Employee's base salary for the
period from the Effective Date to the Incentive Date. For purposes of this
Section 3, the rate of Employee's base salary shall be the rate of base salary
in effect immediately prior to Employee's termination of employment (or, if
greater, the rate of Employee's base salary in effect as of the Effective Date).
Such lump sum payment shall be made within 10 days following Employee's
termination of employment.
4. DEFINITION OF TERMS. For purposes of this Agreement, the
"Employer" shall mean the Company and its majority-owned subsidiaries, as
determined from time to time, and "Cause" shall mean (i) a material and willful
violation of any federal or state law by Employee, (ii) the commission of a
fraud by Employee against the Employer, (iii) Employee's repeated unexplained or
unjustified absence from the Employer, or (iv) Employee's gross negligence or
willful misconduct where such gross negligence or willful misconduct has
resulted or is likely to result in substantial and material damage to the
Employer.
5. EFFECT OF EMPLOYMENT AGREEMENT. Employee shall not be
entitled to a Retention Bonus under Section 2 of this Agreement, or a
Termination Bonus under Section 3 of this Agreement, if Employee enters into an
employment agreement with the Employer, any
<PAGE>
affiliate of the Employer or any purchaser or acquiror of all or any portion
of the Employer's business or assets prior to the Incentive Date.
6. WITHHOLDING. The Retention Bonus or Termination Bonus
payable to Employee shall be subject to applicable taxes and withholding.
7. SEVERANCE BENEFITS. This Agreement shall not affect
Employee's eligibility or entitlement to receive benefits under the Company's
Severance Benefits Plan.
8. CONFIDENTIALITY. Employee shall keep confidential, and not
divulge or discuss with any third person, the terms or existence of this
Agreement or Employee's participation in it. If Employee violates the terms of
this paragraph, Employee acknowledges and agrees that Employee will forfeit
Employee's eligibility to receive a retention bonus.
9. OTHER RIGHTS AND AGREEMENTS. This Agreement does not create
any employment rights not specifically set forth herein with respect to
Employee. This Agreement contains the entire understanding of the Company and
Employee with respect to the subject matter hereof.
10. AMENDMENT. This Agreement may be amended or revised only
by written agreement signed by the Company and Employee.
<PAGE>
11. APPLICABLE LAW. This Agreement shall be construed and
enforced in accordance with the laws of the State of California, without giving
effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, the parties have executed
this Agreement as of the date first above written.
"COMPANY"
By: /s/ Charles J. Casamento
-----------------------------------
Title: President and
Chief Executive Officer
-----------------------------
Date: 8/4/99
-------------------
"EMPLOYEE"
By: Timothy E. Morris
-----------------------------------
Print Name
/s/ Timothy E. Morris
-----------------------------------
Signature
Date: 8/4/99
-------------------
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
1. Cypros Acquisition Corporation
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Historical Financial Information" and to the use of our report
dated August 23, 1999, in the Registration Statement (Form S-4) and related
Prospectus/Joint Proxy Statement of Cypros Pharmaceutical Corporation for the
registration of 10,783,770 shares of its common stock and 2,134,534 shares of
its Series A preferred stock.
ERNST & YOUNG LLP
San Diego, California
September 20, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Historical Financial Information" and to the use of our report
dated February 12, 1999 in the Joint Proxy Statement of RiboGene, Inc. and
Cypros Pharmaceutical Corporation that is made part of the Registration
Statement (Form S-4) and related Prospectus of Cypros Pharmaceutical
Corporation for the registration of 10,783,770 shares of its common stock and
2,134,534 shares of its Series A preferred stock.
ERNST & YOUNG LLP
Palo Alto, California
September 20, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE PERIOD ENDED APRIL 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 2,509,386
<SECURITIES> 2,964,689
<RECEIVABLES> 391,888
<ALLOWANCES> 0
<INVENTORY> 205,207
<CURRENT-ASSETS> 112,540
<PP&E> 2,626,128
<DEPRECIATION> (1,154,563)
<TOTAL-ASSETS> 13,138,864
<CURRENT-LIABILITIES> 922,082
<BONDS> 146,921
0
0
<COMMON> 41,497,174
<OTHER-SE> (29,582,167)
<TOTAL-LIABILITY-AND-EQUITY> 13,138,864
<SALES> 2,518,181
<TOTAL-REVENUES> 2,518,181
<CGS> 771,099
<TOTAL-COSTS> 9,254,638
<OTHER-EXPENSES> 132,839
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,166
<INCOME-PRETAX> (6,783,922)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,783,922)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,783,922)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
<PAGE>
CYPROS PHARMACEUTICAL CORPORATION
2714 LOKER AVENUE WEST, CARLSBAD, CA 92009
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF SHAREHOLDERS
OF CYPROS PHARMACEUTICAL CORPORATION TO BE HELD ON NOVEMBER 5, 1999.
PROXY
The undersigned hereby appoints Paul J. Marangos and David W. Nassif, and
each of them with full power of substitution, as proxies of the undersigned, to
attend the Special Meeting of the Shareholders of Cypros Pharmaceutical to be
held at the principal executive offices located at 2714 Loker Avenue West,
Carlsbad, CA 92009 on November 5, 1999, at 9:00 a.m., local time, and at any and
all adjournments thereof, and to vote all common stock and preferred stock of
the Company, with all powers the undersigned would possess if personally present
at the meeting.
THIS PROXY WILL BE VOTED OR WITHHELD FROM BEING VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS SPECIFIED. WHERE NO CHOICE IS SPECIFIED, THIS PROXY WILL CONFER
DISCRETIONARY AUTHORITY AND WILL BE VOTED FOR APPROVAL OF THE MERGER (AS
SPECIFIED ON THE REVERSE SIDE). THIS PROXY CONFERS AUTHORITY FOR THE ABOVE NAMED
PERSONS TO VOTE IN THEIR DISCRETION WITH RESPECT TO AMENDMENTS OR VARIATIONS TO
THE MATTERS IDENTIFIED IN THE NOTICE OF THE MEETING ACCOMPANYING THIS PROXY AND
SUCH OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING. A SHAREHOLDER HAS
THE RIGHT TO APPOINT A PERSON, WHO NEED NOT BE A SHAREHOLDER, TO ATTEND AND ACT
ON THEIR BEHALF AT THE MEETING, OTHER THAN THE PERSON DESIGNATED IN THIS FORM OF
PROXY. SUCH RIGHT MAY BE EXERCISED BY INSERTING THE NAME OF SUCH PERSON IN THE
BLANK SPACE PROVIDED.
PROPOSAL 1 To approve and adopt (i) the agreement and plan of reorganization
dated as of August 4, 1999, among Cypros Pharmaceutical Corporation,
Cypros Acquisition Corporation, a newly-formed, wholly-owned
subsidiary of Cypros incorporated in Delaware, and RiboGene, Inc., a
Delaware corporation, (ii) the merger of Cypros Acquisition
Corporation with and into RiboGene and (iii) the issuance of shares
of common stock and preferred stock of Cypros pursuant to the
agreement and plan of reorganization.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 2 To approve an amendment to the Cypros Restated Articles of
Incorporation, as amended, to provide for (i) an increase of the
authorized shares of common stock to 75,000,000, (ii) an increase of
the authorized shares of preferred stock to 7,500,000, (iii)
authorize the Cypros board to designate the rights, preferences,
privileges and restrictions of additional shares of Cypros preferred
stock, (iv) designate shares of Cypros Series A Preferred Stock to
be issued in connection with the merger and (v) a change of the
Cypros name to Questcor Pharmaceuticals, Inc.
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
PROPOSAL 3 To approve an amendment to the Cypros Bylaws, as amended, to change
the authorized number of directors, upon the merger, to not less
than four nor more than nine directors.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 4 To approve an increase in the authorized shares reserved for
issuance under Cypros 1992 Stock Option Plan to 7,500,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 5 To approve an increase in the authorized shares reserved for
issuance under the 1993 Non-Employee Directors' Equity Incentive
Plan to 750,000 shares.
In their discretion, to act upon any matters incidental to the foregoing and
such other business as may properly come before the Special Meeting.
Receipt of the Prospectus/Joint Proxy Statement dated September 23, 1999 is
hereby acknowledged.
Dated _______________________, 1999
___________________________________
___________________________________
SIGNATURE(S)
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS HEREON. IF THE STOCK IS
REGISTERED IN THE NAMES OF TWO OR
MORE PERSONS, EACH SHOULD SIGN.
EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND
ATTORNEYS-IN-FACT SHOULD ADD THEIR
TITLES. IF SIGNER IS A CORPORATION,
PLEASE GIVE FULL CORPORATE NAME AND
HAVE A DULY AUTHORIZED OFFICER
SIGN, STATING TITLE. IF SIGNER IS A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AN AUTHORIZED
PERSON.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
<PAGE>
EXHIBIT 99.2
RIBOGENE, INC.
26118 RESEARCH ROAD
HAYWARD, CALIFORNIA 94545
SPECIAL MEETING OF STOCKHOLDERS
NOVEMBER 5, 1999
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF RIBOGENE, INC. (THE "COMPANY")
The undersigned hereby appoints Charles J. Casamento and his
designee(s), with full power of substitution, to act as attorney and proxy
of the undersigned, to vote all of the shares of the Common Stock of the
Company which the undersigned is entitled to vote at the Special Meeting of
Stockholders (the "Meeting"), to be held at the offices of the Company at
26118 Research Road, Hayward, California 94545, on November 5, 1999 at 9:00
a.m. local time, and at any and all adjournments or postponements of the
meeting with all of the powers which the undersigned would possess if
personally present, upon and in respect of the following proposal and in
accordance with the following instructions, with discretionary authority as
to any and all other matters that may properly come before the meeting. The
proposal referred to herein is described in detail in the accompanying
prospectus/joint proxy statement.
THE SIGNED PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS SIGNED PROXY WILL BE VOTED FOR THE PROPOSAL STATED, IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS SIGNED PROXY WILL BE VOTED BY THOSE
NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE
<PAGE>
BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
-----------
SEE REVERSE
SIDE
-----------
PLEASE MARK
[ ] VOTES AS IN
THIS EXAMPLE
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTPAID RETURN ENVELOPE. THE COMPANY BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR THE MERGER PROPOSAL.
FOR WITHHELD ABSTAIN
To approve the agreement and plan [ ] [ ] [ ]
of reorganization dated as of August 4,
1999, among the Company, Cypros
Pharmaceutical Corporation and Cypros
Acquisition Corporation, which provides
for, among other things, the merger of
Cypros Acquisition Corporation with and
into the Company, as described in the
accompanying prospectus joint proxy
statement.
SHOULD THE UNDERSIGNED BE PRESENT AND
ELECT TO VOTE AT THE MEETING, OR AT ANY
ADJOURNMENTS THEREOF, AND AFTER NOTIFICATION
TO THE SECRETARY OF THE COMPANY AT THE
MEETING OF THE STOCKHOLDER'S DECISION TO
TERMINATE THIS PROXY, THE POWER OF SAID
ATTORNEYS AND PROXIES SHALL BE DEEMED
TERMINATED AND OF NO FURTHER FORCE AND
EFFECT. THE UNDERSIGNED MAY ALSO REVOKE THIS
PROXY BY FILLING A SUBSEQUENTLY DATED PROXY
OR BY WRITTEN NOTIFICATION TO THE SECRETARY
OF THE COMPANY OF HIS OR HER DECISION TO
TERMINATE THIS PROXY.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT
FROM THE COMPANY PRIOR TO THE EXECUTION OF
THIS PROXY OF A NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS, A PROSPECTUS/JOINT PROXY
STATEMENT DATED SEPTEMBER 23, 1999.
<PAGE>
, 1999.
SIGNATURE(S): DATE:
--------------------------------------------- ---------------
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If signer is
a corporation, please give full corporate name and have a duly authorized
officer sign, stating title. If signer is a partnership, please sign in
partnership named by authorized person.
<PAGE>
Exhibit 99.4
[Rabobank International letterhead]
PERSONAL AND CONFIDENTIAL
September 21, 1999
Board of Directors
RiboGene, Inc.
26118 Research Road
Hayward, CA 94545
Gentlemen:
Reference is made to our letter dated August 4, 1999 (the "Letter") with
respect to the fairness of the "Exchange Ratio" from a financial point of
view to the stockholders of RiboGene, Inc. ("RiboGene") pursuant to the
Agreement and Plan of Reorganization (the "Agreement") between RiboGene and
Cypros Pharmaceutical Corporation Inc. ("Cypros").
The Letter is solely for the information and assistance of the Board of
Directors of RiboGene in connection with its consideration of the transaction
contemplated by the Agreement and is not to be used, circulated, quoted or
otherwise referred to for any other purpose, nor is it to be filed with,
included in or referred to in whole or in part in any registration statement,
proxy statement or any other document, except in accordance with our prior
written consent.
In that regard, we hereby consent to the reference to the Letter under the
captions "Summary--Opinions of Financial Advisors" and "The Merger--Opinions
of Financial Advisors" and to the inclusion of the Letter in the Joint Proxy
Statement/Prospectus included in the Registration Statement on Form S-4 to be
filed by RiboGene and Cypros relating to the shares to be issued pursuant to
the Agreement. In giving such consent, we do not thereby admit that we come
within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended (the "Act") or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder;
nor do we admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "experts" as used in
the Act.
Very truly yours,
/s/ Rabobank International, New York Branch
RABOBANK INTERNATIONAL, NEW YORK BRANCH
