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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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COCENSYS, INC.
(NAME OF SUBJECT COMPANY)
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COCENSYS, INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.001 PER SHARE
(TITLE OF CLASS OF SECURITIES)
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191263201
(CUSIP NUMBER OF CLASS OF SECURITIES)
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F. RICHARD NICHOL, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COCENSYS, INC.
213 TECHNOLOGY DRIVE
IRVINE, CA 92618
(949) 753-6100
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF
OF THE PERSON FILING STATEMENT)
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COPIES TO:
ALAN C. MENDELSON, ESQ.
SUZANNE SAWOCHKA HOOPER, ESQ.
COOLEY GODWARD LLP
FIVE PALO ALTO SQUARE
300 EL CAMINO REAL
PALO ALTO, CA 94306-2155
(650) 843-5000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is CoCensys, Inc., a Delaware corporation
(the "Company"), and the principal executive offices of the Company are located
at 213 Technology Drive, Irvine, CA 92618. The title of the class of equity
securities to which this Statement relates is the common stock, par value $0.001
per share, including the associated rights to purchase Series A Junior
Participating Preferred Stock issued under the Rights Agreement, dated as of May
15, 1995, by and between the Company and American Stock Transfer & Trust
Company, as Rights Agent (collectively, the "Shares"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to a tender offer by Purdue Acquisition Corporation,
a Delaware corporation ("Offeror") and an indirect wholly owned subsidiary of
Purdue Pharma L.P., a Delaware limited partnership ("Parent"), disclosed in a
Tender Offer Statement on Schedule 14D-1, dated August 12, 1999 (the "Schedule
14D-1"), to purchase all of the outstanding Shares at a purchase price of $1.16
per Share (the "Offer Price"), net to the seller in cash (subject to any
applicable withholding of taxes), without any interest, upon the terms and
subject to the conditions set forth in Offeror's Offer to Purchase, dated August
12, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal
(which, together with any amendments and supplements thereto, collectively
constitute the "Offer") included in the Schedule 14D-1.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of August 5, 1999 (the "Merger Agreement"), among Parent, the Offeror and the
Company pursuant to which, following the consummation of the Offer and the
satisfaction or waiver of certain conditions, the Offeror will be merged with
and into the Company (the "Merger"), with the Company surviving the Merger (as
such, the "Surviving Corporation") as an indirect wholly owned subsidiary of
Parent. On the effective date of the Merger, each outstanding Share (other than
Shares owned by the Company as treasury stock, Parent, the Offeror or any other
subsidiary or affiliate of Parent or by stockholders, if any, who are entitled
to and who properly demand and perfect appraisal rights under Delaware law) will
be converted into the right to receive from the Surviving Corporation the Offer
Price in cash, without interest (the "Merger Consideration").
The Offeror has also entered into a Purchase Agreement, dated as of August
5, 1999 (the "Series E Purchase Agreement"), with the holder of the Series E
Convertible Preferred Stock of the Company (the "Series E Preferred Stock").
Under the Series E Purchase Agreement, the holder of the Series E Preferred
Stock has agreed to sell, and the Offeror has agreed to purchase, immediately
upon consummation of the Offer, all of the Series E Preferred Stock beneficially
owned by it, representing approximately 31% of the Company's fully diluted
shares on an as-converted basis at the currently scheduled Expiration Date (as
defined herein), for an aggregate purchase price of $2,200,000. The obligation
of the holder of the Series E Preferred Stock to sell, and the obligation of the
Offeror to purchase, the Series E Preferred Stock under the Series E Purchase
Agreement, are subject to the Offeror having accepted Shares for payment under
the Offer in accordance with the Merger Agreement. The Series E Preferred Stock
will be convertible at the option of the holder into approximately 2,634,493
Shares at the currently scheduled Expiration Date.
The Merger is subject to a number of conditions, including approval by
stockholders of the Company, if such approval is required by applicable law. If
the Offeror acquires 90% or more of the outstanding shares of each class of
voting stock of the Company pursuant to the Offer, the Series E Purchase
Agreement or otherwise, the Offeror would be able to effect the Merger pursuant
to the short-form merger provisions of the Delaware General Corporation Law (the
"DGCL"), without prior notice to, or any action by, any other stockholder of the
Company. In such event, the Offeror could, and intends to, effect the Merger
without prior written notice to, or any action by, any other stockholder of the
Company. The Merger Agreement is more fully described in Item 3.
The Merger Agreement provides that promptly upon the acceptance for payment
of, and payment for, a majority of the Shares by the Offeror pursuant to the
Offer, the Offeror shall be entitled and obligated to designate, subject to
compliance with Section 14(f) of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), a majority of the directors on the Company's Board
of Directors, and the Company shall, at such time, take all such action needed
to cause the Offeror's designees to be so elected by its existing
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Board of Directors. Subject to applicable law, the Company has agreed to take
all action requested by Parent necessary to effect any such election, including
mailing to its stockholders the Information Statement containing the information
required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder.
All information contained in this Statement or incorporated herein by
reference concerning the Offeror, Parent or their affiliates, or actions or
events with respect to any of them, was provided to the Company by the Offeror
or Parent, and the Company takes no responsibility for the accuracy or
completeness of such information or for any failure by such entities to disclose
events or circumstances that may have occurred and may affect the significance,
completeness or accuracy of any such information.
According to the Schedule 14D-1, the Offeror, a Delaware corporation, is an
indirect wholly owned subsidiary of Parent. The Offeror is wholly owned by
Purdue Neuroscience Inc., a Delaware corporation ("PNI"), that in turn is wholly
owned by Purdue Neuroscience L.P., a Delaware limited partnership ("PNLP").
Parent owns 100% of the limited partnership interest in PNLP. Purdue
Neuroscience Corporation, a New York corporation ("PNC"), is the general partner
of PNLP. The Offeror, PNC, PNI and PNLP were formed in connection with the Offer
and transactions contemplated thereby. To date, the Offeror has not conducted
any business other than that incident to its formation, the execution and
delivery of the Merger Agreement and Series E Purchase Agreement and the
commencement of the Offer. It is not anticipated that, prior to the consummation
of the Offer and the Merger, the Offeror will have any significant assets or
liabilities or will engage in any activities other than those incident to the
Offer and the Merger. The principal executive office of the Offeror is located
c/o Purdue Pharma L.P., 100 Connecticut Avenue, Norwalk, Connecticut 06850.
PNI, a Delaware corporation, is a holding company and has not conducted any
business other than that incident to its formation. PNI is currently wholly
owned by PNLP, a Delaware limited partnership and a holding company that has not
conducted any business other than that incident to its formation. The principal
executive offices of PNI and PNLP are located c/o Purdue Pharma L.P., 100
Connecticut Avenue, Norwalk, Connecticut 06850.
PNC, a New York corporation, is the general partner of PNLP, and has not
conducted any business other than that incident to its formation. The principal
executive office of PNC is located c/o Purdue Pharma L.P., 100 Connecticut
Avenue, Norwalk, Connecticut 06850.
Parent, a Delaware limited partnership, is a pharmaceutical company
headquartered in Connecticut. The principal executive office of Parent is
located at 100 Connecticut Avenue, Norwalk, Connecticut 06850.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this Statement, are set forth in Item 1 above.
(b) Except as set forth below, to the knowledge of the Company, there are
no material contracts, agreements, arrangements or understandings and no actual
or potential conflicts of interest between the Company or its affiliates and (i)
the Company's executive officers, directors or affiliates or (ii) Parent or the
Offeror or any of their respective executive officers, directors or affiliates.
(i) ARRANGEMENTS WITH THE COMPANY OF ITS EXECUTIVE OFFICERS, DIRECTORS OR
AFFILIATES. For a description of the Company's executive officer and director
compensation, see the information set forth under the headings "Executive
Compensation" and "Certain Transactions" in the Company's Definitive Proxy
Statement for its 1999 Annual Meeting of Stockholders filed with the SEC on May
7, 1999, which information is incorporated by reference herein.
(ii) ARRANGEMENTS WITH PARENT, THE OFFEROR OR ANY OF THEIR EXECUTIVE
OFFICERS, DIRECTORS OR AFFILIATES.
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CONFIDENTIALITY AGREEMENT.
Parent and the Company entered into a mutual confidentiality agreement (the
"Confidentiality Agreement") in October 1998 in connection with discussions
regarding a potential research collaboration partnership. On June 18, 1999, the
Confidentiality Agreement was amended in order to expand the scope of the
agreement to include, among other things, the confidential treatment of the
discussions regarding the Offer and the Merger and the exchange of certain
confidential information concerning the Company and Parent.
THE MERGER AGREEMENT.
On August 5, 1999, the Company, Parent and the Offeror entered into the
Merger Agreement which, subject to certain conditions, contemplates an
acquisition of the Company by Parent (through the Offeror, an indirect wholly
owned subsidiary of Parent) at a cash price of $1.16 per Share. The following is
a summary of certain provisions of the Merger Agreement, and such summary is
qualified in its entirety by reference to the full text of the Merger Agreement
a copy of which is filed as Exhibit 1 to this Statement, and which is
incorporated herein by reference. Capitalized terms used and not otherwise
defined herein shall have the meanings assigned to them in the Merger Agreement.
THE OFFER. Upon the terms and subject to the conditions of the Offer
(including if the Offer is extended or amended, the terms and conditions of any
extension or amendment), the Offeror will accept for payment and pay promptly
after the Expiration Date for all Shares validly tendered prior to the
Expiration Date and not theretofore withdrawn in accordance with Section 3 of
the Offer to Purchase. The term "Expiration Date" means 12:00 midnight, New York
City time, on Thursday, September 9, 1999, unless and until the Offeror shall
have extended the period of time during which the Offer is open, in which event
the term "Expiration Date" shall mean the latest time and date at which the
Offer, as so extended by the Offeror, will expire.
The offer is conditioned upon satisfaction of the Minimum Condition and the
satisfaction of the other conditions set forth below.
In the Merger Agreement, the Offeror has agreed that without the consent of
the Company it may extend the Offer (a) if at the scheduled or extended
Expiration Date any of the conditions to the Offeror's obligation to accept
Shares for payment are not satisfied or waived, until such time as such
conditions are satisfied or waived, (b) for any period required by any rule,
regulation, interpretation or position of the Securities and Exchange Commission
(the "SEC" or "Commission") or the staff thereof applicable to the Offer, (c)
for a period not to exceed an aggregate of ten business days, notwithstanding
that all conditions to the Offer are satisfied as of the Expiration Date, if,
immediately prior to such Expiration Date, the Shares tendered and not withdrawn
pursuant to the Offer, when added to the number of Shares to be received by the
Offeror upon conversion of all of the Series E Preferred Stock purchased by the
Offeror under the Series E Purchase Agreement, equal less than 90% of the Fully
Diluted Shares and (d) until 10 business days following the expiration of the 10
business day period referred to in clause (iv) of condition (c) of "Conditions
to the Offer," below and, if such clause (iv) of condition (c) shall not have
been satisfied, for so long as the Offeror shall determine until, in its sole
discretion, all conditions of the Offer are satisfied or waived. Without
limiting the right of the Offeror to extend the Offer pursuant to the
immediately preceding sentence, in the event that (i) the Minimum Condition has
not been satisfied or (ii) any condition set forth in paragraph (a) of
"Conditions to the Offer" is not satisfied at the scheduled Expiration Date, the
Offeror shall extend the Expiration Date in increments of five business days
each until the earliest to occur of (x) the satisfaction or waiver of the
Minimum Condition or such other condition, or the Offeror reasonably determines
that any Offer Condition is not capable of being satisfied on or prior to
October 15, 1999, (y) the termination of the Merger Agreement in accordance with
its terms and (z) October 15, 1999; provided, however, that if any person or
group (within the meaning of Section 13(d)(3) of the Exchange Act) has publicly
made an Acquisition Proposal (as defined herein) or disclosed in writing its
intention to make an Acquisition Proposal, the Offeror shall not be required to
extend the Offer for more than five business days from the date of such
publication or written disclosure of such Acquisition Proposal unless the
Company's Board of Directors has
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reaffirmed its recommendation that the stockholders of the Company accept the
Offer. As used in this Offer to Purchase, "business day" has the meaning set
forth in Rule 14d-1 under the Exchange Act.
In addition, the Offeror has agreed in the Merger Agreement that it will
not, without the written consent of the Company, (a) reduce the number of Shares
subject to the Offer, (b) reduce the Offer Price, (c) add to or modify (other
than by waiver) the conditions set forth in "Conditions to the Offer," (d)
except as set forth in the immediately preceding paragraph, extend the Offer,
(e) change the form of the consideration payable in the Offer, (f) waive the
Minimum Condition, or (g) amend or alter any other term of the Offer in any
manner materially adverse to the holders of the Shares.
Subject to the terms of the Merger Agreement and the applicable rules and
regulations of the Commission, the Offeror reserves the right, in its sole
discretion, at any time and from time to time, and regardless of whether or not
any of the events or facts set forth herein shall have occurred, to, (a) extend
the period of time during which the Offer is open, and thereby delay acceptance
for payment of and the payment for any Shares, by giving oral or written notice
of such extension to the Depositary and (b) amend the Offer in any other respect
by giving oral or written notice of such amendment to the Depositary. UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR TENDERED SHARES,
WHETHER OR NOT THE OFFEROR EXERCISES ITS RIGHT TO EXTEND THE OFFER.
If by 12:00 midnight, New York City time, on Thursday, September 9, 1999
(or any date or time then set as the Expiration Date), any or all of the
conditions to the Offer have not been satisfied or waived, the Offeror reserves
the right (but shall not be obligated), subject to the terms and conditions
contained in the Merger Agreement and to the applicable rules and regulations of
the Commission to, (a) terminate the Offer and not accept for payment or pay for
any Shares and return all tendered Shares to tendering stockholders, (b) waive
any or all of the unsatisfied conditions and accept for payment and pay for all
Shares validly tendered prior to the Expiration Date and not theretofore
withdrawn, (c) extend the Offer and, subject to the right of stockholders to
withdraw Shares until the Expiration Date, retain the Shares that have been
tendered during the period or periods for which the Offer is extended or (d)
amend the Offer.
There can be no assurance that the Offeror will exercise its right to
extend the Offer beyond any required extensions. Any extension, waiver,
amendment or termination will be followed as promptly as practicable by a public
announcement. In the case of an extension, Rule 14e-l(d) under the Exchange Act
requires that the announcement be issued no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date in
accordance with the public announcement requirements of Rule 14d-4(c) under the
Exchange Act. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d)
under the Exchange Act, which require that any material change in the
information published, sent or given to stockholders in connection with the
Offer be promptly disseminated to stockholders in a manner reasonably designed
to inform stockholders of such change) and without limiting the manner in which
the Offeror may choose to make any public announcement, the Offeror will not
have any obligation to publish, advertise or otherwise communicate any such
public announcement other than by making a release to the Dow Jones News
Service.
If the Offeror extends the Offer or if the Offeror is delayed in its
acceptance for payment of or payment (whether before or after its acceptance for
payment of Shares) for Shares or it is unable to pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Offeror's rights under the
Offer, the Depositary may retain tendered Shares on behalf of the Offeror, and
such Shares may not be withdrawn except to the extent tendering stockholders are
entitled to withdrawal rights as described in Section 3 of the Offer to
Purchase. However, the ability of the Offeror to delay the payment for Shares
that the Offeror has accepted for payment is limited by Rule 14e-1(c) under the
Exchange Act, which requires that a bidder pay the consideration offered or
return the securities deposited by or on behalf of holders of securities
promptly after the termination or withdrawal of such bidder's offer.
If the Offeror makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including, with the Company's consent, a waiver of the Minimum Condition), the
Offeror will disseminate additional tender offer materials and extend the Offer
to the extent
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required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The
minimum period during which an offer must remain open following material changes
in the terms of the offer or information concerning the offer, other than a
change in price or a change in the percentage of securities sought, will depend
upon the facts and circumstances then existing, including the relative
materiality of the changed terms or information. With respect to a change in
price or a change in the percentage of securities sought, a minimum period of 10
business days is generally required to allow for adequate dissemination to
stockholders.
Consummation of the Offer is conditioned upon the satisfaction of the
Minimum Condition and the other conditions set forth below. Subject to the terms
and conditions contained in the Merger Agreement, the Offeror reserves the right
(but shall not be obligated) to waive any or all such conditions. However, if
the Offeror waives or amends the Minimum Condition (which action may not be
taken without the Company's consent) during the last five business days during
which the Offer is open, the Offeror will be required to extend the Expiration
Date so that the Offer will remain open for at least five business days after
the announcement of such waiver or amendment is first published, sent or given
to holders of Shares and may also be required to extend the Offer if other
conditions are waived, depending on the materiality of the waiver.
The Merger Agreement provides that prior to the effectiveness of the
Merger, all outstanding Company Stock Options whether or not then fully
exercisable, shall be accelerated and converted into the right to receive after
the Effective Time (as defined in the Merger Agreement) from the Company, for
each Share subject to any Company Stock Option, an amount in cash equal to the
excess, if any, of the Offer Price over the per share exercise price of such
Company Stock Option, without interest (less any applicable withholding taxes).
All Company Stock Options not exercised at the Effective Time shall terminate
and be canceled and shall cease to exist. See "Company Stock Options; Warrants"
below.
Notwithstanding the foregoing, the Board of Directors of the Company, with
the written consent of Parent, has adopted resolutions providing for the
acceleration of all Company Stock Options contingently upon and subject to
consummation of the Offer.
CONDITIONS TO THE OFFER. Notwithstanding any other term of the Offer or
the Merger Agreement, and in addition to (and not in limitation of) the
Offeror's right to extend and amend the Offer at any time in its sole discretion
(subject to the provisions of the Merger Agreement), the Offeror shall not be
required to accept for payment or, subject to applicable rules and regulations
of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to the
Offeror's obligation to pay for or return tendered Shares after the termination
or withdrawal of the Offer), to pay for, and may delay the acceptance for
payment of or, subject to the restriction referred to above, the payment for,
any Shares tendered pursuant to the Offer unless there shall have been validly
tendered and not withdrawn prior to the expiration of the Offer such number of
Shares that, when added to the number of Shares to be received by the Offeror
upon the conversion of all of the Series E Preferred purchased by the Offeror
under the Series E Purchase Agreement would satisfy the Minimum Condition as of
the Expiration Date. Notwithstanding any other term of the Offer or the Merger
Agreement, the Offeror shall not be required to accept for payment or, subject
as aforesaid, to pay for any Shares not theretofore accepted for payment or paid
for, and may terminate the Offer if, at any time on or after the date of the
Merger Agreement and before the acceptance of such Shares for payment or the
payment therefor, any of the following conditions exists or shall occur and
remain in effect:
(a) there shall be threatened, instituted or pending by any
Governmental Entity or instituted or pending by any person any suit,
action, investigation or proceeding (i) challenging the acquisition by
Parent or the Offeror of any Shares under the Offer or seeking to restrain,
prohibit or delay the making or consummation of the Offer or the Merger or
the performance of any of the other transactions contemplated by the Merger
Agreement, or seeking to obtain from the Company, Parent or the Offeror any
damages that are material in relation to the Company, (ii) seeking to
prohibit or impose any limitations on Parent's or the Offeror's ownership
or operation (or that of any of their respective subsidiaries or
affiliates) of all or a material portion of their or the Company's
businesses or assets, or to compel Parent, the Offeror, the Company or
their respective subsidiaries and affiliates to dispose of or hold separate
any material portion of the business or assets of the Company or Parent,
the Offeror and their respective subsidiaries (provided that any
prohibition, limitation, restriction or other action or
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requirement with respect to any of the Intellectual Property Rights of the
Company, or rights or obligations related to or arising from the
Intellectual Property Rights of the Company, shall be deemed a material
portion for purposes hereof), (iii) seeking to make illegal, impose
material limitations on the ability of the Offeror, or render the Offeror
unable, to accept for payment, pay for or purchase some or all of the
Shares pursuant to the Offer and the Merger, (iv) seeking to impose
material limitations on the ability of the Offeror or Parent (or any of
their affiliates) to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote the Shares purchased by it
on all matters properly presented to the Company's stockholders, or (v)
which otherwise is reasonably likely to have a material adverse effect on
the Parent, the Offeror or Company;
(b) there shall be any statute, rule, regulation, judgment, decree,
order or injunction enacted, entered, enforced, promulgated or deemed
applicable to the Offer or the Merger, or any other action shall be taken
by any Governmental Entity or court that could reasonably be expected to,
in the judgment of the Parent, result, directly or indirectly, in any of
the consequences referred to in clauses (i) through (v) of paragraph (a)
above;
(c) (i) the Board of Directors of the Company or any committee thereof
shall have withdrawn or modified in a manner adverse to Parent or the
Offeror its approval or recommendation of the Offer, the Merger or the
Merger Agreement, or approved or recommended any Acquisition Proposal, (ii)
the Company shall have entered into any agreement with any other Person
pursuant to any Acquisition Proposal, (iii) the Board of Directors of the
Company or any committee thereof shall have resolved to take any of the
foregoing actions, or (iv) the Board of Directors of the Company shall have
failed to reject any Acquisition Proposal within 10 business days after
receipt by the Company or public announcement thereof;
(d) any of the representations and warranties of the Company set forth
in the Merger Agreement that are qualified as to materiality shall not be
true and correct or any such representations and warranties that are not so
qualified shall not be true and correct in any material respect, in each
case at the date of the Merger Agreement and at the scheduled or extended
expiration of the Offer, other than any matters that individually or in the
aggregate would not have a material adverse effect on the Company
(provided, however, that the failure of any representations and warranties
with respect to, arising from or related to the Intellectual Property
Rights of the Company to be true and correct in any material respect shall
be deemed to have a material adverse effect on the Company);
(e) the Company shall have failed to perform in any respect any
material obligation or to comply in any respect with any material agreement
or material covenant of the Company to be performed or complied with by it
under the Merger Agreement, which failure to perform or comply is not
substantially cured within 10 days after Parent provides the Company with
notice of such failure;
(f) there shall be any securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
the Company is a party or by which it is bound obligating the Company to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of the
Company, or securities convertible into or exercisable for shares of
capital stock or other voting securities of the Company, which gives any
person any right to acquire equity securities of the Surviving Corporation
at or following the Effective Time;
(g) the Merger Agreement shall have been terminated in accordance with
its terms; or
(h) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on any national securities
exchange or over-the-counter market in the United States, (ii) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) any general limitation
(whether or not mandatory) by any governmental authority on the extension
of credit by banks or other lending institutions, (iv) in the case of any
of the foregoing existing at the time of the commencement of the Offer, a
material acceleration or worsening thereof, (v) a change in general
financial, bank or capital market conditions which materially and adversely
affects the ability of financial institutions in the United States to
extend credit or syndicate loans.
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The Merger Agreement provides that the foregoing conditions are for the
sole benefit of Parent and the Offeror, may be asserted by Parent or the Offeror
regardless of the circumstances giving rise to such condition (including any
action or inaction by Parent or the Offeror not in violation of the Merger
Agreement) and may be waived by Parent or the Offeror in whole or in part at any
time and from time to time in the sole discretion of Parent or the Offeror,
subject in each case to the terms of the Merger Agreement. The failure by Parent
or the Offeror at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an ongoing
right which may be asserted at any time and from time to time. Terms used herein
but not defined herein shall have the meanings assigned to such terms in the
Merger Agreement.
THE MERGER. The Merger Agreement provides that following the satisfaction
or waiver of the conditions described below under "Conditions to the Obligations
of the Parties to Effect the Merger," the Offeror will be merged with and into
the Company, with the Company surviving the Merger and each then outstanding
Share (other than Shares owned by the Company, Parent, the Offeror, any other
subsidiary of Parent or by stockholders, if any, who are entitled to and who
properly demand and perfect appraisal rights under Delaware law) will be
converted into the right to receive an amount in cash equal to the price per
Share paid pursuant to the Offer, without interest. Pursuant to the Merger
Agreement, each share of common stock of the Offeror issued and outstanding
immediately prior to the Effective Time shall be converted into and become 1,000
fully paid and non-assessable shares of common stock, par value $.001 per share,
of the Surviving Corporation.
The Offer is conditioned upon, among other things, the Minimum Condition,
and the Offeror has agreed in the Merger Agreement that it will not, without the
written consent of the Company, waive the Minimum Condition.
VOTE REQUIRED TO APPROVE MERGER. The DGCL provides that if a parent
company owns at least 90% of each class of voting stock of a subsidiary, such
parent company can effect a short-form merger with that subsidiary without the
action of the other stockholders of the subsidiary. Accordingly, if, as a result
of the Offer or the conversion of the Series E Preferred Stock or otherwise, the
Offeror owns at least 90% of the outstanding Shares, the Offeror could, and
intends to, effect the Merger without prior notice to, or any action by, any
other stockholder of the Company.
If a parent company owns less than 90% of each class of voting stock of a
subsidiary, the DGCL requires, among other things, that the adoption of any plan
of merger or consolidation of the Company must be approved by the Board of
Directors and generally by the holders of the Company's outstanding voting
securities. The Board of Directors of the Company has unanimously approved the
Offer and the Merger; consequently, the only additional action of the Company
that may be necessary to effect the Merger is approval by the Company's
stockholders if the "short-form" merger procedure described above is not
available. Under the DGCL, the affirmative vote of holders of a majority of the
outstanding Shares (including any Shares owned by the Offeror) is generally
required to approve the Merger. If the Offeror acquires, through the Offer, the
conversion of the Series E Preferred Stock or otherwise, voting power with
respect to a majority of the outstanding Shares, it would have sufficient voting
power to effect the Merger without the vote of any other stockholder of the
Company.
CONDITIONS TO THE OBLIGATIONS OF THE PARTIES TO EFFECT THE MERGER. The
Merger Agreement provides that the obligation of the parties to effect the
Merger is subject to the satisfaction of certain conditions, including the
following: (a) if required by applicable law, the Merger Agreement and the
transactions contemplated thereby shall have been approved by the affirmative
vote of the holders of a majority of the Shares; (b) no statute, rule,
regulation, executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other federal, state or local government or any court, tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency, domestic, foreign or supranational (a "Governmental
Entity") or other legal restraint or prohibition preventing the consummation of
the Merger shall be in effect; provided, however, that each of the Company, the
Offeror and Parent shall have used reasonable efforts to prevent the entry of
any such injunction or other order and to appeal as promptly as possible any
injunction or other order that may be
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entered; and (c) the Offeror shall have previously accepted for payment and paid
for Shares pursuant to the Offer.
TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be
terminated at any time prior to the Effective Time, whether before or after
approval of the terms of the Merger Agreement by the stockholders of the
Company:
(1) by mutual written consent of Parent and the Company, by action of
the Board of Directors of the General Partner on behalf of the Parent and
by the Board of Directors of the Company;
(2) by either Parent or the Company if neither the Offer nor the
Merger shall have been consummated on or before December 31, 1999, unless
such date is otherwise extended by Parent in its sole discretion; provided,
however, that neither Parent nor the Company may terminate the Merger
Agreement under the foregoing clause if such party shall have materially
breached the Merger Agreement;
(3) by either Parent or the Company if any court of competent
jurisdiction in the United States or other United States Governmental
Entity has issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable;
provided, however, that the party seeking to terminate the Merger Agreement
shall have used its best efforts to remove or lift such order, decree,
ruling or other action;
(4) by the Company if, prior to the Effective Time, any person has
made a bona fide proposal relating to an Acquisition Proposal (as defined
below), or has commenced a tender or exchange offer for the Shares, and the
Board of Directors of the Company determines in good faith (i) after
consultation with its financial advisors, that such transaction constitutes
a Superior Proposal (as defined below) and (ii) after receiving advice from
outside legal counsel to the Company, that the failure to engage in such
negotiations or discussions or provide such information would be reasonably
determined to constitute a breach of the fiduciary duties of the Board of
Directors of the Company under applicable law;
(5) by Parent if, (A) Parent shall not have materially breached the
Merger Agreement and (B) the Board of Directors of the Company shall have
(i) failed to recommend to the stockholders of the Company that they accept
the Offer, tender their Shares pursuant to the Offer and approve and adopt
the Merger Agreement (the "Stockholder Acceptance"), (ii) withdrawn or
modified its approval or recommendation of the Merger Agreement, the Offer
or the Merger, (iii) shall have approved or recommended an Acquisition
Proposal, (iv) shall have resolved to effect any of the foregoing or (v)
shall have otherwise taken steps to impede the Stockholder Acceptance;
(6) by the Company, if the Offeror or Parent shall have (i) failed to
commence the Offer within five business days after the public announcement
by Parent and the Company of the Merger Agreement, (ii) failed to pay for
Shares pursuant to the Offer in accordance with the Merger Agreement or
(iii) breached in any material respect any of their respective
representations, warranties, covenants or other agreements contained in the
Merger Agreement, which breach or failure to perform in respect of clause
(iii) is incapable of being cured or has not been cured within 20 days
after the giving of written notice to Parent or the Offeror, as applicable;
(7) by Parent or the Offeror prior to the Offeror's obligation to
accept Shares for payment pursuant to the Offer in the event of a breach by
the Company of any representation, warranty, covenant or other agreement
contained in the Merger Agreement which (i) would give rise to the failure
of a condition set forth in paragraph (c), (d) or (e) of "Conditions to the
Offer" and (ii) cannot be or has not been cured within 20 days after the
giving of written notice to the Company;
(8) by either Parent or the Company, if the Stockholder Acceptance
shall not have been obtained at a Stockholders Meeting; if required by
applicable law; or
(9) by either Parent or the Company if, as the result of the failure
of any of the conditions set forth in "Conditions to the Offer," the
Offeror shall have terminated the Offer in accordance with its terms
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without the Offeror having purchased any Shares pursuant to the Offer;
provided, however, that the right to terminate the Merger Agreement
pursuant to this clause shall not be available to any party whose failure
to fulfill any of its obligations under, or breach of any provisions of,
the Merger Agreement or results in the failure of any such condition.
FEES AND EXPENSES. The Merger Agreement provides that, in the event that
(i) the Merger Agreement is terminated pursuant to clause 4 or 5 under
"Termination of the Merger Agreement" above, or (ii) any person (other than
Parent or any of its affiliates) shall have made or proposed, communicated or
disclosed in a manner which is or otherwise becomes public an Acquisition
Proposal prior to the Effective Time and, thereafter, the Merger Agreement is
terminated in connection with such Acquisition Proposal, then the Company shall
pay to Parent $237,500 as liquidated damages and not as a penalty. The parties
agree that such amount is a reasonable estimate of the costs and expenses that
would be incurred and the value of services consumed by and on behalf of Parent
and the Offeror if the transactions contemplated hereunder were not to go
forward as a result of such a termination. Except as otherwise specifically
provided for in the Merger Agreement, whether or not the Merger is consummated,
all costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated by the Merger Agreement shall be paid by the party
incurring such expenses.
The Merger Agreement provides that the prevailing party in any legal action
undertaken to enforce the Merger Agreement or any provision thereof shall be
entitled to recover from the other party the costs and expenses (including
attorneys' and expert witness fees and expenses) incurred in connection with
such action.
ACQUISITION PROPOSALS. The Merger Agreement provides that, from the date
thereof until such time as Parent's designees shall constitute a majority of the
members of the Board of Directors of the Company or the termination of the
Merger Agreement, neither the Company nor any of its officers, directors, or
employees shall, and the Company will instruct its agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by the Company) not to, initiate, solicit or knowingly encourage,
directly or indirectly, any inquiries or the making or implementation of any
Acquisition Proposal (including, without limitation, any Acquisition Proposal to
its stockholders) or, other than in the event that the Board of Directors of the
Company determines in good faith, after receiving advice from outside counsel,
that failure to do so would be reasonably determined to constitute a breach of
its fiduciary duties to the Company's stockholders under applicable law, and in
response to an unsolicited request therefor by a person who a majority of the
Board of Directors of the Company believes intends to submit a Superior
Proposal, engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or release any third party from any obligations under any
existing standstill agreement or arrangement, or otherwise knowingly facilitate
any effort or attempt to make or implement an Acquisition Proposal; and that it
will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing, and it will take the necessary steps to inform the
individuals or entities referred to above of the obligations undertaken in this
section; provided, however, that nothing contained in this section shall
prohibit the Company or its Board of Directors from taking and disclosing to the
Company's stockholders a position with respect to a tender offer by a third
party pursuant to Rule 14d-9 and 14e-2(a) promulgated under the Exchange Act or
from making such disclosure to the Company's stockholders which, in the judgment
of the Board of Directors of the Company after receiving advice of outside
counsel, may be required under applicable law. The Merger Agreement provides
that the Company shall promptly advise Parent in writing of the receipt,
directly or indirectly, of any inquiries, discussions, negotiations, or
proposals relating to an Acquisition Proposal (including the specific terms
thereof and, subject to any confidentiality obligations of the Company existing
as of August 5, 1999, the identity of the other party or parties involved) and
furnish to Parent within 24 hours of such receipt an accurate description of all
material terms (including any changes or adjustment to such terms as a result of
negotiations or otherwise) of any such written proposal in addition to any
non-public information provided to any third party relating thereto. In
addition, the Company shall promptly advise Parent, in writing, if the Board of
Directors of the Company shall make any determination as to any Acquisition
Proposal. The Merger Agreement defines "Acquisition Proposal" as any inquiry,
proposal or offer from any person relating to any direct or indirect acquisition
or purchase of 20% or more of any class of equity
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securities of the Company, any tender offer or exchange offer that if
consummated would result in any person beneficially owning 20% or more of any
class of equity securities of the Company, any merger, consolidation, business
combination, sale of substantially all the assets, recapitalization,
liquidation, dissolution or similar transaction involving the Company, other
than the transactions contemplated by the Merger Agreement, or any other
transaction the consummation of which could reasonably be expected to impede,
interfere with, prevent or materially delay the Offer and/or the Merger or which
would reasonably be expected to dilute materially the benefits to Parent of the
transactions contemplated thereby. For purposes of the Merger Agreement,
"Superior Proposal" means any Acquisition Proposal which a majority of the
disinterested directors of the Company determines in its good faith judgment
(based on the advice of the Company's independent financial advisor) to be more
favorable to the stockholders of the Company than the Offer or the Merger, and
for which financing, to the extent required, is then committed.
CONDUCT OF THE BUSINESS BY THE COMPANY. The Merger Agreement provides
that, except as contemplated by the Merger Agreement or as expressly agreed to
in writing by Parent (such consent not to be unreasonably withheld), during the
period from the date of the Merger Agreement until such time as Parent's
designees shall constitute a majority of the members of the Board of Directors
of the Company, the Company will conduct its operations according to its
ordinary and usual course of business and consistent with past practice and use
commercially reasonable efforts to preserve intact its current business
organization, keep available the services of its current officers and employees
and preserve its relationships with customers, suppliers, licensors, licensees,
advertisers, distributors and others having material business dealings with it
and to preserve goodwill. Without limiting the generality of the foregoing, and
except as (x) otherwise expressly provided in the Merger Agreement, (y) required
by law, or (z) set forth on Schedule 6.01 to the Merger Agreement, the Company
will not without the consent of Parent (such consent not to be unreasonably
withheld):
(i) (a) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its stockholders in their
capacity as such, other than dividends declared prior to the date of the
Merger Agreement, (b) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock or (c)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities;
(ii) other than in connection with the exercise of options and
warrants outstanding prior to the date hereof in accordance with their
current terms, issue, deliver, sell, pledge, dispose of or otherwise
encumber any shares of its capital stock, any other voting securities or
equity equivalent or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities or equity equivalent;
(iii) amend its Certificate of Incorporation or By-Laws;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of or equity in, or by
any other manner, any business or any corporation, partnership, association
or other business organization or division thereof or otherwise acquire or
agree to acquire any assets;
(v) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets;
(vi) amend or otherwise modify, or terminate, any Contract;
(vii) incur any additional indebtedness (including for this purpose
any indebtedness evidenced by notes, debentures, bonds, leases or other
similar instruments, or secured by any lien on any property, conditional
sale obligations, obligations under any title retention agreement and
obligations under letters of credit or similar credit transaction) in a
single transaction or a group of related transactions, enter into a
guaranty, or engage in any other financing arrangements having a value in
excess of $10,000, or make any loans, advances or capital contributions to,
or investments in, any other person;
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(viii) alter through merger, liquidation, reorganization,
restructuring or in any other fashion its corporate structure or ownership;
(ix) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(x) revalue any of its assets, including, without limitation, writing
down the value of its inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(xi) make any tax election, change any annual tax accounting period,
amend any tax return, settle or compromise any income tax liability, enter
into any closing agreement, settle any tax claim or assessment, surrender
any right to claim a tax refund or fail to make the payments or consent to
any extension or waiver of the limitations period applicable to any tax
claim or assessment;
(xii) except in the ordinary course of business, settle or compromise
any pending or threatened suit, action or claim with a cost of $10,000 or
more;
(xiii) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted, contingent or otherwise) other
than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in, or contemplated
by, the financial statements (or the notes thereto) of the Company or
incurred in the ordinary course of business consistent with past practice;
(xiv) increase in any manner the compensation or fringe benefits of
any of its directors, officers and other key employees or pay any pension
or retirement allowance not required by any existing plan or agreement to
any such employees, or become a party to, amend or commit itself to any
pension, retirement, profit-sharing or welfare benefit plan or agreement or
employment agreement with or for the benefit of any employee, other than
increases in the compensation of employees who are not officers or
directors of the Company made in the ordinary course of business consistent
with past practice, or, except to the extent required by law, voluntarily
accelerate the vesting of any compensation or benefit;
(xv) waive, amend or allow to lapse any term or condition of any
confidentiality, "standstill," consulting, advisory or employment agreement
to which the Company is a party (except for any agreement which terminates
in accordance with its express terms);
(xvi) approve any annual operating budgets for the Company;
(xvii) change the Company's dividend policy;
(xviii) enter into any transaction with affiliates;
(xix) enter into any business other than the business currently
engaged in by the Company;
(xx) pursuant to or within the meaning of any bankruptcy law, (a)
commence a voluntary case, (b) consent to the entry of an order for relief
against it in an involuntary case, (c) consent to the appointment of a
custodian of it or for all or substantially all of its property or (d) make
a general assignment for the benefit of its creditors;
(xxi) purchase or lease or enter into a binding agreement to purchase
or lease any real property;
(xxii) enter into or amend, modify or terminate any employment
agreement with any officer or employee;
(xxiii) enter into any joint venture, lease, license, management
agreement, research agreement, development agreement, option or other
obligation relating to new development, or any other agreement of the
Company, including without limitation any agreement or arrangement relating
to Intellectual Property Rights (as defined in the Merger Agreement); or
(xxiv) take, or agree in writing or otherwise to take, any of the
foregoing actions.
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BOARD OF DIRECTORS. The Merger Agreement provides that promptly upon the
acceptance for payment of, and payment for, a majority of the Shares by the
Offeror pursuant to the Offer, the Offeror shall be entitled and obligated to
designate, subject to compliance with Section 14(f) of the Exchange Act, a
majority of the directors on the Company's Board of Directors, and the Company
shall, at such time, cause the Offeror's designees to be so elected by its
existing Board of Directors. Subject to applicable law, the Company has agreed
to take all action requested by Parent necessary to effect any such election,
including mailing to its stockholders the Information Statement containing the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder.
COMPANY STOCK OPTIONS; WARRANTS. The Merger Agreement provides that prior
to the Effective Time, the Board of Directors of the Company (or, if
appropriate, any committee thereof) shall adopt appropriate resolutions and take
all action necessary to provide that the outstanding Company Stock Options and
Warrants, whether or not then fully vested or exercisable, shall, at the
Effective Time, be canceled and retired and shall cease to exist, and the
holders thereof entitled to receive the consideration from the Surviving
Corporation, if any, determined in accordance with the Merger Agreement,
including obtaining all necessary consents of the holders of Company Stock
Options and Warrants to the foregoing cancellation and treatment of such Company
Stock Options and Warrants. In addition, the Company shall take all necessary
action to provide that the employee stock purchase plans and the stock options
plans of the Company shall be terminated as of the Effective Time.
Notwithstanding the foregoing, the Board of Directors of the Company, with
the written consent of Parent, has adopted resolutions providing for the
acceleration of all Company Stock Options contingently upon and subject to the
consummation of the Offer.
RIGHTS AGREEMENT. The Company has distributed one Right for each
outstanding share of Common Stock pursuant to the Rights Agreement, dated as of
May 15, 1995, by and between the Company and American Stock Transfer & Trust
Company, as Rights Agent (the "Rights Agreement"). Pursuant to the Merger
Agreement, the Company has executed and delivered an Amendment to the Rights
Agreement, dated as of August 5, 1999 (the "Rights Agreement Amendment"), by and
between the Company and the Rights Agent which provides that, among other
things, (a) neither the Merger Agreement, nor any of the transactions
contemplated thereby, including the Offer and the Merger, will result in the
occurrence of a "Distribution Date" (as defined in the Rights Agreement) or
otherwise cause the Rights to become exercisable by the holders thereof and (b)
the Rights will automatically on and as of the Effective Time be void and of no
further force or effect.
INDEMNIFICATION AND INSURANCE. In the Merger Agreement, Parent and the
Offeror have agreed that all rights to indemnification for acts or omissions
occurring prior to the Effective Time that are in existence as of the date of
the Merger Agreement in favor of the current or former directors or officers
(the "Indemnified Parties") of the Company as provided in its certificate of
incorporation or by-laws or existing indemnification contracts (all of which
have been disclosed on Schedule 4.10 to the Merger Agreement) shall survive the
Merger and shall continue in full force and effect in accordance with their
terms.
Pursuant to the Merger Agreement, Parent will, for a period of six years
from the Effective Time, unless Parent agrees in writing to guarantee the
indemnification obligations set forth above, maintain in effect the Company's
current directors' and officers' liability insurance covering those persons who
are currently covered by the Company's directors' and officers' liability
insurance policy except that, to the extent that such coverage is not obtainable
at less than or equal to 150% of the current per annum cost, Parent will be
obligated to purchase only so much coverage as may then be obtained for such
amount.
The Merger Agreement provides that the indemnification obligations set
forth in the Merger Agreement shall be binding on all successors and assigns of
Parent and the Surviving Corporation.
REASONABLE EFFORTS. The Merger Agreement provides that upon the terms and
subject to the conditions thereof, each of the parties to the Merger Agreement
will use its reasonable efforts to take, or cause to be taken, all actions
necessary to comply promptly with all legal requirements which may be imposed on
itself with respect to the Offer and the Merger and will promptly cooperate with
and furnish information to each
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other in connection with any such requirements imposed upon any of them in
connection with the Offer and the Merger. Each of the Company, Parent and
Offeror will use its reasonable efforts to take all reasonable actions necessary
to obtain any consent authorization, order or approval required to be obtained
or made in connection with the Offer and the Merger.
PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. The Merger
Agreement provides that in the event the Offeror's designees are appointed or
elected to the Board of Directors of the Company as described above under "Board
of Directors," after the acceptance for payment of Shares pursuant to the Offer
and prior to the Effective Time, the affirmative vote of the directors of the
Company not designated by Parent or the Offeror is required for the Company to
amend or terminate the Merger Agreement, exercise or waive any of its rights or
remedies under the Merger Agreement, or extend the time for performance of the
Offeror's and Parent's respective obligations under the Merger Agreement.
REPRESENTATIONS AND WARRANTIES. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and the Offeror with
respect to, among other things, its organization, subsidiaries, certificate of
incorporation and by-laws, capitalization, authority relative to the Merger
Agreement, material contracts, required filings and consents, compliance with
law and permits, filings with the Commission, financial statements, absence of
certain changes or events, undisclosed liabilities, litigation, employee benefit
plans and employment agreements, labor matters, restrictions on business
activities, title to property, taxes, environmental matters, brokers,
intellectual property, the opinion of the Company's financial advisor, insurance
and Year 2000 compliance. Parent and the Offeror have also made customary
representations and warranties to the Company with respect to, among other
things, their respective organization, authority relative to the Merger
Agreement, required filings and consents, compliance with law and permits and
information supplied.
SERIES E PURCHASE AGREEMENT.
The Offeror has entered into the Series E Purchase Agreement with the
holder of the Series E Preferred Stock. Under the Series E Purchase Agreement,
the holder of the Series E Preferred Stock has agreed to sell, and the Offeror
has agreed to purchase, immediately upon consummation of the Offer, all of the
Series E Preferred Stock beneficially owned by it, representing approximately
31% of the Fully Diluted Shares on an as-converted basis at the currently
scheduled Expiration Date, for an aggregate purchase price of $2,200,000. The
obligation of the holder of the Series E Preferred Stock to sell, and the
obligation of the Offeror to purchase, the Series E Preferred Stock under the
Series E Purchase Agreement, are subject to the Offeror having accepted Shares
for payment under the Offer in accordance with the Merger Agreement. The Series
E Preferred Stock will be convertible at the option of the holder, subject to
certain conditions, into approximately 2,634,493 Shares at the currently
scheduled Expiration Date. A copy of the Series E Purchase Agreement is filed as
Exhibit 2 to this Statement, and is incorporated herein by reference.
THE CONFIDENTIALITY AGREEMENT.
Pursuant to the Confidentiality Agreement, the Company and Parent agreed to
provide, among other things, for the confidential treatment of the discussions
regarding the Offer and the Merger and the exchange of certain confidential
information concerning the Company and Parent.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) and (b) See below.
Background.
On May 19, 1998, a former executive of the Company approached an executive
of Parent at a biotechnology partnering conference to discuss potential interest
in a research and development collaboration and technology licensing arrangement
for some of its programs in the areas of epilepsy, pain, neuroprotection and
neurodegenerative disease treatments. Through ensuing correspondence and
conversations, Parent
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expressed interest in the Company's programs in sodium ion channel modulation
and AMPA/Kainate modulators for the treatment of pain, a core business area of
Parent.
On August 4, 1998, a conference call was held between executives of the
Company and Parent. The Company stated that it planned to take its lead sodium
channel blocker compound, Co 102862, through Phase II clinical evaluation to
demonstrate efficacy in humans and to maximize the value of the product for its
stockholders before licensing. The Company was primarily interested in
establishing a research collaboration partnership for the AMPA program in a
manner similar to their collaboration with Parke-Davis.
Between August 28 and October 21, 1998, the Company and Parent negotiated a
confidentiality agreement (the "Confidentiality Agreement") to support further
discussions regarding these programs. On October 19, 1998, the Company informed
Parent that it had changed its licensing strategy and would begin partnering
discussions for its sodium channel blocker program. Executives of the Company
visited Parent on November 17, 1998 for detailed scientific discussions with
executives of Parent. After the discussions both parties decided to negotiate a
licensing agreement for the sodium channel blocker program. The Confidentiality
Agreement was amended on December 7, 1998 to expand the scope of confidential
disclosures to include the Company's glycine site NMDA antagonist and
nociceptin/orphanin FQ receptor modulation programs. The Company provided its
proposed terms for a development and collaboration agreement for the sodium
channel blocker program to Parent on December 11, 1998.
On December 8, 1998, the Company entered into an engagement letter with
Hambrecht & Quist LLC ("H&Q") to represent the Company as its exclusive
financial advisor in connection with the potential sale of the Company.
On December 17, 1999, executives of Parent visited the Company to discuss
all of the Company's programs in pain management and to conduct a preliminary
due diligence investigation with respect to the previously discussed development
and research collaboration agreement.
Following discussions with an executive of the Company and internal
discussions and evaluations, on January 13, 1999 at the Hambrecht & Quist
Healthcare Investor Conference in San Francisco, Parent developed and presented
a non-binding offer letter with respect to the licensing programs under
discussion to the executives of the Company, including the Chairman of the
Company. Over the next two months, negotiations continued regarding license
terms and conditions which resulted in a second non-binding offer letter, dated
February 26, 1999, describing a proposed product license, development and
research collaboration agreement and a development services agreement ("February
26, 1999 Offer Letter").
On March 10, 1999, the Chairman and executives of the Company visited
Parent and met with executives of Parent to discuss the proposed collaboration
between the companies and to better understand the principles underlying the
proposed relationship.
On March 16, 1999, a group of seven scientists from Parent visited the
Company to conduct further technical due diligence to support the February 26,
1999 Offer Letter.
On April 16, 1999, Parent sent to the Company a revised non-binding offer
letter describing a proposed product license, development and research
collaboration agreement which was subject to Parent's testing and verification
of efficacy of the lead compound, Co 102862 ("April 16, 1999 Offer Letter").
On May 17, 1999, while executives from both parties were attending the
Biotechnology Industry Organization's annual meeting in Seattle, they met to
discuss ways to resolve the subject condition in the April 16, 1999 Offer
Letter. During the course of conversation, an executive from the Company asked
if Parent had authorized a person from BancBoston Robertson Stephens Inc.
("BancBoston Robertson Stephens") to initiate acquisition discussions with the
Company. Parent's executive stated that BancBoston Robertson Stephens met with
Parent in early April where they discussed a range of companies for potential
transactions but Parent had not yet engaged or authorized any investment banker
to contact the Company on its behalf. The Company's executive stated if Parent
was interested in acquiring the Company, they could contact the Chairman of the
Board directly since they already had established a relationship. When asked,
the
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Company executive indicated that Parent would be considered a friendly suitor
given the strong congruence of mutual scientific and product interests between
the parties.
On June 7, executives of Parent telephoned the Chairman of the Company and
confirmed with the Company that the Company would view Parent as a friendly
suitor.
On June 9, 1999, before the Company's Board of Directors meeting,
executives of Parent telephoned the Company's Chairman to confirm Parent's
interest in acquiring the Company and to present certain terms of the proposed
acquisition. Later that day, the Company's Chairman confirmed by telephone that
the Company's Board of Directors would entertain an offer from Parent and
suggested a period of exclusivity for negotiating terms of the proposed
transaction.
On June 10, 1999, Parent confirmed to the Company its intention to proceed
to negotiate without exclusivity while conducting an expedited due diligence
process.
On June 11, 1999, Parent signed an engagement letter dated May 13, 1999,
with BancBoston Robertson Stephens, pursuant to which Parent engaged BancBoston
Robertson Stephens to represent Parent as its investment banker in a transaction
with the Company. During May and June 1999, BancBoston Robertson Stephens had
held exploratory, informational and confirmatory discussions with H&Q.
On June 18, 1999, executives of Parent visited the Company and its
executives to discuss the transaction. On such date, the CA was amended in order
to expand the scope of the agreement to include information and discussions
related to the Company's finances, business, operations and technologies in
order for Parent to determine its level of interest in pursuing a transaction
with the Company.
On June 23, 1999, a non-binding proposal letter was sent by Parent to the
Company describing a preliminary offer to purchase the Company, including the
Company's outstanding preferred stock and liabilities at a price, between the
then current market value (an aggregate of approximately $7.2 million) and $9.5
million in cash, subject to certain conditions. After consulting with the
Company's advisors and several members of the Company's Board of Directors, the
Chairman of the Company agreed to receive Parent's due diligence team for an
evaluation of the Company. On-site due diligence was conducted by Parent and its
representatives at the Company from June 30 through July 8, 1999.
On July 9, 1999, a revised non-binding proposal letter and draft agreement
and plan of merger was sent by Parent to the Company for consideration. After
discussions between the parties and their representatives, a further revised
non-binding proposal letter was signed by the Company on July 15, 1999 (the
"Revised Proposal Letter"). The Revised Proposal Letter was subject to certain
conditions, including, among other things, Offeror reaching satisfactory
agreement with the holder of the Series E Preferred Stock, and the Company
reaching satisfactory agreements with certain warrant and option holders and
with respect to the WL Note (the "Ancillary Agreements").
Between July 15, 1999 and August 5, 1999, drafts of the Merger Agreement
and the Ancillary Agreements were delivered to the Company and its
representatives. Numerous discussions and negotiations took place between the
parties and their representatives pursuant to which the parties agreed upon the
terms of the proposed transaction and finalized the definitive agreements,
including the Merger Agreement and the Ancillary Agreements.
On August 4, 1999, the Board of Directors of Parent, the Board of Directors
of the Offeror and the Board of Directors of the Company each approved the
proposed transaction. On August 4, 1999, H&Q delivered its oral opinion to the
Board of Directors of the Company that the consideration to be received by the
holders of common stock of the Company in connection with the proposed Merger is
fair, from a financial point of view, to such stockholders.
On August 5, 1999, H&Q delivered its written opinion to the Board of
Directors of the Company that the consideration to be received by the holders of
common stock of the Company in connection with the proposed Merger is fair, from
a financial point of view, to such stockholders. On August 5, 1999, a duly
appointed committee of the Board of Directors of the Company ratified the Board
of Directors of the Company's approval of the transaction, and Parent, the
Offeror and the Company entered into the Merger Agreement.
16
<PAGE> 17
The transaction was publicly announced before U.S. financial markets opened
on August 6, 1999. A copy of the press release announcing the execution of the
Merger Agreement is filed as Exhibit 3 hereto and is incorporated herein by
reference.
Recommendation.
The Board of Directors of the Company has unanimously approved and found
advisable the Merger Agreement, the Offer and the Merger and determined that the
terms of the Offer and the Merger are fair to, and in the best interests of, the
stockholders of the Company. The Board of Directors of the Company unanimously
recommends that the Company's stockholders tender their shares pursuant to the
Offer. The Company will file with the Commission and mail to its stockholders
its formal recommendation concerning the Offer at the same time Parent mails its
tender offer materials concerning the Offer.
ACCORDINGLY, THE COMPANY'S BOARD UNANIMOUSLY RECOMMENDS THAT COMPANY
STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
A copy of a letter to the Company's stockholders communicating the Board's
recommendation is filed herewith as Exhibit 4 and is incorporated herein by
reference. A copy of the letter to the Company's option holders communicating
the Board's recommendation is filed herewith as Exhibit 5 and is incorporated
herein by reference.
Reasons for the Recommendation.
In reaching its conclusions and the recommendations described above, the
Board considered a number of factors in addition to those described, including,
among other things, the following:
(i) the financial and other terms and conditions of the Offer, the
Merger and the Merger Agreement, including the fact that the Offer is
subject to a minimum tender and other conditions and the Board's assessment
of the probability that such conditions would be satisfied;
(ii) the historical and prospective business of the Company,
including, among other things, (a) the Company's current financial
condition and the immediate need for, and potential sources of, financing,
(b) the Company's recent financial performance, long-term strategic plan
and prospects for the future, (c) recent developments in the Company's
industry segment, including increasing consolidation and the perceived need
for economies of scale and (d) the view of management with respect to the
foregoing;
(iii) the fact that the Company has not been able to arrange
alternative financing or consummate a strategic alliance on a timely basis
or on terms satisfactory to the Board;
(iv) the belief of the Board that, in view of the substantial efforts
by the Company to contact other parties about a potential transaction with
the Company, it was unlikely that a party potentially interested in
submitting a proposal to acquire the Company and who was financially able
to do so had not been afforded the opportunity to do so;
(v) the recommendation of the Company's management that the Offer, the
Merger and the Merger Agreement be approved;
(vi) a comparison of the consideration to be paid to the holder of the
Series E Preferred Stock and the holders of the Shares and the fact that
the consideration to be received by the Company's common stockholders
pursuant to the Offer and the Merger represents a significant premium over
the average trading price for the Shares during recent periods prior to
August 5, 1999, the date on which the Merger Agreement was executed, and
the potential that a price of $1.16 per share of common stock would
otherwise be achieved in the near future under the circumstances;
(vii) the premium to be received by the Company's stockholders in the
Offer compared to the range of premiums paid over market price in announced
mergers and acquisitions of companies in similar lines of business to the
Company;
17
<PAGE> 18
(viii) a review of the possible alternatives to the Offer and the
Merger (including the possibility of continuing to operate the Company as
an independent entity and the probability of obtaining adequate financing
on a timely basis), the range of possible values to the Company's
stockholders of such alternatives and the likelihood of accomplishing those
alternatives;
(ix) the written opinion of H&Q, dated August 5, 1999 (the "H&Q
Opinion"), that the consideration to be received by the holders of common
stock of the Company in connection with the proposed Merger is fair, from a
financial point of view, to such stockholders. A copy of the H&Q Opinion is
filed as Exhibit 6 hereto and is incorporated herein by reference. Such
opinion should be read in its entirety for a description of the procedures
followed, assumptions and qualifications made, matters considered and
limitations on the review undertaken by H&Q; and
(x) the fact that, if the Company receives a Superior Proposal, the
Company would have some flexibility to consider the Superior Proposal under
the circumstances described in the Merger Agreement, provided that failure
to do so would be reasonably determined to constitute a breach of the
Board's fiduciary obligations to the stockholders of the Company,
recognizing that the Company would be required to pay Parent a termination
fee of $237,000 under certain circumstances (see "The Merger
Agreement -- Termination of the Merger Agreement" in Item 3 above).
The foregoing discussion of the information and factors considered and
given weight by the Company Board is not intended to be exhaustive. In view of
the variety of factors considered in connection with its evaluation of the Offer
and the Merger, the Company Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Company
Board may have given different weights to different factors.
THE FULL TEXT OF THE H&Q OPINION IS ATTACHED AS EXHIBIT 6 HERETO.
STOCKHOLDERS ARE URGED TO AND SHOULD READ SUCH OPINION IN ITS ENTIRETY. SUCH
OPINION WAS PRESENTED FOR THE INFORMATION OF THE COMPANY BOARD IN CONNECTION
WITH ITS CONSIDERATION OF THE MERGER AGREEMENT AND IS DIRECTED ONLY TO THE
FAIRNESS (FROM A FINANCIAL POINT OF VIEW) OF THE CONSIDERATION TO BE RECEIVED
PURSUANT TO THE MERGER AGREEMENT, BY HOLDERS OF SHARES IN THE OFFER AND THE
MERGER TAKEN AS A UNITARY TRANSACTION.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Hambrecht & Quist LLC Engagement.
The Company has retained H&Q to act as financial advisor to the Company
with respect to the Offer, the Merger and matters arising in connection
therewith. Pursuant to a letter agreement, dated December 8, 1998, between the
Company and H&Q, the Company agreed to pay H&Q (i) a non-refundable retainer of
$25,000 upon signing of the letter agreement, and (ii) a fee of $750,000 upon
consummation of the Merger. The Company has agreed to reimburse H&Q for its
reasonable out-of-pocket expenses. The Company has also agreed to indemnify H&Q
and certain related persons against certain liabilities in connection with its
engagement, including certain liabilities under federal securities laws.
In the past, H&Q and its affiliates have provided investment banking
services to the Company and received customary compensation for the rendering of
such services. In the ordinary course of business, H&Q and its affiliates have
traded securities of the Company for their own accounts and, accordingly, may at
any time hold a long or short position in such securities.
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations or
recommendations to stockholders of the Company with respect to the Offer or the
Merger.
18
<PAGE> 19
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
Other than as described in the next paragraph, there have been no
transactions in Shares of the Company that were effected during the past 60 days
by the Company, or, or to the best knowledge of the Company, any executive
officer, director, affiliate or subsidiary of the Company.
(a) and (b). The Offeror has entered into the Series E Purchase Agreement
with the holder of the Series E Preferred Stock. Under the Series E Purchase
Agreement, the holder of the Series E Preferred Stock, an affiliate of the
Company, has agreed to sell, and the Offeror has agreed to purchase, immediately
upon consummation of the Offer, all of the Series E Preferred Stock beneficially
owned by it, representing approximately 31% of the Fully Diluted Shares on an
as-converted basis at the currently scheduled Expiration Date, for an aggregate
purchase price of $2,200,000. The obligation of the holder of the Series E
Preferred Stock to sell, and the obligation of the Offeror to purchase, the
Series E Preferred Stock under the Series E Purchase Agreement, are subject to
the Offeror having accepted Shares for payment under the Offer in accordance
with the Merger Agreement. The Series E Preferred Stock will be convertible at
the option of the holder, subject to certain conditions, into approximately
2,634,493 Shares.
During the second quarter of fiscal 1999, the Company redeemed
approximately $3.8 million of the Series E Preferred Stock, including accrued
dividends, at a 5% premium. Total cash paid to redeem this Series E Preferred
Stock was approximately $4.0 million.
To the knowledge of the Company, each of the Company's directors and
executive officers currently intend to tender all Shares over which they have
sole dispositive power into the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) AND (b). As described under Item 3 above, the Company has agreed in the
Merger Agreement not to engage in certain activities in connection with any
proposal to engage in a business combination with, or acquire an interest in or
assets of, the Company. See "The Merger Agreement -- Acquisition Proposals" in
Item 3 above.
Except in accordance with the exercise of fiduciary duties as advised by
counsel as described under Item 3 hereof, the Company does not presently intend
to solicit, initiate or encourage (including by way of furnishing information),
or take any other action to facilitate, any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal or (ii) participate in any discussions or negotiations
regarding any Acquisition Proposal. See "The Merger Agreement -- Acquisition
Proposals" in Item 3 above.
Except as described herein, there are no transactions, board resolutions,
agreements in principle or signed contracts in response to the Offer that relate
to or would result in one or more of the events referred to in the preceding
paragraph.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
None.
19
<PAGE> 20
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
The following Exhibits are filed herewith:
<TABLE>
<S> <C>
Exhibit 1: Agreement and Plan of Merger, dated as of August 5, 1999,
among Purdue Pharma L.P., Purdue Acquisition Corporation and
CoCensys, Inc.(1)
Exhibit 2: Series E Purchase Agreement, dated as of August 12, 1999,
between Offeror and the holder of Series E Preferred.(2)
Exhibit 3: Press Release, dated August 6, 1999, issued by CoCensys,
Inc.
Exhibit 4: Letter to Stockholders of CoCensys, Inc., dated August 12,
1999.(3)
Exhibit 5: Letter to Option Holders of CoCensys, Inc., dated August 12,
1999.(4)
Exhibit 6: Opinion, dated August 5, 1999, of Hambrecht & Quist LLC.(3)
</TABLE>
- ---------------
(1) Incorporated by reference to Exhibit (c)(1) of the Schedule 14D-1 of Parent
and Offeror, filed with the SEC on August 12, 1999.
(2) Incorporated by reference to Exhibit (c)(2) of the Schedule 14D-1 of Parent
and Offeror, filed with the SEC on August 12, 1999.
(3) Included in copies of Schedule 14D-9 mailed to stockholders and option
holders.
(4) Included in copies of Schedule 14D-9 mailed to option holders.
20
<PAGE> 21
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
CoCensys, Inc.
By: /s/ F. Richard Nichol, Ph.D.
Name: F. Richard Nichol, Ph.D.
Title: Chairman, President and
Chief Executive Officer
Dated: August 12, 1999
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit 1: Agreement and Plan of Merger, dated as of August 5, 1999,
among Purdue Pharma L.P., Purdue Acquisition Corporation and
CoCensys, Inc.(1)
Exhibit 2: Series E Purchase Agreement, dated as of August 12, 1999,
between Offeror and the holder of Series E Preferred.(2)
Exhibit 3: Press Release, dated August 6, 1999, issued by CoCensys,
Inc.
Exhibit 4: Letter to Stockholders of CoCensys, Inc., dated August 12,
1999.(3)
Exhibit 5: Letter to Option Holders of CoCensys, Inc., dated August 12,
1999.(4)
Exhibit 6: Opinion, dated August 5, 1999, of Hambrecht & Quist LLC.(3)
</TABLE>
- ---------------
(1) Incorporated by reference to Exhibit (c)(1) of the Schedule 14D-1 of Parent
and Offeror, filed with the SEC on August 12, 1999.
(2) Incorporated by reference to Exhibit (c)(2) of the Schedule 14D-1 of Parent
and Offeror, filed with the SEC on August 12, 1999.
(3) Included in copies of Schedule 14D-9 mailed to stockholders and option
holders.
(4) Included in copies of Schedule 14D-9 mailed to option holders.
22
<PAGE> 1
EXHIBIT 3
Contact: F. Richard Nichol, Ph.D.
Chairman of the Board
President and Chief Executive Officer
Donna D. Slade
Assistant Director, Investor Relations/Public Relations
949/753-6110
COCENSYS, INC. AND PURDUE PHARMA L.P. ANNOUNCE THE SIGNING OF DEFINITIVE
AGREEMENT
Purdue Purchasing all Outstanding Shares of CoCensys, Inc.'s Common Stock
IRVINE, CALIFORNIA/PR NEWSWIRE/AUGUST 6, 1999 - CoCensys, Inc. (OTC BB: COCN)
today announced that it has entered into an agreement with Purdue Pharma
pursuant to which a subsidiary of Purdue Pharma would purchase in a cash tender
offer all outstanding shares of CoCensys, Inc.'s common stock for $1.16 per
share. The Board of Directors of CoCensys, Inc. has unanimously approved the
transaction.
Under the terms of the merger agreement, Purdue Acquisition Corporation will
promptly initiate a tender offer for all of the outstanding shares of common
stock of CoCensys, Inc. Pending a successful tender offer, the transaction is
expected to be completed in September.
"This proposed merger with Purdue Pharma provides CoCensys, Inc. with the level
of financial, scientific and marketing support to fully capitalize on our broad,
neuroscience technology platforms," said F. Richard Nichol, Ph.D., Chairman,
President and Chief Executive Officer of CoCensys, Inc. "As a leader in the
field of pain management, Purdue Pharma can expand its research and development
of novel approaches for the treatment of pain, a CoCensys, Inc. research
strength," he added.
Hambrecht & Quist acted as advisors to CoCensys, Inc. BancBoston Robertson
Stephens advised Purdue Pharma L.P. and is acting as dealer manager for the
tender offer.
CoCensys is a biopharmaceutical company that discovers and develops products for
the treatment of neurological and psychiatric disorders. CoCensys' product
development programs focus on novel small molecule compounds for the treatment
of epilepsy, anxiety, Parkinson's and other neurodegenerative diseases,
neuropathic pain, migraine, insomnia and stroke. CoCensys has development
programs with the Wyeth-Ayerst Laboratories Division of American Home Products
Corporation to develop analogs of naturally-occurring neuroactive compounds,
"epalons," for the treatment of anxiety, with Parke-Davis, a division of
Warner-Lambert Company, to identify and develop subtype-selective NMDA receptor
antagonists for the treatment of a variety of neurological and psychiatric
diseases, and with Senju Pharmaceutical and Parke-Davis for the exploration of
ophthalmic indications of CoCensys' glutamate receptor antagonist compounds.
More information about CoCensys is available on its web site at
www.cocensys.com.
Purdue Pharma L.P., headquartered in Norwalk, Connecticut, U.S. and its
associated companies, including the Mundipharma companies and Napp
Pharmaceutical Group Ltd., comprise a privately-held, worldwide pharmaceutical
network with discovery, development, manufacturing, marketing and distribution
capabilities. The companies maintain a leading presence in the field of pain
management with their products OxyContin(R) (oxycodone hydrochloride
controlled-release) tablets and MS Contin(R) (morphine sulfate
controlled-release) tablets. The network also includes a biologic therapeutics
business, Purdue BioPharma L.P., based in Princeton, New Jersey, focused on the
development of antibody-based therapeutics and vaccines. More information about
Purdue Pharma is available on its web site at www.pharma.com.
This press release includes forward looking statements that involve a high
degree of financial, technological, regulatory and competitive risks and
uncertainties inherent to early stage biopharmaceutical companies. These forward
looking statements include the anticipated consummation of the sale of CoCensys'
common stock to Purdue Pharma and the acceptance by CoCensys stockholders of the
tender offer to be initiated by Purdue under the terms of the merger agreement.
Actual results may differ due to a number of factors, including the following:
the closing of the sale of CoCensys' common stock to Purdue
1
<PAGE> 2
Pharma remains subject to conditions not completely within the control of
CoCensys; no assurances can be made that CoCensys stockholders will accept the
tender offer from Purdue; and no assurances can be made that the required number
of the outstanding common shares of CoCensys common stock will be tendered to
Purdue in the tender offer.
2
<PAGE> 1
EXHIBIT 4
[COCENSYS LOGO]
August 12, 1999
Dear Stockholder:
We are pleased to inform you that on August 5, 1999, the Company entered
into an agreement and plan of merger (the "Merger Agreement") providing for the
acquisition of the Company by Purdue Pharma L.P. ("Purdue Pharma"). Pursuant to
the Merger Agreement, Purdue Pharma, through an indirect wholly-owned
subsidiary, has commenced a tender offer for all outstanding shares of the
Company's common stock at the offer price of $1.16 in cash per share. The Merger
Agreement provides that, subject to satisfaction of certain conditions, the
tender offer is to be followed by a merger in which the holders of any remaining
shares of the Company's common stock (other than dissenting shares) will receive
$1.16 in cash per share. The tender offer is currently scheduled to expire at
12:00 midnight, New York City time, on Thursday, September 9, 1999.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND FOUND ADVISABLE THE
MERGER AGREEMENT WITH PURDUE PHARMA AND HAS DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS AND
RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS TENDER THEIR SHARES PURSUANT TO THE
TENDER OFFER.
The Merger Agreement represents the culmination of a comprehensive effort
by your Board to enter into a transaction that would provide maximum benefits to
stockholders. In pursuit of this goal, your Board, with the assistance of its
financial advisor, Hambrecht & Quist LLC, evaluated various alternative
transactions.
In determining to approve the Merger Agreement and the transactions
contemplated thereby, your Board gave careful consideration to a number of
factors described in the attached Schedule 14D-9 that has been filed with the
Securities and Exchange Commission. Among other things, your Board considered
the opinion of Hambrecht & Quist LLC, dated August 5, 1999 (a copy of which is
included with the Schedule 14D-9), that the consideration to be received by the
holders of common stock of the Company in connection with the proposed merger is
fair, from a financial point of view, to such stockholders.
The enclosed Schedule 14D-9 describes the Board's decision and contains
other important information relating to such decision. We urge you to read it
carefully.
Accompanying this letter and the Schedule 14D-9 is the Offer to Purchase
and related materials, including a Letter of Transmittal to be used for
tendering your shares. These documents describe the terms and conditions of the
tender offer and provide instructions regarding how to tender your shares. We
urge you to read the enclosed material carefully.
Very truly yours,
/s/ F. Richard Nichol
F. Richard Nichol, Ph.D.
Chairman, President and Chief
Executive Officer
<PAGE> 1
EXHIBIT 5
[COCENSYS LOGO]
August 12, 1999
Dear Option Holder:
We are pleased to inform you that on August 5, 1999, the Company entered
into an agreement and plan of merger (the "Merger Agreement") providing for the
acquisition of the Company by Purdue Pharma L.P. ("Purdue Pharma"). Pursuant to
the Merger Agreement, Purdue Pharma, through an indirect wholly-owned
subsidiary, has commenced a tender offer for all outstanding shares of the
Company's common stock at the offer price of $1.16 in cash per share (the "Offer
Price"). As an option holder you have the opportunity to participate in the
tender offer by exercising your options and tendering the shares you receive
upon exercise into the tender offer.
You currently hold at least one grant of stock options. The exercise price
of your options will vary depending on when your options were granted. As a
result of, and contingent upon, the closing of the tender offer, all of your
options will be vested prior to the closing of the tender. As explained in the
enclosed Offer to Purchase and Letter of Transmittal, you can "contingently"
exercise all or any of your options by following the instructions in the Offer
to Purchase and the Letter of Transmittal. This exercise is "contingent" because
it will be done if, but only if, the tender offer is consummated. In summary,
you are required to deliver a Letter of Transmittal that indicates which, if
any, options you wish to exercise. In addition to instructions regarding your
contingent exercise, such Letter of Transmittal will instruct American Stock
Transfer & Trust Company (which is acting as depositary for the shares in the
tender offer) to send to the Company from the tender offer proceeds, an amount
equal to the exercise price for the options you wish to exercise. You will
receive from such proceeds, on a per share basis, the Offer Price less the
exercise price of the option (subject to such wage and employment withholding
taxes and any other withholding that may be required, as described in the Offer
to Purchase and the Letter of Transmittal). Of course, you are not required to
exercise "contingently;" you can exercise by direct payment of the exercise
price to the Company or choose not to exercise at all.
ALTHOUGH YOU ARE NOT REQUIRED TO EXERCISE YOUR OPTIONS AS A RESULT OF THIS
TRANSACTION, YOU SHOULD BE AWARE THAT UPON THE CONSUMMATION OF THE MERGER
CONTEMPLATED BY THE MERGER AGREEMENT, ANY OPTIONS THAT YOU HAVE NOT EXERCISED
(EITHER BEFORE THE DATE OF SUCH CONSUMMATION OR CONTINGENTLY UPON THE
CONSUMMATION OF THE TENDER OFFER) WILL BE TERMINATED AS OF THE CONSUMMATION OF
THE MERGER CONTEMPLATED BY THE MERGER AGREEMENT.
The tender offer is currently scheduled to expire at 12:00 midnight, New
York City time, on Thursday, September 9, 1999.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED AND FOUND
ADVISABLE THE MERGER AGREEMENT WITH PURDUE PHARMA AND HAS DETERMINED THAT THE
OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S
STOCKHOLDERS AND HAS RECOMMENDED TO THE COMPANY'S STOCKHOLDERS THAT THEY TENDER
THEIR SHARES PURSUANT TO THE TENDER OFFER.
The Merger Agreement represents the culmination of a comprehensive effort
by your Board to enter into a transaction that would provide maximum benefits to
stockholders. In pursuit of this goal, your Board, with the assistance of its
financial advisor, Hambrecht & Quist LLC, evaluated various alternative
transactions.
In determining to approve the Merger Agreement and the transactions
contemplated thereby, your Board gave careful consideration to a number of
factors described in the attached Schedule 14D-9 that has been filed
<PAGE> 2
with the Securities and Exchange Commission. Among other things, your Board
considered the opinion of Hambrecht & Quist LLC, dated August 5, 1999 (a copy of
which is included with the Schedule 14D-9), that the consideration to be
received by the holders of common stock of the Company in connection with the
proposed merger is fair, from a financial point of view, to such stockholders.
The enclosed Schedule 14D-9 describes the Board's decision and contains
other important information relating to such decision. We urge you to read it
carefully.
Accompanying this letter and the Schedule 14D-9 is the Offer to Purchase
and related materials, including a Letter of Transmittal to be used for
tendering your shares or contingently exercising any or all of your options.
These documents describe the terms and conditions of the tender offer and
provide instructions regarding how to participate in the tender offer with
respect to your options. WE URGE YOU TO READ THE ENCLOSED MATERIAL CAREFULLY.
If you need information about the exercise price of your options or have
other questions about your options or how to participate in the tender offer,
please contact Tom Miller at the Company at (949) 753-6196.
Very truly yours,
/s/ F. Richard Nichol
F. Richard Nichol, Ph.D.
Chairman, President and Chief
Executive Officer
<PAGE> 1
EXHIBIT 6
[HAMBRECHT & QUIST LOGO]
August 5, 1999
Confidential
The Board of Directors
CoCensys, Inc.
201 Technology Drive
Irvine, CA 92618
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of common stock (the "Common
Stock") of CoCensys, Inc. ("CoCensys" or the "Company") of the consideration to
be received by such shareholders in connection with the proposed merger of
Purdue Acquisition Corporation ("Merger Sub"), a wholly owned subsidiary of
Purdue Pharma L.P. ("Acquirer"), with and into the Company (the "Proposed
Transaction") pursuant to the Agreement and Plan of Merger dated as of August 5,
1999, among Acquirer, Merger Sub, and the Company (the "Agreement").
We understand that the terms of the Agreement provide, among other things,
that (i) Merger Sub will effect a combination with the Company by way of a
merger of Merger Sub with and into the Company (the "Merger") which Merger may
be preceded by a tender offer (the "Offer") to purchase all the outstanding
shares of common stock upon the terms and subject to the conditions set forth in
the agreement; and (ii) the Merger Sub will subsequently be merged with and into
the Company in a transaction that will provide the holders of Common Stock with
$1.16 per share in cash ("Merger Consideration").
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as a financial advisor to the Board of
Directors of CoCensys in connection with the Proposed Transaction, and we will
receive a fee for our services, which include the rendering of this opinion.
In the past, we have provided investment banking and other financial
advisory services to the Company and have received fees for rendering these
services. Hambrecht & Quist was the co-manager on the Company's Initial Public
Offering of common stock on January 29, 1993 and placement agent on the
Company's private placement of common stock on January 24, 1996. In the ordinary
course of business, Hambrecht & Quist has acted as a market maker and broker in
the publicly traded securities of the Company and has received customary
compensation in connection therewith, and has also provided research coverage
for the Company. In the ordinary course of business, Hambrecht & Quist has
actively traded in the equity and derivative securities of the Company for its
own account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities. Hambrecht & Quist may in
the future provide additional investment banking or other financial advisory
services to the Company.
In connection with our review of the Proposed Transaction, and in arriving
at our opinion, we have, among other things:
(i) reviewed the publicly available financial statements of the
Company for recent years and interim periods to date and certain other
relevant financial and operating data of the Company made available to us
from published sources and from the internal records of the Company;
<PAGE> 2
(ii) reviewed certain internal financial and operating information,
including certain projections, relating to the Company prepared by the
senior management of the Company;
(iii) discussed the business, financial condition and prospects of the
Company with certain members of senior management;
(iv) reviewed the recent reported prices and trading activity for the
common stock of the Company and compared such information and certain
financial information for the Company with similar information for certain
other companies engaged in businesses we consider comparable;
(v) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(vi) reviewed the Agreement dated August 5, 1999;
(vii) performed such other analyses and examinations and considered
such other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning the Company considered in
connection with our review of the Proposed Transaction, and we have not assumed
any responsibility for independent verification of such information. We have not
prepared any independent valuation or appraisal of any of the assets or
liabilities of the Company, nor have we conducted a physical inspection of the
properties and facilities of either company. With respect to the financial
forecasts and projections made available to us and used in our analysis, we have
assumed that they reflect the best currently available estimates and judgments
of the expected future financial performance of the Company. For purposes of
this opinion, we have assumed that neither Acquirer nor the Company is a party
to any pending transactions, including external financings, recapitalizations or
material merger discussions, other than the Proposed Transaction and those
activities undertaken in the ordinary course of conducting their respective
businesses. Our opinion is necessarily based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date of this
letter and any change in such conditions would require a reevaluation of this
opinion. In rendering this opinion, we have assumed that the proposed merger
will be consummated substantially on the terms discussed in the Agreement,
without any waiver of any material terms or conditions by any party thereto.
It is understood that this letter is for the information of the Board of
Directors and may not be used for any other purpose without our prior written
consent; provided, however, that this letter may be reproduced in full in any
proxy statement or solicitation / recommendation statement, as the case may be,
in connection with the Proposed Transaction. This letter does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
Proposed Transaction.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be received by the holders of the Common Stock in the
Proposed Transaction is fair to such holders from a financial point of view.
Very truly yours,
HAMBRECHT & QUIST LLC
By/s/ Paul B. Cleveland
Paul B. Cleveland
Managing Director
