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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM
------------------ TO
------------------ .
COMMISSION FILE NUMBER: 001-14165
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RIBOGENE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-3095154
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
26118 RESEARCH ROAD
HAYWARD, CA 94545
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 732-5551
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter prior that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
At July 31, 1999 there were 5,788,642 shares of the Registrant's common
stock, $0.001 value, outstanding.
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RIBOGENE, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Financial Statements and Notes (Unaudited).................. 3
Condensed Balance Sheets -- June 30, 1999 and December 31,
1998........................................................ 3
Condensed Statements of Operations -- for the three and six
months ended June 30, 1999
and 1998.................................................... 4
Condensed Statement of Cash Flows -- for six months ended
June 30, 1999 and 1998...................................... 5
Notes to Condensed Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 13
Item 2. Changes in Securities and Use of Proceeds................... 13
Item 3. Defaults upon Senior Securities............................. 13
Item 4. Submission of Matters to Vote of Security Holders........... 13
Item 5. Other Information........................................... 14
Item 6. Exhibits and Reports -- Form 8-K............................ 14
Signatures........................................................... 15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RIBOGENE, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED) (NOTE 1)
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 10,214 $ 12,815
Short-term investments.................................... 15,479 16,703
Prepaid expenses and other current assets................. 145 90
-------- --------
Total current assets.............................. 25,838 29,608
Property and equipment, net................................. 1,699 1,389
Deferred financing costs.................................... 534 622
Other assets................................................ 185 201
-------- --------
$ 28,256 $ 31,820
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 753 $ 1,456
Accrued development costs -- related party................ 1,285 400
Accrued liabilities....................................... 301 206
Deferred revenue -- related party......................... 1,167 167
Other current liabilities................................. 952 845
Current portion of capital lease obligations.............. 159 158
Current portion of notes payable.......................... 310 115
-------- --------
Total current liabilities......................... 4,927 3,347
-------- --------
Long-term portion of capital lease obligations.............. 144 224
Long-term portion of notes payable.......................... 6,042 5,482
Other noncurrent liabilities................................ 12 12
Stockholders' equity
Preferred Stock, 5,000,000 shares, $0.001 par value,
authorized at June 30, 1999 and December 31, 1998,
issuable in series; 1,428,572 shares issued and
outstanding at June 30, 1999 and December 31, 1998
(aggregate liquidation preference of $10,000,000 at
June 30, 1999 and December 31, 1998)................... 1 1
Common Stock, 30,000,000 shares, $0.001 par value,
authorized at June 30, 1999 and December 31, 1998;
5,783,956 and 5,774,421 shares issued and outstanding
at June 30, 1999 and December 31, 1998, respectively... 6 6
Additional paid-in capital.................................. 67,139 66,990
Notes receivable from stockholders.......................... (1) (147)
Deferred compensation....................................... (1,491) (1,811)
Accumulated deficit......................................... (48,435) (42,258)
Accumulated other comprehensive loss........................ (88) (26)
-------- --------
Total stockholders' equity........................ 17,131 22,755
-------- --------
$ 28,256 $ 31,820
======== ========
</TABLE>
See accompanying notes.
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RIBOGENE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Contract research revenue from related parties.... $ 503 $ 639 $ 1,003 $ 1,388
Grant revenue..................................... -- 146 -- 403
Royalty revenue................................... 4 -- 4 --
------- ------- ------- -------
Total revenue............................. 507 785 1,007 1,791
------- ------- ------- -------
Operating expenses:
Research and development.......................... 2,454 1,428 5,165 2,604
General and administrative........................ 1,237 550 2,399 1,011
------- ------- ------- -------
Total operating expenses.................. 3,691 1,978 7,564 3,615
------- ------- ------- -------
Loss from operations................................ (3,184) (1,193) (6,557) (1,824)
Interest income (expense), net...................... 155 34 380 (35)
------- ------- ------- -------
Net loss............................................ (3,029) (1,159) (6,177) (1,859)
Deemed dividend upon conversion of preferred
stock............................................. -- (7,989) -- (7,989)
------- ------- ------- -------
Net loss attributable to common stockholders........ $(3,029) $(9,148) $(6,177) (9,848)
======= ======= ======= =======
Basic net loss per common share..................... $ (0.54) $ (5.24) $ (1.09) $(10.59)
======= ======= ======= =======
Weighted average shares of common stock
outstanding....................................... 5,661 1,746 5,660 930
======= ======= ======= =======
</TABLE>
See accompanying notes.
4
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RIBOGENE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1999 1998
------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(6,177) $ (1,859)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 236 111
Amortization of warrants and deferred compensation........ 538 304
Forgiveness of stockholder notes.......................... 146 --
Other..................................................... -- 10
Changes in assets and liabilities:
Prepaid expenses and other current assets................. (55) (119)
Other assets.............................................. 16 (28)
Accounts payable.......................................... (703) (472)
Deferred revenue -- related parties....................... 1,000 611
Accrued expenses and other liabilities.................... 1,087 (131)
------- --------
Net cash used in operating activities..................... (3,912) (1,573)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment......................... (546) (206)
Purchases of short-term investments......................... (6,233) (10,586)
Maturities of short-term investments........................ 7,395 --
------- --------
Net cash used in investing activities....................... 616 (10,792)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt................................ 881 --
Repayment of notes payable.................................. (126) (1,000)
Principal payments on capital lease obligations............. (79) (108)
Deferred offering costs..................................... -- 1,142
Proceeds from issuances of common stock and warrants, net of
issuance costs, repurchases and repayment of stockholder
notes..................................................... 19 16,444
Net proceeds from issuance of convertible preferred stock
and warrants.............................................. -- 1,978
------- --------
Net cash provided by financing activities................... 695 18,456
------- --------
Net increase in cash and cash equivalents................... (2,601) 6,091
Cash and cash equivalents at beginning period............... 12,815 2,045
------- --------
Cash and cash equivalents at end of period.................. $10,214 $ 8,136
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 496 $ 285
======= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Equipment purchased under capital leases.................... $ -- $ 81
======= ========
Deferred compensation related to stock option grants........ $ -- $ 635
======= ========
</TABLE>
See accompanying notes.
5
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RIBOGENE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of RiboGene, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles and applicable Securities and Exchange Commission
regulations for interim financial information. These financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The unaudited financial
statements are intended to be read in conjunction with the audited financial
statements and footnotes thereto for the year ended December 31, 1998, contained
in the Company's Annual Report filed on Form 10-K with the Securities and
Exchange Commission on March 31, 1999. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for fair presentation of interim financial information have been included.
Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999.
2. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity from
the date of purchase of three months or less to be cash equivalents.
The Company classifies its investments as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, if any, reported in accumulated other comprehensive loss. As
June 30, 1999, the amortized cost of the Company's investments approximated
their fair value. The Company's comprehensive loss for the six month period
ended June 30, 1999 and 1998, approximated the Company's net loss. Realized
gains and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in income. The Company has not
experienced any realized gains or losses on its cash equivalents. The cost of
securities sold is based on the specific identification method. Cash and cash
equivalents and short-term investments at June 30, 1999 and December 31, 1998,
consist of the following (in thousands) at fair value:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Demand deposits with banks and investment in money
market funds........................................ $10,214 $12,815
Corporate debt securities, including accrued interest
Maturing 1999.................................... 6,830 13,133
Maturing 2000.................................... 8,649 3,570
------- -------
$25,693 $29,518
======= =======
</TABLE>
3. NOTES PAYABLE
In December 1998, the Company received $5,000,000 in proceeds from the
issuance of a long-term note payable to a bank. The note required monthly
interest only payments at prime plus 1%. The rate at June 30, 1999 was 8.75%.
The principal is due at the end of the three-year term. The loan is
collateralized by a perfected security interest in all the unencumbered assets
of the Company and requires that the Company maintain its depository accounts
with the bank with a minimum of $5,000,000 in aggregate cash and depository
balances. The Company is also required to comply with financial covenants based
on certain ratios. At June 30, 1999, the Company was in compliance with all
required covenants.
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RIBOGENE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. NET LOSS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), basic net loss per share has been computed
using the weighted-average number of shares of common stock outstanding during
the period, excluding certain shares which are subject to the Company's
contractual right of repurchase.
Pro forma net loss per share giving effect to the conversion of the
convertible preferred stock that automatically converted upon completion of the
Company's initial public offering (using the as-if converted method) from the
original date of issuance for the three and six months ended June 30, 1998 was
$2.69 and $3.35, respectively. Shares used in computing the pro forma net loss
per share were 3,397,000 and 2,936,000 for the three and six months ended June
30, 1998.
Diluted net loss per share has not been presented separately as, due to the
Company's net loss position, it is antidilutive. Had the Company been in a net
income position at June 30, 1999, shares used in calculating diluted earnings
per share may have included the effect of up to an additional 2,435,457 total
shares related to outstanding stock options and warrants (prior to the
application of the treasury stock method), and 1,428,572 shares related to
convertible preferred stock.
5. STOCK OPTIONS AND WARRANTS
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected
to account for stock options and purchase rights granted to employees using the
intrinsic value method and, accordingly, does not recognize compensation expense
for options and purchase rights granted to employees with exercise prices which
are not less than fair value of the underlying common stock.
For equity awards to non-employees, including lenders and lessors, the
Company applies the Black-Scholes method to determine the fair value of such
instruments. The value is recognized as expense over the period of services
received or the term of the related financing.
6. SUBSEQUENT EVENT
On August 5, 1999, the Company signed a definitive merger agreement to form
a fully integrated pharmaceutical marketing and late stage product development
company with Cypros Pharmaceutical Corporation ("Cypros"). Structurally, the
Company will be merged with a subsidiary of Cypros and become a wholly owned
subsidiary of Cypros. As a result of their merger, each outstanding share of
RiboGene common stock will be converted into the right to receive approximately
1.494 shares of Cypros common stock based on the fully diluted capitalization of
both companies as of the signing of the agreement. The exchange ratio is subject
to adjustment if the market price of Cypros common stock is more than $2.47 or
less than $1.46 as of the closing. The final exchange ratio would also reflect
changes in the fully diluted capitalization of the two companies through
closing. The transaction is structured to be a tax-free reorganization and will
be accounted for as a purchase. The merger is subject to customary closing
conditions and shareholder approval and is expected to close in late 1999. For a
further discussion of the proposed merger, see Item 5 herein.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this quarterly report on Form 10-Q that are not historical
fact constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements regarding future
pharmaceutical development, regulatory approvals, revenues, expenses, and
profits or losses. These forward-looking statements are subject to known and
unknown risks, uncertainties or other factors which may cause the actual results
of the Company to be materially different from historical results or any results
expressed or implied by the forward-looking statements. Factors that could cause
actual results to differ materially include, but are not limited to, the risks
and uncertainties described or discussed in the section "Risk Factors" in the
Company's Annual Report on Form 10-K as filed by the Company with the Securities
and Exchange Commission on March 31, 1999. The forward-looking statements
contained herein represent the Company's judgement as of the date of this
quarterly report on Form 10-Q and the Company cautions readers not to place
undue reliance on such statements. Furthermore, the Company disclaims any
obligation or intent to update any such forward-looking statements to reflect
future events or developments.
OVERVIEW
RiboGene is a drug discovery company focused on the identification of novel
lead compounds and the development of potential drug candidates for the
treatment of infectious diseases. The Company was founded in May 1989 to develop
laboratory equipment for cell-free protein synthesis. In January 1993, the
Company discontinued development of the lab equipment and began to focus its
research and development efforts on the identification of novel lead compounds
and the development of potential drug candidates for the treatment of infectious
diseases. The Company's research efforts initially focused on infections caused
by fungi and viruses. In 1996, the Company expanded its research efforts to
include infections caused by bacteria. Simultaneously with the shift in focus to
infectious disease drug discovery, in 1993 and later in 1994, the Company
in-licensed and acquired the rights to certain in-process research and
development (the "Intranasal Product Acquisition"), including certain patents
and other intellectual property related to intranasal formulations and the
corresponding administration of metoclopramide, propranolol and certain
benzodiazepines. One of the potential products acquired by the Company was
Emitasol(R) an intranasal formulation of metoclopramide for the treatment of
diabetic gastroparesis and the prevention of emesis (nausea and vomiting)
associated with chemotherapy. In April 1999, the Company's marketing partner,
Crinos Industria Farmacobiologica S.p.A. ("Crinos") launched an intranasal
metaclopramide spray under the trade name Pramidin. The Company anticipates that
royalty revenues from the sale of this product will be minor.
In July 1998, the Company entered into an option and license agreement with
Roberts Pharmaceutical Corporation ("Roberts") for the development of Emitasol.
In addition, Roberts made a $10 million equity investment in the Company by
purchasing 1,428,572 shares of Series A non-voting preferred stock at $7.00 per
share. Under the terms of the option and license agreement, Roberts will conduct
clinical trials using Emitasol and, if those are successful, submit a New Drug
Application ("NDA") for Emitasol. If FDA regulatory approval is obtained,
Roberts will have 60 days to exercise an option for an exclusive license to
market Emitasol in North America. Roberts has agreed to make a payment to the
Company of up to $10 million upon the exercise of the option and to pay a
royalty on product sales. The Company will provide up to, but not in excess of,
$7 million in funding for the development of Emitasol through the completion of
Phase III trials and the submission of an NDA, with the balance, if any,
provided by Roberts.
The Company has generated no revenue from the direct sale of products and
has generated only $4,000 in royalty revenues and, through June 30, 1999, has
incurred cumulative net losses of approximately $48.4 million and, at June 30,
1999, had net stockholders' equity of $17.1 million. The Company expects to
incur significant operating losses over the next several years due primarily to
expanded research and development efforts, preclinical and clinical testing of
its product candidates and commercialization activities. The Company does not
anticipate additional revenues from product sales for a significant number of
years, if ever. The Company's sources of revenues for the next several years
will be payments from strategic collaborations, if any, royalties and interest
income. Certain payments under collaborations are or will be contingent upon the
Company or its collaborators achieving certain milestones as to which there can
be no assurance that such milestones will be achieved. Results of operations may
vary significantly from quarter to quarter depending on,
8
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among other factors, the progress of the Company's research and development
efforts, results of clinical testing, the timing of certain expenses, the
establishment of collaborative research agreements and the receipt of grants or
milestone payments, if any.
On August 5, 1999, the Company signed a definitive merger agreement to form
a fully integrated pharmaceutical marketing and late stage product development
company with Cypros Pharmaceutical Corporation ("Cypros"). Structurally, the
Company will be merged with a subsidiary of Cypros and become a wholly owned
subsidiary of Cypros. As a result of their merger, each outstanding share of
RiboGene common stock will be converted into the right to receive approximately
1.494 shares of Cypros common stock based on the fully diluted capitalization of
both companies as of the signing of the agreement. The exchange ratio is subject
to adjustment if the market price of Cypros common stock is more than $2.47 or
less than $1.46 as of the closing. The final exchange ratio would also reflect
changes in the fully diluted capitalization of the two companies through
closing. The transaction is structured to be a tax-free reorganization and will
be accounted for as a purchase. The merger is subject to customary closing
conditions and shareholder approval and is expected to close in late 1999. For a
further discussion of the proposed merger, see Item 5 herein.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
For the three-month period ended June 30, 1999, the Company's revenues
consisted of revenues from the collaboration with Dainippon Pharmaceuticals
Company, Ltd. (The "Dainippon Collaboration") and royalty revenues from the sale
of Pramidin in Italy by the Company's marketing partner, Crinos. Revenue earned
as part of the Dainippon Collaboration, which began in February 1998, was
$503,000 for the three-month period ended June 30, 1999. Royalty revenues for
three-month period consisted of $4,000 related to the introduction of Emitasol
in Italy. The royalty revenues related to sales of Pramidin for the first six
months of 1999. Royalties from sales of Pramidin in the first quarter of 1999
for the initial fulfillment of inventory were not reported until the product was
formally launched in April 1999. Revenues for the three month period ended June
30, 1998 consisted of research support revenues earned under the Dainippon
Collaboration of $500,000 and a collaboration with Abbott Laboratories of
$139,000. The Company also had revenues of $146,000 for the three month period
ended June 30, 1998 from SBIR grants from the National Institutes of Health. The
collaboration with Abbott Laboratories ended in April 1998. Revenues earned
under SBIR grants are determined by the timing of the award from the issuing
agency. As a result, grant revenue earned in one period is not predictive of
grant revenue to be earned in future periods. The SBIR grants, from which the
Company received funding during the second quarter of 1998, ended in August
1998.
Research and development expenses were $2.5 million for the three months
ended June 30, 1999, compared to $1.4 million for the three months ended June
30, 1998. This $1.1 million, or 72% increase resulted from the continued
Emitasol development activities, personnel and supply costs relating to the
establishment of the Company's medicinal chemistry capabilities, and non-cash
charges for deferred compensation relating to certain stock options granted to
employees and consultants.
General and administrative expenses were $1.2 million for the three months
ended June 30, 1999, compared to $550,000 for the three months ended June 30,
1998. The $685,000 or 125%, increase was due to additional operating costs
associated with the Company's status as a publicly held company, the legal and
other professional services associated with increased business development
activities, and non-cash charges for deferred compensation relating to certain
stock options and warrants granted to employees and consultants.
For the three months ended June 30, 1999, the Company reported net interest
income of $155,000 as compared to $34,000 for the three months ended June 30,
1998. This increase in interest income results from interest earned on the
investment of proceeds from the company's initial public offering, concurrent
private placement, bank borrowing and sale of preferred stock, which all
occurred in 1998.
The net loss for the three-month period ended June 30, 1999 was $3.0
million, compared to $1.2 million for the three-month period ended June 30,
1998. The $1.8 million, or 161%, increase resulted from the changes in revenue
and operating expenses discussed above.
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The net loss attributable to common stockholders for the three months ended
June 30, 1999 was $3.0 million compared to $9.1 million for the three month
period ended June 30 1998. The net loss attributable to common shareholders in
1998 of $9.1 million included a deemed dividend of $8.0 million recorded in 1998
upon the conversion of Series F preferred stock to common stock concurrent with
the closing of the Company's initial public offering. The Series F preferred
stock contained certain antidilution provisions that resulted in the Series F
preferred stockholders receiving an additional 1,141,317 shares of common stock
upon conversion.
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
For the six month period ended June 30, 1999, the Company's revenues
consisted of $1.0 million of research support revenues earned from the Dainippon
Collaboration and $4,000 in royalty revenues from the initial sales of Pramidin
in Italy. For the six month period ended June 30, 1998, the Company's revenues
consisted of $1.4 million in revenues earned from the collaboration agreements
and $403,000 in SBIR grants from the National Institutes of Health. Revenue
earned as part of the Abbott Collaboration, which ended on April 13, 1998, was
$556,000 for the six month period ended June 30, 1998. Further, revenue earned
under the Dainippon Collaboration which began in February 1998 was $832,000 for
the six month period ended June 30, 1998. The revenues earned under awarded
research grants were completed in August of 1998. Revenues earned under research
grants are determined by the timing of the award from the issuing agency. As a
result, research grant revenue earned in one period is not predictive of
research grant revenue to be earned in future periods.
Research and development expenses were $5.2 million for the six months
ended June 30, 1999, compared to $2.6 million for the six months ended June 30,
1998. This $2.6 million, or 98% increase resulted from the commencement of
Emitasol development activities, personnel and supply costs, relating to the
establishment of the Company's medicinal chemistry capabilities, and non cash
charges for deferred compensation relating to certain stock options granted to
employees and consultants. Research and development expenses represented
approximately 68% of total operating expenses of $7.6 million in the six month
period ended June 30, 1999, as compared to 72% of total operating expenses of
$3.6 million in the six month period ended June 30, 1998.
General and administrative expenses were $2.4 million for the six months
ended June 30, 1999, compared to $1.0 million for the six months ended June 30,
1998. The $1.4 million or 137% increase was due to additional operating costs
associated with the Company's status as a publicly held company, travel,
consultants, legal and other professional services associated with increased
business development activities, forgiveness of debt to certain officers and
directors, and non cash charges for deferred compensation relating to certain
stock options and warrants granted to employees and consultants.
For the six months ended June 30, 1999, the company reported net interest
income of $380,000 as compared to net interest expenses of $35,000 for the six
months June 30, 1998. This interest income results from interest earned in the
investment of proceeds from the company's initial public offering, concurrent
private placement, bank borrowing and sale of preferred stock, which occurred in
1998.
The net loss for the six month period ended June 30, 1999 was $6.2 million,
compared to $1.9 million for the six month period ended June 30, 1998. The $4.3
million, or 233% increase resulted from the changes in revenue and operating
expenses discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
public offerings of common stock, private sales of common stock and preferred
stock, warrants, SBIR grants, collaborations, the issuance of short-term
convertible notes and equipment financing arrangements. Through June 30, 1999,
the Company has raised approximately $67.4 million from the sale of common stock
and preferred stock, warrants and short-term convertible notes, $3.5 million
from SBIR grants and $6.4 million from collaborations. The Company's capital
expenditures and payments under capital lease obligations aggregate
approximately $3.1 million through June 30, 1999, and cash used to fund
operating activities since inception totaled $34.8 million.
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At June 30, 1999, the Company had cash and cash equivalents and short-term
investments of approximately $25.7 million and working capital of $20.9 million.
Net cash used in operations was $3.9 million for the six months ended June 30,
1999, compared to cash used of $1.6 million for the six months ended June 30,
1998. The increase of $2.3 million was primarily due to increased research and
development and general and administrative expenses discussed above. The Company
has a policy of investing excess funds in investment grade, interest-bearing
securities primarily with an expected maturity of one-and-one-half years or
less.
The Company will require substantial additional funds to continue and
expand its development activities, conduct preclinical studies and expand
administrative capabilities. The Company estimates that at its planned rate of
spending, existing cash and cash equivalents, and the interest income earned on
such proceeds, will be sufficient for the purposes specified herein and to allow
the Company to maintain its current and planned operations, including compliance
with compensating balance covenant requirements, into the second half of 2000.
There can be no assurance, however, that the Company's assumptions regarding its
future level of expenditures and operating losses will prove to be accurate. The
Company's future funding requirements will depend on many factors, including any
expansion or acceleration and the breadth of the Company's research and
development programs; the results of research and development, preclinical
studies and clinical trials conducted by the Company or its collaborative
partners or licensees, if any; the acquisition and licensing of technologies or
compounds, if any; the Company's ability to maintain existing and establish new
corporate relationships and research collaborations; the Company's ability to
manage growth; competing technological and market developments; the time and
costs involved in filing, prosecuting, defending and enforcing patent and
intellectual property claims; the receipt of licensing or milestone fees from
its current or future collaborative and license arrangements, if established;
the continued funding of governmental research grants; the timing of regulatory
approvals; and other factors. On August 5, 1999, the Company entered into a
definitive merger agreement with Cypros. The merger, subject to shareholder
approval and customary conditions, is anticipated to close in late 1999. The
Company anticipates that it will consolidate its operations with those of Cypros
and eliminate any redundant functions including facilities and general and
administration capabilities. In conjunction with the merger, the Company may
decide to divest, spin-off or eliminate some or all of its drug discovery
programs. Prior to June 30, 1999, the Company had active drug discovery programs
focusing on bacterial, fungal and viral (HCV) infections. Subsequent to the end
of the quarter, the Company has focused all of its drug discovery efforts on
antibacterials.
YEAR 2000 READINESS
The Year 2000 ("Y2K") issue refers to the inability of older computer
hardware and software to accept four-digit codes for the year field in a set of
data (the "Year 2000 Issue"). Beginning in the year 2000, four-digit codes will
be necessary to distinguish between 1900 base-year dates and 2000 base-year
dates. Such inability to recognize a date using "00" as the year 2000 rather
than the year 1900 could result in a system failure or miscalculations causing
disruptions in the Company's operations or activities, including, among other
things, the Company's research and development efforts.
The Company has developed a formal plan to address this issue including a
complete inventory and assessment of all systems. The plan's objective is to
ensure an uninterrupted transition into year 2000.
In conjunction with the above described plan, the Company has completed its
assessment with respect to its critical systems and at this time has not
uncovered any reason for it to believe that such systems critical to the core
business will not function properly with respect to dates in the years 1999,
2000 and thereafter. Additionally, in connection with its move to new facilities
late in 1997, the Company improved, upgraded and replaced many of its systems.
Based on written representations from manufacturers of these systems, the
Company believes that these new systems are Year 2000 compliant.
While the Company believes all systems critical to its core business are
now Y2K compliant, the Company anticipates having the remainder of the internal
systems Year 2000 compliant by the fall of 1999. Currently, however, the Company
has no contingency plans in place in the event it does not fully complete its
Year 2000 readiness program by such time.
11
<PAGE> 12
To date, the Company has not incurred significant expenses in connection
with assessing, testing and modifying its systems for Year 2000 readiness and
the costs of executing the plan have been funded from cash reserves. However,
because the Company has not fully completed the Year 2000 readiness of its
systems, Management is unable to determine the cost of becoming Year 2000 ready.
To the extent that the Company or its key suppliers and providers fail to
achieve Year 2000 readiness, there could be a material adverse effect on the
Company's business, results of operations and financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk at June 30, 1999 has not changed
substantially from December 31, 1998, and reference is made to the more detailed
disclosures of market risk included in the Company's Annual Report on Form 10-K
as filed with the Securities and Exchange Commission on March 31, 1999.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Recent Sales of Unregistered Securities
None
(b) Use of Proceeds
The effective date of the Company's registration statement, filed on Form
S-1 under the Securities and Exchange Act of 1933, as amended (File No.
333-38781), was May 28, 1998 (the "Registration Statement"). The class of
securities registered was Common Stock and all securities sold were sold in the
offering. The underwriter for the offering was Gruntal & Co., L.L.C. Pursuant to
the Registration Statement, the Company sold 2,300,000 shares of its Common
Stock for an aggregate offering price of $16.1 million.
In connection with the public offering, the Company incurred expenses of
$3.9 million, of which $1.8 million represented underwriting discounts and
commissions and expense reimbursements and $2.1 million represented other
expenses related to the offering. No proceeds were paid directly or indirectly
to directors, officers, general partners of the Company or to persons holding
ten percent or more of any class of equity security issued by the Company, or to
any other affiliate of the Company. The net offering proceeds to the Company
after total expenses was $12.2 million.
The Company has used $7.4 million of the net proceeds from the offering for
operations. The Company has invested the remainder of the net proceeds in
short-term, investment-grade, interest bearing financial instruments. The use of
the proceeds from the offering does not represent a material change in the use
of the proceeds described in the Registration Statement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on May 17, 1999, of the
5,783,956 shares of Common Stock outstanding as of March 31, 1999, the record
date, (the "Outstanding Shares"), the votes received were as set forth below:
1. All of the following persons nominated were elected to serve as
directors and, of the Outstanding Shares, received the number of votes set
opposite their names:
<TABLE>
<CAPTION>
FOR AGAINST
--- -------
<S> <C> <C>
Charles J. Casamento............................. 4,381,839 7,036
Digby W. Barrios................................. 4,381,739 7,136
Frank J. Sasinowski.............................. 4,302,083 7,136
Jon S. Saxe...................................... 4,302,083 7,136
Roger G. Stoll, Ph.D............................. 4,302,083 7,036
</TABLE>
2. A proposal to amend RiboGene's 1997 Equity Incentive Plan to
increase the aggregate number of shares of Common Stock authorized for
issuance thereunder from 800,000 to 1,500,000 shares received, of the
Outstanding Shares, 2,465,018 votes FOR and 338,620 votes AGAINST, with
27,150 abstentions and 1,706,098 broker non-votes.
13
<PAGE> 14
3. A proposal to ratify the Board of Director's selection of Ernst &
Young LLP as the Company's independent accountants for the fiscal year
ending December 31, 1999 received, of the Outstanding Shares, 4,368,945
votes FOR and 7,400 votes AGAINST, with 12,530 abstentions.
ITEM 5. OTHER INFORMATION
On August 5, 1999, the Company signed a definitive merger agreement to form
a fully integrated pharmaceutical marketing and late stage product development
company with Cypros Pharmaceutical Corporation ("Cypros").
Cypros stockholders and option holders will hold approximately 55% of the
fully diluted equity of the combined company and RiboGene stockholders, option
holders and warrant holders will hold approximately 45% of the fully diluted
equity. Structurally, RiboGene will be merged with a subsidiary of Cypros and
become a wholly owned subsidiary of Cypros. As a result of their merger, each
outstanding share of RiboGene common stock will be converted into the right to
receive approximately 1.494 shares of Cypros common stock, based on the fully
diluted capitalization of both companies as of the signing of the agreement. The
exchange ratio is subject to adjustment if the market price of Cypros common
stock is more than $2.47 or less than $1.46 as of the closing. The final
exchange ratio would also reflect changes in the fully diluted capitalization of
the two companies through closing.
Charles J. Casamento, Chairman, President and CEO of RiboGene, will become
Chairman and CEO of the new entity, and Paul J. Marangos, Ph.D., Chairman,
President and CEO of Cypros, will continue to serve as a Board Member and
consultant to the Company. All members of the Boards of Directors of Cypros and
RiboGene will continue as directors of the combined entity.
The holder of RiboGene's outstanding preferred stock would receive a new
series of Cypros voting preferred stock adjusted for the exchange ratio and
otherwise with similar terms to the existing RiboGene preferred stock. Cypros
would assume all of RiboGene's outstanding stock options and warrants.
The transaction is structured to be a tax-free reorganization and will be
accounted for as a purchase. The merger is subject to shareholder approval and
customary closing conditions and is expected to close in late 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
2.1 Agreement and Plan of Reorganization by and among Cypros
Pharmaceutical Corporation, Cypros Acquisition Corporation,
and RiboGene, Inc. dated August 4, 1999
27.1 Financial Data Schedule
99.1 Press Release dated August 5, 1999 relating to the execution
of the Agreement and Plan of Reorganization
</TABLE>
(b) Reports on Form 8-K
During the three month period ending June 30, 1999, one Current Report was
filed on Form 8-K. In a report the Company announced that the Board of
Director's approved the adoption of a Stockholder's Rights Plan under which all
stockholders of record as of July 23, 1999 received rights to purchase shares of
a new series of Preferred Stock. This report was filed July 15, 1999.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RIBOGENE, INC.
By: /s/ TIMOTHY E. MORRIS
------------------------------------
Timothy E. Morris
Vice President, Finance and
Administration
Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
Date: August 12, 1999
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
2.1 Agreement and Plan of Reorganization by and among Cypros
Pharmaceutical Corporation, Cypros Acquisition Corporation,
and RiboGene, Inc. dated August 4, 1999
27.1 Financial Data Schedule
99.1 Press Release dated August 5, 1999 relating to the execution
of the Agreement and Plan of Reorganization
</TABLE>
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made and
entered into as of August 4, 1999, by and among: CYPROS PHARMACEUTICAL
CORPORATION, a California corporation ("Parent"); CYPROS ACQUISITION
CORPORATION, a Delaware corporation and a wholly owned subsidiary of Parent
("Merger Sub"); and RIBOGENE, INC., a Delaware corporation (the "Company").
Certain capitalized terms used in this Agreement are defined in Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of
Merger Sub into the Company in accordance with this Agreement and the Delaware
General Corporation Law (the "Merger"). Upon consummation of the Merger, Merger
Sub will cease to exist, and the Company will become a wholly owned subsidiary
of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Code. For financial reporting
purposes, it is intended that the Merger be accounted for as a "purchase."
C. The respective boards of directors of Parent, Merger Sub and the
Company have approved and adopted this Agreement and approved the Merger.
D. In order to induce Parent and the Company to enter into this
Agreement and to consummate the Merger, certain shareholders of Parent and
stockholders the Company are entering into Voting Agreements pursuant to which
they are agreeing to vote in favor of the adoption and approval of this
Agreement and the approval of the Merger.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and
subject to the conditions set forth in this Agreement, at the Effective Time (as
defined in Section 1.3), Merger Sub shall be merged with and into the Company,
and the separate existence of Merger Sub shall cease. The Company will continue
as the surviving corporation in the Merger (the "Surviving Corporation").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set
forth in this Agreement and in the applicable provisions of the Delaware General
Corporation Law (the "DGCL").
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, located at 4365 Executive Drive, Suite 1100, San Diego,
California, at 10:00 a.m. on a date to be mutually agreed by the parties (the
"Closing Date"), which shall be no later than
<PAGE> 2
the second business day after the satisfaction or waiver of the conditions set
forth in Sections 6 and 7. Contemporaneously with or as promptly as practicable
after the Closing, the parties hereto shall cause a properly executed
certificate of merger conforming to the requirements of the DGCL (the
"Certificate of Merger") to be filed with the Secretary of State of the State of
Delaware. The Merger shall take effect at the time the Certificate of Merger is
filed with the Secretary of State of the State of Delaware or at such later time
as may be specified in the Certificate of Merger (the "Effective Time").
1.4 CHARTERS AND BYLAWS; DIRECTORS AND OFFICERS. Unless otherwise
determined by Parent and the Company prior to the Effective Time:
(a) Parent shall take all necessary actions, including
expanding the size of its board of directors, such that the directors and
officers of Parent immediately after the Effective Time shall be the individuals
identified on Exhibit B;
(b) the Articles of Incorporation of Parent shall be
amended and restated as of the Effective Time to (i) increase the authorized
common stock and preferred stock of Parent, (ii) establish blank check preferred
stock, (iii) designate the rights, preferences and privileges of the Parent
Preferred Stock, and (iv) effect such other amendments as are set forth in the
form of Amended and Restated Articles of Incorporation attached hereto as
Exhibit C (the "Amended Articles"), and the Bylaws of Parent shall be amended
and restated as of the Effective Time to increase the authorized number of
directors on the Board of Directors;
(c) the Certificate of Incorporation of the Surviving
Corporation shall be amended and restated as of the Effective Time to conform to
the Certificate of Incorporation of Merger Sub as in effect immediately prior to
the Effective Time;
(d) the Bylaws of the Surviving Corporation shall be
amended and restated as of the Effective Time to conform to the Bylaws of Merger
Sub as in effect immediately prior to the Effective Time; and
(e) the directors and officers of the Surviving
Corporation immediately after the Effective Time shall be the respective
individuals identified in Exhibit B.
1.5 CONVERSION OF SECURITIES.
(a) Subject to Sections 1.5(b) through (e), at the
Effective Time, by virtue of the Merger and without any further action on the
part of Parent, Merger Sub, the Company or any stockholder of the Company:
(i) any shares of Company Common Stock then held by
the Company or any Subsidiary of the Company (or held in the Company's treasury)
shall be canceled and retired and shall cease to exist at the Effective Time,
and no consideration shall be delivered in exchange therefor;
(ii) any shares of Company Common Stock then held by
Parent, Merger Sub or any other Subsidiary of Parent shall be canceled and
retired and shall cease to exist at the Effective Time, and no consideration
shall be delivered in exchange therefor;
<PAGE> 3
(iii) each share of the common stock, $0.001 par
value per share, of Merger Sub then outstanding shall be converted into one
share of common stock of the Surviving Corporation;
(iv) except as provided in clauses "(i)" and "(ii)"
of this sentence, each share of Company Common Stock then outstanding shall be
converted into the right to receive (a) one share of Parent Common Stock
multiplied by (b) the Exchange Ratio (as defined in Section 1.5(b)(ii) (Parent
and the Company agree that as of the date of this Agreement (without taking into
account any of the potential adjustments provided in this Agreement), the
Exchange Ratio would be 1.494).
(v) each share of Company Preferred Stock then
outstanding shall be converted into the right to receive (a) one share of Parent
Preferred Stock multiplied by (b) the Exchange Ratio.
(b) For purposes of this Agreement:
(i) The term "Company Outstanding Shares" shall mean,
as of the close of business on the day immediately preceding the date of the
Company Stockholders' Meeting, the sum of (a) the total number of outstanding
shares of Company Common Stock, (b) the total number of shares of Company Common
Stock into which all outstanding Company Preferred Stock is then convertible in
accordance with the Company Certificate of Incorporation, (c) the total number
of shares of Company Common Stock which are issuable upon exercise of all
outstanding Company Options, and (d) the total number of shares of Company
Common Stock issuable upon exercise of all outstanding Company Warrants.
(ii) The term "Exchange Ratio" shall mean a fraction
equal to (a) the Merger Shares divided by (b) the Company Outstanding Shares.
(iii) The term "Merger Shares" shall mean the total
number of Parent Outstanding Shares multiplied by a fraction, the numerator of
which is 45 and the denominator of which is 55; provided, however, that (I) in
the event the average closing price of Parent's Common Stock as reported on the
American Stock Exchange, Inc. ("AMEX") for the twenty (20) trading days (whether
or not such stock is actually traded on any such day) ending the day immediately
preceding the date of the Parent Shareholders' Meeting (the "Parent Closing
Price") exceeds the closing price per share of Parent's Common Stock as reported
on AMEX on the date this Agreement is executed (the "Signing Date Closing
Price") by more than twenty percent (20%) of the Signing Date Closing Price,
then the total Merger Shares shall equal $36,921,567 divided by the Parent
Closing Price; (ii) in the event the Parent Closing Price is less than the
Signing Date Closing Price by an amount equal to more than twenty-nine percent
(29%) of the Signing Date Closing Price, then the total Merger Shares shall
equal $21,839,666 divided by the Parent Closing Price and (iii) the total Merger
Shares shall be reduced by 403,549 shares.
(iv) The term "Parent Outstanding Shares" shall mean,
as of the close of business on the day immediately preceding the date of the
Parent Shareholders' Meeting, the sum of (a) the total number of outstanding
shares of Parent Common Stock, (b) the total number of shares of Parent Common
Stock which are issuable upon exercise of all
<PAGE> 4
outstanding Parent Options, and (c) the total number of shares of Parent Common
Stock issuable upon exercise of all Outstanding Parent Warrants.
(c) If any shares of Company Common Stock outstanding
immediately prior to the Effective Time are subject to vesting conditions, a
repurchase option, risk of forfeiture or other condition under any applicable
restricted stock purchase agreement or other agreement with the Company or under
which the Company has any rights (as in effect immediately prior to the
Effective Time), then the shares of Parent Common Stock issued in exchange for
such shares of Company Common Stock will be subject to the same vesting
conditions, repurchase option, risk of forfeiture or other terms and conditions
in accordance with such applicable restricted stock purchase agreement or other
agreement with the Company, and the certificates representing such shares of
Parent Common Stock shall accordingly be marked with appropriate legends. The
Company shall take all action that may be necessary to ensure that, from and
after the Effective Time, Parent is entitled to exercise any such repurchase
option or other right set forth in any such restricted stock purchase agreement
or other agreement.
(d) No fractional shares of Parent Common Stock or Parent
Preferred Stock shall be issued in connection with the Merger, and no
certificates or scrip for any such fractional shares shall be issued. Any holder
of Company Common Stock or Company Preferred Stock who would otherwise be
entitled to receive a fraction of a share of Parent Common Stock or Parent
Preferred Stock (after aggregating all fractional shares of Parent Common Stock
or Parent Preferred Stock issuable to such holder, as applicable) shall, in lieu
of such fraction of a share and upon surrender of such holder's Company Stock
Certificate(s) (as defined in Section 1.8), be paid in cash the dollar amount
(rounded to the nearest whole cent), without interest, determined by multiplying
such fraction by the Parent Closing Price.
(e) All rights with respect to Company Common Stock under
Company Options outstanding immediately prior to the Effective Time, if any,
shall be converted into and become rights with respect to Parent Common Stock,
and Parent shall assume each Company Option in accordance with the terms (as in
effect immediately prior to the Effective Time) of the Company's 1993 Stock
Plan, 1997 Equity Incentive Plan, 1998 Non-Officer Equity Incentive Plan and
1997 Non-Employee Directors' Stock Option Plan and the stock option agreements
by which such options are evidenced, other than provisions contained in such
plans and agreements which grant the plan administrator discretion with respect
to the terms and provisions of such plans and agreements. From and after the
Effective Time, (i) each Company Option assumed by Parent may be exercised
solely for shares of Parent Common Stock, (ii) the number of shares of Parent
Common Stock subject to each Company option shall be equal to the number of
shares of Company Common Stock subject to such Company Option immediately prior
to the Effective Time multiplied by the Exchange Ratio, rounding to the nearest
whole share, (iii) the per share exercise price under each such Company Option
shall be adjusted by dividing the per share exercise price under each such
Company Option by the Exchange Ratio and rounding to the nearest cent and (iv)
the term, exercisability, vesting schedule and other provisions of such Company
Option shall otherwise remain unchanged.
1.6 COMPANY WARRANTS. At the Effective Time, Parent shall assume
each Company Warrant in accordance with the terms (as in effect as of the date
hereof) of such Company Warrant (except to the extent that a holder of a Company
Warrant has elected to
<PAGE> 5
require the Company to repurchase such Common Warrant in accordance with its
terms). From and after the Effective Time, (i) each Company Warrant assumed by
Parent may be exercised solely for shares of Parent Common Stock, (ii) the
number of shares of Parent Common Stock subject to each Company Warrant shall be
equal to the number of shares of Company Common Stock subject to such Company
Warrant immediately prior to the Effective Time multiplied by the Exchange
Ratio, rounding to the nearest whole share, (iii) the per share exercise price
under each such Company Warrant shall be equal to the per share exercise price
under such Company Warrant divided by the Exchange Ratio, rounding to the
nearest cent and (iv) any restriction on the exercise of any Company Warrant
shall continue in full force and effect and the term, exercisability and other
provisions of such Company Warrant shall otherwise remain unchanged. The Company
shall take all action that may be necessary (under the Company Warrants and
otherwise) to effectuate the provisions of this Section 1.6 and to ensure that,
from and after the Effective Time, holders of Company Warrants have no rights
with respect thereto other than those specifically provided herein.
1.7 EMPLOYEE STOCK PURCHASE PLAN. As of the Effective Time, the
Company's 1997 Employee Stock Purchase Plan ("ESPP") shall be terminated. The
rights of participants in the ESPP with respect to any offering period then
underway under the ESPP shall be determined by treating the last business day
prior to the Effective Time as the last day of such offering period and by
making such other pro-rata adjustments as may be necessary to reflect the
reduced offering period but otherwise treating such offering period as a fully
effective and completed offering period for all purposes of such Plan. Prior to
the Effective Time, the Company shall take all actions (including, if
appropriate, amending the terms of the ESPP) that are necessary to give effect
to the transactions contemplated by this Section 1.7.
1.8 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective
Time: (a) all shares of Company Common Stock and Company Preferred Stock
outstanding immediately prior to the Effective Time shall automatically be
canceled and retired and shall cease to exist, and all holders of certificates
representing shares of Company Common Stock and Company Preferred Stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as stockholders of the Company; and (b) the stock transfer books of the
Company shall be closed with respect to all shares of Company Common Stock and
Company Preferred Stock outstanding immediately prior to the Effective Time. No
further transfer of any such shares of Company Common Stock or Company Preferred
Stock shall be made on such stock transfer books after the Effective Time. If,
after the Effective Time, a valid certificate previously representing any shares
of Company Common Stock or Company Preferred Stock (a "Company Stock
Certificate") is presented to the Exchange Agent (as defined in Section 1.9) or
to the Surviving Corporation or Parent, such Company Stock Certificate shall be
canceled and shall be exchanged as provided in Section 1.9.
1.9 EXCHANGE OF CERTIFICATES.
(a) American Securities Transfer & Trust, Inc. or such
other reputable bank or trust company selected by Parent (and reasonably
acceptable to the Company) prior to the Closing Date shall act as exchange agent
in the Merger (the "Exchange Agent"). Promptly after the Effective Time, Parent
shall deposit with the Exchange Agent (i) certificates representing the shares
of Parent Common Stock issuable pursuant to this Section 1, (ii) the
<PAGE> 6
certificates representing the shares of Parent Preferred Stock issuable pursuant
to this Section 1, and (iii) cash sufficient to make payments in lieu of
fractional shares in accordance with Section 1.5(d). The shares of Parent Common
Stock and cash amounts so deposited with the Exchange Agent, together with any
dividends or distributions received by the Exchange Agent with respect to such
shares, are referred to collectively as the "Exchange Fund."
(b) As soon as reasonably practicable after the Effective
Time, the Exchange Agent will mail to the record holders of Company Stock
Certificates (i) a letter of transmittal in customary form and containing such
provisions as Parent may reasonably specify (including a provision confirming
that delivery of Company Stock Certificates shall be effected, and risk of loss
and title to Company Stock Certificates shall pass, only upon delivery of such
Company Stock Certificates to the Exchange Agent), and (ii) instructions for use
in effecting the surrender of Company Stock Certificates in exchange for
certificates representing Parent Common Stock or Parent Preferred Stock (as the
case may be). Upon surrender of a Company Stock Certificate to the Exchange
Agent for exchange, together with a duly executed letter of transmittal and such
other documents as may be reasonably required by the Exchange Agent or Parent,
(1) the holder of such Company Stock Certificate shall be entitled to receive in
exchange therefor a certificate representing the number of whole shares of
Parent Common Stock or Parent Preferred Stock that such holder has the right to
receive pursuant to the provisions of Section 1.5 (and cash in lieu of any
fractional share of Parent Common Stock or Parent Preferred Stock), and (2) the
Company Stock Certificate so surrendered shall be canceled. Until surrendered as
contemplated by this Section 1.9(b), each Company Stock Certificate shall be
deemed, from and after the Effective Time, to represent only the right to
receive shares of Parent Common Stock (and cash in lieu of any fractional share
of Parent Common Stock) or Parent Preferred Stock (and cash in lieu of any
fractional share of Parent Preferred Stock), as the case may be, as contemplated
by Section 1. If any Company Stock Certificate shall have been lost, stolen or
destroyed, Parent may, in its discretion and as a condition precedent to the
issuance of any certificate representing Parent Common Stock or Parent Preferred
Stock, require the owner of such lost, stolen or destroyed Company Stock
Certificate to provide an appropriate affidavit and to deliver a bond (in such
sum as Parent may reasonably direct) as indemnity against any claim that may be
made against the Exchange Agent, Parent or the Surviving Corporation with
respect to such Company Stock Certificate.
(c) No dividends or other distributions declared or made
with respect to Parent Common Stock or Parent Preferred Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Company Stock Certificate with respect to the shares of Parent Common Stock or
Parent Preferred Stock which such holder has the right to receive upon surrender
thereof until such holder surrenders such Company Stock Certificate in
accordance with this Section 1.9 (at which time such holder shall be entitled,
subject to the effect of applicable escheat or similar laws, to receive all such
dividends and distributions, without interest).
(d) Any portion of the Exchange Fund that remains
undistributed to holders of Company Stock Certificates as of the date one year
after the date on which the Merger becomes effective shall be delivered to
Parent upon demand, and any holders of Company Stock Certificates who have not
theretofore surrendered their Company Stock Certificates in accordance with this
Section 1.9 shall thereafter look only to Parent for satisfaction of their
<PAGE> 7
claims for Parent Common Stock or Parent Preferred Stock, cash in lieu of
fractional shares of Parent Common or Parent Preferred Stock and any dividends
or distributions with respect to Parent Common Stock or Parent Preferred Stock.
(e) Each of the Exchange Agent, Parent and the Surviving
Corporation shall be entitled to deduct and withhold from any consideration
payable or otherwise deliverable pursuant to this Agreement to any holder or
former holder of Company Common Stock or Company Preferred Stock such amounts as
may be required to be deducted or withheld therefrom under the Code or any
provision of state, local or foreign tax law or under any other applicable Legal
Requirement. To the extent such amounts are so deducted or withheld, such
amounts shall be treated for all purposes under this Agreement as having been
paid to the Person to whom such amounts would otherwise have been paid.
(f) Neither Parent nor the Surviving Corporation shall be
liable to any holder or former holder of Company Common Stock or Company
Preferred Stock or to any other Person with respect to any shares of Parent
Common Stock or Parent Preferred Stock (or dividends or distributions with
respect thereto), or for any cash amounts, delivered to any public official
pursuant to any applicable abandoned property law, escheat law or similar Legal
Requirement.
1.10 TAX CONSEQUENCES. For federal income tax purposes, the
Merger is intended to constitute a reorganization within the meaning of Section
368 of the Code. The parties to this Agreement hereby adopt this Agreement as a
"plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations.
1.11 ACCOUNTING CONSEQUENCES. For financial reporting purposes,
the Merger is intended to be accounted for as a "purchase."
1.12 FURTHER ACTION. If, at any time after the Effective Time,
any further action is determined by Parent to be necessary or desirable to carry
out the purposes of this Agreement or to vest the Surviving Corporation with
full right, title and possession of and to all rights and property of Merger Sub
and the Company, the officers and directors of the Surviving Corporation and
Parent shall be fully authorized (in the name of Merger Sub, in the name of the
Company and otherwise) to take such action.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub, except as
set forth in the Company Disclosure Schedule, as follows:
2.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(a) The Company and each of its Subsidiaries ("Company
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. The Company
and each Company Subsidiary has all necessary power and authority to: (i)
conduct its business in the manner in which its business is currently being
conducted; (ii) own and use its assets in the manner in which its assets are
currently owned and used; and (iii) perform its obligations under all Contracts
by which it is
<PAGE> 8
bound. There are no Company Subsidiaries other than RiboGene AG. The Company
does not own or hold directly or indirectly, any debt or equity securities of,
or have any other interest in any Entity other than RiboGene AG and the Company
has not entered into any contract or otherwise become obligated to acquire any
such interest.
(b) The Company does not own directly or indirectly,
through any Company Subsidiary or otherwise, any Parent Stock.
(c) The Company and each Company Subsidiary is qualified
to do business as a foreign corporation, and is in good standing, under the laws
of all jurisdictions where the nature of its business requires such
qualification and where the failure to be so qualified would reasonably be
expected to have a Material Adverse Effect on the Company.
(d) The Company owns all of the outstanding equity
interests in RiboGene AG, a German company, which has been funded by the Company
as set forth on Schedule 2.1(d). RiboGene AG has not begun any business
operations.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS. Complete and
accurate copies of the Company's Certificate of Incorporation, including any
Certificate of Designation, and Bylaws (or comparable charter documents), each
as amended to date, of the Company are filed as exhibits to the Company SEC
Documents. The Company has delivered to Parent accurate and complete copies of
the certificate of incorporation, bylaws and other charter and organizational
documents of the Company and each Company Subsidiary, including all amendments
thereto.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists
of: (i) 30,000,000 shares of Company Common Stock, $.001 par value per share, of
which 5,788,642 shares have been issued and are outstanding as of the date of
this Agreement; and (ii) 5,000,000 shares of Preferred Stock, $.001 par value
per share, of which 1,428,572 shares have been issued and are outstanding. All
of the outstanding shares of Company Common Stock and Company Preferred Stock
have been duly authorized and validly issued, and are fully paid and
nonassessable. Except as set forth in Schedule 2.3(a) of the Company Disclosure
Schedule: (i) none of the outstanding shares of Company Common Stock or Company
Preferred Stock is entitled or subject to any preemptive right, right of
participation, right of maintenance or any similar right; (ii) none of the
outstanding shares of Company Common Stock or Company Preferred Stock is subject
to any right of first refusal in favor of the Company; and (iii) there is no
Contract relating to the voting or registration of, or restricting any Person
from purchasing, selling, pledging or otherwise disposing of (or granting any
option or similar right with respect to), any shares of Company Common Stock or
Company Preferred Stock. The Company is not under any obligation or bound by any
Contract pursuant to which it may become obligated to repurchase, redeem or
otherwise acquire any outstanding shares of Company Common Stock or Company
Preferred Stock. The Company is the sole owner of each outstanding share of
capital stock and/or other equity interests in each Company Subsidiary. The
exercise prices of all of the Company Warrants exceed the Signing Date Closing
Price.
<PAGE> 9
(b) As of the date of this Agreement: 1,191,489 shares of
Company Common Stock are subject to issuance pursuant to outstanding options to
purchase shares of Company Common Stock. (Stock options granted by the Company
pursuant to the Company's stock option plans and otherwise are referred to in
this Agreement as "Company Options."). The Company has made available to Parent
(a) accurate and complete copies of all stock option plans pursuant to which the
Company has ever granted stock options, and the forms of all stock option
agreements evidencing such options and (b) a list detailing (i) each Company
Option outstanding as of the date of this Agreement; (ii) the particular plan
(if any) pursuant to which such Company Option was granted; (iii) the name of
the optionee; (iv) the number of shares of Company Common Stock subject to such
Company Option; (v) the exercise price of such Company Option; (vi) the date on
which such Company Option was granted; (vii) the applicable vesting schedules,
and the extent to which such Company Option is vested and exercisable as of the
date of this Agreement; and (vii) the date on which such Company Option expires.
As of the date of this Agreement, 585,818 shares of Company Common Stock are
reserved for future issuance pursuant to the Company's 1997 Employee Stock
Purchase Plan (the "ESPP").
(c) Except as set forth in Schedule 2.3(c) of the Company
Disclosure Schedule, there is no: (i) outstanding subscription, option (other
than Company Options described under Section 2.3(b)), call, warrant or right
(whether or not currently exercisable) to acquire any shares of the capital
stock or other securities of the Company or any Company Subsidiary; (ii)
outstanding security, instrument or obligation that is or may become convertible
into or exchangeable for any shares of the capital stock or other securities of
the Company or any Company Subsidiary; (iii) stockholder rights plan (or similar
plan commonly referred to as a "poison pill") or Contract under which the
Company or any Company Subsidiary is or may become obligated to sell or
otherwise issue any shares of its capital stock or any other securities; or (iv)
to the best of the knowledge of the Company, condition or circumstance that may
give rise to or provide a basis for the assertion of a claim by any Person to
the effect that such Person is entitled to acquire or receive any shares of
capital stock or other securities of the Company or any Company Subsidiary.
(d) All outstanding shares of Company Common Stock and all
outstanding shares of Company Preferred Stock have been issued and granted in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements, and (ii) all requirements set forth in applicable Contracts.
2.4 SEC FILINGS; FINANCIAL STATEMENTS; ACCOUNTING CONTROLS.
(a) The Company has delivered or made available (including
through the SEC EDGAR system) to Parent accurate and complete copies of all
registration statements, proxy statements and other statements, reports,
schedules, forms and other documents filed by the Company with the SEC or AMEX
since December 31, 1996, and all amendments thereto (the "Company SEC
Documents"). All statements, reports, schedules, forms and other documents
required to have been filed by the Company with the SEC or AMEX have been so
filed and were prepared and timely filed and complied in all material respects
with the applicable requirements of the Securities Act, the Exchange Act and all
other applicable laws and regulations. As of the time it was filed with the SEC
(or, if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing): (i) each of the Company SEC Documents complied
<PAGE> 10
in all material respects with the applicable requirements of the Securities Act
or the Exchange Act (as the case may be); and (ii) none of the Company SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The financial statements (including any related notes)
contained in the Company SEC Documents: (i) complied as to form in all material
respects with the published rules and regulations of the SEC applicable thereto;
(ii) were prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered (except as may be
indicated in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC, and except that the unaudited
financial statements may not contain footnotes and are subject to normal and
recurring year-end adjustments which will not, individually or in the aggregate,
be material in amount), and (iii) fairly present the consolidated financial
position of the Company as of the respective dates thereof and the consolidated
results of operations and cash flows of the Company and its subsidiaries for the
periods covered thereby.
(c) The Company has delivered to Parent an unaudited
consolidated balance sheet of the Company and its subsidiaries as of June 30,
1999 (the "Company Unaudited Interim Balance Sheet"), and the related unaudited
consolidated statement of operations, statement of stockholders' equity and
statement of cash flows of the Company and its subsidiaries for the six (6)
months then ended. The financial statements referred to in this Section 2.4(c):
(i) were prepared in accordance with generally accepted accounting principles
applied on a basis consistent with the basis on which the financial statements
referred to in Section 2.4(b) were prepared (except that such financial
statements do not contain footnotes and are subject to normal and recurring
year-end adjustments which will not, individually or in the aggregate, be
material in amount), and (ii) fairly present the consolidated financial position
of the Company and its subsidiaries as of June 30, 1999 and the consolidated
results of operations and cash flows of the Company and its subsidiaries for the
periods covered thereby.
(d) The Company and each Company Subsidiary maintains a
system of accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1999,
there has not been (a) any change, or any development or combination of changes
or developments that has had or would reasonably be expected to have a Material
Adverse Effect on the Company, (b) any damage, destruction or loss of any of the
assets of the Company, whether or not covered by insurance, that has had or
would reasonably be expected to have a Material Adverse Effect on the Company,
or (c) any transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary course
of business) which would
<PAGE> 11
be prohibited by Section 4.2 if it were to occur or be effected between the date
of this Agreement and the Effective Time.
2.6 TITLE TO ASSETS. The Company owns, and has good, valid and
marketable title to, or, in the case of leased assets, valid leasehold interests
in, all assets reflected on the Company Unaudited Interim Balance Sheet. All of
said assets are owned or leased by the Company free and clear of any material
Encumbrances, except for (1) any lien for current taxes not yet due and payable,
(2) minor liens that have arisen in the ordinary course of business and that do
not (in any case or in the aggregate) materially detract from the value of the
assets subject thereto or materially impair the operations of the Company, and
(3) liens described in Schedule 2.6 of the Company Disclosure Schedule.
2.7 PROPRIETARY ASSETS.
(a) The Company owns, licenses or otherwise possess
legally enforceable rights to use and exploit all Proprietary Assets that are
owned by or licensed to the Company or any Company Subsidiary or used in or
necessary for the operation of the Company's or any Company Subsidiary's
respective businesses as currently conducted (the "Company Proprietary Assets"),
except to the extent that the failure to have such rights has not had, and would
not reasonably be expected to have, a Material Adverse Effect on the Company.
(b) The Company has delivered to Parent a list of all
patents and patent applications and all registered and unregistered trademarks,
trade names, service marks and copyrights, and all applications with respect
therefor, included in the Company Proprietary Assets, including the
jurisdictions in which each such Company Proprietary Asset has been issued or
registered or in which any application for such issuance and registration has
been filed, and has made available to Parent all licenses, sublicenses and other
agreements to which the Company is a party and pursuant to which any Person is
authorized to use any Company Proprietary Asset, and all licenses, sublicenses
and other agreements to which the Company is a party and pursuant to which it is
authorized to use any Proprietary Asset held or used by a third party (other
than "shrink wrap" licenses with respect to commercially available software
programs costing less than $10,000) ("Third Party Proprietary Assets").
(c) To the Company's knowledge, there is no unauthorized
use, disclosure, infringement or misappropriation of any Company Proprietary
Asset, or any Third Party Proprietary Asset to the extent licensed by or through
the Company by any third party, including any employee or former employee of the
Company, except such as would not have a Material Adverse Effect on the Company.
Neither the Company nor any Company Subsidiary has entered into any agreement to
indemnify any other Person against any charge of infringement of any Company
Proprietary Asset.
(d) Neither the Company nor any Company Subsidiary is, or
will as a result of the execution and delivery of this Agreement or the
performance of its obligations under this Agreement be, in breach of any
license, sublicense or other agreement relating to any Company Proprietary Asset
or Third Party Proprietary Asset, except for such breaches that would not have a
Material Adverse Effect on the Company.
<PAGE> 12
(e) All patents, registered trademarks, registered service
marks or copyright registrations owned by the Company or any Company Subsidiary
are valid and subsisting. Except for actions which would not reasonably be
expected to have a Material Adverse Effect on the Company, neither the Company
nor any Company Subsidiary (i) is a party to any Legal Proceeding which involves
a claim of infringement of any Third Party Proprietary Asset or (ii) has brought
any Legal Proceeding for infringement of any Company Proprietary Asset or breach
of any license or agreement involving a Company Proprietary Asset against any
third party, which action is continuing. To the Company's knowledge, the
manufacture, marketing, licensing or sale of any Company Proprietary Asset or
products does not infringe any Third Party Proprietary Asset.
(f) The Company has secured agreements with all
consultants and employees who prior to the date of this Agreement contributed to
the creation or development of any Company Proprietary Asset regarding the
rights to such contributions that the Company does not already own by operation
of law in the form substantially identical to the form of Proprietary
Information and Inventions Agreement previously made available to Parent.
(g) The Company has taken all reasonable and appropriate
steps to protect and preserve the confidentiality of all Company Proprietary
Assets not otherwise protected by patents, patent applications or copyrights
("Confidential Information"). All use, disclosure or appropriation of
Confidential Information owned by the Company by or to any third party has been
pursuant to the terms of a written agreement between the Company and such third
party, and all use, disclosure or appropriation of Confidential Information not
owned by the Company has been pursuant to the terms of a written agreement
between the Company and the owner of such Confidential Information, or is
otherwise lawful.
2.8 CONTRACTS.
(a) Except as identified as an exhibit to a Company SEC
Document, neither the Company nor any Company Subsidiary is a party to, or bound
by, any Material Company Contract. For purposes of this Agreement, a "Material
Company Contract" shall be deemed to be any Contract filed or required to be
filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 or as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999, and any Contract:
(i) relating to the employment or engagement of, or
the performance of services by, any employee, consultant or independent
contractor in excess of $100,000 per year;
(ii) restricting in any manner the Company's or any
Company Subsidiary's right or ability to (a) compete with any other Person, (b)
acquire or transfer any product, technology or other asset from or to any other
Person, or (c) develop or distribute any Company Proprietary Asset;
(iii) that (a) provides for the receipt or
expenditure by the Company or any Company Subsidiary of cash or other
consideration in excess of $100,000; (b) relates to the performance of services
by or on behalf of the Company or any Company
<PAGE> 13
Subsidiary having a value in excess of $100,000; (c) was entered into outside
the ordinary course of business; or (d) is material and cannot be terminated by
the Company without penalty with 30 days notice or less;
(iv) relating to the acquisition, issuance or
transfer of any securities;
(v) creating or relating to the creation of any
Encumbrance with respect to any of the Company Proprietary Assets or other
assets having a value in excess of $100,000;
(vi) involving or incorporating any guaranty, pledge,
performance, completion bond, indemnity or contribution or surety arrangement;
or
(vii) creating or relating to any partnership, joint
venture, research or development collaboration, license agreement, or any other
Contract by which the Company or any Company Subsidiary is obligated or has the
right to share any revenues, profits, losses, costs or Liabilities.
(b) Except as would not, individually or in the aggregate,
have a Material Adverse Effect on the Company, all Material Company Contracts
are in full force and effect and are enforceable against the Company and, to the
Company's knowledge, are enforceable against the other parties thereto, except
as enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, as limited by laws relating to the availability of
specific performance, injunctive relief, or by general equitable principles, and
to the extent any indemnification or contribution provisions thereof may be
limited by applicable federal or state securities laws. Neither the Company nor
any Company Subsidiary has breached, or received in writing any claim or threat
that it has breached, in any material respect, and no default has occurred
under, any of the Material Company Contracts and, to the Company's knowledge,
(i) none of the other contracting parties has violated or breached, and no
default has occurred under any of the Material Company Contracts, and (ii) other
than the transactions contemplated hereby, no event has occurred, and no
circumstance or condition exists which with the giving of notice or the lapse of
time, or both, will, or could reasonably be expected to, result in a violation,
breach or default under any Material Company Contract or give any Person the
right to cancel, terminate or modify any Material Company Contract. To the
Company's knowledge, no party to a Material Company Contract currently in effect
has given notice to the Company or any Company Subsidiary of intent to terminate
such Material Company Contract in a way that would have a Material Adverse
Effect on the Company. The Company has provided Parent or Parent's counsel with
access to true and complete copies of each of the Material Company Contracts.
Consummation of the transactions contemplated by this Agreement and each other
agreement to be entered into by the Company in connection herewith will not (and
will not give any Person a right to) cancel, terminate or modify any material
rights of, or accelerate or increase any material obligation of, the Company
under any Material Company Contract.
<PAGE> 14
(c) The Company and each Company Subsidiary possess all
material Governmental Authorizations which are required in order to operate
their respective businesses as presently conducted, and the Company and each
Company Subsidiary is in compliance in all material respects with all such
Governmental Authorizations. Each such Governmental Authorization is identified
in Schedule 2.8(c) of the Company Disclosure Schedule. Each such Governmental
Authorization is valid and in full force and effect and will remain so until
consummation of the transactions contemplated by this Agreement, except where
the failure to comply would not have a Material Adverse Effect on the Company.
(d) Except as set forth in Schedule 2.8(d) of the Company
Disclosure Schedule, there are no claims made or, to the Company's knowledge,
threatened against the Company or any Company Subsidiary under each Material
Company Contract presently or heretofore in effect to the extent such claims,
individually or in the aggregate, have had or would reasonably be expected to
have a Material Adverse Effect on the Company.
2.9 PERMITS; COMPLIANCE WITH LEGAL REQUIREMENTS. The Company and
each Company Subsidiary holds all permits, licenses, vacancies, order and
appeals which are material to the operation of the Company and the Company
Subsidiaries. The Company and each Company Subsidiary is, and has at all times
since January 1, 1997 been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and would not reasonably be expected to have a Material Adverse
Effect on the Company. Since January 1, 1997, neither the Company nor any
Company Subsidiary has received any notice or other communication from any
Governmental Body or other Person regarding any actual or possible violation of,
or failure to comply with, any Legal Requirement.
2.10 CERTAIN BUSINESS PRACTICES. Neither the Company nor any
Company Subsidiary nor (to the best of the knowledge of the Company) any
director, officer, agent or employee of the Company or any Company Subsidiary
has (i) used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (iii) made any other unlawful
payment.
2.11 TAX MATTERS.
(a) Each Tax Return required to be filed by or on behalf
of the Company and each Company Subsidiary with any Governmental Body with
respect to any taxable period ending on or before the Closing Date (the "Company
Returns") (i) has been or will be filed on or before the applicable due date,
and (ii) has been, or will be when filed, prepared in all material respects in
compliance with all applicable Legal Requirements. All amounts shown on the
Company Returns to be due on or before the Closing Date have been or will be
paid on or before the Closing Date.
(b) The Company Unaudited Interim Balance Sheet fully
accrues all actual and contingent liabilities for Taxes with respect to all
periods through December 31, 1998 in accordance with generally accepted
accounting principles. The Company will establish, in the
<PAGE> 15
ordinary course of business and consistent with its past practices, reserves
adequate for the payment of all Taxes for the period from December 31, 1998
through the Closing Date, and will disclose the amount of such reserves to
Parent no later than 10 business days prior to the Closing Date. Since December
31, 1998, the Company has not incurred any Liability for any Tax other than in
the ordinary course of its business.
(c) No Company Return has ever been examined or audited by
any Governmental Body. No extension or waiver of the limitation period
applicable to any of the Company Returns has been granted (by the Company or any
other Person), and no such extension or waiver has been requested from the
Company.
(d) No claim or Legal Proceeding is pending or, to the
best of the knowledge of the Company, has been threatened against or with
respect to the Company in respect of any material Tax. There are no unsatisfied
liabilities for material Taxes (including liabilities for interest, additions to
tax and penalties thereon and related expenses) with respect to any notice of
deficiency or similar document received by the Company with respect to any
material Tax (other than liabilities for Taxes asserted under any such notice of
deficiency or similar document which are being contested in good faith by the
Company and with respect to which adequate reserves for payment have been
established on the Company Unaudited Interim Balance Sheet). There are no liens
for material Taxes upon any of the assets of the Company except liens for
current Taxes not yet due and payable. The Company has not entered into or
become bound by any agreement or consent pursuant to Section 341(f) of the Code
(or any comparable provision of state or foreign Tax laws). The Company has not
been and it will not be required to include any adjustment in taxable income for
any tax period (or portion thereof) pursuant to Section 481 or 263A of the Code
(or any comparable provision under state or foreign Tax laws) as a result of
transactions or events occurring, or accounting methods employed, prior to the
Closing.
(e) There is no agreement, plan, arrangement or other
Contract covering any employee or independent contractor or former employee or
independent contractor of the Company that, considered individually or
considered collectively with any other such Contracts, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the Code
(or any comparable provision under state or foreign Tax laws). The Company is
not, nor has it ever been, a party to or bound by any tax indemnity agreement,
tax sharing agreement, tax allocation agreement or similar Contract.
2.12 EMPLOYEE BENEFIT PLANS.
(a) Schedule 2.12(a) of the Company Disclosure Schedule
identifies each bonus, deferred compensation, incentive compensation, stock
purchase, stock option, severance or termination pay, medical, life, disability
or other insurance, supplemental unemployment benefits, profit-sharing, pension
or retirement plan, program or agreement sponsored, maintained, contributed to
or required to be contributed to by the Company and/or each Company Subsidiary
for the benefit of any current or former employee, consultant, officer or
director of the Company or any Company Subsidiary (other than those plans,
programs and agreements disclosed in the Company SEC Documents).
<PAGE> 16
(b) Except as set forth in Schedule 2.12(b) of the Company
Disclosure Schedule, neither the Company nor any Company Subsidiary maintains,
sponsors or contributes to, nor has at any time in the past maintained,
sponsored or contributed to, any employee pension benefit plan (as defined in
Section 3(2) of ERISA, whether or not excluded from coverage under specific
Titles or Subtitles of ERISA) for the benefit of employees or former employees
of the Company or any Company Subsidiary. Except as set forth in Schedule
2.12(b) of the Company Disclosure Schedule, neither the Company nor any Company
Subsidiary maintains, sponsors or contributes to, nor has at any time in the
past maintained, sponsored or contributed to, nor has any obligation or
liability (whether accrued, contingent or otherwise) with respect to, any
employee benefit plan (as defined in Section 3(3) of ERISA) or any other plan,
policy, program, arrangement or agreement that is: (i) subject to Section 302 or
Title IV of ERISA or Section 412 of the Code, (ii) a multi employer plan (as
defined in Section 3(37) or 4001(a)(3) of ERISA), or (iii) provides welfare
benefits to employees or former employees (or their dependents) of the Company
or any Company Subsidiary following retirement or other termination of
employment (except as required by Section 4980B of the Code or Title I, Subtitle
B, Part 6 of ERISA).
(c) Each of the plans identified in Schedule 2.12(a) of
the Company Disclosure Schedule intended to be qualified under Section 401(a) of
the Code has received a favorable determination from the Internal Revenue
Service, and the Company is not aware of any reason why any such determination
letter should be revoked. Each of the plans, programs and agreements identified
in Schedule 2.12(a) of the Company Disclosure Schedule has been maintained in
compliance in all material respects with its terms and, both as to form and in
operation, with the requirements prescribed by any and all applicable statutes,
orders, rules and regulations, including without limitation, ERISA and the Code.
The Company has delivered to Parent, with respect to each plan, program or
agreement identified in Schedule 2.12(a) of the Company Disclosure Schedule, a
copy of: (i) the document under which such plan, program or agreement is
maintained and all amendments thereto (and all related funding instruments),
(ii) the most recent determination letter issued by the Internal Revenue Service
(if applicable) and (iii) the most recent Form 5500 filed with the Internal
Revenue Service with respect to such plan, program or agreement (if applicable).
(d) Except as disclosed in Schedule 2.12(d) of the Company
Disclosure Schedule or in the Company SEC Documents, neither the execution,
delivery or performance of this Agreement, nor the consummation of the Merger or
any of the other transactions contemplated by this Agreement, will result in any
payment (including any bonus, golden parachute or severance payment) to any
current or former employee or director of the Company (whether or not under any
plan), or materially increase the benefits payable under any plan, or result in
any acceleration of the time of payment or vesting of any such benefits.
(e) The Company and each Company Subsidiary is in
compliance with all applicable Legal Requirements and Contracts relating to
employment, employment practices, wages, bonuses and terms and conditions of
employment, including employee compensation matters, except where the failure to
be in compliance would not have a Material Adverse Effect on the Company.
2.13 INSURANCE. The Company has made available to Parent a copy
of all material insurance policies and all material self insurance programs and
arrangements relating to
<PAGE> 17
the business, assets and operations of the Company and each Company Subsidiary.
Each of such insurance policies is in full force and effect. Since January 1,
1997, the Company has not received any notice or other communication regarding
any actual or possible (a) cancellation or invalidation of any insurance policy,
(b) refusal of any coverage or rejection of any material claim under any
insurance policy, or (c) material adjustment in the amount of the premiums
payable with respect to any insurance policy. Except as set forth in Schedule
2.13 of the Company Disclosure Schedule, there is no pending workers'
compensation or other claim under or based upon any insurance policy of the
Company or any Company Subsidiary.
2.14 TRANSACTIONS WITH AFFILIATES. Except as set forth in the
Company SEC Documents or as contemplated by this Agreement, since the date of
the Company's last proxy statement filed with the SEC, no event has occurred
that would be required to be reported by the Company pursuant to Item 404 of
Regulation S-K promulgated by the SEC. Schedule 2.14 of the Company Disclosure
Schedule identifies each person who is (or who may be deemed to be) an
"affiliate" (as that term is used in Rule 145 under the Securities Act) of the
Company as of the date of this Agreement.
2.15 LITIGATION. There is no Legal Proceeding pending or, to the
Company's knowledge, threatened by or before any court or Governmental Authority
that involves the Company or any Company Subsidiary or any of the assets owned
or used by the Company or any Company Subsidiary. Neither the Company nor any
Company Subsidiary is a party to any decree, order, writ, injunction, judgment
or arbitration award (or agreement entered into in any Legal Proceeding) with
respect to its properties, assets, personnel or business activities.
2.16 PROPERTIES. Schedule 2.16 of the Company Disclosure Schedule
sets forth each lease of real and personal property to which the Company and
each Company Subsidiary is a party (the "Company Leases"). The Company has
previously made available to Parent complete and accurate copies of all the
Company Leases. Each of the Company Leases is valid, binding and enforceable in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, as limited by
laws relating to the availability of specific performance, injunctive relief, or
by general equitable principles, and to the extent any indemnification or
contribution provisions thereof may be limited by applicable federal or state
securities laws. Neither the Company nor any Company Subsidiary has breached,
nor received in writing any claim or threat that it has breached, in any
material respect, and no default has occurred under any of the Company Leases
and, to the Company's knowledge, (i) none of the other contracting parties has
violated or breached, and no default has occurred under any of the Company
Leases, and (ii) other than the transactions contemplated hereby, no event has
occurred, and no circumstance or condition exists which with the giving of
notice or the lapse of time, or both, will, or could reasonably be expected to,
result in a violation, breach or default under any of the Company Leases or give
any Person the right to cancel, terminate or modify any of the Company Leases.
Neither the Company nor any Company Subsidiary owns any real property.
2.17 ENVIRONMENTAL MATTERS. To the knowledge of the Company, no
current owner of any property leased or controlled by the Company or any Company
Subsidiary has received any notice (in writing or otherwise), whether from a
Governmental Body, citizens
<PAGE> 18
group, employee or otherwise, that alleges that such current or prior owner or
the Company or any Company Subsidiary is not in compliance with any
Environmental Law. The Company has not received any notice or information that
any property that is leased to, controlled by or used by the Company or any
Company Subsidiary, or any surface water, groundwater and soil associated with
or adjacent to such property, is not in clean and healthful condition or that it
is not free of any material environmental contamination. For purposes of this
Section 2.17: (i) "Environmental Law" means any federal, state, local or foreign
Legal Requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern; and (ii) "Materials of Environmental Concern" include
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products and any other substance that is now or hereafter regulated by
any Environmental Law or that is otherwise a danger to health, reproduction or
the environment.
2.18 COMPANY ACTION. The board of directors of the Company (at a
meeting duly called and held) has (a) unanimously determined that the Merger is
in the best interests of the Company and its stockholders, (b) unanimously
approved this Agreement and the Merger in accordance with the provisions of
Section 251 of the DGCL, (c) unanimously recommended the adoption and approval
of this Agreement and the Merger by the stockholders of the Company and directed
that the Merger be submitted for consideration by the Company's stockholders at
the Company Stockholders' Meeting, (d) taken all necessary steps to render
Section 203 of the DGCL inapplicable to the Merger and the other transactions
contemplated by this Agreement and (e) adopted a resolution having the effect of
causing the Company not to be subject, to the extent permitted by applicable
law, to any state takeover law that may purport to be applicable to the Merger
and the other transactions contemplated by this Agreement.
2.19 ENFORCEABILITY. The Company has all requisite corporate
power and authority to execute, deliver and, subject to obtaining requisite
stockholder approval, to perform its obligations under this Agreement and all
other agreements, documents and instruments contemplated hereby to which it is
or will become a party. The execution and delivery of this Agreement and the
other agreements, documents and instruments contemplated hereby have been duly
and validly authorized by the board of directors of the Company, and no other
corporate proceedings on the part of the Company are necessary for the Company
to authorize any of such agreements, documents or instruments and no such
corporate proceedings (other than the approval of the Company Stockholders) are
necessary to enable the Company to consummate the Merger or any of the other
transactions contemplated by this Agreement. All agreements, documents and
instruments to be executed in connection with the Merger (a) have been (or will
be) duly executed and delivered by duly authorized officers of the Company and
(b) constitute (or, when executed by the Company, will constitute) legal, valid
and binding obligations of the Company enforceable against it in accordance with
their terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, as limited by laws relating to the
availability of specific performance, injunctive relief, or by general equitable
principles, and to the extent any indemnification or contribution provisions
thereof may be limited by applicable federal or state securities laws.
<PAGE> 19
2.20 GOVERNMENTAL CONSENTS; NO CONFLICTS. Except as may be
required by the Exchange Act, the Securities Act, state securities or blue sky
laws, the DGCL, the NASD bylaws and the rules and regulations of AMEX (as they
relate to the S-4 Registration Statement and the Prospectus/Joint Proxy
Statement) (collectively, the "Applicable Regulatory Requirements"), there is no
requirement applicable to the Company or any Company Subsidiary to make any
filing with, or to obtain any permit, authorization, or Consent of, any
Governmental Authority as a condition to the consummation of the Merger or any
of the other transactions contemplated by this Agreement. Neither the execution
and delivery of this Agreement and the other agreements, documents and
instruments contemplated hereby by the Company nor the consummation by the
Company of the Merger or any of the other transactions contemplated by this
Agreement will (a) violate the Certificate of Incorporation or Bylaws of the
Company, (b) result in a default (or with notice or lapse of time or both would
result in a default) under, or materially impair the rights of the Company or
any Company Subsidiary or materially alter the rights or obligations of any
third party under, or require the Company or any Company Subsidiary to make any
material payment or become subject to any material liability to any third party
under, or give rise to any right of termination, amendment, cancellation,
acceleration, repurchase, put or call under, any of the terms, conditions or
provisions of any Material Company Contract, (c) result in the creation of any
material (individually or in the aggregate) Encumbrance on any of the assets of
the Company or any Company Subsidiary or (d) conflict with or violate any law,
statute, rule, regulation, judgment, order, writ, injunction, decree or
arbitration award applicable to the Company or any Company Subsidiary or any of
their assets, which conflict or violation has had or would reasonably be
expected to have a Material Adverse Effect on the Company.
2.21 YEAR 2000 PREPAREDNESS. There are no issues related to the
Company's or any Company Subsidiary's preparedness for the Year 2000 (including,
without limitation, any issues relating to the Company's or Company Subsidiary's
internal computer systems and each Constituent Component of those systems and
all computer related products and each Constituent Component of such products)
that are of a character required to be described or referred to in the Company
SEC Documents by the Securities Act or by the Exchange Act which have not been
accurately described in the Company SEC Documents. "Constituent Component" means
all software (including operating systems, programs, packages and utilities),
firmware, hardware, networking components, and peripherals provided as part of
the configuration. Except as otherwise disclosed in the Company SEC Documents,
the Company has inquired of material vendors as to their preparedness for the
Year 2000 and has disclosed in the Company Disclosure Schedule or Company SEC
Documents any issues that might reasonably be expected to result in any Material
Adverse Effect on the Company.
2.22 REGULATORY MATTERS.
(a) Except as disclosed on Schedule 2.22(a) of the Company
Disclosure Schedule, the Company has obtained and is in compliance in all
material respects with all certifications, approvals and clearances from the
United States Food and Drug Administration (the "FDA") and all state, local and
foreign equivalents (collectively, the "FDA, etc.") necessary in order to carry
out its business and the businesses of each Company Subsidiary as currently
conducted, including without limitation to develop pharmaceutical products in
any
<PAGE> 20
and all geographic areas in which the Company or any Company Subsidiary is
currently, or has previously, developed pharmaceutical products.
(b) All nonclinical laboratory studies of pharmaceutical
products have been and are being conducted in all material respects in
compliance with all applicable federal, state, local and foreign laws, rules and
regulations (including, without limitation, any reporting requirements thereof)
and with accepted standards of good laboratory practice. All clinical trials of
pharmaceutical products have been and are being conducted in all material
respects in compliance with all applicable federal, state, local and foreign
laws, rules and regulations (including, without limitation, any reporting
requirements thereof) and with accepted standards of good clinical practice.
(c) Neither the Company nor any Company Subsidiary, nor
any officer, employee or agent of the Company or any Company Subsidiary has made
any untrue statement of a material fact or fraudulent statement to the FDA, etc.
or failed to disclose a material fact required to be disclosed to the FDA, etc.
The Company has provided Parent with copies of any and all notice of
inspectional observations, establishment inspection reports and any other
documents received from the FDA, etc. that indicate or suggest material lack of
compliance with the regulatory requirements of the FDA, etc. The Company has
made available to Parent for review all correspondence to or from the FDA, etc.,
minutes of meetings with the FDA, etc., written reports of phone conversations,
visits or other contact with the FDA, etc., notices of inspectional
observations, establishment inspection reports, and all other documents in its
possession concerning communications to or from the FDA, etc., or prepared by
the FDA, etc., which bear in any way on the Company's or its Subsidiaries'
compliance with regulatory requirements of the FDA, etc. or on the likelihood of
timing of approval of any pharmaceutical products.
2.23 CERTAIN COLLABORATION AGREEMENTS. The Company has not
received any notice of nor is the Company aware that, since December 31, 1998,
there has been any material adverse change or event with respect to any of the
Company's or any Company Subsidiary's research programs, including with respect
to either of the Company's collaboration arrangements with Dainippon
Pharmaceutical Co., Ltd. ("Dainippon") and/or Roberts Pharmaceutical Co.
("Roberts") (together, the "Collaboration Agreements"). Each of the
Collaboration Agreements is in full force and effect and the Company is not
aware that either Dainippon or Roberts (or Shire Pharmaceuticals Group Plc as
the prospective successor in interest to Roberts) intends to terminate its
Collaboration Agreement with the Company within 12 months of the date of this
Agreement and relations between the Company and such parties are good.
2.24 VOTE REQUIRED. The affirmative vote of the holders of a
majority of the shares of Company Common Stock outstanding on the record date
for the Company Stockholders' Meeting (the "Required Company Stockholder Vote")
is the only vote of the holders of any class or series of the Company's capital
stock necessary to approve and consummate this Agreement, the Merger and the
other transactions contemplated by this Agreement.
2.25 FAIRNESS OPINION. The Company's board of directors has
received the written opinion of Rabobank International, financial advisor to the
Company, dated the date of
<PAGE> 21
this Agreement, to the effect that the Exchange Ratio is fair to the
stockholders of the Company from a financial point of view. The Company has
furnished an accurate and complete copy of said written opinion to Parent.
2.26 FINANCIAL ADVISOR. Except for Rabobank International, no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or any of the other
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. The Company has furnished to Parent accurate and
complete copies of all agreements under which any such fees, commissions or
other amounts have been paid or may become payable and all indemnification and
other agreements related to the engagement of Rabobank International.
2.27 VOTING AGREEMENTS; PREFERRED STOCK WAIVER. Each member of
the board of directors and each executive officer of the Company has agreed on
behalf of himself and his affiliates to vote in favor of the Merger at the
Company Stockholders' Meeting and has executed and delivered to Parent a Voting
Agreement substantially in the form attached hereto as Exhibit E-1. The holder
of the Company Preferred Stock has, on behalf of itself and its affiliates,
waived its right to receive a distribution pursuant to its liquidation
preference in connection with the transactions contemplated under this Agreement
and has executed and delivered to Parent a Waiver and Voting Agreement in
substantially the form attached hereto as Exhibit E-2.
2.28 DISCLOSURE.
(a) The copies of all documents furnished by the Company
pursuant to the terms of this Agreement are complete and accurate copies of the
original, as such documents may have been amended to date.
(b) None of the representations and warranties of the
Company contained in Section 2 of this Agreement or in any other Section of this
Agreement or the information disclosed in the Company Disclosure Schedule
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(c) None of the information supplied or to be supplied by
the Company for inclusion or incorporation by reference in the Form S-4
registration statement to be filed with the SEC by Parent in connection with the
issuance of the Merger Shares (the "S-4 Registration Statement") will, at the
time the S-4 Registration Statement is filed with the SEC or at the time the S-4
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. None of
the information supplied or to be supplied by the Company for inclusion or
incorporation by reference in the Prospectus/Joint Proxy Statement, will, at the
time the Prospectus/Joint Proxy Statement is mailed to the stockholders of the
Company or the shareholders of Parent, at the time of the Company Stockholders'
Meeting or the Parent Shareholders' Meeting and as of the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order
<PAGE> 22
to make the statements therein, in light of the circumstances under which they
are made, not misleading. Notwithstanding the foregoing, no representation or
warranty is made by the Company with respect to statements made about the Parent
or Merger Sub or based on information supplied by Parent or Merger Sub or any of
their representatives which is contained in the S-4 Registration Statement or
the Prospectus/Joint Proxy Statement. The Prospectus/Joint Proxy Statement will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations promulgated by the SEC thereunder.
2.29 COMPANY RIGHTS PLAN. The execution, delivery and performance
of this Agreement and the consummation of the Merger will not cause any change,
effect or result under the Company Rights Plan which is adverse to the interests
of Parent. Without limiting the generality of the foregoing, the Company has
taken all necessary actions to (i) render the Company Rights Plan inapplicable
to the Merger and the other transactions contemplated by this Agreement,
including the Company Affiliate Agreements and/or the Voting Agreements, (ii)
ensure that (y) neither Parent nor Merger Sub, nor any of their affiliates shall
be deemed to have become an Acquiring Person or a Transaction Person (as such
terms are defined in the Company Rights Plan) pursuant to the Company Rights
Plan by virtue of the execution of this Agreement, the Company Affiliate
Agreements and/or the Voting Agreements, the consummation of the Merger or the
consummation of the other transactions contemplated hereby and (z) a
Distribution Date, or a Transaction (as such terms are defined in the Company
Rights Plan) or similar event does not occur by reason of the execution of this
Agreement, the Company Affiliate Agreements and the Voting Agreements, the
consummation of the Merger, or the consummation of the other transactions
contemplated hereby and (iii) provide that the Final Expiration Date (as defined
in the Company Rights Plan) shall be immediately prior to the Effective Time.
The Company hereby covenants and agrees that it will take all necessary action
to cause this representation to remain true.
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company, except as
set forth in the Parent Disclosure Schedule, as follows:
3.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(a) Parent and each of its Subsidiaries ("Parent
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Parent and
each Parent Subsidiary has all necessary power and authority to: (i) conduct its
business in the manner in which its business is currently being conducted; (ii)
own and use its assets in the manner in which its assets are currently owned and
used; and (iii) perform its obligations under all Contracts by which it is
bound. There are no Parent Subsidiaries other than Merger Sub. Parent does not
own or hold directly or indirectly, any debt or equity securities of, or have
any other interest in any Entity other than Merger Sub and Parent has not
entered into any contract or otherwise become obligated to acquire any such
interest.
(b) Parent does not own directly or indirectly, through
any Parent Subsidiary or otherwise, any Company Stock.
<PAGE> 23
(c) Parent and each Parent Subsidiary is qualified to do
business as a foreign corporation, and is in good standing, under the laws of
all jurisdictions where the nature of its business requires such qualification
and where the failure to be so qualified would reasonably be expected to have a
Material Adverse Effect on Parent.
3.2 ARTICLES OF INCORPORATION AND BYLAWS. Complete and accurate
copies of the Parent's Restated Articles of Incorporation, including any
Certificate of Designation, and Bylaws (or comparable charter documents), each
as amended to date, of the Parent are filed as exhibits to the Parent SEC
Documents. Parent has made available to the Company accurate and complete copies
of the certificate of incorporation, bylaws and other charter and organizational
documents of the Parent and each Parent Subsidiary, including all amendments
thereto.
3.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Parent consists
of: (i) 30,000,000 shares of Parent Common Stock of no par value per share, of
which 15,711,877 shares have been issued and are outstanding as of the date of
this Agreement; and (ii) 1,000,000 shares of Preferred Stock, no par value per
share, of which no shares are issued and outstanding. All of the outstanding
shares of Parent Common Stock have been duly authorized and validly issued, and
are fully paid and nonassessable. Except as set forth in Schedule 3.3(a) of the
Parent Disclosure Schedule: (i) none of the outstanding shares of Parent Common
Stock is entitled or subject to any preemptive right, right of participation,
right of maintenance or any similar right; (ii) none of the outstanding shares
of Parent Common Stock is subject to any right of first refusal in favor of the
Parent; and (iii) there is no Contract relating to the voting or registration
of, or restricting any Person from purchasing, selling, pledging or otherwise
disposing of (or granting any option or similar right with respect to), any
shares of Parent Common Stock or Parent Preferred Stock. Parent is not under any
obligation or bound by any Contract pursuant to which it may become obligated,
to repurchase, redeem or otherwise acquire any outstanding shares of Parent
Common Stock. Parent is the sole owner of each outstanding share of capital
stock and/or other equity interests in each Parent Subsidiary.
(b) As of the date of this Agreement, 2,268,686 shares of
Parent Common Stock are subject to issuance pursuant to outstanding options to
purchase shares of Parent Common Stock. (Stock options granted by Parent
pursuant to Parent's stock option plans and otherwise are referred to in this
Agreement as "Parent Options."). Parent has made available to the Company (a)
accurate and complete copies of all stock option plans pursuant to which Parent
has ever granted stock options, and the forms of all stock option agreements
evidencing such options and (b) a list detailing (i) each Parent Option
outstanding as of the date of this Agreement; (ii) the particular plan (if any)
pursuant to which such Parent Option was granted; (iii) the name of the
optionee; (iv) the number of shares of Parent Common Stock subject to such
Parent Option; (v) the exercise price of such Parent Option; (vi) the date on
which such Parent Option was granted; (vii) the applicable vesting schedules,
and the extent to which such Parent Option is vested and exercisable as of the
date of this Agreement; and (viii) the date on which such Parent Option
expires..
(c) Except as set forth in Schedule 3.3(c) of the Parent
Disclosure Schedule, there is no: (i) outstanding subscription, option (other
than Parent Options described
<PAGE> 24
under Section 3.3(b)), call, warrant or right (whether or not currently
exercisable) to acquire any shares of the capital stock or other securities of
Parent; (ii) outstanding security, instrument or obligation that is or may
become convertible into or exchangeable for any shares of the capital stock or
other securities of Parent; (iii) shareholder rights plan (or similar plan
commonly referred to as a "poison pill") or Contract under which Parent is or
may become obligated to sell or otherwise issue any shares of its capital stock
or any other securities; or (iv) to the best of the knowledge of Parent,
condition or circumstance that may give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such Person is entitled to
acquire or receive any shares of capital stock or other securities of Parent or
any Parent Subsidiary.
(d) All outstanding shares of Parent Common Stock have
been issued and granted in compliance with (i) all applicable securities laws
and other applicable Legal Requirements, and (ii) all requirements set forth in
applicable Contracts.
3.4 SEC FILINGS; FINANCIAL STATEMENTS; ACCOUNTING CONTROLS.
(a) Parent has delivered or made available (including
through the SEC EDGAR system) to the Company accurate and complete copies of all
registration statements, proxy statements and other statements, reports,
schedules, forms and other documents filed by Parent with the SEC, Nasdaq or
AMEX since December 31, 1996, and all amendments thereto (the "Parent SEC
Documents"). All statements, reports, schedules, forms and other documents
required to have been filed by Parent with the SEC, Nasdaq or AMEX have been so
filed and were prepared and timely filed and complied in all material respects
with the applicable requirements of the Securities Act, the Exchange Act and all
other applicable laws and regulations. As of the time it was filed with the SEC
(or, if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing): (i) each of the Parent SEC Documents complied
in all material respects with the applicable requirements of the Securities Act
or the Exchange Act (as the case may be); and (ii) none of the Parent SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The financial statements (including any related notes)
contained in the Parent SEC Documents: (i) complied as to form in all material
respects with the published rules and regulations of the SEC applicable thereto;
(ii) were prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered (except as may be
indicated in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC, and except that the unaudited
financial statements may not contain footnotes and are subject to normal and
recurring year-end adjustments which will not, individually or in the aggregate,
be material in amount), and (iii) fairly present the consolidated financial
position of Parent as of the respective dates thereof and the consolidated
results of operations and cash flows of Parent and its subsidiaries for the
periods covered thereby.
(c) Parent has delivered to the Company an unaudited
consolidated balance sheet of Parent and its subsidiaries as of April 30, 1999
(the "Parent Unaudited Interim Balance Sheet"), and the related unaudited
consolidated statement of operations, statement of
<PAGE> 25
shareholders' equity and statement of cash flows of Parent and its subsidiaries
for the nine (9) months then ended. The financial statements referred to in this
Section 3.4(c): (i) were prepared in accordance with generally accepted
accounting principles applied on a basis consistent with the basis on which the
financial statements referred to in Section 3.4(b) were prepared (except that
such financial statements do not contain footnotes and are subject to normal and
recurring year-end adjustments which will not, individually or in the aggregate,
be material in amount), and (ii) fairly present the consolidated financial
position of Parent and its subsidiaries as of April 30, 1999 and the
consolidated results of operations and cash flows of Parent and its subsidiaries
for the periods covered thereby.
(d) Parent and each Parent Subsidiary maintains a system
of accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since April 30, 1999,
there has not been (a) any change, or any development or combination of changes
or developments that has had or would reasonably be expected to have a Material
Adverse Effect on Parent, (b) any damage, destruction or loss of any of the
assets of Parent, whether or not covered by insurance, that has had or would
reasonably be expected to have a Material Adverse Effect on Parent, or (c) any
transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of business)
which would be prohibited by Section 4.5 if it were to occur or be effected
between the date of this Agreement and the Effective Time.
3.6 TITLE TO ASSETS. Parent owns, and has good, valid and
marketable title to, or, in the case of leased assets, valid leasehold interests
in, all assets reflected on the Parent Unaudited Interim Balance Sheet. All of
said assets are owned or leased by Parent free and clear of any material
Encumbrances, except for (1) any lien for current taxes not yet due and payable,
(2) minor liens that have arisen in the ordinary course of business and that do
not (in any case or in the aggregate) materially detract from the value of the
assets subject thereto or materially impair the operations of Parent, and (3)
liens described in Schedule 3.6 of the Parent Disclosure Schedule.
3.7 PROPRIETARY ASSETS.
(a) Parent owns, licenses or otherwise possess legally
enforceable rights to use and exploit all Proprietary Assets that are owned or
licensed to Parent or any Parent Subsidiary or used in or necessary for the
operation of Parent's or any Parent Subsidiary's respective businesses as
currently conducted (the "Parent Proprietary Assets"), except to the extent that
the failure to have such rights has not had, and would not reasonably be
expected to have, a Material Adverse Effect on Parent.
<PAGE> 26
(b) Parent has delivered to the Company a list of all
patents and patent applications and all registered and unregistered trademarks,
trade names, service marks and copyrights, and all applications with respect
therefor, included in the Parent Proprietary Assets, including the jurisdictions
in which each such Parent Proprietary Asset has been issued or registered or in
which any application for such issuance and registration has been filed, and has
made available to the Company all licenses, sublicenses and other agreements to
which Parent is a party and pursuant to which any Person is authorized to use
any Parent Proprietary Asset, and all licenses, sublicenses and other agreements
to which Parent is a party and pursuant to which it is authorized to use any
Third Party Proprietary Assets.
(c) To Parent's knowledge, there is no unauthorized use,
disclosure, infringement or misappropriation of any Parent Proprietary Asset, or
any Third Party Proprietary Asset to the extent licensed by or through Parent by
any third party, including any employee or former employee of Parent, except
such as would not have a Material Adverse Effect on Parent. Neither Parent nor
any Parent Subsidiary has entered into any agreement to indemnify any other
Person against any charge of infringement of any Parent Proprietary Asset.
(d) Neither Parent nor any Parent Subsidiary is, or will
as a result of the execution and delivery of this Agreement or the performance
of its obligations under this Agreement be, in breach of any license, sublicense
or other agreement relating to any Parent Proprietary Asset or Third Party
Proprietary Asset, except for such breaches that would not have a Material
Adverse Effect on Parent.
(e) All patents, registered trademarks, registered service
marks or copyright registrations owned by Parent or any Parent Subsidiary are
valid and subsisting. Except for actions which would not reasonably be expected
to have a Material Adverse Effect on Parent, neither Parent nor any Parent
Subsidiary (i) is a party to any Legal Proceeding which involves a claim of
infringement of any Third Party Proprietary Asset or (ii) has brought any Legal
Proceeding for infringement of any Parent Proprietary Asset or breach of any
license or agreement involving a Parent Proprietary Asset against any third
party, which action is continuing. To Parent's knowledge, the manufacture,
marketing, licensing or sale of any Parent Proprietary Asset or products does
not infringe any Third Party Proprietary Asset.
(f) Parent has secured agreements with all consultants and
employees who prior to the date of this Agreement contributed to the creation or
development of any Parent Proprietary Asset regarding the rights to such
contributions that Parent does not already own by operation of law in the form
substantially identical to the form of Proprietary Information and Inventions
Agreement previously made available to the Company.
(g) Parent has taken all reasonable and appropriate steps
to protect and preserve the confidentiality of all Parent Proprietary Assets not
otherwise protected by patents, patent applications or copyrights ("Confidential
Information"). All use, disclosure or appropriation of Confidential Information
owned by Parent by or to any third party has been pursuant to the terms of a
written agreement between Parent and such third party, and all use, disclosure
or appropriation of Confidential Information not owned by Parent has been
pursuant to the terms of a written agreement between Parent and the owner of
such Confidential Information, or is otherwise lawful.
<PAGE> 27
3.8 CONTRACTS.
(a) Except as identified as an exhibit to a Parent SEC
Document, neither Parent nor any Parent Subsidiary is a party to, or bound by,
any Material Parent Contract. For purposes of this Agreement, a "Material Parent
Contract" shall be deemed to be any Contract filed or required to be filed as an
exhibit to Parent's Annual Report on Form 10-K for the year ended July 31, 1998
or as an exhibit to Parent's Quarterly Reports on Form 10-Q for the quarters
ended October 31, 1998, January 31, 1999 and April 30, 1999, and any Contract:
(i) relating to the employment or engagement of, or
the performance of services by, any employee, consultant or independent
contractor in excess of $100,000 per year;
(ii) restricting in any manner Parent's or any Parent
Subsidiary's right or ability to (a) compete with any other Person, (b) acquire
or transfer any product, technology or other asset from or to any other Person,
or (c) develop or distribute any Parent Proprietary Asset;
(iii) that (a) provides for the receipt or
expenditure by Parent or any Parent Subsidiary of cash or other consideration in
excess of $100,000; (b) relates to the performance of services by or on behalf
of Parent or any Parent Subsidiary having a value in excess of $100,000; (c) was
entered into outside the ordinary course of business; or (d) is material and
cannot be terminated by Parent without penalty with 30 days notice or less;
(iv) relating to the acquisition, issuance or
transfer of any securities;
(v) creating or relating to the creation of any
Encumbrance with respect to any of the Parent Proprietary Assets or other assets
having a value in excess of $100,000;
(vi) involving or incorporating any guaranty, pledge,
performance, completion bond, indemnity or contribution or surety arrangement;
or (VII) creating or relating to any partnership, joint venture, research or
development collaboration, license agreement, or any other Contract by which
Parent or any Parent Subsidiary is obligated or has the right to share any
revenues, profits, losses, costs or Liabilities.
(b) Except as would not, individually or in the aggregate,
have a Material Adverse Effect on Parent, all Material Parent Contracts are in
full force and effect and are enforceable against Parent and, to Parent's
knowledge, are enforceable against the other parties thereto, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, as limited by laws relating to the availability of
specific performance, injunctive relief, or by general equitable principles, and
to the extent any indemnification or contribution provisions thereof may be
limited by applicable federal or state securities laws. Neither Parent nor any
Parent Subsidiary has breached, or received in writing any claim or threat
<PAGE> 28
that it has breached, in any material respect, and no default has occurred
under, any of the Material Parent Contracts and, to Parent's knowledge, (i) none
of the other contracting parties has violated or breached, and no default has
occurred under any of the Material Parent Contracts, and (ii) other than the
transactions contemplated hereby, no event has occurred, and no circumstance or
condition exists which with the giving of notice or the lapse of time, or both,
will, or could reasonably be expected to, result in a violation, breach or
default under any Material Parent Contract or give any Person the right to
cancel, terminate or modify any Material Parent Contract. To Parent's knowledge,
no party to a Material Parent Contract currently in effect has given notice to
Parent or any Parent Subsidiary of intent to terminate such Material Parent
Contract in a way that would have a Material Adverse Effect on Parent. Parent
has provided the Company or the Company's counsel with access to true and
complete copies of each of the Material Parent Contracts. Consummation of the
transactions contemplated by this Agreement and each other agreement to be
entered into by Parent in connection herewith will not (and will not give any
Person a right to) cancel, terminate or modify any material rights of, or
accelerate or increase any material obligation of, Parent under any Material
Parent Contract.
(c) Parent and each Parent Subsidiary possess all material
Governmental Authorizations which are required in order to operate their
respective businesses as presently conducted, and Parent and each Parent
Subsidiary is in compliance in all material respects with all such Governmental
Authorizations. Each such Governmental Authorization is identified in Schedule
3.8(c) of the Parent Disclosure Schedule. Each such Governmental Authorization
is valid and in full force and effect and will remain so until consummation of
the transactions contemplated by this Agreement, except where the failure to
comply would not have a Material Adverse Effect on Parent.
(d) Except as set forth in Schedule 3.8(d) of the Parent
Disclosure Schedule, there are no claims made or, to Parent's knowledge,
threatened against Parent or any Parent Subsidiary under each Material Parent
Contract presently or heretofore in effect to the extent such claims,
individually or in the aggregate, have had or would reasonably be expected to
have a Material Adverse Effect on Parent.
3.9 PERMITS; COMPLIANCE WITH LEGAL REQUIREMENTS. Parent and each
Parent Subsidiary holds all permits, licenses, vacancies, order and appeals
which are material to the operation of Parent and the Parent Subsidiaries.
Parent and each Parent Subsidiary is, and has at all times since January 1, 1997
been, in compliance with all applicable Legal Requirements, except where the
failure to comply with such Legal Requirements has not had and would not
reasonably be expected to have a Material Adverse Effect on Parent. Since
January 1, 1997, neither Parent nor any Parent Subsidiary has received any
notice or other communication from any Governmental Body or other Person
regarding any actual or possible violation of, or failure to comply with, any
Legal Requirement.
3.10 CERTAIN BUSINESS PRACTICES. Neither Parent nor any Parent
Subsidiary nor (to the best of the knowledge of Parent) any director, officer,
agent or employee of Parent or any Parent Subsidiary has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
<PAGE> 29
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.
3.11 TAX MATTERS.
(a) Each Tax Return required to be filed by or on behalf
of Parent and each Parent Subsidiary with any Governmental Body with respect to
any taxable period ending on or before the Closing Date (the "Parent Returns")
(i) has been or will be filed on or before the applicable due date, and (ii) has
been, or will be when filed, prepared in all material respects in compliance
with all applicable Legal Requirements. All amounts shown on the Parent Returns
to be due on or before the Closing Date have been or will be paid on or before
the Closing Date.
(b) The Parent Unaudited Interim Balance Sheet fully
accrues all actual and contingent liabilities for Taxes with respect to all
periods through December 31, 1998 in accordance with generally accepted
accounting principles. Parent will establish, in the ordinary course of business
and consistent with its past practices, reserves adequate for the payment of all
Taxes for the period from December 31, 1998 through the Closing Date, and will
disclose the amount of such reserves to the Company no later than 10 business
days prior to the Closing Date. Since December 31, 1998, Parent has not incurred
any Liability for any Tax other than in the ordinary course of its business.
(c) No Parent Return has ever been examined or audited by
any Governmental Body. No extension or waiver of the limitation period
applicable to any of the Parent Returns has been granted (by Parent or any other
Person), and no such extension or waiver has been requested from Parent.
(d) No claim or Legal Proceeding is pending or, to the
best of the knowledge of Parent, has been threatened against or with respect to
Parent in respect of any material Tax. There are no unsatisfied liabilities for
material Taxes (including liabilities for interest, additions to tax and
penalties thereon and related expenses) with respect to any notice of deficiency
or similar document received by Parent with respect to any material Tax (other
than liabilities for Taxes asserted under any such notice of deficiency or
similar document which are being contested in good faith by Parent and with
respect to which adequate reserves for payment have been established on the
Parent Unaudited Interim Balance Sheet). There are no liens for material Taxes
upon any of the assets of Parent except liens for current Taxes not yet due and
payable. Parent has not entered into or become bound by any agreement or consent
pursuant to Section 341(f) of the Code (or any comparable provision of state or
foreign Tax laws). Parent has not been and it will not be required to include
any adjustment in taxable income for any tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code (or any comparable provision under
state or foreign Tax laws) as a result of transactions or events occurring, or
accounting methods employed, prior to the Closing.
(e) There is no agreement, plan, arrangement or other
Contract covering any employee or independent contractor or former employee or
independent contractor of Parent that, considered individually or considered
collectively with any other such Contracts, will, or could reasonably be
expected to, give rise directly or indirectly to the payment of any amount that
would not be deductible pursuant to Section 280G or Section 162 of the Code (or
<PAGE> 30
any comparable provision under state or foreign Tax laws). Parent is not, nor
has it ever been, a party to or bound by any tax indemnity agreement, tax
sharing agreement, tax allocation agreement or similar Contract.
3.12 EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.12(a) of the Parent Disclosure Schedule
identifies each bonus, deferred compensation, incentive compensation, stock
purchase, stock option, severance or termination pay, medical, life, disability
or other insurance, supplemental unemployment benefits, profit-sharing, pension
or retirement plan, program or agreement sponsored, maintained, contributed to
or required to be contributed to by Parent and/or each Parent Subsidiary for the
benefit of any current or former employee, consultant, officer or director of
Parent or any Parent Subsidiary (other than those plans, programs and agreements
disclosed in the Parent SEC Documents).
(b) Except as set forth in Schedule 3.12(b) of the Parent
Disclosure Schedule, neither Parent nor any Parent Subsidiary maintains,
sponsors or contributes to, nor has at any time in the past maintained,
sponsored or contributed to, any employee pension benefit plan (as defined in
Section 3(2) of ERISA, whether or not excluded from coverage under specific
Titles or Subtitles of ERISA) for the benefit of employees or former employees
of Parent or any Parent Subsidiary. Except as set forth in Schedule 3.12(b) of
the Parent Disclosure Schedule, neither Parent nor any Parent Subsidiary
maintains, sponsors or contributes to, nor has at any time in the past
maintained, sponsored or contributed to, nor has any obligation or liability
(whether accrued, contingent or otherwise) with respect to, any employee benefit
plan (as defined in Schedule 3(3) of ERISA) or any other plan, policy, program,
arrangement or agreement that is: (i) subject to Section 302 or Title IV of
ERISA or Section 412 of the Code, (ii) a multi employer plan (as defined in
Section 3(37) or 4001(a)(3) of ERISA), or (iii) provides welfare benefits to
employees or former employees (or their dependents) of Parent or any Parent
Subsidiary following retirement or other termination of employment (except as
required by Section 4980B of the Code or Title I, Subtitle B, Part 6 of ERISA).
(c) Each of the plans identified in Schedule 3.12(a) of
the Parent Disclosure Schedule intended to be qualified under Section 401(a) of
the Code has received a favorable determination from the Internal Revenue
Service, and Parent is not aware of any reason why any such determination letter
should be revoked. Each of the plans, programs and agreements identified in
Schedule 3.12(a) of the Parent Disclosure Schedule has been maintained in
compliance in all material respects with its terms and, both as to form and in
operation, with the requirements prescribed by any and all applicable statutes,
orders, rules and regulations, including without limitation, ERISA and the Code.
Parent has delivered to the Company with respect to each plan, program or
agreement identified in Schedule 3.12(a) of the Parent Disclosure Schedule, a
copy of: (i) the document under which such plan, program or agreement is
maintained and all amendments thereto (and all related funding instruments),
(ii) the most recent determination letter issued by the Internal Revenue Service
(if applicable) and (iii) the most recent Form 5500 filed with respect to such
plan, program or agreement (if applicable).
(d) Except as disclosed in Schedule 3.12(d) of the Parent
Disclosure Schedule or in the Parent SEC Documents, neither the execution,
delivery or performance of this
<PAGE> 31
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will result in any payment (including any bonus,
golden parachute or severance payment) to any current or former employee or
director of Parent (whether or not under any plan), or materially increase the
benefits payable under any plan, or result in any acceleration of the time of
payment or vesting of any such benefits.
(e) Parent and each Parent Subsidiary is in compliance
with all applicable Legal Requirements and Contracts relating to employment,
employment practices, wages, bonuses and terms and conditions of employment,
including employee compensation matters, except where the failure to be in
compliance would not have a Material Adverse Effect on Parent.
3.13 INSURANCE. Parent has made available to the Company a copy
of all material insurance policies and all material self insurance programs and
arrangements relating to the business, assets and operations of Parent and each
Parent Subsidiary. Each of such insurance policies is in full force and effect.
Since January 1, 1997, Parent has not received any notice or other communication
regarding any actual or possible (a) cancellation or invalidation of any
insurance policy, (b) refusal of any coverage or rejection of any material claim
under any insurance policy, or (c) material adjustment in the amount of the
premiums payable with respect to any insurance policy. Except as set forth in
Schedule 3.13 of the Parent Disclosure Schedule, there is no pending workers'
compensation or other claim under or based upon any insurance policy of Parent
or any Parent Subsidiary.
3.14 TRANSACTIONS WITH AFFILIATES. Except as set forth in
Schedule 3.14 of the Parent Disclosure Schedule or the Parent SEC Documents or
as contemplated by this Agreement, since the date of Parent's last proxy
statement filed with the SEC, no event has occurred that would be required to be
reported by Parent pursuant to Item 404 of Regulation S-K promulgated by the
SEC. Schedule 3.14 of the Parent Disclosure Schedule identifies each person who
is (or who may be deemed to be) an "affiliate" (as that term is used in Rule 145
under the Securities Act) of Parent as of the date of this Agreement.
3.15 LITIGATION. Except as disclosed in Parent SEC Documents,
there is no Legal Proceeding pending or, to Parent's knowledge, threatened by or
before any court or Governmental Authority that involves Parent or any Parent
Subsidiary or any of the assets owned or used by Parent or any Parent
Subsidiary. Neither Parent nor any Parent Subsidiary is a party to any decree,
order, writ, injunction, judgment or arbitration award (or agreement entered
into in any Legal Proceeding) with respect to its properties, assets, personnel
or business activities.
3.16 PROPERTIES. Schedule 3.16 of the Parent Disclosure Schedule
sets forth each lease of real and personal property to which Parent and each
Parent Subsidiary is a party (the "Parent Leases"). Parent has previously made
available to the Company complete and accurate copies of all the Parent Leases.
Each of the Parent Leases is valid, binding and enforceable in accordance with
its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, as limited by laws
relating to the availability of specific performance, injunctive relief, or by
general equitable principles, and to the extent any indemnification or
contribution provisions thereof may be limited by applicable federal or
<PAGE> 32
state securities laws. Neither Parent nor any Parent Subsidiary has breached,
nor received in writing any claim or threat that it has breached, in any
material respect, and no default has occurred under any of the Parent Leases
and, to Parent's knowledge, (i) none of the other contracting parties has
violated or breached, and no default has occurred under any of the Parent
Leases, and (ii) other than the transactions contemplated hereby, no event has
occurred, and no circumstance or condition exists which with the giving of
notice or the lapse of time, or both, will, or could reasonably be expected to,
result in a violation, breach or default under any of the Parent Leases or give
any Person the right to cancel, terminate or modify any of the Parent Leases.
Neither Parent nor any Parent Subsidiary owns any real property.
3.17 ENVIRONMENTAL MATTERS. To the knowledge of Parent, no
current owner of any property leased or controlled by the Parent or any Parent
Subsidiary has received any notice (in writing or otherwise), whether from a
Governmental Body, citizens group, employee or otherwise, that alleges that such
current or prior owner or Parent or any Parent Subsidiary is not in compliance
with any Environmental Law. Parent has not received any notice or information
that any property that is leased to, controlled by or used by Parent or any
Parent Subsidiary, or any surface water, groundwater and soil associated with or
adjacent to such property, is not in clean and healthful condition or that it is
not free of any material environmental contamination. For purposes of this
Section 3.17: (i) "Environmental Law" means any federal, state, local or foreign
Legal Requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern; and (ii) "Materials of Environmental Concern" include
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products and any other substance that is now or hereafter regulated by
any Environmental Law or that is otherwise a danger to health, reproduction or
the environment.
3.18 PARENT ACTION. The board of directors of Parent (at a
meeting duly called and held) has (a) unanimously determined that the Merger is
in the best interests of Parent and its shareholders, (b) unanimously approved
this Agreement and the Merger in accordance with the provisions of Section 1200
of the CCC, (c) unanimously recommended the adoption and approval of this
Agreement and the Merger by the shareholders of Parent and directed that the
Merger be submitted for consideration by Parent's shareholders at the Parent
Shareholders' Meeting, and (d) adopted a resolution having the effect of causing
Parent not to be subject, to the extent permitted by applicable law, to any
state takeover law that may purport to be applicable to the Merger and the other
transactions contemplated by this Agreement.
3.19 ENFORCEABILITY. Parent has all requisite corporate power and
authority to execute, deliver and, subject to obtaining requisite shareholder
approval, to perform its obligations under this Agreement and all other
agreements, documents and instruments contemplated hereby to which it is or will
become a party. The execution and delivery of this Agreement and the other
agreements, documents and instruments contemplated hereby have been duly and
validly authorized by the board of directors of Parent, and no other corporate
proceedings on the part of Parent are necessary for Parent to authorize any of
such agreements, documents or instruments and no such corporate proceedings
(other than the approval of the
<PAGE> 33
Parent Shareholders) are necessary to enable Parent to consummate the Merger or
any of the other transactions contemplated by this Agreement. All agreements,
documents and instruments to be executed in connection with the Merger (a) have
been (or will be) duly executed and delivered by duly authorized officers of
Parent and (b) constitute (or, when executed by Parent, will constitute) legal,
valid and binding obligations of Parent enforceable against it in accordance
with their terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, as limited by laws
relating to the availability of specific performance, injunctive relief, or by
general equitable principles, and to the extent any indemnification or
contribution provisions thereof may be limited by applicable federal or state
securities laws.
3.20 GOVERNMENTAL CONSENTS; NO CONFLICTS. Except as may be
required under the Applicable Regulatory Requirements, there is no requirement
applicable to Parent or any Parent Subsidiary to make any filing with, or to
obtain any permit, authorization, or Consent of, any Governmental Authority as a
condition to the consummation of the Merger or any of the other transactions
contemplated by this Agreement. Neither the execution and delivery of this
Agreement and the other agreements, documents and instruments contemplated
hereby by Parent nor the consummation by Parent of the Merger or any of the
other transactions contemplated by this Agreement will (a) violate the Articles
of Incorporation or Bylaws of Parent, (b) result in a default (or with notice or
lapse of time or both would result in a default) under, or materially impair the
rights of Parent or any Parent Subsidiary or materially alter the rights or
obligations of any third party under, or require Parent or any Parent Subsidiary
to make any material payment or become subject to any material liability to any
third party under, or give rise to any right of termination, amendment,
cancellation, acceleration, repurchase, put or call under, any of the terms,
conditions or provisions of any Material Parent Contract, (c) result in the
creation of any material (individually or in the aggregate) Encumbrance on any
of the assets of Parent or any Parent Subsidiary or (d) conflict with or violate
any law, statute, rule, regulation, judgment, order, writ, injunction, decree or
arbitration award applicable to Parent or any Parent Subsidiary or any of their
assets, which conflict or violation has had or would reasonably be expected to
have a Material Adverse Effect on Parent.
3.21 YEAR 2000 PREPAREDNESS. There are no issues related to
Parent's or any Parent Subsidiary's preparedness for the Year 2000 (including,
without limitation, any issues relating to Parent's or Parent Subsidiary's
internal computer systems and each Constituent Component of those systems and
all computer related products and each Constituent Component of such products)
that are of a character required to be described or referred to in the Parent
SEC Documents by the Securities Act or by the Exchange Act which have not been
accurately described in the Parent SEC Documents. Except as otherwise disclosed
in the Parent SEC Documents, Parent has inquired of material vendors as to their
preparedness for the Year 2000 and has disclosed in the Parent Disclosure
Schedule or Parent SEC Documents any issues that might reasonably be expected to
result in any Material Adverse Effect on Parent.
3.22 REGULATORY MATTERS.
(a) Except as disclosed on Schedule 3.22(a) of the Parent
Disclosure Schedule, Parent has obtained and is in compliance in all material
respects with all certifications, approvals and clearances from the FDA, etc.
necessary in order to carry out its business and the
<PAGE> 34
businesses of each Parent Subsidiary as currently conducted, including without
limitation developing pharmaceutical products in any and all geographic areas in
which Parent or any Parent Subsidiary is currently, or have previously,
developed pharmaceutical products.
(b) All nonclinical laboratory studies of pharmaceutical
products have been and are being conducted in all material respects in
compliance with all applicable federal, state, local and foreign laws, rules and
regulations (including, without limitation, any reporting requirements thereof)
and with accepted standards of good laboratory practice. All clinical trials of
pharmaceutical products have been and are being conducted in all material
respects in compliance with all applicable federal, state, local and foreign
laws, rules and regulations (including, without limitation, any reporting
requirements thereof) and with accepted standards of good clinical practice.
(c) Neither Parent nor any Parent Subsidiary nor any
officer, employee or agent of Parent or any Parent Subsidiary has made any
untrue statement of a material fact or fraudulent statement to the FDA, etc. or
failed to disclose a material fact required to be disclosed to the FDA, etc.
Parent has provided the Company with copies of any and all notice of
inspectional observations, establishment inspection reports and any other
documents received from the FDA, etc. that indicate or suggest material lack of
compliance with the regulatory requirements of the FDA, etc. Parent has made
available to the Company for review all correspondence to or from the FDA, etc.,
minutes of meetings with the FDA, etc., written reports of phone conversations,
visits or other contact with the FDA, etc., notices of inspectional
observations, establishment inspection reports, and all other documents in its
possession concerning communications to or from the FDA, etc., or prepared by
the FDA, etc., which bear in any way on Parent's or any Parent Subsidiary's
compliance with regulatory requirements of the FDA, etc. or on the likelihood of
timing of approval of any pharmaceutical product.
3.23 VOTE REQUIRED. The affirmative vote of the holders of a
majority of the shares of Parent Common Stock outstanding on the record date for
the Parent Shareholders' Meeting (the "Required Parent Shareholder Vote") is the
only vote of the holders of any class or series of Parent's capital stock
necessary to approve and consummate this Agreement, the Merger and the other
transactions contemplated by this Agreement.
3.24 FAIRNESS OPINION. Parent's board of directors has received
the written opinion of EVEREN Securities, Inc., financial advisor to Parent,
dated the date of this Agreement, to the effect that the Merger is fair to the
shareholders of Parent from a financial point of view. Parent has furnished an
accurate and complete copy of said written opinion to the Company.
3.25 FINANCIAL ADVISOR. Except for EVEREN Securities, Inc., no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or any of the other
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent. Parent has furnished to the Company accurate and complete
copies of all agreements under which any such fees, commissions or other amounts
have been paid or may become payable and all indemnification and other
agreements related to the engagement of EVEREN Securities, Inc.
<PAGE> 35
3.26 VOTING AGREEMENTS. Each member of the board of directors and
each executive officer of Parent has agreed on behalf of himself and his
affiliates to vote in favor of the Merger at the Parent Shareholders' Meeting
and has executed and delivered to the Company a Voting Agreement substantially
in the form attached hereto as Exhibit E-3.
3.27 DISCLOSURE.
(a) The copies of all documents furnished by Parent
pursuant to the terms of this Agreement are complete and accurate copies of the
original, as such documents may have been amended to date.
(b) None of the representations and warranties of Parent
contained in Section 3 of this Agreement or in any other Section of this
Agreement or the information disclosed in the Parent Disclosure Schedule
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(c) None of the information supplied or to be supplied by
Parent for inclusion or incorporation by reference in the Form S-4 registration
statement to be filed with the SEC by the Company in connection with the
issuance of the Merger Shares (the "S-4 Registration Statement") will, at the
time the S-4 Registration Statement is filed with the SEC or at the time the S-4
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. None of
the information supplied or to be supplied by Parent for inclusion or
incorporation by reference in the Prospectus/Joint Proxy Statement, will, at the
time the Prospectus/Joint Proxy Statement is mailed to the shareholders of
Parent or the stockholders of the Company, at the time of the Parent
Shareholders' Meeting or the Company Shareholders' Meeting and as of the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. Notwithstanding the foregoing, no representation or warranty is
made by Parent with respect to statements made about the Company or Merger Sub
or based on information supplied by the Company or Merger Sub or any of their
representatives which is contained in the S-4 Registration Statement or the
Prospectus/Joint Proxy Statement. The Prospectus/Joint Proxy Statement will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations promulgated by the SEC thereunder.
3.28 INTERIM OPERATIONS OF MERGER SUB. Merger Sub was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement, has engaged in no other business activities and has conducted its
operations only as contemplated by this Agreement.
4. CERTAIN COVENANTS OF PARENT, MERGER SUB AND THE COMPANY
4.1 COMPANY ACCESS AND INVESTIGATION. During the period from the
date of this Agreement through the Effective Time (the "Pre-Closing Period"),
the Company shall, and
<PAGE> 36
shall cause the respective Representatives of the Company to: (a) provide Parent
and Parent's Representatives with reasonable access to the Company's
Representatives, personnel and assets and to all existing books, records, Tax
Returns, work papers and other documents and information relating to the
Company; and (b) provide Parent and Parent's Representatives with such copies of
the existing books, records, Tax Returns, work papers and other documents and
information relating to the Company, and with such additional financial,
operating and other data and information regarding the Company, as Parent may
reasonably request. Without limiting the generality of the foregoing, during the
Pre-Closing Period, the Company shall promptly provide Parent with copies of:
(i) all material operating and financial reports
prepared by the Company and each Company Subsidiary for the Company's senior
management, including (a) copies of the unaudited monthly consolidated balance
sheets of the Company and the related unaudited monthly consolidated statements
of operations, statements of stockholders' equity and statements of cash flows
and (b) copies of any sales forecasts, marketing plans, development plans,
discount reports, write-off reports, hiring reports and capital expenditure
reports prepared for the Company's senior management;
(ii) any written materials or communications sent by
or on behalf of the Company to its stockholders;
(iii) any material notice, document or other
communication sent by or on behalf of the Company or any Company Subsidiary to
any party to any Company Contract or sent to the Company or any Company
Subsidiary by any party to any Company Contract (other than any communication
that relates solely to routine commercial transactions between the Company and
the other party to any such Company Contract and that is of the type sent in the
ordinary course of business and consistent with past practices); and
(iv) any notice, report or other document received by
the Company or any Company Subsidiary from, or filed with or sent by the Company
or any Company Subsidiary to any Governmental Body.
4.2 OPERATION OF THE COMPANY'S BUSINESS.
(a) During the Pre-Closing Period: (i) the Company shall
ensure that the Company and each Company Subsidiary conducts its business and
operations (a) in the ordinary course and in accordance with past practices and
(b) in compliance with all applicable Legal Requirements and the requirements of
all Company Contracts that constitute Material Company Contracts; (ii) the
Company shall use all reasonable efforts to ensure that the Company and each
Company Subsidiary preserves intact its current business organization, keeps
available the services of its current officers and other employees and maintains
its relations and goodwill with all suppliers, customers, landlords, creditors,
licensors, licensees, employees, consultants and other Persons having business
relationships with the Company or a Company Subsidiary; (iii) the Company shall
keep in full force all insurance policies referred to in Section 2.13; and (iv)
the Company shall (to the extent requested by Parent) cause its officers and the
officers of each Company Subsidiary to report regularly to Parent concerning the
status of the Company's and each Company Subsidiary's business.
<PAGE> 37
(b) During the Pre-Closing Period, the Company shall not,
except as set forth on Schedule 4.2(b), (without the prior written consent of
Parent), and shall not permit any Company Subsidiary to:
(i) declare, accrue, set aside or pay any dividend or
make any other distribution in respect of any shares of capital stock, or
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities (except for any repurchase of Company Warrants in accordance with
their existing terms);
(ii) sell, issue, grant or authorize the issuance or
grant of (a) any capital stock or other security, (b) any option, call, warrant
or right to acquire any capital stock or other security, or (c) any instrument
convertible into or exchangeable for any capital stock or other security (except
that the Company may issue shares and grant options to purchase shares of
Company Common Stock under stock option plans approved by its board of directors
and stockholders totaling up to 100,000 shares and issue shares of Company
Common Stock (w) upon the valid exercise of Company Options outstanding as of
the date of this Agreement or such additional options, (x) pursuant to the ESPP,
(y) upon the exercise of Company Warrants outstanding as of the date of this
Agreement and (z) upon the conversion of Company Preferred Stock outstanding as
of the date of this Agreement);
(iii) amend or waive any of its rights under, or
accelerate the vesting under, any provision of any of the Company's stock option
plans, any provision of any agreement evidencing any outstanding stock option or
any restricted stock purchase agreement, other than pursuant to agreements in
existence on the date hereof, copies of which have been provided to the other
parties hereto, or otherwise modify any of the terms of any outstanding option,
warrant or other security or any related Contract;
(iv) amend or permit the adoption of any amendment to
its certificate of incorporation or bylaws or other charter or organizational
documents, adopt any shareholder rights plan ("poison pill") or effect or become
a party to any merger, consolidation, amalgamation, share exchange, business
combination, recapitalization, reclassification of shares, stock split, division
or subdivision of shares, reverse stock split, consolidation of shares or
similar transaction;
(v) form any Subsidiary or acquire any equity
interest or other interest in any other Entity or any other business;
(vi) make any capital expenditure in excess of
$100,000;
(vii) enter into or become bound by, or permit any of
the assets owned or used by it to become bound by, any Company Collaboration
Agreement or any Material Company Contract, or amend or terminate, or waive or
exercise any Company Collaboration Agreement or any material right or remedy
under, any Material Company Contract, other than in the ordinary course of
business consistent with past practices;
(viii) acquire, lease or license any right or other
asset from any other Person or sell or otherwise dispose of, or lease or
license, any right or other asset to any other Person (except in each case for
immaterial assets (other than Company Proprietary Assets)
<PAGE> 38
acquired, leased, licensed or disposed of by the Company in the ordinary course
of business and consistent with past practices), or waive or relinquish any
material right;
(ix) lend money to any Person, or incur or guarantee
any indebtedness;
(x) establish, adopt or amend any employee benefit
plan, pay any bonus or make any profit-sharing or similar payment to, or
increase the amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers or
employees;
(xi) prepay any material claim, Liability or
obligation, or pay, discharge or satisfy any material unliquidated or contingent
Liability;
(xii) enter into or amend any employment agreement,
severance agreement, special pay arrangement with respect to termination of
employment or other similar arrangement or agreement with any director, officer
or employee of the Company,
(xiii) make or fail to make any material election
concerning the term, scope or termination of any real property lease, or waive
any material provision of any such lease or enter into any new real property
lease;
(xiv) engage in any transaction with any stockholder,
director, officer or employee other than in the ordinary course of business
consistent with past practice;
(xv) make any Tax election;
(xvi) commence or settle any Legal Proceeding;
(xvii) enter into any material transaction or take
any other material action outside the ordinary course of business or
inconsistent with past practices; or
(xviii) agree or commit to take any of the actions
described in clauses "(i)" through "(xviii)" of this Section 4.2(b).
(c) During the Pre-Closing Period, the Company shall
promptly notify Parent in writing of: (i) the discovery by the Company of any
event, condition, fact or circumstance that occurred or existed on or prior to
the date of this Agreement and that caused or constitutes a material inaccuracy
in any representation or warranty made by the Company in this Agreement; (ii)
any event, condition, fact or circumstance that occurs, arises or exists after
the date of this Agreement and that would cause or constitute a material
inaccuracy in any representation or warranty made by the Company in this
Agreement if (a) such representation or warranty had been made as of the time of
the occurrence, existence or discovery of such event, condition, fact or
circumstance, or (b) such event, condition, fact or circumstance had occurred,
arisen or existed on or prior to the date of this Agreement; (iii) any material
breach of any covenant or obligation of the Company; and (iv) any event,
condition, fact or circumstance that would make the timely satisfaction of any
of the conditions set forth in Section 6 or Section 7 impossible or unlikely or
that has had or could reasonably be expected to have a Material
<PAGE> 39
Adverse Effect on the Company or any Company Subsidiary. Without limiting the
generality of the foregoing, the Company shall promptly advise Parent in writing
of any Legal Proceeding or other claim threatened, commenced or asserted against
or with respect to the Company or any Company Subsidiary. No notification given
to Parent pursuant to this Section 4.2(c) shall limit, modify, amend or
otherwise affect any of the representations, warranties, covenants or
obligations of the Company contained in this Agreement.
4.3 NO SOLICITATION.
(a) The Company shall not directly or indirectly, and
shall not authorize or permit any Representative of the Company directly or
indirectly to, (i) solicit, initiate, encourage or induce the making, submission
or announcement of any Company Acquisition Proposal or take any action that
could reasonably be expected to lead to any inquiries related to or the making
of a Company Acquisition Proposal, (ii) furnish any information regarding the
Company or any Company Subsidiary to any Person in connection with or in
response to any inquiry relating to a Company Acquisition Proposal, (iii) engage
in discussions or negotiations with any Person with respect to any Company
Acquisition Proposal, (iv) approve, endorse or recommend any Company Acquisition
Proposal or (v) enter into any letter of intent or similar document or any
Contract contemplating or otherwise relating to any Company Acquisition
Transaction; provided, however, that prior to the adoption and approval of this
Agreement by the Required Company Stockholder Vote, the Company shall not be
prohibited by this Section 4.3(a) from (A) furnishing nonpublic information
regarding the Company or any Company Subsidiary to, or entering into discussions
with, any Person in response to a Company Superior Offer that is submitted by
such Person (and not withdrawn) relating to a Company Acquisition Transaction if
(1) neither the Company nor any Representative of the Company shall have
violated any of the restrictions set forth in this Section 4.3, (2) the board of
directors of the Company concludes in good faith, based upon the advice of its
outside legal counsel, that the failure to provide information in response to a
written request by a Person making a Company Acquisition Proposal and the
failure to consider the Company Acquisition Proposal would be reasonably likely
to constitute a breach of its fiduciary obligations to the Company's
stockholders under applicable law, (3) prior to furnishing any such nonpublic
information to, or entering into discussions with, such Person, the Company
gives Parent written notice of the identity of such Person, the terms and
conditions of such Company Superior Offer and of the Company's intention to
furnish nonpublic information to, or enter into discussions with, such Person,
and it receives from such Person an executed confidentiality agreement
containing customary limitations on the use and disclosure of all nonpublic
written and oral information furnished to such Person by or on behalf of the
Company and (4) prior to furnishing any such nonpublic information to such
Person, the Company furnishes such nonpublic information to Parent (to the
extent such nonpublic information has not been previously furnished by the
Company to Parent), (B) withdrawing or modifying its unanimous recommendation
referred to in Section 5.2(b) following receipt of a Company Superior Offer if
after duly considering the advice of outside counsel to the Company, the board
of directors of the Company determines in good faith that failure to do so would
be reasonably likely to constitute a breach of its fiduciary obligations to the
Company's stockholders under applicable law, or (C) complying with Rule 14e-2
promulgated under the Exchange Act with regard to a Company Acquisition
Transaction. Without limiting the generality of the foregoing, the Company
acknowledges and agrees that any violation of any of the restrictions set forth
in the preceding
<PAGE> 40
sentence by any of its Representatives, whether or not such Representative is
purporting to act on behalf of the Company, shall be deemed to constitute a
breach of this Section 4.3 by the Company. Nothing contained in this Section 4.3
shall limit the Company's obligation to call, give notice of, convene and hold
the Company Stockholders' Meeting in accordance with Section 5.2.
(b) The Company shall promptly advise Parent orally and in
writing of any Company Acquisition Proposal (including the identity of the
Person making or submitting such Company Acquisition Proposal and the terms
thereof) that is made or submitted by any Person during the Pre-Closing Period
regardless of whether the Company intends to furnish any information to the
Person making any such Company Acquisition Proposal. The Company shall keep
Parent fully informed with respect to the status of any such Company Acquisition
Proposal and any modification or proposed modification thereto. Prior to
entering into any agreement or Contract with any Person in response to a Company
Superior Offer, the Company shall give Parent the opportunity to match such
Company Superior Offer by providing Parent with the terms of such Company
Superior Offer in writing and allowing Parent three (3) business days to respond
with a new offer. Each amendment or modification to any proposed Company
Acquisition Transaction or Company Superior Offer shall be considered a new and
separate proposal for a Company Acquisition Transaction or Company Superior
Offer for the purposes of this Agreement.
(c) The Company shall immediately cease and cause to be
terminated any existing discussions with any Person that relate to any Company
Acquisition Proposal.
4.4 PARENT ACCESS AND INVESTIGATION. During the Pre-Closing
Period, Parent shall, and shall cause the respective Representatives of Parent
to: (a) provide the Company and the Company's Representatives with reasonable
access to Parent's Representatives, personnel and assets and to all existing
books, records, Tax Returns, work papers and other documents and information
relating to Parent; and (b) provide the Company and the Company's
Representatives with such copies of the existing books, records, Tax Returns,
work papers and other documents and information relating to Parent, and with
such additional financial, operating and other data and information regarding
Parent, as the Company may reasonably request. Without limiting the generality
of the foregoing, during the Pre-Closing Period, Parent shall promptly provide
the Company with copies of:
(i) all material operating and financial reports
prepared by Parent and each Parent Subsidiary for Parent's senior management,
including (a) copies of the unaudited monthly consolidated balance sheets of
Parent and the related unaudited monthly consolidated statements of operations,
statements of shareholders' equity and statements of cash flows and (b) copies
of any sales forecasts, marketing plans, development plans, discount reports,
write-off reports, hiring reports and capital expenditure reports prepared for
Parent's senior management;
(ii) any written materials or communications sent by
or on behalf of Parent to its shareholders;
<PAGE> 41
(iii) any material notice, document or other
communication sent by or on behalf of Parent or any Parent Subsidiary to any
party to any Parent Contract or sent to Parent or any Parent Subsidiary by any
party to any Parent Contract (other than any communication that relates solely
to routine commercial transactions between Parent and the other party to any
such Parent Contract and that is of the type sent in the ordinary course of
business and consistent with past practices); and
(iv) any notice, report or other document received by
Parent or any Parent Subsidiary from, or filed with or sent by Parent or any
Parent Subsidiary to any Governmental Body.
4.5 OPERATION OF PARENT'S BUSINESS.
(a) During the Pre-Closing Period: (i) Parent shall ensure
that Parent and each Parent Subsidiary conducts its business and operations (a)
in the ordinary course and in accordance with past practices and (b) in
compliance with all applicable Legal Requirements and the requirements of all
Parent Contracts that constitute Material Parent Contracts; (ii) Parent shall
use all reasonable efforts to ensure that Parent and each Parent Subsidiary
preserves intact its current business organization, keeps available the services
of its current officers and other employees and maintains its relations and
goodwill with all suppliers, customers, landlords, creditors, licensors,
licensees, employees, consultants and other Persons having business
relationships with Parent or a Parent Subsidiary; (iii) Parent shall keep in
full force all insurance policies referred to in Section 3.13; and (iv) Parent
shall (to the extent requested by the Company) cause its officers and the
officers of each Parent Subsidiary to report regularly to the Company concerning
the status of Parent's and each Parent's and each Parent Subsidiary's business.
(b) During the Pre-Closing Period, Parent shall not,
except as set forth in Schedule 4.5(b) (without the prior written consent of the
Company), and shall not permit any Parent Subsidiary to:
(i) declare, accrue, set aside or pay any dividend or
make any other distribution in respect of any shares of capital stock, or
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities;
(ii) sell, issue, grant or authorize the issuance or
grant of (a) any capital stock or other security, (b) any option, call, warrant
or right to acquire any capital stock or other security, or (c) any instrument
convertible into or exchangeable for any capital stock or other security (except
that Parent may issue shares and grant options to purchase shares of Parent
Common Stock under stock option plans approved by its board of directors and
shareholders totaling up to 100,000 and issue shares of Parent Common Stock (x)
upon the valid exercise of Parent Options outstanding as of the date of this
Agreement or such additional options, and (y) upon the exercise of Parent
Warrants outstanding as of the date of this Agreement), and except that Parent
may amend its stock option plan(s) to authorize additional shares of Parent
Common Stock for issuance thereunder in connection with the conversion of the
Company Options at the Effective Time ("Parent Option Plan Amendments");
<PAGE> 42
(iii) amend or waive any of its rights under, or
accelerate the vesting under, any provision of any of Parent's stock option
plans, any provision of any agreement evidencing any outstanding stock option or
any restricted stock purchase agreement, other than pursuant to agreements in
existence on the date hereof, copies of which have been provided to the other
parties hereto, or otherwise modify any of the terms of any outstanding option,
warrant or other security or any related Contract;
(iv) amend or permit the adoption of any amendment to
its articles of incorporation (other than the Amended Articles) or bylaws or
other charter or organizational documents, adopt any shareholder rights plan
("poison pill") or effect or become a party to any merger, consolidation,
amalgamation, share exchange, business combination, recapitalization,
reclassification of shares, stock split, division or subdivision of shares,
reverse stock split, consolidation of shares or similar transaction;
(v) form any Subsidiary or acquire any equity interest
or other interest in any other Entity or any other business;
(vi) make any capital expenditure in excess of $100,000;
(vii) enter into or become bound by, or permit any of
the assets owned or used by it to become bound by, any Parent Collaboration
Agreement or any Material Parent Contract, or amend or terminate, or waive or
exercise any material right or remedy under, any Parent Collaboration Agreement
or any Material Parent Contract, other than in the ordinary course of business
consistent with past practices;
(viii) acquire, lease or license any right or other
asset from any other Person or sell or otherwise dispose of, or lease or
license, any right or other asset to any other Person (except in each case for
immaterial assets (other than Parent Proprietary Assets) acquired, leased,
licensed or disposed of by Parent in the ordinary course of business and
consistent with past practices), or waive or relinquish any material right;
(ix) lend money to any Person, or incur or guarantee
any indebtedness;
(x) establish, adopt or amend any employee benefit
plan, pay any bonus or make any profit-sharing or similar payment to, or
increase the amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers or
employees;
(xi) prepay any material claim, Liability or
obligation, or pay, discharge or satisfy any material unliquidated or contingent
Liability;
(xii) enter into or amend any employment agreement,
severance agreement, special pay arrangement with respect to termination of
employment or other similar arrangement or agreement with any director, officer
or employee of Parent,
<PAGE> 43
(xiii) make or fail to make any material election
concerning the term, scope or termination of any real property lease, or waive
any material provision of any such lease or enter into any new real property
lease;
(xiv) engage in any transaction with any shareholder,
director, officer or employee other than in the ordinary course of business
consistent with past practice;
(xv) make any Tax election;
(xvi) commence or settle any Legal Proceeding;
(xvii) enter into any material transaction or take
any other material action outside the ordinary course of business or
inconsistent with past practices; or
(xviii) agree or commit to take any of the actions
described in clauses "(i)" through "(xviii)" of this Section 4.5(b).
(c) During the Pre-Closing Period, Parent shall promptly
notify the Company in writing of: (i) the discovery by Parent of any event,
condition, fact or circumstance that occurred or existed on or prior to the date
of this Agreement and that caused or constitutes a material inaccuracy in any
representation or warranty made by Parent in this Agreement; (ii) any event,
condition, fact or circumstance that occurs, arises or exists after the date of
this Agreement and that would cause or constitute a material inaccuracy in any
representation or warranty made by Parent in this Agreement if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (B)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement; (iii) any material breach of any
covenant or obligation of Parent; and (iv) any event, condition, fact or
circumstance that would make the timely satisfaction of any of the conditions
set forth in Section 6 or Section 7 impossible or unlikely or that has had or
could reasonably be expected to have a Material Adverse Effect on Parent or any
Parent Subsidiary. Without limiting the generality of the foregoing, Parent
shall promptly advise the Company in writing of any Legal Proceeding or other
claim threatened, commenced or asserted against or with respect to Parent or any
Parent Subsidiary. No notification given to the Company pursuant to this Section
4.5(c) shall limit, modify, amend or otherwise affect any of the
representations, warranties, covenants or obligations of Parent contained in
this Agreement.
4.6 NO SOLICITATION.
(a) Parent shall not directly or indirectly, and shall not
authorize or permit any Representative of Parent directly or indirectly to, (i)
solicit, initiate, encourage or induce the making, submission or announcement of
any Parent Acquisition Proposal or take any action that could reasonably be
expected to lead to any inquiries related to or the making of a Parent
Acquisition Proposal, (ii) furnish any information regarding Parent or any
Parent Subsidiary to any Person in connection with or in response to any inquiry
relating to a Parent Acquisition Proposal, (iii) engage in discussions or
negotiations with any Person with respect to any Parent Acquisition Proposal,
(iv) approve, endorse or recommend any Parent Acquisition Proposal or (v) enter
into any letter of intent or similar document or any Contract contemplating or
otherwise relating to any Parent Acquisition Transaction; provided, however,
that prior to the
<PAGE> 44
adoption and approval of this Agreement by the Required Parent Shareholder Vote,
Parent shall not be prohibited by this Section 4.6(a) from (a) furnishing
nonpublic information regarding Parent or any Parent Subsidiary to, or entering
into discussions with, any Person in response to a Parent Superior Offer that is
submitted by such Person (and not withdrawn) relating to a Parent Acquisition
Transaction if (1) neither Parent nor any Representative of Parent shall have
violated any of the restrictions set forth in this Section 4.6, (2) the board of
directors of Parent concludes in good faith, based upon the advice of its
outside legal counsel, that the failure to provide information in response to a
written request by a Person making a Parent Acquisition Proposal and the failure
to consider the Parent Acquisition Proposal would be reasonably likely to
constitute a breach of its fiduciary obligations to Parent's shareholders under
applicable law, (3) at least five (5) business days prior to furnishing any such
nonpublic information to, or entering into discussions with, such Person, Parent
gives the Company written notice of the identity of such Person, the terms and
conditions of such Parent Superior Offer and of Parent's intention to furnish
nonpublic information to, or enter into discussions with, such Person, and it
receives from such Person an executed confidentiality agreement containing
customary limitations on the use and disclosure of all nonpublic written and
oral information furnished to such Person by or on behalf of Parent and (4)
prior to furnishing any such nonpublic information to such Person, Parent
furnishes such nonpublic information to the Company (to the extent such
nonpublic information has not been previously furnished by Parent to the
Company), (b) withdrawing or modifying its unanimous recommendation referred to
in Section 5.3(b) following receipt of a Parent Superior Offer if after duly
considering the advice of outside counsel to Parent, the board of directors of
Parent determines in good faith that failure to do so would be reasonably likely
to constitute a breach of its fiduciary obligations to Parent's shareholders
under applicable law, or (c) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a Parent Acquisition Transaction. Without limiting
the generality of the foregoing, Parent acknowledges and agrees that any
violation of any of the restrictions set forth in the preceding sentence by any
of its Representatives, whether or not such Representative is purporting to act
on behalf of Parent, shall be deemed to constitute a breach of this Section 4.6
by Parent. Nothing contained in this Section 4.6 shall limit Parent's obligation
to call, give notice of, convene and hold the Parent Shareholders' Meeting in
accordance with Section 5.3.
(b) Parent shall promptly advise the Company orally and in
writing of any Parent Acquisition Proposal (including the identity of the Person
making or submitting such Parent Acquisition Proposal and the terms thereof)
that is made or submitted by any Person during the Pre-Closing Period regardless
of whether Parent intends to furnish any information to the Person making any
such Parent Acquisition Proposal. Parent shall keep the Company fully informed
with respect to the status of any such Parent Acquisition Proposal and any
modification or proposed modification thereto. Prior to entering into any
agreement or Contract with any Person in response to a Parent Superior Offer,
Parent shall give the Company the opportunity to match such Parent Superior
Offer by providing the Company with the terms of such Parent Superior Offer in
writing and allowing the Company five (5) business days to respond with a new
offer. Each amendment or modification to any proposed Parent Acquisition
Transaction or Parent Superior Offer shall be considered a new and separate
proposal for a Parent Acquisition Transaction or Parent Superior Offer for the
purposes of this Agreement.
(c) Parent shall immediately cease and cause to be
terminated any existing discussions with any Person that relate to any Parent
Acquisition Proposal.
<PAGE> 45
5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 REGISTRATION STATEMENT; PROSPECTUS/PROXY STATEMENT.
(a) As promptly as practicable after the date of this
Agreement, Parent and the Company shall prepare and cause to be filed with the
SEC the Prospectus/Proxy Statement and Parent shall prepare and cause to be
filed with the SEC the Form S-4 Registration Statement, in which the
Prospectus/Proxy Statement will be included as a prospectus. Each of Parent and
the Company shall use all reasonable efforts to cause the Form S-4 Registration
Statement and the Prospectus/Proxy Statement to comply with the rules and
regulations promulgated by the SEC, to respond promptly to any comments of the
SEC or its staff and to have the Form S-4 Registration Statement declared
effective under the Securities Act as promptly as practicable after it is filed
with the SEC. Each of the Company and Parent will use all reasonable efforts to
cause the Prospectus/Proxy Statement to be mailed to their respective
stockholders as promptly as practicable after the Form S-4 Registration
Statement is declared effective under the Securities Act. Parent and the Company
shall promptly furnish to the other party all information concerning it and its
stockholders that may be required or reasonably requested in connection with any
action contemplated by this Section 5.1. If any event relating to the Company or
Parent occurs, or if the Company or Parent becomes aware of any information,
that should be disclosed in an amendment or supplement to the Form S-4
Registration Statement or the Prospectus/Proxy Statement, then the Company or
Parent, as the case may be, shall promptly inform the other party thereof and
shall cooperate with such party in filing such amendment or supplement with the
SEC and, if appropriate, in mailing such amendment or supplement to the
stockholders of the Company and Parent.
(b) Prior to the Effective Time, Parent shall use all
reasonable efforts to obtain all regulatory approvals needed to ensure that the
Parent Common Stock to be issued in the Merger will be registered or qualified
under the securities law of every jurisdiction of the United States in which any
registered holder of Company Common Stock has an address of record on the record
date for determining the stockholders entitled to notice of and to vote at the
Company Stockholders' Meeting; provided, however, that Parent shall not be
required (i) to qualify to do business as a foreign corporation in any
jurisdiction in which it is not now qualified or (ii) to file a general consent
to service of process in any jurisdiction.
5.2 COMPANY STOCKHOLDERS' MEETING.
(a) The Company shall take all action necessary under all
applicable Legal Requirements to call, give notice of, convene and duly hold a
meeting of the holders of Company capital stock entitled to vote on the Merger
to consider, act upon and vote upon the adoption and approval of this Agreement
and the approval of the Merger and the transactions contemplated hereby to the
extent stockholder approval is required under applicable law or by contractual
arrangement (the "Company Stockholders' Meeting"). The Company Stockholders'
Meeting will be held as promptly as practicable after the Form S-4 Registration
Statement is declared effective under the Securities Act. The Company shall
ensure that the Company Stockholders' Meeting is called, noticed, convened, held
and conducted, and that all proxies solicited in connection with the Company
Stockholders' Meeting are solicited, in compliance with all applicable Legal
Requirements. The Company's obligation to call, give notice of,
<PAGE> 46
convene and hold the Company Stockholders' Meeting in accordance with this
Section 5.2(a) shall not be limited or otherwise affected by the commencement,
disclosure, announcement or submission of any Company Superior Offer or other
Company Acquisition Proposal, or by any withdrawal, amendment or modification of
the unanimous recommendation of the board of directors of the Company with
respect to the Merger.
(b) Subject to Section 5.2(c): (i) the board of directors
of the Company shall unanimously recommend that the Company's stockholders vote
in favor of and adopt and approve this Agreement and approve the Merger at the
Company Stockholders' Meeting; (ii) the Prospectus/Proxy Statement shall include
a statement to the effect that the board of directors of the Company has
unanimously recommended that the Company's stockholders vote in favor of and
adopt and approve this Agreement and approve the Merger at the Company
Stockholders' Meeting; and (iii) neither the board of directors of the Company
nor any committee thereof shall withdraw, amend or modify, or propose or resolve
to withdraw, amend or modify, in a manner adverse to Parent, the unanimous
recommendation of the board of directors of the Company that the Company's
stockholders vote in favor of and adopt and approve this Agreement and approve
the Merger. For the purposes of this Agreement, said unanimous recommendation of
the board of directors of the Company shall be deemed to have been modified in a
manner adverse to Parent if said recommendation shall no longer be unanimous.
(c) Nothing in Section 5.2(b) shall prevent the board of
directors of the Company from withdrawing, amending or modifying its
recommendation in favor of the Merger at any time prior to the adoption and
approval of this Agreement by the Required Company Stockholder Vote if (i) a
Company Superior Offer is made to the Company and is not withdrawn, (ii) neither
the Company nor any of its Representatives shall have violated any of the
restrictions set forth in Section 4.3, (iii) the board of directors of the
Company concludes in good faith, based upon the advice of its outside counsel,
that the failure to withdraw, amend or modify such unanimous recommendation
would reasonably be likely to constitute a breach of the board of directors'
fiduciary obligations to the Company's stockholders under applicable law.
Nothing contained in Section 4.3 or this Section 5.2 shall limit the Company's
obligation to call, give notice of, convene and hold the Company Stockholders'
Meeting (regardless of whether the unanimous recommendation of the board of
directors of the Company shall have been withdrawn, amended or modified)
provided that nothing contained in this Section 5.2 shall require the Company to
call, give notice of, convene or hold the Company Stockholders' Meeting in the
event this Agreement is terminated pursuant to Section 8.1.
5.3 PARENT SHAREHOLDERS' MEETING.
(a) Parent shall take all action necessary under all
applicable Legal Requirements to call, give notice of, convene and hold a
meeting of the holders of Parent Common Stock (the "Parent Shareholders'
Meeting") to consider, act upon and vote upon (i) the adoption and approval of
this Agreement and the approval of the Merger, (ii) the amendment and
restatement of Parent's Articles of Incorporation as provided in Section 1.4,
(iii) an amendment of Parent's Bylaws to increase the authorized number of
directors of Parent to not less than four (4) nor more than nine (9), (iv) an
increase of the number of shares reserved for issuance under Parent's 1992 Stock
Option Plan and 1993 Non-Employee Directors' Equity Incentive Plan to
<PAGE> 47
7,500,000 and 750,000, respectively, and (v) the other matters contemplated by
this Agreement (collectively, the "Parent Proposals"). The Parent Shareholders'
Meeting will be held as promptly as practicable after the Form S-4 Registration
Statement is declared effective under the Securities Act. The Parent shall
ensure that the Parent Shareholders' Meeting is called, noticed, convened, held
and conducted, and that all proxies solicited in connection with the Parent
Shareholders' Meeting are solicited, in compliance with all applicable Legal
Requirements. Parent's obligation to call, give notice of, convene and hold the
Parent Shareholders' Meeting in accordance with this Section 5.3(a) shall not be
limited or otherwise affected by the commencement, disclosure, announcement or
submission of any Parent Superior Offer or other Parent Acquisition Proposal, or
by any withdrawal, amendment or modification of the unanimous recommendation of
the board of directors of the Parent with respect to the Merger.
(b) Subject to Section 5.3(c): (i) the board of directors
of Parent shall unanimously recommend that Parent's shareholders vote in favor
of and adopt and approve this Agreement and approve the Merger and the other
matters contemplated by this Agreement, including, but not limited to, the
Parent Proposals at the Parent Shareholders' Meeting; (ii) the Prospectus/Proxy
Statement shall include a statement to the effect that the board of directors of
the Parent has unanimously recommended that the Parent's shareholders vote in
favor of and adopt and approve this Agreement and approve the Merger and the
Parent Proposals at the Parent Shareholders' Meeting; and (iii) neither the
board of directors of the Parent nor any committee thereof shall withdraw, amend
or modify, or propose or resolve to withdraw, amend or modify, in a manner
adverse to Parent, the unanimous recommendation of the board of directors of the
Parent that the Parent's shareholders vote in favor of and adopt and approve
this Agreement and approve the Merger and the Parent Proposals. For the purposes
of this Agreement, said unanimous recommendation shall be deemed to have been
modified in a manner adverse to the Company if said recommendation shall no
longer be unanimous.
(c) Nothing in Section 5.3(b) shall prevent the board of
directors of Parent from withdrawing, amending or modifying its recommendation
in favor of the Merger at any time prior to the adoption and approval of this
Agreement by the Required Parent Shareholder Vote if (i) a Parent Superior Offer
is made to the Parent and is not withdrawn, (ii) neither Parent nor any of its
Representatives shall have violated any of the restrictions set forth in Section
4.6, (iii) the board of directors of the Parent concludes in good faith, based
upon the advice of its outside counsel, that the failure to withdraw, amend or
modify such unanimous recommendation would reasonably be likely to constitute a
breach of the board of directors' fiduciary obligations to Parent's shareholders
under applicable law. Nothing contained in Section 4.6 or this Section 5.3 shall
limit Parent's obligation to call, give notice of, convene and hold the Parent
Shareholders' Meeting (regardless of whether the unanimous recommendation of the
board of directors of Parent shall have been withdrawn, amended or modified)
provided that nothing contained in this Section 5.3 shall require Parent to
call, give notice of, convene or hold the Parent Shareholders' Meeting in the
event this Agreement is terminated pursuant to Section 8.1.
5.4 REGULATORY APPROVALS. Each party shall use all reasonable
efforts to file, as promptly as practicable after the date of this Agreement,
all notices, reports and other documents required to be filed by such party with
any Governmental Body with respect to the Merger and the other transactions
contemplated by this Agreement, and to submit promptly any
<PAGE> 48
additional information requested by any such Governmental Body. The Company and
Parent shall respond as promptly as practicable to any inquiries or requests
received from any state attorney general or other Governmental Body in
connection with antitrust or related matters. Each of the Company and Parent
shall (1) give the other party prompt notice of the commencement of any Legal
Proceeding by or before any Governmental Body with respect to the Merger or any
of the other transactions contemplated by this Agreement, (2) keep the other
party informed as to the status of any such Legal Proceeding, and (3) promptly
inform the other party of any communication to or from any Governmental Body
regarding the Merger. The Company and Parent will consult and cooperate with one
another, and will consider in good faith the views of one another, in connection
with any analysis, appearance, presentation, memorandum, brief, argument,
opinion or proposal made or submitted in connection with any Legal Proceeding
under or relating to the any federal or state antitrust or fair trade law. In
addition, except as may be prohibited by any Governmental Body or by any Legal
Requirement, in connection with any Legal Proceeding under or relating to any
federal or state antitrust or fair trade law or any other similar Legal
Proceeding, each of the Company and Parent will permit authorized
Representatives of the other party to be present at each meeting or conference
relating to any such Legal Proceeding and to have access to and be consulted in
connection with any document, opinion or proposal made or submitted to any
Governmental Body in connection with any such Legal Proceeding.
5.5 STOCK OPTIONS.
(a) Parent shall file with the SEC, within 30 days after
the date on which the Merger becomes effective, a registration statement on Form
S-8 relating to the shares of Parent Common Stock issuable with respect to the
Company Options assumed by Parent in accordance with Section 1.5(e).
(b) The Company shall take all action that may be
necessary (under the plans pursuant to which Company Options are outstanding and
otherwise) to effectuate the provisions of Section 1.5(e) and this Section 5.5
and to ensure that, from and after the Effective Time, holders of Company
Options have no rights with respect thereto other than those specifically
provided in Section 1.5(e).
5.6 EMPLOYEE BENEFITS. Parent shall, and shall cause the
Surviving Corporation to, from and after the Effective Time, (i) comply with the
health, vacation and other employee benefit plans of the Company and any Company
Subsidiary in accordance with their terms, (ii) provide employees of the Company
and any Company Subsidiary prior to the Effective Time who remain as employees
of the Surviving Corporation (or any subsidiary thereof) or Parent with employee
benefit plans no less favorable in the aggregate than those provided to
similarly situated employees of Parent, (iii) provide employees of the Company
and any Company Subsidiary prior to the Effective Time who remain as employees
of the Surviving Corporation or Parent credit for years of service with the
Company or any Company Subsidiary prior to the Effective Time for (A) the
purpose of eligibility and vesting but not benefit accrual under the Parent's
health, pension, vacation and other employee benefit plans, and (B) any and all
pre-existing condition limitations and eligibility waiting periods under health
and other employee benefit plans of Parent, and (iv) cause to be credited to any
deductible out-of-pocket expense under any health and other employee benefit
plans of Parent any deductibles or out-of-
<PAGE> 49
pocket expenses incurred by employees of the Company and their beneficiaries and
dependents during the portion of the calendar year prior to their participation
in the health and other employee benefit plans of Parent. Parent shall, and
shall cause the Surviving Corporation to, honor in accordance with their terms,
all health, pension, vacation and other employee benefit plans of the Company
and any Company Subsidiary (subject to compliance and conformity with employee
benefit plans of Parent), vested or accrued benefit obligations to, and
contractual rights of, current and former employees of the Company and the
Company Subsidiaries.
5.7 INDEMNIFICATION OF OFFICERS AND DIRECTORS.
(a) All rights to indemnification existing in favor of
those Persons who are directors and officers of the Company as of the date of
this Agreement (the "Indemnified Persons") for acts and omissions occurring
prior to the Effective Time, as provided in the Company's Bylaws (as in effect
as of the date of this Agreement) and as provided in the indemnification
agreements between the Company and said Indemnified Persons (as in effect as of
the date of this Agreement), shall survive the Merger and shall be observed by
the Surviving Corporation to the fullest extent available under Delaware law for
a period of six years from the Effective Time.
(b) From the Effective Time until the fifth anniversary of
the Effective Time, the Surviving Corporation shall maintain in effect, for the
benefit of the Indemnified Persons with respect to acts or omissions occurring
prior to the Effective Time, the existing policy of directors' and officers'
liability insurance maintained by the Company as of the date of this Agreement
(the "Existing Policy"); provided, however, that (i) the Surviving Corporation
may substitute for the Existing Policy a policy or policies of comparable
coverage, and (ii) the Surviving Corporation shall not be required to pay an
annual premium for the Existing Policy (or for any substitute policies) in
excess of 200% of the current premium. In the event any future annual premium
for the Existing Policy (or any substitute policies) exceeds such limit, the
Surviving Corporation shall reduce the amount of coverage of the Existing Policy
(or any substitute policies) to the amount of coverage that can be obtained for
a premium that exceeds such limits.
<PAGE> 50
5.8 ADDITIONAL AGREEMENTS. Parent and the Company shall use all
reasonable efforts to take, or cause to be taken, all actions necessary to
effectuate the Merger and make effective the other transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, each party to
this Agreement (i) shall make all filings (if any) and give all notices (if any)
required to be made and given by such party in connection with the Merger and
the other transactions contemplated by this Agreement, (ii) shall use all
reasonable efforts to obtain each Consent (if any) required to be obtained
(pursuant to any applicable Legal Requirement or Contract, or otherwise) by such
party in connection with the Merger or any of the other transactions
contemplated by this Agreement, and (iii) shall use all reasonable efforts to
lift any restraint, injunction or other legal bar to the Merger. Parent and the
Company shall promptly deliver to the other party a copy of each such filing
made, each such notice given and each such Consent obtained by the Parent or
Company, as the case may be, during the Pre-Closing Period.
5.9 DISCLOSURE. Parent and the Company shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or any of the other transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, neither Parent nor
the Company shall, and neither shall permit any Subsidiary or Representative to,
make any disclosure regarding the Merger or any of the other transactions
contemplated by this Agreement unless (a) the other party shall have approved
such disclosure or (b) the disclosing party shall have been advised in writing
by its outside legal counsel that such disclosure is required by applicable law.
5.10 AFFILIATE AGREEMENTS. The Company shall cause each Person
who is or becomes (or may be deemed to be) an "affiliate" (as that term is used
in Rule 145 under the Securities Act) of the Company to execute and deliver to
Parent, prior to the date of the mailing of the Prospectus/Proxy Statement to
the Company's stockholders, an Affiliate Agreement in the form of Exhibit F.
5.11 TAX MATTERS. At or prior to the filing of the Form S-4
Registration Statement, the Company and Parent shall execute and deliver to
Cooley Godward LLP and to Latham & Watkins tax representation letters in
customary form. Parent, Merger Sub and the Company shall each confirm to Cooley
Godward LLP and to Latham & Watkins the accuracy and completeness as of the
Effective Time of the tax representation letters delivered pursuant to the
immediately preceding sentence. Parent and the Company shall use all reasonable
efforts prior to the Effective Time to cause the Merger to qualify as a tax free
reorganization under Section 368(a)(1) of the Code. Following delivery of the
tax representations letters pursuant to the first sentence of this Section 5.11,
each of Parent and the Company shall use its reasonable efforts to cause Cooley
Godward LLP and Latham & Watkins, respectively, to deliver to it a tax opinion
satisfying the requirements of Item 601 of Regulation S-K promulgated under the
Securities Act. In rendering such opinions, each of such counsel shall be
entitled to rely on the tax representation letters referred to in this Section
5.11.
5.12 LISTING. Parent shall use all reasonable efforts to cause
the shares of Parent Common Stock being issued in the Merger to be approved for
listing (subject to notice of issuance) on AMEX.
<PAGE> 51
5.13 CERTAIN PARENT REGULATORY MATTERS.
(a) Parent will by August 31, 1999 take all steps
necessary to complete Parent's Lee's Summit, Kansas manufacturing facility for
Sildaflo and to validate the facility, equipment and cleaning methods in
material compliance with "current good manufacturing practices" (cGMPs), as
defined in Parts 210 and 211 of Title 21 of the Code of Federal Regulations
(1998), and any guidance documents issued by the agency that purport to
interpret these regulations, and in accordance with any requirement set forth in
the approved new drug application (NDA) for Sildaflo. Parent will consult with
the Company and its advisors on a regular basis regarding the foregoing
manufacturing facility and, if requested by the Company, will engage a drug GMP
consultant of the Company's choice at the Company's expense to evaluate the
facility for compliance with federal, state and local drug manufacturing
standards. Any request by the Company or any consultant of the Company that
results in any delay shall cause the August 31 date to be extended by the length
of the delay.
(b) Parent will have the manufacturing processes for
Sildaflo and the related analytical methods validated by November 30, 1999 and
will file with the FDA all necessary application(s) for approvals from the FDA
to manufacture, test and label Sildaflo by that date. Parent will consult with
the Company and its advisors on a regular basis regarding such applications and
approvals and will permit the Company's FDA counsel to review and comment on any
and all FDA applications prior to submitting them to the FDA. The Company
acknowledges that on that date, Parent will have only three (3) months stability
data on Sildaflo.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:
6.1 ACCURACY OF REPRESENTATIONS.
(a) Without limiting the effect or independence of the
condition set forth in Section 6.1(b), the representations and warranties of the
Company contained in this Agreement shall have been accurate in all respects as
of the date of this Agreement (except to the extent such representations and
warranties which are expressly stated to be made as of an earlier date, which
shall be true and correct in all respects as of such date), it being understood
that for the purposes of determining the accuracy of such representations and
warranties each of the following shall be disregarded: (i) any "Material Adverse
Effect" qualification or any other materiality qualifications contained in such
representations and warranties, (ii) any inaccuracy that does not, together will
all other inaccuracies, have a Company Material Adverse Effect, (iii) any
inaccuracy that results from general business or economic conditions, (iv) any
inaccuracy that results from conditions generally affecting the industry in
which the Company or the Company's Subsidiaries competes, (v) any inaccuracy
that results from the announcement or pendency of the Merger or any of the
transactions contemplated hereby, and (vi) any inaccuracy that results from or
relates to the taking of any action contemplated by this Agreement.
<PAGE> 52
(b) Without limiting the effect or independence of the
condition set forth in Section 6.1(a), the representations and warranties of the
Company contained in this Agreement (except to the extent such representations
and warranties which are expressly stated to be made as of an earlier date,
which shall be true and correct in all respects as of such date) shall be
accurate in all respects as of the Closing Date, it being understood that for
the purposes of determining the accuracy of such representations and warranties
each of the following shall be disregarded: (i) any "Material Adverse Effect"
qualification or any other materiality qualifications contained in such
representations and warranties, (ii) any inaccuracy that does not, together with
all other inaccuracies, have a Company Material Adverse Effect, (iii) any
inaccuracy that results from general business or economic conditions, (iv) any
inaccuracy that results from conditions generally affecting the industry in
which the Company or the Company's Subsidiaries competes, (v) any inaccuracy
that results from the announcement or pendency of the Merger or any of the
transactions contemplated hereby, and (vi) any inaccuracy that results from the
taking of any action contemplated by this Agreement.
6.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that
the Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed, except where the failure to perform
such covenants or obligations would not have a Material Adverse Effect on the
Company or Parent.
6.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The Form S-4
Registration Statement shall have become effective in accordance with the
provisions of the Securities Act, and no stop order shall have been issued by
the SEC with respect to the Form S-4 Registration Statement.
6.4 STOCKHOLDER APPROVAL. This Agreement and the Merger shall
have been duly adopted and approved, and the Merger shall have been duly
approved, by the Required Company Stockholder Vote and by the Required Parent
Shareholder Vote and the Parent Proposals shall have been approved as required
by applicable law.
6.5 CONSENTS. All Consents required to be obtained by the Company
that are specifically set forth on Exhibit G attached hereto shall have been
obtained and shall be in full force and effect.
6.6 AGREEMENTS AND DOCUMENTS. Parent shall have received the
following agreements and documents, each of which shall be in full force and
effect:
(a) an employment agreement in substantially the form
attached hereto as Exhibit H which shall have been executed and delivered by
Parent and Charles J. Casamento, and such agreement shall become effective as of
the Closing Date;
(b) a separation and consulting agreement in substantially
the form attached hereto as Exhibit I-1 which shall have been executed and
delivered by Parent and Paul J. Marangos and such agreement shall become
effective as of the Closing Date, and an executive severance benefits agreement
shall have been executed and delivered by Parent and Dr. Marangos in
substantially the form attached hereto as Exhibit I-2 (or a similar agreement
which
<PAGE> 53
provides Dr. Marangos with an equivalent economic benefit as reflected therein)
and such agreement shall become effective as of or prior to the Closing Date;
(c) a legal opinion of Cooley Godward LLP dated as of the
Closing Date and addressed to Parent, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code (it
being understood that, in rendering such opinion, Cooley Godward LLP may rely
upon the tax representation letters referred to in Section 5.11); provided,
however, that if Cooley Godward LLP does not render such opinion or withdraws or
modifies such opinion, this condition shall nonetheless be deemed satisfied if
Latham & Watkins, counsel to the Company, renders such opinion to Parent.
(d) a certificate executed on behalf of the Company by its
Chief Executive Officer confirming that the conditions set forth in Sections
6.1, 6.2, 6.4, 6.5 and 6.7, have been duly satisfied; and
(e) except as set forth on Exhibit B, the written
resignations of all officers and directors of the Company, effective as of the
Effective Time.
6.7 COMPANY RIGHTS PLAN. All necessary actions shall have been
taken to extinguish and cancel all outstanding Rights under the Company Rights
Plan or render such Company Rights Plan inapplicable to the Merger and the other
transactions contemplated by this Agreement.
6.8 DIRECTORS AND OFFICERS. All of the persons listed in Exhibit
B shall have been duly appointed as directors and officers of Parent and Merger
Sub, as applicable.
6.9 LISTING. The shares of Parent Common Stock to be issued in
the Merger shall have been approved for listing (subject to notice of issuance)
on AMEX.
6.10 NO RESTRAINTS. No temporary restraining order, preliminary
or permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement applicable to the Merger
that makes consummation of the Merger illegal.
6.11 NO GOVERNMENTAL LITIGATION. There shall not be pending or
threatened any Legal Proceeding in which a Governmental Body is or is threatened
to become a party or is otherwise involved, and neither Parent nor the Company
shall have received any communication from any Governmental Body in which such
Governmental Body indicates the possibility of commencing any Legal Proceeding
or taking any other action: (a) challenging or seeking to restrain or prohibit
the consummation of the Merger or any of the other transactions contemplated by
this Agreement; (b) relating to the Merger and seeking to obtain from Parent or
any of its Subsidiaries, or the Company or any of its Subsidiaries, any damages
or other relief that may be material to Parent and the Company, taken as a
whole, following the Merger; (c) seeking to prohibit or limit in any material
respect Parent's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Company; or (d) which
would materially and adversely affect the right of Parent or the Company to own
the assets or operate the business of the Company following the Merger.
<PAGE> 54
7. CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY
The obligation of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS.
(a) Without limiting the effect or independence of the
condition set forth in Section 7.1(b), the representations and warranties of
Parent and Merger Sub contained in this Agreement shall have been accurate in
all respects as of the date of this Agreement (except to the extent such
representations and warranties which are expressly stated to be made as of an
earlier date, which shall be true and correct in all respects as of such date),
it being understood that for the purposes of determining the accuracy of such
representations and warranties each of the following shall be disregarded: (i)
any "Material Adverse Effect" qualification or any other materiality
qualifications contained in such representations and warranties, (ii) any
inaccuracy that does not, together will all other inaccuracies, have a Parent
Material Adverse Effect, (iii) any inaccuracy that results from general business
or economic conditions, (iv) any inaccuracy that results from conditions
generally affecting the industry in which Parent or Parent's Subsidiaries
competes, (v) any inaccuracy that results from the announcement or pendency of
the Merger or any of the transactions contemplated hereby, and (vi) any
inaccuracy that results from or relates to the taking of any action contemplated
by this Agreement.
(b) Without limiting the effect or independence of the
condition set forth in Section 7.1(a), the representations and warranties of
Parent and Merger Sub contained in this Agreement (except to the extent such
representations and warranties which are expressly stated to be made as of an
earlier date, which shall be true and correct in all respects as of such date)
shall be accurate in all respects as of the Closing Date, it being understood
that for the purposes of determining the accuracy of such representations and
warranties each of the following shall be disregarded: (i) any "Material Adverse
Effect" qualification or any other materiality qualifications contained in such
representations and warranties, (ii) any inaccuracy that does not, together with
all other inaccuracies, have a Parent Material Adverse Effect, (iii) any
inaccuracy that results from general business or economic conditions, (iv) any
inaccuracy that results from conditions generally affecting the industry in
which Parent or Parent's Subsidiaries competes, (v) any inaccuracy that results
from the announcement or pendency of the Merger or any of the transactions
contemplated hereby, and (vi) any inaccuracy that results from the taking of any
action contemplated by this Agreement.
7.2 PERFORMANCE OF COVENANTS. All of the covenants and
obligations that Parent and Merger Sub are required to comply with or to perform
at or prior to the Closing shall have been complied with and performed, except
where the failure to perform such covenants or obligations would not have a
Material Adverse Effect on the Company or Parent.
7.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The Form S-4
Registration Statement shall have become effective in accordance with the
provisions of the Securities Act, and no stop order shall have been issued by
the SEC with respect to the Form S-4 Registration Statement.
<PAGE> 55
7.4 STOCKHOLDER APPROVAL. This Agreement and the Merger shall
have been duly adopted and approved, and the Merger shall have been duly
approved, by the Required Company Stockholder Vote and by the Required Parent
Shareholder Vote and the Parent Proposals shall have been approved as required
by applicable law.
7.5 CONSENTS. All Consents required to be obtained by Parent that
are specifically set forth on Exhibit J attached hereto shall have been obtained
and shall be in full force and effect.
7.6 AGREEMENTS AND DOCUMENTS. Parent and the Company shall have
received the following agreements and documents, each of which shall be in full
force and effect:
(a) an employment agreement in substantially the form
attached hereto as Exhibit H which shall have been executed and delivered by
Parent and Charles J. Casamento, and such agreement shall become effective as of
the Closing Date;
(b) a separation and consulting agreement in substantially
the form attached hereto as Exhibit I-1 which shall have been executed and
delivered by Parent and Paul J. Marangos and such agreement shall become
effective as of the Closing Date, and an executive severance benefits agreement
shall have been executed and delivered by Parent and Dr. Marangos in
substantially the form attached hereto as Exhibit I-2 (or a similar agreement
which provides Dr. Marangos with an equivalent economic benefit as reflected
therein) and such agreement shall become effective as of or prior to the Closing
Date;
(c) a legal opinion of Latham & Watkins, dated as of the
Closing Date, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368 of the Code (it being understood that, in
rendering such opinion, Latham & Watkins may rely upon the tax representation
letters referred to in Section 5.11); provided, however, that if Latham &
Watkins does not render such opinion or withdraws or modifies such opinion, this
condition shall nonetheless be deemed satisfied if Cooley Godward LLP, counsel
to Parent, renders such opinion to the Company; and
(d) a certificate executed on behalf of Parent by an
executive officer of Parent, confirming that conditions set forth in Sections
7.1, 7.2, 7.4, 7.5, 7.7 and 7.8 and 7.9 have been duly satisfied.
7.7 LISTING. The shares of Parent Common Stock to be issued in
the Merger shall have been approved for listing (subject to notice of issuance)
on AMEX.
7.8 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger by
the Company shall have been issued by any court of competent jurisdiction and
remain in effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger by the Company
illegal.
7.9 NO GOVERNMENTAL LITIGATION. There shall not be pending or
threatened any Legal Proceeding in which a Governmental Body is or is threatened
to become a party or is otherwise involved, and neither Parent nor the Company
shall have received any communication
<PAGE> 56
from any Governmental Body in which such Governmental Body indicates the
possibility of commencing any Legal Proceeding or taking any other action: (a)
challenging or seeking to restrain or prohibit the consummation of the Merger or
any of the other transactions contemplated by this Agreement; (b) relating to
the Merger and seeking to obtain from the Company or any of its Subsidiaries, or
Parent or any of its Subsidiaries, any damages or other relief that may be
material to the Company and Parent, taken as a whole, following the Merger; (c)
seeking to prohibit or limit in any material respect Parent's ability to vote,
receive dividends with respect to or otherwise exercise ownership rights with
respect to the stock of the Company; or (d) which would materially and adversely
affect the right of the Company or Parent to own the assets or operate the
business of Parent following the Merger.
8. TERMINATION
8.1 TERMINATION. This Agreement may be terminated prior to the
Effective Time (whether before or after approval of the Merger by the Required
Company Stockholder Vote and/or the Required Parent Shareholder Vote):
(a) by mutual written consent of Parent and the Company
duly authorized by the boards of directors of Parent and the Company;
(b) by either Parent or the Company if the Merger shall
not have been consummated by December 31, 1999; provided that the right to
terminate this Agreement under this Section 8.1(b) shall not be available to any
party if the failure to consummate the Merger is the result of willful breach of
this Agreement by the party seeking to terminate this Agreement;
(c) by either Parent or the Company if a court of
competent jurisdiction or other Governmental Body shall have issued a final and
nonappealable order, decree or ruling, or shall have taken any other action,
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger;
(d) by either Parent or the Company if (i) the Parent
Shareholders' Meeting (including any adjournments thereof) shall have been held
and completed and Parent's shareholders shall have taken a final vote on a
proposal to approve and adopt this Agreement and approve the Merger and approve
the Amended Articles, and (ii) this Agreement, the Merger and the Amended
Articles shall not have been approved by the Required Parent Shareholder Vote;
provided however, that Parent shall not be permitted to terminate this Agreement
pursuant to this Section 8.1(d) if the failure of Parent's shareholders to
approve this Agreement, the Merger or the Amended Articles is attributable to a
failure on the part of Parent to perform any material obligation required to
have been performed by Parent under this Agreement; provided further however,
that Parent shall not be permitted to terminate this Agreement pursuant to this
Section 8.1(d) unless Parent shall have paid to the Company any fee required to
be paid to the Company pursuant to Section 8.3(b)(i);
(e) by either Parent or the Company if (i) the Company
Stockholders' Meeting (including any adjournments thereof) shall have been held
and completed and the Company's stockholders shall have taken a final vote on a
proposal to approve and adopt this Agreement and approve the Merger, and (ii)
this Agreement and the Merger shall not have been
<PAGE> 57
approved by the Required Company Stockholder Vote; provided however, that the
Company shall not be permitted to terminate this Agreement pursuant to this
Section 8.1(e) if the failure of the Company's stockholders to approve this
Agreement and the Merger is attributable to a failure on the part of the Company
to perform any material obligation required to have been performed by the
Company under this Agreement; provided further however, that the Company shall
not be permitted to terminate this Agreement pursuant to this Section 8.1(e)
unless the Company shall have paid to Parent any fee required to be paid to
Parent pursuant to Section 8.3(b)(ii);
(f) by Parent if the total Merger Shares (as determined
under Section 1.5(b)(iii)) would equal or exceed the total number of Parent
Outstanding Shares;
(g) by (i) Parent (at any time prior to the adoption and
approval of this Agreement and the Merger by the Required Company Stockholder
Vote) if a Company Triggering Event shall have occurred, or (ii) the Company (at
any time prior to the adoption and approval of this Agreement and the Merger by
the Required Parent Shareholder Vote) if a Parent Triggering Event shall have
occurred;
(h) by Parent if any of the Company's covenants contained
in this Agreement shall have been breached or if any of the Company's
representations and warranties contained in this Agreement shall have been
inaccurate or breached whereby such breach or inaccuracy (after taking into
account all such breaches and inaccuracies) shall have resulted in a Material
Adverse Effect on the Company; provided, however, that Parent may not terminate
this Agreement under this Section 8.1(h) on account of any such breach or
inaccuracy that is curable by the Company unless the Company fails to cure such
inaccuracy or breach within 15 days after receiving written notice from Parent
of such inaccuracy or breach;
(i) by the Company if any of Parent's covenants contained
in this Agreement shall have been breached or if any of Parent's representations
and warranties contained in this Agreement shall have been inaccurate or
breached whereby such breach or inaccuracy (after taking into account all such
breaches and inaccuracies) shall have resulted in a Material Adverse Effect on
Parent; provided, however, that the Company may not terminate this Agreement
under this Section 8.1(i) on account of any such breach or inaccuracy that is
curable by Parent unless Parent fails to cure such inaccuracy or breach within
15 days after receiving written notice from the Company of such inaccuracy or
breach.
8.2 EFFECT OF TERMINATION. The termination of this Agreement
shall be effected by the delivery by the party terminating this Agreement to
each other party of a written notice of such termination, specifying the basis
for such termination and the Section of this Agreement pursuant to which such
termination is being effected. In the event this Agreement is terminated
pursuant to Section 8.1, this Agreement shall be of no further force or effect;
provided, however, that (i) this Section 8.2, Section 8.3 and Section 9 shall
survive the termination of this Agreement and shall remain in full force and
effect, and (ii) the termination of this Agreement shall not relieve any party
from any liability for any inaccuracy in or breach of any representation,
warranty or covenant contained in this Agreement.
<PAGE> 58
8.3 EXPENSES; TERMINATION FEES.
(a) Except as set forth in this Section 8.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; provided, however, that (i)
Parent and the Company shall share equally all fees and expenses, other than
attorneys' fees, incurred in connection with the filing, printing and mailing of
the Form S-4 Registration Statement and the Prospectus/Proxy Statement and any
amendments or supplements thereto.
(b) In consideration of the substantial time, expense and
forgoing other opportunities invested by the parties in connection with this
Agreement and the transactions contemplated by this Agreement,
(i) In the event this Agreement is terminated by
Parent or the Company pursuant to Section 8.1(d), by Parent pursuant to Section
8.1(f) or by the Company pursuant to Section 8.1(g)(ii), then, in either such
case, Parent shall pay to the Company, in cash at the time specified in the next
sentence, a nonrefundable fee in the amount of $1,000,000. In the case of
termination of this Agreement by Parent pursuant to Section 8.1(d), the fee
referred to in the preceding sentence shall be paid by Parent prior to such
termination, and in the case of termination of this Agreement by the Company
pursuant to Section 8.1(d) or Section 8.1(g)(ii), or by Parent pursuant to
Section 8.1(f), the fee referred to in the preceding sentence shall be paid by
Parent within two business days after such termination.
(ii) In the event this Agreement is terminated by
Parent or the Company pursuant to Section 8.1(e) or by Parent pursuant to
Section 8.1(g)(i), then the Company shall pay to Parent, in cash at the time
specified in the next sentence, a nonrefundable fee in the amount of $1,000,000.
In the case of termination of this Agreement by the Company pursuant to Section
8.1(e), the fee referred to in the preceding sentence shall be paid by the
Company prior to such termination, and in the case of termination of this
Agreement by Parent pursuant to Section 8.1(e) or Section 8.1(g)(i), the fee
referred to in the preceding sentence shall be paid by the Company within two
business days after such termination.
9. MISCELLANEOUS PROVISIONS
9.1 AMENDMENT. This Agreement may be amended with the approval of
the respective boards of directors of the Company and Parent at any time
(whether before or after the adoption and approval of this Agreement and the
approval of the Merger by the stockholders of the Company); provided, however,
that after any such adoption and approval of this Agreement and approval of the
Merger by the Company's stockholders, no amendment shall be made which by law
requires further approval of the stockholders of the Company without the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
9.2 WAIVER.
(a) No failure on the part of either party to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of either party in exercising
<PAGE> 59
any power, right, privilege or remedy under this Agreement, shall operate as a
waiver of such power, right, privilege or remedy; and no single or partial
exercise of any such power, right, privilege or remedy shall preclude any other
or further exercise thereof or of any other power, right, privilege or remedy.
(b) Neither party shall be deemed to have waived any claim
arising out of this Agreement, or any power, right, privilege or remedy under
this Agreement, unless the waiver of such claim, power, right, privilege or
remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such party; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
9.3 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Agreement or in any certificate
delivered pursuant to this Agreement shall survive the Merger.
9.4 ENTIRE AGREEMENT; COUNTERPARTS. This Agreement and the other
agreements referred to herein constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof and thereof. This Agreement may be
executed in several counterparts, each of which shall be deemed an original and
all of which shall constitute one and the same instrument
9.5 APPLICABLE LAW; JURISDICTION. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Delaware, regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof. In any action between the parties
arising out of or relating to this Agreement or any of the transactions
contemplated by this Agreement: (a) each of the parties irrevocably and
unconditionally consents and submits to the exclusive jurisdiction and venue of
the state and federal courts located in the State of California; (b) each of the
parties irrevocably waives the right to trial by jury; and (c) each of the
parties irrevocably consents to service of process by first class certified
mail, return receipt requested, postage prepaid, to the address at which such
party is to receive notice in accordance with Section 9.9.
9.6 DISCLOSURE SCHEDULES.
(a) The Company shall prepare and deliver to Parent
concurrently herewith a Company Disclosure Schedule which has been duly executed
on behalf of the Company by its President and which contains exceptions to the
Company's representations and warranties made in Section 2 of this Agreement.
The Company Disclosure Schedule shall be arranged in separate parts
corresponding to the numbered and lettered sections contained in Section 2, and
the information disclosed in any numbered or lettered part shall be deemed to
relate to and to qualify the representations or warranties set forth in the
corresponding numbered or lettered section in Section 2.
(b) Parent shall prepare and deliver to the Company
concurrently herewith a Parent Disclosure Schedule which has been duly executed
on behalf of Parent by its President and which contains exceptions to Parent's
representations and warranties made in Section 3 of this Agreement. The Parent
Disclosure Schedule shall be arranged in separate parts
<PAGE> 60
corresponding to the numbered and lettered sections contained in Section 3, and
the information disclosed in any numbered or lettered part shall be deemed to
relate to and to qualify the representations or warranties set forth in the
corresponding numbered or lettered section in Section 3.
(c) The Company Disclosure Schedule and the Parent
Disclosure Schedule and the information, descriptions and disclosures contained
therein will be deemed to be automatically disclosed in any other part of the
Company Disclosure Schedule or the Parent Disclosure Schedule, as applicable,
where a cross reference to such part is made or where the relevance of such
information, descriptions or disclosures to such part is reasonably apparent.
9.7 ATTORNEYS' FEES. In any action at law or suit in equity to
enforce this Agreement or the rights of any of the parties hereunder, the
prevailing party in such action or suit shall be entitled to receive a
reasonable sum for its attorneys' fees and all other reasonable costs and
expenses incurred in such action or suit.
9.8 ASSIGNABILITY. This Agreement shall be binding upon, and
shall be enforceable by and inure solely to the benefit of, the parties hereto
and their respective successors and assigns; provided, however, that neither
this Agreement nor any of Parent's rights or the Company's rights hereunder may
be assigned by Parent or the Company, as applicable, without the prior written
consent of the Company or Parent, as applicable, and any attempted assignment of
this Agreement or any of such rights by the Company without such consent shall
be void and of no effect. Nothing in this Agreement, express or implied, is
intended to or shall confer upon any Person any right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
9.9 NOTICES. Any notice or other communication required or
permitted to be delivered to any party under this Agreement shall be in writing
and shall be deemed properly delivered, given and received (a) when delivered by
hand, or (b) after sent by registered mail or, by courier or express delivery
service or by facsimile to the address or facsimile telephone number set forth
beneath the name of such party below (or to such other address or facsimile
telephone number as such party shall have specified in a written notice given to
the other parties hereto):
if to Parent:
Cypros Pharmaceutical Corporation
2714 Loker Avenue West
Carlsbad, CA 92008
FAX: (760) 929-7548
Attention: Chief Financial Officer
<PAGE> 61
if to Merger Sub:
Cypros Acquisition Corporation
2714 Loker Avenue West
Carlsbad, CA 92008
FAX: (760) 929-7548
Attention: Secretary
if to the Company:
RiboGene, Inc.
26118 Research Road
Hayward, CA 94545
FAX: (510) 293-2596
Attention: Chief Executive Officer
9.10 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereunder are not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated hereunder be consummated as
originally contemplated to the fullest extent possible.
9.11 COOPERATION. Each of the Company and Parent agrees to
cooperate fully with the other and to execute and deliver such further
documents, certificates, agreements and instruments and to take such other
actions as may be reasonably requested by the other party to evidence or reflect
the transactions contemplated by this Agreement and to carry out the intent and
purposes of this Agreement.
9.12 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include masculine and feminine genders.
(b) The parties hereto agree that any rule of construction
to the effect that ambiguities are to be resolved against the drafting party
shall not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
<PAGE> 62
(d) Except as otherwise indicated, all references in this
Agreement to "Sections," "Exhibits" and "Schedules" are intended to refer to
Sections of this Agreement and Exhibits or Schedules to this Agreement.
(e) The bold-faced headings contained in this Agreement
are for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
CYPROS PHARMACEUTICAL CORPORATION,
a California corporation
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
CYPROS ACQUISITION CORPORATION,
a Delaware corporation
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
RIBOGENE, INC.,
a Delaware corporation
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
<PAGE> 63
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
AGREEMENT. "Agreement" shall mean the Agreement and Plan of
Reorganization to which this Exhibit A is attached, as it may be amended from
time to time.
AMEX. "AMEX" shall mean the American Stock Exchange, Inc.
AMENDED ARTICLES. "Amended Articles" shall have the meaning ascribed
thereto in Section 1.4(a).
APPLICABLE REGULATORY REQUIREMENTS. "Applicable Regulatory Requirements"
shall have the meaning ascribed thereto in Section 2.20.
CCC. "CCC" shall mean the California Corporation Code.
CERTIFICATE OF MERGER. "Certificate of Merger" shall have the meaning
ascribed thereto in Section 1.3.
CLOSING; CLOSING DATE. "Closing" and "Closing Date" shall have the
meanings ascribed thereto in Section 1.3.
CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
COMPANY ACQUISITION PROPOSAL. "Company Acquisition Proposal" shall mean
any offer, proposal or inquiry (other than an offer or proposal by Parent)
contemplating or otherwise relating to any Company Acquisition Transaction.
COMPANY ACQUISITION TRANSACTION. "Company Acquisition Transaction" with
respect to the Company shall mean any transaction or series of transactions
involving:
(a) any merger, consolidation, amalgamation, share exchange,
business combination, issuance of securities, acquisition of securities,
tender offer, exchange offer or other similar transaction (i) in which
the Company or any Company Subsidiary is a constituent company or
involving the capital stock of the Company or any Company Subsidiary,
(ii) in which a Person or "group" (as defined in the Exchange Act and
the rules promulgated thereunder) of Persons directly or indirectly
acquires the Company or any Company Subsidiary or more than 20% of the
Company's or any Company Subsidiary's business or directly or indirectly
acquires beneficial or record ownership of securities representing, or
exchangeable for or convertible into, more than 20% of the outstanding
securities of any class of voting securities of the Company or any
Company Subsidiary, or (iii) in which the Company or any Company
Subsidiary issues securities representing more than 20% of the
outstanding securities of any class of voting securities of the Company
or any Company Subsidiary;
<PAGE> 64
(b) any sale, lease, exchange, transfer, license, acquisition or
disposition of more than 20% of the assets of the Company or any Company
Subsidiary or assets which generate more than 20% of the Company's
revenue or 20% of the revenue of any Company Subsidiary; or
(c) any liquidation or dissolution of the Company or any Company
Subsidiary; provided, however, that a Company Collaboration Agreement
shall not be deemed to be a Parent Acquisition Transaction.
COMPANY COLLABORATION AGREEMENT. "Company Collaboration Agreement" shall
mean any collaboration or other similar transaction with a pharmaceutical or
biotechnology company, to the extent such collaboration or other similar
transaction relates primarily to the licensing of technology relating to the
Company's drug discovery business.
COMPANY COMMON STOCK. "Company Common Stock" shall mean the Common
Stock, $0.01 par value per share, of the Company.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall mean
the Company Disclosure Schedule that has been prepared by the Company with
respect to the representations and warranties of the Company made in Section 2
in accordance with the requirements of Section 9.6(a) of the Agreement and that
has been delivered by the Company to Parent on the date of the Agreement and
signed by the President of the Company.
COMPANY LEASES. "Company Leases" shall have the meaning ascribed thereto
in Section 2.16.
COMPANY OPTIONS. "Company Options" shall have the meaning ascribed
thereto in Section 2.3(b).
COMPANY OUTSTANDING SHARES. "Company Outstanding Shares" shall have the
meaning ascribed thereto in Section 1.5(b)(i).
COMPANY PREFERRED STOCK. "Company Preferred Stock" shall mean the
Preferred Stock, $0.001 par value per share, of the Company.
COMPANY PROPRIETARY ASSETS. "Company Proprietary Assets" shall have the
meaning ascribed thereto in Section 2.7.
COMPANY RETURNS. "Company Returns" shall have the meaning ascribed
thereto in Section 2.11(a).
COMPANY RIGHTS PLAN. "Company Rights Plan" shall mean that certain
Rights Agreement dated as of July 1, 1999, by and between the Company and
American Stock Transfer & Trust Company as Rights Agent.
<PAGE> 65
COMPANY SEC DOCUMENTS. "Company SEC Documents" shall have the meaning
ascribed thereto in Section 2.4(a).
COMPANY STOCKHOLDERS' MEETING. "Company Stockholders" Meeting shall have
the meaning ascribed thereto in Section 5.2.
COMPANY SUBSIDIARIES. "Company Subsidiaries" shall have the meaning
ascribed thereto n Section 2.1(a).
COMPANY SUPERIOR OFFER. "Company Superior Offer" shall mean an
unsolicited, bona fide written offer made by a third party relating to any
Company Acquisition Transaction on terms that the board of directors of the
Company determines, in its reasonable judgment, based upon the advice of its
financial advisor and upon consultation with its counsel, to be more favorable
to the Company's stockholders than the terms of the Merger; provided, however,
that any such offer shall not be deemed to be a "Company Superior Offer" if any
financing required to consummate the transaction contemplated by such offer is
not committed (in a writing signed by a Person that the board of directors of
the Company reasonably believes has the financial ability to meet such
commitment) and the board of directors of the Company does not reasonably
believe that such financing is likely to be obtained by such third party on a
timely basis.
COMPANY TRIGGERING EVENT. A "Company Triggering Event" shall be deemed
to have occurred if: (i) the board of directors of the Company shall have failed
to unanimously recommend or shall for any reason have withdrawn or shall have
amended or modified in a manner adverse to Parent its unanimous recommendation
in favor of, the adoption and approval of the Agreement or the approval of the
Merger; (ii) the Company shall have failed to include in the Prospectus/Proxy
Statement the unanimous recommendation of the board of directors of the Company
in favor of the adoption and approval of the Agreement and the approval of the
Merger; (iii) the board of directors of the Company fails to reaffirm its
unanimous recommendation in favor of the adoption and approval of the Agreement
and the approval of the Merger within ten business days after Parent requests in
writing that such unanimous recommendation be reaffirmed; (iv) the board of
directors of the Company shall have approved, endorsed or recommended any
Company Acquisition Transaction; (v) the Company shall have entered into any
letter of intent or similar document or any Contract relating to any Company
Acquisition Transaction; (vi) the Company shall have failed to hold the Company
Stockholders' Meeting as promptly as practicable after the Form S-4 Registration
Statement is declared effective under the Securities Act; (vii) a tender or
exchange offer relating to securities of the Company shall have been commenced
and the Company shall not have sent to its securityholders, within ten business
days after the commencement of such tender or exchange offer, a statement
disclosing that the Company recommends rejection of such tender or exchange
offer; (viii) a Company Acquisition Transaction is publicly announced, and the
Company fails to issue a press release announcing its opposition to such Company
Acquisition Transaction within ten business days after such Company Acquisition
Transaction is announced; (ix) the Company breaches or is deemed to have
breached any of its obligations under Section 4.3 of the Agreement, or (x) a
Person or group (as defined in the Exchange Act and the rules promulgated
thereunder) shall have acquired more than fifty percent (50%) of the Company's
voting securities (excluding Persons or groups that as of the date of this
Agreement, hold more than
<PAGE> 66
fifty percent (50%) of the Company's voting securities or that may be deemed to
have acquired such percentage upon execution of the Voting Agreements).
COMPANY UNAUDITED INTERIM BALANCE SHEET. "Company Unaudited Interim
Balance Sheet" shall have the meaning ascribed thereto in Section 2.4(c).
COMPANY WARRANTS. "Company Warrants" shall mean the outstanding warrants
to purchase Company Common Stock.
CONFIDENTIAL INFORMATION. "Confidential Information" shall have the
meanings ascribed thereto in Section 2.7(g) and in Section 3.7(g), as the case
may be.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization)
required by any party to be obtained under any Contract or Legal Requirement in
connection with the transactions contemplated by this Agreement.
CONSTITUENT COMPONENT. "Constituent Component" shall have the meaning
ascribed thereto in Section 2.21.
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, option, warranty,
purchase order, license, sublicense, insurance policy, benefit plan or legally
binding commitment or undertaking of any nature.
DGCL. "DGCL" shall mean the Delaware General Corporation Law.
EFFECTIVE TIME. "Effective Time" shall have the meaning ascribed thereto
in Section 1.3.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any company
limited by shares, limited liability company or joint stock company), firm,
society or other enterprise, association, organization or entity.
ENVIRONMENTAL LAW. "Environmental Law" shall have the meaning ascribed
thereto in Section 2.17.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
<PAGE> 67
ESPP. "ESPP" shall have the meaning ascribed thereto in Section
1.5(a)(i).
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
EXCHANGE AGENT. "Exchange Agent" shall have the meaning ascribed thereto
in Section 1.9(a).
EXCHANGE FUND. "Exchange Fund" shall have the meaning ascribed thereto
in Section 1.9(a).
EXCHANGE RATIO. "Exchange Ratio" shall have the meaning ascribed thereto
in Section 1.5(b)(ii).
EXISTING POLICY. "Existing Policy" shall have the meaning ascribed
thereto in Section 5.7(b).
FDA; FDA, ETC. "FDA" and FDA, etc." shall each have the meaning ascribed
thereto in Section 2.22(a).
FORM S-4 REGISTRATION STATEMENT. "Form S-4 Registration Statement" shall
mean the registration statement on Form S-4 to be filed with the SEC by Parent
pursuant to Section 5.1 in connection with issuance of Parent Common Stock in
the Merger, as said registration statement may be amended prior to the time it
is declared effective by the SEC.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, variance, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal, foreign
or other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, ministry, fund, foundation, center, organization,
unit, body or Entity and any court or other tribunal).
INDEMNIFIED PERSONS. "Indemnified Persons" shall have the meaning
ascribed thereto in Section 5.7.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
<PAGE> 68
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body (or under the
authority of AMEX).
LIABILITIES. "Liabilities" or "Liability" shall mean any liability or
obligation of any kind or nature, secured or unsecured (whether absolute,
accrued, contingent or otherwise, and whether due or to become due).
MATERIAL ADVERSE EFFECT. "Material Adverse Effect" shall mean, with
respect to any Person, any event, circumstance, change or effect that is or
could reasonably be expected to be materially adverse to the business,
operations, properties, condition (financial or otherwise) or assets of such
Person and its subsidiaries taken as a whole. In no event shall any of the
following constitute a Material Adverse Effect: (i) a change in the trading
prices of either the Company's or Parent's equity securities between the date
hereof and the Effective Time, in and of itself; (ii) conditions, events,
circumstances, changes or effects generally affecting the industry in which
either the Company or Parent operates or arising from changes in general
business or economic conditions; (iii) conditions, events, circumstances,
changes or effects directly attributable to out-of-pocket fees and expenses
(including without limitation legal, accounting and financial consulting fees
and expenses) incurred in connection with the transactions contemplated by this
Agreement; (iv) any conditions, events, circumstances, changes or effects
resulting from any change in law or generally accepted accounting principles,
which affect generally entities such as Parent or the Company; (v) any
conditions, events, circumstances, changes or effects (including without
limitation, delays in customer orders, a reduction in sales, a disruption in
supplier, distributor or similar relationships or a loss of employees) resulting
from the announcement or pendency of any of the transactions contemplated by
this Agreement; or (vi) any conditions, events, circumstances, changes or
effects resulting from compliance by the Company or Parent with, or the taking
of any action contemplated by, the terms of this Agreement.
MATERIAL COMPANY CONTRACT. "Material Company Contract" shall have the
meaning ascribed thereto in Section 2.8(a).
MATERIAL PARENT CONTRACT. "Material Parent Contract shall have the
meaning ascribed thereto in Section 3.8(a).
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental Concern"
shall have the meaning ascribed thereto in Section 2.17.
MERGER SHARES. "Merger Shares" shall have the meaning ascribed thereto
in Section 1.5(b)(iii).
NASDAQ. "Nasdaq" shall mean the Nasdaq Stock Market, Inc.
MERGER. "Merger" shall have the meaning ascribed thereto in Recital A of
this Agreement.
<PAGE> 69
PARENT ACQUISITION PROPOSAL. "Parent Acquisition Proposal" shall mean
any offer, proposal or inquiry (other than an offer or proposal by the Company)
contemplating or otherwise relating to any Parent Acquisition Transaction.
PARENT ACQUISITION TRANSACTION. "Parent Acquisition Transaction" with
respect to Parent shall mean any transaction or series of transactions
involving:
(a) any merger, consolidation, amalgamation, share exchange,
business combination, issuance of securities, acquisition of securities,
tender offer, exchange offer or other similar transaction (i) in which
Parent or any Parent Subsidiary is a constituent company or involving
the capital stock of Parent or any Parent Subsidiary, (ii) in which a
Person or "group" (as defined in the Exchange Act and the rules
promulgated thereunder) of Persons directly or indirectly acquires
Parent or any Parent Subsidiary or more than 20% of Parent's or any
Parent Subsidiary's business or directly or indirectly acquires
beneficial or record ownership of securities representing, or
exchangeable for or convertible into, more than 20% of the outstanding
securities of any class of voting securities of Parent or any Parent
Subsidiary, or (iii) in which Parent or any Parent Subsidiary issues
securities representing more than 20% of the outstanding securities of
any class of voting securities of Parent or any Parent Subsidiary;
(b) any sale, lease, exchange, transfer, license, acquisition or
disposition of more than 20% of the assets of Parent or any Parent
Subsidiary or assets which generate more than 20% of Parent's revenue or
20% of the revenue of any Parent Subsidiary; or
(c) any liquidation or dissolution of Parent or any Parent
Subsidiary;
provided, however, that a Parent Collaboration Agreement shall not be
deemed to be a Parent Acquisition Transaction.
PARENT COLLABORATION AGREEMENT. "Parent Collaboration Agreement" shall
mean any collaboration or other similar transaction with a pharmaceutical or
biotechnology company, to the extent such collaboration or other similar
transaction relates primarily to the licensing of technology relating to
Parent's drug discovery or drug development (pre-clinical or clinical) business.
PARENT COMMON STOCK. "Parent Common Stock" shall mean the Common Stock,
no par value per share, of Parent.
PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" shall mean the
Parent Disclosure Schedule that has been prepared by Parent with respect to the
representations and warranties of Parent made in Section 3 in accordance with
the requirements of Section 9.6(b) of the Agreement and that has been delivered
by the Parent to the Company on the date of the Agreement and signed by the
President of Parent.
PARENT LEASES. "Parent Leases" shall have the meaning ascribed thereto
in Section 3.16.
PARENT OPTION PLAN AMENDMENT. "Parent Option Plan Amendment" shall have
the meaning ascribed thereto in Section 4.5(b)(ii).
<PAGE> 70
PARENT OPTIONS. "Parent Options" shall mean outstanding stock options
granted by Parent pursuant to Parent's stock option plans.
PARENT OUTSTANDING SHARES. "Parent Outstanding Shares" shall have the
meaning ascribed thereto in Section 1.5(b)(iv).
PARENT PREFERRED STOCK. "Parent Preferred Stock" shall mean the Series A
Preferred Stock, no par value per share of Parent.
PARENT PROPOSAL. "Parent Proposal" shall have the meaning ascribed
thereto in Section 5.3(a).
PARENT PROPRIETARY ASSETS. "Parent Proprietary Assets" shall have the
meaning ascribed thereto in Section 3.7(a).
PARENT RETURNS. "Parent Returns" shall have the meaning ascribed thereto
in Section 3.11(a).
PARENT SEC DOCUMENTS. "Parent SEC Documents shall have the meaning
ascribed thereto in Section 3.4(a).
PARENT SHAREHOLDERS' MEETING. "Parent Shareholders' Meeting" shall have
the meaning ascribed thereto in Section 5.3.
PARENT SUBSIDIARIES. "Parent Subsidiaries" shall have the meaning
ascribed thereto in Section 3.1.
PARENT SUPERIOR OFFER. "Parent Superior Offer" shall mean an
unsolicited, bona fide written offer made by a third party relating to any
Parent Acquisition Transaction on terms that the board of directors of Parent
determines, in its reasonable judgment, based upon the advice of its financial
advisor and upon consultation with its counsel, to be more favorable to Parent's
stockholders than the terms of the Merger; provided, however, that any such
offer shall not be deemed to be a "Parent Superior Offer" if (1) any financing
required to consummate the transaction contemplated by such offer is not
committed (in a writing signed by a Person that the board of directors of Parent
reasonably believes has the financial ability to meet such commitment) and the
board of directors of Parent does not reasonably believe that such financing is
likely to be obtained by such third party on a timely basis.
PARENT TRIGGERING EVENT. A "Parent Triggering Event" shall be deemed to
have occurred if: (i) the board of directors of Parent shall have failed to
unanimously recommend or shall for any reason have withdrawn or shall have
amended or modified in a manner adverse to Parent its unanimous recommendation
in favor of, the adoption and approval of the Agreement or the approval of the
Merger; (ii) Parent shall have failed to include in the Prospectus/Proxy
Statement the unanimous recommendation of the board of directors of Parent in
favor of the adoption and approval of the Agreement and the approval of the
Merger; (iii) the board of directors of Parent fails to reaffirm its unanimous
recommendation in favor of the adoption and approval of the Agreement and the
approval of the Merger within ten business days after Parent requests in writing
that such unanimous recommendation be reaffirmed; (iv) the board of
<PAGE> 71
directors of Parent shall have approved, endorsed or recommended any Parent
Acquisition Transaction; (v) Parent shall have entered into any letter of intent
or similar document or any Contract relating to any Parent Acquisition
Transaction; (vi) Parent shall have failed to hold Parent Shareholders' Meeting
as promptly as practicable after the Form S-4 Registration Statement is declared
effective under the Securities Act; (vii) a tender or exchange offer relating to
securities of Parent shall have been commenced and Parent shall not have sent to
its securityholders, within ten business days after the commencement of such
tender or exchange offer, a statement disclosing that Parent recommends
rejection of such tender or exchange offer; (viii) a Parent Acquisition
Transaction is publicly announced, and Parent fails to issue a press release
announcing its opposition to such Parent Acquisition Transaction within ten
business days after such Parent Acquisition Transaction is announced; (ix)
Parent breaches or is deemed to have breached any of its obligations under
Section 4.6 of the Agreement, or (x) a Person or group (as defined in the
Exchange Act and the rules promulgated thereunder) shall have acquired more than
fifty percent (50%) of Parent's voting securities (excluding Persons or groups
that as of the date of this Agreement, hold more than fifty percent (50%) of
Parent's voting securities or that may be deemed to have acquired such
percentage upon execution of the Voting Agreements).
PARENT UNAUDITED INTERIM BALANCE SHEET. "Parent Unaudited Interim
Balance Sheet" shall have the meaning ascribed thereto in Section 3.4(c).
PARENT WARRANTS. "Parent Warrants" shall mean the outstanding warrants
to purchase Parent Common Stock.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PRE-CLOSING PERIOD. "Pre-Closing Period" shall have the meaning ascribed
thereto in Section 4.1.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent,
patent application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, source code, algorithm, invention, design,
blueprint, engineering drawing, proprietary product, technology, proprietary
right or other intellectual property right or intangible asset; and (b) right to
use or exploit any of the foregoing.
PROSPECTUS/PROXY STATEMENT. "Prospectus/Proxy Statement" shall mean the
proxy statement to be sent to the Company's stockholders in connection with the
Company Stockholders' Meeting.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors, affiliates, Subsidiaries
and representatives.
REQUIRED COMPANY STOCKHOLDER VOTE. "Required Company Stockholder Vote"
shall have the meaning ascribed thereto in Section 2.23.
<PAGE> 72
REQUIRED PARENT SHAREHOLDER VOTE. "Required Parent Shareholder Vote"
shall have the meaning ascribed thereto in Section 3.23.
S-4 REGISTRATION STATEMENT. "S-4 Registration Statement" shall have the
meaning ascribed thereto in Section 2.27(c).
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
SIGNING DATE CLOSING PRICE. "Signing Date Closing Price" shall have the
meaning ascribed thereto in Section 1.5(b)(iii).
SUBSIDIARY. An entity shall be deemed to be a "Subsidiary" of another
Person if such Person directly or indirectly owns, beneficially or of record,
(a) an amount of voting securities of other interests in such Entity that is
sufficient to enable such Person to elect at leased a majority of the members of
such Entity's board of directors or other governing body, or (b) at least 50% of
the outstanding equity or financial interests or such Entity.
SURVIVING CORPORATION. "Surviving Corporation" shall have the meaning
ascribed thereto in Section 1.1.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, estimated tax,
unemployment tax, national health insurance tax, excise tax, ad valorem tax,
transfer tax, stamp tax, sales tax, use tax, property tax, business tax,
withholding tax or payroll tax), levy, assessment, tariff, duty (including any
customs duty), deficiency or fee, and any related charge or amount (including
any fine, penalty or interest), imposed, assessed or collected by or under the
authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
THIRD PARTY PROPRIETARY ASSETS. "Third Party Proprietary Assets" shall
have the meaning ascribed thereto in Section 2.7(b).
VOTING AGREEMENT. "Voting Agreement" shall have the meaning ascribed
thereto in Recital D.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,214
<SECURITIES> 15,479
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,838
<PP&E> 3,058
<DEPRECIATION> 1,359
<TOTAL-ASSETS> 28,256
<CURRENT-LIABILITIES> 4,927
<BONDS> 0
0
1
<COMMON> 6
<OTHER-SE> 17,124
<TOTAL-LIABILITY-AND-EQUITY> 28,256
<SALES> 0
<TOTAL-REVENUES> 1,007
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,564
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 493
<INCOME-PRETAX> (6,177)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,177)
<EPS-BASIC> (1.09)
<EPS-DILUTED> (1.09)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
Cypros And RiboGene In Merger Agreement
TWO COMPANIES TO FORM FULLY INTEGRATED PHARMACEUTICAL
MARKETING, PRODUCT DEVELOPMENT AND
MANUFACTURING ORGANIZATION
CARLSBAD AND HAYWARD, CA, August 5, 1999--Cypros Pharmaceutical Corp.
(AMEX: CYP) of Carlsbad, CA and RiboGene Inc. (AMEX: RBO) of Hayward, CA today
announced the signing of a definitive merger agreement to form a fully
integrated pharmaceutical marketing and late stage product development company.
The new entity will have multiple phase III product candidates, and will market
four products in the U.S. and a fifth product currently sold in Italy. The
merger was unanimously approved by the boards of directors of both companies.
Cypros stockholders and optionholders will hold approximately 55% of
the fully diluted equity of the combined company and RiboGene stockholders,
option holders and warrant holders will hold approximately 45% of the fully
diluted equity. Structurally, RiboGene will be merged with a subsidiary of
Cypros and become a wholly owned subsidiary of Cypros. As a result of their
merger, each outstanding share of RiboGene common stock will be converted into
the right to receive approximately 1.494 shares of Cypros common stock, based on
the fully diluted capitalization of both companies as of the signing of the
agreement. The exchange ratio is subject to adjustment if the market price of
Cypros common stock is more than $2.47 or less than $1.46 as of the closing. The
final exchange ratio would also reflect changes in the fully diluted
capitalization of the two companies through closing.
Charles J. Casamento, Chairman, President and CEO of RiboGene, will
become Chairman and CEO of the new entity, and Paul J. Marangos, Ph.D.,
Chairman, President and CEO of Cypros, will continue to serve as a Board Member
and consultant to the Company. All members of the Boards of Directors of Cypros
and RiboGene will continue as directors of the combined entity.
The transaction is structured to be a tax-free reorganization and will
be accounted for as a purchase. The merger is subject to customary closing
conditions and is expected to close in late 1999. EVEREN Securities, Inc. acted
as financial advisor to Cypros and Rabobank International acted as financial
advisor to RiboGene.
The holder of RiboGene's outstanding preferred stock would receive a new
series of Cypros voting preferred stock adjusted for the exchange ratio and
otherwise with similar terms to the existing RiboGene preferred stock. Cypros
would assume all of RiboGene's outstanding stock options and warrants.
<PAGE> 2
On a pro forma basis (Cypros April 30, 1999 balances and RiboGene June
30, 1999 balances), the combined companies have cash, cash equivalents and
investments of approximately $35 million and long term debt of $6 million.
RiboGene has a compensating balance arrangement with its bank, which also holds
$5 million of the $6 million of long term debt.
Products to be marketed by the combined entity immediately following the
merger include Ethamolin(R), indicated for the treatment of esophageal ulcers,
and Glofil-125 and Inulin for diagnosis and monitoring of patients with kidney
disease and Neoflo(TM) for wound care. It is expected that an additional burn
care product, Sildaflo(TM), will be launched in the next 12 months. Through
RiboGene's North American partner, Roberts Pharmaceutical Corporation (AMEX:
RPC), the company also plans to market Emitasol(R), an intranasal spray for the
treatment of diabetic gastroparesis and chemotherapy induced, delayed onset
nausea and vomiting. The product is entering its final Phase III clinical trial
in the U.S. and is currently marketed in Italy, under the brand name Pramidin,
by Crinos Industria Farmacobiologica S.p.A.
Commenting on the merger, Dr. Marangos stated: "This is the right move
for both companies because it will better enable us to move forward with
combined Phase III programs and to more effectively promote our existing
products. The merger will result in a more efficient organization better able to
achieve the goals of getting our late stage drugs to market and building the
sales of our existing products. Chuck Casamento's previous successes at
Interneuron and Genzyme should enable the Company to achieve these goals."
"By combining the marketed products, sales force, late-stage development
products and manufacturing capabilities of Cypros with RiboGene's strong balance
sheet and its Phase III product, Emitasol(R), the merger results in a specialty
pharmaceutical company with a pipeline of products," commented Mr. Casamento.
"Consolidation in our industry has been the subject of much discussion as of
late, without much actually happening. Instead of just talking about it,
RiboGene and Cypros are combining forces to build a bigger and better company."
Cypros Pharmaceutical Corporation develops cytoprotective drugs to treat
ischemic disorders and markets acute care hospital based products. The Company
has one multi-center Phase III program in place (Cordox(TM)) in sickle cell
anemia), two Phase II programs (Cordox(TM)) in bypass surgery and Ceresine(TM)
in head injury), and has four acute care products on the market.
RiboGene is a drug discovery company focused on the treatment of
infectious diseases. The Company also has a late stage product, Emitasol(R),
under development for diabetic gastroparesis and chemotherapy-induced delayed
onset nausea and vomiting. RiboGene has alliances with Dainippon Pharmaceutical
Co., Ltd., Roberts Pharmaceutical Corporation, ArQule, Inc., and EnzyMed.
Note: Except for the historical information contained herein, this press
release contains forward-looking statements that involve risks and
uncertainties. Such statements are subject to certain factors which may cause
the companies' results to differ. Factors that may cause such differences
include, but are not limited to, the occurrence or non-occurrence of required
closing conditions set forth in the definitive merger agreement, stock price
movements, the combined company's ability to integrate the combined businesses,
the combined company's need for additional funding, uncertainties regarding the
combined company's intellectual property and other research, development,
marketing and regulatory risks as well as the risks
<PAGE> 3
discussed in Cypros' Annual Report on Form 10-K for the fiscal year ended July
31, 1998 and the Risk Factor section of Cypros' Registration Statement (No.
333-25661), RiboGene's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 and other documents filed with the Securities and Exchange
Commission. The risk factors and other information contained in these documents
should be considered in evaluating Cypros' and RiboGene's prospects and future
financial performance.
CONTACT
Cypros Pharmaceutical Corp. RiboGene, Inc.
Paul J. Marangos Charles J. Casamento
David W. Nassif Timothy E. Morris, ext. 717
(760) 929-9500 (510) 732-5551
BMC Communications/Trout Group
Brad Miles, "Media," Ext. 17
Jonathan Fassberg, "Investors," Ext. 16
(212) 477-9007
