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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of
Earliest Event Reported): July 16, 1997
ANSAN PHARMACEUTICALS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 94-3171943
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(State of Incorporation or Organization) (I.R.S. Employer
Identification no.)
400 Oyster Point Boulevard, Suite 435, South San Francisco, CA 94080
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(Address of principal executive offices) (Zip Code)
Registrant's telephone no., including area code: (415) 635-0200
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NOT APPLICABLE
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
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Ansan Pharmaceuticals, Inc. ("Ansan") has entered into an Agreement and Plan of
Reorganization and Merger with Discovery Laboratories, Inc., a privately-held
development stage biotechnology company, ("Discovery") pursuant to which
Discovery will be merged with and into Ansan (the "Merger"). The parties also
entered into a Stock Purchase Agreement pursuant to which Discovery has
purchased shares of a new class of convertible preferred stock of Ansan for
aggregate cash consideration of $1,300,000, representing a common stock
equivalent price of approximately $1.40 per share. In connection with these
transactions, Ansan has entered into a Sublicense Agreement with Titan
Pharmaceuticals, Inc. ("Titan") Ansan's principal stockholder, pursuant to which
Titan will receive an exclusive worldwide sublicense to certain butyrate
compounds for certain indications in exchange for Titan's payment of a 2%
royalty on net sales and Titan's transfer to Ansan of all of its equity holdings
in Ansan. The sublicense includes the anti-cancer agent Privarex, currently in
Phase I testing for solid tumors. The Sublicense Agreement is subject to
consummation of the Merger.
The closing of the Merger, which is expected to occur in November 1997, is
subject to customary closing conditions, including approval by the stockholders
of Ansan and Discovery. If the Merger is completed, it is anticipated that the
shareholders of Discovery will be issued securities representing approximately
90% of the outstanding stock of the combined entity. In connection with the
Merger, Ansan will seek stockholder approval to effect a reverse stock split. In
the event the Merger is not completed, the preferred stock held by Discovery
may, under certain circumstances, be convertible into shares of common stock
representing 51% of Ansan's outstanding shares and Discovery has the right to
terminate the Merger Agreement if Ansan's securities are delisted from the
Nasdaq Stock Market prior to consummation of the Merger. In such circumstances,
Ansan would have the right to redeem the preferred shares for $1,300,000, plus a
redemption premium of $13,000 per month.
Assuming the equity investment by Discovery had occurred as of June 30,
1997, set forth below is preliminiary pro forma Balance Sheet Data for Ansan as
of June 30, 1997.
ANSAN
PRELIMINARY PRO FORMA BALANCE SHEET DATA
June 30, 1997
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Working Capital 2,660,976
Total Assets 3,118,205
Capital Surplus 1,748,832
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ITEM 7. EXHIBITS
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2.1 Agreement and Plan of Reorganization and Merger between Ansan
Pharmaceuticals, Inc. and Discovery Laboratories, Inc. dated July 16,
1997. ("Merger Agreement")
2.2 Certificate of Designation of Series B Convertible Preferred Stock of
Ansan Pharmaceuticals, Inc. to be filed with the Delaware Secretary
of State in connection with the merger. (Exhibit A to Merger
Agreement)
2.3 Certificate of Merger between Ansan Pharmaceuticals, Inc. and
Discovery Laboratories, Inc. (Exhibit B to Merger Agreement)
2.4 Preferred Stock Purchase Agreement dated as of July 16, 1997 by and
between Ansan Pharmaceuticals, Inc. and Discovery Laboratories,
Inc. ("Stock Purchase Agreement")
3.1 Certificate of Designation of Series A Convertible Preferred Stock of
Ansan Pharmaceuticals, Inc. filed with the Delaware Secretary of State
on July 16, 1997. (Exhibit B to Stock Purchase Agreement)
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SIGNATURE
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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.
ANSAN PHARMACEUTICALS, INC.
Date: July 16, 1997 By: /s/ Vaughan Shalson
------------------------------------
Vaughan Shalson, President and Chief
Executive Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
- ------- -------
<C> <S>
2.1 Agreement and Plan of Reorganization and Merger between Ansan
Pharmaceuticals, Inc. and Discovery Laboratories, Inc. dated July
16, 1997.
2.2 Certificate of Designation of Series B Convertible Preferred Stock
of Ansan Pharmaceuticals, Inc. to be filed with the Delaware
Secretary of State in connection with the merger.
2.3 Certificate of Merger between Ansan Pharmaceuticals, Inc. and
Discovery Laboratories, Inc.
2.4 Preferred Stock Purchase Agreement dated as of July 16, 1997 by and
between Ansan Pharmaceuticals, Inc. and Discovery Laboratories,
Inc.
3.1 Certificate of Designation of Series A Convertible Preferred Stock
of Ansan Pharmaceuticals, Inc. filed with the Delaware Secretary of
State on July 16, 1997.
</TABLE>
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EXHIBIT 2.1
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AGREEMENT AND PLAN
OF REORGANIZATION AND MERGER
BETWEEN
ANSAN PHARMACEUTICALS, INC. AND
DISCOVERY LABORATORIES, INC.
JULY 16, 1997
================================================================================
<PAGE>
AGREEMENT AND PLAN
OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger ("Agreement") is
made as of July 16, 1997 between ANSAN PHARMACEUTICALS, INC., a Delaware
corporation ("Ansan") and DISCOVERY LABORATORIES, INC., a Delaware corporation
("Discovery").
BACKGROUND
A. The parties hereto desire that Discovery shall be merged with and
into Ansan; that Ansan shall be the surviving corporation; and that each share
of the capital stock of Discovery which is outstanding immediately prior to the
effective time of the merger, other than those shares which become "Appraisal
Shares" within the meaning of Section 262 of the DGCL, be converted as set forth
in this Agreement into shares of the capital stock of Ansan.
B. The parties intend that the merger constitute a "reorganization"
under Section 368(a), of the Code.
In consideration of the premises and agreements set forth herein, THE
PARTIES AGREE AS FOLLOWS:
ARTICLE I
DEFINITIONS
The terms defined in this Article I shall, for purposes of this
Agreement, have the meanings specified in this Article I unless the context
expressly or by necessary implication otherwise requires:
1.1. Affiliate. "Affiliate" shall have the meaning set forth in the
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1933 Act.
1.2. Affiliates Agreement. "Affiliates Agreement" shall have the
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meaning set forth in Section 6.9 of this Agreement.
1.3. Ansan Common Stock. "Ansan Common Stock" shall mean the Common
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Stock, $.001 par value, of Ansan.
1.4. Ansan Financial Statements. "Ansan Financial Statements" shall
--------------------------
have the meaning set forth in Section 5.2 of this Agreement.
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1.5. Ansan Preferred Stock. "Ansan Preferred Stock" shall mean the
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Series B Convertible Preferred Stock of Ansan having the rights, preferences and
restrictions substantially as set forth in the Certificate of Designation
attached to this Agreement as Exhibit A, but subject to any further adjustments
to reflect the reverse stock split contemplated by this Agreement, which
Certificate of Designation shall be filed with the Secretary of State of the
State of Delaware on or before the Closing Date.
1.6. Ansan Series A Preferred Stock. "Ansan Series A Preferred
------------------------------
Stock" shall mean the Series A Convertible Preferred Stock of Ansan having the
rights, preferences and restrictions set forth in the Certificate of Designation
filed with the Secretary of State of the State of Delaware on or about the date
hereof.
1.7. Ansan Stock. "Ansan Stock" shall mean the Ansan Common Stock,
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Ansan Preferred Stock and Ansan Series A Preferred Stock.
1.8. ATI. "ATI" shall mean Acute Therapeutics, Inc., a Delaware
---
corporation.
1.9. Appraisal Shares. "Appraisal Shares" shall mean all shares, if
----------------
any, of the outstanding capital stock of Discovery or Ansan for which appraisal
rights have been claimed under Section 262 of the DGCL.
1.10. Balance Sheet. "Balance Sheet" shall have the meaning set
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forth in Section 3.6 of this Agreement.
1.11. Balance Sheet Date. "Balance Sheet Date" shall have the
------------------
meaning set forth in Section 3.6 of this Agreement.
1.12. Business Day. "Business Day" shall mean any day the New York
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Stock Exchange is open for trading.
1.13. Certificate. "Certificate" shall have the meaning set forth in
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Section 2.4.3 of this Agreement.
1.14. Certificate of Merger. "Certificate of Merger" shall mean the
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certificate of merger between Ansan and Discovery as required by Section 251 of
the DGCL, in the form attached to this Agreement as Exhibit B.
1.15. Closing. "Closing" shall mean the delivery by Ansan and
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Discovery of the various documents contemplated by this Agreement or otherwise
required in order to consummate the Merger.
1.16. Closing Date. "Closing Date" shall have the meaning set forth
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in Section 2.2 of this Agreement.
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1.17. Code. "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
1.18. DGCL. "DGCL" shall mean the General Corporation Law of the
----
State of Delaware, as amended.
1.19. Disclosure Statement. "Disclosure Statement" shall have the
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meaning set forth in the first paragraph of Article III of this Agreement.
1.20. Discovery Common Stock. "Discovery Common Stock" shall mean
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the Common Stock, $.001 par value, of Discovery.
1.21. Discovery Financial Statements. "Discovery Financial
------------------------------
Statements" shall have the meaning set forth in Section 4.3 of this Agreement.
1.22. Discovery Option. "Discovery Option" shall have the meaning
----------------
set forth in Section 2.3 of this Agreement.
1.23. Discovery Preferred Stock. "Discovery Preferred Stock" shall
-------------------------
mean the Series A Convertible Preferred Stock of Discovery.
1.24. Discovery Stock. "Discovery Stock" shall mean both the
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Discovery Common Stock and the Discovery Preferred Stock.
1.25. Discovery Warrant. "Discovery Warrant" shall have the meaning
-----------------
set forth in Section 2.3 of this Agreement.
1.26. Discovery Working Capital. "Discovery Working Capital" shall
-------------------------
mean an amount equal to Discovery's current assets, less Discovery's current
liabilities, less any long-term debt owed to ATI, as determined in accordance
with generally accepted accounting principles and without consolidating the
accounts of ATI with Discovery for the purposes of such calculation.
1.27. Effective Time. "Effective Time" shall mean the time when the
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Certificate of Merger is filed with the Secretary of State of the State of
Delaware and the Merger becomes effective.
1.28. Exchange Act. "Exchange Act" shall mean the Securities and
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Exchange Act of 1934, as amended.
1.29. Exchange Agent. "Exchange Agent" shall have the meaning set
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forth in Section 2.4.1 of this Agreement.
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1.30. Fair Market Value of Ansan Common Stock. "Fair Market Value of
---------------------------------------
Ansan Common Stock" shall mean the average of the last reported closing bid
prices of the Ansan Common Stock on the Nasdaq SmallCap Market on the 20 trading
days immediately preceding the Closing Date.
1.31. Holders. "Holders" shall mean holders of Discovery Stock
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immediately prior to the Effective Time.
1.32. Lockup Agreement. "Lockup Agreement" shall have the meaning
----------------
set forth in Section 6.10 of this Agreement.
1.33. Merger. "Merger" shall mean the merger of Discovery with and
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into Ansan in accordance with this Agreement, the Certificate of Merger and
applicable law.
1.34. Proxy Statement. "Proxy Statement" shall mean the Proxy
---------------
Statement to be mailed to the stockholders of Ansan in connection with the
Merger.
1.35. S-4. "S-4" shall mean the Registration Statement on Form S-4
---
to be filed by Ansan with the SEC in connection with the issuance of Ansan Stock
pursuant to the Merger.
1.36. SEC. "SEC" shall mean the Securities and Exchange Commission.
---
1.37. Subsidiary. "Subsidiary" shall mean, with respect to a
----------
particular party hereto, any corporation or other organization, whether
incorporated or unincorporated, of which at least a majority of the securities
or interests having by the terms thereof ordinary voting power to elect a
majority of the board of directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned by such party or by one or more Subsidiaries, or by such party and one or
more Subsidiaries.
1.38. Titan. "Titan" shall mean Titan Pharmaceuticals Inc., a
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Delaware corporation.
1.39. Titan Agreement. "Titan Agreement" shall mean the agreement in
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the form attached hereto as Exhibit C.
1.40. 1933 Act. "1933 Act" shall mean the Securities Act of 1933, as
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amended, and the rules, regulations and forms thereunder.
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ARTICLE II
MERGER, CLOSING AND CONVERSION OF SHARES
2.1. Merger. Subject to and in accordance with the terms and
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conditions of the Agreement and the Certificate of Merger, on the Closing Date,
Ansan and Discovery shall execute and file the Certificate of Merger with the
Secretary of State of the State of Delaware, whereupon Discovery shall be merged
with and into Ansan pursuant to Sections 251 of the DGCL.
2.2. Closing. The Closing shall take place at the offices of Heller
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Ehrman White & McAuliffe, 525 University Avenue, Palo Alto, California 94301, on
November 3, 1997 at 1:00 pm, or if the conditions set forth in Articles VI and
VII have not been satisfied or waived by such date, on the earliest practicable
date, but in no event later than December 31, 1997, after satisfaction or waiver
of such conditions (the "Closing Date").
2.3. Conversion of Shares.
--------------------
2.3.1 In accordance with this Agreement and the Certificate of
Merger:
(a) each share of Discovery Common Stock outstanding immediately
prior to the Effective Time (except those shares of Discovery Common Stock which
are Appraisal Shares and whose Holder and Discovery do not thereafter agree in
writing should not be treated as Appraisal Shares) shall, by virtue of the
Merger and without any action on the part of the holder thereof be converted, at
and as of the Effective Time into 1.1641085 shares of Ansan Common Stock.
Holders of Discovery Common Stock shall receive only whole shares of Ansan
Common Stock, with Ansan being authorized to pay in cash, in lieu of any
resulting fractional share, the Fair Market Value of Ansan Common Stock
multiplied by such fraction so as to eliminate the necessity for the issuance of
fractional shares upon such conversion,
(b) each share of Discovery Preferred Stock outstanding immediately
prior to the Effective Time (except those shares of Discovery Preferred Stock
which are Appraisal Shares and whose Holder and Discovery do not thereafter
agree in writing should not be treated as Appraisal Shares) shall, by virtue of
the Merger and without any action on the part of the holder thereof be
converted, at and as of the Effective Time into one (1) share of Ansan Preferred
Stock. Holders of Discovery Preferred Stock shall receive only whole shares of
Ansan Preferred Stock; in lieu of any fractional share of Ansan Preferred Stock,
Holders shall receive in cash the fair market
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value of such fractional share valuing Ansan Preferred Stock on an as-converted
to Ansan Common Stock basis at the Fair Market Value of the Ansan Common Stock,
(c) each of the outstanding underwriter warrants and stock options
to purchase Discovery Stock ("Discovery Warrant" and "Discovery Option",
respectively) shall thereafter entitle the holder thereof to receive, upon
exercise thereof, 1.1641085 shares of Ansan Common Stock for each share of
Discovery Common Stock subject to such Discovery Option or Discovery Warrant, at
an exercise price for each full share of Ansan Common Stock equal to the
exercise price per share of Discovery Common Stock with respect to such
Discovery Option or Discovery Warrant multiplied by 1.1641085, which exercise
price per share shall be rounded up to the nearest two-place decimal, and one
(1) share of Ansan Preferred Stock for each share of Discovery Preferred Stock
subject to such Discovery Option or Discovery Warrant, at an exercise price
equal to the exercise price stated in such Discovery Option or Discovery
Warrant. The number of shares of Ansan Stock that may be purchased by a holder
on the exercise of any Discovery Option or Discovery Warrant shall not include
any fractional share of Ansan Stock but shall be rounded down to the next lower
whole share of Ansan Stock. Ansan shall assume in full such Discovery Options
and Discovery Warrants and all of Discovery's other rights and obligations
thereunder and under all agreements relating thereto (including without
limitation registration rights in favor of the holders of the Discovery
Warrants) and shall give notice to such effect to the Holder thereof promptly
after the Closing. After such assumption, Ansan shall issue, upon any partial or
total exercise of any Discovery Option or Discovery Warrant, in lieu of shares
of Discovery Stock, the number of shares of Ansan Stock to which the holder of
the Discovery Option or Discovery Warrant is entitled pursuant to this
Agreement,
(d) any Ansan Stock held by Discovery immediately prior to the
Effective Time shall be canceled, and
(e) in accordance with the foregoing, Ansan shall issue Ansan
Common Stock and Ansan Preferred Stock and assume the obligations to issue Ansan
Common Stock and Ansan Preferred Stock upon exercise of Discovery Options and
Discovery Warrants which, on as converted and exercised basis, represent
20,208,807 shares of Ansan Common Stock.
2.4. Exchange of Certificates.
---- ------------------------
2.4.1 Prior to the Closing Date, Ansan shall appoint Continental
Stock Trust & Transfer, or such other bank or trust company selected by Ansan as
Discovery may approve, to act as exchange agent (the "Exchange Agent") in the
Merger.
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2.4.2 Promptly after the Closing Date, but in no event later than
three Business Days thereafter, the Exchange Agent shall make available for
exchange in accordance with this Section 2.4.2 the shares of Ansan Stock
issuable pursuant to Section 2.3 in exchange for outstanding shares of Discovery
Stock.
2.4.3 As soon as practicable after the Closing Date, the Exchange
Agent shall mail to each holder of record of a stock certificate that,
immediately prior to the Closing Date, represented outstanding shares of
Discovery Stock (a "Certificate") whose shares are being converted into Ansan
Common Stock or Ansan Preferred Stock pursuant to Section 2.3, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Ansan may reasonably specify), and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
evidencing Ansan Common Stock or Ansan Preferred Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Ansan, together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor (subject to Section 2.4) the number of shares of Ansan Common
Stock or Ansan Preferred Stock to which the holder of Discovery Stock is
entitled pursuant to Section 2.3 hereof and is represented by the Certificate so
surrendered. The Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of Discovery Stock that is not registered
in the transfer records of Discovery, or its transfer agent, Ansan Common Stock
or Ansan Preferred Stock may be delivered to a transferee if the Certificate
representing such Discovery Stock is presented to the Exchange Agent and
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.4.3, each Certificate shall be
deemed at any time after the Closing Date to represent the right to receive upon
such surrender such whole number of shares of Ansan Common Stock or Ansan
Preferred Stock as provided by Section 2.3 and the provisions of the DGCL.
2.4.4 No dividends or distributions payable to Holders after the
Effective Time, or cash payable in lieu of fractional shares, shall be paid to
the Holder of any unsurrendered Certificate until the Holder of the Certificate
shall surrender such Certificate.
2.4.5 All Ansan Common Stock and Ansan Preferred Stock delivered upon
the surrender for exchange of shares of Discovery Stock in accordance with the
terms hereof shall be deemed to have been delivered in full satisfaction of all
rights pertaining to such shares of Discovery Stock. There shall be no further
registration of transfers on the stock transfer books of Discovery or its
transfer agent of the shares of Discovery Stock that were outstanding
immediately prior to the Effective Time. If, after
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the Closing Date, Certificates are presented for any reason, they shall be
canceled and exchanged as provided in Section 2.4.
2.5. Appraisal Shares. Holders of Appraisal Shares shall have those
----------------
rights, but only those rights, of holders of "appraisal shares" under Section
262 of the DGCL. Each party shall give the other party prompt notice of any
demand, purported demand or other communication received by it with respect to
any Appraisal Shares or shares claimed to be Appraisal Shares. Each party
agrees that, without the prior written consent of the other party, which consent
shall not be unreasonably withheld, it shall not voluntarily make any payment
with respect to, or settle or offer to settle, any demand or purported demand
respecting such shares.
2.6. Registration on Form S-4. The Ansan Common Stock to be issued
------------------------
in the Merger (and the Ansan Common Stock underlying the Ansan Preferred Stock
to be issued in the Merger) and the Ansan Preferred Stock to be issued in the
Merger shall be registered under the 1933 Act on Form S-4. As promptly as
practicable after the date hereof, Ansan shall prepare and file with the SEC the
Proxy Statement and any other documents required by the Exchange Act in
connection with the Merger, and Ansan shall prepare and file with the SEC the
Form S-4 and any other documents required by the 1933 Act in connection with the
Merger (including, without limitation the filing of Form 8-K by Ansan when
appropriate). Ansan shall use its reasonable efforts to have the Form S-4
declared effective under the 1933 Act as promptly as practicable after such
filing. Ansan shall afford Discovery a reasonably opportunity to review and
comment on the Proxy Statement prior to its distribution. To the greatest
extent practicable, information required to be disclosed in both the Proxy
Statement and the consent solicitation to be distributed by Discovery to its
stockholders pursuant to Section 2.7 shall be disclosed in an identical manner.
Ansan shall also take any action required to be taken under any applicable state
securities or "blue sky" laws in connection with the issuance of the Ansan Stock
in the Merger. Discovery shall furnish to Ansan all information in Discovery's
possession and reasonably accessible by Discovery concerning Discovery and ATI
and the holders of Discovery Stock as may be reasonably requested in connection
with any action contemplated by this Section 2.6.
2.7. Information Statement. Discovery shall afford Ansan a
---------------------
reasonable opportunity to review and comment on any solicitation materials,
including solicitation of action by written consent, that Discovery distributes
to its stockholders in connection with the Merger. To the greatest extent
practicable, information required to be disclosed in both the Proxy Statement
and any such solicitation materials shall be disclosed in an identical manner.
8
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2.8. Tax Free Reorganization. The parties intend to adopt this
-----------------------
Agreement as a tax free plan of reorganization and to consummate the Merger in
accordance with the provisions of Section 368(a) of the Code.
2.9. Ansan Common Stock Split. If mutually agreed upon by Ansan and
------------------------
Discovery, prior to the Effective Time, Ansan shall file a Restated Certificate
of Incorporation with the Delaware Secretary of State for the recombination of
each authorized share of Ansan Common Stock into such lesser number of shares of
Ansan Common Stock as shall be mutually agreed upon by Ansan and Discovery to
maintain the listing of the Ansan Common Stock on the Nasdaq SmallCap Market.
Such recombined Ansan Common Stock shall have the same rights, privileges and
restrictions as the currently authorized Ansan Common Stock with Ansan being
authorized to pay in cash, in lieu of any resulting fractional share, the Fair
Market Value of Ansan Common Stock so as to eliminate the necessity for the
issuance of fractional shares upon such recombination. The exchange ratios and
provisions in the preceding sections of this Article II shall be adjusted to
reflect any recombination of Ansan Common Stock pursuant to this Section 2.9 of
the Agreement.
ARTICLE III
MUTUAL REPRESENTATIONS AND WARRANTIES
Each of Ansan, Discovery and ATI is a "Company" as contemplated by
this Article III. Any disclosure delivered by one Company to the other hereto
pursuant to this Article shall have been delivered on or prior to the date
hereof shall specifically refer to this Agreement and shall identify the Section
of this Agreement requiring the delivery of such disclosure (each such
disclosure being referred to herein as a " Disclosure Statement"). Except as
set forth in the Disclosure Statement of such Company and except for the
transactions contemplated by this Agreement, Ansan hereby represents and
warrants to Discovery and Discovery hereby represents and warrants to Ansan,
that:
3.1. Organization and Authority. The Company and each of its
--------------------------
Subsidiaries: (i) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation; (ii) has all
necessary corporate power to own and lease its properties, to carry on its
business as now being conducted and to enter into and perform this Agreement and
all agreements to which the Company is or will be a party that are exhibits to
this Agreement; and (iii) is qualified to do business in all jurisdictions in
which the failure to so qualify would have a material adverse effect on its
business or financial condition. The Company has made available to the other
party for inspection complete and correct copies of its Certificate of
Incorporation, as amended, Bylaws as in effect on the date hereof and a record
of any and all proceedings and actions at all meetings of, or taken by written
consent by, its Board of Directors and stockholders,
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since its inception, in each case, certified as true, complete and correct
copies by the Company's Secretary.
3.2. Authority Relating to this Agreement; No Violation of Other
-----------------------------------------------------------
Instruments.
- -----------
3.2.1 The execution and delivery of this Agreement and all agreements
to which the Company is or will be a party that are exhibits to this Agreement
and the performance hereunder and thereunder by the Company have been duly
authorized by all necessary corporate action on the part of the Company, other
than stockholder approval as is contemplated by this Agreement, and, assuming
execution of this Agreement and such other agreements by the other party
thereto, this Agreement and such other agreements will constitute legal, valid
and binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject as to enforcement: (i) to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws of general
applicability relating to or affecting creditors' rights; and (ii) to general
principles of equity, whether such enforcement is considered in a proceeding in
equity or at law.
3.2.2 Neither the execution of this Agreement nor any other agreement
to which the Company is or will be a party that is an exhibit to this Agreement
nor the performance of any of them by the Company will: (i) conflict with or
result in any breach or violation of the terms of (a) any decree, judgment or
order of any court or other governmental body of which the Company has knowledge
or (b) any law or regulation now in effect applicable to the Company; (ii)
conflict with, or result in, with or without the passage of time or the giving
of notice, a material breach of any of the terms, conditions and provisions of,
or constitute a material default under or otherwise give another party the right
to terminate, or result in the creation of any lien, charge, or encumbrance upon
any of the material assets or properties of the Company pursuant to, any
indenture, mortgage, lease, agreement or other instrument to which the Company
is a party or by which it or any of its assets or properties are bound,
including all Contracts (as defined in Section 3.16); (iii) permit the
acceleration of the maturity of any material indebtedness of the Company or of
any other person secured by the assets or properties of the Company; or (iv)
violate or conflict with any provision of the Company's Certificate of
Incorporation, Bylaws, or similar organizational instruments.
3.2.3 Except as contemplated in Sections 2.6, 6.8, 6.16, 7.6 and 7.12
of this Agreement, no consent from any third party and no consent, approval or
authorization of, or declaration, filing or registration with, any government or
regulatory authority is required to be made or obtained by the Company in order
to permit the execution, delivery or performance of this Agreement or any other
agreement to which the Company is or will be a party that is an exhibit to this
Agreement by the Company, or
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the consummation of the transactions contemplated by this Agreement and such
other agreements.
3.3. Compliance with Law. The Company holds, and has at all times
-------------------
since December 31, 1995 held, all licenses, permits and authorizations necessary
for the lawful conduct of the Company's business wherever conducted pursuant to
all applicable statutes, laws, ordinances, rules and regulations of all
governmental bodies, agencies and subdivisions having, asserting or claiming
jurisdiction over the Company or over any part of the Company's operations, and
the Company knows of no violation thereof. The Company is not in violation of
any decree, judgment, or order known to it, or any law or regulation of any
court or other governmental body (including without limitation, applicable
environmental protection legislation and regulations, equal employment and civil
rights regulations, wages, hours and the payment of social security taxes and
occupational health and safety legislation), which violation could have a
material adverse effect on the condition, financial or otherwise, assets,
liabilities, business or results of operations of the Company.
3.4. Investments in Others. Section 3.4 of the Disclosure Statement
---------------------
of the Company contains a list of each corporation, association, partnership,
joint venture or other entity in which the Company, directly or indirectly, owns
an equity interest and sets forth the Company's percentage interest by voting
rights and by profits, in each such entity. Except for the entities identified
in such list, the Company does not conduct any part of its business operations
through any subsidiaries or through any other entity in which the Company has an
equity investment.
3.5. Tax Returns and Payments. All tax returns and reports with
------------------------
respect to the Company required by law to be filed under the laws of any
jurisdiction, domestic or foreign, have been duly and timely filed and all
taxes, fees or other governmental charges of any nature which were required to
have been paid have been paid or provided for. The Company has no knowledge of
any unpaid taxes or any actual or threatened assessment of deficiency or
additional tax or other governmental charge or a basis for such a claim against
the Company. The Company has no knowledge of any tax audit of the Company by
any taxing or other authority in connection with any of its fiscal years; the
Company has no knowledge of any such audit currently pending or threatened, and
the Company has no knowledge of any tax liens on any of the properties of the
Company.
3.6. Absence of Certain Changes or Events. Since the date (the
------------------------------------
"Balance Sheet Date") of the most recent balance sheet delivered by the Company
to the other party hereto pursuant to Section 4.3 or 5.2, as the case may be
(the "Balance Sheet"), except as contemplated by this Agreement, there have been
no material changes in the condition, financial or otherwise, assets,
liabilities, business or the results of operations of the Company, other than
changes in the ordinary course of business which in the aggregate
11
<PAGE>
have not been materially adverse. Without limiting the foregoing, since the
Balance Sheet Date, except as contemplated by this Agreement:
(i) the Company has not entered into any transaction other than in
the ordinary course of business;
(ii) there have been no losses or damage to any of the assets or
properties of the Company due to fire or other casualty, whether or not insured,
amounting to more than Ten Thousand Dollars ($10,000) in the aggregate;
(iii) there has been no increase or decrease in the rates of direct
compensation payable or to become payable by the Company to any employee, agent
or consultant (other than routine increases made in the ordinary course of
business or pursuant to a collective bargaining agreement), or any bonus,
percentage compensation, service award or other like benefit, granted, made or
accrued to or to the credit of any such employee, agent or consultant, or any
material welfare, pension, retirement or similar payment or arrangement made or
agreed to be made by the Company (other than such events occurring pursuant to
any previously existing benefit plan or collective bargaining agreement);
(iv) the Company has not executed, created, amended or terminated
any contract except in the ordinary course of business;
(v) the Company has not declared or paid any dividend or made any
distribution on its capital stock, nor redeemed, purchased or otherwise acquired
any of its capital stock nor issued any capital stock;
(vi) the Company has not received notice that there has been a
cancellation of an order for its products or a loss of a customer of the
Company, the cancellation or loss of which would materially adversely affect the
condition, financial or otherwise, assets, liabilities, business or results of
operations of the Company;
(vii) there has been no material change in the contingent
obligations of the Company by way of guaranty, endorsement, indemnity, warranty
or otherwise;
(viii) there have been no loans made by the Company to its employees,
officers or directors, other than travel advances and other advances made in the
ordinary course of business;
(ix) to the Company's knowledge there has been no waiver or
compromise by the Company of a material right or of a material debt owed to it;
12
<PAGE>
(x) the Company has not made or agreed to make any disbursements
or payments of any kind to any member or members of its Board of Directors;
(xi) there have been no capital expenditures by the Company in
excess of Fifty Thousand Dollars ($50,000) in the aggregate;
(xii) there has been no change in accounting methods or practices
(including without limitation, any change in depreciation or amortization
policies or rates) by the Company;
(xiii) there has been no revaluation by the Company of any of the
assets or properties of the Company;
(xiv) there has been no sale or transfer of any of the assets or
properties of the Company, except in the ordinary course of business;
(xv) there has been no loan by the Company to any person or entity;
(xvi) there has been no commencement or notice of threat of
commencement of any governmental proceeding against or investigation of the
Company or its affairs;
(xvii) there has been no revocation of license or right to do
business granted to the Company;
(xviii) the Company has not paid any obligation or liability (fixed,
contingent or otherwise) or discharged or satisfied any lien, or settled any
liability, claim, dispute, proceeding, suit or appeal pending or threatened
against it, except for current liabilities incurred in the ordinary course of
business; and
(xix) there has been no agreement or commitment by the Company to do
or perform any of the acts described in this Section 3.6.
3.7. Personal Property. The Company has good title, free and clear
-----------------
of all title defects, objections and liens, including without limitation,
leases, chattel mortgages, conditional sales contracts, collateral security
arrangements and other title or interest-retaining arrangements, to all of its
machinery, equipment, furniture, inventory and other personal property. All
such personal property is in operable condition. All of the leases to personal
property utilized in the business of the Company are valid and enforceable by
the Company and neither the Company nor, to the Company's knowledge any other
party, is in material default under any such lease.
13
<PAGE>
3.8. Real Property. The Company does not own any real property.
-------------
Section 3.8 of the Disclosure Statement of the Company contains a list of all
leases for real property to which the Company is a party, the square footage
leased with respect to each lease and the expiration date of each lease. All
such leases are valid and enforceable by the Company and neither the Company
nor, to the Company's knowledge any other party, is in material default under
any such lease. The real property owned, leased or occupied by the Company, the
improvements located thereon, and the furniture, fixtures and equipment relating
thereto (including plumbing, heating, air conditioning and electrical systems),
conform to any and all applicable health, fire, safety, zoning, land use and
building laws, ordinances and regulations. There are no outstanding contracts
made by the Company for any improvements made to the real property owned, leased
or occupied by the Company that have not been paid for.
3.9. Patents, Trademarks, Trade Names and Copyrights. All patents,
-----------------------------------------------
trademarks, trade names, copyrights, processes, designs, formulas, inventions,
trade secrets, know-how, technology or other proprietary rights which are used
by the Company and material to the Company's operations, or proposed to be used
by the Company and that would be material to the Company's operations, are owned
or are licensed by the Company. The conduct of any business conducted by the
Company does not, to the Company's knowledge, infringe any patent, trademark,
trade name, copyright, trade secret, or other proprietary right of any other
person. No litigation is pending or, to the knowledge of the Company, has been
threatened against the Company or any officer, director or employee of the
Company, or to the Company's knowledge, any stockholder or agent of the Company,
for the infringement of any patents, trademarks or trade names of any other
party or for the misuse or misappropriation of any trade secret, know-how or
other proprietary right owned by any other party nor, to the best knowledge of
the Company, does any basis exist for such litigation. To the best of the
Company's knowledge, there has been no infringement or unauthorized use by any
other party of any patent, trademark, trade name, copyright, process, design,
formula, invention, trade secret, know-how, technology or other proprietary
right belonging to the Company. Each license set forth in Section 3.9 of the
Disclosure Statement is valid and enforceable in accordance with its terms and
is not the subject of any notice of termination or nonrenewal. The Company has
taken reasonable and practicable steps designed to safeguard and maintain the
secrecy and confidentiality of, and its proprietary rights in, any patent,
trademark, trade name, copyright, process, design, formula, invention, trade
secret, know-how or technology, of which it owns or has a right to use.
3.10. Litigation. Neither the Company nor any officer, director,
----------
stockholder, employee or agent of the Company is a party to any pending or, to
the Company's knowledge, threatened action, suit, proceeding or investigation,
at law or in equity or otherwise in, for or by any court or other governmental
body which could have a material adverse effect on: (i) the financial
condition, or results of operations of the
14
<PAGE>
Company; or (ii) the transactions contemplated by this Agreement. The Company is
not and has not been subject to any pending or, to its knowledge, threatened
product liability claim; nor, to its knowledge, does any basis exist for any
such claim. The Company is not subject to any decree, judgment, or order, of any
court or other governmental body of which it has knowledge which is reasonably
likely to have a material adverse effect on the financial condition or results
of operations of the Company or which could prevent the transactions
contemplated by this Agreement.
3.11. Protection of Intangible Property. Each employee and
---------------------------------
consultant of the Company who has worked on or contributed to the development of
the Company's technology, trade secrets and other proprietary rights, executed a
proprietary rights and information agreement in the form attached to the
Disclosure Statement. The Company's trade secrets have not been used,
distributed or otherwise commercially exploited under circumstances which have
caused, or with the passage of time could cause, the loss of copyright or trade
secret status.
3.12. Personnel. Section 3.12 of the Disclosure Statement of the
---------
Company contains a list of: (i) all employment, bonus, profit sharing,
percentage compensation, employee benefit plans, incentive plans, pension or
retirement plans, stock purchase and stock option plans, oral or written
contracts or agreements with directors, officers, employees or unions, or
consulting agreements, to which the Company is a party or is subject as of the
date of this Agreement; and (ii) all group insurance programs in effect for
employees of the Company. The Company is not in default with respect to any of
the obligations so listed. The Company has delivered complete and correct
copies of all such obligations (to the extent they are in writing or written
descriptions to the extent they are oral) to the other Company. The Company has
no union contracts or collective bargaining agreements with, or any other
obligations to, employee organizations or groups relating to the Company's
business, nor is the Company currently engaged in any labor negotiations except
in minor grievances not involving any employee organization or group, nor, to
the knowledge of the Company, is the Company the subject of any union
organization affecting its business. There is no pending or, to the Company's
knowledge, threatened labor dispute, strike or work stoppage affecting the
Company's business. All plans described in Section 3.12 of the Disclosure
Statement are in full compliance with applicable provisions of the Employees
Retirement Income Security Act of 1974 ("ERISA") and regulations issued under
ERISA, and there is no unfunded liability with respect to such plans. Section
3.12 of the Disclosure Statement also lists the amount payable to employees of
the Company under other fringe benefit plans.
3.13. Insurance. The insurance coverage maintained by the Company is
---------
adequate for the conduct of the business of the Company.
15
<PAGE>
3.14. Certain Payments. To the knowledge of the Company, neither the
----------------
Company, nor any stockholder, director, officer, employee or agent of the
Company, has made or caused to be made, directly or indirectly, the payment of
any consideration whatsoever to any public official, candidate for public
office, political party, or other third person in connection with the business
or operations of the Company, or pertaining to the Company's relations with any
customer, supplier, or creditor, in contravention of the law of any applicable
jurisdiction.
3.15. Brokers and Finders. Neither the Company nor any stockholder,
-------------------
director, officer, employee or agent of the Company has retained any broker,
finder or investment banker in connection with the transactions contemplated by
this Agreement, except as set forth in Section 11.2. The Company will indemnify
and hold the other Company harmless against all claims for brokers', finders' or
investment bankers' fees made or asserted by any party claiming to have been
employed by the Company or any stockholder, director, officer, employee or agent
of the Company and all costs and expenses (including the reasonable fees of
counsel) of investigating and defending such claims.
3.16. Contracts. Section 3.16 of the Disclosure Statement lists all
---------
oral or written agreements, notes, instruments, or contracts to which the
Company is a party or by which its assets or properties may be bound which
involve the payment or receipt of more than Fifty Thousand Dollars ($50,000) (on
an annual basis), or which have a term of more than two years, or which involve
intellectual property, or which are employment or consulting agreements other
than those terminable at will (the "Contracts"). The Company is not in material
default in performance of its obligations under any such Contracts. The Company
has no knowledge of any material violation of any Contract by any other party
thereto and has no knowledge of any intent by any other party to a Contract not
to perform its obligations under such Contract.
3.17. Stockholders and Employees. Except as set forth in Section
--------------------------
3.16 of the Disclosure Statement, none of the stockholders, directors or
management personnel of the Company is presently a party to any transaction with
the Company, including without limitation, any contract, agreement or other
arrangement: (i) providing for the furnishing of services to or by; (ii)
providing for rental of real or personal property to or from; or (iii) otherwise
requiring payments to or from, any stockholder, director or management
personnel, or any member of the family of any stockholder, director or
management personnel or any corporation, trust or other entity in which any
stockholder, director or management personnel has a substantial interest or is
an officer, director, investor or partner.
3.18. Absence of Environmental Liabilities. The Company has, and to
------------------------------------
the Company's knowledge, all previous owners, lessees and occupants of real
property leased
16
<PAGE>
by the Company have complied with all applicable environmental laws, orders,
regulations, rules and ordinances adopted, imposed or promulgated by any
governmental or regulatory entity relating to such real property. The Company is
not in violation of any federal, state or local law, ordinance or regulation
relating to industrial hygiene, worker safety, environmental hazardous materials
or waste or toxic materials on, under or about such real property, including
soil and waste water conditions. No current use of the real property leased by
the Company constitutes a public or private nuisance. The environmental
licenses, permits, clearances, covenants and authorizations material to the
operation of the Company are in full force and effect. Any handling,
transportation, storage, treatment or use of Hazardous Material (as defined
below) by the Company or, to the Company's knowledge, all previous owners,
lessees and occupants of real property leased by the Company, has been in
compliance with all laws, regulations and orders relating to Hazardous Material.
As used herein, the term "Hazardous Material" means any hazardous or toxic
substance, material or waste which is or becomes regulated by any local
government authority, the State of California, any other state or the United
States Government.
3.19. Power of Attorney; Suretyships. The Company has no power of
------------------------------
attorney outstanding, nor has any obligation or liability, either actual,
accrued, accruing or contingent, as guarantor, surety, cosigner, endorser, co-
maker, indemnitor or otherwise in respect of the obligation of any other person,
corporation, partnership, joint venture, association, organization or other
entity.
3.20. Business Practices. The Company has not made, offered or
------------------
agreed to offer anything of value to any government official, political party or
candidate for government office nor has it taken any action which would cause it
to be in violation of the Foreign Corrupt Practices Act of 1977.
3.21. Accuracy of Documents and Information. The copies of all
-------------------------------------
instruments, agreements, other documents and written information set forth as,
or referenced in, schedules or exhibits to this Agreement or specifically
required to be furnished pursuant to this Agreement by the Company to the other
Company, including, without limitation, the Disclosure Statement of the Company,
are and will be complete and correct in all material respects. All information
in the Disclosure Statement of the Company is as of the date hereof or such
earlier date as is specified therein, which in no case is before June 30, 1997
and there have been no material changes in the information set forth therein
between the date so specified and the date of this Agreement. No
representations or warranties made by the Company in this Agreement, nor any
document, written information, statement, financial statement, certificate,
schedule or exhibit furnished directly to the other party hereto pursuant to
this Agreement or in the Disclosure Statement of the Company contains any untrue
statement of a material fact. There is no fact which materially and adversely
affects the Company, its financial
17
<PAGE>
position, assets, liabilities, business or results of operations known to the
Company which has not been expressly and fully set forth in (i) with respect to
Ansan, the S-4 and the Proxy Statement and (ii) with respect to Discovery and
ATI, information provided to Ansan in writing expressly for inclusion in the
Proxy Statement or the S-4.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DISCOVERY
Discovery hereby represents and warrants to Ansan that, except as set
forth in the Disclosure Statement of Discovery:
4.1. Capitalization of Discovery. The authorized capital stock of
---------------------------
Discovery is 10,000,000 shares of Preferred Stock, of which 2,200,256 shares are
issued and outstanding, and 50,000,000 shares of Common Stock, of which
6,712,256 shares are issued and outstanding. The outstanding shares of
Preferred Stock of Discovery are convertible into 8,801,024 shares of Discovery
Common at the conversion price currently in effect with respect thereto. All
such issued and outstanding shares have been duly authorized and validly issued,
and are fully paid and non-assessable. Discovery has outstanding options and
warrants to purchase 906,943 shares of Discovery Common Stock and 220,026 shares
of Discovery Preferred Stock pursuant to the Discovery Options and Discovery
Warrants and a list of such Discovery Options and Discovery Warrants (including
the exercise prices thereunder) is included in Schedule 4.1 of the Disclosure
Statement of Discovery. Except as set forth in the preceding sentence, there
are no outstanding warrants, options, agreements, convertible or exchangeable
securities (other than the Preferred Stock described above) or other commitments
pursuant to which Discovery is or may become obligated to issue, sell, purchase,
retire or redeem any shares of capital stock or other securities.
4.2. Capitalization of ATI. The authorized capital stock of ATI is
---------------------
1,000,000 shares of Preferred Stock, of which 602,200 shares are issued and
outstanding, and 2,000,000 shares of Common Stock, of which 200,000 shares are
issued and outstanding. The outstanding shares of Convertible Preferred Stock
of ATI are convertible into 600,000 shares of ATI Common Stock. All such issued
and outstanding shares have been duly authorized and validly issued, and are
fully paid and non-assessable. ATI has outstanding options and warrants to
purchase 200,000 shares of ATI Common Stock and no shares of ATI Preferred Stock
and a list of such options and warrants (including the exercise prices
thereunder) is included in Section 4.2 of the Disclosure Statement of Discovery.
Except as set forth in the preceding sentence, there are no outstanding
warrants, options, agreements, convertible or exchangeable securities (other
than the Preferred Stock described above) or other commitments pursuant to which
18
<PAGE>
ATI is or may become obligated to issue, sell, purchase, retire or redeem any
shares of capital stock or other securities.
4.3. Financial Statements. Discovery has delivered the following
--------------------
financial statements (the "Discovery Financial Statements") to Ansan: Audited
Consolidated Balance Sheet of Discovery dated as of December 31, 1996, together
with Audited Consolidated Statements of Operations, Consolidated Stockholders'
Equity and Consolidated Changes in Cash Flow during the year ended December 31,
1996; and Unaudited Consolidated Balance Sheet of Discovery dated as of March
31, 1997, together with Unaudited Consolidated Statements of Operations,
Stockholders' Equity and Changes in Cash Flows for the three months then ended.
Each Discovery Financial Statement together with the notes thereto is in
accordance with the books and records of Discovery, fairly presents the
consolidated financial position of Discovery and ATI and the consolidated
results of operations of Discovery and ATI for the period indicated, and has
been prepared in accordance with generally accepted accounting principles
consistently applied.
4.4. Absence of Undisclosed Liabilities. As of March 31, 1997
----------------------------------
neither Discovery nor ATI had any indebtedness or liability (absolute or
contingent) which are not shown or provided for in full on the Balance Sheet
dated March 31, 1997 included in the Discovery Financial Statements. Except as
set forth in the Balance Sheet dated March 31, 1997 included in the Discovery
Financial Statements, Discovery and ATI do not have outstanding on the date
hereof, nor will they have outstanding on the Closing Date, any indebtedness or
liability (absolute or contingent) other than those incurred since March 31,
1997 in the ordinary course of business which are not material to the operations
of Discovery and ATI.
4.5. Compliance With Law. Section 4.5 of the Disclosure Statement of
-------------------
Discovery contains a true and complete list of all licenses, permits and
authorizations necessary for the lawful conduct of Discovery's and ATI's
businesses wherever conducted pursuant to all applicable statutes, laws,
ordinances, rules and regulations of all governmental bodies, agencies and
subdivisions having, asserting or claiming jurisdiction over Discovery or ATI or
over any part of their operations.
4.6. Patents, Trademarks and Trade Names. Section 4.6 of the
-----------------------------------
Disclosure Statement of Discovery sets forth a list of all patents, patent
applications, trademarks, registered and unregistered, and trade names,
registered and unregistered, owned by Discovery and ATI.
4.7. Employees. Section 4.7 of the Disclosure Statement of Discovery
---------
contains a list of the names, current salary rates, bonuses paid during the last
fiscal year,
19
<PAGE>
and accrued vacation and sick leave for all the employees of Discovery and ATI
as of June 30, 1997.
4.8. Insurance. Section 4.8 of the Disclosure Statement of Discovery
---------
contains a list of all insurance policies and bonds in force with respect to
Discovery and ATI showing for each such policy or bond: (i) the owner; (ii) the
coverage of such policy or bond; (iii) the amount of premium properly allocable
to such policy or bond; (iv) the name of the insurer; and (v) the termination
date of the policy or bond. Copies of all such insurance policies and bonds
have been furnished to Ansan. All such insurance policies and bonds are in full
force and effect.
4.9. Bank Accounts. Section 4.9 of the Disclosure Statement of
-------------
Discovery contains a list of all bank accounts of Discovery and ATI, identifying
the name of the bank, the account number, and the authorized signatories to the
account.
4.10. ATI. Section 3.4 of the Disclosure Statement of Discovery sets
---
forth Discovery's percentage ownership of the outstanding capital stock of ATI.
Such stock is free and clear of any liens and encumbrances and is not subject
to any preemptive rights or right of first refusal.
4.11. Proxy Statement and S-4. Discovery shall provide all
-----------------------
information related to Discovery and ATI and their respective officers,
directors and stockholders reasonably requested by Ansan for inclusion in the
Proxy Statement and S-4, including all amendments and supplements related
thereto to the extent such information is within Discovery's possession or
reasonably accessible by Discovery. None of such information shall 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 written information previously provided by Discovery expressly for
inclusion in the Proxy Statement and S-4 (to the extent not superseded) and in
light of the other circumstances under which they are made, not misleading. If
requested by Ansan, Discovery shall confirm from time to time that as of the
date of such request the information previously provided by Discovery to Ansan
for the express purpose of inclusion in the Proxy Statement or S-4, including
any amendments or supplements thereto, continues to be true and correct in all
material respects and does not omit to state any material fact necessary to make
such information not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ANSAN
Ansan hereby represents and warrants to Discovery that, except as set
forth in the Officer-Certified Disclosure Statement of Ansan:
20
<PAGE>
5.1. Capitalization. The authorized capital stock of Ansan is
--------------
5,000,000 shares of Ansan Preferred Stock, none of which are issued and
outstanding, and 20,000,000 shares of Ansan Common Stock, of which 2,851,954 are
issued and outstanding. All such issued and outstanding shares have been duly
authorized and validly issued, and are fully paid and non-assessable. Ansan has
outstanding options to purchase 355,377 shares of Ansan Common Stock pursuant to
its existing plans and has reserved an additional 19,623 shares of Ansan Common
Stock for issuance under such plans. Ansan has outstanding Class A Warrants and
Class B Warrants exercisable for 2,207,500 shares of Ansan Common Stock and
3,702,500 shares of Ansan Common Stock, respectively. Ansan has outstanding
underwriters' options to purchase 520,000 shares of Ansan Common Stock. A list
of all outstanding options and warrants, and the exercise prices thereunder, is
set forth in Section 5.1 of the Disclosure Statement of Ansan. Except as set
forth in this Section 5.1 of the Agreement, there are no outstanding warrants,
options, agreements, convertible or exchangeable securities or other commitments
pursuant to which Ansan is or may become obligated to issue, sell, purchase,
retire or redeem any shares of capital stock or other securities.
5.2. Financial Statements. Ansan has delivered the following
--------------------
consolidated financial statements of Ansan ("Ansan Financial Statements") to
Discovery: Audited Balance Sheets of Ansan dated as of December 31, 1996,
together with audited Statements of Operations, Stockholders' Equity and Changes
in Cash Flow during the three years ended December 31, 1996 included in Ansan's
Annual Report on Form 10-K filed with the SEC for the year ended December 31,
1996 and unaudited Balance Sheets of Ansan together with Statements of
Operations, and Changes in Cash Flow for the three months ended March 31, 1997
included in Ansan's Quarterly Report on Form 10-Q. Each Ansan Financial
Statement together with the notes thereto is in accordance with the books and
records of Ansan, fairly presents the financial position of Ansan and the
results of operations of Ansan for the period indicated, and has been prepared
in accordance with generally accepted accounting principles consistently
applied.
5.3. Absence of Undisclosed Liabilities. As of March 31, 1997, Ansan
----------------------------------
had no indebtedness or liability (absolute or contingent) which is not shown or
provided for in full on the Balance Sheet dated March 31, 1997 included in the
Ansan Financial Statements. Except as set forth in the Balance Sheet dated
March 31, 1997 included in Ansan Financial Statements, Ansan does not have
outstanding on the date hereof, nor will it have outstanding on the Closing
Date, any indebtedness or liability (absolute or contingent) other than those
incurred since March 31, 1997 in the ordinary course of business which are not
material to the operations of Ansan.
5.4. Shares Issued in Connection With the Merger. The Ansan Stock to
-------------------------------------------
be issued to the Holders pursuant to the Merger, when issued in accordance with
this Agreement and the Certificate of Merger, will be duly authorized, validly
issued, fully
21
<PAGE>
paid and non-assessable. The shares of Ansan Stock to be issued to the holders
of Discovery Options and Discovery Warrants upon exercise of Discovery Options
and Discovery Warrants after the Merger, when issued upon exercise of Discovery
Options and Discovery Warrants assumed by Ansan in accordance with this
Agreement and the Certificate of Merger, will be duly authorized, validly
issued, fully paid and non-assessable. The agreements evidencing the Discovery
Options and Discovery Warrants, upon assumption by Ansan on the Effective Date
pursuant to Section 2.3.1 of this Agreement, will constitute legal, valid and
binding obligations of Ansan, enforceable against Ansan in accordance with their
terms, subject as to enforcement: (i) to bankruptcy, insolvency, reorganization,
arrangement, moratorium and other laws of general applicability relating to or
affecting creditors' rights; and (ii) to general principles of equity, whether
such enforcement is considered in a proceeding in equity or at law.
5.5. Compliance With Law. Section 5.5 of the Disclosure Statement of
-------------------
Ansan contains a true and complete list of all licenses, permits and
authorizations necessary for the lawful conduct of Ansan's business wherever
conducted pursuant to all applicable statutes, laws, ordinances, rules and
regulations of all governmental bodies, agencies and subdivisions having,
asserting or claiming jurisdiction over Ansan or over any part of its
operations.
5.6. Patents, Trademarks and Trade Names. Section 5.6 of the
-----------------------------------
Disclosure Statement of Ansan sets forth a list of all patents, patent
applications, trademarks, registered and unregistered, and trade names,
registered and unregistered, owned by Ansan.
5.7. Exchange Act Filings. All reports, schedules and statements
--------------------
(including all exhibits and schedules thereto and all documents incorporated by
reference therein) required to be filed by Ansan within the year prior to the
date of this Agreement under the Exchange Act, copies of which have been
furnished to Discovery, have been duly filed, were in substantial compliance
with the requirements of their respective forms, and were complete and correct
in all material respects as of the dates at which the information was furnished.
As of the date of filing, no such report contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
5.8. Employees. Section 5.8 of the Disclosure Statement of Ansan
---------
contains a list of the names, current salary rates, bonuses paid during the last
fiscal year, and accrued vacation and sick leave for all the employees of Ansan
as of June 30, 1997.
5.9. Insurance. Section 5.9 of the Disclosure Statement of Ansan
---------
contains a list of all insurance policies and bonds in force with respect to
Ansan showing
22
<PAGE>
for each such policy or bond: (i) the owner; (ii) the coverage of such policy or
bond; (iii) the amount of premium properly allocable to such policy or bond;
(iv) the name of the insurer; and (v) the termination date of the policy or
bond. Copies of all such insurance policies and bonds have been furnished to
Discovery. All such insurance policies and bonds are in full force and effect.
5.10. Bank Accounts. Section 5.10 of the Disclosure Statement of
-------------
Ansan contains a list of all bank accounts of Ansan, identifying the name of the
bank, the account number, and the authorized signatories to the account.
5.11. Proxy Statement and S-4. None of the information relating to
-----------------------
Ansan or its respective officers and directors included or incorporated by
reference in the Proxy Statement or the S-4 will, in the case of the Proxy
Statement or any amendments or supplements thereto, at the time of the mailing
of the Proxy Statement and any amendments or supplements thereto, and at the
time of the meeting of stockholders of the Company to vote upon this Agreement,
the Merger and related transactions, or, in the case of the S-4, at the time it
becomes effective under the 1933 Act and at 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. The S-4
will comply as to form with the 1933 Act and the rules and regulations
thereunder. The Proxy Statement will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder. If at any time prior to the Effective Time any event with respect
to Ansan, its officers or directors should occur which is or is required to be
described in an amendment or a supplement to the Proxy Statement or the S-4
Ansan shall so amend or supplement to Proxy Statement or the S-4.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF ANSAN
The obligations of Ansan to consummate the Merger is subject to the
fulfillment, at or before the Closing of all the following conditions, any one
or more of which may be waived by Ansan:
6.1. Representations and Warranties True at Closing. The
----------------------------------------------
representations and warranties of Discovery contained in this Agreement, except
those set forth in Section 3.6 of this Agreement, shall be deemed to have been
made again at and as of the Closing (including the update of the Disclosure
Statement of Discovery referred to in Section 8.1 of this Agreement) and shall
be true in all material respects.
23
<PAGE>
6.2. Covenants Performed. All of the obligations of Discovery to be
-------------------
performed at or before the Closing pursuant to the terms of this Agreement shall
have been duly performed in all material respects.
6.3. Certificate. At the Closing, Ansan shall have received a
-----------
certificate signed by the President of Discovery to the effect that the
conditions set forth in Sections 6.1, 6.2 and 6.14 have been satisfied.
6.4. Stockholder Approval. This Agreement and the Certificate of
--------------------
Merger shall have been duly approved by the stockholders of Discovery and Ansan.
6.5. Titan. Titan shall have executed the Titan Agreement with Ansan.
-----
All Ansan Stock owned by Titan shall be repurchased and all indebtedness, except
for $100,000, owing by Ansan to Titan shall be retired, in accordance with the
Titan Agreement.
6.6. Appraisal Shares. The aggregate number of Appraisal Shares with
----------------
respect to each of Ansan and Discovery shall not exceed five (5%) percent of the
aggregate Ansan Stock outstanding immediately prior to the Merger or the
aggregate Discovery Stock outstanding immediately prior to the Merger, as the
case may be.
6.7. Tax-Free Reorganization. Ansan shall have received the opinion
-----------------------
of its counsel to the effect that the Merger will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Code, which opinion
shall be substantially similar to the opinion delivered to Discovery pursuant to
Section 7.5. In preparing the tax opinion, counsel may rely upon (and to the
extent reasonably required, the parties shall make and use their best efforts to
cause their directors and stockholders to make) reasonable representations
relating thereto.
6.8. Nasdaq Approval. Ansan and Discovery, on a pro-forma basis,
---------------
shall satisfy the applicable and proposed initial listing requirements for the
Nasdaq SmallCap Market and Ansan shall be approved by Nasdaq for listing its
Common Stock on the Nasdaq SmallCap Market immediately following the Merger.
The shares of Ansan Common Stock to be issued in the Merger and upon conversion
of the Ansan Preferred Stock (including Ansan Preferred Stock to be issued upon
exercise of Ansan warrants to be issued to Discovery securityholders in
connection with the Merger) and the exercise of Ansan options and Ansan warrants
to be issued to Discovery securityholders in connection with the Merger shall
have been listed on the Nasdaq SmallCap Market. There shall be no proceedings
pending or threatened by Nasdaq that are reasonably likely to result in the
delisting of the Ansan Common Stock from the Nasdaq SmallCap Market.
6.9. Affiliates Agreements. Discovery shall have delivered to Ansan
---------------------
a letter identifying all persons who are Affiliates of Discovery, and each such
Affiliate shall
24
<PAGE>
have executed and delivered an Affiliates Agreement to Ansan in the form and
subject to the restrictions provided in Exhibit 6.9.
6.10. Lockup Agreements. Discovery stockholders holding 85% or more
-----------------
of the outstanding securities of Discovery shall have executed and delivered a
Lockup Agreement in the form and subject to the restrictions provided in
Exhibits 6.10A or 6.10B, as applicable.
6.11. Fairness Opinion. The Board of Directors of Ansan shall have
----------------
received an opinion, dated on or before the date hereof from Dakin Securities
that the terms of the Merger as contemplated by this Agreement are fair to the
stockholders of Ansan, which opinion shall be in form and substance reasonably
satisfactory to Ansan.
6.12. S-4. The S-4 shall have become effective under the 1933 Act
---
and shall not be the subject of any stop order or proceedings seeking a stop
order and the Proxy Statement shall on the Closing Date not be subject to any
proceeding commenced or threatened by the SEC.
6.13. Certificate of Merger. The Certificate of Merger shall have
---------------------
been filed with the Secretary of State of the State of Delaware.
6.14. Material Changes in the Business of Discovery and ATI. There
-----------------------------------------------------
shall have been no material adverse change in the business of Discovery or ATI,
provided that insofar as solely the financial condition (including without
limitation the assets, liabilities and results of operations) of Discovery and
ATI are concerned, no such material adverse change shall be deemed to have
occurred so long as Discovery Working Capital is at least $5,000,000.
6.15. No Action to Prevent Completion. Ansan shall not have
-------------------------------
determined, in the reasonable exercise of its discretion, that the transactions
contemplated by this Agreement have become inadvisable or impractical by reason
of the institution of litigation or other proceedings with respect to or
affecting the transactions contemplated by this Agreement.
6.16. Consents. Ansan shall have received in writing all consents,
--------
approvals, and waivers required in connection with the Merger (a) from parties
to Discovery's agreements, indentures, mortgages, franchises, licenses, permits,
leases, and other instruments set forth in Section 3.16 of the Disclosure
Statement of Discovery, and (b) from all governmental authorities, except to the
extent that the failure to receive any such consent would not reasonably be
expected to have a material adverse effect on the business of the corporation
surviving the Merger.
25
<PAGE>
6.17. Ansan Board. Effective as of the Effective Time, all action
-----------
shall have been taken so that the Ansan Board shall consist of seven members
designated by Discovery, two members designated by Ansan and one member
designated by D. H. Blair & Co.
6.18. Documentation. All actions, proceedings, instruments,
-------------
resolutions, certificates, and documents reasonably requested by Ansan to be
executed and delivered to Ansan in order to carry out this Agreement and to
consummate the Merger, and all of the relevant legal matters, shall be
reasonably satisfactory to Ansan and its counsel.
6.19. Liquidation Preference. Ansan shall be reasonably satisfied
----------------------
(through the receipt of stockholder waivers to the extent reasonably required)
that the consummation of the Merger will not confer upon preferred stockholders
of Discovery or ATI the right to a distribution of the liquidation preference
afforded to such stockholders.
6.20. Legal Opinion of Discovery Counsel. Ansan shall receive an
----------------------------------
opinion dated the Closing Date of Roberts, Sheridan & Kotel, a professional
corporation, counsel to Discovery and ATI, in substantially the form attached
hereto as Exhibit 6.20.
6.21. Discovery Working Capital. As of the Closing Date, Discovery
-------------------------
Working Capital shall be no less than $5,000,000.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF DISCOVERY
The obligations of Discovery to consummate the Merger are subject to
the fulfillment, at or before the Closing, of all of the following conditions,
any one or more of which may be waived by Discovery:
7.1. Representations and Warranties True at Closing. The
----------------------------------------------
representations and warranties of Ansan contained in this Agreement, except for
those in Section 3.6 of this Agreement, shall be deemed to have been made again
at and as of the Closing (including the update of the Disclosure Statement of
Ansan referred to in Section 8.1 of this Agreement) and shall be true in all
material respects.
7.2. Covenants Performed. All of the obligations of Ansan to be
-------------------
performed at or before the Closing pursuant to the terms of this Agreement shall
have been duly performed in all material respects.
7.3. Certificate. At the Closing, Discovery shall have received a
-----------
certificate signed by the President of Ansan to the effect that the conditions
set forth in Sections 7.1, 7.2 and 7.10 have been satisfied.
26
<PAGE>
7.4. Stockholder Approval. This Agreement and the Certificate of
--------------------
Merger shall have been duly approved by the stockholders of Ansan and Discovery.
7.5. Tax-Free Reorganization. Discovery shall have received the
-----------------------
opinion of its counsel to the effect that the Merger will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Code, which opinion
shall be substantially similar to the opinion delivered to Ansan pursuant to
Section 6.7. In preparing the tax opinion, counsel may rely upon (and to the
extent reasonably required, the parties shall make and use their reasonable best
efforts to cause their directors and stockholders to make) reasonable
representations relating thereto.
7.6. Nasdaq Approval. Ansan and Discovery, on a pro-forma basis,
---------------
shall satisfy the applicable and proposed initial listing requirements for the
Nasdaq SmallCap Market and Ansan shall be approved by Nasdaq for listing its
Common Stock on the Nasdaq SmallCap Market immediately following the Merger.
The shares of Ansan Common Stock to be issued in the Merger and upon conversion
of the Ansan Preferred Stock (including Ansan Preferred Stock to be issued upon
exercise of Ansan warrants to be issued to Discovery securityholders in
connection with the Merger) and the exercise of Ansan Options and Ansan Warrants
to be issued to Discovery security holders in connection with the Merger shall
have been listed on the Nasdaq SmallCap Market. There shall be no proceedings
pending or threatened by Nasdaq that are reasonably likely to result in the
delisting of the Common Stock of Ansan from the Nasdaq SmallCap Market.
7.7. Titan. Titan shall have executed the Titan Agreement with Ansan.
-----
All Ansan Stock owned by Titan shall be repurchased and all indebtedness, except
for $100,000, owing by Ansan to Titan shall be retired, in accordance with the
Titan Agreement.
7.8. S-4. The S-4 shall have become effective under the 1933 Act and
---
shall not be the subject of any stop order or proceedings seeking a stop order
and the Proxy Statement shall on the Closing not be subject to any proceeding
commenced or threatened by the SEC.
7.9. Certificate of Merger. The Certificate of Merger shall have
---------------------
been filed with the Secretary of State of the State of Delaware.
7.10. Material Changes in the Business of Ansan. There shall have
-----------------------------------------
been no material adverse change in the financial position, results of
operations, assets, liabilities or business of Ansan between the date of this
Agreement and the Closing; provided that such changes as are contemplated by the
budget included in Section 10.3 of
27
<PAGE>
the Disclosure Statement of Ansan shall not be deemed material for the purposes
of this Section 7.10.
7.11. No Action to Prevent Completion. Discovery shall not have
-------------------------------
determined, in the reasonable exercise of its discretion, that the transactions
contemplated by this Agreement have become inadvisable or impractical by reason
of the institution of litigation or other proceedings with respect to or
affecting the transactions contemplated by this Agreement.
7.12. Consents. Discovery shall have received in writing all
--------
consents, approvals, and waivers required in connection with the Merger (a) from
parties to Ansan's agreements, indentures, mortgages, franchises, licenses,
permits, leases, and other instruments set forth in Section 3.16 of the
Disclosure Statement of Ansan, and (b) from all governmental authorities, except
to the extent that the failure to receive any such consent would not reasonably
be expected to have a material adverse effect on the business of the corporation
surviving the Merger. Such consents shall include consent from Boehringer
Ingelheim, if required.
7.13. Ansan Board. Effective as of the Effective Time, all action
-----------
shall have been taken so that the Ansan Board shall consist of seven members
designated by Discovery, two members designated by Ansan and one member
designated by D. H. Blair & Co.
7.14. Documentation. All actions, proceedings, instruments,
-------------
resolutions, certificates, and documents reasonably requested by Discovery to be
executed and delivered to Discovery in order to carry out this Agreement and to
consummate the Merger, and all of the relevant legal matters, shall be
reasonably satisfactory to Discovery and its counsel.
7.15. Legal Opinion of Ansan Counsel. Discovery shall receive an
------------------------------
opinion dated the Closing Date of Heller Ehrman White & McAuliffe, counsel to
Ansan, in substantially the form attached hereto as Exhibit 7.15.
7.16. Fairness Opinion. The Board of Directors of Discovery shall
----------------
have received an opinion, dated no later than August 17, 1997, from a reputable
and independent investment banking firm that the terms of the Merger are fair to
the stockholders of Discovery, which opinion shall be in form and substance
reasonably satisfactory to Discovery.
7.17. Appraisal Shares. The aggregate number of Appraisal Shares
----------------
with respect to each of Ansan and Discovery shall not exceed five (5%) percent
of the aggregate Ansan Stock outstanding immediately prior to the Merger or the
aggregate Discovery Stock outstanding immediately prior to the Merger, as the
case may be.
28
<PAGE>
ARTICLE VIII
PRE-CLOSING COVENANTS
During the period from the date of this Agreement until the Effective
Time, Ansan and Discovery (each sometimes referred to as a "Company" for the
purposes of this Article VIII) each covenants and agrees as follows:
8.1. Advice of Changes. Each Company will promptly advise the other
-----------------
Company in writing (i) of any event occurring subsequent to the date of this
Agreement that would render any representation or warranty of such Company
contained in this Agreement, if made on or as of the date of such event or the
Closing Date, untrue or inaccurate in any material respect, (ii) of any material
adverse change in such Company's financial position, results of operations,
assets, liabilities or business, and (iii) the occurrence of material
noncompliance with Sections 8.3.21 (in the case of Ansan) or 8.15 (in the case
of Discovery) of this Agreement. Not less than four days before the Closing,
each Company shall deliver to the other Company hereto an update of the
Disclosure Statement previously delivered by such Company, showing any changes
which have occurred with respect to the information contained therein since it
was originally issued and containing a description of any representation or
warranty in this Agreement which is no longer true as of such date.
8.2. Maintenance of Business. Each Company will use its reasonable
-----------------------
best efforts to carry on and preserve its business and its relationships with
customers, suppliers, employees and others in substantially the same manner as
it has prior to the date hereof. If either Company becomes aware of a
deterioration in the relationship with any customer, supplier or key employee,
it will promptly bring such information to the attention of the other Company in
writing.
8.3. Conduct of Business. Ansan will continue to conduct its
-------------------
business and use reasonable efforts to maintain its business relationships in
the ordinary and usual course and, except as provided in this Agreement, will
not, without the prior written consent of Discovery:
8.3.1 borrow any money;
8.3.2 incur any liability except for those that may be incurred
(i) in the ordinary course of business, consistent with past practice, and are
not material in amount or (ii) in connection with the performance or
consummation of this Agreement;
8.3.3 encumber or permit to be encumbered any of its assets except
in the ordinary course of its business consistent with past practice;
29
<PAGE>
8.3.4 dispose of any of its assets, except inventory in the ordinary
course of business, consistent with past practice;
8.3.5 enter into any material lease or contract for the purchase or
sale of any property, real or personal, except in the ordinary course of
business, consistent with past practice;
8.3.6 fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained such equipment
and other assets to the date of this Agreement, subject only to ordinary wear
and tear;
8.3.7 pay any bonus, increased salary, or special remuneration to any
officer, employee (other than those paid in the ordinary course of business,
consistent with past practice) or consultant or enter into any new employment or
consulting agreement with any such person, except in the ordinary course of
business, consistent with past practice;
8.3.8 change accounting methods;
8.3.9 declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital stock, or redeem or otherwise acquire any of
its capital stock (except pursuant to employee stock repurchase agreements upon
termination of an employee consistent with its past practice);
8.3.10 amend or terminate any contract, agreement or license to which
it is a party except those amended or terminated in the ordinary course of
business consistent with past practice, and which are not material in amount;
8.3.11 loan any amount to any person or entity, other than advances
for travel and expenses which are incurred in the ordinary course of business
consistent with past practice, not material in amount and documented by receipts
for the claimed amounts;
8.3.12 guarantee or act as a surety for any obligation except for the
endorsement of checks and other negotiable instruments in the ordinary course of
business, consistent with past practice, which are not material in amount;
8.3.13 waive or release any material right or claim except in the
ordinary course of business, consistent with past practice;
8.3.14 issue or sell any shares of its capital stock of any class
(except upon the exercise of an option currently outstanding, as disclosed in
Section 4.1, 4.2 or 5.1, as the case may be, or granted in accordance with this
Section 8.3.14), or any other of
30
<PAGE>
its securities, or issue or create any warrants, obligations, subscriptions,
options, convertible securities, or other commitments to issue shares of capital
stock without the prior written consent of the other party hereto, which consent
shall not be withheld unreasonably if options are being granted for the purpose
of recruiting new personnel in accordance with the past practices regarding the
pricing, the total number of options granted, the options awarded in relation to
the job title of the recipient and the timing of the option awards;
8.3.15 accelerate the vesting of any outstanding options;
8.3.16 split or combine the outstanding shares of its capital stock
of any class or enter into any recapitalization affecting the number of
outstanding shares of its capital stock of any class or affecting any other of
its securities;
8.3.17 merge, consolidate or reorganize with, or acquire any
entity, except for the Merger;
8.3.18 amend its Certificate of Incorporation or Bylaws, except as
expressly contemplated by this Agreement;
8.3.19 other than pursuant to the Titan Agreement, license any of its
technology or intellectual property, except in the ordinary course of business;
8.3.20 agree to do any of the things described in the preceding
clauses 8.3.1 through 8.3.19; or
8.3.21 fail to conduct itself in material compliance with the budget
of Ansan set forth on Section 10.3 to the Ansan Disclosure Statement.
8.4. Stockholder Meetings. Each Company will use its reasonable best
--------------------
efforts to submit this Agreement and related matters for approval of their
stockholders, which approval shall be recommended by each Company's Board of
Directors and management, subject to the fiduciary obligations of its directors
and officers.
8.5. Proxy Statement. Ansan will send to its stockholders, for the
---------------
purpose of considering and voting upon the Merger, the Proxy Statement.
Discovery shall promptly provide to Ansan information in accordance with
Sections 2.6 and 4.11 of this Agreement. Neither Company shall provide to its
stockholders or publish any material that violates the 1933 Act or Exchange Act
with respect to the transactions contemplated hereby.
8.6. Regulatory Approvals. Prior to the Closing, each Company shall
--------------------
execute and file, or join in the execution and filing, of any application or
other document
31
<PAGE>
that may be necessary in order to obtain the authorization, approval or consent
of any governmental body, federal, state, local or foreign which may be
reasonably required, or which the other Company may reasonably request, in
connection with the consummation of the transactions contemplated by this
Agreement. Each Company shall use reasonable commercial efforts to obtain all
such authorizations, approvals and consents.
8.7. Necessary Consents. Prior to the Closing, each Company will use
------------------
reasonable commercial efforts to obtain such written consents and take such
other actions as may be necessary or appropriate in addition to those set forth
in Section 8.6 to allow the consummation of the transactions contemplated hereby
and to allow such Company to carry on its business after the Closing.
8.8. Litigation. Prior to the Closing, each Company will notify the
----------
other Company in writing promptly after learning of any material actions, suits,
proceedings or investigations by or before any court, board or governmental
agency, initiated by or against it or any of its Subsidiaries, or known by it to
be threatened against it or any of its Subsidiaries.
8.9. Exclusivity. From the date hereof until the earlier of
-----------
termination of this Agreement or consummation of the Merger, neither Ansan nor
Discovery nor any of their officers, directors, employees, representatives
(including any investment banker, attorney or accountant retained by them),
agents or affiliates shall directly or indirectly encourage, solicit, initiate,
facilitate or conduct discussions or negotiations with, provide any information
to, or enter into any agreement with, any corporation, partnership, person or
other entity or group concerning or expressing an interest in or proposing any
merger, consolidation, reorganization, share exchange, business combination,
liquidation, dissolution sale of all or significant assets or securities or
other similar transaction involving Ansan or Discovery, except to the extent
required by their fiduciary duties as determined by the Boards of Directors of
Ansan or Discovery, as the case may be, after discussion with their counsel.
8.10. Due Diligence. Until the Closing, each Company shall provide
-------------
the other Company (including, subject to the receipt of any necessary
confidentiality undertakings, accounting, legal, and investment banking
representatives) with reasonable access to its offices and its senior employees
for the purpose of due diligence, in accordance with procedures established by
the parties to minimize disruptions of their businesses. Each party shall
provide the other party with all material documents requested in the course of
performing due diligence, including documents requested prior to execution of
this Agreement, within 30 days of such request.
8.11. Satisfaction of Conditions Precedent. Subject to the fiduciary
------------------------------------
obligations of its directors and officers, each Company will use its
commercially
32
<PAGE>
reasonable efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 6 and 7, and each Company will use its
commercially reasonable efforts to cause the transactions contemplated by this
Agreement to be consummated, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties that may be
necessary or reasonably required on its part in order to effect the transactions
contemplated hereby.
8.12. Representations Regarding Tax Matters. Each Company, its
-------------------------------------
officers, directors, and stockholders, will make such representations as are
reasonably requested by counsel to both parties in order that such counsel may
render the tax opinions required by Sections 6.7 and 7.5 hereof.
8.13. Notification of Customers, Suppliers and Employees. Prior to
--------------------------------------------------
the Closing, Discovery will notify each customer, supplier of products and
employee who is material to Discovery's business of the basic facts relating to
the transactions contemplated by this Agreement.
8.14. Fairness Opinion. Discovery shall use commercially reasonable
----------------
efforts to satisfy the condition set forth in Section 7.16.
8.15. Discovery Working Capital. Through the Closing Date, Discovery
-------------------------
shall use its best commercial efforts to maintain Discovery Working Capital of
at least $5,000,000.
ARTICLE IX
CONFIDENTIALITY COVENANT AND ANNOUNCEMENTS
9.1. Confidentiality. Neither party to this Agreement shall use or
---------------
disclose any non-public information obtained from the other party for any
purpose unrelated to the Merger, and, if this Agreement is terminated for any
reason whatsoever, each party shall return to the other or destroy all originals
and copies of all documents and papers containing technical, financial, and
other information furnished to such party pursuant to this Agreement or during
the negotiations which preceded this Agreement, and shall neither use nor
disclose any such information except to the extent that such information is
available to the public, is rightfully obtained from third parties or is
independently developed or is required to be disclosed by law or legal process.
9.2. Announcements. Neither party to this Agreement shall issue a
-------------
press release or other public communication relating to this Agreement, the
Certificate of Merger or the Merger without the prior approval of the other
party. Notwithstanding the
33
<PAGE>
foregoing, (i) Ansan may make such announcements regarding the Merger as, in the
judgment of its management after consultation with legal counsel, are necessary
to comply with securities laws or Nasdaq regulations (provided that Discover
shall be afforded a reasonable opportunity to review the same), and (ii)
Discovery may communicate with its stockholders regarding the foregoing matters.
ARTICLE X
TERMINATION
10.1. Mutual Agreement. This Agreement may be terminated at any time
----------------
prior to the Effective Time by the consent of Ansan and Discovery, even if and
after the stockholders of Discovery and Ansan have approved this Agreement and
the Certificate of Merger.
10.2. Termination by Ansan. This Agreement may be terminated by
--------------------
Ansan alone, by means of written notice to Discovery if (a) Discovery fails to
perform any material covenant of Discovery contained in this Agreement, or (b)
any of the conditions set forth in Article VI of this Agreement shall not have
been satisfied by December 31, 1997, or shall have become incapable of being
satisfied by Discovery unless waived by Ansan.
10.3. Termination by Discovery. This Agreement may be terminated by
------------------------
Discovery alone, by means of written notice to Ansan if (a) Ansan fails to
perform any material covenant of Ansan contained in this Agreement or (b) any of
the conditions set forth in Article VII of this Agreement shall not have been
satisfied by December 31, 1997, or shall have become incapable of being
satisfied by Ansan unless waived by Discovery, (c) Ansan fails to comply in any
material respect with the operating budget dated as of the date hereof and
included as Section 10.3 to the Disclosure Statement of Ansan, or (d) if before
August 17, 1997, the conditions set forth in Section 7.16 has not been satisfied
provided Discovery has complied with Section 8.14, which termination must be
elected, if at all, by Discovery by August 17, 1997.
10.4. Limitation on Damages. In no event shall any party to this
---------------------
Agreement be liable for any damages (including punitive and compensatory
damages), costs or expenses aggregating in excess of $3,500,000 arising under or
related to breaches or alleged breaches of this agreement and the transactions
contemplated hereby.
34
<PAGE>
ARTICLE XI
MISCELLANEOUS
11.1. Future Structure. Concurrent with the Effective Time, Ansan
----------------
shall change its name to a name mutually agreed-upon by both Ansan and
Discovery.
11.2. Expenses. Each of Ansan and Discovery shall pay its own costs
--------
and expenses, including legal, accounting and investment banking fees and
expenses, relating to this Agreement, the negotiations leading up to this
Agreement and the transactions contemplated by this Agreement. Ansan represents
and warrants that it has not used any broker, finder or financial advisor in
connection with the Merger other than Dakin Securities Corporation. Discovery
represents and warrants that it has not used any broker, finder or financial
advisor in connection with the Merger but that it intends to retain a financial
advisor to render a fairness opinion in accordance with Section 7.16 of this
Agreement.
11.3. Amendment. This Agreement shall not be amended except by a
---------
writing duly executed by both parties.
11.4. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of this State of Delaware as applied to
agreements entered into by Delaware residents and entirely to be performed
within Delaware.
11.5. Headings. The headings contained in this Agreement are
--------
intended for convenience and shall not be used to determine the rights of the
parties.
11.6. Mutual Contribution. The parties to this Agreement and their
-------------------
counsel have mutually contributed to its drafting.
11.7. Notices. All notices, requests, demands, and other
-------
communications made in connection with this Agreement shall be in writing and
shall be deemed to have been duly given on the date of delivery if delivered by
hand delivery or by facsimile to the persons identified below or five days after
mailing if mailed by certified or registered mail postage prepaid return receipt
requested addressed as follows:
35
<PAGE>
If to Ansan:
Ansan Pharmaceuticals, Inc.
400 Oyster Point Blvd.
South San Francisco, CA 94080
Attention: Vaughan Shalson
Facsimile: (415) 635-0211
Confirmation Number: (415) 635-0200
With a copy to:
Heller, Ehrman, White & McAuliffe
525 University Avenue
Palo Alto, California 94301
Attention: August J. Moretti
Facsimile: (415) 324-0638
Confirmation Number: (415) 324-7000
If to Discovery:
Discovery Laboratories, Inc.
509 Madison Avenue
New York, New York 10022
Attention: President
Facsimile: (212) 688-7978
Confirmation Number: (212) 223-0960
With a copy to:
Roberts, Sheridan & Kotel, A Professional Corporation
12 East 49th Street
New York, New York 10017
Attention: Kenneth Alberstadt
Facsimile: (212) 299-8686
Confirmation Number: (212) 299-8640
Such addresses may be changed, from time to time by means of a notice
given in the matter provided in this section.
11.8. Severability. If any provision of this Agreement is held to be
------------
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order
36
<PAGE>
to achieve the intent of the parties to the extent possible. In any event, all
other provisions of this Agreement shall be deemed valid and enforceable to the
full extent.
11.9. Termination of Representation and Warranties. All
--------------------------------------------
representations and warranties contained in this Agreement, including the
exhibits, schedules and other documents delivered pursuant to this Agreement
shall terminate at the Effective Time.
11.10. Waiver. Waiver of any term or condition of this Agreement by
------
any party shall not be construed as a waiver of a subsequent breach or failure
of the same term or condition, or a waiver of any other term or condition in
this Agreement.
11.11. Assignment. Neither party may assign, by operation of law or
----------
otherwise, all or any portion of its rights or duties under this Agreement
without the prior written consent of the other party, which consent may be
withheld in the absolute discretion of the party asked to give consent.
11.12. Counterparts. This Agreement may be signed in counterparts
------------
with the same effect as if the signatures to each party were upon a single
instrument. All counterparts shall be deemed an original of this Agreement.
11.13. Voting Agreements of Certain Discovery Stockholders. Within 14
---------------------------------------------------
days of the execution of this Agreement, each director of Discovery, as well as
RAQ, LLC, shall enter into a voting agreement and irrevocable proxy in the form
attached hereto as Exhibit 11.13, pursuant to which they shall agree to vote all
the shares of Discovery Stock held by them in favor of the Merger.
11.14. Voting Agreements of Ansan Stockholder. Within 14 days of the
--------------------------------------
execution of this Agreement, Titan shall enter into a voting agreement and
irrevocable proxy in substantially the form attached hereto as Exhibit 11.14,
pursuant to which Titan shall agree to vote all the shares of Ansan Stock held
by it in favor of the Merger.
11.15. Other Remedies. No remedies contained in this Agreement or in
--------------
any of the exhibits or schedules hereto shall be in lieu of, or constitute a
waiver of, any remedies at law or in equity (not based upon negligent
misrepresentation) that one party may otherwise have against the other party
hereto or against any present or former officer, director or controlling
stockholder of such party.
11.16. No Solicitation of Employees. Until the Effective Date or six
----------------------------
months after termination of this Agreement, whichever is later, each of Ansan
and Discovery agrees that it will not solicit for hire any of the employees of
the other.
11.17. Entire Agreement. This Agreement, including the exhibit,
----------------
schedules, and other documents delivered pursuant to this Agreement, contains
all the terms and
37
<PAGE>
conditions agreed upon by the parties relating to the subject matter of this
Agreement and supersedes all prior agreements, negotiations, correspondence,
undertakings, and communications of the parties, whether oral or
[INTENTIONALLY LEFT BLANK]
38
<PAGE>
11.18. written, respecting that subject matter, except the
nondisclosure agreements between Discovery and Ansan and ATI and Ansan,
IN WITNESS WHEREOF, Ansan and Discovery have executed this Agreement
as of the date first above written.
ANSAN PHARMACEUTICALS, INC.
By: /s/ V.H.J. SHALSON
-----------------------------
Title: PRESIDENT AND CEO
--------------------------
DISCOVERY LABORATORIES, INC.
By: /s/ JAMES S. KUO M.D.
-----------------------------
Title: PRESIDENT AND CEO
--------------------------
39
<PAGE>
<TABLE>
<CAPTION>
TABLE OF EXHIBITS
<C> <S>
EXHIBIT A Certificate of Designation
EXHIBIT B Certificate of Merger
EXHIBIT C Titan Agreement
EXHIBIT 6.9 Affiliates Agreement
EXHIBIT 6.10A and 6.10B Lockup Agreements
EXHIBIT 6.20 Legal Opinion of Discovery Counsel
EXHIBIT 7.15 Legal Opinion of Ansan Counsel
EXHIBIT 11.13 Voting Agreements of Certain Stockholders of Discovery
EXHIBIT 11.14 Voting Agreement of Ansan Stockholder
</TABLE>
i
<PAGE>
EXHIBIT 2.2
-----------
[FORM OF]
CERTIFICATE OF DESIGNATION
of
SERIES B CONVERTIBLE PREFERRED STOCK
of
ANSAN PHARMACEUTICALS, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
ANSAN PHARMACEUTICALS, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), does hereby certify that,
pursuant to the authority conferred on the Board of Directors of the Corporation
by the Certificates of Incorporation, as amended, of the Corporation and in
accordance with Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Corporation adopted the following
resolution establishing a series of 2,420,280 shares of Preferred Stock of the
Corporation designated as "Series B Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the Board of
Directors of this Corporation by the Certificate of Incorporation, as
amended, a series of Preferred Stock, par value $.001 per share, of the
Corporation is hereby established and created, and that the designation
and number of shares thereof and the voting and other powers,
preferences and relative, participating, optional or other rights of
the shares of such Series B and the qualifications, limitations and
restrictions thereof are as follows:
Series B Convertible Preferred Stock
------------------------------------
1. Designation and Amount. There shall be a series of Preferred Stock
----------------------
designated as "Series B Convertible Preferred Stock" and the number of shares
constituting such series shall be 2,420,280. Such series is referred to herein
as the "Series
<PAGE>
B Convertible Preferred Stock". Such number of shares may be increased or
decreased by resolution of the Board of Directors of the Corporation; provided,
however, that no decrease shall reduce the number of shares of Series B
Convertible Preferred Stock to less than the number of shares then issued and
outstanding.
2. Dividends. Subject to the prior and superior rights of the holders
---------
of any shares of any series or class of capital stock ranking prior and superior
to the shares of Series B Convertible Preferred Stock with respect to dividends
and distributions, the holders of shares of Series B Convertible Preferred
Stock, shall be entitled to receive dividends and distributions, when, as and if
declared by the Board of Directors out of funds legally available for such
purpose. If the Corporation declares a dividend or distribution on the common
stock, par value $.001 per share (the "Common Stock"), of the Corporation, the
holders of shares of Series B Convertible Preferred Stock shall be entitled to
receive for each share of Series B Convertible Preferred Stock a dividend or
distribution in the amount of the dividend or distribution that would be
received by a holder of the Common Stock into which such share of Series B
Convertible Preferred Stock is convertible on the record date for such dividend
or distribution. If the Corporation declares a dividend or distribution on any
other class or series of preferred stock, the holders of shares of Series B
Convertible Preferred Stock shall be entitled to receive a dividend or
distribution in an amount per share in proportion to the dividend or
distribution declared on a share of such other class or series based on the
liquidation preference of a share of the Series B Convertible Preferred Stock or
series based upon the liquidation preference of a share of the Series B
Convertible Preferred Stock relative to that of a share of such other class or
series, unless the holders of at least 66.67% of the outstanding shares of
Series B Convertible Preferred Stock consent otherwise. In any such case, the
Corporation shall declare a dividend or distribution on the Series B Convertible
Preferred Stock at the same time that it declares a dividend or distribution on
the Common Stock or such other class or series of preferred stock and shall
establish the same record date for the dividend or distribution on the Series B
Convertible Preferred Stock as is established for such dividend or distribution
on the Common Stock or such other class or series of preferred stock. Each such
dividend or distribution will be payable to holders of record of the Series B
Convertible Preferred Stock as they appeared on the records of the Corporation
at the close of business on the record date declared for such dividend or
distribution, as shall be fixed by the Board of Directors. Any dividend or
distribution payable to the holders of the Series B Preferred Stock pursuant to
this Section 2 shall be paid to such holders at the same time as the dividend or
distribution on the Common Stock by which it is measured or paid. If the
Corporation declares or pays a dividend or distribution on the Series B
Convertible Preferred Stock as a result of the declaration or payment of a
dividend or distribution on the Common Stock or any other class or series of
preferred stock as described above, the holders of the Series B Convertible
Preferred Stock shall not be entitled to any additional dividend or distribution
2
<PAGE>
solely because such first dividend or distribution also required the declaration
or payment of a dividend or distribution on any other class or series of
preferred stock. Any reference to "dividend" or "distribution" contained in this
Section 2 shall not be deemed to include any dividend or distribution made in
connection with or in lieu of any Liquidation Event (as defined below).
3. Liquidation Preference. In the event of a (i) liquidation,
----------------------
dissolution or winding up of the Corporation, whether voluntary or involuntary,
(ii) a sale or other disposition of all or substantially all of the assets of
the Corporation or (iii) any consolidation, merger, combination, reorganization
or other transaction in which the Corporation is not the surviving entity or the
shares of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into other stock or securities, cash
and/or any other property (a "Merger Transaction") (subparagraphs (i),(ii) and
(iii) being collectively referred to as a "Liquidation Event"), after payment or
provision for payment of debts and other liabilities of the Corporation, the
holders of the Series B Convertible Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its shareholders, whether such assets are capital, surplus, or
earnings, before any payment or declaration and setting apart for payment of any
amount shall be made in respect of the stock junior to the Series B Convertible
Preferred Stock, an amount equal to $13.50 per share plus an amount equal to all
declared and unpaid dividends thereon; provided, however, in the case of a
Merger Transaction, such $13.50 per share may be paid in cash and/or securities
(valued at the closing price (as defined in Section 5) of such security) of the
entity surviving such Merger Transaction. If upon any Liquidation Event, whether
voluntary or involuntary, the assets to be distributed to the holders of the
Series B Convertible Preferred Stock shall be insufficient to permit the payment
to such shareholders of the full preferential amounts aforesaid, then all of the
assets of the Corporation to be distributed shall be so distributed ratably to
the holders of the Series B Convertible Preferred Stock on the basis of the
number of shares of Series B Convertible Preferred Stock held. A consolidation
or merger of the Corporation with or into another corporation, other than in a
Merger Transaction, shall not be considered a liquidation, dissolution or
winding up of the Corporation or a sale or other disposition of all or
substantially all of the assets of the Corporation and accordingly the
Corporation shall make appropriate provision to ensure that the terms of this
Certificate of Designation survive any such transaction. All shares of Series B
Convertible Preferred Stock shall rank as to payment upon the occurrence of any
Liquidation Event senior to the Common Stock as provided herein and, unless the
terms of such series shall provide otherwise, senior to all other series of the
Corporation's preferred stock.
3
<PAGE>
4. Conversion.
----------
(a) Right of Conversion. The shares of Series B Convertible
-------------------
Preferred Stock shall be convertible, in whole or in part, at the option of the
holder thereof and upon notice to the Corporation as set forth in paragraph (b)
below, into fully paid and nonassessable shares of Common Stock and such other
securities and property as hereinafter provided. The shares of Series B
Convertible Preferred Stock shall be convertible initially at the rate of
4.672897 shares of Common Stock for each full share of Series B Convertible
Preferred Stock and shall be subject to adjustment as provided herein. The
initial conversion price per share of Common Stock is $2.14 and shall be subject
to adjustment as provided herein. For purposes of this resolution, the
"conversion rate" applicable to a share of Series B Convertible Preferred Stock
shall be the number of shares of Common Stock and number or amount of any other
securities and property as hereinafter provided into which a share of Series B
Convertible Preferred Stock is then convertible and shall be determined by
dividing the then existing conversion price into $10.00.
The conversion price (subject to adjustments pursuant to the
provisions of paragraph (c) below) in effect immediately prior to the date (the
"Reset Date") that is 12 months after the first date on which shares of the
Common Stock issued by the Company to the stockholders of Discovery
Laboratories, Inc. in connection with the consummation of a merger of Discovery
Laboratories, Inc. with and into the Company on or about the date of filing this
certificate are traded on the NASDAQ SmallCap Market or the NASDAQ National
Market (collectively referred to as "Nasdaq") or on any other national
securities exchange or on the NASD Electronic Bulletin Board, shall be adjusted
and reset effective as of the Reset Date if the average closing bid price of the
Common Stock for the 30 consecutive trading days immediately preceding the Reset
Date (the "12-Month Trade Price") is less than 135% of the then applicable
conversion price (a "Reset Event"). Upon the occurrence of a Reset Event, the
conversion price shall be reduced to be equal to the greater of (A) the 12-Month
Trade Price divided by 1.35 and (B) 50% of the then applicable conversion price.
If there is any change in the conversion price as a result of the preceding
sentence, then the conversion rate shall be changed accordingly, and shall be
determined by dividing the new conversion price into $10.00. The Corporation
shall prepare a certificate signed by the principal financial officer of the
Corporation setting forth the conversion rate as of the Reset Date, showing in
reasonable detail the facts upon which such conversion rate is based, and such
certificate shall be forthwith filed with the transfer agent of the Series B
Convertible Preferred Stock. Notwithstanding the provisions of subparagraph (vi)
of paragraph (c) below, a notice stating that the conversion rate has been
adjusted pursuant to this paragraph, or that no adjustment is necessary, and
setting forth the conversion rate in effect as of the Reset Date shall be mailed
as promptly as practicable after the Reset Date by the Corporation to all record
4
<PAGE>
holders of the Series B Convertible Preferred Stock at their last addresses as
they shall appear in the stock transfer books of the Corporation.
The "closing bid price" for each trading day shall be the reported
closing bid price on the NASDAQ Small-Cap Market or the NASDAQ National Market
System (collectively referred to as, "NASDAQ") or, if the Common Stock is not
quoted on NASDAQ, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading (based on the aggregate dollar
value or all securities listed or admitted to trading), or if not listed or
admitted to trading on any national securities exchange or quoted on NASDAQ, the
closing bid price in the over-the-counter market as furnished by any NASD member
firm selected from time to time by the Corporation for that purpose, or, if such
prices are not available, the fair market value set by, or in a manner
established by, the Board of Directors of the Corporation in good faith.
"Trading day" shall mean a day on which the national securities exchange or
NASDAQ used to determine the closing bid price is open for the transaction of
business or the reporting of trades or, if the closing bid price is not so
determined, a day or which NASDAQ is open for the transaction of business.
(b) Conversion Procedures. Any holder of shares of Series B
---------------------
Convertible Preferred Stock desiring to convert such shares into Common Stock
shall surrender the certificate or certificates evidencing such shares of Series
B Convertible Preferred Stock at the office of the transfer agent for the Series
B Convertible Preferred Stock, which certificate or certificates, if the
Corporation shall so require, shall be duly endorsed to the Corporation or in
blank, or accompanied by proper instruments of transfer to the Corporation or in
blank, accompanied by irrevocable written notice to the Corporation that the
holder elects so to convert such shares of Series B Convertible Preferred Stock
and specifying the name or names (with address) in which a certificate or
certificates evidencing shares of Common Stock are to be issued. The Corporation
need not deem a notice of conversion to be received unless the holder complies
with all the provisions hereof. The Corporation will instruct the transfer agent
(which may be the Corporation) to make a notation of the date that a notice of
conversion is received, which date shall be deemed to be the date of receipt for
purposes hereof.
The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series B Convertible Preferred Stock
accompanied by the written notice and compliance with any other conditions
herein contained, deliver at such office of such transfer agent to the person
for whose account such Shares of Series B Convertible Preferred Stock were so
surrendered, or to the nominee or nominees of such person, certificates
evidencing the number of full shares of Common Stock to which such person shall
be entitled as aforesaid, together with a cash adjustment of any fraction of a
share as hereinafter provided. Subject to the following provisions of this
paragraph, such
5
<PAGE>
conversion shall be deemed to have been made as of the date of such surrender of
the shares of Series B Convertible Preferred Stock to be converted, and the
person or persons entitled to receive the Common Stock deliverable upon
conversion of such Series B Convertible Preferred Stock shall be treated for all
purposes as the record holder or holders of such Common Stock on such date;
provided, however, that the Corporation shall not be required to convert any
- -----------------
shares of Series B Convertible Preferred Stock while the stock transfer books of
the Corporation are closed for any purpose, but the surrender of Series B
Convertible Preferred Stock for conversion during any period while such books
are so closed shall become effective for conversion immediately upon the
reopening of such books as if the surrender had been made on the date of such
reopening, and the conversion shall be at the conversion rate in effect on such
date. No adjustments in respect of any dividends on shares surrendered for
conversion or any dividend on the Common Stock issued upon conversion shall be
made upon the conversion of any shares of Series B Convertible Preferred Stock.
All notices of conversions shall be irrevocable; provided, however,
-----------------
that if the Corporation has sent notice of an event pursuant to Sections 4(f)
and (g) hereof, a holder of Series B Convertible Preferred Stock may, at its
election, provide in its notice of conversion that the conversion of its shares
of Series B Convertible Preferred Stock shall be contingent upon the occurrence
of the record date or effectiveness of such event (as specified by such holder),
provided that such notice of conversion is received by the Corporation prior to
such record date or effective date, as the case may be.
(c) Certain Adjustments of Conversion Rate. In addition to
--------------------------------------
adjustment pursuant to paragraph (a) above, the conversion rate (and the
corresponding conversion price) shall be subject to adjustment from time to time
as follows:
(i) In case the Corporation shall (A) pay a dividend in Common
Stock or make a distribution in Common Stock, (B) subdivide its outstanding
Common Stock, (C) combine its outstanding Common Stock into a smaller number of
shares of Common Stock or (D) issue by reclassification of its Common Stock
other securities of the Corporation, then in each such case the conversion rate
in effect immediately prior thereto shall be adjusted so that the holder of any
shares of Series B Convertible Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the kind and number of shares of Common
Stock or other securities of the Corporation which such holder would have owned
or would have been entitled to receive immediately after the happening of any of
the events described above had such shares of Series B Convertible Preferred
Stock been converted immediately prior to the happening of such event or any
record date with respect thereto. Any adjustment made pursuant to this
subparagraph (i) shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
6
<PAGE>
(ii) In case the Corporation shall issue rights, options,
warrants or convertible securities to all or substantially all holders of its
Common Stock, without any charge to such holders, entitling them to subscribe
for or purchase Common Stock at a price per share which is lower at the record
date mentioned below than both (A) the then effective conversion price and (B)
the closing bid price (as defined in Section 4) for the trading day immediately
prior to such record date (the "Current Market Price"), then the conversion rate
shall be determined by multiplying the conversion rate theretofore in effect by
a fraction, of which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such rights, options, warrants
or convertible securities plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the denominator shall be the
number of shares of Common Stock outstanding immediately prior to the issuance
of such rights, options, warrants or convertible securities plus the number of
shares which the aggregate offering price of the total number of shares offered
would purchase at such Current Market Price. Such adjustment shall be made
whenever such rights, options, warrants or convertible securities are issued,
and shall become effective immediately and retroactive to the record date for
the determination of stockholders entitled to receive such rights, options,
warrants or convertible securities. Notwithstanding any of the foregoing, no
adjustment shall be made pursuant to the provisions of this subsection (ii), if
such adjustment would result in a decrease of the conversion rate.
(iii) In case the Corporation shall distribute to all or
substantially all holders of its Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions out of earnings) or rights,
options, warrants or convertible securities containing the right to subscribe
for or purchase Common Stock (excluding those referred to in subparagraph (ii)
above), then in each case the conversion rate shall be determined by multiplying
the conversion rate theretofore in effect by a fraction, of which the numerator
shall be the then fair value as determined in good faith by the Corporation's
Board of Directors on the date of such distribution, and of which the
denominator shall be such fair value on such date minus the then fair value (as
so determined) of the portion of the assets or evidences of indebtedness so
distributed or of such subscription rights, options, warrants or convertible
securities applicable to one share. Such adjustment shall be made whenever any
such distribution is made and shall become effective on the date of distribution
retroactive to the record date for the determination of stockholders entitled to
receive such distribution.
(iv) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the conversion
rate shall, upon such expiration, be readjusted and shall thereafter be such as
it would have been had it been originally adjusted (or had the original
adjustment not been required, as the case may be) on the basis of (A) the fact
that Common Stock, if any, actually issued or sold
7
<PAGE>
upon the exercise of such rights, options, warrants or conversion privileges,
and (B) the fact that such shares of Common Stock, if any, were issued or sold
for the consideration actually received by the Corporation upon such exercise
plus the consideration, if any, actually received by the Corporation for the
issuance, sale or grant of all such rights, options, warrants or conversion
privileges whether or not exercised.
(v) No adjustment in the conversion rate shall be required
unless such adjustment would require an increase or decrease of at least 1% in
such rate; provided, however, that the Corporation may make any such adjustment
-----------------
at its election; and provided, further, that any adjustments which by reason of
-----------------
this subparagraph (v) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 4 shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
(vi) Whenever the conversion rate is adjusted as provided in any
provision of this Section 4:
(A) the Corporation shall compute (or may retain a firm
of independent public accountants of recognized national
standing (which may be any such firm regularly employed by the
Corporation) to compute) the adjusted conversion rate in
accordance with this Section 4 and shall prepare a certificate
signed by the principal financial officer of the Corporation (or
cause any such independent public accountants to execute a
certificate) setting forth the adjusted conversion rate and
showing in reasonable detail the facts upon which such
adjustment is based, and such certificate shall forthwith be
filed with the transfer agent of the Series B Convertible
Preferred Stock; and
(B) a notice stating that the conversion rate has been
adjusted and setting forth the adjusted conversion rate shall
forthwith be required, and as soon as practicable after it is
required, such notice shall be mailed by the Corporation to all
record holders of Series B Convertible Preferred Stock at their
last addresses as they shall appear in the stock transfer books
of the Corporation.
(vii) In the event that at any time, as a result of any
adjustment made pursuant to this Section 4, the holder of any shares of Series B
Convertible Preferred Stock thereafter surrendered for conversion shall become
entitled to receive any shares of the Corporation other than shares of Common
Stock or to receive any other securities, the number of such other shares or
securities so receivable upon conversion of any share of Series B Convertible
Preferred Stock shall be subject to adjustment from
8
<PAGE>
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions contained in this Section 4 with respect to the Common Stock.
(d) No Fractional Shares. No fractional shares or scrip representing
--------------------
fractional shares of Common Stock shall be issued upon conversion of Series B
Convertible Preferred Stock. If more than one certificate evidencing shares of
Series B Convertible Preferred Stock shall be surrendered for one certificate
evidencing shares of Series B Convertible Preferred Stock shall be surrendered
for conversion at one time by the same holder, the number of full shares
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares of Series B Convertible Preferred Stock so surrendered. Instead
of any fractional share of Common Stock which would otherwise be issuable upon
conversion of any shares of Series B Convertible Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fractional interest
in an amount equal to the same fraction of the market price per share of Common
Stock (which shall be the closing price as defined in Section 5) at the close of
business on the day of conversion.
(e) Reservation of Shares; Transfer Taxes, Etc. The Corporation
------------------------------------------
shall at all times reserve and keep available, out of its authorized and
unissued stock, solely for the purpose of effecting the conversion of the Series
B Convertible Preferred Stock, such number of shares of its Common Stock free of
preemptive rights as shall from time to time be sufficient to effect the
conversion of all shares of Series B Convertible Preferred Stock from time to
time outstanding. The Corporation shall use its best efforts from time to time,
in accordance with the laws of the State of Delaware, to increase the authorized
number of shares of Common Stock if at any time the number of shares of Common
Stock not outstanding shall not be sufficient to permit the conversion of all
the then-outstanding shares of Series B Convertible Preferred Stock.
The Corporation shall pay any and all issue or other taxes that may
be payable in respect of any issue or delivery of shares of Common Stock on
conversion of the Series B Convertible Preferred Stock. The Corporation shall
not, however, be required to pay any tax which may be payable in respect to any
transfer involved in the issue or delivery of Common Stock (or other securities
or assets) in a name other than that in which the shares of Series B Convertible
Preferred Stock so converted were registered, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to the
Corporation the amount of such tax or has established, to the satisfaction of
the Corporation, that such tax has been paid.
Notwithstanding anything to the contrary herein, before taking any
action that would cause an adjustment reducing the conversion rate or before any
such adjustment is made as a result of a Reset Event, in either event, such that
the effective conversion price (for all purposes an amount equal to $10.00
divided by the conversion
9
<PAGE>
rate as in effect at such time) would be below the then par value of the Common
Stock, the Corporation shall take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at the
conversion rate as so adjusted.
(f) Prior Notice of Certain Events. In case:
------------------------------
(i) the Corporation shall declare any dividend (or any other
distribution) on its Common Stock; or
(ii) the Corporation shall authorize the granting to the
holders of Common stock of rights or warrants to subscribe for or purchase any
shares of stock of any class or of any other rights or warrants; or
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change in par
value, or from par value to no par value, or from no par value to par value), or
of any consolidation or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation shall be required, or of the
sale or transfer of all or substantially all of the assets of the Corporation or
of any compulsory share exchange whereby the Common Stock is converted into
other securities, cash or other property; or
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Corporation or other Liquidation Event:
then the Corporation shall cause to be filed with the transfer agent for the
Series B Convertible Preferred Stock, and shall cause to be mailed to the
holders of record of the Series B Convertible Preferred Stock, at their last
addresses as they shall appear upon the stock transfer books of the Corporation,
at least 20 days prior to the applicable record date hereinafter specified, a
notice stating (x) the date on which a record (if any) is to be taken for the
purpose of such dividend, distribution or granting of rights or warrants or, if
a record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights or warrants are to
be determined and a description of the cash, securities or other property to be
received by such holders upon such dividend, distribution or granting of rights
or warrants or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding up
is expected to become effective, the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such exchange,
dissolution, liquidation, winding up or other Liquidation Event and the
consideration, including securities or other property, to be received by such
holders upon such exchange; provided, however, that no failure to mail such
-----------------
notice or any defect therein or in the
10
<PAGE>
mailing thereof shall affect the validity of the corporate action required to be
specified in such notice.
(g) Other Changes in Conversion Rate. The Corporation from time
--------------------------------
to time may increase the conversion rate by any amount for any period of time if
the period is at least 20 days and if the increase is irrevocable during the
period. Whenever the conversion rate is so increase, the Corporation shall mail
to holders of record of the Series B Convertible Preferred Stock a notice of the
increase at least 15 days before the date the increased conversion rate takes
effect, and such notice shall state the increased conversion rate and the period
it will be in effect.
The Corporation may make such increases in the conversion
rate, in addition to those required or allowed by this Section 4, as shall be
determined by it, as evidenced by a resolution of the Board of Directors, to be
advisable in order to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any even treated as such
for income tax purposes.
(h) Ambiguities/Errors. The Board of Directors of the
------------------
Corporation shall have the power to resolve any ambiguity or correct any error
in the provisions relating to the convertibility of the Series B Convertible
Preferred Stock, and its actions in so doing shall be final and conclusive.
5. Mandatory Conversion. At any time on or after the Reset Date, the
--------------------
Corporation, at its option, may cause the Series B Convertible Preferred Stock
to be converted in whole, or in part, on a pro rata basis, into fully paid and
--------
nonassessable shares of Common Stock and such other securities and property as
herein provided if the closing price of the Common Stock shall have exceeded
150% of the then applicable conversion price for at least 20 trading days in any
30 consecutive trading day period. Any shares of Series B Convertible Preferred
Stock so converted shall be treated as having been surrendered by the holder
thereof for conversion pursuant to Section 4 on the date of such mandatory
conversion (unless previously converted at the option of the holder).
Not more than 60 nor less than 20 days prior to the date of any such
mandatory conversion, notice by first class mail, postage prepaid, shall be
given to the holders of record of the Series B Convertible Preferred Stock to be
converted, addressed to such holders at their last addresses as shown on the
stock transfer books of the Corporation. Each such notice shall specify that
date fixed for conversion, the place or places for surrender of shares of Series
B Convertible Preferred Stock, and the then effective conversion rate pursuant
to Section 4.
11
<PAGE>
The "closing price" for each trading day shall be the reported last
sales price regular way or, in case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices regular way, in
either case on the NASDAQ or, if the Common Stock is not quoted on NASDAQ, on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading (based on the aggregate dollar value of all securities
listed or admitted to trading) or, if not listed or admitted to trading on any
national securities exchange or quoted on NASDAQ, the average of the closing bid
and asked prices in the over-the-counter market as furnished by any NASD member
firm selected from time to time by the Corporation for that purpose, or, if such
prices are not available, the fair market value set by, or in a manner
established by, the Board of Directors of the Corporation in good faith.
"Trading day" shall have the meaning given in Section 4 hereof.
Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Corporation on the date deposited in the
mail, whether or not the holder of the Series B Convertible Preferred Stock
receives such notice; and failure properly to give such notice by mail, or any
defect in such notice, to the holders of the shares to be converted shall not
affect the validity of the proceedings for the conversion of any other shares of
Series B Convertible Preferred Stock. On or after the date fixed for conversion
as stated in such notice, each holder of shares called to be converted shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice for conversion. Notwithstanding that the certificates
evidencing any shares properly called for conversion shall not have been
surrendered, the shares shall no longer be deemed outstanding and all rights
whatsoever with respect to the shares so called for conversion (except that
right of the holders to convert such shares upon surrender of their certificates
therefor) shall terminate.
6. Voting Rights
-------------
(a) General. Except as otherwise provided herein, in the Certificate
-------
of Incorporation or the By-laws, the holders of shares of Series B Convertible
Preferred Stock, the holders of shares of Common Stock and the holders of any
other class or series of shares entitled to vote with the Common Stock shall
vote together as one class on all matters submitted to a vote of stockholders of
the Corporation. In any such vote, each share of Series B Convertible Preferred
Stock shall entitle the holder thereof to cast the number of votes equal to the
number of votes which could be cast in such vote by a holder of the Common Stock
into which such share of Series B Convertible Preferred Stock is convertible on
the record date for such vote, or if no record date has been established, on the
date such vote is taken. Any shares of Series B Convertible Preferred Stock held
by the Corporation or any entity controlled by the Corporation shall not have
voting rights hereunder and shall not be counted in determining the presence of
a quorum.
12
<PAGE>
(b) Class Voting Rights. In addition to any vote specified in
-------------------
paragraph (a) of this Section 6, so long as 50% of the shares of Series B
Convertible Preferred Stock (including those shares of Series B Convertible
Preferred Stock issued or issuable upon the exercise of the warrants issued to
Paramount Capital, Inc.) shall be outstanding, the Corporation shall not,
without the affirmative vote or consent of the holders of at least 66.67% of all
outstanding Series B Convertible Preferred Stock voting separately as a class,
(i) amend, alter or repeal any provision of the Certificate of Incorporation, as
amended, or the Bylaws of the Corporation so as adversely to affect the relative
rights, preferences, qualifications, limitations or restrictions of the Series B
Convertible Preferred Stock, (ii) declare any dividend or distribution on the
Common Stock or any other class or series of preferred stock or authorize the
repurchase of any securities of the Corporation or (iii) authorize or issue, or
increase the authorized amount of, any additional class or series of stock, or
any security convertible into stock of such class or series, (A) ranking prior
to, or on a parity with, the Series B Convertible Preferred Stock upon
liquidation, dissolution or winding up of the Corporation or a sale of all or
substantially all of the assets of the Corporation or (B) providing for the
payment of any dividends or distributions. A class vote on the part of the
Series B Convertible Preferred Stock shall, without limitation, specifically not
be deemed to be required (except as otherwise required by law or resolution of
the Corporation's Board of Directors) in connection with: (a) the authorization,
issuance or increase in the authorized amount of Common Stock or of any shares
of any other class or series of stock ranking junior to the Series B Convertible
Preferred Stock in respect of distributions upon liquidation, dissolution or
winding up of the Corporation; (b) the authorization, issuance or increase in
the amount of the Series B Convertible Preferred Stock or any bonds, mortgage,
debentures or other obligations of the Corporation (other than bonds, mortgages,
debentures or other obligations convertible into or exchangeable for or having
option rights to purchase any shares of stock of the Corporation, the
authorization, issuance or increase in amount of which would require the consent
of the holders of the Series B Convertible Preferred Stock); or (c) any
consolidation or merger of the Corporation with or into another corporation in
which the Corporation is not the surviving entity, a sale or transfer of all or
part of the Corporation's assets for cash, securities or other property, or a
compulsory share exchange.
7. Outstanding Shares. For purposes of this Certificate of Designation,
------------------
all shares of Series B Convertible Preferred Stock shall be deemed outstanding
except (i) from the date, or the deemed date, of surrender of certificates
evidencing shares of Series B Convertible Preferred Stock, all shares of Series
B Convertible Preferred Stock converted into Common Stock, (ii) from the date of
registration of transfer, all shares of Series B Convertible Preferred Stock
held of record by the Corporation or any subsidiary of the Corporation and (iii)
any and all shares of Series B Convertible Preferred Stock
13
<PAGE>
held in escrow prior to delivery of such stock by the Corporation to the initial
beneficial owners thereof.
8. Status of Acquired Shares. Shares of Series B Convertible Preferred
-------------------------
Stock received upon conversion pursuant to Section 4 or Section 5 or otherwise
acquired by the Corporation will be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Series B Convertible Preferred Stock.
9. Preemptive Rights. The Series B Convertible Preferred Stock is not
-----------------
entitled to any preemptive or subscription rights in respect of any securities
of the Corporation.
10. No Amendment or Impairment. The Corporation shall not amend its
--------------------------
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series B Preferred
Stock against impairment.
11. Severability of Provisions. Whenever possible, each provision
--------------------------
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
14
<PAGE>
IN WITNESS WHEREOF, Ansan Pharmaceuticals, Inc. has caused this
certificate to be signed on its behalf by ____________________, its
_________________, this ___ day of _______________, 1997.
ANSAN PHARMACEUTICALS, INC.
By: __________________
Name: ________________
Title: _______________
15
<PAGE>
EXHIBIT 2.3
-----------
CERTIFICATE OF MERGER
MERGING
DISCOVERY LABORATORIES, INC.
WITH AND INTO
ANSAN PHARMACEUTICALS, INC.
Pursuant to Section 251 of the General Corporation Law of
the State of Delaware
Discovery Laboratories, Inc., a Delaware corporation
("Discovery") and Ansan Pharmaceuticals, Inc., a Delaware corporation ("Ansan"),
DO HEREBY CERTIFY AS FOLLOWS:
FIRST: That Discovery was incorporated on May 18, 1993,
pursuant to the Delaware General Corporation Law (the "Delaware Law"), and that
Ansan was incorporated on November 6, 1992, pursuant to the Delaware Law.
SECOND: That an Agreement and Plan of Reorganization and
Merger (the "Merger Agreement"), dated as of July __, 1997, among Ansan and
Discovery, setting forth the terms and conditions of the merger of Discovery
with and into Ansan (the "Merger"), has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with Section 251 of the Delaware Law.
THIRD: That the name of the surviving corporation (the
"Surviving Corporation") shall be "--------"
FOURTH: That pursuant to the Merger Agreement, the Certificate
of Incorporation of the Surviving Corporation is amended to read in its entirety
as set forth in Exhibit A hereto.
FIFTH: That an executed copy of the Merger Agreement is on
file at the principal place of business of the Surviving Corporation at the
following address:
509 Madison Avenue
New York, New York 10022
SIXTH: That a copy of the Merger Agreement will be furnished
by the Surviving Corporation, on request and without cost, to any stockholder of
any constituent corporation.
<PAGE>
SEVENTH: That the Merger shall become effective at _____
[am/pm] on the day of filing of this Certificate of Merger with the Secretary of
State of the State of Delaware.
IN WITNESS WHEREOF, each of Discovery and Ansan has caused
this Certificate of Merger to be executed in its corporate name this __ day of
_______, 1997.
DISCOVERY LABORATORIES, INC.
-------------------------------
By:
Its:
ANSAN PHARMACEUTICALS, INC.
-------------------------------
By:
Its:
<PAGE>
EXHIBIT 2.4
PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") dated as
of July 16, 1997, by and between ANSAN PHARMACEUTICALS, INC., a Delaware
corporation (the "Company"), and DISCOVERY LABORATORIES, INC., a Delaware
corporation (the "Purchaser")
The Company desires to issue and sell to Purchaser, and
Purchaser desires to purchase from the Company, 13,000 shares (the "Shares") of
the Series A Convertible Preferred Stock, par value $.001 per share, of the
Company (the "Preferred Stock"), upon and subject to the terms and conditions
hereinafter set forth.
Accordingly, in consideration of the premises and the mutual
agreements contained herein, Purchaser and the Company hereby agree as follows:
1. Purchase and Sale of the Shares.
-------------------------------
1.1. Purchase and Sale of the Shares. Subject to the terms and
-------------------------------
conditions set forth herein, the Company hereby agrees to issue and sell to
Purchaser, and Purchaser hereby agrees to purchase from the Company, the Shares
at the Closing (as such term is defined in Section 2).
1.2. Purchase Price. The aggregate purchase price for the
--------------
Shares shall be $1,300,000 (the "Purchase Price").
2. Closing. The closing of the purchase and sale of the Shares
-------
(the "Closing") will take place at the offices of Roberts Sheridan & Kotel, a
professional corporation, 12 East 49th Street, 30th Floor, New York, New York,
10017. The Closing will take place at 10:00 A.M., local time, on July 16, 1997;
provided that the Closing may take place at such other time, place or date as
may be mutually agreed upon by the Company and Purchaser. The date of the
Closing is referred to herein as the "Closing Date." At the Closing, the Company
will deliver to Purchaser a certificate for the Shares purchased as set forth in
Section 1, against payment of the Purchase Price by Purchaser by wire transfer
or certified check payable to the Company. The Shares shall be registered in
Purchaser's name or the name of the nominee(s) of Purchaser in such
denominations as Purchaser shall request pursuant to instructions delivered to
the Company by the Purchaser.
3. Conditions to the Obligations of Purchaser at the Closing.
---------------------------------------------------------
The obligation of Purchaser to purchase and pay for the Shares to be purchased
by Purchaser at the Closing is subject to the satisfaction on or prior to the
Closing Date of the following conditions, which may only be waived by written
consent of Purchaser:
3.1. Opinion of Counsel to the Company. Purchaser shall have
---------------------------------
received from
1
<PAGE>
Heller, Ehrman, White & McAuliffe, counsel for the Company, its opinion dated
the Closing Date substantially in the form of Exhibit A hereto.
3.2. Certificate of Designations. The Certificate of
---------------------------
Incorporation of the Company shall have been duly amended by the filing of a
Certificate of Designations in the form of Exhibit B hereto.
3.3. Representations and Warranties. All of the
------------------------------
representations and warranties of the Company contained in this Agreement shall
be true and correct at and as of the Closing Date, except to the extent of
changes caused by the transactions contemplated hereby.
3.4. Performance of Covenants. All of the covenants and
------------------------
agreements of the Company contained in this Agreement and required to be
performed on or prior to the Closing Date shall have been performed in a manner
satisfactory in all respects to Purchaser.
3.5. Legal Action. No injunction, order, investigation, claim,
------------
action or proceeding before any court or governmental body shall be pending or
threatened wherein an unfavorable judgment, decree or order would restrain,
impair or prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated by this
Agreement or cause any such transaction to be rescinded.
3.6. Consents. The Company shall have obtained in writing or
--------
made all consents, waivers, approvals, orders, permits, licenses and
authorizations of, and registrations, declarations, notices to and filings and
applications with, any governmental authority or any other person or entity
(including, without limitation, securityholders and creditors of the Company)
required to be obtained or made in order to enable the Company to observe and
comply with all its obligations under this Agreement and to consummate the
transactions contemplated hereby.
3.7. Closing Documents. The Company shall have delivered to
-----------------
Purchaser the following:
(a) a certificate executed by the Chief Executive Officer of
the Company dated the Closing Date stating that the conditions set forth in
Sections 3.3 through 3.6 have been satisfied;
(b) a certificate of the Secretary or Assistant Secretary of
the Company, dated the Closing Date, as to the continued and valid existence of
the Company, certifying an attached copy of the Certificate of Incorporation and
Bylaws of the Company, the authorization of the execution, delivery and
performance of this Agreement, and the resolutions adopted by the Board of
Directors of the Company authorizing the actions to be taken by the Company
under this Agreement; and
(c) such other certificates, documents and instruments as
Purchaser and its counsel
2
<PAGE>
may reasonably request in connection with, and to effect, the transactions
contemplated by this Agreement.
3.8. Proceedings. All corporate and other proceedings taken or
-----------
to be taken in connection with the transactions contemplated hereby to be
consummated at the Closing and all documents incident thereto shall be
satisfactory in form and substance to Purchaser.
3.9. Closing Financial Statements; Absence of Changes. (a) The
------------------------------------------------
Company shall have provided to Purchaser (i) the audited balance sheet of the
Company as of December 31, 1996, and the related statement of operations for the
12 months then ended, as well as the related statements of stockholders' equity
(deficit) and cash flows for the 12 months then ended (and unaudited statements
for the three months ended March 31, 1997), accompanied by the unqualified
certification thereon of the Chief Financial Officer of the Company (together
with any notes thereto, the "Financial Statements"), and (ii) a "bring-down"
certificate of the Chief Executive Officer of the Company and the Chief
Financial Officer of the Company with respect to the financial position of the
Company as of the Closing Date, and as to results for the period from the date
of the Financial Statements to the Closing Date, in form and substance
satisfactory to Purchaser and its counsel.
(b) Except as set forth on the schedules hereto of the Company
delivered to Purchaser as of the date hereof, there shall have been no material
adverse change in the business, financial condition, operating results, employee
or customer relations or prospects of, or otherwise with respect to, the Company
from the date of the Financial Statements to the Closing Date.
4. Conditions to the Obligations of the Company at the
---------------------------------------------------
Closing. The obligation of the Company to issue and sell the Shares at the
- -------
Closing is subject to the satisfaction on or prior to the Closing Date of the
following conditions, which may be waived only by written consent of the
Company:
4.1. Representations and Warranties. The representations and
------------------------------
warranties of Purchaser contained in this Agreement shall be true and correct at
and as of the Closing Date.
4.2. Legal Action. No injunction, order, investigation, claim,
------------
action or proceeding before any court or governmental body shall be pending or
threatened wherein an unfavorable judgment, decree or order would restrain,
impair or prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated by this
Agreement or cause any such transaction to be rescinded.
4.3. Performance of Covenants. All of the covenants and
------------------------
agreements of the Purchaser contained in this Agreement and required to be
performed on or prior to the Closing Date shall have been performed in a manner
satisfactory in all respects to the Company.
3
<PAGE>
5. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents, warrants and agrees to and with Purchaser as follows:
5.1. Incorporation of Merger Agreement Representations and
-----------------------------------------------------
Warranties. The representations and warranties of the Company made in Article
- ----------
III and V of the Agreement and Plan of Reorganization and Merger of even date
herewith (the "Merger Agreement") between the Company and Purchaser are hereby
incorporated by reference as if set forth fully herein.
5.2. Charter Documents. The Company has heretofore delivered
-----------------
to Purchaser true, correct and complete copies of the Company's Delaware
Certificate of Incorporation and Bylaws as in full force and effect on the date
hereof.
5.3. Capitalization. No stockholder of the Company is entitled
--------------
to any preemptive rights with respect to the purchase or sale of any securities
by the Company. Except as set forth in Schedule 5.3, there are no voting trusts
or agreements, stockholders' agreements, pledge agreements, buy-sell, rights of
first offer, negotiation or refusal or proxies or similar arrangements relating
to any securities of the Company to which the Company is a party, and to the
best knowledge of the Company after due investigation there are no such trusts,
agreements, rights, proxies or similar arrangements as to which the Company is
not a party. Except as set forth on Schedule 5.3 and as contemplated herein,
none of the shares of capital stock of the Company is reserved for any purpose,
and the Company is neither subject to any obligation (contingent or otherwise),
nor has any option to repurchase or otherwise acquire or retire any shares of
its capital stock. Schedule 5.3 sets forth (i) the number of shares of Common
Stock authorized for issuance under the Company's incentive stock option plans,
non-qualified stock option plans and/or the directors stock option plans; (ii)
the number of shares of Common Stock as to which such options under such plans
have been (A) reserved for issuance and (B) exercised; and (iii) the exercise
prices for all such outstanding options under such plans. Except as set forth on
Schedule 5.3, no antidilution adjustment provisions or similar rights with
respect to the outstanding securities of the Company will be triggered by the
issuance of the securities contemplated hereby. Schedule 5.3 sets forth an
accurate description of any instruments having any antidilution adjustment
provisions or similar rights and a list of all events that have triggered such
provisions or rights, and none of such provisions will be triggered by the
issuance of the securities contemplated by this Agreement.
5.4 Due Authorization, Valid Issuance, Etc. The Shares have
--------------------------------------
been duly authorized and, when issued in accordance with this Agreement on the
Closing Date, will be validly issued, fully paid, nonassessable shares of
Preferred Stock of the Company, and will be free and clear of all liens. The
shares of Common Stock issuable upon the conversion of the Preferred Stock have
been duly authorized and reserved, and upon the conversion of the Preferred
Stock in accordance with the terms and conditions thereof and this Agreement,
will be validly issued, fully paid and nonassessable shares of Common Stock and
will be free and clear of all liens. The issuance, sale and delivery of the
Shares and the Common Stock issuable upon
4
<PAGE>
the conversion of the Preferred Stock will not be subject to any preemptive
right of stockholders of the Company or to any right of first refusal or other
right in favor of any person.
5.5. Taxes. There is no tax deficiency which has been, or, to
-----
the knowledge of the Company might be, asserted against the Company which would
adversely affect the business or operations, or proposed business or operations,
of the Company. All tax returns and reports filed by the Company were prepared
in accordance with the relevant rules and regulations of each taxing authority
having jurisdiction over the Company and are true and correct. The Company has
neither given nor been requested to give any waiver of any statute of
limitations relating to the payment of federal, state, local or foreign taxes.
The Company has not been, nor is it now being, audited by any federal, state,
local or foreign tax authorities. The Company has made all required deposits for
taxes applicable to the current tax year. The Company is not, and has never
been, a member of any "affiliated group" within the meaning of Section 1504 of
the Internal Revenue Code, as in effect from time to time.
5.6. Consulting Agreements. Except as set forth on Schedule
---------------------
5.6, no stockholder, director, officer or key employee of the Company is a party
to or bound by any agreement, contract or commitment, or subject to any
restrictions in connection with any previous or current employment of any such
person, which adversely affects, or which in the future may adversely affect,
the business or the proposed business of the Company or the rights of Purchaser
under this Agreement and in respect of its rights as a holder of the Shares.
5.7. Disclosure. Neither this Agreement nor any of the
----------
schedules, exhibits, written statements, documents or certificates prepared or
supplied by the Company with respect to the transactions contemplated hereby
contain any untrue statement of a material fact or omit a material fact
necessary to make the statements contained herein or therein not misleading in
light of the circumstances under which made. Except as disclosed in Schedule 5.7
hereto, there exists no fact or circumstance which, to the knowledge of the
Company after due inquiry, materially adversely affects, or which could
reasonably be anticipated to have a material adverse effect on, the existing or
expected financial condition, operating results, prospects, assets, customer
relations, employee relations or business prospects of the Company.
5.8. Compliance with the Securities Laws. Except as set forth
-----------------------------------
on Schedule 5.8 hereto, neither the Company nor anyone acting on its behalf has
directly or indirectly offered the Shares or any part thereof or any similar
security of the Company (or any other securities convertible or exchangeable for
the Shares or any similar security), for sale to, or solicited any offer to buy
the same from, anyone other than Purchaser. All securities of the Company
heretofore sold and issued by it were sold and issued, and the Shares were
offered and will be sold and issued, in compliance with all applicable federal
and state securities laws.
6. Representations and Warranties of Purchaser. Purchaser
-------------------------------------------
hereby represents and warrants to the Company as follows:
6.1. Investment Intent. Purchaser is an "accredited investor"
-----------------
within the
5
<PAGE>
meaning of Regulation D under the Securities Act. The Purchaser is acquiring the
Shares for its own account and not with a present view to, or for sale in
connection with, any distribution thereof in violation of the registration
requirements of the Securities Act. Purchaser acknowledges that the Shares and
the shares of Common Stock issuable upon the conversion of the Shares are
"Restricted Securities" within the meaning of Rule 144 under the Securities Act
and may not be resold without registration or exemption. Purchaser consents to
the placing of a legend on the certificates representing the Shares to the
effect that the shares of Common Stock constituting the Shares or issuable upon
conversion of the Shares have not been registered under the Securities Act and
may not be transferred except in accordance with applicable securities laws or
an exception therefrom.
6.2. Authorization. Purchaser has the power and authority to
-------------
execute and deliver this Agreement and to perform its obligations hereunder,
and, assuming due execution and delivery by the Company, this Agreement
constitutes a legal, valid and binding obligation of the Purchaser, enforceable
in accordance with its terms, except as the enforceability hereof may be limited
by (a) bankruptcy, insolvency, moratorium and similar laws affecting creditors'
rights generally and (b) the availability of remedies under general equitable
principles. The execution, delivery and performance of this Agreement and the
performance and fulfillment of the obligations of Purchaser under this Agreement
do not require the authorization, consent, approval, exemption or other action
by or notice to any court or administrative or governmental body pursuant to or
require the consent of any other person under, its organizational documents or
any law, statute, rule or regulation to which the Purchaser is subject or by
which any of its properties are bound, or any agreement, instrument, order,
judgment or decree to which Purchaser is subject or by which its properties are
bound.
6.3. Brokers. No finder, broker, agent, financial person or
-------
other intermediary has acted on behalf of Purchaser in connection with the
offering of the Shares or the consummation of this Agreement or any of the
transactions contemplated hereby.
7. Covenants of the Company. Unless the provisions hereof
------------------------
expressly require otherwise, until such time as Purchaser and its affiliates
beneficially own less than twenty five percent (25%) of the Common Stock issued
pursuant to this Agreement (after giving effect to the conversion or exercise of
all securities of the Company beneficially owned by Purchaser), the Company
covenants and agrees with Purchaser as follows:
7.1. Books and Accounts. The Company will: (a) make and keep
------------------
books, records and accounts, which, in reasonable detail, accurately and fairly
reflect its transactions, including without limitation, dispositions of its
assets; and (b) devise and maintain a system of internal 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 in
accordance with the Company's past practices or any other criteria applicable to
such statements, and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and
6
<PAGE>
(iv) the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
7.2. Periodic Reports. (a) The Company will furnish to
----------------
Purchaser as soon as practicable, and in any event within 90 days after the end
of each fiscal year of the Company (commencing with the fiscal year ended
December 31, 1997), an annual report of the Company, including a balance sheet
as at the end of such fiscal year and statement of operations, stockholders'
equity (deficit) and cash flows for such fiscal year, together with the related
notes thereto, setting forth in each case in comparative form corresponding
figures for the preceding fiscal year, all of which will be correct and complete
and will present fairly the financial position of the Company and the results of
its operations and changes in its financial position as of the time and for the
period then ended. Such financial statements shall be accompanied by an
unqualified report (other than qualifications contingent upon the Company's
ability to obtain additional financing), in form and substance reasonably
satisfactory to Purchaser, of independent public accountants reasonably
satisfactory to Purchaser to the effect that such financial statements have been
prepared in accordance with the books and records of the Company and generally
accepted accounting principles applied on a basis consistent with prior years
(except as otherwise specified in such report), and present fairly the financial
position of the Company and the results of its operations and changes in their
financial position as of the time and for the period then ended. The Company
will use its best efforts to conduct its business so that such report of the
independent public accountants will not contain any qualifications as to the
scope of the audit, the continuance of the Company, or with respect to the
Company's compliance with generally accepted accounting principles consistently
applied, except for changes in methods of accounting in which such accountants
concur.
(b) The Company will furnish to Purchaser, as soon as
practicable and in any event within 45 days after the end of each of the first
three fiscal quarters of the Company during each fiscal year, a quarterly report
of the Company consisting of an unaudited balance sheet as at the end of such
quarter and an unaudited statement of operations, stockholders' equity (deficit)
and cash flows for such quarter and the portion of the fiscal year then ended,
setting forth in each case in comparative form corresponding figures for the
preceding fiscal year. All such reports shall be certified by the Chief
Financial Officer of the Company to be correct and complete, to present fairly
the financial position of the Company and the consolidated results of its
operations and changes in its financial position as of the time and for the
period then ended and to have been prepared in accordance with generally
accepted accounting principles.
(c) Commencing with the Company's fiscal year commencing
January 1, 1998, the Company shall furnish to Purchaser, as soon as practicable
and in any event not less than 60 days prior to the end of each fiscal year of
the Company, an annual operating budget for the Company for the succeeding
fiscal year containing projections of profit and loss, cash flow and ending
balance sheets for each month of such fiscal year. Promptly upon preparation
thereof, the Company shall furnish to Purchaser any other operating budgets or
business plans that the Company may prepare and any revisions or modifications
of such previously furnished budgets or business plans. The Company shall
furnish to Purchaser within a reasonable period of time
7
<PAGE>
following each month a statement describing any material events, transactions or
deviations from the Company's business plan (as delivered to the Purchaser)
during the preceding month and containing an explanation of the causes and
circumstances thereof.
(d) The annual statements and quarterly statements furnished
pursuant to Sections 7.2(a) and (b) shall include a narrative discussion
prepared by the Company describing the business operations of the Company during
the period covered by such statements.
7.3. Certificates of Compliance. The Company covenants that
--------------------------
promptly after the occurrence of any default hereunder or any default under or
breach of any material agreement, or any other material adverse event or
circumstance affecting the Company, it will deliver to Purchaser an Officer's
Certificate specifying in reasonable detail the nature and period of existence
thereof, and what actions the Company has taken and proposes to take with
respect thereto.
7.4. Other Reports and Inspection. (a) The Company will
----------------------------
furnish to Purchaser (a) as soon as practicable after issuance, copies of any
financial statements or reports prepared by the Company for, or otherwise
furnished to, its stockholders or the Securities and Exchange Commission and (b)
promptly, such other documents, reports and financial data as Purchaser may
reasonably request. In addition the Company will, upon reasonable prior notice,
make available to Purchaser or its representatives or designees (a) all assets,
properties and business records of the Company for inspection and/or copying and
(b) the directors, officers and employees of the Company for interviews
concerning the business, affairs and finances of the Company.
7.5. Insurance. The Company will at all times maintain valid
---------
policies of worker's compensation and such other insurance with respect to its
properties and business of the kinds and in amounts not less than is customarily
maintained by corporations engaged in the same or similar business and similarly
situated, including, without limitation, insurance against fire, loss, damage,
theft, public liability and other risks. The activities and operations of the
Company shall be conducted in a manner to as to conform in all material respects
to all applicable provisions of such policies.
7.6. Operating Budget; Use of Proceeds; Restriction on
-------------------------------------------------
Payments. The Company shall conduct its business in accordance with the
- --------
limitations set forth in the operating budget of the Company (the "Operating
Budget"), a copy of which has been delivered to the Purchaser by letter dated
July 16, 1997. After the Closing Date the Company will use the proceeds from the
sale of the Shares solely for the purposes set forth in the Operating Budget.
The Company covenants and agrees that it will not directly or indirectly use any
of the proceeds to (i) repay any indebtedness of the Company, including but not
limited to any indebtedness to officers, employees, directors or principal
stockholders of the Company, but excluding accounts payable incurred in the
ordinary course of business or (ii) redeem, repurchase or otherwise acquire any
equity security of the Company.
8
<PAGE>
7.7. Material Changes. The Company will promptly notify
----------------
Purchaser of any material adverse change in the business, properties, assets or
condition, financial or otherwise, of the Company, or any other material adverse
event or circumstance affecting the Company, and of any litigation or
governmental proceeding pending or, to the knowledge of the Company, threatened
against the Company or against any director or officer of the Company.
7.8. Transactions with Affiliates. Except for the transactions
----------------------------
contemplated by this Agreement and transactions in which the proceeds are
assigned to Purchaser at closing to redeem all of the issued and outstanding
Series A Preferred Stock, the Company shall not (a) engage in any transaction
with, (b) make any loans to, nor (c) enter into any contract, agreement or other
arrangement (i) providing for (x) the employment of, (y) the furnishing of
services by, or (z) the rental of real or personal property from, or (ii)
otherwise requiring payments to, any officer, director or key employee of the
Company or any relative of such persons or any other "affiliate" or "associate"
of such persons (as such terms are defined in the rules and regulations
promulgated under the Securities Act), without the prior written approval of the
Purchaser. Notwithstanding the foregoing, the Company may sell shares of Common
Stock or other securities of the Company to Titan Pharmaceuticals, Inc., a
Delaware corporation ("Titan"), if the Company offers to sell to the Purchaser
the same number of securities as is being sold to Titan, on the same terms and
conditions as the sale to Titan.
7.9. Corporate Existence, Licenses and Permits; Maintenance of
---------------------------------------------------------
Properties; New Businesses. The Company will at all times conduct its business
- --------------------------
in the ordinary course and cause to be done all things necessary to maintain,
preserve and renew its existence and will preserve and keep in force and effect,
all licenses, permits and authorizations necessary to the conduct of its and
their respective businesses. The Company will also maintain and keep its
properties in good repair, working order and condition, and from time to time,
to make all needful and proper repairs, renewals and replacements, so that the
business carried on in connection therewith may be properly conducted at all
times.
7.10. Other Material Obligations. The Company will comply with
--------------------------
(a) all material obligations which it is subject to, or become subject to,
pursuant to any contract or agreement, whether oral or written, as such
obligations are required to be observed or performed, unless and to the extent
that the same are being contested in good faith and by appropriate proceedings
and the Company has set aside on their books adequate reserves with respect
thereto, and (b) all applicable laws, rules, and regulations of all governmental
authorities, the violation of which could have a material adverse effect upon
the business of the Company.
7.11. Merger; Sale of Assets. Except for the Merger, the
----------------------
Company will not become a party to any merger, consolidation or reorganization,
or sell, lease, license, sublicense or otherwise dispose of any of its assets
without the prior approval of Purchaser.
7.12. Acquisition. The Company will not acquire any interest
-----------
in any business from any person, firm or entity (whether by a purchase of
assets, purchase of stock, merger or otherwise) without the prior approval of
Purchaser, except the acquisition of 1% or less of any
9
<PAGE>
class of outstanding securities of a company whose securities are listed on a
national securities exchange or which has not fewer than 1,000 stockholders and
except as otherwise specifically permitted pursuant to the provisions of this
Agreement.
7.13. Dividends; Distributions; Repurchases of Common Stock;
------------------------------------------------------
Treasury Stock, Reservation of Shares. The Company shall not declare or pay any
- -------------------------------------
dividends on, or make any other distribution with respect to, its capital stock,
whether now or hereafter outstanding, or purchase, acquire, redeem or retire any
shares of its capital stock, without the consent of Purchaser. The Company shall
at all times that the conversion price of the Series A Preferred Stock is
subject to reset reserve and keep authorized the number of shares of Common
Stock issuable on conversion of the Series A Preferred Stock (as reset).
7.14. Consents and Waivers. (a) The Company has obtained all
--------------------
consents and waivers needed to enable it to perform all of its obligations under
this Agreement and the transactions contemplated hereby.
(b) The Company has obtained from all holders of options,
warrants and other securities of the Company having any right of first refusal,
offer, sale, negotiation or similar rights or antidilution or other rights to
have the terms (including, without limitation, conversion or exercise prices or
rates) of such instruments adjusted by virtue of the purchase and sale of the
Shares or the other transactions contemplated by this Agreement, a written
waiver in form and substance satisfactory to Purchaser and their counsel;
provided that no such consent shall be required solely with respect to the
reverse-stock split contemplated by Section 7.25 and provided further that no
such waivers shall be required from the existing holders of the Company's Class
A and Class B Warrants and underwriter units.
7.15. Taxes and Liens. The Company will duly pay and discharge
---------------
when payable, all taxes, assessments and governmental charges imposed upon or
against the Company or its properties, or any part thereof or upon the income or
profits therefrom, in each case before the same become delinquent and before
penalties accrue thereon, as well as all claims for labor, materials or supplies
which if unpaid might by law become a lien upon any of its property, unless and
to the extent that the same are being contested in good faith and by appropriate
proceedings and the Company has set aside on its books adequate reserves with
respect thereto.
7.16. Restrictive Agreement. The Company covenants and agrees
---------------------
that subsequent to the Closing, it will not be a party to any agreement or
instrument which by its terms would restrict the Company's performance of its
obligations pursuant to this Agreement, the Certificate of Incorporation or the
Bylaws.
7.17. Board of Directors. The Company shall at all times
------------------
maintain provisions in its Bylaws and/or Certificate of Incorporation
indemnifying all directors against liability and absolving all directors from
liability to the Company and its stockholders to the maximum extent permitted
under the laws of the State of Delaware.
10
<PAGE>
7.18. No Subsidiaries. The Company will not create or acquire
---------------
any entity that would be a Subsidiary (as defined in Section 9.10) without the
consent of the Purchaser.
7.19 Publicity. The Company shall not issue any press release
---------
or make any other public announcement with respect to this Agreement or the
transactions contemplated hereby or utilizing the names of Purchaser or their
officers, directors, employees, agents or affiliates without obtaining the prior
approval of Purchaser, except as may be required by law or the regulations of
any securities exchange or the Nasdaq SmallCap Market.
8. Registration Rights.
-------------------
8.1. Registration of Common Stock. At any time after the
----------------------------
earlier to occur of December 31, 1997 and the termination of the Merger
Agreement, the Purchaser may by written notice to the Company request that the
Company file a registration statement (the "Registration Statement") on Form
SB-2 (or, if not available, on Form S-1) under Securities Act, covering the
resale of the Shares and the Common Stock issuable upon conversion of the
Shares. Such Registration Statement shall be filed no later than 30 days
following the date of such request and the Company will maintain the
effectiveness of the Registration Statement until the earlier of such time as
the distribution contemplated therein is complete or all the shares of Common
Stock registered thereunder may be sold without registration under the
Securities Act without any limitations on the quantity that may be sold or the
manner of sale thereof if held by one holder. Notwithstanding the foregoing, the
Company shall not be obligated to cause to become effective more than three
registration statements pursuant to this Section 8.
8.2. Registration Procedures. In connection with the
-----------------------
registration of any Registrable Securities under the Securities Act as provided
in this Section 8, the Company will use its best efforts, as expeditiously as
possible to:
(a) Prepare and file with the Securities and Exchange
Commission the Registration Statement with respect to such Registrable
Securities and cause such Registration Statement to become effective;
(b) Prepare and file with the Securities and Exchange
Commission such amendments and supplements to such Registration Statement and
the prospectus used in connection therewith as may be necessary to keep such
Registration Statement effective until the disposition of all securities in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such Registration Statement shall be completed or all the
shares of Common Stock registered thereunder may be sold without registration
under the Act without any limitations on the quantity that may be sold or the
manner of sale thereof if held by one holder, and to comply with the provisions
of the Securities Act (to the extent applicable to the Company) with respect to
such dispositions;
(c) Furnish to each seller of such Registrable Securities such
number of copies of such Registration Statement and of each such amendment and
supplement thereto (in each case
11
<PAGE>
including all exhibits), such number of copies of the prospectus included in
such Registration Statement (including each preliminary prospectus), in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request, in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(d) Register or qualify such Registrable Securities covered by
such Registration Statement under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests, and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller;
(e) Provide a transfer agent and registrar for all such
Registrable Securities covered by such Registration Statement not later than the
effective date of such Registration Statement;
(f) Notify each seller of such Registrable Securities at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act of the happening of any event as a result of which the prospectus
included in such Registration Statement contains an untrue statement of a
material fact or omits any fact necessary to make the statements therein not
misleading, and, at the request of any such seller, the Company will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the Purchaser of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(g) Cause all such Registrable Securities to be listed for
trading on the NASDAQ SmallCap Market;
(h) Enter into such customary agreements and take all such
other actions as reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities; and
(i) Make available for inspection by any seller of Registrable
Securities, all financial and other records, pertinent corporation documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller in
connection with the Registration Statement.
8.3 Registration and Selling Expenses. (a) All expenses
---------------------------------
incurred by the Company in connection with the Company's performance of or
compliance with this Section 8, including, without limitation (i) all
registration and filing fees (including all expenses incident to filings with
the National Association of Securities Dealers, Inc.), (ii) blue sky fees and
expenses, (iii) all necessary printing and duplicating expenses and (iv) all
fees and disbursements of counsel and accountants for the Company (including the
expenses of any audit of financial statements), retained by the Company (all
such expenses being herein called "Registration Expenses"), will be paid by the
Company except as otherwise expressly provided in this
12
<PAGE>
Section 8.3.
(b) The Company will, in any event, in connection with any
registration statement, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal, accounting or other duties in connection therewith and expenses of audits
of year-end financial statements), the expense of liability insurance and the
expenses and fees for listing the securities to be registered on one or more
securities exchanges or automated over-the-counter trading systems on which
similar securities issued by the Company are then listed.
(c) Nothing herein shall be construed to prevent any holder or
holders of Registrable Securities from retaining such counsel as they shall
choose, the expenses of which shall be borne by such holder.
8.4. Other Public Sales and Registrations. Other than the S-4
------------------------------------
to be filed in conjunction with the merger with Purchaser, the Company agrees
that it will not, on its own behalf, file or cause to become effective any other
registration of any of its securities under the Securities Act or otherwise
effect a public sale or distribution of its securities (except pursuant to
registration on Form S-8 or any successor form relating to a special offering to
the employees or security holders of the Company) until at least one year has
elapsed after the effective date of the Registration Statement. In addition, the
Company agrees that it will use its best efforts to obtain prior to the filing
of the Registration Statement an agreement in form and substance reasonably
satisfactory to Purchaser and its counsel from each person, if any, that has the
right to have the Company file or cause to become effective any other
registration of any of its securities under the Securities Act or otherwise
effect a public sale or distribution of its securities (except pursuant to
registration on Form S-8 or any successor form relating to a special offering to
the employees or security holders of the Company and except for the holders of
the Company's Class A and Class B Warrants outstanding on the Closing Date),
pursuant to which each such person will agree for the benefit of the Company and
Purchaser to waive any and all such rights until at least one year has elapsed
after the effective date of the Registration Statement.
8.5. Indemnification. (a) The Company hereby agrees to
---------------
indemnify, to the extent permitted by law, each selling securityholder of
Registrable Securities, its officers and directors, if any, and each person, if
any, who controls such holder within the meaning of the Securities Act, against
all losses, claims, damages, liabilities and expenses (under the Securities Act
or common law or otherwise) caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus (and as amended or supplemented if the Company has furnished any
amendments or supplements thereto) or any preliminary prospectus, which
registration statement, prospectus or preliminary prospectus shall be prepared
in connection with the registration contemplated by this Section 8, or caused by
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses are
caused by any untrue statement or alleged untrue statement contained in or by
any omission or alleged omission from information furnished to the Company
13
<PAGE>
by such holder in connection with the registration contemplated by this Section
8, provided the Company will not be liable pursuant to this Section 8.5 if such
losses, claims, damages, liabilities or expenses have been caused by any selling
security holder's failure to deliver a copy of the registration statement or
prospectus, or any amendments or supplements thereto, after the Company has
furnished such holder with the number of copies required by Section 8.2(c).
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder shall
furnish to the Company in writing such information as is reasonably requested by
the Company for use in any such registration statement or prospectus and shall
severally, but not jointly, indemnify, to the extent permitted by law, the
Company, its directors and officers and each person, if any, who controls the
Company within the meaning of the Securities Act, against any losses, claims,
damages, liabilities and expenses resulting from any untrue statement or alleged
untrue statement of a material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement or prospectus
or any amendment thereof or supplement thereto or necessary to make the
statements therein not misleading, but only to the extent such losses, claims,
damages, liabilities or expenses are caused by an untrue statement or alleged
untrue statement contained in or by an omission or alleged omission from
information so furnished by such holder in connection with the registration
contemplated by this Section 8. If the offering pursuant to any such
registration is made through underwriters, each such holder agrees to enter into
an underwriting agreement in customary form with such underwriters and to
indemnify such underwriters, their officers and directors, if any, and each
person who controls such underwriters within the meaning of the Securities Act
to the same extent as hereinabove provided with respect to indemnification by
such holder of the Company. Notwithstanding the foregoing or any other provision
of this Agreement, in no event shall a holder of Registrable Securities be
liable for any such losses, claims, damages, liabilities or expenses in excess
of the net proceeds received by such holder in the offering.
(c) Promptly after receipt by an indemnified party under
Section 8.5 (a) or (b) of notice of the commencement of any action or
proceeding, such indemnified party will, if a claim in respect thereof is made
against the indemnifying party under such Section, notify the indemnifying party
in writing of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8. In case any such
action or proceeding is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein, and, to the extent that it wishes, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel approved by such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under such Section for any legal or any other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof (other than reasonable costs of investigation) unless incurred at the
written request of the indemnifying party. Notwithstanding the above, the
indemnified party will have the right to employ counsel of its own choice in any
such action or proceeding if the indemnified
14
<PAGE>
party has reasonably concluded that there may be defenses available to it which
are different from or additional to those of the indemnifying party, or counsel
to the indemnified party is of the opinion that it would not be desirable for
the same counsel to represent both the indemnifying party and the indemnified
party because such representation might result in a conflict of interest (in
either of which cases the indemnifying party will not have the right to assume
the defense of any such action or proceeding on behalf of the indemnified party
or parties and such legal and other expenses will be borne by the indemnifying
party).
(d) If the indemnification provided for in Section 8.5(a) or
(b) is unavailable under applicable law to an indemnified party in respect of
any losses, claims, damages or liabilities referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and of
the holders of Registrable Securities on the other in connection with the
statements or omissions which resulted in such losses, claims, damages, or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the holders of Registrable
Securities on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the Company
or by the holders of Registrable Securities and the parties= relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages and liabilities referred to above shall be deemed to
include, subject to the limitations set forth in Section 8.5(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
(e) Promptly after receipt by the Company or any holder of
Registrable Securities of notice of the commencement of any action or
proceeding, such party will, if a claim for contribution in respect thereof is
to be made against another party (the "contributing party"), notify the
contributing party of the commencement thereof; but the omission so to notify
the contributing party will not relieve it from any liability which it may have
to any other party other than for contribution hereunder. In case any such
action, suit, or proceeding is brought against any party, and such party
notifies a contributing party of the commencement thereof, the contributing
party will be entitled to participate therein with the notifying party and any
other contributing party similarly notified.
9. Certain Definitions. For the purposes of this Agreement,
-------------------
the following terms have the respective meanings set forth below:
9.1. "Affiliate" means any person, corporation, firm or entity
---------
which directly or indirectly controls, is controlled by, or is under common
control with the indicated person, corporation, firm or entity.
15
<PAGE>
9.2. "Common Stock" means the Common Stock.
-------------
9.3. "Generally Accepted Accounting Principles" means
----------------------------------------
generally accepted accounting principles consistently applied.
9.4. "Officer's Certificate" means a certificate executed on
---------------------
behalf of the Company by its President, Chairman of the Board, Chief Executive
Officer and/or Chief Financial Officer.
9.5. "Registrable Securities" means (i) the Common Stock
----------------------
issuable upon conversion of the Shares purchased pursuant to Section 1 or (ii)
any other shares of Common Stock now owned or hereafter acquired by Purchaser.
For purposes of this Agreement, any shares of Common Stock issued pursuant to
Section 8.6 shall be deemed to be Registrable Securities and shall be included
in the Registration Statement contemplated by Section 8.1.
9.6. "Securities" means the Shares.
----------
9.7. "Securities Act" means, as of any given time, the
--------------
Securities Act of 1933, as amended, or any similar federal law then in force.
9.8. "Securities Exchange Act" means, as of any given time,
-----------------------
the Securities Exchange Act of 1934, as amended, or any similar federal law then
in force.
9.9. "Securities and Exchange Commission" includes any
----------------------------------
governmental body or agency succeeding to the functions thereof.
9.10. "Subsidiary" means any person, corporation, firm or
----------
entity at least the majority of the equity securities (or equivalent interest)
of which are, at the time as of which any determination is being made, owned of
record or beneficially by the Company, directly or indirectly, through any
subsidiary or otherwise.
10. Reimbursement of Expenses
-------------------------
10.1 Reimbursement of Expenses. The Company agrees to
-------------------------
reimburse the Purchaser and its officers, directors, partners, employees,
consultants and agents for any expenses (including, without limitation, legal
fees and expenses) incurred by any such persons or entities arising out of or in
connection with the Company's breach of any representation, warranty, covenant
or agreement of the Company contained or any action or proceeding relating to
this Agreement and the transactions contemplated hereby.
16
<PAGE>
11. Miscellaneous.
-------------
11.1. Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
Except as otherwise provided for in this Agreement all representations,
warranties, covenants and agreements contained in this Agreement, or in any
document, exhibit, schedule or certificate by any party delivered in connection
herewith shall survive the execution and delivery of this Agreement and the
Closing Date and the consummation of the transactions contemplated hereby,
regardless of any investigation made by Purchaser or on their behalf; provided
that with respect to Section 5.11, such survival shall be the expiration of all
applicable statutes of limitations.
11.2. Expenses. The Company shall pay all its own expenses in
--------
connection with this Agreement and the transactions contemplated herein. The
Company agrees to pay promptly and save the Purchaser harmless against liability
for the payment of all expenses incurred by the Company and the Purchaser in
connection with all costs and expenses under Section 8, including without
limitation, the costs of preparing, printing and filing with the Securities and
Exchange Commission the Registration Statement and amendments, post-effective
amendments, and supplements thereto, preparing, printing and delivering exhibits
thereto and copies of the preliminary, final and supplemental prospectuses.
Except as aforesaid, the Purchaser shall pay its own expenses in connection with
the preparation and consummation of this Agreement and the other transactions
contemplated hereby.
11.3. Amendments and Waivers. This Agreement and all exhibits
----------------------
and schedules hereto set forth the entire agreement and understanding among the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of any and every nature among them.
This Agreement may be amended only by mutual written agreement of all the
parties hereto, and the Company may take any action herein prohibited or omit to
take any action herein required to be performed by it, and any breach of any
covenant, agreement, warranty or representation may be waived, only if the
Company has obtained the written consent or waiver of the Purchaser. No course
of dealing between or among any persons having any interest in this Agreement
will be deemed effective to modify, amend or discharge any part of this
Agreement or any rights or obligations of any person under or by reason of this
Agreement.
11.4. Successors and Assigns. This Agreement may not be
----------------------
assigned by the Company except with the prior written consent of Purchaser. This
Agreement shall be binding upon and inure to the benefit of the Company the
Purchaser and their respective permitted successors and assigns.
11.5. Notices. All notices, demands and other communications
-------
to be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given personally or when
mailed by certified or registered mail, return receipt requested and postage
prepaid, and addressed to the addresses of the respective parties set forth
below or to such changed addresses as such parties may have fixed by notice;
provided, however, that any notice of change of address shall be effective only
upon receipt:
17
<PAGE>
If to the Company:
Ansan Pharmaceuticals, Inc.
400 Oyster Point Boulevard, Suite 435
South San Francisco, CA 94080
Attention: Mr. Vaughan Shalson
With a copy to:
Heller Ehrman White & McAuliffe
52 University Avenue
Palo Alto, CA 94301-1900
Attention: August Moretti, Esq.
If to the Purchaser:
Discovery Laboratories, Inc.
509 Madison Avenue, 14th Floor
New York, N.Y. 10022
Attention: Steve H. Kanzer, CPA, Esq.
With a copy to:
Roberts, Sheridan & Kotel,
A Professional Corporation
Tower Forty-Nine
12 East 49th Street, 30th Floor
New York, N.Y. 10017
Attention: Kenneth G. Alberstadt, Esq.
11.6. Governing Law. The validity, performance, construction
-------------
and effect of this Agreement shall be governed by the internal laws of the State
of Delaware without giving effect to such State's principles of conflict of
laws.
11.7. Counterparts. This Agreement may be executed in any
------------
number of counterparts and, notwithstanding that any of the parties did not
execute the same counterpart, each of such counterparts shall, for all purposes,
be deemed an original, and all such counterparts shall constitute one and the
same instrument binding on all of the parties thereto.
11.8. Headings. The headings of the Sections hereof are
--------
inserted as a matter of convenience and for reference only and in no way define,
limit or describe the scope of this Agreement or the meaning of any provision
hereof.
11.9. Severability. In the event that any provision of this
------------
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except
18
<PAGE>
to the extent necessary to delete such illegal, invalid or unenforceable
provision unless the provision held invalid shall substantially impair the
benefit of the remaining portion of this Agreement.
11.10. Freedom of Action. (a) The Purchaser and its affiliates
-----------------
shall not have any obligation to the Company not to (i) engage in the same or
similar activities or lines of business as the Company or develop or market any
products, services or technologies that does or may in the future compete,
directly or indirectly, with those of the Company, (ii) invest or own any
interest publicly or privately in, or develop a business relationship with, any
corporation, partnership or other person or entity engaged in the same or
similar activities or lines or business as, or otherwise in competition with,
the Company or (iii) do business with any client, collaborator, licensor,
consultant, vendor or customer of the Company. The Purchaser and its officers,
directors, employees or former employees and affiliates shall not have any
obligation, or be liable, to the Company solely on account of the conduct
described in the preceding sentence. In the event that of the Purchaser or any
of its officers, directors, employees former employees or affiliates acquires
knowledge of a potential transaction, agreement, arrangement or other matter
which may be a corporate opportunity for both the Purchaser and the Company,
neither the Purchaser nor its officers, directors, employees, former employees
or affiliates shall have any duty to communicate or offer such corporate
opportunity to the Company and neither the Purchaser nor its officers,
directors, employees, former employees or affiliates shall be liable to the
Company for breach of any fiduciary duty, as a stockholder or otherwise, solely
by reason of the fact that the Purchaser or any of its officers, directors,
employees former employees or affiliates pursue or acquire such corporate
opportunity for the Purchaser, direct such corporate opportunity to another
person or entity or communicate or fail to communicate such corporate
opportunity or entity to the Company. As used in this Section, the Purchaser
shall mean the Purchaser and its affiliates (excluding the Company as an
affiliate of the Purchaser).
(b) The provisions of this Section 11.10 shall be enforceable
to the fullest extent permitted by law.
11.11. Consent to Jurisdiction. The parties hereto irrevocably
-----------------------
consent to the jurisdiction of the courts of the State of New York and any
federal court located in such State in connection with any action or proceeding
arising out of or relating to this Agreement, any document or instrument
delivered pursuant to, in connection with or simultaneously with this Agreement,
or a breach of this Agreement or any such document or instrument. In any such
action or proceeding, each party hereto waives personal service of any summons,
complaint or other process.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
19
<PAGE>
DISCOVERY LABORATORIES, INC.
By: /s/ JAMES S. KUO M.D.
---------------------------
Name:
Title: PRESIDENT & CEO
ANSAN PHARMACEUTICALS, INC.
By: /s/ V.H.J. SHALSON
---------------------------
Name:
Title: PRESIDENT & CEO
20
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF DESIGNATION
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
ANSAN PHARMACEUTICALS, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
ANSAN PHARMACEUTICALS, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify that, pursuant to the authority conferred on the Board of
Directors of the Corporation by the Certificate of Incorporation, as amended to
date (the "Certificate of Incorporation"), of the Corporation and in accordance
with Section 151 of the General Corporation Law of the State of Delaware, the
Board of Directors of the Corporation adopted the following resolution
establishing a series of 13,000 shares of Preferred Stock of the Corporation
designated as "Series A Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the
Board of Directors of this Corporation by the Certificate of Incorporation, a
series of Preferred Stock, par value $.001 per share, of the Corporation is
hereby established and created, and that the designation and number of shares
thereof and the voting and other powers, preferences and relative,
participating, optional or other rights of the shares of such series and the
qualifications, limitations and restrictions thereof are as follows:
Series A Convertible Preferred Stock
------------------------------------
1. Designation and Amount. There shall be a series of
----------------------
Preferred Stock designated as "Series A Convertible Preferred Stock" and the
number of shares constituting such series shall be 13,000. Such series is
referred to herein as the "Series A Preferred Stock".
2. Dividends and Distributions. (a) The holders of shares of
---------------------------
Series A Preferred Stock shall be entitled to receive, as, when and if declared
by the Board of Directors of the Corporation, out of assets legally available
for that purpose, dividends or distributions in cash, stock or otherwise.
<PAGE>
(b) The Corporation shall not declare any dividend or
distribution on any Junior Stock (as defined below) unless and until a special
dividend or distribution equal to $10.00 per share, has been declared and paid
on the Series A Preferred Stock. Except as aforesaid, the Corporation shall not
declare any dividend or distribution on any Junior Stock, unless the Corporation
shall, concurrently with the declaration of such dividend or distribution on the
Junior Stock, declare a like dividend or distribution, as the case may be, on
the Series A Preferred Stock in an amount per share equal to (x) the amount of
the dividend or distribution per share of Common Stock multiplied by (y) the
effective Conversion Rate (as defined below) at the time of such dividend or
distribution.
(c) Any dividend or distribution payable to the holders of the
Series A Preferred Stock pursuant to this Section 2 shall be paid to such
holders at the same time as the dividend or distribution on the Junior Stock by
which it is measured is paid (if any).
(d) All dividends or distributions declared upon the Series A
Preferred Stock shall be declared pro rata per share.
(e) Any reference to "distribution" contained in this Section
2 shall not be deemed to include any distribution made in connection with or in
lieu of any Liquidation Event (as defined below).
(f) "Junior Stock" shall mean the Common Stock and any shares
of preferred stock of any series or class of the Corporation, whether presently
outstanding or hereafter issued, which are junior to the shares of Series A
Preferred Stock with respect to (i) the distribution of assets on any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, (ii)
dividends and/or (iii) voting.
3. Liquidation Preference. In the event of a (i) liquidation,
----------------------
dissolution or winding up of the Corporation, whether voluntary or involuntary,
(ii) a sale or other disposition of all or substantially all of the assets of
the Corporation or (iii) any consolidation, merger other than the proposed
merger (the "Discovery Merger") with Discovery Laboratories, Inc. a Delaware
corporation ("Discovery"), combination, reorganization or other transaction in
which the Corporation is not the surviving entity or the shares of Common Stock
constituting in excess of 50% of the voting power of the Corporation are
exchanged for or changed into stock or securities of another entity) cash and/or
any other property (a "Merger Transaction") (subparagraphs (i), (ii) and (iii)
being collectively referred to as a "Liquidation Event"), after payment or
provision for payment of debts and other liabilities of the Corporation, the
holders of the Series A Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
shareholders, whether such assets are capital, surplus, or earnings, before any
payment or declaration and setting apart for payment of any amount shall be made
in respect of any Junior Stock, an amount equal to $100.00 per share plus an
amount equal to all declared and unpaid dividends thereon. If upon any
Liquidation Event, whether voluntary or involuntary, the assets to be
distributed to the holders of the Series A Preferred Stock shall be insufficient
to permit the payment to such shareholders of the full preferential amounts
aforesaid, then all of the assets of the Corporation to be distributed shall be
so distributed ratably to the holders of the Series A Preferred Stock on the
basis of the number of
2
<PAGE>
shares of Series A Preferred Stock held. A consolidation or merger of the
Corporation with or into another corporation, other than in a transaction
described in subparagraph 3(a) above, shall not be considered a liquidation,
dissolution or winding up of the Corporation or a sale or other disposition of
all or substantially all of the assets of the Corporation and accordingly the
Corporation shall make appropriate provision to ensure that the terms of this
Certificate of Designations survive any such transaction. All shares of Series A
Preferred Stock shall rank as to payment upon the occurrence of any Liquidation
Event senior to the Common Stock as provided herein and senior to all other
series of the Corporation's preferred stock.
4. Conversion.
----------
(a) Right of Conversion. The shares of Series A Preferred
-------------------
Stock shall be convertible, in whole or in part, at the option of the holder
thereof and upon notice to the Corporation as set forth in Section 4(b) below,
into fully paid and nonassessable shares of Common Stock and such other
securities and property as hereinafter provided. The initial conversion price
per share of Common Stock is the average closing bid price over the thirty
trading days immediately preceding the date of issuance of the Series A
Preferred Stock (the "Conversion Price") and shall be subject to adjustment as
provided herein. The rate at which each share of Series A Preferred Stock is
convertible at any time into Common Stock (the "Conversion Rate") shall be
determined by dividing the then existing Conversion Price into $100.00. The
shares of Series A Preferred Stock shall be convertible at any time except that
the shares of Series A Preferred Stock shall not be convertible during the
Redemption Period (as defined in Section 5, below).
The Conversion Price shall be automatically reset (the
"Reset") upon the occurrence of a Reset Event, without any action of the
Corporation or any other person or entity, to that price necessary for the
Series A Preferred Stock have 51% of the Corporation's voting rights and to be
convertible into 51% of the Corporation's issued and outstanding shares of
Common Stock on a fully diluted basis (excluding for this purpose the
Corporation's Class A and Class B Warrants and the underwriter units issued to
D.H. Blair Investment Banking Corp. in connection with the Company's initial
public offering (the "Underwriter Units")). The date on which a Reset Event
occurs is referred to herein as the "Reset Date".
The term "Reset Event" shall mean any one of the following:
(i) The Common Stock ceases to be quoted on the Nasdaq
SmallCap Market;
(ii) Failure of the Corporation to attain, prior to September
1, 1997, a successful conclusion of the NASD delisting procedure pending against
the Corporation as of July 11, 1997 or;
(iii) the Discovery Merger is not consummated on or prior to
December 31, 1997 for any reason other than:
(A) the failure of the Discovery shareholders to
approve the Discovery Merger;
3
<PAGE>
(B) actual fraud by Discovery in connection with any
representation, warranty or covenant made by Discovery in the Merger Agreement
between the Corporation and Discovery (the "Merger Agreement"); or
(C) the Merger Agreement is terminated by the
Corporation solely due to a Discovery Breach.
The term "Discovery Breach" shall mean any of the following:
(i) Failure by Discovery to provide documents relating to
Discovery reasonably necessary to enable the Corporation to file all SEC filings
required to be filed in connection with the Discovery Merger;
(ii) The current assets of Discovery less (i) the current
liabilities of Discovery and (ii) any long-term liabilities of Discovery owed to
affiliates of Discovery shall at any time prior to December 31, 1997 be less
than $5 Million;
(iii) A material breach by Discovery of a representation and
warranty contained in Section 3.2.2, 3.3, 3.5, 3.9, 3.10, 4.3 or 4.4 of the
Merger Agreement; or
(iv) the loss of tax-free reorganization status of the
Discovery Merger solely due to the action or omission of Discovery (other than
acts or omissions directed or consented to by the Corporation).
A certificate executed by the Chief Executive Officer of the
Corporation stating that the Conversion Rate has been adjusted pursuant to this
paragraph and setting forth the Conversion Rate following the Reset Event shall
be sent by the Corporation to Discovery by facsimile within two days after the
occurrence of the Reset Event (followed by notice sent the same day via federal
express).
(b) Conversion Procedures. Any holder of shares of Series A
---------------------
Preferred Stock desiring to convert such shares into Common Stock shall
surrender the certificate or certificates evidencing such shares of Series A
Preferred Stock at the office of the transfer agent for the Series A Preferred
Stock, which certificate or certificates, if the Corporation shall so require,
shall be duly endorsed to the Corporation or in blank, or accompanied by proper
instruments of transfer to the Corporation or in blank, accompanied by
irrevocable written notice to the Corporation that the holder elects so to
convert such shares of Series A Preferred Stock and specifying the name or names
(with address) in which a certificate or certificates evidencing shares of
Common Stock are to be issued. The Corporation need not deem a notice of
conversion to be received unless the holder complies with all the provisions
hereof. The Corporation will instruct the transfer agent (which may be the
Corporation) to make a notation of the date that a notice of conversion is
received, which date shall be deemed to be the date of receipt for purposes
hereof.
The Corporation shall, as soon as practicable after such
deposit of certificates
4
<PAGE>
evidencing shares of Series A Preferred Stock accompanied by the written notice
and compliance with any other conditions herein contained, deliver at such
office of such transfer agent to the person for whose account such shares of
Series A Preferred Stock were so surrendered, or to the nominee or nominees of
such person, certificates evidencing the number of full shares of Common Stock
to which such person shall be entitled as aforesaid, together with a cash
adjustment of any fraction of a share as hereinafter provided. Subject to the
following provisions of this paragraph, such conversion shall be deemed to have
been made as of the date of such surrender of the shares of Series A Preferred
Stock to be converted, and the person or persons entitled to receive the Common
Stock deliverable upon conversion of such Series A Preferred Stock shall be
treated for all purposes as the record holder or holders of such Common Stock on
such date.
The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the shares of Series A Preferred Stock,
such number of shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of the Series A Preferred
Stock.
(c) Adjustment of Conversion Rate and Conversion Price.
--------------------------------------------------
(i) Except as otherwise provided herein, in the event the
Corporation shall, at any time or from time to time after the date hereof, (1)
sell or issue any shares of Common Stock for a consideration per share less than
either (i) the Conversion Price in effect on the date of such sale or issuance
or (ii) the Market Price of the Common Stock as of the date of the sale or
issuance, (2) issue any shares of Common Stock as a stock dividend to the
holders of Common Stock, or (3) subdivide or combine the outstanding shares of
Common Stock into a greater or lesser number of shares (any such sale, issuance,
subdivision or combination being herein called a "Change of Shares"), then, and
thereafter upon each further Change of Shares, the Conversion Price in effect
immediately prior to such Change of Shares shall be changed to a price (rounded
to the nearest cent) determined by multiplying the Conversion Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to the
sale or issuance of such additional shares or such subdivision or combination
and the number of shares of Common Stock which the aggregate consideration
received (determined as provided in subsection 4(c)(iv)(F) below) for the
issuance of such additional shares would purchase at the greater of (i) the
Conversion Price in effect on the date of such issuance or (ii) the Market Price
as of such date, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after the sale or issuance of such
additional shares or such subdivision or combination. Such adjustment shall be
made successively whenever such an issuance is made.
(ii) In case of any reclassification, capital reorganization
or other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Corporation with or into another corporation
(other than a merger with Discovery and other than a consolidation or merger in
which the Corporation is the continuing corporation and which does not result in
any reclassification, capital reorganization or other change of outstanding
shares of Common Stock other than the number thereof), or in case of any sale or
conveyance to another
5
<PAGE>
corporation of the property of the Corporation as, or substantially as, an
entirety (other than a merger with Discovery and other than a sale/leaseback,
mortgage or other financing transaction), the Corporation shall cause effective
provision to be made so that each holder of a share of Series A Preferred Stock
shall be entitled to receive, upon conversion of such share of Series A
Preferred Stock, the kind and number of shares of stock or other securities or
property (including cash) receivable upon such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock into which such share of Series A
Preferred Stock was convertible immediately prior to such reclassification,
capital reorganization or other change, consolidation, merger, sale or
conveyance. Any such provision shall include provision for adjustments that
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 4(c). The Corporation shall not effect any such
consolidation, merger or sale unless prior to or simultaneously with the
consummation thereof the successor (if other than the Corporation) resulting
from such consolidation or merger or the corporation purchasing assets or other
appropriate corporation or entity shall assume, by written instrument executed
and delivered to the transfer agent for the Series A Preferred Stock (the
"Transfer Agent"), the obligation to deliver to the holder of each share of
Series A Preferred Stock such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holders may be entitled to
purchase and the other obligations under this Agreement. The foregoing
provisions shall similarly apply to successive reclassifications, capital
reorganizations and other changes of outstanding shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(iii) After each adjustment of the Conversion Price pursuant
to this Section 4(c), the Corporation will promptly prepare a certificate signed
by the Chairman or President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Corporation setting forth: (i)
the Conversion Price as so adjusted, (ii) the Conversion Rate corresponding to
such Conversion and (iii) a brief statement of the facts accounting for such
adjustment. The Corporation will promptly file such certificate with the
Transfer Agent and cause a brief summary thereof to be sent by ordinary first
class mail to each registered holder of Series A Preferred Stock at his last
address as it shall appear on the registry books of the Transfer Agent. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of such adjustment. The affidavit of an officer of the
Transfer Agent or the Secretary or an Assistant Secretary of the Corporation
that such notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. The Transfer Agent may rely on the
information in the certificate as true and correct and has no duty or obligation
to independently verify the amounts or calculations set forth therein.
(iv) For purposes of Section 4(c)(i) hereof, the following
provisions (A) to (F) shall also be applicable:
(A) The number of shares of Common Stock deemed
outstanding at any given time shall include all shares of
capital stock convertible into or exchangeable for Common
Stock and all shares of Common Stock issuable upon the
exercise of any convertible debt, warrants outstanding on the
date hereof and options outstanding on the date hereof (other
than the shares of Class A and Class B Warrants and the
Underwriter Units outstanding as of July 1, 1997).
6
<PAGE>
(B) No adjustment of the Conversion Price shall be
made unless such adjustment would require an increase or
decrease of at least $.01 in such price; provided that any
adjustments which by reason of this clause (B) are not
required to be made shall be carried forward and shall be made
at the time of and together with the next subsequent
adjustment which, together with any adjustment(s) so carried
forward, shall require an increase or decrease of at least
$.01 in the Conversion Price then in effect hereunder.
(C) In case of (1) the sale by the Corporation
(including as a component of a unit) of any rights or warrants
to subscribe for or purchase, or any options for the purchase
of, Common Stock or any securities convertible into or
exchangeable for Common Stock (such securities convertible,
exercisable or exchangeable into Common Stock being herein
called "Convertible Securities"), or (2) the issuance by the
Corporation, without the receipt by the Corporation of any
consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common
Stock or Convertible Securities, whether or not such rights,
warrants or options, or the right to convert or exchange such
Convertible Securities, are immediately exercisable, and the
consideration per share for which Common Stock is issuable
upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities
(determined by dividing (x) the minimum aggregate
consideration, as set forth in the instrument relating thereto
without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount,
payable to the Corporation upon the exercise of such rights,
warrants or options, plus the consideration received by the
Corporation for the issuance or sale of such rights, warrants
or options, plus, in the case of such Convertible Securities,
the minimum aggregate amount, as set forth in the instrument
relating thereto without regard to any antidilution or similar
provisions contained therein for a subsequent adjustment of
such amount, of additional consideration, if any, other than
such Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number, as set
forth in the instrument relating thereto without regard to any
antidilution or similar provisions contained therein for a
subsequent adjustment of such amount, of shares of Common
Stock issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible
Securities issuable upon the exercise of such rights, warrants
or options) is less than either the Conversion Price or the
Market Price of the Common Stock as of the date of the
issuance or sale of such rights, warrants or options, then
such total maximum number of shares of Common Stock issuable
upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities (as
of the date of the issuance or sale of such rights, warrants
or options) shall be deemed to be "Common Stock" for purposes
of Section 4(c)(i) hereof and shall be deemed to have been
sold for an amount equal to such consideration per share and
shall cause an adjustment to be made in accordance with
Section 4(c)(i).
7
<PAGE>
(D) In case of the sale by the Corporation of any
Convertible Securities, whether or not the right of conversion
or exchange thereunder is immediately exercisable, and the
price per share for which Common Stock is issuable upon the
conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration
received by the Corporation for the sale of such Convertible
Securities, plus the minimum aggregate amount, as set forth in
the instrument relating thereto without regard to any
antidilution or similar provisions contained therein for a
subsequent adjustment of such amount, of additional
consideration, if any, other than such Convertible Securities,
payable upon the conversion or exchange thereof, by (y) the
total maximum number, as set forth in the instrument relating
thereto without regard to any antidilution or similar
provisions contained therein for a subsequent adjustment of
such amount, of shares of Common Stock issuable upon the
conversion or exchange of such Convertible Securities) is less
than either the Conversion Price or the Market Price of the
Common Stock as of the date of the sale of such Convertible
Securities, then such total maximum number of shares of Common
Stock issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be "Common Stock"
for purposes of Section 4(c)(i) hereof and shall be deemed to
have been sold for an amount equal to such consideration per
share and shall cause an adjustment to be made in accordance
with Section 4(c)(i).
(E) In case the Corporation shall modify the rights
of conversion, exchange or exercise of any of the securities
referred to in (C) and (D) above or any other securities of
the Corporation convertible, exchangeable or exercisable for
shares of Common Stock, for any reason other than an event
that would require adjustment to prevent dilution, so that the
consideration per share received by the Corporation after such
modification is less than either the Conversion Price or the
Market Price as of the date prior to such modification, then
such securities, to the extent not theretofore exercised,
converted or exchanged, shall be deemed to have expired or
terminated immediately prior to the date of such modification
and the Corporation shall be deemed for purposes of
calculating any adjustments pursuant to this Section 4(c) to
have issued such new securities upon such new terms on the
date of modification. Such adjustment shall become effective
as of the date upon which such modification shall take effect.
On the expiration or cancellation of any such right, warrant
or option or the termination or cancellation of any such right
to convert or exchange any such Convertible Securities, the
Conversion Price then in effect hereunder shall forthwith be
readjusted to such Conversion Price as would have obtained (a)
had the adjustments made upon the issuance or sale of such
rights, warrants, options or Convertible Securities been made
upon the basis of the issuance of only the number of shares of
Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such
rights, warrants or options or upon the conversion or exchange
of such Convertible Securities and (b) had adjustments been
made on the basis of the Purchase Price as adjusted under
clause (a) for all transactions (which would have affected
such adjusted Purchase Price) made after the issuance
8
<PAGE>
or sale of such rights, warrants, options or Convertible
Securities.
(F) In case of the sale of any shares of Common
Stock, any Convertible Securities, any rights or warrants to
subscribe for or purchase, or any options for the purchase of,
Common Stock or Convertible Securities, the consideration
received by the Corporation therefor shall be deemed to be the
gross sales price therefor without deducting therefrom any
expense paid or incurred by the Corporation or any
underwriting discounts or commissions or concessions paid or
allowed by the Corporation in connection therewith. In the
event that any securities shall be issued in connection with
any other securities of the Corporation, together comprising
one integral transaction in which no specific consideration is
allocated among the securities, then each of such securities
shall be deemed to have been issued for such consideration as
the Board of Directors of the Corporation determines in good
faith; provided, however that if holders of in excess of 10%
of the then outstanding Series A Preferred Stock disagree with
such determination, the Corporation shall retain an
independent investment banking firm for the purpose of
obtaining an appraisal.
(vi) Notwithstanding any other provision hereof, no adjustment
to the Conversion Price will be made:
(A) upon the exercise of any of the options presently
outstanding under the Corporation's Restated 1993 Stock Option
Plan or the 1995 Stock Option Plan; or
(B) upon the issuance or sale of Common Stock or
Convertible Securities pursuant to the exercise of any rights,
options or warrants to receive, subscribe for or purchase, or
any options for the purchase of, Common Stock or Convertible
Securities, provided that such rights, warrants or options
were outstanding on the date of the original sale of the
Series A Preferred Stock; or
(C) upon the issuance or sale of Common Stock or upon
conversion or exchange of any Convertible Securities, provided
that any adjustments required to be made upon the issuance or
sale of such Convertible Securities or any modification of the
terms thereof were so made, and provided that such Convertible
Securities were outstanding on the date of the original sale
of the Series A Preferred Stock.
(d) No Fractional Shares. No fractional shares or scrip
--------------------
representing fractional shares of Common Stock shall be issued upon conversion
of Series A Preferred Stock. If more than one certificate evidencing shares of
Series A Preferred Stock shall be surrendered for conversion at one time by the
same holder, the number of full shares issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series A Preferred
Stock so surrendered. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of any shares of Series A Preferred
Stock, the Corporation shall pay a cash adjustment in respect of such fractional
interest in an amount equal to the same fraction of
9
<PAGE>
the Market Price as of the close of business on the day of conversion.
(e) Reservation of Shares; Transfer Taxes; Etc. The
------------------------------------------
Corporation shall at all times reserve and keep available, out of its authorized
and unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred Stock, such number of shares of its Common
Stock free of preemptive rights as shall be sufficient to effect the conversion
of all shares of Series A Preferred Stock from time to time outstanding
(including, without limitation, shares of Common Stock issuable upon conversion
of the Series A Preferred Stock in the case of a Reset Event). The Corporation
shall use its best efforts from time to time, in accordance with the laws of the
State of Delaware, to increase the authorized number of shares of Common Stock
if at any time the number of shares of authorized, unissued and unreserved
Common Stock shall not be sufficient to permit the conversion of all the
then-outstanding shares of Series A Preferred Stock.
The Corporation shall pay any and all issue or other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of the Series A Preferred Stock. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of Common Stock (or other securities
or assets) in a name other than that in which the shares of Series A Preferred
Stock so converted were registered, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the Corporation
the amount of such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(f) Prior Notice of Certain Events. In case:
------------------------------
(i) the Corporation shall declare any dividend (or
any other distribution);
(ii) the Corporation shall authorize the granting to
the holders of Common Stock of rights or warrants to subscribe for or
purchase any shares of stock of any class or of any other rights or
warrants;
(iii) of any reclassification of Common Stock (other
than a subdivision or combination of the outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no par
value to par value);
(iv) of any consolidation or merger (including,
without limitation, a Merger Transaction) to which the Corporation is a
party and for which approval of any stockholders of the Corporation
shall be required, or of the sale or transfer of all or substantially
all of the assets of the Corporation or of any compulsory share
exchange whereby the Common Stock is converted into other securities,
cash or other property; or
(v) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation (including, without
limitation, a Liquidation Event);
then the Corporation shall cause to be filed with the transfer agent
for the Series A
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Preferred Stock, and shall cause to be mailed to the holders of record
of the Series A Preferred Stock, at their last addresses as they shall
appear upon the stock transfer books of the Corporation, at least 20
days prior to the applicable record date hereinafter specified, a
notice stating (x) the date on which a record (if any) is to be taken
for the purpose of such dividend, distribution or granting of rights or
warrants or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distribution, rights or warrants are to be determined and a description
of the cash, securities or other property to be received by such
holders upon such dividend, distribution or granting of rights or
warrants or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or
winding up or other Liquidation Event is expected to become effective,
the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such exchange,
dissolution, liquidation or winding up or other Liquidation Event and
the consideration, including securities or other property, to be
received by such holders upon such exchange.
5. Redemption. (a) The Corporation may, at its option during
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the Redemption Period, redeem all but not less than all shares of the Series A
Preferred Stock at the Aggregate Redemption Price. The Corporation shall provide
each holder of shares of Series A Preferred Stock with a written notice not less
than 15 days prior to the redemption date, which notice shall set forth in
reasonable detail a calculation of the Aggregate Redemption Price.
(b) For purposes hereof, the following terms shall have the
meanings given below:
(i) "Aggregate Redemption Price" shall mean an amount in cash
equal to the sum of (i) $1.3 Million, and (ii) $13,000 multiplied by the number
of full calendar months from and including July 1997 and through the Reset Date.
(ii) "Redemption Period" shall mean (A) the thirty day period
beginning on the Reset Date, if the Reset Date is on or before August 31, 1997,
and (B) the sixty day period beginning on the Reset Date, if the Reset Date is
after August 31, 1997.
(c) The Redemption Price shall be payable, without any setoff,
by wire transfer of immediately available funds.
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6. Voting Rights. (a) General. Except as otherwise provided
-------------
herein, in the Certificate of Incorporation or the Bylaws, the holders of shares
of Series A Preferred Stock, the holders of shares of Common Stock and the
holders of any other class or series of shares entitled to vote with the Common
Stock shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation. In any such vote, each share of Series A
Preferred Stock shall entitle the holder thereof to cast the number of votes
equal to the number of votes which could be cast in such vote by a holder of the
Common Stock into which such share of Series A Preferred Stock is convertible on
the record date for such vote, or if no record date has been established, on the
date such vote is taken. Any shares of Series A Preferred Stock held by the
Corporation or any entity controlled by the Corporation shall not have voting
rights hereunder and shall not be counted in determining the presence of a
quorum.
(b) In addition to any vote specified in Section 6(a), so long
as 50% of the shares of Series A Preferred Stock (including those shares of
Series A Preferred Stock issued or issuable upon the exercise of the options for
the purchase of Series A Preferred Stock) shall be outstanding, the Corporation
shall not, without the affirmative vote or consent of the holders of at least
66.67% of all outstanding Series A Preferred Stock voting separately as a class,
(i) amend, alter or repeal any provision of the Certificate of Incorporation, or
the Bylaws of the Corporation so as adversely to affect the relative rights,
preferences, qualifications, limitations or restrictions of the Series A
Preferred Stock, (ii) declare or pay any dividend or distribution on any
securities of the Corporation other than the Series A Preferred Stock pursuant
to and accordance with the provisions of this Certificate of Designations, or
authorize the repurchase of any securities of the Corporation, or (iii)
authorize or issue, or increase the authorized amount of, any security ranking
prior to, or on a parity with, the Series A Preferred Stock. The vote as
contemplated herein shall specifically not be required for issuances of Common
Stock.
(c) On and after the date of a Discovery Breach, the holders
of the outstanding shares of the Series A Preferred Stock, voting as a separate
class, shall be entitled to elect two directors of the Corporation (the "Series
A Directors"). At any annual or special meeting of the Corporation (or in a
written consent in lieu thereof) held for the purpose of electing directors, the
presence in person or by proxy (or by written consent) of the holders of a
majority of the issued and outstanding shares of Series A Preferred Stock shall
constitute a quorum for the election of Series A Directors. The holders if a
majority of the shares of Series A Preferred Stock present at any such meeting
shall then be entitled to elect the Series A Directors.
(d) On demand from the holders of the Series A Preferred Stock
at any time after the occurrence of a Discovery Breach, the Board of Directors
shall be expanded by two members and the Board shall cause the two resulting
vacancies to be filled by designees of the holders of the Series A Preferred
Stock. Other than pursuant to this subsection (d), the Board of Directors shall
not be expanded without the written consent of a majority of the outstanding
shares of Series A Preferred Stock.
(e) On and after the date of a Discovery Breach and until such
time as Discovery and its affiliates own less than twenty five percent (25%) of
the Series A Preferred Stock (or Common Stock received as a result of conversion
of the Series A Preferred Stock) originally purchased by Discovery, Discovery
shall be entitled to designate a nonvoting observer
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who shall be entitled to attend all meetings of the Board of Directors and any
of its committees and who shall be provided (i) reasonable prior notice of all
meetings of the Board of Directors and any of its committees, (ii) reasonable
prior notice of any action that the Board of Directors or any of its committees
may take by written consent, (iii) promptly delivered copies of all minutes and
other records of action by, and all written information furnished to, the Board
of Directors or any of its committees and (iv)any other information requested by
such observer which a member of the Board of Directors would be entitled to
request his or her duties.
7. No Amendment or Impairment. The Corporation shall not amend
--------------------------
its Certificate of Incorporation or participate in any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the rights of the holders of the Series A Preferred Stock
against impairment.
8. Severability of Provisions. Whenever possible, each
--------------------------
provision hereof shall be interpreted in a manner as to be effective and valid
under applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
IN WITNESS WHEREOF, Ansan Pharmaceuticals, Inc. has caused
this certificate to be signed on its behalf by Vaughan Shalson, its President
and Chief Executive Officer, this 16 day of July, 1997.
ANSAN PHARMACEUTICALS, INC.
By:/s/ V.H.J. SHALSON
-------------------------------------
President and Chief Executive Officer
ATTEST:
/s/ JAMES AHLERS
- ------------------------------
Secretary
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