-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KrV2MoMPoW02V3ktxQEDEQ4zGEfDKZSZ++rDSJig3JjiGJFWpx0e2NxcXXoaoI7r 2ytZQ2U5Uc7kK/UUCxHrow== 0001036050-99-002047.txt : 19991018 0001036050-99-002047.hdr.sgml : 19991018 ACCESSION NUMBER: 0001036050-99-002047 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19991012 GROUP MEMBERS: DPC NEWCO, INC. GROUP MEMBERS: DUPONT E I DE NEMOURS & CO GROUP MEMBERS: DUPONT PHARMA, INC. GROUP MEMBERS: E.I. DUPONT DE NEMOURS AND COMPANY SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: COMBICHEM INC CENTRAL INDEX KEY: 0001002276 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 330617379 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: SEC FILE NUMBER: 005-55421 FILM NUMBER: 99726926 BUSINESS ADDRESS: STREET 1: 9050 CAMINO STREET 2: SUITE 200 CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6195300484 MAIL ADDRESS: STREET 1: 9050 CAMINO SANTA FE CITY: SAN DIEGO STATE: CA ZIP: 92121 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: DUPONT E I DE NEMOURS & CO CENTRAL INDEX KEY: 0000030554 STANDARD INDUSTRIAL CLASSIFICATION: PLASTIC MAIL, SYNTH RESIN/RUBBER, CELLULOS (NO GLASS) [2820] IRS NUMBER: 510014090 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 1007 MARKET ST CITY: WILMINGTON STATE: DE ZIP: 19898 BUSINESS PHONE: 3027741000 SC 14D1 1 SCHEDULE 14D-1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 COMBICHEM, INC. (NAME OF SUBJECT COMPANY) E.I. DU PONT DE NEMOURS AND COMPANY DUPONT PHARMA, INC. DPC NEWCO, INC. (BIDDERS) COMMON STOCK, $.001 PAR VALUE (TITLE OF CLASS OF SECURITIES) 20009P-10-3 (CUSIP NUMBER OF COMMON STOCK) DONALD P. MCAVINEY, ESQ. E.I. DU PONT DE NEMOURS AND COMPANY DUPONT PHARMA, INC. DPC NEWCO, INC. 1007 MARKET STREET WILMINGTON, DELAWARE 19898 (302) 774-9564 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS) COPIES TO: JUSTIN P. KLEIN, ESQ. BALLARD SPAHR ANDREWS & INGERSOLL, LLP 1735 MARKET STREET, 51ST FLOOR PHILADELPHIA, PENNSYLVANIA (215) 864-8606 ------------------------ CALCULATION OF FILING FEE ================================================================================ TRANSACTION VALUATION* AMOUNT OF FILING FEE - -------------------------------------------------------------------------------- $101,374,106 $20,274 ================================================================================ * FOR PURPOSES OF CALCULATING FEE ONLY. THIS AMOUNT IS BASED ON A PER SHARE OFFERING PRICE OF $6.75 FOR 13,489,604 SHARES OF COMMON STOCK OUTSTANDING AS OF SEPTEMBER 27, 1999, PLUS THE NUMBER OF SHARES ASSUMED ISSUABLE PURSUANT TO EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS TO PURCHASE SHARES OF COMMON STOCK. THE AMOUNT OF THE FILING FEE, CALCULATED IN ACCORDANCE WITH RULE 0-11 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, EQUALS 1/50 OF ONE PERCENT OF THE AGGREGATE OF THE CASH OFFERED BY THE BIDDERS. [ ] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY RULE 0-11(a)(2) AND IDENTIFY THE FILING WITH WHICH THE OFFSETTING FEE WAS PREVIOUSLY PAID. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING. AMOUNT PREVIOUSLY PAID: NA FORM OR REGISTRATION NO.: NA FILING PARTY: NA DATE FILED: NA 2 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON E.I. DU PONT DE NEMOURS AND COMPANY 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) (a) |_| (b) |_| 3 SEC USE ONLY 4 SOURCE OF FUNDS (See Instructions) WC 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) or 2(f) |_| 6 CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 7,234,022 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES (See Instructions) |_| 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 44.7%(1) 10 TYPE OF REPORTING PERSON (See Instructions) CO (1) E.I. du Pont de Nemours ("Parent"), DPC Newco, Inc. ("Merger Sub"), a direct wholly owned subsidiary of DuPont Pharma, Inc. ("Purchaser"), a wholly owned subsidiary of Parent, and CombiChem, Inc. ("CombiChem") entered into an Agreement and Plan of Merger (the "Merger Agreement") dated as of October 5, 1999, providing for, among other things, the merger of Merger Sub with and into CombiChem. Simultaneously with the execution and delivery of the Merger Agreement, Merger Sub entered into a Shareholders Agreement, dated as of October 5, 1999 (the "Shareholders Agreement"), with certain shareholders of CombiChem 3 (the "Major Stockholders") who, as of September 27, 1999 own 4,549,591 shares of CombiChem Common Stock in the aggregate. Under the Shareholders Agreement, the Major Stockholders have agreed, subject to the terms thereof, to tender all of their shares of CombiChem Common Stock to Merger Sub pursuant to the tender offer described in the Merger Agreement, and to vote their shares in favor of the merger described in the Merger Agreement. The Major Stockholders have also granted Merger Sub a proxy to vote their shares, representing approximately 33.7% of the issued and outstanding shares of CombiChem Common Stock as of September 27, 1999, in favor of the merger. Simultaneously with the execution and delivery of the Merger Agreement, Parent also entered into a Stock Option Agreement dated as of October 5, 1999 (the "Option Agreement"), pursuant to which CombiChem granted to Parent an option to purchase 2,684,431 shares of Common Stock, subject to the terms thereof. If this option were to be exercised and these shares were issued to Parent and outstanding, such shares would, together with the shares subject to the Shareholders Agreement, represent approximately 44.7% of the issued and outstanding shares of CombiChem Common Stock as of September 27, 1999. As permitted by each of the Merger Agreement, the Shareholders Agreement and the Option Agreement, Parent assigned all of its rights thereunder to Purchaser and Purchaser agreed to assume all of the obligations of Parent thereunder. 4 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON DUPONT PHARMA, INC. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) (a) |_| (b) |_| 3 SEC USE ONLY 4 SOURCE OF FUNDS (See Instructions) AF 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) or 2(f) |_| 6 CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 7,234,022 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES (See Instructions) |_| 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 44.7%(2) 10 TYPE OF REPORTING PERSON (See Instructions) CO (2) E.I. du Pont de Nemours ("Parent"), DPC Newco, Inc. ("Merger Sub"), a direct wholly owned subsidiary of DuPont Pharma, Inc. ("Purchaser"), a wholly owned subsidiary of Parent, and CombiChem, Inc. ("CombiChem") entered into an Agreement and Plan of Merger (the "Merger Agreement") dated as of October 5, 1999, providing for, among other things, the merger of Merger Sub with and into CombiChem. Simultaneously with the execution and delivery of the Merger Agreement, Merger Sub entered into a Shareholders Agreement, dated as of October 5, 1999 (the "Shareholders Agreement"), with certain shareholders of CombiChem (the "Major Stockholders") who, as of September 27, 1999 own 5 4,549,591 shares of CombiChem Common Stock in the aggregate. Under the Shareholders Agreement, the Major Stockholders have agreed, subject to the terms thereof, to tender all of their shares of CombiChem Common Stock to Merger Sub pursuant to the tender offer described in the Merger Agreement, and to vote their shares in favor of the merger described in the Merger Agreement. The Major Stockholders have also granted Merger Sub a proxy to vote their shares, representing approximately 33.7% of the issued and outstanding shares of CombiChem Common Stock as of September 27, 1999, in favor of the merger. Simultaneously with the execution and delivery of the Merger Agreement, Parent also entered into a Stock Option Agreement dated as of October 5, 1999 (the "Option Agreement"), pursuant to which CombiChem granted to Parent an option to purchase 2,684,431 shares of Common Stock, subject to the terms thereof. If this option were to be exercised and these shares were issued to Parent and outstanding, such shares would, together with the shares subject to the Shareholders Agreement, represent approximately 44.7% of the issued and outstanding shares of CombiChem Common Stock as of September 27, 1999. As permitted by each of the Merger Agreement, the Shareholders Agreement and the Option Agreement, Parent assigned all of its rights thereunder to Purchaser and Purchaser agreed to assume all of the obligations of Parent thereunder. The foregoing summary of the Shareholders Agreement and Option Agreement is qualified in its entirety by reference to such agreements, which have been filed as exhibits to this Schedule 14D-1. 6 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON DPC NEWCO, INC. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) (a) |_| (b) |_| 3 SEC USE ONLY 4 SOURCE OF FUNDS (See Instructions) AF 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) or 2(f) |_| 6 CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 4,549,591 8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES (See Instructions) |_| 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 33.7%(3) 10 TYPE OF REPORTING PERSON (See Instructions) CO (3) E.I. du Pont de Nemours ("Parent"), DPC Newco, Inc. ("Merger Sub"), a direct wholly owned subsidiary of DuPont Pharma, Inc. ("Purchaser"), a wholly owned subsidiary of Parent, and CombiChem, Inc. ("CombiChem") entered into an Agreement and Plan of Merger (the "Merger Agreement") as of October 5, 1999 providing for, among other things, the merger of Merger Sub with and into CombiChem. Simultaneously with the execution and delivery of the Merger Agreement, Merger Sub entered into a Shareholders Agreement dated as of October 5, 1999 (the "Shareholders Agreement") with certain shareholders of CombiChem 7 (the "Major Stockholders") who, as of September 27, 1999 own 4,549,591 shares of CombiChem Common Stock in the aggregate. Under the Shareholders Agreement, the Major Stockholders have agreed, subject to the terms thereof, to tender all of their shares of CombiChem Common Stock to Merger Sub pursuant to the tender offer described in the Merger Agreement, and to vote their shares in favor of the merger described in the Merger Agreement. The Major Stockholders have also granted Merger Sub a proxy to vote their shares, representing approximately 33.7% of the issued and outstanding shares of CombiChem Common Stock as of September 27, 1999, in favor of the merger. Simultaneously with the execution and delivery of the Merger Agreement, Parent also entered into a Stock Option Agreement dated as of October 5, 1999 (the "Option Agreement"), pursuant to which CombiChem granted to Parent an option to purchase 2,684,431 shares of Common Stock, subject to the terms thereof. If this option were to be exercised and these shares were issued to Parent and outstanding, such shares would, together with the shares subject to the Shareholders Agreement, represent approximately 44.7% of the issued and outstanding shares of CombiChem Common Stock as of September 27, 1999. As permitted by each of the Merger Agreement, the Shareholders Agreement and the Option Agreement, Parent assigned all of its rights thereunder to Purchaser and Purchaser agreed to assume all of the obligations of Purchaser thereunder. The foregoing summary of the Shareholders Agreement and Option Agreement is qualified in its entirety by reference to such agreements, which have been filed as exhibits to this Schedule 14D. 8 This Tender Offer Statement on Schedule 14D-1 relates to a tender offer by DPC Newco, Inc.("Offeror"), a Delaware corporation and a direct wholly owned subsidiary of DuPont Pharma, Inc. ("Purchaser"), a Delaware corporation and wholly owned subsidiary of E.I. du Pont de Nemours and Company, a Delaware corporation ("Parent"), to purchase all outstanding shares (the "Shares") of Common Stock, par value $.001 per share (the "Common Stock"), of CombiChem, Inc., a Delaware corporation (the "Company"), at a purchase price of $6.75 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated October 12, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"), copies of which are filed as Exhibits (a)(1) and (a)(2) hereto, respectively, and which are incorporated herein by reference. Offeror is a corporation, newly formed by Purchaser in connection with the Offer and the transactions contemplated thereby. ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is CombiChem, Inc. The address of the principal executive office of the Company is 9050 Camino Sante Fe, Suite 200, San Diego, California 92121. (b) The information set forth in the Introduction and Section 1 ("Terms of the Offer; Expiration Date") of the Offer to Purchase is incorporated herein by reference. (c) The information set forth in Section 6 ("Price Range of Shares") of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a) through (d), (g) This Schedule 14D-1 is filed by Parent, Purchaser and Offeror. The information set forth in the Introduction and Section 9 ("Certain Information Concerning Parent, Purchaser and Offeror") of the Offer to Purchase and in Schedule I thereto is incorporated herein by reference. (e) and (f) None of Offeror, Parent or Purchaser or, to the best of their knowledge, any of the persons listed in Schedule I of the Offer to Purchase, has during the last five years (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. 9 ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a) and (b) The information set forth in the Introduction, Section 8 ("Certain Information Concerning the Company"), Section 9 ("Certain Information Concerning Parent, Purchaser and Offeror"), Section 11 ("Background of the Offer") and Section 12 (Purpose of the Offer and the Merger; Plans for the Company; The Transaction Documents) of the Offer to Purchase is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) The information set forth in Section 10 ("Source and Amount of Funds") of the Offer to Purchase is incorporated herein by reference. (b) and (c) Not applicable. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a) through (c), (e) The information set forth in the Introduction, Section 12 ("Purpose of the Offer and the Merger; Plans for the Company; The Transaction Documents") and Section 13 ("Dividends and Distributions") of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in Section 13 ("Dividends and Distributions") of the Offer to Purchase is incorporated herein by reference. (f) and (g) The information set forth in Section 7 ("Effect of the Offer on the Market for Shares; Stock Quotation; Exchange Act Registration and Margin Securities") of the Offer to Purchase is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) and (b) The information set forth in the Introduction, Section 1 ("Terms of the Offer"), Section 11 ("Background of the Offer"), Section 9 ("Certain Information Concerning Parent, Purchaser and Offeror") and Section 12 ("Purpose of the Offer and the Merger; Plans for the Company; The Transaction Documents") of the Offer to Purchase is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in the Introduction, Section 1 ("Terms of the Offer"), Section 9 ("Certain Information Concerning Parent and Offeror"),Section 10 ("Source and Amount of Funds"), Section 11 ("Background of the Offer"), Section 12 ("Purpose of the Offer and the Merger; Plans for the Company; The Transaction Documents"), Section 13 ("Dividends and 10 Distributions")and Section 14 ("Certain Conditions to the Offer") of the Offer to Purchase is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in the Introduction and Section 16 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth in Section 9 ("Certain Information Concerning Parent, Purchaser and Offeror") of the Offer to Purchase is incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION. (a) The information set forth in the Introduction, Section 9 ("Certain Information Concerning Parent, Purchaser Offeror") and Section 12 ("Purpose of the Offer and the Merger; Plans for the Company; The Transaction Documents") of the Offer to Purchase is incorporated herein by reference. (b) and (c) The information set forth in Section 15 ("Certain Regulatory and Legal Matters") of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in Section 7 ("Effect of the Offer on the Market for Shares, Stock Quotation, Exchange Act Registration and Margin Securities") of the Offer to Purchase is incorporated herein by reference. (e) None. (f) The information set forth in the Offer to Purchase, a copy of which is attached as Exhibit (a)(1), and the Letter of Transmittal, a copy of which is attached as Exhibit (a)(2), is incorporated herein by reference in its entirety. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Offer to Purchase, dated October 5, 1999. (a)(2) Letter of Transmittal. (a)(3) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(4) Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees to Clients. (a)(5) Notice of Guaranteed Delivery. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Joint Press Release, dated October 5, 1999. (a)(8) Summary Advertisement 11 (b) Not applicable. (c)(1) Agreement and Plan of Merger dated as of October 5, 1999, among Parent, Offeror and the Company. (c)(2) Shareholders Agreement dated as of October 5, 1999 among the persons listed on Schedule 1 thereto, Parent and Offeror. (c)(3) Stock Option Agreement dated as of October 5, 1999, among Parent, Offeror and the Company. (c)(4) Mutual Non-Disclosure Agreement dated as of March 10, 1999, between Company and DuPont Pharmaceuticals Company. (d) None. (e) Not applicable. (f) None. SIGNATURE After due inquiry and to the best of the undersigneds' knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: October 12, 1999 E.I. DU PONT DE NEMOURS AND COMPANY By: /s/ Susan M. Stalnecker __________________________ Name: Susan M. Stalnecker Title: Vice President and Treasurer DUPONT PHARMA, INC. By: /s/ Susan M. Stalnecker __________________________ Name: Susan M. Stalnecker Title: President DPC NEWCO, INC. By: /s/ Richard E. Gies _________________________ Name: Richard E. Gies Title: President 12 EXHIBIT INDEX EXHIBIT DESCRIPTION NO. NO. (a)(l) -- Offer to Purchase, dated October 12, 1999. (a)(2) -- Letter of Transmittal. (a)(3) -- Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(4) -- Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees to Clients. (a)(5) -- Notice of Guaranteed Delivery. (a)(6) -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) -- Joint Press Release, dated October 5, 1999. (a)(8) -- Summary Advertisement. (b) -- Not applicable. (c)(1) -- Agreement and Plan of Merger dated as of October 5, 1999, among Parent, Offeror and the Company. (c)(2) -- Shareholders Agreement dated as of October 30, 1999, among the persons listed on Schedule 1 thereto, Parent and Offeror. (c)(3) -- Stock Option Agreement dated as of October 5, 1999 among Parent, Offeror and the Company. (c)(4) -- Mutual Non-Disclosure Agreement dated as of March 10, 1999 between Company and DuPont Pharmaceuticals Company. (d) -- None. (e) -- Not applicable. (f) -- None. 13 EX-99.A1 2 OFFER TO PURCHASE, DATED OCTOBER 12, 1999 Exhibit (a)(1) Offer to Purchase for Cash All Outstanding Shares of Common Stock of CombiChem, Inc. at $6.75 Net Per Share by DPC Newco, Inc., a direct wholly owned subsidiary of DuPont Pharma, Inc., a wholly owned subsidiary of E.I. du Pont de Nemours and Company ------------------ THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, NOVEMBER 8, 1999, UNLESS THE OFFER IS EXTENDED. ------------------ THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED HEREIN) OF THE OFFER AT LEAST THAT NUMBER OF SHARES OF COMMON STOCK EQUIVALENT TO A MAJORITY OF THE TOTAL NUMBER OF SHARES OF COMMON STOCK ISSUED AND OUTSTANDING ON A FULLY DILUTED BASIS. SEE SECTIONS 12 AND 14. ------------------ THE BOARD OF DIRECTORS OF COMBICHEM, INC. (THE "COMPANY") HAS UNANIMOUSLY APPROVED THE OFFER, THE MERGER AND THE MERGER AGREEMENT REFERRED TO HEREIN AND HAS DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY, HAS DECLARED THE MERGER ADVISABLE AND RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER ALL OF THEIR SHARES PURSUANT THERETO. ------------------ IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's Shares (as defined herein) should either (i) complete and sign the Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal and mail or deliver the certificate(s) representing the tendered Shares, and all other required documents, to the Depositary or tender such Shares pursuant to the procedure for book-entry transfer set forth in Section 3 or (ii) request his broker, dealer, commercial bank, trust company or other nominee to effect the transaction for him. A stockholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such person if he desires to tender such Shares. A stockholder who desires to tender Shares and whose certificates representing such Shares are not immediately available or who cannot comply with the procedures for book-entry transfer on a timely basis may tender such shares by following the procedure for guaranteed delivery set forth in Section 3. Questions and requests for assistance may be directed to Morgan Stanley & Co. Incorporated, the Dealer Manager, or to D.F. King & Co., Inc., the Information Agent, at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other related materials may be obtained from the Information Agent or from brokers, dealers, commercial banks and trust companies. ------------------ The Dealer Manager for the Offer is: MORGAN STANLEY DEAN WITTER October 12, 1999 TABLE OF CONTENTS
Page ---- INTRODUCTION........................................................... 1 THE OFFER.............................................................. 4 1. Terms of the Offer; Expiration Date............................... 4 2. Acceptance for Payment and Payment for Shares..................... 4 3. Procedure for Tendering Shares.................................... 5 4. Withdrawal Rights................................................. 8 5. Certain Federal Income Tax Consequences........................... 8 6. Price Range of Shares............................................. 9 7. Effect of the Offer on the Market for Shares; Stock Quotation; Exchange Act Registration and Margin Securities................... 10 8. Certain Information Concerning the Company........................ 11
Page ---- 9. Certain Information Concerning Parent, Purchaser and Offeror........ 14 10. Source and Amount of Funds.......................................... 15 11. Background of the Offer............................................. 15 12. Purpose of the Offer and the Merger; Plans for the Company; The Transaction Documents........................................... 15 13. Dividends and Distributions......................................... 30 14. Certain Conditions to the Offer..................................... 30 15. Certain Regulatory and Legal Matters................................ 32 16. Fees and Expenses................................................... 33 17. Miscellaneous....................................................... 34 Schedule I--Certain Information Concerning the Directors and Executive Officers of Parent, Purchaser and Offeror............................... I-1
i To the Holders of Common Stock of COMBICHEM, INC. INTRODUCTION DPC Newco, Inc., a Delaware corporation ("Offeror") and a direct wholly- owned subsidiary of DuPont Pharma, Inc., a Delaware corporation ("Purchaser") and a wholly-owned subsidiary of E.I. du Pont de Nemours and Company, a Delaware corporation ("Parent"), hereby offers to purchase all outstanding shares of Common Stock, par value $.001 per share (the "Shares"), of CombiChem, Inc., a Delaware corporation (the "Company"), at a purchase price of $6.75 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). Offeror is a corporation newly formed by Purchaser in connection with the Offer and the transactions contemplated thereby. For information concerning Parent, Purchaser and Offeror see Section 9. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the sale of Shares pursuant to the Offer. Offeror will pay all fees and expenses of Morgan Stanley & Co. Incorporated, which is acting as Dealer Manager (the "Dealer Manager"), The First Chicago Trust Company of New York, which is acting as the Depositary (the "Depositary"), and D.F. King & Co., Inc., which is acting as Information Agent (the "Information Agent"), incurred in connection with the Offer. See Section 16. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER, THE MERGER AND THE MERGER AGREEMENT AND DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY, HAS DECLARED THE MERGER ADVISABLE AND RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER ALL OF THEIR SHARES PURSUANT THERETO. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION, THE COMPANY'S FINANCIAL ADVISOR (THE "FINANCIAL ADVISOR"), HAS DELIVERED TO THE BOARD OF DIRECTORS OF THE COMPANY ITS WRITTEN OPINION TO THE EFFECT THAT, BASED UPON AND SUBJECT TO THE ASSUMPTIONS AND QUALIFICATIONS SET FORTH IN SUCH OPINION, AS OF OCTOBER 4, 1999, THE CONSIDERATION TO BE RECEIVED BY HOLDERS OF SHARES (OTHER THAN PARENT, PURCHASER, OFFEROR AND ANY AFFILIATES THEREOF) PURSUANT TO THE MERGER AGREEMENT IS FAIR TO SUCH HOLDERS FROM A FINANCIAL POINT OF VIEW. SUCH OPINION IS SET FORTH IN FULL AS AN ANNEX TO THE COMPANY'S SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9 (THE "SCHEDULE 14D-9"), WHICH IS BEING MAILED TO STOCKHOLDERS OF THE COMPANY CONCURRENTLY HEREWITH. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE OF THE OFFER AT LEAST THAT NUMBER OF SHARES OF COMMON STOCK EQUIVALENT TO A MAJORITY OF THE TOTAL NUMBER OF SHARES OF COMMON STOCK ISSUED AND OUTSTANDING ON A FULLY DILUTED BASIS (SUCH CONDITION, THE "MINIMUM CONDITION," AND SUCH SHARES, THE "MINIMUM SHARES"). SEE SECTIONS 12 AND 14. The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of October 5, 1999 (the "Merger Agreement"), among Parent, Offeror and the Company, pursuant to which, following the consummation of the Offer and the satisfaction or waiver of certain conditions, Offeror will be merged with and into the Company (the "Merger"). On October 11, 1999, Parent assigned all of its rights under the Merger Agreement to Purchaser and Purchaser assumed all of Parent's obligations under the Merger Agreement. Following the consummation of the Merger, the Company will be the surviving corporation (the "Surviving Corporation"). In the Merger, each outstanding Share (other than Shares held by the Company or any direct or indirect subsidiary of the Company or owned by Parent, Purchaser or Offeror or any other direct or indirect subsidiary of Parent or Purchaser and other than Shares held by stockholders, if any, who perfect their appraisal rights under Delaware or other applicable law (the "Excluded Shareholders")) will be converted into, and become exchangeable for, the right to receive $6.75 per Share in cash (the "Merger Consideration") and the Company will become a direct wholly owned subsidiary of Purchaser. See Section 12. Subject to the limitations imposed by the Merger Agreement and the applicable rules and regulations of the Securities and Exchange Commission (the "Commission"), Offeror expressly reserves the right, in its sole discretion, at any time and from time to time, and regardless of whether or not any of the events set forth in Section 14 hereof shall have occurred or shall have been determined by Offeror to have occurred, (i) to extend the period of time during which the Offer is open, and thereby delay acceptance for payment of and the payment for any Shares, by giving oral or written notice of such extension to the Depositary and (ii) to amend the Offer in any other respect by giving oral or written notice of such amendment to the Depositary. If by 12:00 Midnight, New York City time, on Monday, November 8, 1999 (or any other date or time then set as the expiration date, the "Expiration Date"), any or all conditions to the Offer have not been satisfied or waived, Offeror reserves the right (but shall not be obligated), subject to the terms and conditions contained in the Merger Agreement and to the applicable rules and regulations of the Commission, to (i) terminate the Offer and not accept for payment any Shares and return all tendered Shares to tendering stockholders, (ii) waive all the unsatisfied conditions and, subject to complying with the terms of the Merger Agreement and the applicable rules and regulations of the Commission, accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not theretofore withdrawn, (iii) extend the Offer and, subject to the right of stockholders to withdraw Shares until the Expiration Date, retain the Shares that have been tendered during the period or periods for which the Offer is extended or (iv) amend the Offer. There can be no assurance that Offeror will exercise its right to extend the Offer. Any extension, waiver, amendment or termination will be followed as promptly as practicable by public announcement thereof. In the case of an extension, Rule 14e-1(d) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires that the announcement be issued no later than 9:00 a.m., Eastern time, on the next business day after the previously scheduled Expiration Date in accordance with the public announcement requirements of Rule 14d-4(c) under the Exchange Act, subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the Offer be promptly disseminated to stockholders in a manner reasonably designed to inform stockholders of such change). Without limiting the obligation of Offeror under such rules or the manner in which Offeror may choose to make any public announcement, Offeror will not have any obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to the Dow Jones News Service. In the Merger Agreement, Offeror has agreed that it will not, without the prior consent of the Company, extend the Offer if all of the conditions to the Offer have been satisfied, except that Offeror may, without the consent of the Company, extend the Offer (i) if on the scheduled Expiration Date of the Offer any of the conditions to the Offer shall not have been satisfied or waived, for one or more periods (none of which shall exceed ten business days) but in no event past 60 days from the date of the Merger Agreement unless the waiting period applicable to the transactions contemplated by the Merger Agreement under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), has not terminated or expired and then in any event not later than May 31, 2000, (ii) for such period as may be required by any rule, regulation, interpretation or position of the Commission or its staff applicable to the Offer or (iii) if all conditions to the Offer are satisfied or waived but less than 90% of the shares of Common Stock issued and outstanding on a fully diluted basis have been tendered, for one or more periods (each such period to be for not more than five business days and such extensions to be for an aggregate period of not more than fifteen business days beyond 2 the latest expiration date that would be permitted under clause (i) or (ii) of this sentence). In addition, Offeror has agreed that, without the prior written consent of the Company, it will not (i) decrease the amount or change the form of consideration payable in the Offer, (ii) decrease the number of Shares sought in the Offer, (iii) impose additional conditions to the Offer, (iv) change any conditions to the Offer (including the conditions described in Section 14) or amend any other term of the Offer if any such change or amendment would be materially adverse to the holders of Shares (other than Parent, Purchaser or Offeror) or (v) amend or waive the Minimum Condition. If Offeror makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer (including, with the consent of the Company, the Minimum Condition), Offeror will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-l under the Exchange Act. The minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or a change in the percentage of securities sought, will depend upon the facts and circumstances then existing, including the relative materiality of the changed terms or information. With respect to a change in price or a change in the percentage of securities sought, a minimum period of 10 business days is generally required to allow for adequate dissemination to stockholders. As used in this Offer to Purchase, "business day" has the meaning set forth in Rule 14d-1 under the Exchange Act. Based on the representations and warranties of the Company contained in the Merger Agreement, and information provided by the Company, as of September 27, 1999, (i) 13,489,604 Shares were outstanding, (ii) 3,355,069 shares of Common Stock were reserved for issuance under the Company's 1997 Stock Incentive Plan, of which options to acquire 1,213,476 shares of Common Stock were outstanding, (iii) 150,000 shares of Common Stock were reserved for issuance under the Company's 1997 Employee Stock Purchase Plan (together with the 1997 Stock Incentive Plan, the "Stock Plans"), of which approximately 35,000 shares of Common Stock currently are available for purchase, (iv) 70,000 shares of Common Stock were reserved for issuance pursuant to options granted outside of the Stock Plans, of which options to acquire 70,000 shares of Common Stock were outstanding, and (v) 247,220 shares of Common Stock were reserved for issuance upon exercise of Warrants to purchase shares of Common Stock ("Warrants"). Based on the foregoing, the Minimum Condition will be satisfied if 7,527,651 Shares are validly tendered and not withdrawn prior to the Expiration Date. The number of Shares required to be validly tendered and not withdrawn in order to satisfy the Minimum Condition will increase to the extent additional Shares are deemed to be outstanding on a fully diluted basis. For purposes of the Offer to Purchase, any reference to a majority of the total issued and outstanding shares or shares outstanding on a fully diluted basis excludes any shares of Common Stock issuable upon exercise of or subject to the Stock Option Agreement, as defined below. The consummation of the Merger is subject to the satisfaction or waiver of a number of conditions, including, if required, the approval of the Merger by the requisite vote or consent of the stockholders of the Company. Under the General Corporation Law of the State of Delaware ("DGCL") and the Company's certificate of incorporation, the stockholder vote necessary to approve the Merger will be the affirmative vote of the holders of at least a majority of the outstanding Shares. Accordingly, if Offeror acquires a majority of the outstanding Shares, Offeror will have the voting power required to approve the Merger without the affirmative vote of any other stockholders of the Company. Furthermore, if Offeror acquires at least 90% of the outstanding Shares pursuant to the Offer or otherwise, Offeror would be able to effect the Merger pursuant to the "short-form" merger provisions of Section 253 of the DGCL, without prior notice to, or any action by, any other stockholder of the Company. In such event, Offeror intends to effect the Merger as promptly as practicable following the purchase of Shares in the Offer. The Merger Agreement is more fully described in Section 12. Concurrently with the execution and delivery of the Merger Agreement, the Company granted to Parent an option to purchase up to 2,684,431 Shares at a cash price equal to $6.75 per share and on the other terms and subject to the conditions set forth in the Stock Option Agreement dated October 5, 1999, among the Company, Parent and Offeror (the "Stock Option Agreement"). See Section 12. Parent has assigned all of its rights under the Stock Option Agreement to Purchaser and Purchaser has assumed all of Parent's obligations thereunder. 3 Concurrently with the execution and delivery of the Merger Agreement, First Union Trust Company, National Association, as Voting Trustee Under that Certain Voting Trust Agreement dated May 5, 1998 (Sprout Capital VII, L.P.), DLJ Capital Corporation, Sequoia Capital VI, Sequoia Technology Partners VI, Sequoia XXIV, Sequoia 1995, BVCF III, L.P., Brinson Trust Company, as Trustee of the Brinson MAP Venture Capital Fund III, Vicente Anido, Jr., Peter Myers, Michael Pazzani, Philippe Chambon, William Scott, Arthur Reidel, Lee McCracken and Klaus Gubernator (collectively, the "Major Stockholders"), entered into a Shareholders Agreement, dated as of October 5, 1999 (the "Shareholders Agreement"), with Parent and Offeror. As of October 5, 1999, the Major Stockholders owned approximately 34% of the Shares (approximately 30% of the Shares on a fully diluted basis). Pursuant to the Shareholders Agreement, the Major Stockholders have, among other things, entered into a voting agreement with Parent and Offeror, granted an irrevocable proxy to Offeror's designees with respect to their Shares, agreed to tender their Shares in the Offer and agreed to grant to Offeror an option to purchase the Shares held by them at the Offer Price under specified circumstances. If the Major Stockholders tender in the Offer, as they have agreed to do, the Minimum Condition will be satisfied if an additional 2,978,060 Shares (approximately 20% of the Shares on a fully diluted basis) are tendered in the Offer by other stockholders. For purposes of this Offer to Purchase, any reference to beneficial ownership of Purchaser or Offeror of Shares or similar references shall exclude Shares subject to the Shareholders Agreement. Parent has assigned all of its rights under the Shareholders Agreement to Purchaser and Purchaser has assumed all of Parent's obligations thereunder. This Offer to Purchase and the related Letter of Transmittal contain important information that should be read carefully before any decision is made with respect to the Offer. This Offer to Purchase may contain forward- looking statements that involve risks and uncertainties, including the risks associated with satisfying the conditions to the Offer. Certain of these risk factors, as well as additional risks and uncertainties, are detailed in the Company's periodic filings with the Commission. THE OFFER 1. Terms of the Offer; Expiration Date. Upon the terms and subject to the conditions to the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Offeror will accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not withdrawn in accordance with Section 4. The term "Expiration Date" means 12:00 Midnight, New York City time, on Monday, November 8, 1999, unless and until Offeror (subject to the terms of the Merger Agreement) shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Offeror, shall expire. Consummation of the Offer is conditioned upon satisfaction of the Minimum Condition and the other conditions set forth in Section 14. Subject to the terms and conditions contained in the Merger Agreement, Offeror reserves the right (but shall not be obligated) to waive any or all such conditions. The Company is providing Offeror with its list of stockholders and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal and other relevant materials will be mailed by Offeror to record holders of Shares and will be furnished by Offeror to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder lists or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. 2. Acceptance for Payment and Payment for Shares. Subject to and in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Offeror will accept 4 for payment and will pay for all Shares validly tendered prior to the Expiration Date, and not properly withdrawn in accordance with Section 4, as soon as practicable after the Expiration Date. Any determination concerning the satisfaction or waiver of such terms and conditions will be within the reasonable discretion of Offeror, and such determination will be final and binding on all tendering stockholders. See Sections 1 and 14. Offeror expressly reserves the right, in its sole discretion, to delay acceptance for payment of, or payment for, Shares in order to comply in whole or in part with any applicable law. Any such delays will be effected in compliance with Rule 14e-1(c) under the Exchange Act (relating to Offeror's obligation to pay for or return tendered Shares promptly after the termination or withdrawal of the Offer). In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares or timely confirmation (a "Book-Entry Confirmation") of the book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3, (ii) a Letter of Transmittal (or facsimile thereof) properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as hereinafter defined) in connection with a book-entry transfer and (iii) any other documents required by the Letter of Transmittal. If the per Share consideration to be paid to tendering stockholders pursuant to the Offer is increased, all stockholders who validly tender and do not withdraw their Shares will receive the highest per Share consideration paid pursuant to the Offer, regardless of whether the stockholder tendered his shares before or after any such increase. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares which are the subject of such Book- Entry Confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Offeror may enforce such agreement against such participant. For purposes of the Offer, Offeror will be deemed to have accepted for payment, and thereby purchased, Shares properly tendered to Offeror and not withdrawn as, if and when Offeror gives oral or written notice to the Depositary of Offeror's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions to the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payment from Offeror and transmitting payment to tendering stockholders. If Offeror is delayed in its acceptance for payment of, or payment for, Shares or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to Offeror's rights under the Offer (but subject to compliance with Rule 14e-l(c) under the Exchange Act, which requires that a tender offeror pay the consideration offered or return the tendered securities promptly after the termination or withdrawal of a tender offer), the Depositary may, nevertheless, on behalf of Offeror, retain tendered Shares, and any such Shares may not be withdrawn except to the extent tendering stockholders are entitled to exercise, and duly exercise, withdrawal rights as described in Section 4. Under no circumstances will interest be paid on the purchase price of the Shares to be paid by Offeror, regardless of any extension of the Offer or any delay in making such payment. If any tendered Shares are not purchased pursuant to the Offer because of an invalid tender or otherwise, certificates for any such Shares will be returned, without expense to the tendering stockholder (or, in the case of Shares delivered by book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3, such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), as promptly as practicable after the expiration or termination of the Offer. 3. Procedure for Tendering Shares. Valid Tender. For Shares to be validly tendered pursuant to the Offer, a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), together with any required signature 5 guarantees, or an Agent's Message in connection with a book-entry transfer of Shares, and any other documents required by the Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date. In addition, either (i) certificates for tendered Shares must be received by the Depositary along with the Letter of Transmittal at one of such addresses or such Shares must be tendered pursuant to the procedure for book-entry transfer set forth below (and a Book-Entry Confirmation received by the Depositary), in each case prior to the Expiration Date, or (ii) the tendering stockholder must comply with the guaranteed delivery procedure set forth below. The method of delivery of Share certificates, the Letter of Transmittal and all other required documents, including delivery through any book-entry transfer facility, is at the election and risk of the tendering stockholder. Shares will be deemed delivered only when actually received by the Depositary. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. Book-Entry Transfer. The Depositary will establish an account with respect to the Shares at the Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Shares by causing the Book- Entry Transfer Facility to transfer such Shares into the Depositary's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry at the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signature guarantees or an Agent's Message in connection with a book-entry delivery of Shares, and any other documents required by the Letter of Transmittal, must, in any case, be transmitted to, and received by, the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date, or the tendering stockholder must comply with the guaranteed delivery procedure described below. Delivery of documents to the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures does not constitute delivery to the Depositary. Signature Guarantees. No signature guarantee is required on the Letter of Transmittal if (i) the Letter of Transmittal is signed by the registered holder of Shares (which term, for purposes of this Section, includes any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of the Shares) tendered therewith and such registered holder has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the Letter of Transmittal or(ii) such Shares are tendered for the account of a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing of a recognized Medallion Program approved by The Securities Transfer Association, Inc. (an "Eligible Institution"). In all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal. If the certificates for Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made or certificates for Shares not tendered or not accepted for payment are to be issued to a person other than the registered holder of the certificates surrendered, the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holders or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed as described above. See Instruction 5 to the Letter of Transmittal. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's certificates for Shares are not immediately available or the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date, such stockholder's tender may be effected if all the following conditions are met: (1) such tender is made by or through an Eligible Institution; (2) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Offeror herewith, is received by the Depositary as provided below, prior to the Expiration Date; and 6 (3) the certificates for all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to such Shares), together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees and any other documents required by the Letter of Transmittal, are received by the Depositary within three Nasdaq National Market trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand to the Depositary or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a signature guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (i) certificates for the Shares or a Book-Entry Confirmation with respect to such Shares, (ii) a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) with any required signature guarantees or an Agent's Message in connection with a book-entry delivery of Shares, and (iii) any other documents required by the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations are actually received by the Depositary. Under no circumstances will interest be paid on the purchase price of the Shares to be paid by Offeror, regardless of any extension of the Offer or any delay in making such payment. The valid tender of Shares pursuant to one of the procedures described above will constitute a binding agreement between the tendering stockholder and Offeror upon the terms and subject to the conditions to the Offer. Backup Withholding. Under the United States federal income tax backup withholding rules, payments in connection with the Offer or the Merger may be subject to "backup withholding" as discussed in Section 5. Appointment. By executing the Letter of Transmittal, the tendering stockholder will irrevocably appoint designees of Offeror as such stockholder's attorneys-in-fact and proxies in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by Offeror and with respect to any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after October 12, 1999. All such proxies shall be considered coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, Offeror accepts for payment Shares tendered by such stockholder as provided herein. Upon such acceptance for payment, all prior powers of attorney and proxies given by such stockholder with respect to such Shares or other securities or rights will, without further action, be revoked and no subsequent powers of attorney and proxies may be given (and, if given, will not be deemed effective). The designees of Offeror will thereby be empowered to exercise all voting and other rights with respect to such Shares or other securities or rights in respect of any annual, special or adjourned meeting of the Company's stockholders, or otherwise, as they in their sole discretion deem proper. Offeror reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon Offeror's acceptance for payment of such Shares, Offeror must be able to exercise full voting and other rights with respect to such Shares and other securities or rights, including voting at any meeting of stockholders then scheduled. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by Offeror, in its sole discretion, which determination will be final and binding. Offeror reserves the absolute right to reject any or all tenders determined by it not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of Offeror's counsel, be unlawful. Offeror also reserves the absolute right, in its sole discretion, subject to the terms and conditions of the Merger Agreement, to waive any of the conditions to the Offer or any defect or irregularity in any tender with respect to any particular Shares, whether or not similar defects or irregularities are waived in the case of other Shares. No tender of Shares will be deemed to have been validly made until all defects or irregularities relating thereto have been cured or waived. None of Parent, Purchaser, Offeror, the Depositary, the 7 Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Offeror's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. 4. Withdrawal Rights. Except as otherwise provided in this Section 4, tenders of Shares are irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to the procedures set forth below at any time prior to the Expiration Date and, unless accepted for payment and paid for by Offeror pursuant to the Offer, may also be withdrawn at any time after December 10, 1999. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of the Shares to be withdrawn, if different from the name of the person who tendered the Shares. If certificates for Shares have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution, the signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry transfer set forth in Section 3, the notice of withdrawal must specify the name and number of the account at the Book- Entry Transfer Facility to be credited with the withdrawn Shares. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will thereafter be deemed not validly tendered for any purpose of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 3 at any time prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by Offeror in its sole discretion, which determination will be final and binding. None of Parent, Purchaser, Offeror, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. 5. Certain Federal Income Tax Consequences. The following is a summary of certain federal income tax consequences of the Offer and the Merger to holders whose Shares are purchased pursuant to the Offer or whose Shares are converted into the right to receive cash in the Merger. The summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable current and proposed United States treasury regulations issued thereunder, judicial authority and administrative rulings and practice, all of which are subject to change, possibly with retroactive effect, at any time and, therefore, the following statements and conclusions could be altered or modified. The discussion does not address holders of Shares in whose hands shares are not capital assets, nor does it address holders who received Shares as part of a hedging, "straddle," conversion or other integrated transaction, upon conversion of securities or exercise of warrants or other rights to acquire Shares or pursuant to the exercise of employee stock options or otherwise as compensation, or to holders of Shares who are in special tax situations (such as insurance companies, tax- exempt organizations, financial institutions, United States expatriates or non-U.S. persons). Furthermore, the discussion does not address the tax treatment of holders who exercise appraisal rights in the Merger, nor does it address any aspect of foreign, state or local taxation or estate and gift taxation. THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR GENERAL INFORMATIONAL PURPOSES ONLY. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF SHARES SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES DISCUSSED BELOW TO SUCH 8 STOCKHOLDER AND THE PARTICULAR TAX EFFECTS OF THE OFFER AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER INCOME TAX LAWS. The receipt of cash for Shares pursuant to the Offer or the Merger will be a taxable transaction for federal income tax purposes under the Code (and also may be a taxable transaction under applicable state, local, foreign and other income tax laws). In general, for federal income tax purposes, a holder of Shares will recognize gain or loss in an amount equal to the difference between its adjusted tax basis in the Shares sold pursuant to the Offer or converted into the right to receive cash in the Merger and the amount of cash received therefor. Gain or loss must be determined separately for each block of Shares (i.e., Shares acquired at the same cost in a single transaction) sold pursuant to the Offer or converted to cash in the Merger. Such gain or loss will be capital gain or loss and will be long-term gain or loss if, on the date of sale (or, if applicable, the date of the Merger), the Shares were held for more than one year. Under the United States federal income tax backup withholding rules, payments in connection with the Offer or the Merger may be subject to "backup withholding" at a rate of 31%. In order to avoid backup withholding, each tendering stockholder, unless an exemption applies, must provide the Depositary with such stockholder's correct taxpayer identification number and certify that such stockholder is not subject to such backup withholding by completing the Substitute Form W-9 included in the Letter of Transmittal. Backup withholding is not an additional tax but merely an advance payment, which may be refunded to the extent it results in an overpayment of tax. Certain persons generally are entitled to exemption from backup withholding, including corporations, financial institutions and certain foreign individuals. Each stockholder should consult with such holder's own tax advisor as to such holder's qualification for exemption from backup withholding and the procedure for obtaining such exemption. All stockholders surrendering Shares pursuant to the Offer should complete and sign the main signature form and the Substitute Form W-9 included as part of the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to Offeror and the Depositary). Noncorporate foreign stockholders should complete and sign the main signature form and a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See Instruction 9 to the Letter of Transmittal. 6. Price Range of Shares. The Shares are included for trading on the Nasdaq National Market System ("Nasdaq/NMS") under the trading symbol "CCHM." The Company has never paid cash dividends on the Shares. The following table sets forth, for the periods indicated, the high and low sale prices per share of Common Stock on the Nasdaq/NMS for the applicable periods.
High Low ---- --- 1998 Second Quarter (beginning May 8, 1998).............. $8 3/4 $6 1/8 Third Quarter....................................... 8 5/8 3 3/8 Fourth Quarter...................................... 5 7/8 3 3/8 1999 First Quarter....................................... $ 5 $2 3/8 Second Quarter...................................... 5 1/8 2 13/16 Third Quarter....................................... 5 3/4 2 3/4 Fourth Quarter (through October 11, 1999)........... 6 21/32 5
On October 5, 1999, the last full trading day before the public announcement of the execution of the Merger Agreement, the closing sales price per Share as reported on the Nasdaq/NMS was $5 11/16. On October 11, 1999, the last full trading day before the commencement of the Offer, the closing sales price per Share as reported on 9 the Nasdaq/NMS was $6 5/8 per Share. Stockholders are urged to obtain current market quotations for the Shares. 7. Effect of the Offer on the Market for Shares; Stock Quotation; Exchange Act Registration and Margin Securities. The purchase of Shares pursuant to the Offer will reduce the number of holders of Shares and the number of Shares that might otherwise trade publicly and could adversely affect the liquidity and market value of the remaining Shares, if any, held by the public. The Shares are currently listed and traded on the Nasdaq/NMS, which constitutes the principal trading market for the Shares. Depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the requirements of the NASD for continued inclusion on the Nasdaq/NMS, which requires that an issuer either (i) have at least 750,000 publicly held shares, 400 round lot shareholders, a market value of $5.0 million, two active market makers, net tangible assets of $4.0 million, and a minimum bid price of $1 or (ii) have at least 1.1 million publicly held shares, 400 round lot shareholders, a market value of $15.0 million, a minimum bid price of $5, four active market makers and either (A) market capitalization of $50.0 million or (B) total assets and total revenue of $50.0 million, each for the most recently completed fiscal year or two of the last three most recently completed fiscal years. If the Nasdaq/NMS were to cease to publish quotations for the Shares, it is possible that the Shares would continue to trade in the over-the-counter market and that price or other quotations would be reported by other sources. The extent of the public market for such Shares and the availability of such quotations would depend, however, upon such factors as the number of stockholders and/or the aggregate market value of such securities remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration under the Exchange Act, as described below and other factors. Parent, Purchaser and Offeror cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for, or marketability of, the Shares or whether it would cause future market prices to be greater or lesser than the Offer Price. The Shares are currently registered under the Exchange Act. Registration of the Shares under the Exchange Act may be terminated upon application of the Company to the Commission if the Shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to its stockholders and to the Commission and would make certain provisions of the Exchange Act no longer applicable to the Company, such as the short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the requirement of furnishing a proxy statement pursuant to Section 14(a) of the Exchange Act in connection with stockholders' meetings and the related requirement of furnishing an annual report to stockholders, and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions. Furthermore, the ability of "affiliates" of the Company and persons holding "restricted securities" of the Company to dispose of such securities pursuant to Rule 144 or 144A promulgated under the Securities Act of 1933, as amended (the "Securities Act"), may be impaired or eliminated. Purchaser intends to seek delisting of the Shares from the Nasdaq/NMS and to cause the Company to apply for termination of registration of the Shares under the Exchange Act as soon after the completion of the Offer as the requirements for such delisting and termination are met. If registration of the Shares is not terminated prior to the Merger, then the Shares will cease to be reported on the Nasdaq/NMS and the registration of the Shares under the Exchange Act will be terminated following the consummation of the Merger. The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. Depending upon factors similar to those described above regarding listing and market quotations, it is possible that following the Offer the Shares would no longer 10 constitute "margin securities" for the purposes of the margin regulations of the Federal Reserve Board and therefore could no longer be used as collateral for loans made by brokers. 8. Certain Information Concerning the Company. Except as specifically set forth herein, the historical information concerning the Company contained in this Offer to Purchase, including financial information, has been taken from or based upon publicly available documents and records on file with the Commission and other public sources. None of Parent, Purchaser, Offeror, the Information Agent or the Depositary assumes any responsibility for the accuracy or completeness of the information concerning the Company contained in such documents and records or for any failure by the Company to disclose events which may have occurred or may affect the significance or accuracy of any such information to Parent, Purchaser or Offeror. The Company is a Delaware corporation with its principal place of business located at 9050 Camino Santa Fe, San Diego, California 92121. According to the Company's Form 10-K for the period ended December 31, 1998, the Company is a computational product discovery company that applies its proprietary design technology and rapid synthesis capabilities to accelerate the discovery process for new drugs and chemical products. The Company believes its approach offers pharmaceutical and chemical companies the opportunity to conduct their discovery efforts in a more productive and cost-effective manner. Set forth below is certain selected historical consolidated financial information with respect to the Company and its subsidiaries excerpted or derived from the audited consolidated financial statements included in the Company's Form 10-K and from the unaudited consolidated financial statements included in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. More comprehensive financial information is included in such reports and other documents filed by the Company with the Commission, and the following summary is qualified in its entirety by reference to such reports and such other documents and all the financial information (including any related notes) contained therein. The reports and other documents filed with the Commission should be available for inspection and copies thereof should be obtainable in the manner set forth below under "Available Information." CombiChem, Inc. Selected Historical Financial Data
Year Ended December 31, -------------------------------------------- 1998 1997 1996 1995 1994 (1) -------- ------- ------- ------ -------- (in thousands, except per share data) Statement of Operations Data: Total revenue..................... $ 15,074 $ 7,471 $ 2,967 $ 50 $ -- Total operating expenses.......... 19,111 12,004 8,085 6,763 711 Loss from operations.............. (4,037) (4,533) (5,118) (6,713) (711) Net loss.......................... (3,312) (4,322) (5,118) (6,675) (706) Basic net loss per share.......... (0.36) (4.45) (11.30) (19.18) Shares used in computing basic net loss per share................... 9,140 971 453 348
11
As of December 31, ---------------------------------------------- 1998 1997 1996 1995 1994 (1) -------- ------- -------- ------- -------- (in thousands) Balance Sheet Data: Cash and cash equivalents...... $ 20,334 $ 5,867 $ 367 $ 3,136 $ 1,622 Short-term investments......... 9,025 11,055 12,166 -- -- Working capital................ 26,146 12,896 8,946 1,990 1,420 Total assets................... 41,980 25,376 16,505 3,997 1,796 Long-term obligations, including current portion............... 6,214 4,944 2,541 584 -- Redeemable convertible preferred stock............... -- 23,130 23,107 9,650 2,250 Accumulated deficit............ (20,133) (16,821) (12,499) (7,381) (706) Total stockholders' equity (deficit)..................... 30,177 (6,449) (12,516) (7,414) (682)
Six months Ended June 30, ----------------------------------- 1999 1998 --------------- ---------------- (in thousands, except per data) Statement of Operations Data (Unaudited): Total revenue....................... $ 6,317 $ 7,005 Total operating expenses............ 12,402 8,974 Loss from operations................ (6,265) (1,969) Net loss............................ (6,675) (1,731) Basic net loss per share............ (0.52) (0.16) Shares used in computing basic net loss per share................. 12,916 10,799 June 30, 1999 December 31, (unaudited) 1998 --------------- ---------------- (In Thousands) Balance Sheet Data: Cash and cash equivalents........... $ 15,878 $ 20,334 Short-term investments.............. 8,049 9,025 Working capital..................... 18,704 26,146 Total assets........................ 34,446 41,980 Long-term obligations, including current portion.................... 5,962 6,214 Redeemable convertible preferred stock.................... -- -- Accumulated deficit................. (26,808) (20,133) Total stockholders' equity.......... 23,995 30,177
- -------- (1) Period from May 23, 1994 (inception) to December 31, 1994. 12 Certain Company Projections To the knowledge of Parent, Purchaser and Offeror, the Company does not as a matter of course make public forecasts as to its future financial performance. However, in connection with the preliminary discussions concerning the feasibility of the Offer and the Merger, the Company furnished Parent with certain financial projections. As part of Parent and Purchaser's due diligence review of the Company and the Company's presentation to Parent and Purchaser of its business, technology and strategy on August 30, 1999, the Company reviewed its five year financial forecast. The Company projected revenues of $22.6 million in 1999, $31.1 million in 2000, $37.7 million in 2001, $45.9 million in 2002 and $54.6 million in 2003. Net income (loss) was projected by the Company to be ($2.3 million) in 1999, $0.5 million in 2000, $5.6 million in 2001, $11.5 million in 2002 and $12.5 million in 2003. Neither Parent nor Purchaser considered any of the foregoing projections to be significant in its decision to enter into the Merger Agreement. The projections set forth above (the "Projections") are derived or excerpted from information provided by the Company and are based on numerous assumptions concerning future events. The Projections have not been adjusted to reflect the effects of the Offer or the Merger including, without limitation, the effect of the announcement of execution of the Merger Agreement on existing and future collaborations of the Company. The Projections should be read together with the other information contained in this Section 8. The Projections were not prepared with a view to public disclosure or compliance with published guidelines of the Commission or the guidelines established by the American Institute of Certified Public Accountants regarding projections or forecasts and are included herein only because such information was provided to Parent and Purchaser. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Projections. The Projections reflect numerous assumptions (not all of which were stated in the Projections and not all of which were provided to Parent and Purchaser), all made by management of the Company, with respect to industry performance, general business, economic, market and financial conditions and other matters, all of which are difficult to predict, many of which are beyond the Company's control and none of which were subject to approval by Parent, Purchaser or Offeror. Accordingly, there can be no assurance that the assumptions made in preparing the Projections will prove accurate, and actual results may be materially greater or less than those contained in the Projections. The inclusion of the Projections herein should not be regarded as an indication that any of Parent, Purchaser, Offeror or their respective representatives considered or consider the Projections to be a reliable prediction of future events, and the Projections should not be relied upon as such. None of Parent, Purchaser, Offeror or their respective representatives assumes any responsibility for the validity, reasonableness, accuracy or completeness of the Projections. In fact, none of Parent, Purchaser or Offeror considered any of the projections to be significant in its decision to enter into the Merger Agreement. None of Parent, Purchaser, Offeror or any of their representatives has made, or makes, any representation to any person regarding the information contained in the Projections and none of them intends to update or otherwise revise the Projections to reflect circumstances existing after the date when made or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the Projections are shown to be in error. Available Information The Company is subject to the reporting requirements of the Exchange Act and, in accordance therewith, is required to file reports and other information with the Commission relating to its business, financial condition and other matters. Information as of particular dates concerning the Company's directors and officers, their remuneration, options granted to them, the principal holders of the Company's securities and any material interests of such persons in transactions with the Company is required to be disclosed in proxy statements distributed to the Company's stockholders and filed with the Commission. Such reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located in the Northwestern Atrium Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661 and Seven World 13 Trade Center, 13th Floor, New York, New York 10048. Copies should be obtainable, by mail, upon payment of the Commission's customary charges, by writing to the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the Commission. 9. Certain Information Concerning Parent, Purchaser and Offeror. Purchaser is an indirect wholly owned subsidiary of Parent. Founded in 1802, Parent is a global science and technology-based company. Parent serves worldwide markets including food and nutrition, healthcare, agriculture, fashion and apparel, home and construction, electronics and transportation. Parent operates in 65 countries and has 97,000 employees. Together, Parent and Purchaser operate a worldwide business that focuses on research, development and delivery of pharmaceuticals to treat unmet medical needs in the fights against HIV infection, cardiovascular disease, central nervous system disorders, cancer, arthritis and related disorders and also is a leader in medical imaging. Parent is subject to the reporting requirements of the Exchange Act and, in accordance therewith, is required to file reports and other information with the Commission relating to its business, financial condition and other matters. Information as of particular dates concerning Parent's directors and officers, their remuneration, options granted to them, the principal holders of Parent's securities and any material interests of such persons in transactions with Parent is required to be disclosed in proxy statements distributed to Parent's stockholders and filed with the Commission. Such reports and other documents should be available for inspection and copies should be attainable from the offices of the Commission in the same manner as set forth under "Available Information" in Section 8 above. Offeror is a Delaware corporation, newly formed by Purchaser in connection with the Offer and the transactions contemplated thereby. The offices of Parent, Purchaser and Offeror are located at 1007 Market Street, Wilmington, Delaware 19898. Purchaser directly owns all the outstanding capital stock of Offeror. It is not anticipated that, prior to the consummation of the Offer and the Merger, Offeror will have any significant assets or liabilities or will engage in any activities other than those incident to the Offer and the Merger. For certain information concerning the directors and executive officers of Parent, Purchaser and Offeror, see Schedule I to this Offer to Purchase. Except as set forth in this Offer to Purchase: (i) none of Parent, Purchaser and Offeror and, to the best knowledge of any of the foregoing, any of the persons listed in Schedule I to this Offer to Purchase or any associate or majority owned subsidiary of any of the foregoing, beneficially owns or has a right to acquire any Shares or any other equity securities of the Company; (ii) none of Parent, Purchaser and Offeror and, to the best knowledge of any of the foregoing, any of the persons or entities referred to in clause (i) above or any of their executive officers, directors, or subsidiaries has effected any transaction in the Shares or any other equity securities of the Company during the past 60 days; (iii) none of Parent, Purchaser and Offeror and, to the best knowledge of any of the foregoing, any of the persons listed in Schedule I to this Offer to Purchase has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including but not limited to, contracts, arrangements, understandings or relationships concerning the transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies, consents or authorizations; (iv) since January 1, 1996, there have been no transactions or business relationships which would be required to be disclosed under the rules and regulations of the Commission between any of Parent, Purchaser, Offeror or any of their respective subsidiaries or, to the best knowledge of any of Parent, Purchaser, Offeror or any of the persons listed in Schedule I to this Offer to Purchase, on the one hand, and the Company or any of its executive officers, directors or affiliates, on the other hand; and (v) since January 1, 1996, there have been no contacts, negotiations or 14 transactions between any of Parent, Purchaser, Offeror or any of their respective subsidiaries or, to the best knowledge of any of Parent, Purchaser, Offeror or any of the persons listed in Schedule I to this Offer to Purchase, on the one hand, and the Company or its subsidiaries or affiliates, on the other hand, concerning a merger, consolidation or acquisition, tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets of the Company or any of its subsidiaries. Except for discussions with respect to certain possible collaborative arrangements between Parent and the Company, none of Parent, Purchaser or Offeror had any relationship with the Company prior to the commencement of the discussions which led to the execution of the Merger Agreement. See Section 11. Each of Parent, Purchaser and Offeror disclaims that it is an "affiliate" of the Company within the meaning of Rule 13e-3 under the Exchange Act. 10. Source and Amount of Funds. The total amount of funds required by Offeror to purchase all of the Shares and to pay related fees and expenses is expected to be approximately $100 million. Offeror intends to obtain all of such funds from Purchaser which in turn would obtain such funds from Parent or Purchaser's existing working capital. 11. Background of the Offer. On August 25, 1999, an Executive Vice President and Chief Operating Officer of Parent, contacted the President and Chief Executive Officer of the Company, concerning a possible acquisition of the Company by Purchaser. On several occasions prior to August 25, 1999, various representatives of Parent, Purchaser and the Company had discussed the possibility of entering into a collaborative agreement. However, no such agreement was entered into by the Company and Purchaser or Parent. On August 30, 1999, representatives and advisors of Parent and Purchaser met with representatives and advisors of the Company at the Company's headquarters to discuss the possibility of Purchaser acquiring the Company. Various representatives of the Company delivered presentations reviewing the Company's technology, business and strategy. Representatives of Parent and Purchaser conducted initial due diligence of the Company at that time and indicated to the Company that, subject to satisfactory completion of due diligence and negotiation of a mutually satisfactory merger agreement, Purchaser would consider acquiring the Company. From August 31, 1999 to September 15, 1999, representatives of Parent, Purchaser and the Company discussed and negotiated various terms of the proposed transaction. On September 15, 1999, Parent and Purchaser delivered a written term sheet to the Company which described a proposed offer by Purchaser to acquire the Company at a price of $6.75 per share, subject to certain terms and conditions, including the negotiation of a merger agreement, a stock option agreement, a shareholders agreement and various employment agreements with key employees of the Company. Representatives of Parent, Purchaser and the Company continued to discuss and negotiate the proposed transaction and on September 20, 1999, representatives of Parent, Purchaser and the Company agreed in principle to a merger at a per share price of $6.75, subject to the terms and conditions set forth in the written term sheet and subject to approval of their respective Boards of Directors. On September 22, 1999, representatives of Purchaser provided a draft of the Merger Agreement to representatives of the Company and on September 23, 1999 representatives of the Company, Parent and Purchaser, and their respective legal and financial advisors, met at the offices of Parent to negotiate the Merger Agreement and related documents. Representatives of the Company and Parent and Purchaser and their respective legal and financial advisors conducted business and legal due diligence and negotiated the terms of the Merger Agreement and related documents from September 23, 1999 through October 5, 1999. The Merger Agreement and related documents were executed on October 5, 1999, at which time Parent and the Company issued a joint press release. 12. Purpose of the Offer and the Merger; Plans for the Company; the Transaction Documents. Purpose of the Offer and the Merger The purpose of the Offer is to enable Purchaser to acquire control of, and the entire equity interest in, the Company. The purpose of the Merger is to acquire all outstanding Shares not purchased pursuant to the Offer. The purchase of Shares pursuant to the Offer will increase the likelihood that the Merger will be effected. Following the completion of the Offer, Purchaser intends to acquire any remaining Shares not then owned by it 15 by consummating the Merger. In the Merger, each outstanding Share (other than Shares held by the Excluded Shareholders), will be converted into the right to receive the Merger Consideration, without interest, and the Company will become a wholly owned subsidiary of Purchaser. The acquisition of the entire interest in the Company is structured as a cash tender offer followed by a merger in order to expedite the opportunity for Purchaser to obtain a controlling interest in the Company. Under the DGCL and the Company's certificate of incorporation, the affirmative vote of the holders of a majority of the outstanding Shares is required to approve the Merger. If the Minimum Condition is satisfied, Purchaser would have sufficient voting power to approve the Merger without the affirmative vote of any other stockholder of the Company. Plans for the Company Following the Offer and the Merger, Purchaser intends to operate the Company generally consistent with the Company's existing plans and programs. If and to the extent that the Purchaser acquires control of the Company, Purchaser intends to conduct a detailed review of the Company and its assets, corporate structure, capitalization, operations, properties, policies, management and personnel and consider and determine what, if any, changes would be desirable in light of the circumstances which then exist. Such strategies could include, among other things and subject to the terms of the Merger Agreement, changes in the Company's business, corporate structure, certificate of incorporation, bylaws, capitalization, management or dividend policy. Except as noted in this Offer to Purchase, Purchaser has no present plans or proposals that would result in an extraordinary corporate transaction, such as a merger, reorganization, liquidation, or sale or transfer of a material amount of assets, involving the Company or any subsidiary of the Company or any other material changes in the Company's capitalization, dividend policy, corporate structure, business or composition of its management or Board of Directors. Following completion of the acquisition, the Company will operate as part of Purchaser and will remain in California, a center for biotechnology and computer technology development. The Transaction Documents The Merger Agreement The following is a summary of the material terms of the Merger Agreement. As expressly permitted by the Merger Agreement, Parent has assigned all of its rights under the Merger Agreement to Purchaser and Purchaser has assumed all of Parent's obligations under the Merger Agreement. This summary is not a complete description of the terms and conditions thereof and is qualified in its entirety by reference to the full text thereof, which is incorporated herein by reference and a copy of which has been filed with the Commission as an exhibit to the Schedule 14D-1. The Merger Agreement may be examined, and copies thereof may be obtained, as set forth in Section 8. The Offer. The Merger Agreement provides for the commencement of the Offer, in connection with which Parent and Offeror have expressly reserved the right to waive certain conditions to the Offer, but without the prior written consent of the Company, Offeror has agreed not to (i) decrease the amount or change the form of consideration payable in the Offer, (ii) decrease the number of Shares sought in the Offer, (iii) impose additional conditions to the Offer, (iv) change any conditions to the Offer or amend any other term of the Offer if any such change or amendment would be materially adverse in any respect to the holders of Shares (other than Parent or Offeror), (v) except as provided below, extend the Offer if all of the conditions to the Offer have been satisfied or (vi) amend or waive the Minimum Condition. Notwithstanding the foregoing, Offeror may, without the consent of the Company, (A) extend the Offer, if on the scheduled Expiration Date of the Offer any of the conditions to the Offer shall not have been satisfied or waived, for one or more periods (none of which shall exceed ten business days) but in no event past 60 days from the date of the Merger Agreement, unless the waiting period applicable to the transactions contemplated by the Merger Agreement under the HSR Act has not terminated or expired, and then in any event not later than May 31, 2000, (B) extend the Offer for such period as 16 may be required by any rule, regulation, interpretation or position of the Commission or its staff applicable to the Offer or (C) extend the Offer for one or more periods (each such period to be for not more than five business days and such extensions to be for an aggregate period of not more than fifteen business days beyond the latest expiration date that would otherwise be permitted under clause (A) or (B) of this sentence) if on such expiration date the conditions to the Offer shall have been satisfied or waived but there shall not have been tendered that number of Shares which would equal more than 90% of the issued and outstanding Shares on a fully diluted basis. So long as the Merger Agreement is in effect and the conditions to the Offer have not been satisfied on any scheduled Expiration Date of the Offer, then, provided that all such conditions are and continue to be reasonably probable of being satisfied by the date that is 45 days after the commencement of the Offer, Offeror shall extend the Offer for one period of not more than 5 business days if requested to do so by the Company; provided that Offeror shall not be required to extend the Offer beyond 45 days after commencement of the Offer or, if earlier, the date of termination of the Merger Agreement in accordance with the terms thereof. Consideration to be Paid in the Merger. The Merger Agreement provides that subject to the terms and conditions set forth in the Merger Agreement and the applicable provisions of the DGCL, Offeror shall be merged with and into the Company, and the Company shall be the Surviving Corporation and shall be a wholly owned subsidiary of Purchaser. In the Merger, each share of common stock, $.01 par value per share, of Offeror issued and outstanding immediately prior to the time of filing of a certificate of merger relating to the Merger with the Secretary of State of the State of Delaware, or such later time as is set forth therein (the "Effective Time"), shall continue to remain outstanding and shall constitute one share of common stock of the Surviving Corporation. At the Effective Time, each outstanding Share (other than Shares owned by Parent or any direct or indirect subsidiary of Parent or the Excluded Shareholders or shares owned by the Company or any direct or indirect subsidiary of the Company), shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive the Merger Consideration, without interest. The Merger Agreement provides that (subject to the provisions of the Merger Agreement and the applicable provisions of the DGCL) the closing of the Merger shall occur on the latest to occur of (i) the business day on which the condition set forth in Section 8.1(a) of the Merger Agreement is satisfied or waived in accordance with the Merger Agreement or (ii) the first business day following the date on which the last to be satisfied or waived of the other conditions set forth in Article VIII of the Merger Agreement (other than those conditions that by their nature are to be satisfied at the closing of the Merger, but subject to the satisfaction or waiver of those conditions) are satisfied or waived in accordance with the Merger Agreement. Treatment of Warrants and Stock Options. The Merger Agreement provides that at the Effective Time, each warrant to purchase shares of Common Stock listed on Schedule 6.1(b) of the Merger Agreement (the "Warrants") will be canceled in exchange for a cash payment by the Company of an amount equal to the excess, if any, of the Offer Price over the exercise price per share of Common Stock subject to such Warrant, multiplied by the number of shares of Common Stock for which such Warrant shall not theretofore have been exercised (the "Warrant Spread"). Parent agreed to deliver to the holders of the Warrants the Warrant Spread as set forth in Section 5.1 of the Merger Agreement. If there is no excess of the Offer Price over the exercise price per share of Common Stock subject to a Warrant, then the Warrant shall be canceled for no consideration. At the Effective Time, each outstanding Company Option (as defined in the Merger Agreement) shall be canceled in exchange for a cash payment of an amount equal to the excess, if any, of the Offer Price over the exercise price per share of Common Stock subject to such Company Option, multiplied by the number of shares of Common Stock for which such Company Option shall not theretofore have been exercised. If there is no excess of the Offer Price over the exercise price per share of Common Stock subject to a Company Option, such Company Option shall be canceled for no consideration. Board Representation. The Merger Agreement provides that, promptly upon the acceptance for payment of, and payment by Offeror in accordance with the Offer for, not less than that number of Shares equal to the Minimum Condition, Offeror shall be entitled to designate such number of directors, rounded up to the next whole number, as will give Offeror percentage representation on the Board of Directors of the Company equal to Offeror's percentage ownership of the Shares then outstanding. Upon the written request of Offeror, the Company shall, on the date of such request, (x) either increase the size of the Board of Directors or use its reasonable 17 efforts to secure the resignations of such number of its incumbent directors as is necessary to enable Parent's designees to be so elected to the Board of Directors of the Company and (y) cause Parent's designees to be so elected. The Company's obligations to appoint designees to the Board of Directors are subject to Section 14(f) of the Exchange Act. Stockholders' Meeting. The Merger Agreement provides that, if approval or action in respect of the Merger by the stockholders of the Company is required by applicable law, the Company, acting through the Board of Directors, shall (i) call as promptly as practicable following consummation of the Offer, a meeting of its stockholders (the "Stockholders' Meeting") for the purpose of adopting the Merger Agreement and approving the Merger, (ii) hold the Stockholders' Meeting as soon as practicable following the purchase of Shares pursuant to the Offer and (iii) recommend to its stockholders the approval of the Merger. At the Stockholders Meeting, Parent and Offeror shall cause all Shares then owned by them to be voted in favor of approval and adoption of the Merger Agreement and the Merger. The Merger Agreement provides that, notwithstanding the foregoing, if Parent, Offeror or any other subsidiary of Parent shall acquire at least 90% of the outstanding Shares, the parties thereto shall take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after the expiration of the Offer without a stockholders meeting in accordance with Section 253 of the DGCL. Representations and Warranties. The Merger Agreement contains various representations and warranties of the parties thereto. These include representations and warranties by the Company with respect to (i) the due organization, existence, qualification, good standing, corporate power and authority of the Company and its subsidiaries; (ii) the capital structure of the Company; (iii) the due authorization, execution, delivery and performance of the Merger Agreement and the Stock Option Agreement and the consummation of transactions contemplated thereby, and the validity and enforceability thereof; (iv) required filings, consents and approvals and the absence of any violations, breaches or defaults which would result from performance by the Company of the Merger Agreement and the Stock Option Agreement; (v) the accuracy of reports filed by the Company with the Commission (including financial statements) since October 15, 1997; (vi) the absence of certain changes or events; (vii) the absence of any material litigation; (viii) the absence of any undisclosed material liabilities; (ix) certain employee benefit matters; (x) compliance with applicable laws, licenses and permits and the absence of any default or violation with respect to material contracts; (xi) antitakeover statutes; (xii) environmental matters relating to the Company and its subsidiaries; (xii) the opinion of the Financial Advisor; (xiii) certain tax matters; (xiv) certain intellectual property matters; (xv) year 2000 compliance; (xvi) labor matters; (xvii) the absence of brokers or finders other than the Financial Advisor; (xviii) the validity and enforceability of material contracts; (xix) the documents supplied by the Company relating to the Offer; (xx) stockholder approvals; (xxi) compliance with the Foreign Corrupt Practices Act; (xxii) possession of necessary licenses and permits; and (xxiii) the employment agreements with certain employees of the Company have been executed and remain in full force and effect. Parent and Offeror have also made certain representations and warranties, including with respect to (i) the due organization, existence, good standing, corporate power and authority of Parent and Offeror; (ii) the due authorization, execution, delivery and performance of the Merger Agreement and the Stock Option Agreement and the consummation of transactions contemplated thereby, and the validity and enforceability thereof; (iii) required filings, consents and approvals and the absence of any violations, breaches or defaults which would result from performance by Parent or Offeror of the Merger Agreement and the Stock Option Agreement; (iv) the absence of any litigation which would materially impair the ability of Parent or Offeror to consummate the Offer; (v) compliance with applicable laws and the absence of any default or violation with respect to material contracts; (vi) the absence of brokers or finders; (vii) the sufficiency of funds available to Parent and Offeror for the consummation of the Offer and the Merger; and (viii) documents related to the Offer and the Merger. Conduct of Interim Operations. The Company has agreed that from the date of the Merger Agreement to the Effective Time, with certain exceptions, unless Parent has consented in writing thereto (such consent not to be unreasonably withheld or delayed), the Company shall, and shall cause each of its subsidiaries to: (i) conduct its business, in all material respects, in the ordinary and usual course and use its commercially reasonable best efforts to preserve its business organization substantially intact and substantially maintain its existing relations 18 and goodwill with customers, suppliers, distributors, creditors, lessors, employees and business associates; (ii) not issue, sell, pledge, dispose of or encumber any capital stock owned by it in any of its subsidiaries; (iii) not amend its certificate or bylaws; (iv) not split, combine or reclassify its outstanding shares of capital stock; (v) not declare, set aside or pay any dividend payable in cash, stock or other property in respect of any capital stock; (vi) not repurchase, redeem or otherwise acquire, except in connection with its Stock Plans, 1997 Employee Stock Purchase Plan (the "ESPP") or employment arrangements any shares of its capital stock or any securities convertible into or exchangeable or exercisable for any shares of its capital stock; (vii) not issue, sell, pledge, dispose of or encumber any shares of, or securities convertible into or exchangeable or exercisable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of its capital stock of any class or any voting debt or any other property or assets, with certain exceptions; (viii) not transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of or encumber any other property or assets (including capital stock of any of its subsidiaries) or incur or modify any material indebtedness or other liability; (ix) not make any commitments for, make or authorize any capital expenditures or, by any means, make any acquisition of, or investment in, assets or stock of any other person or entity in each case, involving amounts in excess of $50,000 in the aggregate; (x) not, except as may be required by existing contractual commitments or as required by applicable law, enter into any new agreements or commitments for any severance or termination pay to, or enter into an employment or severance agreement with, any of its directors, officers or employees or terminate, establish, adopt, enter into, make any new grants or awards under, amend or otherwise modify, any compensation and benefit plans or increase or accelerate the salary, wage, bonus or other compensation of any employees, officers or directors (except for increases in salaries, wages and cash bonuses of nonexecutive employees made in the ordinary course of business consistent with past practice) or pay or agree to pay any pension, retirement allowance or other employee benefit not required by any existing compensation and benefit plan; (xi) not settle or compromise any material claims or litigation or modify, amend or terminate any of its material contracts or waive, release or assign any material rights or claims; (xii) not make any tax election or permit any insurance policy naming it as a beneficiary or loss- payable payee to be canceled or terminated, except in the ordinary and usual course of business; (xiii) not, except as may be required as a result of a change in law, change any of the accounting practices or principles used by it; (xiv) not adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization, or other reorganization of the Company or any of its subsidiaries not constituting an inactive subsidiary (other than the Merger); (xv) not suffer or permit capital expenditures made or incurred by the Company and its subsidiaries to exceed $50,000, except for expenses incurred in connection with the transactions contemplated by the Merger Agreement; (xvi) not offer to, or enter into an agreement to, do any of the foregoing; and (xvii) not take, or permit a subsidiary to take, any action that would, or that could reasonably be expected to, result in any of the Company's representations and warranties becoming untrue. Access to Information. Under the Merger Agreement, from the date of the Merger Agreement to the Effective Time or the termination of the Merger Agreement, the Company has agreed to afford to the officers, employees, accountants, counsel, financial advisors and other representatives of Parent reasonable access to all of its and its subsidiaries properties, books, contracts, commitments and records and to furnish promptly to Parent, consistent with obligations under the Merger Agreement and its legal obligations, all information concerning its business, properties and personnel as the other party may reasonably request. No Solicitation. The Company has agreed in the Merger Agreement that the Company shall, and it shall cause its affiliates and the officers, directors, employees, representatives and agents of the Company and its subsidiaries (including, without limitation, any investment banker, attorney or accountant retained by the Company or any of its subsidiaries) to, immediately cease and terminate any existing activities, discussions or negotiations, if any, with any parties (other than Parent and Offeror, any affiliate or associate of Parent and Offeror or any designees of Parent and Offeror) conducted before execution of the Merger Agreement with respect to any acquisition or exchange of all or any material portion of the assets of, or any equity interest in, the Company or any of its subsidiaries (by direct purchase from the Company, tender or exchange offer or otherwise) or any business combination, merger or similar transaction (including an exchange of stock or assets) with or involving the Company or any subsidiary of the Company (an "Acquisition Transaction"), other than the Offer and the Merger. 19 Except as otherwise set forth in the following paragraph, the Company has also agreed that it shall not, and shall cause its affiliates and the officers, directors, employees, representatives and agents of the Company and its subsidiaries (including, without limitation, any investment banker, attorney or accountant retained by the Company or any of its subsidiaries) not to, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide any nonpublic information or data (other than the Company's standard public information package) to, any corporation, partnership, person or other entity or group (other than Parent and Offeror, any affiliate or associate of Parent and Offeror or any designees of Parent and Offeror) with respect to any inquiries or the making of any offer or proposal (including, without limitation, any offer or proposal to the stockholders of the Company) concerning an Acquisition Transaction (an "Acquisition Proposal") or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal. Prior to the consummation of the Offer, the Company may furnish information and access, but only in response to a request for information or access, to any person or entity making a bona fide written Acquisition Proposal to the Board of Directors of the Company after the date of the Merger Agreement which was not encouraged, solicited or initiated by the Company or any of its affiliates or any director, employee, representative or agent of the Company or any of its subsidiaries (including, without limitation, any investment banker, attorney or accountant retained by the Company or any of its subsidiaries) on or after the date of the Merger Agreement and may participate in discussions and negotiate with such person or entity concerning any such Acquisition Proposal and may authorize the Company to enter into a binding written agreement concerning a Superior Proposal (as defined below), if and only if, in any such case, (i) the Board of Directors determines in good faith, (A) after receiving advice of outside counsel to the Company that failing to provide such information or access or to participate in such discussions or negotiations or so to authorize, as the case may be, would constitute a breach of the Board of Directors' fiduciary duties under applicable law, and (B) after consultation with the financial advisors to the Company, that such Acquisition Proposal, if accepted, is reasonably likely to be consummated, taking into account all legal, financial and regulatory aspects of the proposal and the person or entity making the proposal and would, if consummated, result in a transaction more favorable to the Company's stockholders from a financial point of view than the transaction contemplated by the Merger Agreement (any such more favorable Acquisition Proposal as to which both of the determinations referred to in subclauses (A) and (B) above have been made, a "Superior Proposal"), and (ii) the Company receives from the person or entity making such bona fide written Acquisition Proposal an executed confidentiality agreement. The Company has further agreed to notify Parent within 24 hours if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with the Company and shall in such notice indicate the identity of the offeror and the material terms and conditions of any such proposal and thereafter shall keep Parent reasonably informed, on a current basis, of the status and material terms of such proposals and the status of such negotiations or discussions, providing copies to Parent of any Acquisition Proposals made in writing. The Company is required to provide Parent with three business days advance notice of, in each and every case, its intention to either enter into any agreement with or to provide any information to any person or entity making any such inquiry or proposal. The Company has also agreed not to release any third party from, or waive any provisions of, any confidentiality or standstill agreement to which the Company is a party and will use its best efforts to enforce any such agreements at the request of and on behalf of Parent. Fees and Expenses. Pursuant to the Merger Agreement, the Surviving Corporation shall pay all charges and expenses, including those of the Depositary, in connection with the Merger, and Parent shall reimburse the Surviving Corporation for such charges and expenses. The Merger Agreement also provides that except as otherwise described below, whether or not the Merger is consummated, all costs and expenses incurred in connection with the Merger Agreement, the Stock Option Agreement, the Shareholders Agreement, the Offer and the Merger and the other transactions contemplated by the Merger Agreement, the Stock Option Agreement and the Shareholders Agreement shall be paid by the party incurring such expense. The Merger Agreement provides that, under certain circumstances, the Company shall reimburse Parent for all of the costs, charges and expenses incurred by Parent or Offeror in connection with the Merger Agreement, the Stock Option Agreement and the Shareholders Agreement and the transactions contemplated by the Merger 20 Agreement, the Stock Option Agreement and the Shareholders Agreement, including, without limitation, fees and expenses of accountants, attorneys and financial advisors, up to a maximum of $1,000,000 in the aggregate (the "Reimbursement Fee"). The Company is obligated to pay the Reimbursement Fee under the following circumstances: (i)(A) a bona fide Acquisition Proposal shall have been made to the Company or any of its stockholders or any person or entity shall have announced an intention (whether or not conditional) to make an Acquisition Proposal with respect to the Company, and on or following the date of the Merger Agreement but prior to the date that the Offer is consummated, such Acquisition Proposal, announcement or intention is or becomes publicly known, and (B) on or following the date on which such Acquisition Proposal, announcement or intention is or becomes publicly known, the Merger Agreement is terminated by either Parent or the Company because the Merger shall not have been consummated by April 30, 2000 (subject to extension, in certain circumstances, to May 31, 2000), whether such date is before or after the date of approval by the stockholders of the Company, or (ii) the Merger Agreement is terminated (x) by the Company because it has decided to enter into a binding written agreement concerning a Superior Proposal and the Company notifies Parent in writing that it intends to enter into such an agreement, attaching the most current version of such agreement to such notice, and Parent does not make, within three business days of receipt of the Company's written notification of its intention to enter into such an agreement, a written offer that is at least as favorable to the stockholders of the Company as the Superior Proposal or (y) by Parent if the Board of Directors of the Company shall have failed to recommend, or shall have withdrawn or adversely modified its approval or recommendation of, the Offer or the Merger or failed to reconfirm its recommendation of the Offer or the Merger within two calendar days after a written request by Parent to do so, or shall have resolved to do any of the foregoing, or (z) because of the failure of any of the conditions to the Offer described in paragraphs (c), (e) and (f) of Section 14. Other Agreements. The Merger Agreement provides that the Company and Parent shall cooperate with each other and use (and shall cause their respective subsidiaries to use) their respective commercially reasonable best efforts to take or cause to be taken all actions, and do or cause to be done all things, necessary, proper or advisable under the Merger Agreement, the Stock Option Agreement, the Shareholders Agreement and applicable laws to consummate and make effective the Offer, the Merger and the other transactions contemplated by the Merger Agreement, the Stock Option Agreement and the Shareholders Agreement as soon as practicable, including preparing and filing as promptly as practicable all documentation to effect all necessary applications, notices, petitions, filings and other documents and to obtain as promptly as practicable all permits, consents, approvals and authorizations necessary or advisable to be obtained from any third party and/or any U.S. governmental or regulatory authority, agency, commission, body or other governmental entity ("Governmental Entity") in order to consummate the Offer and the Merger or any of the other transactions contemplated by the Merger Agreement, the Stock Option Agreement and the Shareholders Agreement. Conditions to the Merger. The Merger Agreement provides that the respective obligation of each party to effect the Merger is subject to the satisfaction or waiver at or prior to the closing of the Merger of each of the following conditions: (i) if the approval of the Merger Agreement and the Merger by the holders of Shares is required by applicable law, the Merger Agreement shall have been duly adopted by holders of a majority of the Shares outstanding; (ii) any waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated; (iii) (A) no court or Governmental Entity of competent jurisdiction shall have enacted, issued, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) that is in effect and restrains, enjoins or otherwise prohibits consummation of the Offer or Merger (collectively, an "Order"); provided however, that prior to invoking this provision, each party shall use its commercially reasonable best efforts to have any such Order lifted or withdrawn, and (B) no Governmental Entity shall have instituted any proceeding seeking any such Order; (iv) Offeror shall have (A) commenced the Offer and (B) purchased, pursuant to the terms and conditions of such Offer, all Shares duly tendered and not withdrawn; provided, however, that neither Parent nor Offeror shall be entitled to rely on the condition described in clause (iv)(B) above if either of them shall have failed to purchase Shares pursuant to the Offer in breach of their obligations under the Merger Agreement; (v) the Company shall have complied with its obligations to enable Parent's designees to be elected to the Board of Directors of the Company; and (vi) Parent and Merger Sub shall have received the opinion of counsel to the Company substantially in the form attached to the Merger Agreement. 21 Termination. The Merger Agreement, notwithstanding approval thereof by the stockholders of the Company, may be terminated at any time prior to the Effective Time: (a) by mutual written consent of the Company, Parent and Offeror; (b) by Parent or the Company: (i) if the Merger shall not have been consummated by April 30, 2000, whether such date is before or after the date of approval by the stockholders of the Company; provided, however, that if a request for additional information is received from the United States Federal Trade Commission (the "FTC") or the Antitrust Division of the United States Department of Justice (the "DOJ") pursuant to the HSR Act or additional information is requested by a governmental authority pursuant to the antitrust, competition, foreign investment, or similar laws of any foreign countries or supranational commissions or boards that require pre-merger notifications or filings with respect to the Merger, then such date shall be extended to the 30th day following the date when the FTC or the Antitrust Division of the DOJ has deemed Parent and/or the Company, as applicable, to be in substantial compliance with such request for additional information, but in any event not later than May 31, 2000; provided that the right to terminate the Merger Agreement described in this clause (i) shall not be available to any party that has breached in any material respect its obligations under the Merger Agreement in any manner that shall have been the proximate cause of, or resulted in, the failure to consummate the Merger by the date referred to in this clause (i); (ii) if the Stockholders Meeting shall have been convened, held and completed and the approval of the Company stockholders shall not have been obtained thereat or at any adjournment or postponement thereof; provided however, that Parent shall not be permitted to terminate the Merger Agreement pursuant to the circumstances described in this clause (ii) if Parent or Offeror shall not have voted all Shares then owned beneficially or of record by them in favor of approval and adoption of the Merger Agreement, the Merger and the transactions contemplated thereby; (iii) if any Order permanently restraining, enjoining or otherwise prohibiting the Offer or the Merger shall become final and non- appealable (whether before or after the approval of the Company stockholders); provided, however, that the right to terminate the Merger Agreement pursuant to the circumstances described in this clause (iii) shall not be available to any party that fails to use commercially reasonable best efforts to prevent such Order from being issued and to use commercially reasonable best efforts to cause such Order to be vacated, withdrawn or lifted; or (iv) if the Offer terminates or expires on account of the failure of any condition described in Section 14; (c) by the Company: (i) if (A) the Company is not in material breach of any of its representations, warranties, covenants and agreements in the Merger Agreement, (B) the Board of Directors of the Company authorizes the Company, prior to Parent beneficially owning a majority of the Shares, and subject to complying with the terms of the Merger Agreement, to enter into a binding written agreement concerning a Superior Proposal and the Company notifies Parent in writing that it intends to enter into such an agreement, attaching the most current version of such agreement to such notice, and (C) Parent does not make, within three business days of receipt of the Company's written notification of its intention to enter into such an agreement, a written offer that is at least as favorable to the stockholders of the Company as the Superior Proposal; provided that the Company agreed (x) that it would not enter into a binding agreement referred to in clause (B) until at least the first calendar day following the third business day after it has provided the written notice to Parent described in the Merger Agreement, (y) to notify Parent promptly if its intention to enter into a written agreement referred to in such notice shall change at any time after giving such notification and (z) that it will not terminate the Merger Agreement or enter into a binding agreement referred to in clause (B) if Parent has, within the period referred to in clause (x) of this sentence, made a written offer that is at least as favorable to the Company's stockholders as the Superior Proposal; 22 (ii) if, the Company is not in material breach of any of its representations, warranties, covenants or agreements in the Merger Agreement and prior to consummation of the Offer, there has been a material breach by Parent or Offeror of any representation, warranty, covenant or agreement of Parent or Offeror contained in the Merger Agreement which has had, or is reasonably likely to have, the effect of materially impairing the ability of Parent or Offeror to consummate the Offer or the Merger (a "Terminating Parent Breach"); provided, however, that, if such Terminating Parent Breach is curable by Parent through the exercise of reasonable best efforts and such cure is reasonably likely to be completed prior to the termination date of the Merger Agreement described in (b)(i) above, then for so long as Parent continues to exercise reasonable best efforts to cure such Terminating Parent Breach, the Company may not terminate the Merger Agreement under the circumstances described in this clause (ii); or (iii) the Company is not in material breach of any of its representations, warranties, covenants or agreements in the Merger Agreement and if Offeror shall have failed to commence the Offer within five business days after the date of the Merger Agreement; or (d) by Parent, prior to the Effective Time; (i) if the Board of Directors shall have failed to recommend, or shall have withdrawn or adversely modified its approval or recommendation of, the Offer or the Merger or failed to reconfirm its recommendation of the Offer or the Merger within two calendar days after a written request by Parent to do so, or shall have resolved to do any of the foregoing; or (ii) if there has been a material breach by the Company of any representation, warranty, covenant or agreement of the Company contained in the Merger Agreement which would give rise to the failure of the condition to the Offer that (A) any of the representations and warranties of the Company set forth in the Merger Agreement shall be true and correct as of the date of the Merger Agreement and as of the consummation of the Offer in all material respects (except for those representations and warranties made as of a specific date, which shall be true and correct as of such date); or (B) the Company shall have breached or failed to comply in any material respect with any of its obligations, covenants or agreements under the Merger Agreement and any such breach or failure shall not have been substantially cured by the Company within five business days after Parent provides written notice to the Company of such breach or failure. Indemnification; Directors' and Officers' Insurance. The Merger Agreement provides that from and after the Consummation of the Offer and the election of Offeror's nominees to the Board of Directors of the Company, Parent will cause and ensure that the Surviving Corporation has sufficient funds, if necessary, to fulfill and honor in all respects the obligations of the Company to each person who is or was a director or officer of the Company and who is entitled to indemnification and advance of expenses pursuant to each indemnification agreement previously disclosed to Parent and any indemnification provision or any exculpation provision set forth in the Company's certificate of incorporation or bylaws in effect on the date of the Merger Agreement for a period of at least six years. In addition, the certificate of incorporation and bylaws of the Surviving Corporation shall contain provisions with respect to indemnification and exculpation from liability no less favorable than those set forth in the Company's certificate of incorporation and bylaws on the date of the Merger Agreement for a period of at least six years. The Merger Agreement also provides that prior to the consummation of the Offer, the Company may purchase insurance coverage extending for a period of three years after the Effective Time the level and scope of the Company's directors' and officers' liability insurance coverage in effect as of the date of the Merger Agreement; provided that the aggregate annual premium payable for such insurance shall not exceed 125% of the last annual premium paid for such coverage prior to the date of the Merger Agreement. In addition, Parent has agreed that through the third anniversary of the Effective Time, Parent shall maintain in effect, for the benefit of the Indemnified Parties, such insurance coverage, and subject to the limitations in the preceding sentence, shall pay the annual premium for such insurance coverage. In the event the annual premium payable for such insurance coverage exceeds 125% of the last annual premium paid by the Company for such coverage, Parent shall be 23 obligated to obtain and maintain in effect a policy with the greatest amount of coverage available for a cost not exceeding 125% of such amount. Certain Employee Matters. The Merger Agreement provides that, for a period of at least one year from the Effective Date, Parent will maintain, and the employees of the Company on the date of the Merger Agreement (the "Current Employees") will be eligible for, the employee benefit plans of the Company as of the Effective Date until Parent develops alternative plans (other than stock options or other plans involving the issuance of securities of the Company or Parent) which in the aggregate are substantially comparable to those maintained by the Company as of the date of the Merger Agreement. Parent agreed to use its best efforts to cause each employee benefit plan of Purchaser in which the Current Employees are eligible to participate to take into account for purposes of eligibility and vesting thereunder the service of such Current Employees with the Company as if such service were with Purchaser, to the same extent that such service was credited under a comparable plan of the Company and such service period would have been credited to an employee of Purchaser participating in the relevant plan. The Current Employees shall be entitled to the vacation time and holidays provided for under plans applicable to employees of Purchaser. In no event, however, shall a Current Employee's vacation time or ability to accrue or carry over vacation be less than that to which such Current Employee was entitled under the Company's vacation plan. For the first plan year ending after the Effective Time, any pre-existing condition exclusion under any plan providing medical or dental benefits shall be no more restrictive for any Current Employee who, immediately prior to commencing participation in such plan, was participating in a Company plan providing medical or dental benefits and had satisfied any pre-existing condition provision under such Company plan. Parent agreed to provide any Current Employee whose employment with the Company is terminated as a result of the Merger with at the least the minimum severance benefits provided to employees of Purchaser. Amendment. Subject to the provisions of applicable law, at any time prior to the Effective Time, the parties to the Merger Agreement may modify or amend the Merger Agreement, by written agreement executed and delivered by duly authorized officers of the respective parties. Timing. The exact timing and details of the Merger will depend upon legal requirements and a variety of other factors, including the number of Shares acquired by Offeror pursuant to the Offer. Although Parent has agreed to cause the Merger to be consummated on the terms contained in the Merger Agreement, there can be no assurance as to the timing of the Merger. The Stock Option Agreement The following is a summary of the material terms of the Stock Option Agreement. As expressly permitted by the Stock Option Agreement, Parent has assigned all of its rights under the Stock Option Agreement to Purchaser and Purchaser has assumed all of Parent's obligations under the Stock Option Agreement. This summary is not a complete description of the terms and conditions thereof and is qualified in its entirety by reference to the full text thereof, which is incorporated herein by reference and a copy of which has been filed with the Commission as an exhibit to the Schedule 14D-1. Concurrently with the execution and delivery of the Merger Agreement, the Company entered into the Stock Option Agreement with Parent and Offeror. Pursuant to the Stock Option Agreement, the Company has agreed, on the terms and subject to the conditions thereof, to grant to Parent an irrevocable option to purchase up to 2,684,431 shares of Common Stock. Any references to a majority of the issued and outstanding shares or Shares outstanding on a fully diluted basis, or similar references, for purposes of this Offer to Purchase, as provided in the documents described herein, exclude from the determination thereof any shares of Common Stock issuable upon the exercise of the Stock Option Agreement and any reference to beneficial ownership of Shares, or similar references, exclude from the determination thereof any Shares issuable upon exercise of or subject to the Shareholders Agreement or the Stock Option Agreement. Grant of Purchase Option. Under the Stock Option Agreement, the Company granted to Parent an irrevocable option (the "Option") to purchase up to 2,684,431 Shares at a cash purchase price equal to $6.75 per 24 share (the "Purchase Price"). The Option may be exercised by Parent, in whole or in part, at any time, but only on one occasion, following (but not prior to) the occurrence of the events set forth in any of clauses (i) or (ii) below, and prior to the Option Termination Date (as defined below). The Option is subject to appropriate adjustment in the event of any change in the number of issued and outstanding shares of capital stock of the Company to maintain Parent's right to purchase 19.9% of the capital stock of the Company entitled to vote generally for election of directors of the Company outstanding immediately prior to exercise. Exercise of Option. The option may be exercised if: (i) (A) a bona fide Acquisition Proposal shall have been made to the Company or any of its stockholders or any person or entity shall have announced an intention (whether or not conditional) to make an Acquisition Proposal with respect to the Company, and on or following the date of the Merger Agreement but prior to the date that the Offer is consummated, such Acquisition Proposal, announcement or intention is or becomes publicly known, (B) no event shall have become publicly known prior to the time that such Acquisition Proposal, announcement or intention is or becomes publicly known that would have a material adverse effect on the ability of Parent or Offeror to consummate the Merger (other than any event related to such Acquisition Proposal, announcement or intention or any event related to a breach of the Merger Agreement or the Stock Option Agreement by the Company) and (C) on or following the date on which such Acquisition Proposal, announcement or intention is or becomes publicly known, the Merger Agreement is terminated by either Parent or the Company because, subject to certain exceptions, the Merger shall not have been consummated by April 30, 2000 (subject, in certain circumstances, to extension to May 31, 2000), unless Offeror consummated the Offer and the Board of Directors of the Company consists of the same percentage of directors designated by Offeror as the percentage of the number of shares outstanding owned by Offeror; or (ii) the Merger Agreement is terminated (x) by the Company because it has decided to enter into a binding written agreement concerning a Superior Proposal and the Company notifies Parent in writing that it intends to enter into such an agreement, attaching the most current version of such agreement to such notice, and Parent does not make, within three business days of receipt of the Company's written notification of its intention to enter into such an agreement, a written offer that is at least as favorable to the stockholders of the Company as the Superior Proposal or (y) by Parent if the Board of Directors of the Company shall have failed to recommend, or shall have withdrawn or adversely modified its approval or recommendation of, the Offer or the Merger or failed to reconfirm its recommendation of the Offer or the Merger within two calendar days after a written request by Parent to do so, or shall have resolved to do any of the foregoing, or (z) because of the failure of any one of the conditions to the Offer described in paragraphs (c), (e) and (f) of Section 14. Under the Stock Option Agreement, if at any time the Option is then exercisable and at or prior to such time the Reimbursement Fee shall have become payable, Parent may on one occasion elect, in lieu of exercising the Option to purchase Shares, to send a written notice to the Company (a "Cash Exercise Notice") specifying a date not later than 20 business days and not earlier than 10 business days following the date such notice is given on which date the Company shall pay to Parent an amount in cash (the "Cancellation Amount") equal to the Spread (as defined below) multiplied by all or such portion of the Shares subject to the Option as Parent shall specify. As used in the Stock Option Agreement, "Spread" means the excess, if any, over the Purchase Price of the higher of (x) if applicable, the highest price per Share (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid or proposed to be paid by any person pursuant to any Acquisition Proposal occurring after the date of the Stock Option Agreement and prior to the Option Termination Date (the "Alternative Purchase Price") or (y) the average of the closing bid and asked prices of the Shares on the Nasdaq/NMS or on such other national securities exchange on which the Shares are then listed for the last five trading days immediately prior to the date of the Cash Exercise Notice (the "Closing Price"). 25 If the Alternative Purchase Price includes any property other than cash, the Alternative Purchase Price shall be the sum of (i) the fixed cash amount, if any, included in the Alternative Purchase Price plus (ii) the fair market value of such other property. If such other property consists of securities with an existing public trading market, the average of the closing prices (or the average of the closing bid and asked prices if closing prices are unavailable) for such securities in their principal public trading market on the five trading days ending five days prior to the date of the Cash Exercise Notice shall be deemed to equal the fair market value of such property. If such other property consists of something other than cash or securities with an existing public trading market and, as of the payment date for the Spread, agreement on the value of such other property has not been reached, the Alternative Purchase Price shall be deemed to equal the Closing Price. Upon exercise of its right to receive cash described above, the obligations of the Company to deliver Shares pursuant to the Option shall be terminated with respect to such number of Shares for which Parent shall have elected to be paid the Spread. Registration Rights. The Stock Option Agreement provides that, in the event that the Parent shall desire to sell any of the Shares and such sale requires, in the reasonable opinion of counsel to Parent, registration of such Shares under the Securities Act, the Company will cooperate with Parent and any underwriters selected by Parent in registering such Shares for resale for a period of at least 45 days, including, without limitation, promptly filing a registration statement which complies with the requirements of applicable federal and state securities laws, and entering into an underwriting agreement with such underwriters upon such terms and conditions as are customarily contained in underwriting agreements with respect to secondary distributions; provided that the Company shall not be required to have declared effective more than two registration statements and shall be entitled to delay the filing or effectiveness of any registration statement and may suspend the use of any registration statement (and related prospectus) for one or more periods of time not exceeding an aggregate of 60 days in any one-year period if the offering would, in the judgment of the Board of Directors of the Company in consultation with counsel to the Company, require premature disclosure of any material corporate development or material transaction involving the Company or interfere with any previously planned securities offering by the Company. The Stock Option Agreement also provides that the Company shall bear the cost of the registration, including, but not limited to, all registration and filing fees, printing expenses, and fees and disbursements of counsel and accountants for the Company, except that Parent shall pay the fees and disbursements of its counsel, and the underwriting fees and selling commissions applicable to the shares sold by Parent. The Stock Option Agreement further provides that the Company shall indemnify and hold harmless (i) Parent, its affiliates and its officers and directors and (ii) each underwriter and each person who controls any underwriter within the meaning of the Securities Act or the Exchange Act (collectively, the "Underwriters") ((i) and (ii) being referred to as "Registration Indemnified Parties") against any losses, claims, damages, liabilities or expenses, to which the Registration Indemnified Parties may become subject, insofar as such losses, claims, damages, liabilities (or actions in respect thereof) and expenses arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained or incorporated by reference in any registration statement filed pursuant to the registration rights under the Stock Option Agreement, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such case to the extent that any such loss, liability, claim, damage or expense arises out of or is based upon (A) an untrue statement or alleged untrue statement in or omission or alleged omission from any such documents in reliance upon and in conformity with written information furnished to the Company by the Registration Indemnified Parties expressly for use or incorporation by reference therein, or (B) the fact that the person asserting any such loss, liability, claim, damage or expense did not receive a copy of an amended preliminary prospectus or the final prospectus (or the final prospectus as amended or supplemented) at or prior to the written confirmation of the sale of the Shares to such person because of the failure of Parent to so provide such amended preliminary or final prospectus. 26 In addition, Parent has agreed and the Underwriters will be required to agree to indemnify and hold harmless the Company, its affiliates and its officers and directors against any losses, claims, damages, liabilities or expenses to which the Company, its affiliates and its officers and directors may become subject, insofar as such losses, claims, damages, liabilities (or actions in respect thereof) and expenses arise out of or are based upon (i) any untrue statement of any material fact contained or incorporated by reference in any registration statement filed pursuant to the registration rights under the Stock Option Agreement, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by the Registration Indemnified Parties, as applicable, specifically for use or incorporation by reference therein, or (ii) the fact that the person asserting any such loss, liability, claim, damage or expense did not receive a copy of an amended preliminary prospectus or the final prospectus (or the final prospectus as amended or supplemented) at or prior to the written confirmation of the sale of the Shares to such person because of the failure of Parent to so provide such amended preliminary or final prospectus. Other Agreements. The Stock Option Agreement provides that after the Option becomes exercisable, the Company will promptly file an application to list the Shares on Nasdaq/NMS or on such other national securities exchange on which the Shares are then listed and will use its reasonable best efforts to obtain approval of such listing and to effect all necessary filings by the Company under the HSR Act and any other necessary consents. Conditions. The Stock Option Agreement provides that the Company's obligation to deliver Shares upon exercise of the Option is subject to the conditions that: (i) no preliminary or permanent injunction or other order issued by any federal or state court of competent jurisdiction prohibiting the delivery of the Shares shall be in effect; (ii) any applicable waiting periods under the HSR Act shall have expired or been terminated; (iii) the representations and warranties of Parent made in the Stock Option Agreement shall be true and correct in all material respects as of the date of the closing of the issuance of the Shares; and (iv) the circumstances described in clauses (i) and (ii) under "Exercise of Options" above exist. Termination. The Stock Option Agreement provides that the right to exercise the Option shall terminate at (and the Option shall no longer be exercisable after) the earliest of (i) the Effective Time, (ii) the nine month anniversary of the earliest to occur of the events set forth in clauses (i) and (ii) under "Exercise of Options" above, and (iii) the fifteenth day following the termination of the Merger Agreement if prior to such fifteenth day the events set forth in clause (i) or (ii) under Exercise of Options shall not have occurred (such earliest date the "Option Termination Date"); provided that, if the Option cannot be exercised or the Shares cannot be delivered to Parent upon such exercise because one or more of the conditions set forth in clause (i) or (ii) in "Conditions" above have not yet been satisfied, the Option Termination Date shall be extended until fifteen days after such impediment to exercise or delivery has been removed. Other. Because the rights and obligations of Parent and the Company under the Stock Option Agreement are subject to compliance with the HSR Act, Parent will include in its merger notifications to be filed with the DOJ and the FTC a description of its rights under the Stock Option Agreement. See Section 15. The Shareholders Agreement The following is a summary of the material terms of the Shareholders Agreement. As expressly permitted by the Shareholders Agreement, Parent has assigned all of its rights under the Shareholders Agreement to Purchaser and Purchaser has assumed all of Parent's obligations under the Shareholders Agreement. This summary is not a complete description of the terms and conditions thereof and is qualified in its entirety by reference to the full text thereof, which is incorporated herein by reference and a copy of which has been filed with the Commission as an exhibit to the Schedule 14D-1. Tender of Shares. Concurrently with the execution and delivery of the Merger Agreement, and in order to induce Parent and Offeror to enter into the Merger Agreement, the Major Stockholders who own in the aggregate, 27 as of October 5, 1999, 4,549,591 Shares (representing approximately 34% of the outstanding Shares) and additional options and warrants representing the right to purchase 410,002 Shares (collectively, the "Optioned Securities") or have the right to vote Shares or other securities (the "Voting Securities") have entered into a Shareholders Agreement with Parent and Offeror. Pursuant to the Shareholders Agreement, the Major Stockholders have agreed to tender the Optioned Securities in the Offer and not to withdraw such Optioned Securities prior to the expiration of the Offer. The obligation to sell any of such Optioned Securities under the Shareholders Agreement, as described below, shall be satisfied, solely with respect to the Shares so tendered, upon the purchase of such Shares by Offeror pursuant to the Offer. In the event of any change in the Optioned Securities by reason of stock dividend, stock split, recapitalizations, combinations, exchanges or the like, the number of Optioned Securities subject to the Shareholders Agreement will be appropriately adjusted. Shareholder Option. Pursuant to the Shareholders Agreement, the Major Stockholders have granted to Offeror an irrevocable option (the "Shareholder Option") to purchase all Optioned Securities at the Offer Price. The Shareholder Option may be exercised by Offeror at any time after the date on which all waiting periods under the HSR Act applicable to the exercise of the Shareholder Option have expired or been terminated, but only if: (i) (A) a bona fide Acquisition Proposal shall have been made to the Company or any of its stockholders or any person or entity shall have announced an intention (whether or not conditional) to make an Acquisition Proposal with respect to the Company, and on or following the date of the Merger Agreement but prior to the date that the Offer is consummated, such Acquisition Proposal, announcement or intention is or becomes publicly known, (B) no event shall have become publicly known prior to the time that such Acquisition Proposal, announcement or intention is or becomes publicly known that would have a material adverse effect on the ability of Parent or Offeror to consummate the Merger (other than any event related to such Acquisition Proposal, announcement or intention or any event related to a breach of the Merger Agreement or this Agreement by the Company) and (C) on or following the date on which such Acquisition Proposal, announcement or intention is or becomes publicly known, the Merger Agreement is terminated by either Parent or the Company because, subject to certain exceptions, the Merger shall not have been consummated by April 30, 2000 (subject, in certain circumstances, to extension to May 31, 2000), unless Offeror consummated the Offer and the Board of Directors of the Company consists of the same percentage of directors designated by Offeror as the percentage of the number of shares outstanding owned by Offeror; or (ii) the Merger Agreement is terminated (x) by the Company because it has decided to enter into a binding written agreement concerning a Superior Proposal and the Company notifies Parent in writing that it intends to enter into such an agreement, attaching the most current version of such agreement to such notice, and Parent does not make, within three business days of receipt of the Company's written notification of its intention to enter into such an agreement, a written offer that is at least as favorable to the stockholders of the Company as the Superior Proposal or (y) by Parent if the Board of Directors of the Company shall have failed to recommend, or shall have withdrawn or adversely modified its approval or recommendation of, the Offer or the Merger or failed to reconfirm its recommendation of the Offer or the Merger within two calendar days after a written request by Parent to do so, or shall have resolved to do any of the foregoing, or (z) because of the failure of any of the conditions to the Offer described in paragraphs (c), (e) and (f) of Section 14. Agreement to Vote and Irrevocable Proxy. The Major Stockholders have further agreed to (a) vote all of their respective Voting Securities in favor of the Merger; (b) not vote any Voting Securities in favor of any action or agreement which would result in a breach in any material respect of any covenant, representation or warranty or any other obligation of the Company under the Merger Agreement; and (c) vote all Voting Securities of such Major Stockholder against any action or agreement which would impede, interfere with or attempt to discourage the Offer or the Merger, including, but not limited to: (i) any proposal opposed by Parent or Offeror; (ii) any Acquisition Proposal (other than the Offer and the Merger) involving the Company or any of its subsidiaries; (iii) any change in the management or board of directors of the Company, except as otherwise agreed to in 28 writing by the Offeror; (iv) any material change in the present capitalization or dividend policy of the Company; or (v) any other material change in the Company's corporate structure or business. The Major Stockholders have also granted Offeror or its designees an irrevocable proxy to vote their Shares for all purposes whatsoever. No Inconsistent Agreements; Non Solicitation. Pursuant to the Shareholders Agreement, the Major Stockholders also agreed that while the agreement was in effect they would not make any disposition of or enter into any voting arrangement with respect to the subject securities or initiate or solicit or enter into or endorse any Acquisition Proposal, or otherwise engage in any action inconsistent with their performance of the Shareholders Agreement. Representations and Warranties. The Shareholders Agreement contains certain customary representations and warranties, including, without limitation, representations by the Major Stockholders as to ownership of the Shares and power and authority. Termination. The Shareholder Option shall expire on the earliest of (1) the Effective Time (as defined in the Merger Agreement), (2) January 31, 2000 or, if the Offer is extended past January 31, 2000 because the waiting period applicable to the transaction contemplated by the Shareholders Agreement under the HSR Act has not terminated or expired, immediately after the expiration of the Offer, and (3) the thirtieth day following the termination of the Merger Agreement if prior to such thirtieth day the events set forth in either of clause (i) or (ii) described under Shareholder Option shall not have occurred (such earliest date being referred to as the "Shareholder Option Expiration Date"); provided that, if the Shareholder Option cannot be exercised or the Optioned Securities cannot be delivered to Offeror upon such exercise because (x) there shall be in effect a preliminary or permanent injunction or other order issued by any federal or state court of competent jurisdiction prohibiting delivery of the Optioned Securities or (y) any applicable waiting periods under the HSR Act shall not have expired or been terminated, then the Shareholder Option Expiration Date shall be extended until thirty days after such impediment to exercise or delivery has been removed. Other Matters Section 203 of the DGCL. Section 203 of the DGCL limits the ability of a Delaware corporation to engage in business combinations with "interested stockholders" (defined as any beneficial owner of 15% or more of the outstanding voting stock of the corporation) unless, among other things, the corporation's board of directors has given its prior approval to either the business combination or the transaction which resulted in the stockholder's becoming an "interested stockholder." On October 4, 1999, the Board of Directors of the Company approved the Offer, the Merger and the Merger Agreement, the Shareholders Agreement and the Stock Option Agreement for purposes of Section 203, and, therefore, Section 203 is inapplicable to the Offer, the Merger, the Merger Agreement, the Shareholders Agreement and the Stock Option Agreement and the transactions contemplated thereby. See Section 15. Appraisal Rights. No appraisal rights are available to holders of Shares in connection with the Offer. However, if the Merger is consummated, other than by a "short-form" merger, holders of Shares will have certain rights under Section 262 of the DGCL to dissent and demand appraisal of, and payment in cash for the fair value of, their Shares. Such rights, if the statutory procedures are complied with, could lead to a judicial determination of the fair value (excluding any element of value arising from accomplishment or expectation of the Merger) required to be paid in cash to such dissenting holders for their Shares. Any such judicial determination of the fair value of Shares could be based upon considerations other than the Offer Price and the market value of the Shares, including asset values and the investment value of the Shares. The value so determined could be more or less than the Offer Price or the Merger Consideration. Also, although the Company is a Delaware corporation and is therefore subject to the DGCL, pursuant to Section 2115 of the California General Corporation Law (the "CGCL"), the Company may be subject to California law with respect to dissenter's rights in connection with the Merger. Accordingly, pursuant to Chapter 13 of the CGCL, stockholders of the Company who do not vote in favor of the Merger and who comply with the requirements of Chapter 13 of the CGCL will have the right to demand payment for, and appraisal of, the "fair value" of their Shares. 29 If any holder of Shares who demands appraisal under Section 262 of the DGCL or Chapter 13 of the CGCL fails to perfect, or effectively withdraws or loses his right to appraisal, as provided in the DGCL or the CGCL, the shares of such holder will be converted into the Merger Consideration in accordance with the Merger Agreement. A stockholder may withdraw his demand for appraisal by delivery to Purchaser of a written withdrawal of his demand for appraisal and acceptance of the Merger. Failure to follow the steps required by Section 262 of the DGCL or Chapter 13 of the CGCL for perfecting appraisal rights may result in the loss of such rights. Rule 13e-3: The Commission has adopted Rule 13e-3 under the Exchange Act ("Rule 13e-3"), which is applicable to certain "going private" transactions. Rule 13e-3 requires, among other things, that certain financial information concerning the company and certain information relating to the fairness of the proposed transaction and the consideration offered to minority stockholders in such transaction be filed with the Commission and disclosed to stockholders prior to consummation of the transaction. Purchaser believes that Rule 13e-3 will not be applicable to the Merger because of the exemption afforded by Rule 13e-3(g)(1), among other reasons. However, under certain circumstances, Rule 13e-3 could be applicable to the Merger or other business combination in which Purchaser seeks to acquire the remaining Shares it does not beneficially own following the purchase of Shares pursuant to the Offer. For example, if the Merger as consummated is not substantially similar to the Merger as described in this Offer to Purchase and the Merger Agreement, Rule 13e-3 could apply. However, the terms and conditions of the Merger are governed by the Merger Agreement, and any amendment to the Merger Agreement must be approved by each party thereto. If Purchaser has exercised its right to appoint directors to the Board of Directors following its purchase of Shares pursuant to the Offer, any such amendment must be approved on behalf of the Company by the directors of the Company, in the manner set forth above. There can be no assurance that the Merger will take place, even though each party has agreed in the Merger Agreement to use its best efforts to cause the Merger to occur, because the Merger is subject to certain conditions, some of which are beyond the control of either Purchaser or the Company. Since the Purchaser's ultimate objective is to acquire ownership of all the Shares, if the Merger does not take place, the Purchaser would consider the acquisition, whether directly or through an affiliate, of Shares through private or open market purchases, or subsequent tender offers, a different type of merger or other combination of the Company with the Offeror or an affiliate or subsidiary thereof or by any other permissible means deemed advisable by it. Except as described in the section captioned "The Merger Agreement," any of these possible transactions might be on terms the same as, or more or less favorable than, those of the Offer or the Merger. 13. Dividends and Distributions. Pursuant to the terms of the Merger Agreement, from and after the date of the Merger Agreement until the Effective Time, unless Purchaser has consented in writing thereto, the Company shall not, and shall not permit its subsidiaries to, (a) issue, sell, pledge, dispose of or encumber any capital stock owned by it in any of its subsidiaries; (b) amend its certificate or bylaws; (c) split, combine or reclassify its outstanding shares of capital stock; (d) declare, set aside or pay any dividend payable in cash, stock or property in respect of any capital stock; (e) repurchase, redeem or otherwise acquire, except in connection with the Stock Plans, the ESPP or employment arrangements or permit any of its subsidiaries to purchase or otherwise acquire, any shares of its capital stock or any securities convertible into or exchangeable or exercisable for any shares of its capital stock; or (f) issue, sell, pledge, dispose of or encumber any shares of, or securities convertible into or exchangeable or exercisable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of its capital stock of any class or any voting debt or any other property or assets (other than the issuance of Shares pursuant to options outstanding on the date of the Merger Agreement under the Stock Plans, the issuance of Shares under the ESPP and the issuance of Shares pursuant to warrants). 14. Certain Conditions to the Offer. Notwithstanding any other provision of the Offer, and subject to the terms and conditions of the Merger Agreement, the Merger Agreement provides that Offeror shall not be obligated to accept for payment any Shares until the expiration or termination of any waiting periods applicable under the HSR Act, and Offeror shall not be required to accept for payment or, subject to any applicable rules and regulations of the Commission (including 30 Rule 14e-l(c) under the Exchange Act), pay for, and may delay the acceptance for payment of or payment for, any Shares tendered in the Offer and (subject to the terms and conditions of the Merger Agreement) if: (a) there shall be threatened or pending any action, litigation or proceeding (hereinafter, an "Action") brought by any Governmental Entity: (i) that would reasonably be expected to challenge the acquisition by Purchaser or Offeror of Shares or seek to restrain or prohibit the consummation of the Offer or the Merger; (ii) that would reasonably be expected to seek to prohibit or impose any material limitation on Purchaser's, Offeror's or any of their respective affiliates' ownership or operation of all or any material portion of the business or assets of the Company and its subsidiaries taken as a whole or Purchaser and its subsidiaries taken as a whole that, in each case referred to in this clause (ii) individually or in the aggregate, is reasonably likely to have a Company Material Adverse Effect (as defined in the Merger Agreement) or a material adverse effect on Purchaser; or (iii) that would reasonably be expected to seek to impose material limitations on the ability of Purchaser or Offeror effectively to acquire or hold, or to exercise full rights of ownership of, the shares of Common Stock including the right to vote the shares of Common Stock purchased by them on an equal basis with all other shares of Common Stock on all matters properly presented to the stockholders of the Company; or (b) there shall be any statute, rule, regulation, order or injunction threatened, proposed, sought, enacted, promulgated, entered, enforced or deemed to or become applicable to the Offer or the Merger (and in each case, remain in effect), or any other action shall have been taken, by any court of competent jurisdiction or other U.S. Governmental Entity, that has any of the consequences referred to in clauses (i) through (iii) of paragraph (a) above; or (c) (i) Any of the representations and warranties of the Company set forth in the Merger Agreement shall not be true and correct in all material respects when considered without regard to any qualification by, or reference to, materiality in any manner (except for those representations and warranties made as of a specific date, which shall be true and correct as of such date) and except for such failures of any representations or warranties, when so considered, to be true and correct that individually or in the aggregate do not have, and are not reasonably likely to have, a Company Material Adverse Effect; or (ii) the Company shall have breached or failed to comply in any material respect with any of its obligations, covenants or agreements under the Merger Agreement and any such breach or failure shall not have been substantially cured by the Company within five (5) Business Days after Purchaser provides written notice to the Company of such breach or failure; or (d) the Merger Agreement shall have been terminated in accordance with its terms; or (e) any corporation, entity, "group" or "person" (as defined in the Exchange Act), other than Purchaser, Offeror or any of the stockholders that are party to the Shareholders Agreement (so long as such stockholders do not become beneficial owners of any additional Shares after the date hereof and so long as such stockholders do not breach any of the provisions of the Shareholders Agreement), shall have acquired beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of more than 20% of the outstanding Shares; or (f) the Company's Board shall have modified or amended its recommendation of the Offer in any manner adverse to Purchaser or Offeror or shall have withdrawn its recommendation of the Offer or shall have recommended acceptance of any Acquisition Proposal or shall have failed to reconfirm its recommendation of the Offer within five (5) calendar days after a written request by Purchaser to do so, or shall have resolved to do any of the foregoing; or (g) there shall exist (i) any general suspension of, or limitation on prices for, trading in securities on the Nasdaq National Market for more than one full trading day (other than shortening of trading hours or any trading halt resulting from a specified increase or decrease in a market index), (ii) a declaration of any banking moratorium by federal or state authorities or any suspension of payments in respect of banks or any limitation (whether or not mandatory) imposed by federal or state authorities on the extension of credit by lending institutions in the United States or, in the case of any of the foregoing existing at the time of the commencement of the Offer, (iii) a material acceleration or worsening thereof. 31 The conditions in clauses (a) through (g) are for the sole benefit of Purchaser and Offeror and may be asserted by Purchaser and Offeror regardless of the circumstances giving rise to such conditions and may be waived by Purchaser and Offeror in whole or in part at any time and from time to time, by express and specific action to that effect, in their reasonable discretions. The failure by Purchaser or Offeror at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. Should the Offer be terminated pursuant to the foregoing provisions, all tendered Shares will be promptly returned by the Depositary to the tendering stockholders. 15. Certain Regulatory and Legal Matters. Except as described in this Section 15, based on a review of publicly available filings made by the Company with the Commission and other publicly available information concerning the Company, as well as certain representations made to Parent and Offeror in the Merger Agreement by the Company, none of Parent, Purchaser or Offeror is aware of any license or regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by the Offeror's acquisition of Shares as contemplated herein or of any approval or other action by any Governmental Entity that would be required for the acquisition or ownership of Shares by Offeror as contemplated herein. Should any such approval or other action be required, Purchaser and Offeror currently contemplate that such approval or other action will be sought, except as described below under "State Takeover Laws." While, except as otherwise expressly described in this Section 15, Offeror does not presently intend to delay the acceptance for payment of, or payment for, Shares tendered pursuant to the Offer, pending the outcome of any such matter, there can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that failure to obtain any such approval or other action might not result in consequences adverse to the Company's business, or that certain parts of the Company's business might not have to be disposed of if such approvals were not obtained or such other actions were not taken. If certain types of adverse action are taken with respect to the matters discussed below (or if any governmental approval is not obtained), the Offeror could decline to accept for payment or pay for any Shares tendered. See Section 14 for certain conditions to the Offer. State Takeover Laws. A number of states throughout the United States have enacted takeover statutes that purport, in varying degrees, to be applicable to attempts to acquire securities of corporations that are incorporated or have assets, stockholders, executive offices or places of business in such states. In Edgar v. MITE Corp., the Supreme Court of the United States held that the Illinois Business Takeover Act, which involved state securities laws that made the takeover of certain corporations more difficult, imposed a substantial burden on interstate commerce and therefore was unconstitutional. In CTS Corp. v. Dynamics Corp. of America, however, the Supreme Court of the United States held that a state may, as a matter of corporate law and, in particular, those laws concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without prior approval of the remaining stockholders, provided that such laws were applicable only under certain conditions. The Company is incorporated under the laws of Delaware. Section 203 of the DGCL prevents an "Interested Stockholder" (defined generally as a person with 15% or more of the corporation's outstanding voting stock) from engaging in a "Business Combination" (defined to include a variety of transactions, including mergers) with a Delaware corporation for three years following the date such person becomes an Interested Stockholder, unless (i) before such person became an Interested Stockholder, the board of directors of the corporation approved the transaction in which the Interested Stockholder became an Interested Stockholder or approved the Business Combination, or (ii) upon consummation of the transaction which resulted in the Interested Stockholder becoming an Interested Stockholder, the Interested Stockholder owned at least 85% of the voting stock of the 32 corporation outstanding at the time the transaction commenced (excluding stock held by directors who are also officers of the corporation and by certain employee stock ownership plans), or (iii) following the transaction in which such person became an Interested Stockholder, the Business Combination is approved by the board of directors of the corporation and authorized at a meeting of stockholders by the affirmative vote of the holders of two-thirds of the outstanding voting stock of the corporation not owned by the Interested Stockholder. The Board of Directors has unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Offer, the Merger, the Shareholders Agreement and the Stock Option Agreement, for purposes of Section 203 of the DGCL, and the restrictions of such Section 203 are, accordingly, not applicable to Purchaser, Offeror or their affiliates or associates as a result of the consummation of the transactions contemplated by this Offer to Purchase. Neither Purchaser nor Offeror has currently complied with any state takeover statute or regulation. Offeror reserves the right to challenge the applicability or validity of any state law purportedly applicable to the Offer or the Merger and nothing in this Offer to Purchase or any action taken in connection with the Offer or the Merger is intended as a waiver of such right. If it is asserted that any state takeover statute is applicable to the Offer or the Merger and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer or the Merger, Offeror might be required to file certain information with, or to receive approvals from, the relevant state authorities, and Offeror might be unable to accept for payment or pay for Shares tendered pursuant to the Offer or is delayed in consummating the Offer or the Merger. In such case, Offeror may not be obliged to accept for payment or pay for any Shares tendered pursuant to the Offer. Antitrust. Under the HSR Act and the rules that have been promulgated thereunder by the FTC, certain acquisition transactions may not be consummated unless certain information has been furnished to the DOJ and the FTC and certain waiting period requirements have been satisfied. The acquisition of Shares pursuant to the Offer is subject to these requirements. Parent expects to file a Notification and Report Form with respect to the Offer under the HSR Act as soon as practicable following commencement of the Offer. The waiting period under the HSR Act with respect to the Offer will expire at 11:59 p.m., Washington, D.C. time, on the 15th day after the date such form is filed, unless early termination of the waiting period is granted. In addition, the DOJ or the FTC may extend such waiting period by requesting additional information or documentary material from Purchaser. If such a request is made with respect to the Offer, the waiting period related to the Offer will expire at 11:59 p.m., Washington, D.C. time, on the 10th day after substantial compliance by Parent or the Company with such request. With respect to each acquisition, the DOJ or the FTC may issue only one request for additional information. In practice, complying with a request for additional information or material can take a significant amount of time. Expiration or termination of applicable waiting periods under the HSR Act is a condition to Offeror's obligation to accept for payment and pay for Shares tendered pursuant to the Offer. The FTC and the DOJ frequently scrutinize the legality under the antitrust laws of transactions such as Offeror's proposed acquisition of the Company. At any time before or after Offeror's purchase of Shares pursuant to the Offer, the DOJ or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or the consummation of the Merger or seeking the divestiture of Shares acquired by Offeror or the divestiture of substantial assets of Parent, Purchaser or its subsidiaries, or the Company or its subsidiaries. Private parties may also bring legal action under the antitrust laws under certain circumstances. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such a challenge is made, of the results thereof. 16. Fees and Expenses. Parent and Offeror have retained D.F. King & Co., Inc. to act as the Information Agent and First Chicago Trust Company of New York to serve as the Depositary in connection with the Offer. The Information Agent and the Depositary each will receive reasonable and customary compensation for their services, be reimbursed for certain reasonable out-of-pocket expenses and be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws. 33 Parent has engaged Morgan Stanley & Co. Incorporated ("Morgan Stanley") to act as its financial advisor and as the Dealer Manager. Pursuant to a letter agreement dated September 13, 1999, Parent has agreed to pay Morgan Stanley for its services as Dealer Manger and as financial advisor to Parent, under customary terms and conditions, an aggregate of $1.5 million upon consummation of the Offer. Parent has also agreed to reimburse Morgan Stanley for all reasonable expenses, and to indemnify Morgan Stanley against liabilities and expenses in connection with its services, including liabilities under the federal securities laws. Except as described herein, none of Parent, Purchaser or Offeror will pay any fees or commissions to any broker or dealer or other person in connection with the solicitation of tenders of Shares pursuant to the Offer. Brokers, dealers, banks and trust companies will be reimbursed by Offeror upon request for customary mailing and handling expenses incurred by them in forwarding material to their customers. 17. Miscellaneous. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. None of Parent, Purchaser or Offeror is aware of any jurisdiction in which the making of the Offer or the tender of Shares in connection therewith would not be in compliance with the laws of such jurisdiction. If Parent, Purchaser or Offeror becomes aware of any state law prohibiting the making of the Offer or the acceptance of Shares pursuant thereto in such state, Offeror will make a good faith effort to comply with any such state statute or seek to have such state statute declared inapplicable to the Offer. If, after such good faith effort, Offeror cannot comply with any such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such jurisdiction. In any jurisdiction the securities, blue sky or other laws of which require the Offer to be made by a licensed broker or dealer, the Offer will be made on behalf of Offeror by one or more registered brokers or dealers licensed under the laws of such jurisdiction. No person has been authorized to give any information or to make any representation on behalf of Parent, Purchaser or Offeror not contained herein or in the Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. Neither the delivery of this Offer to Purchase nor any purchase pursuant to the Offer shall, under any circumstances, create any implication that there has been no change in the affairs of Parent, Purchaser or the Company since the date as of which information is furnished or the date of this Offer to Purchase. Parent, Purchaser and Offeror have filed with the Commission the Schedule 14D-1 pursuant to Rule 14d-3 under the Exchange Act, furnishing certain additional information with respect to the Offer. In addition, the Company has filed with the Commission the Schedule 14D-9 pursuant to Rule 14d-9 under the Exchange Act, setting forth its recommendation with respect to the Offer and the reasons for such recommendation and furnishing certain additional related information. Such schedules and any amendments thereto, including exhibits, should be available for inspection and copies should be obtainable in the manner set forth in Sections 8 and 9 (except that they will not be available at the regional offices of the Commission). DPC NEWCO, INC. October 12, 1999 34 SCHEDULE I CERTAIN INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF PARENT, PURCHASER AND OFFEROR The names and ages of the directors and executive officers of Parent, Purchaser and Offeror, and their present principal occupations or employment and five-year employment history, are set forth below. Unless otherwise indicated, each individual is a citizen of the United States, his business address is 1007 Market Street, Wilmington, Delaware 19898 and he has been employed by Parent, Purchaser or Offeror, as applicable, for the last five years. PARENT Directors
Present Principal Occupation or Employment with E. I. du Pont de Nemours and Company; Material Name and Age Positions Held During the Past Five Years ------------ ----------------------------------------------- Curtis J. Crawford (52) Director since 1998. Mr. Crawford is President and Chief Executive Officer of ZiLOG, Inc., a producer of application specific standard products in the semiconductor industry. From 1995 to January 1998, Mr. Crawford was group president, Microelectronics Group, Lucent Technologies, Inc., and also served as president, Intellectual Property Division, from October 1997. From 1993 to 1995, he was president of AT&T Microelectronics, a business unit of AT&T Corporation. Mr. Crawford is a director of ITT Industries, Inc., and ZiLOG, Inc. Louisa C. Duemling (63) Director since 1982. Mrs. Duemling is a member of the board of governors of the Nature Conservancy and the board of trustees of the Chesapeake Bay Foundation. Edward B. du Pont (65) Director since 1978. Mr. du Pont was chairman of Atlantic Aviation Corporation, the principal business of which is the charter, completion, storage, operation and maintenance of aircraft. He serves as a director of Wilmington Trust Corporation, a trustee of Christiana Care Corporation and the University of Delaware, president and a trustee of Eleutherian Mills- Hagley Foundation, and vice president and a trustee of Longwood Foundation, Inc. Charles O. Holliday, Jr. (51) Director since 1997. Chairman and Chief Executive Officer. Mr. Holliday is a former president, executive vice president, president and chairman- DuPont Asia Pacific and senior vice president. He is a director of Analog Devices, Inc. and a member of The Business Council and The Business Roundtable. Mr. Holliday also serves on the Chancellor's Advisory Council for Enhancement at the University of Tennessee and is a trustee of the Winterthur Museum and Gardens.
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Present Principal Occupation or Employment with E. I. du Pont de Nemours and Company; Material Name and Age Positions Held During the Past Five Years ------------ ----------------------------------------------------- Lois D. Juliber (50) Director since 1995. Ms. Juliber is Executive Vice President and Chief of Operations, Developed Markets, Colgate-Palmolive Company, the principal business of which is the production and marketing of consumer products. She formerly served as president, Colgate- Palmolive North America and chief technological officer of Colgate-Palmolive. Ms. Juliber is a member of the board of trustees of Wellesley College and the Brookdale Foundation. Goran Lindahl (54) Director since 1999. Mr. Lindahl is President and Chief Executive Officer of ABB Ltd., a globalized technology and engineering company serving customers in power transmission and distribution; automation; oil, gas and petrochemicals; industrial products and contracting; and in financial services. Mr. Lindahl is member of the Board of ABB Ltd., Switzerland, the Board of LM Ericsson, Sweden, the Salomon Smith Barney International Advisory Board, USA, the European Union- Japan Industrialists Round Table, the International Advisory Board of the Alliance for Global Sustainability, the World Commission on Dams and the Royal Swedish Academy of Engineering Sciences, as well as Vice-chairman of the Prince of Wales Business Leaders Forum and Advisor of the International Council of "The Executives' Club of Chicago." Mr. Lindahl is also Co-Chairman of the EU-ASEAN Industrialists Round Table. William K. Reilly (59) Director since 1993. Mr. Reilly is President and Chief Executive Officer of Aqua International Partners, L.P., which finances water supply and wastewater treatment in developing countries. He formerly served as administrator of the United States Environmental Protection Agency, the Payne visiting professor at the Institute for International Studies at Stanford University and president of World Wildlife Fund and The Conservation Foundation. Mr. Reilly is a director of Conoco Inc., Evergreen Holdings, Inc., and Royal Caribbean International and a trustee of The National Geographic Society, Presidio Trust and World Wildlife Fund. He also serves on the board of Yale University Corporation and is chairman of American Farmland Trust and the Environmental Education and Training Institute of North America. H. Rodney Sharp, III (64) Director since 1981. Mr. Sharp is President of the Board of Trustees of Longwood Foundation, Inc., and a director of Wilmington Trust Corporation. He is a trustee of St. Augustine's College (Raleigh, North Carolina) and a trustee and director of Christiana Care Corporation. Mr. Sharp also serves as treasurer and a director of Planned Parenthood of Delaware and a director of First Call for Help, Inc., and the YMCA of Delaware. Charles M. Vest (58) Director since 1993. Mr. Vest is President of the Massachusetts Institute of Technology. He is a former provost and vice president of Academic Affairs and dean of Engineering of the University of Michigan. Mr. Vest is a director of International Business Machines Corporation, a fellow of the American Association for the Advancement of Science, and a member of the National Academy of Engineering and the President's Committee of Advisors on Science and Technology. He is vice chair of the Council on Competitiveness.
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Present Principal Occupation or Employment with E. I. du Pont de Nemours and Company; Material Name and Age Positions Held During the Past Five Years ------------ ----------------------------------------------------- Sanford I. Weill (66) Director since 1998. Mr. Weill is Chairman and co- Chief Executive Officer of Citigroup Inc., a diversified financial services company. He formerly served as chairman and chief executive officer of Travelers Group. He is a director of AT&T Corporation and Citigroup Inc., and a member of The Business Council and The Business Roundtable. He also serves as chairman of the board of trustees of Carnegie Hall and chairman of the board of overseers of the Joan and Sanford I. Weill Medical College and Graduate School of Medical Sciences of Cornell University. Edgar S. Woolard, Jr. (65) Director since 1983. Mr. Woolard served as chairman of the Board, chief executive officer, president and chief operating officer, vice chairman and executive vice president. He is a director of Apple Computer, Inc., and Citigroup Inc. and a member of The Business Council. He also serves as a trustee of Protestant Episcopal Theological Seminary and the Winterthur Museum and Gardens. Officers Present Principal Occupation or Employment with E. I. du Pont de Nemours and Company; Material Name and Age Positions Held During the Past Five Years ------------ ----------------------------------------------------- Richard R. Goodmanson (52) Since May 1999, Mr. Goodmanson has been an Executive Vice President and a Chief Operating Officer. From 1996 to April 1999, he was President and Chief Executive Officer of America West Airlines. From 1992 to 1996, he was Senior Vice President of Operations for Frito-Lay Inc. (division of PepsiCo.). Charles S. Johnson (61) Since October 1999, Mr. Johnson has been an Executive Vice President. Mr. Johnson was named Chairman of the Board of Pioneer Hi-Bred International, Inc. in December 1996. Mr. Johnson served as President and Chief Executive Officer of Pioneer from September 1995 to October 1999. Mr. Johnson previously was President and Chief Operating Officer from March 1995 to September 1995. Mr. Johnson was Executive Vice President from March 1993 to March 1995. Since 1973, Mr. Johnson has served in an executive position with Pioneer. Mr. Johnson is a Director of The Principal Financial Group, a financial services company, and Gaylord Container Corporation, a national manufacturer and distributor of brown paper and packaging products. Kurt M. Landgraf (53) Since May 1999, Mr. Landgraf has been a Chief Operating Officer. Since September 1997, he has been an Executive Vice President. Mr. Landgraf is also Chairman of DuPont Europe and Chairman and CEO of DuPont Pharmaceuticals Company. From December 1996 to October 1997, he was Chief Financial Officer. From 1993 to December 1996, he was President and Chief Executive Officer of DuPont Merck Pharmaceutical Company. Joseph A. Miller, Jr. (57) Since 1996, Mr. Miller has been Chief Science and Technology Officer. Since 1994, he has been a Senior Vice President. Stacey J. Mobley (54) Since May 1999, Mr. Mobley has been Chief Administrative Officer. Since May 1992, he has been a Senior Vice President.
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Present Principal Occupation or Employment with E. I. du Pont de Nemours and Name and Age Company; Material Positions Held During the Past Five Years ------------ ----------------------------------------------------------- Gary M. Pfeiffer (49) Since October 1997, Mr. Pfeiffer has been a Senior Vice President and Chief Financial Officer. From April 1994 to October 1997, he was Vice President and General Manager, DuPont Nylon-North America. Dennis H. Reilley (46) Since May 1999, Mr. Reilley has been an Executive Vice President and a Chief Operating Officer. From November 1997 to May 1999 he was a Senior Vice President. From July 1996 to November 1997, he was Vice President and General Manager of Lycra(R)/Terrathane(R). From October 1995 to July 1996, he was Vice President and General Manager of Specialty Chemicals. From September 1991 to October 1995, he was Vice President and General Manager of DuPont White Pigment and Mineral Products. Howard J. Rudge (64) Since March 1994, he has been a Senior Vice President and General Counsel. PURCHASER Present Principal Occupation or Employment with DuPont Pharma, Inc.; Material Name and Age Positions Held During the Past Five Years ------------ ----------------------------------------------- Susan M. Stalnecker (46) Director, President. Since September 1998, Ms. Stalnecker has been Vice President and Treasurer of Parent. From March 1998 to August 1998, she was Vice President and Treasurer Designate. From November 1997 to February 1998, she was Assistant Treasurer. From January 1995 to October 1997, she was Director-Finance and Administration--DuPont Nylon, Global & North America. From April 1994 to December 1994, she was Director-Finance-Nylon North America. Joseph A. Girardi (42) Director, Vice President and Treasurer. Since April 1999, Mr. Girardi has been Manager, Treasury Administration and Cash Operations of Parent. From July 1996 to March 1999, he was Global Credit Manager, DuPont Fluoroproducts. From June 1995 to June 1996, he was Project Leader, DuPont Photomasks Initial Public Offering. From March 1993 to May 1995, he was Accounting Manager, Business Accounting & Reporting. Lloyd Adams (52) Director, Vice President and Assistant Treasurer. Since May 1998, Mr. Adams has been Banking Consultant-Treasury Services-DuPont Global Treasury Organization. From February 1979 to April 1998, he was Banking Consultant--Cash Management & Banking--Treasury. OFFEROR Present Principal Occupation or Employment with DPC Newco, Inc. Name and Age Material Positions Held During the Past Five Years ------------ -------------------------------------------------- Richard E. Gies (51) President. Since June 1999, Mr. Gies has been Senior Vice President and Chief Financial Officer of DuPont Pharmaceuticals Company. From July 1998 to May 1999, he was Vice President and Chief Financial Officer of DuPont Canada, Inc. From August 1994 to June 1998, he was Finance Director, Corporate Plans of DuPont. Steven J. Capolarello (44) Vice President and Treasurer. Since July 1994, Mr. Capolarello has been Financial Manager of DuPont Pharmaceuticals Company. From February 1994 to June 1994, he was Financial Consultant. Donald P. McAviney (49) Director. Since March 1997, Mr. McAviney has been Senior Counsel and Assistant Secretary, Corporate and Securities Law Group, Parent. From October 1994 to March 1997, he was Senior Counsel of DuPont Performance Coatings.
I-4 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and certificates for Shares and any other required documents should be sent or delivered by each stockholder of the Company or his broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of the addresses set forth below: The Depositary for the Offer is: First Chicago Trust Company of New York
By Mail: By Overnight Delivery: By Hand: First Chicago Trust Company First Chicago Trust Company First Chicago Trust Company of New York of New York of New York Corporate Actions, Suite 4660 Corporate Actions, Suite 4680 c/o Securities Transfer and P.O. Box 2569 14 Wall Street, 8th Floor Reporting Services Inc. Jersey City, NJ 07303-2569 New York, NY 10005 Attn: Corporate Actions 100 William Street, Galleria New York, NY 10038
Any questions or requests for assistance or additional copies of the Offer to Purchase and the Letter of Transmittal and Notice of Guaranteed Delivery may be directed to the Information Agent or the Dealer Manager at their respective telephone number and addresses listed below. Stockholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: D.F. King & Co., Inc. 77 Water Street New York, New York 10005 Banks and Brokers Call Collect: (212) 269-5550 All Others Call Toll Free: (800) 488-8075 The Dealer Manager for the Offer is: MORGAN STANLEY DEAN WITTER Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 (212) 761-6088 EX-99.A2 3 LETTER OF TRANSMITTAL Exhibit (a)(2) Letter of Transmittal To Tender Shares of Common Stock of CombiChem, Inc. at $6.75 Net Per Share Pursuant to the Offer to Purchase dated October 12, 1999 by DPC Newco, Inc., a direct wholly owned subsidiary of DuPont Pharma, Inc., a wholly owned subsidiary of E.I. du Pont de Nemours and Company THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, NOVEMBER 8, 1999, UNLESS THE OFFER IS EXTENDED The Depositary for the Offer Is: First Chicago Trust Company of New York By Mail: By Overnight Delivery: By Hand: First Chicago Trust First Chicago Trust First Chicago Trust Company of New York Company of New York Company of New York Corporate Actions, Suite Corporate Actions, Suite c/o Securities Transfer 4660 4680 and Reporting Services P.O. Box 2569 14 Wall Street, 8th Floor Inc. Jersey City, NJ 07303- New York, NY 10005 Attn: Corporate Actions 2569 100 William Street, Galleria New York, NY 10038 --------------- Delivery of this Letter of Transmittal to an address other than as set forth above shall not constitute a valid delivery. You must sign this Letter of Transmittal in the appropriate space therefor provided below and complete the Substitute Form W-9 set forth below. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This letter of Transmittal is to be completed by stockholders of CombiChem, Inc. if certificates are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if delivery of Shares (as defined below) is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase. Delivery of documents to a Book-Entry Transfer Facility does not constitute delivery to the Depositary. Stockholders whose Share Certificates (as defined in the Offer to Purchase) are not immediately available or who cannot deliver their Share Certificates and all other documents required hereby to the Depositary on or prior to the Expiration Date (as defined in the Offer to Purchase), or who cannot complete the procedure for the book-entry transfer on a timely basis, may nevertheless tender their Shares pursuant to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. See Instruction 2. [_] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name of Tendering Institution ___________________________________________ Account Number __________________________________________________________ Transaction Code Number _________________________________________________ [_] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Tendering Stockholder(s) _____________________________________ Date of Execution of Notice of Guaranteed Delivery ______________________ Name of Institution which Guaranteed Delivery ___________________________ If delivery is by book-entry transfer: Name of Tendering Institution _________________________________________ Account No. ___________________________________________________________ Transaction Code No. __________________________________________________ 2 DESCRIPTION OF SHARES TENDERED - -------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s) (Please fill in, if Shares Tendered blank) (Attach additional signed list if necessary) - ---------------------------------------------------------- Total Number of Shares Number Certificate Represented by of Shares Number(s)(1) Certificate(s)(1) Tendered(2) --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- Total Shares - ----------------------------------------------------------
(1) Need not be completed by Book-Entry Stockholders. (2) Unless otherwise indicated, it will be assumed that all Shares represented by Share certificates delivered to the Depositary are being tendered hereby. See Instruction 4. Ladies and Gentlemen: The undersigned hereby tenders to DPC Newco, Inc., a Delaware corporation ("Offeror") and a direct wholly owned subsidiary of DuPont Pharma, Inc., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of E.I. du Pont de Nemours and Company, a Delaware corporation ("Parent"), the above- described shares of common stock, $.001 par value (the "Shares"), of CombiChem, Inc., a Delaware corporation (the "Company"), pursuant to Offeror's offer to purchase for cash all of the outstanding Shares at a purchase price of $6.75 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated October 12, 1999 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which together constitute the "Offer"). Offeror is a corporation, newly formed by Purchaser in connection with the Offer and the transactions contemplated thereby. The Offer is being made in connection with the Agreement and Plan of Merger, dated as of October 5, 1999 (the "Merger Agreement"), among Parent, Offeror and the Company. Subject to, and effective upon, acceptance for payment of and payment for the Shares tendered herewith, the undersigned hereby sells, assigns and transfers to, or upon the order of, Offeror all right, title and interest in and to all the Shares that are being tendered hereby and appoints First Chicago Trust Company of New York, as the Depositary (the "Depositary"), the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares or transfer ownership of such Shares on the account books maintained by the Book-Entry Transfer Facility, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of Purchaser, (b) present such Shares for transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares, all in accordance with the terms of the Offer. The undersigned hereby irrevocably appoints designees of Offeror and each of them as the attorneys-in-fact and proxies of the undersigned, each with full power of substitution, to the full extent of the rights of the undersigned with respect to the Shares tendered hereby and accepted for payment by Offeror prior to the time of any vote or other action (and any and all other shares or other securities issued or issuable in respect of such Shares on or after the date of the Offer to Purchase). All such powers of attorney and proxies shall be considered irrevocable and coupled with an interest. Such appointment will be effective when, and only to the extent that, Offeror accepts such Shares for payment. Upon such acceptance for payment, all prior powers of attorney and proxies given by the stockholder with respect to such Shares (and such other shares and securities) will, without further action, be revoked and no subsequent powers of attorney and proxies may be given nor any subsequent written consents executed (and, if given or executed, will not be deemed effective). The designees of Offeror will, with respect to the Shares (and such other shares and securities) for which such appointment is effective, be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual or special meeting of the Company's stockholders, or any adjournment or postponement thereof by written consent in lieu of any such meeting or otherwise. Offeror reserves the right to require that, in order for Shares to be deemed validly tendered, 3 immediately upon Offeror's payment for such Shares, Offeror must be able to exercise full voting and other rights with respect to such Shares (and such other shares and securities), including voting at any meeting of stockholders. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and that when the same are accepted for payment by Offeror, Offeror will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims. The undersigned, upon request, will execute and deliver any additional documents deemed by the Depositary or Offeror to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute an agreement between the undersigned and Offeror upon the terms and subject to the conditions of the Offer. Unless otherwise indicated under "Special Payment Instructions," please issue the check for the Purchase Price of any Shares purchased (less the amount of any federal income or backup withholding tax required to be withheld), and return any Shares not tendered or not purchased, in the name(s) of the undersigned (or, in the case of Shares tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility designated above). Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price of any Shares purchased (less the amount of any federal income or backup withholding tax required to be withheld) and any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the Purchase Price of any Shares purchased (less the amount of any federal income or backup withholding tax required to be withheld) and return any Shares not tendered or not purchased in the name(s) of, and mail said check and any certificates to, the person(s) so indicated. Unless otherwise indicated under "Special Payment Instructions," please credit any Shares tendered hereby and delivered by book-entry transfer, but which are not purchased by crediting the account at the Book-Entry Transfer Facility. The undersigned recognizes that the Company has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder(s) thereof if Offeror does not accept for payment any of the Shares so tendered. 4 SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instructions 1, 5, 6 and 7) (See Instructions 1, 5, 6 and 7) To be completed ONLY if the To be completed ONLY if the check for the purchase price of check for the purchase price of Shares purchased (less the amount Shares purchased (less the amount of any federal income and backup of any federal income and backup withholding tax required to be withholding tax required to be withheld) and certificates for withheld) and certificates for Shares not tendered or not Shares not tendered or not purchased are to be mailed to purchased are to be issued in the someone other than the name of someone other than the undersigned or to the undersigned undersigned, or if Shares at an address other than that tendered hereby and delivered by shown below the undersigned's book-entry transfer which are not signature. accepted for payment are to be returned by credit to an account at the Book-Entry Transfer Facility. Deliver check and certificates to: Name: ____________________________ Issue check and certificate(s) (Please Print) to: Address: _________________________ Name: ____________________________ (Please Print) ---------------------------------- (Include Zip Code) Address: _________________________ ---------------------------------- ---------------------------------- (Taxpayer Indentification Number (Include Zip Code) or Social Security Number) ---------------------------------- (Taxpayer Identification Number or Social Security Number) [_] Credit shares delivered by book-entry transfer and not purchased to the account set forth above. 5 SIGN HERE (Please Complete Substitute Form W-9 below) ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ Signature(s) of Owner(s) Name(s) ______________________________________________________________________ (Please Print) Capacity (full title) ________________________________________________________ Address ______________________________________________________________________ ------------------------------------------------------------------------------ (Include Zip Code) Area Code and Telephone Number _______________________________________________ Taxpayer Identification Number or Social Security Number _____________________ Dated ________________________________________________________________________ (Must be signed by registered holder(s) exactly as name(s) appear(s) on stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or other person operating in a fiduciary or representative capacity, please set forth full title and see Instruction 5.) GUARANTEE OF SIGNATURE(S), IF REQUIRED (See Instructions 1 and 5) Name of Firm _________________________________________________________________ Address (Include Zip Code) ___________________________________________________ Authorized Signature _________________________________________________________ Name(s) ______________________________________________________________________ Area Code and Telephone Number _______________________________________________ Dated ________________________________________________________________________ 6 INSTRUCTIONS Forming Part of the Terms and Conditions of the Offer 1. Guarantee of Signatures. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a financial institution (including most banks and brokerage houses) which is a participant in the Securities Transfer Agents Medallion Program (an "Eligible Institution"). Signatures on this Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) have not completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. Delivery of Letter of Transmittal and Shares; Guaranteed Delivery Procedure. You should use this Letter of Transmittal only if you are either forwarding certificates herewith or causing the Shares to be delivered by book-entry transfer pursuant to the procedures set forth in Section 3 of the Offer to Purchase. In order for you to validly tender Shares, certificates for all physically delivered Shares or a confirmation of a book-entry transfer of all Shares delivered electronically into the Depositary's account at the Book- Entry Transfer Facility, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other documents required by this Letter of Transmittal or an Agent's Message, in the case of a book- entry transfer, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal by the Expiration Date (as defined in the Offer to Purchase). If you cannot deliver your Shares and all other required documents to the Depositary by the Expiration Date, you must tender your Shares pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (a) such tender must be made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by Offeror must be received by the Depositary by the Expiration Date; and (c) the certificates for all physically delivered Shares or a confirmation of a book-entry transfer of all Shares delivered electronically into the Depositary's account at the Book-Entry Transfer Facility, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other documents required by this Letter of Transmittal or an Agent's Message, must be received by the Depositary within three Nasdaq Stock Market trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. The method of delivery of all documents, including Share certificates, is at your option and risk. If you choose to deliver the documents by mail, registered mail with return receipt requested, properly insured, is recommended. No alternative, conditional or contingent tenders will be accepted, and no fractional Shares will be purchased. By executing this Letter of Transmittal (or facsimile thereof), you waive any right to receive any notice of the acceptance for payment of the Shares. 3. Inadequate Space. If the space provided in the box captioned "Description of Shares Tendered" is inadequate, you should list the certificate numbers and/or the number of Shares on a separate signed schedule attached hereto. 4. Partial Tenders (not applicable to shareholders who tender by book-entry transfer). If you wish to tender (offer to sell) fewer than all of the Shares represented by any certificates that you deliver to the Depositary, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered." In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the appropriate box on this Letter of Transmittal, as promptly as practicable after the expiration or termination of the Offer. Unless you indicate otherwise, all Shares represented by certificates delivered to the Depositary will be deemed to have been tendered. 5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. 7 If any of the Shares tendered hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the Purchase Price is to be made, or Shares not tendered or not purchased are to be returned in the name of any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If this Letter of Transmittal or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Purchaser of the authority of such person so to act must be submitted. 6. Stock Transfer Taxes. Except as provided in this Letter of Transmittal, Offeror will pay any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be returned in the name of, any person other than the registered holder(s), or tendered Shares are registered in the name of a person other than the name of the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the purchase price, unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. 7. Special Payment and Delivery Instructions. If a check for the Purchase Price of any Shares accepted for payment is to be issued in the name of, and/or Share certificates for Shares not accepted for payment or not tendered are to be issued in the name of and/or returned to, a person other than the signer of this Letter of Transmittal or if a check is to be sent, and/or such certificates are to be returned, to a person other than the signer of this Letter of Transmittal, or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Any stockholder(s) delivering Shares by book-entry transfer may request that Shares not purchased be credited to such account maintained at the Book-Entry Transfer Facility as such stockholder(s) may designate in the box entitled "Special Payment Instructions." If no such instructions are given, any such Shares not purchased will be returned by crediting the account at the Book- Entry Transfer Facility designated above as the account from which such Shares were delivered. 8. Federal Income Tax Withholding. Under the federal income tax laws, the Depositary will be required to withhold 31% of the amount of any payments made to certain shareholders pursuant to the Offer. In order to avoid such backup withholding, each tendering shareholder must provide the Depositary with such stockholder's correct taxpayer identification number by completing the Substitute Form W-9 set forth below. In general, if a stockholder is an individual, the taxpayer identification number is the social security number of such individual. If the Depositary is not provided with the correct taxpayer identification number, the stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service and payments that are made to such stockholder pursuant to the Offer may be subject to backup withholding. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order to satisfy the Depositary that a foreign individual qualifies as an exempt recipient, such stockholder must submit an IRS Form W- 8, signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Depositary. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if Shares are held in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. 8 Failure to complete the Substitute Form W-9 will not, by itself, cause Shares to be deemed invalidly tendered, but may require the Depositary to withhold 31% of the amount of any payments made pursuant to the Offer. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of the tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. NOTE: FAILURE TO COMPLETE AND RETURN THE SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 9. Requests for Assistance or Additional Copies. Questions and requests for assistance or additional copies of the Offer to Purchase and this Letter of Transmittal should be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth below. 10. Waiver of Conditions. The conditions of the Offer may be waived by Offeror (subject to certain limitations in the Merger Agreement), in whole or in part, at any time or from time to time, in Offeror's reasonable discretion. 9 PAYER'S NAME: First Chicago Trust Company of New York Part 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW ---------------------- SUBSTITUTE Social Security Number FORM W-9 (If awaiting TIN write Department of the "Applied For") Treasury Internal Revenue OR Service ---------------------- Payer's Request for Employer Identification Taxpayer Number Identification Number (If awaiting TIN write (TIN) "Applied For") -------------------------------------------------------- Part 2--Certificate--Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued for me), and (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. -------------------------------------------------------- CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax returns. However, if after being notified by the IRS that you are subject to backup withholding, you receive another notification from the IRS that you are no longer subject to backup withholding, do not cross out such item (2). (Also see instructions in the enclosed Guidelines). -------------------------------------------------------- Part 3-- SIGNATURE ______________ DATE ___, 1999 Awaiting TIN [_] NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me, and either (1) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Officer or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer Identification Number to the Depositary by the time of payment, 31% of all reportable payments made to me thereafter will be withheld, but that such amounts will be refunded to me if I provide a certified Taxpayer Identification Number to the Depositary within sixty (60) days. SIGNATURE ___________________________________________ DATE ___________, 1999 10 The Information Agent for the Offer is: D.F. King & Co., Inc. 77 Water Street New York, New York 10005 Banks and Brokers Call Collect: (212) 269-5550 All Others Call Toll Free: (800) 488-8075 The Dealer Manager for the Offer is: MORGAN STANLEY DEAN WITTER Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 (212) 761-6088 EX-99.A3 4 LETTER TO BROKERS Exhibit (a)(3) Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Offer to Purchase For Cash All Outstanding Shares of Common Stock of CombiChem, Inc. at $6.75 Net Per Share by DPC Newco, Inc., a direct wholly owned subsidiary of DuPont Pharma, Inc., a wholly owned subsidiary of E.I. du Pont de Nemours and Company THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, NOVEMBER 8, 1999, UNLESS THE OFFER IS EXTENDED. To Brokers, Dealers, Commercial Banks, October 12, 1999 Trust Companies and Other Nominees: We have been appointed by DPC Newco, Inc., a Delaware corporation ("Offeror") and a direct wholly owned subsidiary of DuPont Pharma, Inc., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of E.I. du Pont de Nemours and Company, a Delaware corporation ("Parent"), to act as Dealer Manager in connection with Offeror's offer to purchase for cash all outstanding shares of common stock, $.001 par value (the "Shares"), of CombiChem, Inc., a Delaware corporation (the "Company"), at a purchase price of $6.75 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated October 12, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which together constitute the "Offer"). Offeror is a corporation, newly formed by Purchaser in connection with the Offer and the transactions contemplated thereby. The Offer is being made in connection with the Agreement and Plan of Merger dated as of October 5, 1999 (the "Merger Agreement"), among Parent, Offeror and the Company. Holders of Shares whose certificates for such Shares (the "Certificates") are not immediately available or who cannot deliver their Certificates and all other required documents to First Chicago Trust Company of New York (the "Depositary") or complete the procedures for book-entry transfer prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. 1 For your information and for forwarding to clients for whom you hold Shares registered in your name or in the name of your nominee, we are enclosing the following documents: 1. Offer to Purchase, dated October 12, 1999; 2. Letter of Transmittal for your use and for the information of your clients; 3. Letter to stockholders from Vicente Anido, Jr., President and Chief Executive Officer of the Company, together with a Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Securities and Exchange Commission by the Company and mailed to the stockholders of the Company; 4. Notice of Guaranteed Delivery to be used to accept the Offer if the Certificates, and all other required documents cannot be delivered to the Depositary by the Expiration Date (as defined in the Offer to Purchase); 5. A form of letter that may be sent to clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to backup federal income tax withholding; and 7. Return envelope addressed to First Chicago Trust Company of New York, the Depositary, for your use only. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, NOVEMBER 8, 1999, UNLESS THE OFFER IS EXTENDED. Please note carefully the following: 1. The tender price is $6.75 per Share, net to the seller in cash, without interest. 2. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the Expiration Date (as defined in the Offer to Purchase) that number of Shares which would represent at least a majority of the outstanding Shares on a fully diluted basis. 3. The Offer and withdrawal rights expire at 12:00 midnight New York City time, on November 8, 1999, unless Offeror extends the Offer. 4. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the transfer of Shares pursuant to the Offer. However, federal income tax backup withholding at a rate of 31% may be required, unless an exemption is available or unless the required taxpayer identification information is provided. See Instruction 6 of the Letter of Transmittal. 5. The Board of Directors of the Company has unanimously approved the Offer and the Merger (as defined in the Offer to Purchase) and determined that the terms of the Offer and the Merger are fair to, and in the best interests of, the stockholders of the Company, and recommends that the stockholders of the Company accept the Offer and tender all of their Shares pursuant thereto. 6. Notwithstanding any other provision of the Offer, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (a) Certificates pursuant to the procedures set forth in Section 3 of the Offer to Purchase or a timely Book- Entry Confirmation (as defined in the Offer to Purchase) with respect to such Shares, (b) a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) with any required signature guarantees or an Agent's Message (as 2 defined in the Offer to Purchase) in connection with a book-entry delivery of Shares and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times depending upon when Certificates for Shares or Book-Entry Confirmations are actually received by the Depositary. In order to take advantage of the Offer, (i) a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) with any required signature guarantees or an Agent's Message in connection with a book-entry delivery of Shares, and any other documents required by the Letter of Transmittal should be sent to the Depository and (ii) Certificates representing the tendered Shares or a timely Book-Entry Confirmation should be delivered to the Depository in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. If holders of Shares wish to tender, but it is impracticable for them to forward their Certificates or other required documents or complete the procedures for book-entry transfer prior to the Expiration Date, a tender may be effected by following the guaranteed delivery procedures specified in Section 3 of the Offer to Purchase. None of Offeror, Purchaser or Parent will pay any fees or commissions to any broker, dealer or other person (other than the Dealer Manager, as described in the Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer. Offeror will, however, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary costs and expenses incurred by them in forwarding materials to their customers. Offeror will pay all stock transfer taxes applicable to its purchase of Shares pursuant to the Offer, subject to Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to, and additional copies of the enclosed materials may be obtained from, the Information Agent or the undersigned at the addresses and telephone numbers set forth on the back cover of the Offer to Purchase. Very truly yours, MORGAN STANLEY DEAN WITTER Nothing contained herein or in the enclosed documents shall constitute you the agent of the Company, the Dealer Manager, the Information Agent or the Depositary, or authorize you or any other person to use any document or make any statement on behalf of any of them in connection with the Offer, other than the documents enclosed herewith and the statements contained therein. 3 EX-99.A4 5 LETTER TO CLIENTS Exhibit (a)(4) Offer to Purchase for Cash All Outstanding Shares of Common Stock of CombiChem, Inc. at $6.75 Net Per Share by DPC Newco, Inc., a direct wholly owned subsidiary of DuPont Pharma, Inc., a wholly owned subsidiary of E.I. du Pont de Nemours and Company THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, NOVEMBER 8, 1999, UNLESS THE OFFER IS EXTENDED. To Our Clients: October 12, 1999 Enclosed for your consideration are the Offer to Purchase, dated October 12, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer") in connection with the Offer by DPC Newco, Inc., a Delaware corporation ("Offeror") and a direct wholly owned subsidiary of DuPont Pharma, Inc., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of E.I. du Pont de Nemours and Company, a Delaware corporation ("Parent"), to purchase for cash all outstanding shares of common stock, $.001 par value (the "Shares"), of CombiChem, Inc., a Delaware corporation (the "Company"), at a purchase price of $6.75 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal. Offeror is a corporation, newly formed by Purchaser in connection with the Offer and the transactions contemplated thereby. The Offer is being made in connection with the Agreement and Plan of Merger dated as of October 5, 1999 (the "Merger Agreement"), among Parent, Offeror and the Company. We are the holder of record of Shares held for your account. As the holder of record of your Shares, only we, pursuant to your instructions, can tender your Shares. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. We request your instructions as to whether you wish us to tender any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer to Purchase and the Letter of Transmittal. Please note carefully the following: 1. The tender price is $6.75 per Share, net to the seller in cash, without interest. 2. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the Expiration Date (as defined in the Offer to Purchase) that number of Shares which would represent at least a majority of the outstanding Shares on a fully diluted basis. 3. The Offer and withdrawal rights expire at 12:00 midnight New York City time, on November 8, 1999, unless Offeror extends the Offer. 4. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the transfer of Shares pursuant to the Offer. However, federal income tax backup withholding at a rate of 31% may be required, unless an exemption is available or unless the required taxpayer identification information is provided. See Instruction 6 of the Letter of Transmittal. 5. The Board of Directors of the Company has unanimously approved the Offer and the Merger (as defined in the Offer to Purchase) and determined that the terms of the Offer and the Merger are fair to, and in the best interests of, the stockholders of the Company, and recommends that the stockholders of the Company accept the Offer and tender all of their Shares pursuant thereto. 6. Notwithstanding any other provision of the Offer, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (a) Certificates pursuant to the procedures set forth in Section 3 of the Offer to Purchase or a timely Book- Entry Confirmation (as defined in the Offer to Purchase) with respect to such Shares, (b) a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) with any required signature guarantees or an Agent's Message (as defined in the Offer to Purchase) in connection with a book-entry delivery of Shares and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times depending upon when Certificates for Shares or Book-Entry Confirmations are actually received by the Depositary. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, NOVEMBER 8, 1999, UNLESS THE OFFER IS EXTENDED. If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing, detaching and returning to us the instruction form set forth below. An envelope to return your instructions to us is enclosed. Please forward your instructions to us as soon as possible to allow us ample time to tender your Shares on your behalf prior to the expiration of the Offer. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares residing in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the securities laws of such jurisdiction. However, Offeror may, in its discretion, take such action as it may deem necessary to make the Offer in any jurisdiction and extend the Offer to holders of Shares in such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on behalf of Offeror by Morgan Stanley & Co. Incorporated, the Dealer Manager for the Offer, or one or more registered brokers or dealers licensed under the laws of such jurisdiction. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF COMBICHEM, INC. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase dated October 12, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer"), in connection with the Offer by DPC Newco, Inc., a Delaware corporation ("Offeror") and a direct wholly owned subsidiary of DuPont Pharma, Inc., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of E.I. du Pont de Nemours and Company, a Delaware corporation ("Parent"), to purchase for cash all outstanding shares of common stock, $.001 par value (the "Shares"), of CombiChem, Inc., a Delaware corporation (the "Company"), at a purchase price of $6.75 per Share, net to the undersigned in cash, without interest, upon the terms and subject to the conditions set forth in the Offer. Offeror is a corporation, newly formed by Purchaser in connection with the Offer and the transactions contemplated thereby. The Offer is being made in connection with the Agreement and Plan of Merger dated as of October 5, 1999 (the "Merger Agreement"), among Parent, Offeror and the Company. The undersigned hereby instruct(s) you to tender to Offeror the number of Shares indicated below or, if no number is indicated, all Shares held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal. [_] By checking this box, all Shares held by us for your account, excluding fractional Shares, will be tendered. If fewer than all Shares are to be tendered, please check the box and indicate below the aggregate number of Shares to be tendered by us: Shares* - -------- * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. SIGN HERE - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Signatures) Dated: ________________________________________________________________________ Name of Shareholders: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Address) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Zip Code) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Area Code and Telephone No.) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Taxpayer ID No. or Social Security No.) 3 EX-99.A5 6 NOTICE OF GUARANTEED DELIVERY Exhibit (a)(5) Notice of Guaranteed Delivery for Tender of Shares of Common Stock of CombiChem, Inc. to DPC Newco, Inc., a direct wholly owned subsidiary of DuPont Pharma, Inc., a wholly owned subsidiary of E.I. du Pont de Nemours and Company The attached form, or a form substantially equivalent to the attached form, must be used to accept the Offer (as defined below) if certificates for shares of common stock, $.001 par value (the "Shares"), of CombiChem, Inc., a Delaware corporation (the "Company"), and all other documents required by the Letter of Transmittal cannot be delivered to the Depositary prior to the Expiration Date (as defined in the Offer to Purchase). Such form may be delivered by hand, facsimile transmission or mail to the Depositary. See Section 3 of the Offer to Purchase. The Depositary for the Offer is: First Chicago Trust Company of New York By Mail: By Overnight Delivery: By Hand: First Chicago Trust First Chicago Trust First Chicago Trust Company of Company of Company of New York New York New York Corporate Actions, Suite Corporate Actions, Suite c/o Securities Transfer 4660 4680 and P.O. Box 2569 14 Wall Street, 8th Floor Reporting Services Inc. Jersey City, NJ 07303- New York, NY 10005 Attn: Corporate Actions 2569 100 William Street, Galleria New York, NY 10038 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN THOSE SHOWN ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. THE ELIGIBLE INSTITUTION THAT COMPLETES THIS FORM MUST COMMUNICATE THE GUARANTEE TO THE DEPOSITARY AND MUST DELIVER THE LETTER OF TRANSMITTAL OR AN AGENT'S MESSAGE (AS DEFINED IN THE OFFER TO PURCHASE) AND CERTIFICATES FOR SHARES TO THE DEPOSITARY WITHIN THE TIME PERIOD SHOWN HEREIN. FAILURE TO DO SO COULD RESULT IN A FINANCIAL LOSS TO SUCH ELIGIBLE INSTITUTION. THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED. Ladies and Gentlemen: The undersigned hereby tenders to DPC Newco, Inc., a Delaware corporation ("Offeror") and a direct wholly owned subsidiary of DuPont Pharma, Inc., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of E.I. du Pont de Nemours and Company, a Delaware corporation ("Parent"), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated October 12, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer"), receipt of which is hereby acknowledged, the number (indicated below) of shares of common stock, $.001 par value (the "Shares"), of CombiChem, Inc., a Delaware corporation (the "Company"), at a purchase price of $6.75 per Share, net to the seller in cash, without interest, pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Offeror is a corporation, newly formed by Purchaser in connection with the Offer and the transactions contemplated thereby. The Offer is being made in connection with the Agreement and Plan of Merger dated as of October 5, 1999 (the "Merger Agreement"), among Parent, Offeror and the Company. SIGN HERE Number of Shares:___________________ ------------------------------------ Certificate Nos. (if available): ------------------------------------ ------------------------------------ Signatures Dated:______________________________ ------------------------------------ Name of Shareholders: ------------------------------------ ------------------------------------ If Shares will be tendered by book- entry transfer: ------------------------------------ Name of Tendering Institution: (Please Type or Print) ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ (Address) Account Number:_____________________ ------------------------------------ ------------------------------------ (Zip Code) ------------------------------------ ------------------------------------ (Area Code and Telephone No.) ------------------------------------ ------------------------------------ (Taxpayer ID No. or Social Security No.) GUARANTEE (Not to Be Used for Signature Guarantees) The undersigned, a firm that is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office, branch or agency in the United States, guarantees (a) that the above named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended, (b) that such tender of Shares complies with Rule 14e-4 and (c) to deliver to the Depositary the Shares tendered hereby, together with a properly completed and duly executed Letter(s) of Transmittal (or facsimile(s) thereof), unless an Agent's Message is utilized, and any other required documents, all within three Nasdaq Stock Market trading days of the date hereof. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and certificates for Shares to the Depositary within the same time period herein. Failure to do so could result in a financial loss to such Eligible Institution. Name of Firm: _______________________ ------------------------------------- Authorized Signature Address: ____________________________ Name: _______________________________ - ------------------------------------- Please Print Zip Code Area Code & Tel. No.: _______________ Title: ______________________________ Date: ________________________ , 1999 DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES SHOULD BE SENT ONLY WITH YOUR LETTER OF TRANSMITTAL. 2 EX-99.A6 7 FORM W-9 Exhibit (a)(6) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number to Give the Payor.-- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payor. - ----------------------------------- -----------------------------------
Give the NAME and SOCIAL SECURITY For this type of account: NUMBER of-- - --------------------------------------------- 1. One account The individual 2. Two or more individuals The actual owner (joint account) of the account or, if combined funds, the first individual on the account(1) 3. Husband and wife (joint The actual owner account) of the account or, if joint funds, either person(1) 4. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult, or, account) if the minor is the only contributor, the minor(2) 6. Account in the name of The ward, minor, guardian or committee or for a designated ward, incompetent(3) minor, or incompetent person 7.a The usual revocable The grantor- savings trust (grantor trustee(1) is also trustee) b So-called trust account The actual that is not a legal or owner(1) valid trust under state law 8. Sole proprietorship The owner(4) - ---------------------------------------------
Give the NAME and EMPLOYER IDENTIFICATION For this type of account: NUMBER of-- -- 9. A valid trust, estate, Legal entity (Do or pension trust not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporation The corporation 11. Association, club, The organization religious, charitable or educational, or other tax-exempt organization 12. Partnership held in the The partnership name of the business 13. A broker or registered The broker or nominee nominee 14. Account with the The public Department of entity Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments --
- ------- (1) List first and circle the name of the person whose number you furnish. If only one person on a joint account has an SSN, that person's number must be furnished. (2) Circle the minor's name and furnish the minor's SSN. (3) Circle the ward's name, the minor's name, or the incompetent person's name and furnish such person's SSN or EIN. (4) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your SSN or EIN. (5) List first and circle the name of the legal trust, estate, or pension trust. Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Page 2 Obtaining a Number If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Card (for individuals) or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), from the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. Payees Exempt from Backup Withholding Payees specifically exempted from backup withholding on interest and dividend payments include the following: . A corporation. . A financial institution. . An organization exempt from tax under section 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or an individual retirement plan. . The United States or any agency or instrumentality thereof. . A state, the District of Columbia, a possession of the United States, or any political subdivision or instrumentality thereof. . A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. . An international organization or any agency, or instrumentality thereof. . A registered dealer in securities or commodities registered in the U.S., Washington, D.C., or a possession of the U.S. . A real estate investment trust. . A common trust fund operated by a bank under section 584(a) of the Code. . An exempt charitable remainder trust, or a non-exempt trust described in section 4947. . An entity registered at all times under the Investment Company Act of 1940. . A foreign central bank of issue. . A middleman known in the investment community as a nominee or who is listed in the most recent publication of the American Society of Corporate Securities, Inc., Nominee List. Payments Exempt from Backup Withholding Payments of dividends and patronage dividends not generally subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441 of the Code. . Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident alien partner. . Payments of patronage dividends where the amount received is not paid in money. . Payments made by certain foreign organizations. . Section 404(k) payments made by an ESOP. Payments of interest not generally subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You will be subject to backup withholding if this interest is $600 or more and is paid in the course of the payor's trade or business and you have not provided your correct taxpayer identification number to the payor. . Payments of tax-exempt interest (including exempt-interest dividends under section 852 of the Code). . Payments described in section 6049(b)(5) of the Code to nonresident aliens. . Payments on tax-free covenant bonds under section 1451 of the Code. . Payments made by certain foreign organizations. . Payments of mortgage interest to you. Exempt payees described above should file Substitute Form W-9 with the payor to avoid possible erroneous backup withholding. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYOR. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYOR A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS). Certain payments other than interest dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A, and 6050N of the Code. Privacy Act Notice.--Section 6109 of the Code requires most recipients of dividend, interest, or other payments to give correct taxpayer identification numbers to payors who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. Payors must be given the numbers whether or not recipients are required to file a tax return. Payors must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a correct taxpayer identification number to a payor. Certain penalties may also apply. Penalties (1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you fail to furnish your correct taxpayer identification number to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) Civil Penalty for False Information With Respect To Withholding.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) Criminal Penalty for Falsifying Information.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.A7 8 JOINT PRESS RELEASE, DATED OCTOBER 5, 1999 Exhibit (a)(7) DuPont Plans to Acquire CombiChem To Assist in Drug Discovery WILMINGTON, Del. and SAN DIEGO, Calif., Oct. 5 -- DuPont (NYSE: DD) and CombiChem, Inc. (NASDAQ: CCHM) today announced they have entered into an agreement that provides for DuPont to acquire CombiChem for $6.75 per share in cash, or approximately $95 million. Once completed, this acquisition is expected to drive DuPont's efforts in the discovery and development of new medicines. The planned acquisition is the second in a series of actions taken by DuPont recently to strengthen its pharmaceuticals business through alliances and acquisitions. The company announced a major research collaboration with Pharmasset Limited on Sept. 27, which will focus on research and development of proprietary HIV and hepatitis B virus antiviral compounds. "This acquisition demonstrates DuPont's firm commitment to be a leader in discovering, developing and delivering medicines that improve the health of people worldwide," said Kurt M. Landgraf, DuPont executive vice president and chief operating officer. "CombiChem is an outstanding company with demonstrated performance in linking sophisticated computer technology with chemistry to identify potential new medicines, as well as agricultural and other biotechnology products. "The combination of DuPont's position as a premier science company and CombiChem's innovative approach to drug discovery is expected to produce medicines with far-reaching health benefits." "This agreement was approved unanimously by CombiChem's board of directors," said Vince Anido, president and chief executive officer of CombiChem. "We look forward to being a part of DuPont and joining a team of scientists who, like us, are dedicated to the discovery of new medicines." Based in San Diego, CombiChem integrates proprietary computer modeling technology with advanced chemistry expertise to discover potential new drug compounds, as well as compounds that have applications in agriculture and materials sciences. The company uses computer-based methods to shorten the time of discovery, identify potential drug development problems early and to point the way to new compounds not previously considered. Following completion of the acquisition, CombiChem will operate as part of DuPont Pharmaceuticals Laboratories and will remain in California, a center for biotechnology and computer technology development. "DuPont has an abundance of excellent drug discovery targets. We look forward to having the CombiChem staff join the DuPont Pharmaceuticals research team to move medicines acting on these targets into development," said Paul Friedman, M.D., president of DuPont Pharmaceuticals Research Laboratories. "This agreement with CombiChem exemplifies DuPont's commitment to the pharmaceuticals industry," said Nicholas L. Teti, president of DuPont Pharmaceuticals. "We fully expect the acquisition to add significant strength to our product pipeline." The agreement provides for a tender offer for all of the outstanding shares of common stock of CombiChem at $6.75 per share, which will commence within five business days. If successful, the tender offer will be followed by a merger in which all of the shares not tendered will be purchased at the same price. The tender offer will be made only by means of an Offer to Purchase which will contain the specific terms of the transaction and which will be provided to CombiChem stockholders. CombiChem stockholders owning approximately 34 percent of CombiChem's outstanding shares have committed to support the transaction and have entered into voting and option agreements with DuPont. CombiChem has granted DuPont an option to purchase other CombiChem shares under certain conditions. The acquisition is subject to customary regulatory approvals and conditions, and the receipt of a majority of CombiChem shares by DuPont. The two companies expect to complete the transaction prior to the end of the year. DuPont Pharmaceuticals is a worldwide business that focuses on research, development and delivery of pharmaceuticals to treat unmet medical needs in the fights against HIV infection, cardiovascular disease, central nervous system disorders, cancer, arthritis and related disorders. The company also is a leader in medical imaging. DuPont is a science company, delivering science-based solutions that make a difference in people's lives in food and nutrition; health care; apparel; home and construction; electronics; and transportation. Founded in 1802, the company operates in 65 countries and has 97,000 employees. Forward-Looking Statements: This news release contains forward-looking statements based on management's current expectations, estimates and projections. All statements that address expectations or projections about the future, including statements about the company's strategy for growth, product development, market position, expected expenditures and financial results are forward-looking statements. Some of the forward-looking statements may be identified by words like "expects," "anticipates," "plans," "intends," "projects," "indicates," and similar expressions. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. Many factors, including those discussed more fully elsewhere in this release and in DuPont's filings with the Securities and Exchange Commission, particularly its latest annual report on Form 10-K, as well as others, could cause results to differ materially from those stated. These factors include, but are not limited to successful completion of the tender offer and subsequent merger, whether the merger will result in the discovery and development of new medicines, changes in the laws, regulations, policies and economic conditions of countries in which the company does business; competitive pressures; successful integration of structural changes, including acquisitions, divestitures and alliances; failure of the 2 company or related third parties to become Year 2000 capable; research and development of new products, including regulatory approval and market acceptance. 3 EX-99.A8 9 SUMMARY ADVERTISEMENT Exhibit (a)(8) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares. The Offer is made solely by the Offer to Purchase, dated October 12, 1999, and the related Letter of Transmittal, and is not being made to, and tenders will not be accepted from, or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. If the securities laws of any jurisdiction require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Offeror by Morgan Stanley & Co. Incorporated, the Dealer Manager for the Offer, or one or more registered brokers or dealers licensed under the laws of such jurisdiction. Notice of Offer to Purchase All Outstanding Shares of Common Stock of CombiChem, Inc. at $6.75 Net Per Share in Cash by DPC Newco, Inc., a direct wholly owned subsidiary of DuPont Pharmaceuticals Company, a wholly owned subsidiary of E.I. du Pont de Nemours and Company DPC Newco, Inc., a Delaware corporation ("Offeror"), and a direct wholly owned subsidiary of DuPont Pharma, Inc., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of E.I. du Pont de Nemours and Company, a Delaware corporation ("DuPont"), is offering to purchase all outstanding shares ("Shares") of Common Stock, par value $0.001 per share ("Common Stock"), of CombiChem, Inc., a Delaware corporation ("Company"), at a purchase price of $6.75 per share, net to the seller in cash, without interest ("Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated October 12, 1999, and in the related Letter of Transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). See the Offer to Purchase for capitalized terms used but not defined herein. - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT NEW YORK CITY TIME, ON MONDAY, NOVEMBER 8, 1999, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the Expiration Date (as defined below) Shares representing not less than a majority of the Shares then outstanding on a fully diluted basis on the date of purchase ("Minimum Condition") and (ii) the expiration or termination of any applicable waiting periods imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). See Sections 12 and 14 of the Offer to Purchase. The Offer is not conditioned on obtaining financing. The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of October 5, 1999 ("Merger Agreement"), by and among Offeror, DuPont and the Company. DuPont has assigned all of its rights under the Merger Agreement to Purchaser and Purchaser has agreed to assume all of DuPont's obligations under the Merger Agreement. The Merger Agreement provides, among other things, for the commencement of the Offer by Offeror and further provides that, after the purchase of the Shares pursuant to the Offer and subject to the satisfaction or waiver of certain conditions set forth therein, Offeror will be merged with and into the Company ("Merger"), with the Company surviving the Merger as a direct wholly owned subsidiary of Purchaser, and an indirect wholly owned subsidiary of DuPont. Pursuant to the Merger, each outstanding Share (other than (i) Shares owned by DuPont, Purchaser, Offeror or any subsidiaries thereof or Shares held in the Company's treasury and (ii) Shares held by holders who have properly exercised their appraisal rights under the Delaware General Corporation Law or other applicable law) immediately prior to the Effective Time (as defined in the Merger Agreement), will be converted into the right to receive the Offer Price, in cash, without interest thereon, less any required withholding taxes, upon the surrender of certificates formerly representing such Shares. Simultaneously with the execution and delivery of the Merger Agreement, Offeror and DuPont entered into a Shareholders Agreement, dated as of October 5, 1999 (the "Shareholders Agreement"), with certain stockholders of the Company (the "Major Stockholders") who, as of September 27, 1999 own 4,549,541 shares of Common Stock of the Company, in the aggregate. Under the Shareholders Agreement, the Major Stockholders have agreed, subject to the terms thereof, to tender all of their shares of Common Stock of the Company to Offeror pursuant to the tender offer described in the Merger Agreement, and to vote their shares in favor of the Merger described in the Merger Agreement. The Major Stockholders have also granted Offeror and the Company a proxy to vote their shares, representing approximately 33.7% of the issued and outstanding shares of Common Stock of the Company as of September 27, 1999, in favor of the Merger. Simultaneously with the execution and delivery of the Merger Agreement, DuPont, Offeror and the Company also entered into a Stock Option Agreement, dated as of October 5, 1999 (the "Option Agreement"), pursuant to which the Company granted to DuPont an option to purchase 2,684,431 shares of Common Stock, subject to the terms thereof. If this option were to be exercised and these shares were issued to DuPont, such shares would, together with the shares subject to the Shareholders Agreement, represent approximately 44.7% of the issued and outstanding shares of Common Stock of the Company as of September 27, 1999. DuPont assigned all of its rights under the Shareholders Agreement and the Stock Option Agreement to Purchaser and Purchaser assumed all of DuPont's obligations thereunder. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER AND DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND THE HOLDERS OF SHARES AND HAS UNANIMOUSLY RECOMMENDED THAT THE HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES. For purposes of the Offer, Offeror will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered to Offeror and not withdrawn on or prior to the Expiration Date if, as and when Offeror gives oral or written notice to The First Chicago Trust Company of New York (the "Depositary") of Offeror's acceptance for payment of such Shares. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payment from Offeror and transmitting payments to tendering stockholders. Upon the deposit of funds with the Depositary for the purpose of making payments to tendering stockholders, Offeror's obligation to make such payments will be satisfied, and tendering stockholders must thereafter look solely to the Depositary for payments of amounts owed to them by reason of the acceptance for payment of Shares pursuant to the Offer. The term "Expiration Date" means 12:00 midnight, New York City time, on Monday, November 8, 1999 unless and until Offeror, in accordance with the terms of the Offer and the Merger Agreement, extends the period of time during which the Offer is open, in which event the term "Expiration Date" means the latest time and date at which the Offer, as so extended, expires. In the Merger Agreement, Offeror has agreed that it will not, without the prior consent of the Company, extend the Offer if all of the conditions to the Offer have been satisfied, except that Offeror may, without the consent of the Company, extend the Offer (i) if on the scheduled Expiration Date of the Offer any of the conditions to the Offer shall not have been satisfied or waived, for one or more periods (none of which shall exceed ten business days) but in no event past 60 days from the date of the Merger Agreement, unless the waiting period applicable to the transactions contemplated by the Merger Agreement under the HSR Act has not terminated or expired, and then in any event not later than May 31, 2000, (ii) for such period as may be required by any rule, regulation, interpretation or position of the Commission or its staff applicable to the Offer, or (iii) if all conditions to the Offer are satisfied or waived but more than 90% of the shares of Common Stock issued and outstanding on a fully diluted basis have not been tendered, for one or more periods (each such period to be for not more than five business days and such extensions to be for an aggregate period of not more than fifteen business days and such extensions to be for an aggregate period of not more than fifteen business days beyond the latest expiration date that would be permitted under clause (i) or (ii) of this sentence). There can be no assurance that Offeror will exercise its right to extend the Offer. Offeror reserves the right (but shall not be obligated), in accordance with applicable rules and regulations of the Commission, to waive any condition to the Offer; provided, however, that pursuant to the Merger Agreement, Offeror has agreed that it will not, without the consent of the Company, (i) decrease the amount or change the form of consideration payable in the Offer, (ii) decrease the number of Shares sought in the Offer, (iii) impose additional conditions to the Offer, (iv) change any conditions to the Offer (including the conditions described in Section 1 of the Offer to Purchase) or amend any other term of the Offer if any such change or amendment would be materially adverse to the holders of Shares (other than DuPont or Offeror) or (v) amend or waive the Minimum Condition. If the Minimum Condition, or any of the other conditions set forth in Section 14 of the Offer to Purchase, has not been satisfied by 12:00 midnight, New York City time, on Monday, November 8, 1999 (or any other time then set as the Expiration Date), Offeror may elect to (1) subject to the qualifications above with respect to the extension of the Offer, extend the Offer and, subject to applicable withdrawal rights, retain all tendered Shares until the expiration of the Offer, as extended, subject to the terms of the Offer, (2) subject to complying with applicable rules and regulations of the Commission and to the terms of the Merger Agreement, accept for payment all Shares so tendered and not extend the Offer or (3) subject to the terms of the Merger Agreement, terminate the Offer and not accept for payment any Shares and return all tendered Shares to tendering stockholders. Except as set forth above, and subject to the applicable rules and regulations of the Commission, Offeror expressly reserves the right, in its sole discretion, to amend the Offer in any respect. Any extension of the period during which the Offer is open, or delay in acceptance for payment or termination or amendment of the Offer, will be followed, as promptly as practicable, by public announcement thereof, such announcement in the case of an extension to be issued not later than 9:00 a.m. New York City time, on the next business day after the previously scheduled Expiration Date in accordance with the public announcement requirements of Rule 14d-4(c) under the Securities Exchange Act of 1934, as amended ("Exchange Act"). The reservation by Offeror of the right to delay acceptance for payment of, or payment for, Shares is subject to the provisions of Rule 14e-1(c) under the Exchange Act, which requires that Offeror pay consideration offered or return the Shares deposited by or on behalf of stockholders promptly after the termination or withdrawal of the Offer. Offeror shall not have any obligation to pay interest on the purchase price for tendered Shares whether or not Offeror exercises its right to extend the Offer. Tenders of Shares made pursuant to the Offer are irrevocable, except as otherwise provided in Section 4 of the Offer to Purchase. Shares tendered pursuant to the Offer may be withdrawn pursuant to the procedures set forth in Section 4 of the Offer to Purchase at any time prior to the Expiration Date and, unless theretofore accepted for payment and paid for by Offeror pursuant to the Offer, may also be withdrawn at any time after December 10, 1999. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the tendering stockholder must also submit to the Depositary the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn, and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined below), except in the case of Shares tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer set forth in Section 3 of the Offer to Purchase, the notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with such Book-Entry Transfer Facility's procedures. An "Eligible Institution" is a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing of a recognized Medallion Program approved by The Securities Transfer Association, Inc. THE INFORMATION REQUIRED TO BE DISCLOSED BY RULE 14D-6(E)(1)(VII) OF THE GENERAL RULES AND REGULATIONS UNDER THE EXCHANGE ACT IS CONTAINED IN THE OFFER TO PURCHASE AND IS INCORPORATED HEREIN BY REFERENCE. The Company has provided Offeror with its stockholder list and security position listings for the purpose of disseminating the Offer to stockholders. The Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed to record holders of Shares and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the Company's stockholder list, or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. STOCKHOLDERS ARE URGED TO READ THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR SHARES PURSUANT TO THE OFFER. Questions and requests for assistance or for copies of the Offer to Purchase, the related Letter of Transmittal, the Notice of Guaranteed Delivery or other related materials may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth below, and copies will be furnished promptly at Offeror's expense. Holders of Shares may also contact brokers, dealers, commercial bankers and trust companies for additional copies of the Offer to Purchase, the related Letter of Transmittal, the Notice of Guaranteed Delivery or other related materials. The Information Agent for the Offer is: D.F. King & Co., Inc. 77 Water Street New York, New York 10005 Banks and Brokers Call Collect: (212) 269-5550 All Others Call Toll Free: (800) 488-8075 The Dealer Manager for the Offer is: MORGAN STANLEY DEAN WITTER Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 (212) 761-6088 October 12, 1999 EX-99.C1 10 AGREEMENT AND PLAN OF MERGER Exhibit (c)(1) AGREEMENT AND PLAN OF MERGER among COMBICHEM, INC., E. I. DU PONT DE NEMOURS AND COMPANY and DPC NEWCO, INC. Dated as of October 5, 1999 Table of Contents Section Page - -------- ---- ARTICLE I The Tender Offer
1.1. The Offer.................................................... 2 1.2. SEC Filings.................................................. 4 1.3 Company Action............................................... 5 1.4 Composition of the Company Board............................. 5 ARTICLE II The Merger; Closing; Effective Time 2.1. The Merger................................................... 6 2.2. Closing...................................................... 6 2.3. Effective Time............................................... 6 ARTICLE III Certificate of Incorporation and Bylaws of the Surviving Corporation 3.1. The Certificate of Incorporation............................. 7 3.2. The Bylaws................................................... 7 ARTICLE IV Officers and Directors of the Surviving Corporation 4.1. Directors.................................................... 7 4.2. Officers..................................................... 7 ARTICLE V Effect of the Merger on Capital Stock; Exchange of Certificates 5.1. Effect on Outstanding Securities............................. 7 5.2. Surrender and Payment........................................ 9 5.3. Adjustment of Merger Consideration........................... 10 5.4. Merger Without Meeting of Stockholders....................... 11 ARTICLE VI Representations and Warranties 6.1. Representations and Warranties of the Company................ 11 6.2. Representations and Warranties of Parent and Merger Sub...... 28
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ARTICLE VII Covenants 7.1. Company Interim Operations................................... 30 7.2. Acquisition Proposals........................................ 32 7.3. Company Stockholder Approval; Proxy Statement................ 33 7.4. Approvals and Consents; Cooperation.......................... 35 7.5. Filings; Other Actions; Notification......................... 36 7.6. Access....................................................... 37 7.7. De-registration.............................................. 37 7.8. Publicity.................................................... 37 7.9. Benefits..................................................... 37 7.10. Expenses..................................................... 39 7.11. Indemnification; Directors' and Officers' Insurance.......... 39 7.12. Antitakeover Statutes........................................ 40 ARTICLE VIII Conditions 8.1. Conditions to Each Party's Obligation to Effect the Merger... 40 ARTICLE IX Termination 9.1. Termination by Mutual Consent................................ 41 9.2. Termination by Either Parent or the Company.................. 41 9.3. Termination by the Company................................... 42 9.4. Termination by Parent........................................ 43 9.5. Effect of Termination and Abandonment........................ 44
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ARTICLE X Miscellaneous and General 10.1. Survival.................................................... 44 10.2. Modification or Amendment................................... 45 10.3. Waiver of Conditions........................................ 45 10.4. Counterparts................................................ 45 10.5. Governing Law and Venue; Waiver of Jury Trial............... 45 10.6. Notices..................................................... 46 10.7. Entire Agreement............................................ 47 10.8. No Third Party Beneficiaries................................ 47 10.9. Obligations of Parent and of the Company.................... 47 10.10. Severability................................................ 47 10.11. Specific Performance........................................ 48 10.12. Interpretation.............................................. 48 10.13. Assignment.................................................. 48 10.14. Captions.................................................... 48
Annex A - Conditions to the Offer Schedules and Exhibits ---------------------- Schedule 6.1(a) Subsidiaries Schedule 6.1(b) Outstanding Stock Options and Warrants Schedule 6.1(d)(ii) Consents and Waivers Schedule 6.1(f) Certain Changes Schedule 6.1(h)(i) Compensation and Benefit Plans Schedule 6.1(n)(i) Intellectual Property Schedule 6.1(n)(ii) Exceptions to IP Ownership Schedule 6.1(n) (xvi) Employees Not Subject to Confidentiality Agreements Schedule 6(o)(ii) Year 2000 Testing and Analysis Schedule 6(o)(iii) Year 2000 Plan Schedule 6.1(p)(i) Labor Matters Schedule 6.1(r) Company Material Contracts Schedule 6.1(w) Employment Agreements with Key Employees Schedule 7.1 Company Interim Operations Schedule 7.11(a) Indemnification Agreements Exhibit 8.1(f) Opinion of Counsel to the Company iii Cross-Reference of Defined Terms -------------------------------- Term Defined in - ---- ---------- Acquisition Proposal Section 7.2(b) Acquisition Transaction Section 7.2(a) Action Annex A Agreement Introductory paragraph Antitakeover Statute Section 6.1(j) Audit Date Section 6.1(f) Business Days Section 1.1(a) Bylaws Section 3.2 Certificate Section 5.1(a)(ii) Certificate of Merger Section 2.3 Charter Section 3.1 Closing Date Section 2.2 Closing Section 2.2 COBRA Section 6.1(h)(i) Code Section 6.1(h)(ii) Common Stock Recitals Company Introductory paragraph Company Disclosure Schedules Section 6.1 Company 401(k) Section 7.9(b) Company Intellectual Property Section 6.1(n)(ii) Company Material Adverse Effect Section 6.1(a) Company Material Contracts Section 6.1(u) Company Option Section 6.1(b) Company Owned IP Section 6.1(n)(i) Company Reports Section 6.1(e) Company Requisite Vote Section 6.1(c)(i) Company Stockholders Meeting Section 7.3(a) Compensation and Benefit Plan Section 6.1(h)(i) Constituent Corporations Introductory paragraph Contracts Section 6.1(d)(ii) Controlled Group Affiliate Section 6.1(h)(i) Current Employees Section 7.9(b) Depositary Section 5.2(a) DGCL Recitals DLJ Section 1.2(b) Dissenting Shares Recitals DPC Section 7.6 Effective Time Section 2.3 Employees Section 6.1(h)(i) Employment Agreements Recitals iv Environmental Law Section 6.1(k) ERISA Section 6.1(h)(i) ESPP Section 6.1(b) Exchange Act Section 1.1(a) Excluded Shares Section 5.1(a)(i) Foreign Authority Section 9.2 Foreign Merger Laws Section 9.2 GAAP Section 6.1(e) Governmental Entity Section 6.1(d)(i) Hazardous Substance Section 6.1(k) HSR Act Section 1.1(b)(ii) Intellectual Property Rights Section 6.1(n)(ix) Knowledge Section 6.1(g) Laws Section 6.1(i) Letter of Transmittal Section 5.2(b) Merger Recitals Merger Consideration Section 5.1(a)(i) Merger Sub Introductory paragraph Minimum Condition Section 1.1(b)(i) MNDA Section 7.6 Offer Recitals Offer Conditions Section 1.1(b)(i) Offer Documents Section 1.2(a) Order Section 8.1(c) Parent Introductory paragraph Parent Companies Section 5.1(a)(i) Parent Representatives Section 7.6 Payment Fund Section 5.2(a) Pension Plan Section 6.1(h)(ii) Person Section 5.2(b) Preferred Shares Section 6.1(b) Price Per Share Recitals Proxy Statement Section 7.4(b) Schedule 14D-l Section 1.2(a) Schedule 14D-9 Section 1.2(b) Scheduled Expiration Date Section 1.1(b)(ii) SEC Section 1.1(b)(ii) Share Recitals Shareholders Agreement Recitals Software Section 6.1(o)(iv) Stock Option Agreement Recitals Stock Plans Section 6.1(b) Subsidiary Section 6.1(a) Superior Proposal Section 7.2(c) v Surviving Corporation Section 2.1 Taxes Section 6.1(m) Tax Returns Section 6.1(m) Terminating Company Breach Section 9.4(b) Terminating Parent Breach Section 9.3(b) Third Party Licenses Section 6.1(n)(ii) Voting Debt Section 6.1(b) Warrants Section 5.1(a)(iii) Warrant Spread Section 5.1(a)(iii) vi AGREEMENT AND PLAN OF MERGER ---------------------------- THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October 5, 1999, among CombiChem, Inc., a Delaware corporation (the "Company"), E. I. du Pont de Nemours and Company, a Delaware corporation ("Parent"), and DPC Newco, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub," the Company and Merger Sub sometimes being hereinafter collectively referred to as the "Constituent Corporations"). RECITALS WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the Company have each approved the Offer (as defined herein) and the Merger (as defined herein) and have determined that it is in the best interests of their respective companies and stockholders for Parent to acquire the Company upon the terms and subject to the conditions set forth herein; WHEREAS, in furtherance of such acquisition, Parent proposes to cause Merger Sub to make a tender offer (as it may be amended from time to time as permitted under this Agreement, the "Offer") to purchase all of the outstanding shares of common stock, $.001 par value per share ("Common Stock"), of the Company (each a "Share" or collectively, the "Shares") at a price per Share of U.S. $6.75 net to the seller in cash (such price, or any higher price paid in the Offer, the "Price Per Share"), upon the terms and subject to the conditions set forth in this Agreement; WHEREAS, the Board of Directors of the Company has unanimously approved this Agreement, the Offer and the Merger, has determined that the Offer and the Merger are fair to and in the best interests of the Company's stockholders, declared the Merger advisable and has resolved to recommend that the Company's stockholders accept the Offer, tender their Shares thereunder and adopt this Agreement; WHEREAS, contemporaneously with the execution and delivery of this Agreement, the Company is entering into a stock option agreement with Parent (the "Stock Option Agreement"), pursuant to which the Company has granted to Parent an option to purchase up to 2,684,431 shares of Common Stock (19.9% of the outstanding Shares) under the terms and conditions set forth in the Stock Option Agreement, at a price of $6.75 per Share; WHEREAS, contemporaneously with the execution and delivery of this Agreement, certain employees of the Company are entering into employment agreements with the Company (the "Employment Agreements"); WHEREAS, contemporaneously with the execution and delivery of this Agreement, certain holders of Shares are entering into an agreement with Parent (the "Shareholders Agreement") pursuant to which such holders shall agree to take certain actions to support the transactions contemplated by this Agreement; and 1 WHEREAS, in order to complete such acquisition, the respective Boards of Directors of Parent, Merger Sub and the Company have each approved the merger of Merger Sub with and into the Company, with the Company surviving (the "Merger"), upon the terms and subject to the conditions of this Agreement and in accordance with the Delaware General Corporation Law (the "DGCL"), whereby each issued and outstanding Share not owned directly or indirectly by Parent or the Company and, except Shares, if any, held by persons who object to the Merger and comply with all the provisions of Delaware law concerning the right of holders of Shares, to dissent from the Merger and require appraisal of their Shares ("Dissenting Shares"), will be converted into the right to receive the Price Per Share. NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein and in the Stock Option Agreement, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I The Tender Offer 1.1. The Offer. --------- (a) Subject to the provisions of this Agreement (including, without limitation, Annex A attached hereto), and provided that this Agreement has not been terminated in accordance with Article IX hereof, as promptly as practicable but in no event later than five business days, as defined in Rule 14d-1(e)(6) ("Business Days") under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the announcement of this Agreement, Merger Sub will commence the Offer. (b) (i) The obligation of Merger Sub to accept for payment, purchase and pay for any Shares tendered pursuant to the Offer shall be subject to the satisfaction or waiver of the conditions set forth in Annex A attached hereto (the "Offer Conditions") (including the Offer Condition that at least that number of Shares equivalent to a majority of the total Shares issued and outstanding on a fully diluted basis on the date such shares are purchased pursuant to the Offer shall have been validly tendered and not withdrawn prior to the expiration of the Offer (the "Minimum Condition")). Merger Sub expressly reserves the right to modify the terms of the Offer and to waive any condition of the Offer, except that, Merger Sub will not, without the prior written consent of the Company (i) decrease the amount or change the form of consideration payable in the Offer, (ii) decrease the number of Shares sought in the Offer, (iii) impose additional conditions to the Offer, (iv) change any Offer Condition or amend any other term of the Offer if any such change or amendment would be materially adverse in any respect to the holders of Shares (other than Parent or Merger Sub), (v) except as provided below, extend the Offer if all of the Offer Conditions have been satisfied or (vi) amend or waive the Minimum Condition. 2 (ii) Subject to the terms and conditions hereof, the Offer shall expire at midnight, New York City time, on the date that is twenty (20) Business Days after the Offer is commenced (within the meaning of Rule 14d-2 under the Exchange Act) (the "Scheduled Expiration Date"); provided, however, that without the consent of the Company, Merger Sub may (x) extend the Offer, if on the Scheduled Expiration Date of the Offer any of the Offer Conditions shall not have been satisfied or waived, for one (1) or more periods (none of which shall exceed ten (10) Business Days), provided that Merger Sub may not extend the expiration of the Offer past sixty (60) days from the date of this Agreement, unless the waiting period applicable to the transactions contemplated by this Agreement under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), has not terminated or expired in which case Merger Sub may not extend the offer past the date set forth in Section 9.2(i), or (y) extend the Offer for such period as may be required by any rule, regulation, interpretation or position of the Securities and Exchange Commission ("SEC") or the staff thereof applicable to the Offer or (z) extend the Offer for one (1) or more periods (each such period to be for not more than five (5) Business Days and such extensions to be for an aggregate period of not more than fifteen (15) Business Days beyond the latest expiration date that would otherwise be permitted under clause (x) or (y) of this sentence) if on such expiration date the Offer Conditions shall have been satisfied or waived, but there shall not have been tendered that number of Shares which would equal more than ninety percent (90%) of the Shares issued and outstanding on a fully- diluted basis. Parent shall cause Merger Sub to, and agrees to use its best efforts to, consummate the Offer as soon as legally permissible, subject to Merger Sub's right to extend the Offer as provided in this Section 1.1(b)(ii). (iii) Merger Sub agrees that if all of the Offer Conditions are not satisfied on the Scheduled Expiration Date, then, provided that all such conditions are and continue to be reasonably probable of being satisfied by the date that is forty-five (45) days after the commencement of the Offer, Merger Sub shall extend the Offer for one period of not more than five (5) Business Days if requested to do so by the Company; provided that Merger Sub shall not be required to extend the Offer beyond forty-five (45) days after commencement of the Offer or, if earlier, the date of termination of this Agreement in accordance with the terms hereof. (iv) On the terms of the Offer and subject to the satisfaction or waiver of the Offer Conditions and the terms of this Agreement, Merger Sub shall (A) be obligated to purchase all Shares validly tendered and not withdrawn on the earliest date that all of the Offer Conditions are satisfied or waived and (B) pay for all Shares validly tendered and not withdrawn pursuant to the Offer that Merger Sub becomes obligated to purchase pursuant to the Offer as soon as practicable after the expiration of the Offer. Notwithstanding any other provision of this Agreement, the Stock Option Agreement or the Shareholders Agreement, any reference to a majority of the total issued and outstanding shares or Shares, or shares or Shares outstanding on a fully diluted basis, or similar references, shall, for purposes of such agreements, exclude from the determination thereof any shares of Common Stock issuable upon exercise of or subject to the Stock Option Agreement and any reference to beneficial ownership of shares of Common Stock or similar references shall, for purposes of such agreements, exclude from the determination thereof any shares of Common Stock issuable upon exercise of or subject to the 3 Stock Option Agreement and/or the Shareholders Agreement. 1.2. SEC Filings. ----------- (a) As promptly as practicable, but in no event later than the fifth Business Day after the announcement of this Agreement and the Offer, Parent and Merger Sub shall file with the SEC a Tender Offer Statement on Schedule 14D-l with respect to the Offer (as supplemented or amended from time to time, the "Schedule 14D-l") to provide for the purchase of the issued and outstanding Shares in accordance with the terms hereof. The Schedule 14D-l, the Offer to Purchase and related summary advertisement and Letter of Transmittal (which documents, as supplemented or amended from time to time, together constitute the "Offer Documents") will comply as to form and content in all material respects with the applicable provisions of the federal securities laws. The Company and its counsel shall be given an opportunity to review and comment upon the Offer Documents and any amendment or supplement thereto prior to the filing thereof with the SEC and Parent and Merger Sub shall consider such comments in good faith. Parent and Merger Sub agree to provide to the Company and its counsel any comments which Parent, Merger Sub or their counsel may receive from the Staff of the SEC promptly after receipt thereof, and any proposed responses thereto, with respect to the Offer Documents and any amendment or supplement thereto. Parent, Merger Sub and the Company agree to correct promptly any information provided by any of them for use in the Offer Documents which shall have become false or misleading in any material respect, and Parent and Merger Sub further agree to take all steps necessary to cause the Schedule 14D-l as so corrected to be filed with the SEC and to disseminate any revised Offer Documents to the Company's stockholders, in each case as and to the extent required by the applicable provisions of the federal securities laws. (b) The Company Board shall recommend acceptance of the Offer to its stockholders in a Solicitation/Recommendation on Schedule 14D-9 (as supplemented or amended from time to time, the "Schedule 14D-9"), provided, however, that the Company Board may thereafter amend or withdraw its recommendation if it has received an Acquisition Proposal (as defined herein) which in accordance with Section 7.2 is a Superior Proposal (as defined herein). On the date the Offer Documents are filed with the SEC, the Company shall file the Schedule 14D-9, which will comply as to form and content in all material respects with the applicable provisions of the federal securities laws. The Company will cooperate with Parent and Merger Sub in mailing or otherwise disseminating the Schedule 14D-9 with the appropriate Offer Documents to the stockholders of the Company. Parent and its counsel shall be given an opportunity to review and comment upon the Schedule 14D-9 and any amendment or supplement thereto prior to the filing thereof with the SEC, and the Company shall consider any such comments in good faith. The Company agrees to provide to Parent and Merger Sub and their counsel any comments which the Company or its counsel may receive from the Staff of the SEC promptly after receipt thereof, and any proposed responses thereto, with respect to the Schedule 14D-9 and any amendment or supplement thereto. The Company, Parent and Merger Sub agree to correct promptly any information provided by any of them for use in the Schedule 14D-9 which shall have become false or misleading in any material respect, and the Company further 4 agrees to take all steps necessary to cause such Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to the Company's stockholders, in each case as and to the extent required by the applicable provisions of the federal securities laws. Parent, Merger Sub and the Company each hereby agree to provide promptly such information necessary to the preparation of the exhibits and schedules to the Schedule 14D-9 and the Offer Documents which the respective party responsible therefor shall reasonably request. The Company represents that Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") has delivered to the Company Board a written opinion, as of the date hereof, that, subject to the assumptions and qualifications set forth in such opinion, the consideration to be paid in the Offer and the Merger is fair to the holders of the Shares from a financial point of view. The Company hereby consents to the inclusion in the Offer Documents of the recommendations and approvals referred to in this Section 1.2, unless the Company Board has changed or withdrawn its recommendation after receipt of an Acquisition Proposal that in accordance with Section 7.2 is a Superior Proposal. 1.3. Company Action. In connection with the Offer, the Company -------------- shall promptly furnish Merger Sub with such information (including a list of the record holders of the Common Stock and their addresses, as well as mailing labels containing the names and addresses of all record holders of Shares, any non-objecting beneficial owner lists and lists of security positions of Shares held in stock depositories in the Company's possession or control, in each case as of a date not more than three (3) Business Days before the date of this Agreement), and shall thereafter render such assistance as Parent, Merger Sub or their agents may reasonably request in communicating the Offer to the record and beneficial holders of Shares. Subject to the requirements of applicable law and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Offer and the Merger, Parent and Merger Sub shall (a) hold in confidence the information contained in any of such labels and lists, (b) use such information only in connection with the Offer and the Merger and (c) if this Agreement is terminated, shall, upon request, deliver to the Company or destroy all copies of such information then in their or their agents' possession. 1.4 Composition of the Company Board. -------------------------------- (a) Promptly upon the acceptance for payment of, and payment by Merger Sub in accordance with the Offer for, not less than that number of Shares equal to the Minimum Condition, Merger Sub shall be entitled to designate such number of members of the Company Board, rounded up to the next whole number, equal to that number of directors which equals the product of the total number of directors on the Company Board (giving effect to the directors elected pursuant to this sentence) multiplied by the percentage that such number of Shares owned in the aggregate by Merger Sub or Parent, upon such acceptance for payment, bears to the number of Shares outstanding. Upon the written request of Merger Sub, the Company shall, on the date of such request, (i) either increase the size of the Company Board or use its reasonable efforts to secure the resignations of such number of its incumbent directors as is necessary to enable Parent's designees to be so elected to the Company Board and (ii) cause Parent's designees to be so elected, in each case as may be necessary to comply with the foregoing provisions of this Section 1.4(a). 5 (b) The Company's obligation to cause designees of Merger Sub to be elected or appointed to the Company Board shall be subject to Section 14(f) of the Exchange Act and Rule 14f-l promulgated thereunder. The Company shall promptly take all actions required pursuant to Section 14(f) and Rule 14f-l in order to fulfill its obligations under this Section 1.4, and shall include in the Schedule 14D-9 such information with respect to Merger Sub and its designees as is required under Section 14(f) and Rule 14f-l. Parent and Merger Sub will supply to the Company in writing and be solely responsible for any information with respect to any of them and their designees, officers, directors and affiliates required by Section 14(f) and Rule 14f-l and applicable rules and regulations. ARTICLE II The Merger; Closing; Effective Time 2.1. The Merger. Upon the terms and subject to the conditions set ---------- forth in this Agreement, at the Effective Time (as defined in Section 2.3) Merger Sub shall be merged with and into the Company. The Company shall be the surviving corporation in the Merger (sometimes hereinafter referred to as the "Surviving Corporation") and shall continue to be governed by the laws of the State of Delaware. The Merger shall have the effects specified in the DGCL. Parent, as the sole stockholder of Merger Sub, hereby approves the Merger and this Agreement. 2.2. Closing. The closing of the Merger (the "Closing") shall take ------- place (i) at the offices of Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia, Pennsylvania at 10:00 a.m. on the latest to occur of (A) the business day on which the condition set forth in Section 8.1(a) shall be satisfied or waived in accordance with this Agreement and (B) the first business day following the date on which the last to be satisfied or waived of the other conditions set forth in Article VIII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions) shall be satisfied or waived in accordance with this Agreement, or (ii) at such other place and time and/or on such other date as the Company and Parent may agree in writing (the "Closing Date"). 2.3. Effective Time. As soon as practicable following the Closing, -------------- the Company will cause a Certificate of Merger (the "Certificate of Merger") to be executed, acknowledged and filed with the Secretary of State of the State of Delaware as provided in Section 251 of the DGCL. The Merger shall become effective at the time when the Certificate of Merger has been duly filed with the Secretary of State of the State of Delaware or, if agreed to by Parent and the Company, such later time or date set forth in the Certificate of Merger (the "Effective Time"). 6 ARTICLE III Certificate of Incorporation and Bylaws of the Surviving Corporation 3.1. The Certificate of Incorporation. The certificate of -------------------------------- incorporation of the Company shall be amended as of the Effective Time so that it is identical to the certificate of incorporation of Merger Sub in effect immediately prior to the Effective Time, except that Article FIRST of the Charter shall provide that the name of the Company shall be the name of the Surviving Corporation, and such certificate shall be the certificate of incorporation of the Surviving Corporation (the "Charter"). 3.2. The Bylaws. The bylaws of Merger Sub in effect immediately ---------- prior to the Effective Time shall be the bylaws of the Surviving Corporation (the "Bylaws"), until thereafter amended as provided therein or by applicable law. ARTICLE IV Officers and Directors of the Surviving Corporation 4.1. Directors. The directors of Merger Sub immediately prior to --------- the Effective Time shall, from and after the Effective Time, be the directors of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Charter and Bylaws. Subject to the consummation of the Offer and the purchase by Merger Sub of at least that number of shares equal to the Minimum Condition, prior to the Effective Time, the Company shall take all actions necessary to obtain any resignations of its directors necessary to give effect to the provisions of this Section and Section 1.4. 4.2. Officers. The officers of the Company immediately prior to -------- the Effective Time shall, from and after the Effective Time, be the officers of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Charter and Bylaws. ARTICLE V Effect of the Merger on Outstanding Securities; Exchange of Certificates 5.1. Effect on Outstanding Securities. At the Effective Time, as -------------------------------- a result of the Merger and without any action on the part of the Company, Parent, Merger Sub or any holder of any capital stock of the Company: 7 (a) Merger Consideration. -------------------- (i) Each Share issued and outstanding immediately prior to the Effective Time (other than (A) Shares owned by Parent or any direct or indirect Subsidiary (as defined herein) of Parent (collectively, the "Parent Companies"), (B) Dissenting Shares, or (C) Shares that are owned by the Company or any direct or indirect Subsidiary of the Company (and in each case not held on behalf of third Parties) (collectively, "Excluded Shares")) shall be converted into, and become exchangeable for the right to receive the Price Per Share in cash (the "Merger Consideration"). (ii) At the Effective Time, all Shares shall no longer be outstanding and shall be canceled and retired and shall cease to exist, and each certificate (a "Certificate") formerly representing any of such Shares (other than Excluded Shares) shall thereafter represent only the right to receive the Merger Consideration. (iii) At the Effective Time, each warrant to purchase shares of Common Stock listed on Schedule 6.1(b) (the "Warrants") shall be canceled in exchange for a cash payment of an amount equal to (A) the excess, if any, of (1) the Price Per Share over (2) the exercise price per share of Common Stock subject to such Warrant, multiplied by (B) the number of shares of Common Stock for which such Warrant shall not theretofore have been exercised (the "Warrant Spread"). Upon surrender to Parent at the address set forth in Section 10.6 of Warrants and/or such other documents as may reasonably be requested by Parent, Parent hereby agrees to deliver to the registered holders of such Warrants (as indicated in the records of the Company) the Warrant Spread. If there is no excess of the Price Per Share over the exercise price per share of Common Stock subject to a Warrant, then such Warrant shall be canceled for no consideration. (iv) At the Effective Time, each outstanding Company Option (as defined herein) shall be canceled in accordance with Section 7.9(a). (b) Cancellation of Excluded Shares. Each Excluded Share (other ------------------------------- than Dissenting Shares) issued and outstanding immediately prior to the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, shall cease to be outstanding and shall be canceled and retired without payment of any consideration therefor and shall cease to exist. (c) Merger Sub. As of the Effective Time, each share of Common ---------- Stock, par value $.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall continue to remain outstanding and shall constitute one share of common stock of the Surviving Corporation. (d) Dissenting Shares. Notwithstanding anything in this ----------------- Agreement to the contrary, Shares outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who is entitled to 8 and has demanded appraisal for such shares in accordance with the DGCL, or other applicable law, shall not be converted into a right to receive the Merger Consideration, unless such holder fails to perfect or withdraws or otherwise loses its right to appraisal. If after the Effective Time such holder fails to perfect or withdraws or loses its right to appraisal, such shares shall be treated as if they had been converted as of the Effective Time into a right to receive the Merger Consideration. The Company shall give Parent prompt notice of any demands received by the Company for appraisal of Shares, and Parent shall have the right to participate in all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands, except as otherwise required under applicable law. 5.2. Surrender and Payment. --------------------- (a) Depositary. Prior to the Effective Time, Parent shall ---------- designate a bank or trust company reasonably acceptable to the Company to act as agent for the holders of Shares in connection with the Merger (the "Depositary") to receive the Merger Consideration to which holders of Shares shall become entitled pursuant to Section 5.1. Prior to the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, Parent or Merger Sub shall deposit with the Depositary cash in an aggregate amount equal to the product of (i) the number of Shares outstanding (and not to be canceled pursuant to Section 5.1(b)) immediately prior to the Effective Time, multiplied by (ii) the Merger Consideration. The deposit made by Parent or Merger Sub pursuant to the preceding sentence is hereinafter referred to as the "Payment Fund." The Depositary shall cause the Payment Fund to be (i) held for the benefit of the holders of Shares and (ii) promptly applied to making the payments provided for in Section 5.1(a). The Payment Fund shall not be used for any purpose that is not provided for herein. (b) Exchange Procedures. As soon as reasonably practicable ------------------- after the Effective Time, Parent shall cause the Depositary to mail to each holder of record a Certificate or Certificates (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 Depositary) (the "Letter of Transmittal") and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Depositary, together with such Letter of Transmittal, duly executed, and such other documents as may reasonably be required by the Depositary, the Depositary shall pay the holder of such Certificate the Merger Consideration in respect of such Certificate, less any required withholding taxes, and the Certificate so surrendered shall forthwith be canceled. If any portion of the Merger Consideration is to be paid to a person (as defined in the Exchange Act) (a "Person") other than the registered holder of the shares represented by the Certificate or Certificates surrendered in exchange therefor, it shall be a condition to such payment that the Certificate or Certificates so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the Person requesting such payment shall pay to the Depositary any transfer or other taxes required as a result of such payment to a Person other than the registered holder of such shares or establish to the satisfaction of the Depositary that such tax has been paid or is not payable. Until surrendered as contemplated by this Section 5.2, each Certificate (other 9 than Certificates representing Dissenting Shares) or Shares to be canceled pursuant to Section 5.1(b)) shall be deemed at any time after the Effective Time to represent only the right to receive the Merger Consideration upon such surrender. (c) No Further Ownership Rights in Common Stock. All Merger ------------------------------------------- Consideration paid upon the surrender for exchange of Certificates in accordance with the terms of this Article V shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares theretofore represented by such Certificates. There shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the Shares which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Depositary for any reason, they shall be canceled and exchanged as provided in this Article V, except as otherwise provided by law. (d) Unclaimed Funds. Any portion of the Payment Fund made --------------- available to the Depositary pursuant to Section 5.2(a) that remains unclaimed by holders of the Certificates for six (6) months after the Effective Time shall be delivered to the Surviving Corporation or a United States parent thereof, upon demand, and any holders of Certificates who have not theretofore complied with this Article V shall thereafter look only to Parent for payment of their claim for Merger Consideration. (e) No Liability. None of Parent, Merger Sub, the Company or the ------------ Depositary shall be liable to any Person in respect of any Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificate has not been surrendered prior to five (5) years after the Effective Time (or immediately prior to such earlier date on which Merger Consideration in respect of such Certificate would otherwise escheat to or become the property of any public official), any such shares, cash, dividends or distributions in respect of such Certificate shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any Person previously entitled thereto. (f) Investment of Funds. The Payment Fund shall be invested by ------------------- the Depositary in accordance with the instructions of Parent and all earnings thereon shall inure to the benefit of Parent or Merger Sub. (g) Lost Certificates. In the event that any Certificate shall ----------------- have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent, the granting of an indemnity reasonably satisfactory to Parent against any claim that may be made against it, the Surviving Corporation or the Depositary, with respect to such Certificate, the Depositary will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration with respect to such Certificate, to which such Person is entitled pursuant hereto. 5.3. Adjustment of Merger Consideration. In the event that, ---------------------------------- subsequent to the date of this Agreement but prior to the Effective Time, the outstanding Shares shall have been 10 changed into a different number of shares or a different class as a result of a stock split, reverse stock split, stock dividend, subdivision, reclassification, split, combination, exchange, recapitalization or other similar transaction, the Merger Consideration shall be appropriately adjusted. 5.4. Merger Without Meeting of Stockholders. In the event that -------------------------------------- Merger Sub, or any other direct or indirect subsidiary of Parent, shall acquire at least ninety percent (90%) of the outstanding Shares, the parties hereto shall take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after the expiration of the Offer without a vote of stockholders of the Company, in accordance with Section 253 of the DGCL. ARTICLE VI Representations and Warranties 6.1. Representations and Warranties of the Company. The Company --------------------------------------------- hereby represents and warrants to Parent and Merger Sub, except as specifically identified in the Schedules described in this Section 6.1 and delivered to Parent on the date of this Agreement and attached hereto (the "Company Disclosure Schedules"), as follows: (a) Organization, Good Standing and Qualification. Each of the --------------------------------------------- Company and each of its Subsidiaries is a corporation or limited liability company duly organized, validly existing and in good standing (where such concept is recognized) under the laws of its respective jurisdiction of organization. Each of the Company and each of its Subsidiaries has all requisite corporate or limited liability company power and authority to own and operate their respective properties and assets and to carry on their respective businesses as presently conducted. Each of the Company and each of its Subsidiaries is qualified to do business and is in good standing as a foreign corporation or limited liability company in each jurisdiction (where such concept is recognized) where the ownership or operation of its properties or conduct of its business requires such qualification, except where the failure to be so qualified or in such good standing, when taken together with all other such failures, is not reasonably likely to have a Company Material Adverse Effect (as defined below) or impair the ability of the Company, the Surviving Corporation, Parent or any of their respective affiliates, following consummation of the Offer or the Merger, to conduct any material business or operations in any jurisdiction where they are now being conducted. The Company has made available to Parent a complete and correct copy of the Company's and its Subsidiaries' certificates of incorporation and bylaws (or documents of a similar scope for (i) limited liability companies and (ii) corporations organized in jurisdictions outside the United States), each as amended to date. The Company's and its Subsidiaries' certificates of incorporation and bylaws (or similar documents) so made available are in full force and effect. As used in this Agreement, (i) "Subsidiary" means, with respect to the Company, Parent or Merger Sub, as the case may be, any entity, whether incorporated or unincorporated, of which at least fifty percent (50%) of the securities or ownership interests having by their terms 11 ordinary voting power to elect fifty percent (50%) of the board of directors or other Persons performing similar functions is directly or indirectly owned or controlled by such party or by one or more of its respective Subsidiaries or by such party and any one or more of its respective Subsidiaries, and (ii) "Company Material Adverse Effect" means any change in or effect on the business of the Company and its Subsidiaries that is, or is reasonably likely to be, materially adverse to the business, operations or assets (including intangible assets), liabilities (contingent or otherwise), prospects, condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. In no event shall any of the following constitute, or be taken into account in determining whether there has been or is likely to be, a "Company Material Adverse Effect": (i) an adverse change in the trading price of the Common Stock between the date of this Agreement and the Effective Time, in and of itself; (ii) any adverse conditions, events, circumstances, changes or effects attributable to expenses (including, without limitation, legal, accounting and financing consulting fees and expenses) incurred directly in connection with the transactions contemplated by this Agreement; or (iii) any adverse conditions, events, circumstances, changes or effects resulting from compliance by the Company with, or the taking of any action required or contemplated by, the terms of this Agreement or any other agreement entered into by the Company with Parent or Merger Sub in connection with the transactions contemplated by this Agreement. Schedule 6.1(a) lists each Subsidiary of the Company and its jurisdiction of formation. All of the outstanding equity interests in each such Subsidiary have been validly issued and are fully paid and non-assessable and owned by the Company free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever. Except for the equity interest in its Subsidiaries, the Company does not own, directly or indirectly, an ownership interest in any corporation, partnership, joint venture or other entity. (b) Capital Structure. The authorized capital stock of the ----------------- Company consists of 40,000,000 shares of Common Stock, of which 13,489,604 Shares were outstanding as of the close of business on September 27, 1999, and 5,000,000 shares of Preferred Stock, par value $0.001 per share (the "Preferred Shares"), none of which were outstanding as of the close of business on September 27, 1999. All of the outstanding Shares have been duly authorized and are validly issued, fully paid and nonassessable. Other than shares of Common Stock reserved for issuance pursuant to the Stock Option Agreement, the Company has no shares of Common Stock or Preferred Shares subject to issuance, except (i) 3,355,069 shares of Common Stock reserved for issuance under the Company's 1997 Stock Incentive Plan, of which options to acquire 1,213,476 shares of Common Stock are outstanding as of September 27, 1999, (ii) 150,000 shares of Common Stock reserved for issuance under the Company's 1997 Employee Stock Purchase Plan (the "ESPP"), of which 79,967 shares of Common Stock are available for purchase as of September 27, 1999, (iii) 70,000 shares of Common Stock reserved for issuance pursuant to options granted other than pursuant to the Stock Plans, of which options to acquire 70,000 shares of Common Stock are outstanding as of September 27, 1999 and (iv) 247,220 shares of Common Stock reserved for issuance upon exercise of the Warrants as of September 27, 1999. Schedule 6.1(b) sets forth a correct and complete list of (i) each outstanding option to purchase shares of 12 Common Stock under the Stock Plans (as defined below) or pursuant to clause (iii) of the preceding sentence (each a "Company Option"), as of September 27, 1999, including the holder, date of grant, exercise price and number of shares of Common Stock subject thereto and (ii) each Warrant as of September 27, 1999, including the holder, exercise price, and number of shares of Common Stock subject thereto. As of September 27, 1999, there are no shares of capital stock of the Company authorized, issued or outstanding except as set forth above and, except as set forth above, there are no preemptive rights or any outstanding subscriptions, options, warrants, rights, convertible securities or other agreements or commitments of any character to which the Company is a party or may be bound relating to the issued or unissued capital stock or other securities of the Company and the Shares subject to the Stock Option Agreement shall not be subject to any preemptive rights. The Company does not have outstanding any bonds, debentures, notes or other obligations, the holders of which have the right to vote (or convertible into or exercisable for securities having the right to vote) with the stockholders of the Company on any matter ("Voting Debt"). Except for the Company's 1997 Stock Incentive Plan (including its predecessor plan, the 1995 Stock Option/Stock Issuance Plan) and the ESPP (such plans collectively, the "Stock Plans"), at or after the Effective Time, neither the Surviving Corporation nor Parent nor their respective affiliates will have any obligation to issue, transfer or sell any shares or securities of the Surviving Corporation, Parent or any of their respective affiliates pursuant to any Compensation and Benefit Plan (as defined in Section 6.1(h)(i)) which obligations were outstanding as of September 27, 1999. On or prior to the consummation of the Offer, the Company will have taken all actions as are required to adjust the terms of all outstanding Warrants to provide that the Warrants may be canceled in accordance with Section 5.1(a)(iii). Since September 27, 1999, the Company has not issued, granted or entered into any agreement relating to any subscription, option, warrant, right, convertible security or any agreement or commitment of any character to which the Company is a party or may be bound relating to the issued or unissued capital stock or other securities of the Company, except for the Stock Option Agreement. (c) Corporate Authority; Approval. ----------------------------- (i) The Company has all requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform its obligations under this Agreement and the Stock Option Agreement and to consummate the Offer and, subject only to obtaining the adoption of this Agreement by a majority of the Shares outstanding as of the record date of the Company's stockholders meeting (the "Company Requisite Vote"), the Merger. This Agreement and the Stock Option Agreement are valid and binding agreements of the Company, enforceable against the Company in accordance with their respective terms subject to (i) applicable bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium, or similar laws from time to time in effect affecting creditors' rights generally, and (ii) general principles of equity, whether such principles are considered in a proceeding at law or in equity. (ii) The Company Board has, at a meeting duly called and held, unanimously (A) approved the acquisition of the Company by Parent on the terms and subject to 13 the conditions of this Agreement, (B) approved this Agreement and the Stock Option Agreement, the Offer and the Merger and the transactions contemplated hereby in accordance with the DGCL, (C) determined that the Offer and the Merger are fair to and in the best interests of the Company's stockholders and declared the Merger advisable, and (D) recommended that the stockholders of the Company tender their shares of Common Stock into the Offer and adopt this Agreement and approve the Merger. (d) Governmental Filings; No Violations. ----------------------------------- (i) Other than any filings and/or notices required (A) pursuant to Section 2.3, (B) under the HSR Act, and (C) the Exchange Act and state securities or "blue sky" laws, no notices or other filings are required to be made by the Company with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by the Company from, any governmental or regulatory authority, agency, commission, body or other governmental entity ("Governmental Entity"), in connection with the execution and delivery of this Agreement and the Stock Option Agreement by the Company and the consummation by the Company of the Offer and the Merger and the other transactions contemplated hereby and thereby, except those that the failure to make or obtain are not, individually or in the aggregate, reasonably likely to have a Company Material Adverse Effect or prevent, materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement and the Stock Option Agreement. (ii) The execution, delivery and performance of this Agreement and the Stock Option Agreement by the Company do not and will not, and the consummation by the Company of the Offer and the Merger and the other transactions contemplated hereby and thereby will not, constitute or result in (A) a breach or violation of, or a default under, the certificate of incorporation or bylaws of the Company or the comparable governing instruments of any of its Subsidiaries, (B) a breach or violation of, or a default under, the acceleration of any obligations or the creation of a lien, pledge, security interest or other encumbrance on the assets of the Company or any of its Subsidiaries (with or without notice, lapse of time or both) pursuant to, any agreement, lease, contract, note, mortgage, indenture or other obligation ("Contracts") binding upon the Company or any of its Subsidiaries or any Law (as defined in Section 6.1(i)) or governmental or non-governmental permit or license to which the Company or any of its Subsidiaries is subject, or (C) any change in the rights or obligations of any party under any of the Contracts; except, in the case of clause (B) and (C) above, for any breach, violation, default, acceleration, creation, or change that, individually or in the aggregate, is not reasonably likely to have a Company Material Adverse Effect or prevent, materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement or the Stock Option Agreement. Schedule 6.1(d)(ii) sets forth a correct and complete list of all consents and waivers which are or may be required in connection with the consummation of the transactions contemplated by this Agreement and the Stock Option Agreement (whether or not subject to the exceptions set forth with respect to clauses (B) and (C) in the preceding sentence) under Contracts to which the Company or any of its Subsidiaries is a party, other than any consent or waiver (other than consents or waivers pursuant to Contracts relating to indebtedness, 14 securities or the guarantee thereof) the failure to obtain which is not reasonably likely to have a Company Material Adverse Effect or prevent, materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement or the Stock Option Agreement. (e) Company Reports; Financial Statements. The Company and, to ------------------------------------- the extent applicable, each of its then or current Subsidiaries has made all filings required to be made by it with the SEC since January 1, 1998 (collectively, including any such reports filed subsequent to the date hereof, the "Company Reports"). The Company has made available to Parent each registration statement, report, proxy statement or information statement filed with the SEC by it since October 15, 1997, including, without limitation, (i) the Company's Annual Report on Form 10-K for the year ended December 31, 1998, as amended on April 5, 1999, (ii) the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999 and June 30, 1999, (iii) the Company's Proxy Statement filed on April 6, 1999 and (iv) the Registration Statement on Form S-8 filed with the SEC on May 13, 1999, all in the form (including exhibits, annexes and any amendments thereto) filed with the SEC. As of their respective dates, the Company Reports complied in all material respects with the requirements of applicable statutes and regulations and did not, and any Company Reports filed with the SEC prior to the Effective Time of the Offer will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. Each of the balance sheets included in or incorporated by reference into the Company Reports (including the related notes and schedules) presents fairly, or will present fairly, the financial position of the Company and its Subsidiaries as of its date and each of the statements of income and of changes in financial position included in or incorporated by reference into the Company Reports (including any related notes and schedules) presents fairly, or will present fairly, the results of operations, retained earnings and changes in financial position, as the case may be, of the Company and its Subsidiaries for the periods set forth therein (except as otherwise noted therein and subject, in the case of unaudited statements, to notes and normal year-end audit adjustments that will not be material in amount or effect), in each case in accordance with generally accepted accounting principles ("GAAP") consistently applied during the periods involved, except, in the case of unaudited financial statements, as permitted by SEC Form 10-Q, and except as may be noted therein. Other than the Company Reports specifically recited in clauses (i) through (iv) of the first sentence of this Section 6.1(e), the Company has not, on or prior to the date hereof, filed any other definitive reports or statements with the SEC since December 31, 1998. (f) Absence of Certain Changes. Since June 30, 1999 (the "Audit -------------------------- Date"), the Company and its Subsidiaries have conducted their respective businesses in all material respects only in, and have not engaged in any material transaction other than according to, the ordinary and usual course of such businesses and there has not been (i) any change in the financial condition, properties, business or results of operations of the Company or any of its Subsidiaries or any occurrence or combination of occurrences that, individually or in the aggregate, has had or is reasonably likely to have a Company Material Adverse Effect; (ii) any material damage, destruction or other casualty loss with respect to any asset or property owned, 15 leased or otherwise used by the Company or any of its Subsidiaries, that has had or is reasonably likely to have a Company Material Adverse Effect; (iii) any declaration, setting aside or payment of any dividend or other distribution in respect of the capital stock of the Company; or (iv) any change by the Company in accounting principles, practices or methods. Schedule 6.1(f) contains a document setting forth the name, title, salary and other compensation of each employee of the Company as of September 27, 1999. Since the date of such document, there has not been any increase in the compensation payable or that could become payable by the Company or any of its Subsidiaries to officers or key employees of the Company or its Subsidiaries, or any amendment of any of the Stock Plans or Compensation and Benefit Plans. (g) Litigation and Liabilities. Except for matters which are -------------------------- not, individually or in the aggregate, reasonably likely to have a Company Material Adverse Effect or prevent or materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement and the Stock Option Agreement, there are no (i) civil, criminal, administrative or regulatory actions, suits, claims, hearings, investigations or proceedings pending or, to the Knowledge (as defined herein) of the Company, threatened against the Company or any of its Subsidiaries or (ii) material obligations or liabilities, whether or not accrued, contingent or otherwise and whether or not required to be disclosed, including those relating to matters involving any Environmental Law (as defined in Section 6.1(k)). When used in this Agreement, "Knowledge" means an individual will be deemed to have "Knowledge" of a particular fact or other matter if (a) such individual is actually aware of such fact or other matter or (b) a prudent individual could be expected to discover or otherwise become aware of such fact or other matter in the course of conducting a comprehensive investigation concerning the existence of such fact or other matter. A Person other than an individual will be deemed to have "Knowledge" of a particular fact or other matter if any individual who is an officer, director, an employee at the director level or above or the Company's environmental safety officer has, or at any time, had, "Knowledge" of such fact or matter, as defined in the previous sentence. (h) Employee Benefits. ----------------- (i) The Company Reports accurately describe in all material respects all material incentive, bonus, deferred compensation, pension, retirement, profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, restricted stock, stock option and other stock based plans, all employment or severance agreements, plans, policies or arrangements, other employee benefit plans and any applicable "change of control" or similar provisions in any plan, agreement, policy or arrangement which covers current or former employees of the Company and its Controlled Group Affiliates (the "Compensation and Benefit Plans") or with respect to which the Company or any of its Controlled Group Affiliates may have any liability and which are required to be disclosed in the Company Reports. The Compensation and Benefit Plans and all other benefit plans, agreements, policies or arrangements covering current or former employees or directors of the Company and its Controlled Group Affiliates (the "Employees"), including, but not limited to, "employee benefit plans" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), are listed in Schedule 6.1(h)(i). True and complete copies of all documents relating to the 16 Compensation and Benefit Plans or any other plan, agreement, policy or arrangement listed in Schedule 6.1(h)(i), including written interpretations thereof, and such other benefit plans, agreements, policies or arrangements, including, but not limited to, any trust instruments and/or insurance contracts, if any, forming a part of any such plans and agreements, and all amendments thereto have been provided or made available to Parent. The following items have also been provided or made available to Parent with respect to each Compensation and Benefit Plan as applicable: (1) copy of the most recent Form 5500 annual report (including all schedules and financial statements); (2) copy of the most recent favorable determination letter issued by the Internal Revenue Service with respect to each such plan; (3) copies of any governmental audit report or correction program memorandum; (4) any governmental opinion, ruling, determination or notice of action or disposition with regard to any such plan; (5) the results of any testing relating to any such plan, including testing of coverage, non-discrimination requirements, 401(k) and 401(m) compliance, benefit limitations, etc.; and (6) a schedule of all persons who are receiving, or who are eligible to elect to receive, health care continuation ("COBRA") coverage with respect to the Company or a Controlled Group Affiliate. "Controlled Group Affiliate" means any trade or business (whether or not incorporated) that is a member of a "controlled group" of which the Company is a member or under "common control" with the Company (within the meaning of Section 414(b), (c), (m) or (o) of the Code). (ii) The Compensation and Benefit Plans have been administered in material compliance with their terms and all applicable law. Each Plan which is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA ("Pension Plan") and which is intended to be qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") is so qualified, and has received a favorable determination letter from the Internal Revenue Service, and the Company is not aware of any circumstances likely to result in revocation of any such favorable determination letter. There is no material pending or threatened litigation, governmental audit or investigation relating to any Compensation and Benefit Plan. Neither the Company nor any of its Controlled Group Affiliates has engaged in a transaction with respect to any Compensation and Benefit Plan that, assuming the taxable period of such transaction expired as of the date hereof, could subject the Company or any of its Subsidiaries to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA. (iii) Neither the Company nor any of its Controlled Group Affiliates has, nor has ever had, any obligation or liability with respect to an employee benefit plan which is subject to Title IV of ERISA, or which is a "multiemployer plan" within the meaning of Section 3(37) or 4001(a)(3) of ERISA. There is no entity (other than the Company or any of its Subsidiaries) which is or was a Controlled Group Affiliate of the Company. No notice of a "reportable event," within the meaning of Section 4043 of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed for any Compensation and Benefit Plan within the 12-month period ending on the date hereof. 17 (iv) All contributions required to be made under the terms of any Compensation and Benefit Plan have been timely made or accrued on the Company's financial statements and all insurance premiums required as of the Closing Date will have been paid. (v) Neither the Company nor any of its Controlled Group Affiliates has any obligations for retiree health and life benefits under any Compensation and Benefit Plan. The Company or its Controlled Group Affiliates may amend or terminate any Compensation and Benefit Plan at any time without incurring any material liability thereunder. (vi) The consummation of the transactions contemplated by this Agreement will not (x) entitle any Employees to severance pay, (y) accelerate the time of payment or vesting or trigger any material payment or funding (through a grantor trust or otherwise) of compensation or benefits under, materially increase the amount payable or trigger any other material obligation pursuant to, any of the Compensation and Benefit Plans or (z) result in payments under any of the Compensation and Benefit Plans which may not be deductible under Section 162(m) or Section 280G of the Code. (vii) There are no actions, suits or claims (other than routine claims for benefits in the ordinary course) pending or, to the Company's Knowledge, threatened, with respect to the Compensation and Benefit Plans and, to the Company's Knowledge, there are no such facts which could give rise to any such actions, suits or claims. (viii) Each of the Company and its Controlled Group Affiliates has complied in all material respects with the reporting and disclosure requirements of ERISA. (ix) To the Knowledge of the Company, each Compensation and Benefit Plan which is a "group health plan" (as such term is defined in section 5000(b)(1) of the Code) complies and has complied with the applicable requirements of Section 4980B of the Code and Sections 601-609 of ERISA (COBRA), and Sections 701-734 of ERISA (HIPAA), including without limitation, the certification requirements under Section 701(e) of ERISA. (i) Compliance. Neither the Company nor any of its Subsidiaries ---------- is in default or violation of, (i) its certificate of incorporation or bylaws (or similar documents), (ii) any law, ordinance, rule, regulation, order, judgment, decree, arbitration award, license or permit of any Governmental Entity (collectively, "Laws") applicable to the Company or any of its Subsidiaries or by which its or any of their respective properties are bound, or (iii) any Contract to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or its or any of their respective properties are bound or affected, except for any such defaults or violations that, individually or in the aggregate, will not have a Company Material Adverse Effect, or prevent or materially delay the transactions contemplated by this Agreement. No change is required in the Company's or any of its Subsidiaries' processes, properties or procedures in order to comply in all material respects with any Laws, and the Company has not received any notice of any material noncompliance with any such Laws that has not been cured. 18 (j) Antitakeover Statutes. The board of directors of the --------------------- Company has taken all necessary action to approve the transactions contemplated by this Agreement, the Stock Option Agreement and the Shareholders Agreement such that the restrictions under Section 203 of the DGCL shall not apply to such transactions. No "fair price," "moratorium," "control share acquisition" or other antitakeover statute or regulation (each, an "Antitakeover Statute") is applicable to the Company, the Shares, the Offer, the Merger, this Agreement, the Stock Option Agreement, the Shareholders Agreement or the other transactions contemplated hereby or thereby. (k) Environmental Matters. (i) The Company and its Subsidiaries --------------------- have complied in all material respects at all times with all applicable Environmental Laws; (ii) to the Company's Knowledge, no property currently or formerly owned or operated by the Company or any of its Subsidiaries (including soils, groundwater, surface water, buildings or other structures) has been contaminated with any Hazardous Substance; (iii) to the Company's Knowledge, neither the Company nor any of its Subsidiaries is subject to any liability for Hazardous Substance disposal or contamination on any third party property; (iv) to the Company's Knowledge, neither the Company nor any of its Subsidiaries is subject to liability for any release or threat of release of any Hazardous Substance; (v) neither the Company nor any of its Subsidiaries has received any notice, demand, letter, claim or request for information indicating that it may be in violation of or subject to liability under any Environmental Law; (vi) neither the Company nor any of its Subsidiaries is subject to any order, decree, injunction or other arrangement with any Governmental Entity or any indemnity or other agreement with any third party relating to liability under any Environmental Law; (vii) to the Company's Knowledge, none of the properties of the Company or any of its Subsidiaries contain any underground storage tanks, asbestos-containing material, lead products, or polychlorinated biphenyls; (viii) to the Company's Knowledge, there are no other circumstances or conditions involving the Company or any of its Subsidiaries that could reasonably be expected to result in any claims, liability, investigations, costs or restrictions on the ownership, use, or transfer of any property in connection with any Environmental Law; and (ix) the Company has delivered to Parent copies of all environmental reports, studies, assessments, sampling data and other environmental information in its possession relating to the Company or any of its Subsidiaries or any of their current or former properties or operations. "Environmental Law" means any federal, state or local law, regulation, order, decree, permit, authorization, common law or agency requirement relating to (A) the protection, investigation or restoration of the environment, health, safety, or natural resources, (B) the handling, use, presence, disposal, release or threatened release of any Hazardous Substance or (C) noise, odor, indoor air, employee exposure, wetlands, pollution, contamination or any injury or threat of injury to persons or property relating to any Hazardous Substance. "Hazardous Substance" means any substance that is (A) listed, classified or regulated pursuant to any Environmental Law; (B) any chemical, petroleum product or by-product, asbestos-containing material, lead-containing paint or plumbing, polychlorinated biphenyls, radioactive materials or radon, pharmaceutical, biological and/or medical waste or 19 materials; or (C) any other substance which may be the subject of regulatory action by any Governmental Authority in connection with any Environmental Law. (l) Opinion of Financial Advisor. The Company's Board has ---------------------------- received the written opinion of DLJ to the effect that, subject to the assumptions and qualifications set forth in such opinion, as of the date hereof, the consideration to be received by the holders of Shares pursuant to the Offer and the Merger is fair to such holders from a financial point of view. (m) Taxation. The Company and each of its Subsidiaries has -------- timely filed all Tax Returns required to be filed by it in the manner provided by law except where the failure to make such timely filing has not had, and could not reasonably be expected to have, a Company Material Adverse Effect. All such Tax Returns are true, correct and complete in all material respects. The Company and each of its Subsidiaries have timely paid all Taxes due or required to be withheld from amounts owing to any employee, creditor or third party or have provided adequate reserves in their financial statements for any Taxes that have not been paid, whether or not shown as being due on any Tax Returns. (i) No claim for unpaid Taxes (other than for Taxes not yet due) has become a lien or encumbrance of any kind against the property of the Company or any of its Subsidiaries or is being asserted against the Company or any of its Subsidiaries; (ii) no audit, examination, investigation or other proceeding in respect of Taxes is pending, being conducted, or threatened by a Tax authority involving the Company or any of its Subsidiaries; (iii) no issues have been raised by the relevant taxing authority in connection with any examination of the Tax Returns filed by the Company and its Subsidiaries that have not been resolved; (iv) no extension or waiver of the statute of limitations on the assessment of any Taxes has been granted by the Company or any of its Subsidiaries and is currently in effect; (v) neither the Company nor any of its Subsidiaries is a party to, is bound by, or has any obligation under, or potential liability with regards to, any Tax sharing agreement, Tax indemnification agreement or similar contract or arrangement; (vi) no power of attorney has been granted by or with respect to the Company or any of its Subsidiaries with respect to any matter relating to Taxes; (vii) neither the Company nor any of its Subsidiaries (A) has been a member of an affiliated group filing a consolidated, combined or unitary Tax Return (other than a group the common parent of which was the Company), or (B) has any liability for Taxes of any person (other than the Company or its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any other similar provision of state, local or foreign law), as a transferee or successor, by contract or otherwise; (viii) neither the Company nor any of its Subsidiaries is a party to any agreement, plan, contract or arrangement that would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code; (ix) neither the Company nor any of its Subsidiaries has any intercompany gain or loss arising as a result of an intercompany transaction within the meaning of Treasury Regulation Section 1.1502-13 (or similar provision under state, local or foreign law) that has not been taken into account or any excess loss accounts within the meaning of Treasury Regulation Section 1.1502-19; (x) the Company is not and has not been a United States real property holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(1)(ii) of the Code; (xi) neither the Company nor any of its Subsidiaries has been the subject to a Tax ruling that has continuing effect; and (xii) neither the Company nor any of its Subsidiaries has 20 agreed to include, or is required to include, in income any adjustment under either Section 481(a) or 482 of the Code (or an analogous provision of state, local or foreign law) by reason of a change in accounting method or otherwise. "Taxes" means any taxes of any kind, including but not limited to those on or measured by or referred to as income, gross receipts, capital, sales, use, ad valorem, franchise, profits, license, withholding, employment, payroll, premium, value added, property or windfall profits taxes, environmental transfer taxes, customs, duties or similar fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any governmental authority, domestic or foreign. "Tax Return" means any return, report or statement required to be filed with any governmental authority with respect to Taxes. (n) Intellectual Property. --------------------- (i) Set forth in Schedule 6.1(n)(i) is a correct and complete list of each of the following items (A) all patents and applications therefor, registrations of trademarks (including service marks) and applications therefor, and registrations of copyrights and applications therefor that are owned by the Company or any of its Subsidiaries or licensed to the Company or any of its Subsidiaries (collectively, the "Company Owned IP"), (B) all licenses, agreements and contracts relating to the Company Intellectual Property (as defined in Section 6.1(n)(ii) of this Agreement) pursuant to which the Company or any of its Subsidiaries are entitled to use any Company Intellectual Property owned by any third party (the "Third Party Licenses") and (C) all agreements under which the Company or any of its Subsidiaries has granted any third party the right to use any Company Intellectual Property. (ii) The Company, or its Subsidiaries where expressly indicated, is the owner of, or is licensed to use, or otherwise possesses legally enforceable rights in, all intellectual property, including, without limitation, all patents and patent applications, supplementary protection certificates and patent extensions, trademarks and trademark applications, service mark and service mark registrations, logos, commercial symbols, business name registrations, trade names, copyrights and copyright registrations, computer software, mask works and mask work registration applications, industrial designs and applications for registration of such industrial designs, including, without limitation, any and all applications for renewal, extensions, reexaminations and reissues of any of the foregoing intellectual property rights where applicable, inventions, compounds, structures, compound libraries, biological materials, trade secrets, formulae, know-how, technical information, research data, research raw data, laboratory notebooks, procedures, designs, proprietary technology and information held or used in the business of the Company and its Subsidiaries (hereinafter the "Company Intellectual Property"). (iii) The Company and its Subsidiaries are the sole legal and beneficial owners of all the Company Intellectual Property (except for the Company Intellectual 21 Property that is the subject of any Third Party Licenses). (iv) The Company has not entered into any agreements, licenses or created any mortgages, liens, security interests, leases, pledges, encumbrances, equities, claims, charges, options, restrictions, rights of first refusal, title retention agreements or other exceptions to title which affect the Company Intellectual Property or restrict the use by the Company or any of its Subsidiaries of the Company Intellectual Property, except as provided in agreements and instruments disclosed in Schedule 6.1(n)(i) and furnished or made available to Parent prior to the date of this Agreement. (v) To the Company's Knowledge, the Company and its Subsidiaries are in compliance in all material respects with the Third Party Licenses. (vi) The Company and its Subsidiaries are not, and will not be as a result of the execution, delivery or performance of this Agreement or the Stock Option Agreement or the consummation of the Offer and the Merger or the other transactions contemplated hereby or thereby, in breach, violation or default of any Third Party Licenses that are material to the conduct of the business of the Company. The rights of the Company or any of its Subsidiaries to the Company Intellectual Property are not affected by the execution, delivery or performance of this Agreement or the Stock Option Agreement or the consummation of the Offer and the Merger or the other transactions contemplated hereby or thereby. (vii) The Company and its Subsidiaries have the right to license to third parties the use of the Company Owned IP, except as restricted under Third Party Licenses. (viii) To the Company's Knowledge, all registrations and filings relating to the Company Owned IP are in good standing. To the Company's Knowledge, all maintenance and renewal fees necessary to preserve the rights of the Company in respect of the Company Owned IP have been made. The registrations and filings relating to the Company Owned IP are proceeding and there are no facts of which the Company has Knowledge which could significantly undermine those registrations or filings. (ix) To the Company's Knowledge, the manufacturing, marketing, distribution, sale and use of compounds by the Company or its Subsidiaries, licensees or sublicensees in the countries where the Company has conducted such activities, does not infringe the patents, patent applications, trademarks, trademark applications, service marks, service mark applications, copyrights, copyright applications, and proprietary trade names, publication rights, computer programs (including source code and object code), inventions, know-how, trade secrets, technology, processes, confidential information and all other intellectual property rights throughout the world (collectively, "Intellectual Property Rights") of any third party. 22 (x) There are no allegations, claims or proceedings instituted, pending or threatened (and the Company is not aware of any basis for any such allegation, claim or proceeding) which challenge the rights possessed by the Company or its Subsidiaries to use the Company Intellectual Property or the validity or effectiveness of the Company Intellectual Property, including without limitation any interferences, oppositions, cancellations or other contested proceedings. (xi) There are no outstanding claims or proceedings instituted, pending or threatened by any third party challenging the ownership, priority, scope or validity or effectiveness of any Company Intellectual Property. (xii) To the Company's Knowledge, there are no valid Intellectual Property Rights of any third party that have been infringed by the identification, development, manufacture, marketing, distribution and sale and use of any products that have been identified for development by the Company or any of its Subsidiaries. (xiii) To the Company's Knowledge, there are no Intellectual Property Rights of any third party that are infringed by the continued practice of any technologies previously used or presently in use by the Company. (xiv) To the Company's Knowledge, except for matters as would not have or be reasonably likely to have a Company Material Adverse Effect, there is no unauthorized use, infringement or misappropriation of the Company Intellectual Property by any third party, including any employee or former employee of the Company or any of its Subsidiaries. (xv) The Company and its Subsidiaries have not granted any licenses, immunities, options or other rights to the Company Intellectual Property which could provide a third party with a defense to patent infringement proceedings, whether domestic or foreign. (xvi) Commercially reasonable measures have been taken to maintain the confidentiality of the inventions, trade secrets, formulae, know-how, technical information, research data, research raw data, laboratory notebooks, procedures, designs, proprietary technology and information of the Company and its Subsidiaries, and all other information the value of which to the Company or any of its Subsidiaries is contingent upon maintenance of the confidentiality thereof. Without limiting the generality of the foregoing, (A) each employee of the Company and each consultant to the Company who has had access to proprietary information with respect to the Company has entered into an agreement suitable to vest ownership rights to any inventions, creations, developments, and works in the Company and has entered into an agreement for maintaining the confidential information of the Company and (B) each officer and director of the Company has entered into an agreement to maintain the confidential information of the Company, except for those individuals listed in Schedule 6.1(n) (xvi) whose involvement in the business of the Company is described with specificity therein. 23 (o) Year 2000 Compliance. -------------------- (i) All Software (as defined herein) of the Company, when operated on the computer hardware of the Company now used for that purpose: (A) will operate before, during, and after January 1, 2000, without any errors relating to data, in the same manner as it presently operates; (B) will not abnormally end a process or provide incorrect results as a result of date data which represents or references different centuries or more than one century; (C) recognizes the century in date data and performs all date calculations in a manner which accommodates multi-century formulas and date values; (D) includes an indication of century in all date- related user interfaces and data interfaces; (E) recognizes and correctly processes date and data involving leap years; and (F) performs all sorting operations that include a year category on the basis of four-digit dates. (ii) Schedule 6(o)(ii) attached hereto contains a complete description of the testing and analysis which the Company has performed or had performed with respect to the matters described in Section 6(o)(i), including a true and complete listing of each document setting forth any portion of that analysis or any related test results. The Company has provided Parent with true and complete copies of all documents listed in Schedule 6(o)(ii). (iii) If any exceptions to the warranties and representations in Section 6(o)(i) are disclosed in the Company Disclosure Schedules, Schedule 6(o)(iii) attached hereto contains a summary of the Company's plans for dealing with those exceptions, including a timetable and a reasonably detailed estimate of the costs the Company will incur in doing so. Any cost estimates shown in Schedule 6(o)(iii) are reasonable, based on sound business practices and are based on reasonable assumptions supported by objective facts. (iv) "Software" means all computer software and subsequent versions thereof used, developed or currently being developed, manufactured, sold or marketed by the Company including, but not limited to, source code, object code, objects, comments, screens, user interfaces, report formats, templates, menus, buttons and icons, and all files, data, materials, manuals, design notes and other items and documentation related thereto or associated therewith. 24 (p) Labor Matters ------------- (i) Schedule 6.1(p)(i) attached hereto sets forth the name, current annual compensation rate (including bonus and commissions), title, current base salary rate, accrued bonus, accrued sick leave, accrued severance pay and accrued vacation benefits of each present employee of the Company; organizational charts of the Company; and lists any collective bargaining, union or other employee association agreements, employee confidentiality or other agreements protecting proprietary processes, formulae or information, employee handbook and any reports and/or plans prepared or adopted pursuant to the Equal Employment Opportunity Act of 1972, as amended. There are no leased employees (within the meaning of Section 414(n) of the Code) who must be taken into account in applying the requirements of Section 414(n)(3) of the Code. (ii) Each of the Company and its Subsidiaries is in compliance with all applicable laws and collective bargaining agreements respecting employment and employment practices, terms and conditions of employment and wages and hours and occupational safety and health, and is not engaged in any unfair labor practice within the meaning of Section 8 of the National Labor Relations Act, and there is no action, suit or legal, administrative, arbitration, grievance or other proceeding pending or, to the Company's Knowledge, threatened, or, any investigation pending or to the Company's Knowledge, threatened against the Company or any Subsidiary relating to any thereof, and, to the Company's Knowledge, no basis exists for any such action, suit or legal, administrative, arbitration, grievance or other proceeding or governmental investigation. (iii) There is no labor strike, dispute, slowdown or stoppage actually pending or, to the Company's Knowledge, threatened against the Company or any Subsidiary. (iv) None of the employees of the Company or any Subsidiary is a member of or represented by any labor union and, to the Company's Knowledge, there are no attempts of whatever kind and nature being made to organize any of such employees. (v) Without limiting the generality of paragraph (iv) above, no certification or decertification is pending or was filed within the past twelve months respecting the employees of the Company or any Subsidiary and, to the Company's Knowledge, no certification or decertification petition is being or was circulated among the employees of the Company or any Subsidiary within the past twelve (12) months. (vi) No agreement (including any collective bargaining agreement), arbitration or court decision, decree or order or governmental order which is binding on the Company or any Subsidiary in any way limits or restricts the Company or any Subsidiary from relocating or closing any of its operations. 25 (vii) Neither the Company nor any Subsidiary has experienced any organized work stoppage in the last five years. (viii) There are no charges, administrative proceedings or formal complaints of discrimination (including but not limited to discrimination based upon sex, age, marital status, race, national origin, sexual orientation, handicap or veteran status) pending or, to the Company's Knowledge, threatened, or any investigation pending or to the Company's Knowledge, threatened before the Equal Employment Opportunity Commission or any federal, state or local agency or court. There have been no audits of the equal employment opportunity practices of the Company or any Subsidiary and, to the Company's Knowledge, no basis for any such claim exists. (q) Brokers and Finders. Neither the Company nor any of its ------------------- Subsidiaries, officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the Offer and the Merger or the other transactions contemplated by this Agreement, the Stock Option Agreement or the Shareholders Agreement, except that the Company has employed DLJ as its financial advisor, the arrangements with which have been disclosed to Parent prior to the date hereof. (r) Certain Agreements. (i) All contracts listed as exhibits to ------------------ the Company's Annual Report on Form 10-K for the year ended December 31, 1998 under the rules and regulations of the SEC relating to the business of the Company and its Subsidiaries and (ii) any other agreement within the meaning set forth in item 601(b)(10) of Regulation S-K of Title 17, Part 229 of the Code of Federal Regulations (all of which are listed on Schedule 6.1(r)) (the "Company Material Contracts") are valid and in full force and effect, except to the extent they have previously expired in accordance with their terms and other than as is not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. Neither the Company nor its Subsidiaries has violated any provision of, or committed or failed to perform any act which, with or without notice, lapse of time, or both, is reasonably likely to constitute a default under the provisions of, any such Company Material Contract, and neither the Company nor any of its Subsidiaries has received notice that any party to any Company Material Contract intends to cancel, terminate or otherwise modify the terms of any applicable Company Material Contract, except in each case, as is not reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect. To the Company's Knowledge, no counterparty to any such Company Material Contract has violated any provision of, or committed or failed to perform any act which, with or without notice, lapse of time, or both, is reasonably likely to constitute a default or other breach under the provisions of, such Company Material Contract, except for defaults or breaches which are not reasonably likely, individually or in the aggregate, to have a Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to, nor are any of their assets bound by, any agreement, arrangement, commitment or understanding with any company engaged primarily in the pharmaceutical business, other than as listed on Schedule 6.1(r). 26 (s) Schedule 14D-9; Offer Documents. Neither the Schedule 14D- ------------------------------- 9, any other documents required to be filed by the Company with the SEC in connection with the transactions contemplated hereby, nor any information supplied by the Company for inclusion in the Offer Documents shall, at the respective times the Schedule 14D-9, any such other filings by the Company, the Offer Documents or any amendments or supplements thereto are filed with the SEC or are first published, sent or given to stockholders of the Company, as the case may be, 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 made therein, in light of the circumstances under which they are made, not misleading. The Schedule 14D-9 and any other document required to be filed by the Company with the SEC in connection with the transactions contemplated by this Agreement will, when filed by the Company with the SEC, comply as to form in all material respects with the applicable provisions of the Exchange Act and the rules and regulations thereunder. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to the statements made in any of the foregoing documents based on and in conformity with information supplied by or on behalf of Parent or Merger Sub in writing specifically for inclusion therein. (t) Required Vote of Company Stockholders. Unless the Merger ------------------------------------- may be consummated in accordance with Section 253 of the DGCL, the only vote of the stockholders of the Company required to adopt this Agreement and the Stock Option Agreement and to approve the Merger and the transactions contemplated hereby and thereby, is the Company Requisite Vote. (u) Foreign Corrupt Practices Act. Neither the Company nor any ----------------------------- of its Subsidiaries, nor any director, officer or employee of the Company or any of its Subsidiaries has, directly or indirectly, used any corporate funds for unlawful contributions, gifts, entertainment, or other unlawful expenses relating to political activity, made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds, violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or the rules and regulations thereunder, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (v) Licenses and Permits. The Company and each Subsidiary has -------------------- obtained all material licenses, registrations, permits, approvals and other governmental authorizations required to conduct its business as described in the Company Reports. Such licenses are in full force and effect and neither the Company nor any Subsidiary has received notice of proceedings relating to the revocation or modification of any such license, permit, approval and other governmental authorization. (w) Employment Agreements with Key Employees. The Employment ---------------------------------------- Agreements with the employees of the Company listed on Schedule 6.1(w) attached hereto have been executed by such employees prior to or contemporaneously with the execution of this Agreement and the Employment Agreements remain in full force and effect and, to the 27 Company's Knowledge, none of the employees listed on Schedule 6.1(w) is in breach or violation of his or her Employment Agreement. 6.2. Representations and Warranties of Parent and Merger Sub. ------------------------------------------------------- Parent and Merger Sub each hereby represent and warrant to the Company, except as set forth in the Disclosure Schedules delivered to the Company on the date of this Agreement and attached hereto (the "Parent Disclosure Schedules"), as follows: (a) Organization and Good Standing. Each of Merger Sub and ------------------------------ Parent is a corporation duly organized, validly existing and in good standing under the laws of Delaware and each of them has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as presently conducted. Merger Sub has not, and prior to the Effective Time will not have, conducted any activities other than those required for the Merger and has no, and prior to the Effective Time will have no, assets, liabilities or obligations except as contemplated in connection with its execution, delivery and performance of this Agreement, the Stock Option Agreement and the Shareholders Agreement and the transactions contemplated hereby and thereby. (b) Corporate Authority. No vote of holders of capital stock of ------------------- Parent is necessary to approve this Agreement, the Offer and the Merger and the other transactions contemplated hereby. Each of Parent and Merger Sub has all requisite corporate power and authority and each has taken all corporate action (including approval of the stockholder of Merger Sub) necessary in order to execute, deliver and perform its obligations under this Agreement and to consummate the Offer and the Merger. Parent has all requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform its obligations under the Stock Option Agreement. This Agreement is a valid and binding agreement of Parent and Merger Sub, enforceable against each of Parent and Merger Sub in accordance with its terms subject to (i) applicable bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium, or similar laws from time to time in effect affecting creditors' rights generally, and (ii) general principles of equity, whether such principles are considered in a proceeding at law or in equity. The Stock Option Agreement is a valid and binding agreement of Parent, enforceable against Parent in accordance with its terms subject to (i) applicable bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium, or similar laws from time to time in effect affecting creditors' rights generally, and (ii) general principles of equity, whether such principles are considered in a proceeding at law or in equity. (c) Governmental Filings; No Violations. ----------------------------------- (i) Other than any filings and/or notices required (A) pursuant to Section 2.3, (B) under the HSR Act and (C) the Exchange Act and the "takeover" or "blue sky" laws of any state, no notices or other filings are required to be made by Parent or Merger Sub with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by Parent or Merger Sub from, any Governmental Entity, in connection with the execution and delivery of this Agreement by Parent and Merger Sub or the execution and 28 delivery of the Stock Option Agreement by Parent and the consummation by Parent and Merger Sub of the Offer and the Merger and the other transactions contemplated hereby and by the Stock Option Agreement, except those that the failure to make or obtain are not, individually or in the aggregate, reasonably likely to prevent, materially delay or materially impair the ability of Parent or Merger Sub to consummate the transactions contemplated by this Agreement, the Stock Option Agreement and the Shareholders Agreement. (ii) The execution, delivery and performance of this Agreement and the Stock Option Agreement, by Parent and Merger Sub, as the case may be, do not and will not, and the consummation by Parent and Merger Sub of the Offer and the Merger and the other transactions contemplated hereby and by the Stock Option Agreement, will not, constitute or result in (A) a breach or violation of, or a default under, the certificate or bylaws of Parent or Merger Sub, (B) a breach or violation of, or a default under, the acceleration of any obligation or the creation of a lien, pledge, security interest or other encumbrance on the assets of Parent or Merger Sub (with or without notice, lapse of time or both) pursuant to, any Contracts binding upon Parent or Merger Sub or any Law or governmental or non-governmental permit or license to which Parent or Merger Sub is subject, or (C) any change in the rights or obligations of any party under any of the Contracts, except, in the case of clause (B) or (C) above, for breach, violation, default, acceleration, creation or change that, individually or in the aggregate, is not reasonably likely to prevent, materially delay or materially impair the ability of Parent or Merger Sub to consummate the transactions contemplated by this Agreement. (d) Brokers and Finders. Neither Parent nor any of its ------------------- Subsidiaries, officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the Offer and the Merger or the other transactions contemplated by this Agreement, the Stock Option Agreement or the Shareholders Agreement, except that the Company has employed Morgan Stanley & Co. Incorporated as its financial advisor and as dealer manager in connection with the Offer. (e) Financing. Parent has the funds necessary to consummate the --------- Offer and the Merger on the terms contemplated by this Agreement and will provide such funds to Merger Sub at or prior to the consummation of the Offer and the Merger, as applicable. (f) Offer Documents. The Offer Documents and any other --------------- documents to be filed by Parent with the SEC or any other Governmental Entity in connection with the Offer and the Merger and the other transactions contemplated hereby will (in the case of the Offer Documents and any such other documents filed with the SEC under the Exchange Act) comply as to form in all material respects with applicable provisions of the Exchange Act and the rules and regulations thereunder. None of the Offer Documents, any other documents required to be filed by Parent with the SEC in connection with the transactions contemplated hereby, nor any information supplied by Parent for inclusion in the Schedule 14D-9 or in the information required to be distributed to the stockholders of the Company pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder as is necessary to enable Parent's designees to be elected to the Company's Board pursuant to Section 1.4 hereof shall, at the 29 respective times the Offer Documents, any amendments and supplements thereto or any such other filings by the Company, Parent or Merger Sub are filed with SEC or are first published, sent or given to stockholders of the Company, as the case may be, 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 made therein, in the light of the circumstances under which they are made, not misleading. Notwithstanding the foregoing, neither Parent nor Merger Sub makes any representation or warranty with respect to the statements made in any of the foregoing documents based on and in conformity with information supplied by or on behalf of the Company in writing specifically for inclusion therein. (g) No Litigation. There are no civil, criminal, administrative ------------- or regulatory actions, suits, claims, hearings, investigations or proceedings pending or, to the Knowledge of Parent or Merger Sub, threatened against Parent or Merger Sub which, in the aggregate, are reasonably likely to prevent or materially delay or materially impair the ability of Parent or Merger Sub to consummate the transactions contemplated by this Agreement and the Stock Option Agreement. (h) Compliance. Neither Parent nor Merger Sub is in default or ---------- violation of (i) its certificate of incorporation or bylaws, (ii) any Laws applicable to the Company or Merger Sub, or (iii) any material Contract to which Parent or Merger Sub is a party, except for any such defaults or violations that, in the aggregate, are not reasonably likely to prevent or materially delay the transactions contemplated by this Agreement. ARTICLE VII Covenants 7.1. Company Interim Operations. The Company covenants and -------------------------- agrees as to itself and its Subsidiaries that, after the date hereof and prior to the Effective Time (unless Parent shall otherwise consent in writing (such consent not to be unreasonably withheld or delayed) and except as otherwise expressly set forth in Schedule 7.1 attached hereto or expressly contemplated by this Agreement and the Stock Option Agreement): (a) the business of it and its Subsidiaries shall be conducted, in all material respects, in the ordinary and usual course and, to the extent consistent therewith, it and its Subsidiaries shall use their respective commercially reasonable best efforts to preserve its business organization substantially intact and substantially maintain its existing relations and goodwill with customers, suppliers, distributors, creditors, lessors, employees and business associates; (b) it shall not (i) issue, sell, pledge, dispose of or encumber any capital stock owned by it in any of its Subsidiaries; (ii) amend its certificate or bylaws; (iii) split, combine or reclassify its outstanding shares of capital stock; (iv) declare, set aside or pay any dividend payable in cash, stock or property in respect of any capital stock, or (v) repurchase, 30 redeem or otherwise acquire, except in connection with the Stock Plans or employment arrangements, or permit any of its Subsidiaries to purchase or otherwise acquire, any shares of its capital stock or any securities convertible into or exchangeable or exercisable for any shares of its capital stock; (c) neither it nor any of its Subsidiaries shall (i) issue, sell, pledge, dispose of or encumber any shares of, or securities convertible into or exchangeable or exercisable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of its capital stock of any class or any Voting Debt or any other property or assets (other than the issuance of shares of Common Stock pursuant to the ESPP, the Company Options or the Warrants); (ii) transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of or encumber any other property or assets (including capital stock of any of its Subsidiaries) or incur or modify any material indebtedness or other liability; or (iii) make any commitments for, make or authorize any capital expenditures or, by any means, make any acquisition of, or investment in, assets or stock of any other Person in each case, involving amounts in excess of $50,000 in the aggregate; (d) except as may be required by existing contractual commitments or as required by applicable law, neither it nor any of its Subsidiaries shall (i) enter into any new agreements or commitments for any severance or termination pay to, or enter into employment or severance agreement with, any of its directors, officers or employees or (ii) terminate, establish, adopt, enter into, make any new grants or awards under, amend or otherwise modify, any Compensation and Benefit Plans or increase or accelerate the salary, wage, bonus or other compensation of any employees, officers or directors (except for increases in salaries, wages and cash bonuses of nonexecutive employees made in the ordinary course of business consistent with past practice) or pay or agree to pay any pension, retirement allowance or other employee benefit not required by any existing Compensation and Benefit Plan; (e) neither it nor any of its Subsidiaries shall settle or compromise any material claims or litigation or modify, amend or terminate any of the Company Material Contracts or waive, release or assign any material rights or claims; (f) neither it nor any of its Subsidiaries shall make any Tax election or permit any insurance policy naming it as a beneficiary or loss- payable payee to be canceled or terminated, except in the ordinary and usual course of business; (g) except as may be required as a result of a change in law, neither it nor any of its Subsidiaries shall change any of the accounting practices or principles used by it; (h) neither it nor any of its Subsidiaries shall adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization, or other reorganization of the Company or any of its subsidiaries not constituting an inactive Subsidiary (other than the Merger); 31 (i) it shall not suffer or permit capital expenditures made or incurred by the Company and its Subsidiaries to exceed $50,000 except for expenses incurred in connection with the transactions contemplated by this Agreement; (j) neither it nor any of its Subsidiaries will offer to, or enter into an agreement to, do any of the foregoing; and (k) it shall not, and shall not permit any of its Subsidiaries to, take any action that would, or that could reasonably be expected to, result in any of the representations or warranties of the Company becoming untrue. 7.2. Acquisition Proposals. --------------------- (a) The Company shall, and it shall cause its affiliates and the officers, directors, employees, representatives and agents of the Company and its Subsidiaries (including, without limitation, any investment banker, attorney or accountant retained by the Company or any of its Subsidiaries) to, immediately cease and terminate any existing activities, discussions or negotiations, if any, with any parties (other than Parent and Merger Sub, any affiliate or associate of Parent and Merger Sub or any designees of Parent and Merger Sub) conducted heretofore with respect to any acquisition or exchange of all or any material portion of the assets of, or any equity interest in, the Company or any of its Subsidiaries (by direct purchase from the Company, tender or exchange offer or otherwise) or any business combination, merger or similar transaction (including an exchange of stock or assets) with or involving the Company or any Subsidiary of the Company (an "Acquisition Transaction"), other than the Offer and the Merger. (b) Except as set forth in Section 7.2(c), the Company shall not, nor shall it permit its affiliates and the officers, directors, employees, representatives and agents of the Company and its Subsidiaries (including, without limitation, any investment banker, attorney or accountant retained by the Company or any of its subsidiaries) to, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide any nonpublic information or data (other than the Company's standard public information package) to, any corporation, partnership, Person or other entity or group (other than Parent and Merger Sub, any affiliate or associate of Parent and Merger Sub or any designees of Parent and Merger Sub) with respect to any inquiries or the making of any offer or proposal (including, without limitation, any offer or proposal to the stockholders of the Company) concerning an Acquisition Transaction (an "Acquisition Proposal") or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal. (c) Prior to the consummation of the Offer, the Company may furnish information and access, but only in response to a request for information or access, to any Person making a bona fide written Acquisition Proposal to the board of directors of the Company after the date hereof which was not encouraged, solicited or initiated by the Company or any of its affiliates or any director, employee, representative or agent of the Company or any of its Subsidiaries (including, without limitation, any investment banker, attorney or accountant 32 retained by the Company or any of its Subsidiaries) on or after the date hereof and may participate in discussions and negotiate with such Person concerning any such Acquisition Proposal and may authorize the Company to enter into a binding written agreement concerning a Superior Proposal (as defined below), if and only if, in any such case, (i) the board of directors of the Company determines in good faith, (A) after receiving advice of outside counsel to the Company to such effect, that failing to provide such information or access or to participate in such discussions or negotiations or to so authorize, as the case may be, would constitute a breach of such board's fiduciary duties under applicable law, and (B) after consultation with the financial advisors to the Company to such effect, that such Acquisition Proposal, if accepted, is reasonably likely to be consummated, taking into account all legal, financial and regulatory aspects of the proposal and the Person making the proposal and would, if consummated, result in a transaction more favorable to the Company's stockholders from a financial point of view than the transaction contemplated by this Agreement (any such more favorable Acquisition Proposal as to which both of the determinations referred to in subclauses (A) and (B) above have been made being referred to in this Agreement as a "Superior Proposal"), and (ii) the Company receives from the Person making such bona fide written Acquisition Proposal an executed confidentiality agreement. (d) Nothing in this Agreement shall prohibit the Board of Directors of the Company from, to the extent applicable, complying with Rule 14e-2 or 14D-9 promulgated under the Exchange Act with regard to an Acquisition Proposal. The Company will notify Parent within twenty-four (24) hours if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with the Company and shall in such notice indicate the identity of the offeror and the material terms and conditions of any such proposal and thereafter shall keep Parent reasonably informed, on a current basis, of the status and material terms of such proposals and the status of such negotiations or discussions, providing copies to Parent of any Acquisition Proposals made in writing. (e) The Company shall provide Parent with three business days advance notice of, in each and every case, its intention to either enter into any agreement with or to provide any information to any Person making any such inquiry or proposal. The Company agrees not to release any third party from, or waive any provisions of, any confidentiality or standstill agreement to which the Company is a party and will use its best efforts to enforce any such agreements at the request of and on behalf of Parent. (f) The Company will inform the individuals or entities referred to in the first sentence of Section 7.2(a) of the obligations undertaken in this Section 7.2. 7.3. Company Stockholder Approval; Proxy Statement. --------------------------------------------- (a) If approval or action in respect of the Merger by the stockholders of the Company is required by applicable law, the Company, acting through the Company Board, shall (i) call as promptly as practicable following consummation of the Offer, a meeting of its 33 stockholders (the "Company Stockholders Meeting") for the purpose of voting upon adopting this Agreement and approving the Merger, (ii) hold the Company Stockholders Meeting as soon as practicable following the purchase of Shares pursuant to the Offer, and (iii) recommend to its stockholders the approval of the Merger. Notwithstanding the foregoing, the Company Board may withdraw, modify or amend any recommendation that the stockholders approve the Merger if the Company has received an Acquisition Proposal which in accordance with Section 7.2(c) is a Superior Proposal. The record date for the Company Stockholders Meeting shall be no earlier than close of business on the date on which Parent or Merger Sub becomes a record holder of Shares purchased pursuant to the Offer. At the Company Stockholders Meeting, Parent and Merger Sub shall cause all shares then owned beneficially or of record by them to be voted in favor of approval and adoption of this Agreement, the Merger and the transactions contemplated hereby. Notwithstanding the foregoing, if Parent, Merger Sub or any other subsidiary of Parent shall acquire at least ninety percent (90%) of the outstanding Shares, the parties shall take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after the expiration of the Offer without a stockholders meeting in accordance with Section 253 of the DGCL. (b) If required by applicable Law, the Company will, as soon as practicable following the expiration of the Offer, prepare and file a preliminary Proxy Statement (such proxy statement, and any amendments or supplements thereto, the "Proxy Statement") or, if applicable, an information statement with the SEC with respect to the Company Stockholders Meeting and will use its best efforts to respond to any comments of the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Proxy Statement or for additional information and will supply Parent with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement or the Merger. Parent and Merger Sub shall furnish to the Company all information regarding Parent, Merger Sub and their affiliates that may be required (pursuant to the Exchange Act and other applicable Laws) to be set forth in the Proxy Statement. The Company shall give Parent and its counsel the opportunity to review the Proxy Statement prior to it being filed with the SEC and shall give Parent and its counsel the opportunity to review all amendments and supplements to the Proxy Statement and all responses to requests for additional information and replies to comments prior to their being filed with, or sent to, the SEC. Each of the Company and Parent agrees to use its best efforts, after consultation with the other parties hereto, to respond promptly to all such comments of and requests by the SEC. As promptly as practicable after the Proxy Statement has been cleared by the SEC, the Company shall mail the Proxy Statement to the stockholders of the Company. If at any time prior to the approval of this Agreement by the Company's stockholders there shall occur any event which should be set forth in an amendment or supplement to the Proxy Statement, the Company will prepare and mail to its stockholders such an amendment or supplement. (c) The Company represents and warrants that the Proxy Statement will comply in all material respects with the Exchange Act and, at the respective times filed with the SEC and distributed to stockholders of the Company, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order 34 to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty as to any information included in the Proxy Statement that was provided by Parent or Merger Sub. Parent represents and warrants that none of the information supplied by Parent or Merger Sub for inclusion in the Proxy Statement will, at the respective times filed with the SEC and distributed to stockholders of the Company, 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 were made, not misleading. (d) Following the consummation of the Offer, the Company shall use its best efforts to obtain the necessary approvals by its stockholders of the Merger, this Agreement and the transactions contemplated hereby. 7.4. Approvals and Consents; Cooperation. ----------------------------------- (a) The Company and Parent shall cooperate with each other and use (and shall cause their respective Subsidiaries to use) their respective commercially reasonable best efforts to take or cause to be taken all actions, and do or cause to be done all things, necessary, proper or advisable under this Agreement, the Stock Option Agreement, the Shareholders Agreement and applicable Laws to consummate and make effective the Offer, the Merger and the other transactions contemplated by this Agreement, the Stock Option Agreement and the Shareholders Agreement as soon as practicable, including preparing and filing as promptly as practicable all documentation to effect all necessary applications, notices, petitions, filings and other documents and to obtain as promptly as practicable all permits, consents, approvals and authorizations necessary or advisable to be obtained from any third party and/or any Governmental Entity in order to consummate the Offer and the Merger or any of the other transactions contemplated by this Agreement, the Stock Option Agreement and the Shareholders Agreement. (b) In particular, the Company and Parent each agree to use commercially reasonable efforts to take, or cause to be taken, all appropriate action, and do, or cause to be done, such things as may be necessary under federal or state securities laws or the HSR Act applicable to or necessary for, and will file as soon as reasonably practicable and, if appropriate, use commercially reasonable efforts to have declared effective or approved, all documents and notifications with the SEC and other governmental or regulatory bodies that they deem necessary or appropriate for, the consummation of the Offer and the Merger or any of the other transactions contemplated hereby and each party shall give the other information reasonably requested by such other party pertaining to it and its subsidiaries and affiliates to enable such other party to take such actions. (c) Each of the Company, Parent and Merger Sub agrees to use commercially reasonable efforts to contest and resist any action, including legislative, administrative or judicial action, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) that is in 35 effect and that restricts, prevents or prohibits the consummation of the Offer and the Merger or any of the other transactions contemplated by this Agreement, including, without limitation, by pursuing available avenues of administrative and judicial appeal. (d) Each of the Company, Parent and Merger Sub also agrees to use commercially reasonable efforts to take any and all actions necessary to avoid or eliminate each and every impediment under any antitrust law that may be asserted by any governmental antitrust authority or any other party so as to enable the parties to close by the date specified in Section 9.2(i) the transactions contemplated hereby; provided, however, that nothing in this Section 7.4 shall require, or be construed to require, Parent to proffer to, or agree to, sell or hold separate and agree to sell, before or after the Effective Time, any assets, businesses, or interest in any assets or businesses of Parent, the Company or any of their respective affiliates (or to consent to any sale, or agreement to sell, by the Company of any of its assets or businesses) or to agree to any material changes or restriction in the operations of any such assets or businesses; and provided, further, that nothing in this Section 7.4 shall require, or be construed to require, a proffer or agreement that would, in the good faith judgment of Parent, be reasonably likely to have a material adverse effect on the benefits to Parent of the transactions contemplated by this Agreement. (e) Subject to applicable Laws relating to the exchange of information, Parent and the Company shall have the right to review in advance, and to the extent practicable each will consult the other on, all the information relating to Parent or the Company, as the case may be, and any of their respective Subsidiaries, that appear in any filing made with, or written materials submitted to, any third party and/or any Governmental Entity in connection with the Offer or the Merger and the other transactions contemplated by this Agreement, the Stock Option Agreement and the Shareholders Agreement. In exercising the foregoing right, each of the Company and Parent shall act reasonably and as promptly as practicable. 7.5. Filings; Other Actions; Notification. ------------------------------------ (a) The Company and Parent each shall, upon request by the other, furnish the other with all information concerning itself, its subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with the Proxy Statement, the Offer Documents or any other statement, filing, notice or application made by or on behalf of Parent, the Company or any of their respective subsidiaries to any Governmental Entity in connection with the Offer or the Merger and the transactions contemplated by this Agreement, the Stock Option Agreement and the Shareholders Agreement. (b) The Company and Parent each shall keep the other apprised of the status of matters relating to completion of the transactions contemplated hereby, including promptly furnishing the other with copies of notice or other communications received by Parent or the Company, as the case may be, or any of their respective subsidiaries, from any third party or any Governmental Entity with respect to the Offer or the Merger and the other transactions contemplated by this Agreement, the Stock Option Agreement and the Shareholders Agreement. 36 The Company shall give prompt notice to Parent of any change that has resulted in or is reasonably likely to result in a Company Material Adverse Effect and Parent shall give the Company prompt notice of any event, fact, circumstance or occurrence that would be reasonably likely to have an adverse effect on Parent's or Merger Sub's ability to complete the Offer or the Merger or to comply with their obligations contained in this Agreement or in the Stock Option Agreement. 7.6. Access. From the date hereof until the earlier of the ------ Effective Time or the termination of this Agreement, upon reasonable notice, the Company shall afford to the officers, employees, accountants, counsel, financial advisors and other representatives of Parent ("Parent Representatives") reasonable access to all of its and its Subsidiaries properties, books, contracts, commitments and records (including security position listings or other information concerning beneficial and record owners of the Company's securities) and its officers, management employees and representatives and, during such period, the Company shall furnish promptly to Parent, consistent with its obligations under this Agreement and other legal obligations, all information concerning its business, properties and personnel as the other party may reasonably request. Such information shall be held in confidence to the extent required by, and in accordance with, the provisions of the Mutual Non- Disclosure Agreement, dated March 10, 1999 (the "MNDA"), by and between the Company and DuPont Pharmaceuticals Company, a Delaware general partnership and wholly owned subsidiary of Parent ("DPC"). 7.7. De-registration. The Company shall use its best efforts to --------------- cause the Shares to be de-registered from the Nasdaq National Market and de- registered under the Exchange Act as soon as practicable following the Effective Time. 7.8. Publicity. The initial press release relating to the Offer --------- and this Agreement shall be a joint press release, the content of which shall be mutually agreed upon by Parent and the Company, and thereafter the Company shall consult with and obtain approval of Parent prior to issuing any press releases or otherwise making public statements with respect to the transactions contemplated by this Agreement and the Stock Option Agreement and prior to making any filings with any Governmental Entity with respect to the transactions contemplated by this Agreement, provided that such approval shall not be required if obtaining such approval would cause the Company to be in violation of any Laws or the rules of the Nasdaq National Market. 7.9. Benefits. -------- (a) Stock Options. ------------- (1) Prior to the consummation of the Offer, the Board of Directors of the Company (or, if appropriate, any committee administering the Stock Plans) shall adopt such resolutions or take such other actions as are required to adjust the terms of all outstanding Company Options to provide that, at the Effective Time, each Company Option outstanding immediately prior to the acceptance for payment of Shares pursuant to the Offer 37 (whether or not vested) shall be canceled in exchange for a cash payment of, or can only be exercised for net cash equal to, an amount equal to (i) the excess, if any, of (A) the Price Per Share over (B) the exercise price per share of Common Stock subject to such Company Option, multiplied by (ii) the number of shares of Common Stock for which such Company Option shall not theretofore have been exercised. Upon surrender to Parent at the address set forth in Section 10.6 of Company Options and/or such other documents as may reasonably be requested by Parent, Parent hereby agrees to deliver to the registered holders of such Company Options (as indicated in the records of the Company) such cash payment. The Company represents and warrants that no consents of the holders of the Company Options are necessary to effectuate the foregoing cash-out except as disclosed in Schedule 6.1(d)(ii). After the date of this Agreement, neither the Board of Directors of the Company nor any committee thereof shall cause any Company Option to become exercisable as a result of the execution of this Agreement or the Stock Option Agreement or the consummation of the transactions contemplated hereby. If there is no excess of the Price Per Share over the exercise price per share of Common Stock subject to a Company Option, such Company Option shall be canceled for no consideration. (2) All amounts payable pursuant to this Section 7.9 shall be subject to any required withholding of taxes and shall be paid without interest. (3) The Stock Plans shall terminate as of the Effective Time and the provisions in any other Compensation and Benefit Plan providing for the issuance, transfer or grant of any capital stock of the Company or any interest in respect of any capital stock of the Company shall be deleted as of the Effective Time, and the Company shall ensure that following the Effective Time no holder of a Stock Option or any participant in any Stock Plan or other Compensation and Benefit Plan shall have any right thereunder to acquire any capital stock of the Company or the Surviving Corporation. A purchase date under the ESPP will occur immediately prior to the consummation of the Offer. The payroll deductions for the purchase period ending with that purchase date will be applied to the purchase of CombiChem Shares at eighty five percent (85%) of the fair market value of the Shares on the start date of the offering period. The employees will, thereafter, be free to tender the purchased shares in the Offer. (b) Employee Benefits. Parent agrees that, for a period of at ----------------- least one year from the Effective Date, it will cause the Surviving Corporation to maintain, and the employees of the Company on the date of this Agreement (the "Current Employees") will be eligible for, the employee benefit plans of the Company as of the Effective Date until it develops alternative plans (other than stock options or other plans involving the issuance of securities of the Company or Parent) which in the aggregate are substantially comparable to those maintained by the Company as of the date of this Agreement. Parent will use its best efforts to cause each employee benefit plan of DPC in which the Current Employees are eligible to participate to take into account for purposes of eligibility and vesting thereunder the service of such Current Employees with the Company as if such service were with DPC, to the same extent that such service was credited under a comparable plan of the Company and such service period would have been credited to an employee of DPC participating in the relevant plan. The Current 38 Employees shall be entitled to the vacation time and holidays provided for under plans applicable to employees of DPC. In no event, however, shall a Current Employee's vacation time or ability to accrue or carry over vacation be less than that to which such Current Employee was entitled under the Company's vacation plan. For the first plan year ending after the Effective Time, any pre- existing condition exclusion under any plan providing medical or dental benefits shall be no more restrictive for any Current Employee who, immediately prior to commencing participation in such plan, was participating in a Company plan providing medical or dental benefits and had satisfied any pre-existing condition provision under such Company plan. Parent agrees to provide any Current Employee whose employment with the Company is terminated as a result of the Merger with at the least the minimum severance benefits provided to employees of DPC. If required by Parent, the Company shall, immediately prior to the Closing Date, terminate the Company's 401(k) plan (the "Company 401(k)") and no further contributions shall be made to the Company 401(k), provided that Parent provides the Current Employees the opportunity to participate in a 401(k) plan immediately following the Closing Date. The Company shall provide to Parent (i) resolutions of the Board of Directors of the Company authorizing the termination and (ii) an executed amendment to the Company 401(k) sufficient to ensure compliance with all applicable requirements of the Code and regulations thereunder so that the tax-qualified status of the Company 401(k) will be maintained at the time of termination. 7.10. Expenses. The Surviving Corporation shall pay all charges and -------- expenses, including those of the Depositary, in connection with the transactions contemplated in Article V, and Parent shall reimburse the Surviving Corporation for such charges and expenses. Except as otherwise provided in Section 9.5(b), whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement, the Stock Option Agreement, the Shareholders Agreement, the Offer and the Merger and the other transactions contemplated by this Agreement, the Stock Option Agreement and the Shareholders Agreement shall be paid by the party incurring such expense. 7.11. Indemnification; Directors' and Officers' Insurance. --------------------------------------------------- (a) From and after consummation of the Offer and compliance by the Company with Section 1.4, Parent will cause and ensure that the Surviving Corporation has sufficient funds available, if necessary, to fulfill and honor in all respects the obligations of the Company to each person who is or was a director or officer of the Company and who is entitled to indemnification or advance of expenses pursuant to each indemnification agreement listed in Schedule 7.11(a) or any indemnification provision or any exculpation provision set forth in the Company's certificate of incorporation or bylaws in effect on the date hereof, each in accordance with their terms for a period of not less than six (6) years. The certificate of incorporation and bylaws of the Surviving Corporation shall contain the provisions with respect to indemnification and exculpation from liability no less favorable than those set forth in the Company's certificate 39 of incorporation and bylaws on the date of this Agreement for a period of not less than six (6) years. (b) Notwithstanding any contrary provision of this Agreement, prior to the consummation of the Offer, the Company may purchase insurance coverage extending for a period of three years after the Effective Time the level and scope of the Company's directors' and officers' liability insurance coverage in effect as of the date hereof; provided that the aggregate annual premium payable for such insurance shall not exceed 125% of the last annual premium paid for such coverage prior to the date hereof. Through the third anniversary of the Effective Time, Parent shall maintain in effect such insurance coverage, and subject to the limitations in the preceding sentence, shall pay the annual premium for such insurance coverage. In the event the annual premium payable for such insurance coverage exceeds 125% of the last annual premium paid by the Company for such coverage, Parent shall be obligated to obtain and maintain in effect a policy with the greatest amount of coverage available for a cost not exceeding 125% of such amount. (c) The provisions of this Section 7.11 are intended to be for the benefit of, and shall be enforceable by, each of the individuals entitled to indemnification or advance of expenses under Section 7.11(a) or insurance coverage under Section 7.11(b) as intended third party beneficiaries and their heirs and estates and shall be binding on all successors and assigns of Parent and the Surviving Corporation. 7.12. Antitakeover Statutes. If any Antitakeover Statute is or --------------------- may become applicable to the Offer or the Merger or the other transactions contemplated by this Agreement, the Stock Option Agreement, or the Shareholders Agreement, each of Parent and the Company and their board of directors shall grant such approvals and take such lawful actions as are necessary so that such transactions may be consummated as promptly as practicable on the terms contemplated by this Agreement, the Stock Option Agreement or the Shareholders Agreement or by the Offer or the Merger and otherwise act to eliminate or minimize the effects of such statute or regulation on such transactions. ARTICLE VIII Conditions 8.1. Conditions to Each Party's Obligation to Effect the Merger. ---------------------------------------------------------- The respective obligation of each party to effect the Merger is subject to the satisfaction or waiver at or prior to the Closing of each of the following conditions: (a) Stockholder Approval. If the approval of this Agreement -------------------- and the Merger by the holders of Shares is required by applicable law, this Agreement shall have been duly adopted by holders of Shares constituting the Company Requisite Vote. 40 (b) Regulatory Consents. Any waiting period applicable to the ------------------- consummation of the Merger under the HSR Act shall have expired or been terminated. (c) No Injunctions or Restraints. (i) No court or Governmental ---------------------------- Entity of competent jurisdiction shall have enacted, issued, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) that is in effect and restrains, enjoins or otherwise prohibits consummation of the Offer or Merger (collectively, an "Order"); provided however, that prior to invoking this provision, each party shall use its commercially reasonable best efforts to have any such Order lifted or withdrawn, and (ii) no Governmental Entity shall have instituted any proceeding seeking any such Order. (d) Completion of the Offer. Merger Sub shall have (i) ----------------------- commenced the Offer pursuant to Section 1.1 hereof and (ii) purchased, pursuant to the terms and conditions of such Offer, all shares of Company Common Stock duly tendered and not withdrawn; provided, however, that neither Parent nor Merger Sub shall be entitled to rely on the condition in clause (ii) above if either of them shall have failed to purchase shares of Company Common Stock pursuant to the Offer in breach of their obligations under this Agreement. (e) Merger Sub Nominees Elected. The Company shall have --------------------------- complied with its obligations under Section 1.4 hereof. (f) Opinion of Counsel. Parent and Merger Sub shall have ------------------ received the opinion of Brobeck, Phleger and Harrison LLP in substantially the form attached hereto as Exhibit 8.1(f). ARTICLE IX Termination 9.1. Termination by Mutual Consent. This Agreement may be ----------------------------- terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after the approval by stockholders of the Company referred to in Section 8.1(a), by mutual written consent of the Company, Parent and Merger Sub, by action of their respective boards of directors. 9.2. Termination by Either Parent or the Company. This Agreement ------------------------------------------- may be terminated and the Merger may be abandoned at any time prior to the Effective Time by action of Parent or the board of directors of the Company if (i) the Merger shall not have been consummated by April 30, 2000, whether such date is before or after the date of approval by the stockholders of the Company referred to in Section 8.1(a); provided, however, that if a request for additional information is received from the United States Federal Trade Commission or the Antitrust Division of the United States Department of Justice pursuant to the HSR Act or additional information is requested by a governmental authority (a "Foreign Authority") pursuant to the antitrust, competition, foreign investment, or similar laws or any foreign countries or 41 supranational commissions or boards that require pre-merger notifications or filings with respect to the Merger (collectively, "Foreign Merger Laws"), then such date shall be extended to the 30th day following the date when the United States Federal Trade Commission or the Antitrust Division of the United States Department of Justice has deemed the Parent and/or the Company, as applicable, to be in substantial compliance with such request for additional information, but in any event not later than May 31, 2000, (ii) the Company Stockholders Meeting shall have been convened, held and completed and the approval referred to in Section 8.1(a) shall not have been obtained thereat or at any adjournment or postponement thereof; provided however, that Parent shall not be permitted to terminate the Agreement pursuant to this clause (ii) if Parent or Merger Sub shall not have voted all Shares then owned beneficially or of record by them in favor of approval and adoption of this Agreement, the Merger and the transactions contemplated hereby as required by Section 7.3(a), (iii) any Order permanently restraining, enjoining or otherwise prohibiting the Offer or the Merger shall become final and non-appealable (whether before or after the approval referred to in Section 8.1(a)) or (iv) if the Offer terminates or expires on account of the failure of any of the Offer Conditions; provided that the right to terminate this Agreement pursuant to clause (i) above shall not be available to any party that has breached in any material respect its obligations under this Agreement in any manner that shall have been the proximate cause of, or resulted in, the failure to consummate the Merger by the date referred to in clause (i) of this Section 9.2 and, provided, further, that the right to terminate this Agreement pursuant to clause (iii) of this Section 9.2 shall not be available to any party that has breached its covenant in Section 7.4 to use commercially reasonable best efforts to prevent such Order from being issued and to use commercially reasonable best efforts to cause such Order to be vacated, withdrawn or lifted. 9.3. Termination by the Company. This Agreement may be terminated -------------------------- and the Merger may be abandoned at any time prior to the Effective Time, whether before or after the approval by stockholders of the Company referred to in Section 8.1(a), by action of the board of directors of the Company, if: (a) (i) The Company is not in material breach of any of its representations, warranties, covenants or agreements in this Agreement, (ii) the board of directors of the Company authorizes the Company, prior to the consummation of the Offer and the Company's compliance with Section 1.4 hereof, and subject to complying with the terms of this Agreement, to enter into a binding written agreement concerning a Superior Proposal and the Company notifies Parent in writing that it intends to enter into such an agreement, attaching the most current version of such agreement to such notice, and (iii) Parent does not make, within three business days of receipt of the Company's written notification of its intention to enter into such an agreement, a written offer that is at least as favorable to the stockholders of the Company as the Superior Proposal. The Company agrees (x) that it will not enter into a binding agreement referred to in clause (ii) of the previous sentence until at least the first calendar day following the third business day after it has provided the written notice to Parent required thereby, (y) to notify Parent promptly if its intention to enter into a written agreement referred to in such notice shall change at any time after giving such notification and (z) that it will not terminate this Agreement or enter into a binding agreement referred to in clause (ii) of the previous sentence if Parent has, 42 within the period referred to in clause (x) of this sentence, made a written offer that is at least as favorable to the Company's stockholders as the Superior Proposal; or (b) The Company is not in material breach of any of its representations, warranties, covenants or agreements in this Agreement and prior to the consummation of the Offer, there has been a material breach by Parent or Merger Sub of any representation, warranty, covenant or agreement of Parent or Merger Sub contained in this Agreement which has had, or is reasonably likely to have, the effect of materially impairing the ability of Parent or Merger Sub to consummate the Offer or the Merger (a "Terminating Parent Breach"); provided, however, that, if such Terminating Parent Breach is curable by Parent through the exercise of reasonable best efforts and such cure is reasonably likely to be completed prior to the applicable date specified in Section 9.2(i), then for so long as Parent continues to exercise reasonable best efforts to cure such Terminating Parent Breach, the Company may not terminate this Agreement under this Section 9.3(b); or (c) The Company is not in material breach of any of its representations, warranties, covenants or agreements in this Agreement and Merger Sub shall have failed to commence the Offer within five (5) Business Days after the date of this Agreement. 9.4. Termination by Parent. This Agreement may be terminated and --------------------- the Merger may be abandoned at any time until the Offer has been consummated and the Company has complied with its obligations under Section 1.4, by Parent: (a) If the board of directors of the Company shall have failed to recommend, or shall have withdrawn or adversely modified its approval or recommendation of, the Offer or the Merger or failed to reconfirm its recommendation of the Offer or the Merger within two calendar days after a written request by Parent to do so, or shall have resolved to do any of the foregoing; or (b) If there has been a material breach by the Company of any representation, warranty, covenant or agreement of the Company contained in this Agreement which would give rise to the failure of a condition set forth in paragraph (c) of Annex A (a "Terminating Company Breach"); provided, however, that, if such Terminating Company Breach is curable by the Company through the exercise of reasonable best efforts and such cure is reasonably likely to be completed prior to the applicable date specified in Section 9.2(i), then for so long as the Company continues to exercise reasonable best efforts, Parent may not terminate this Agreement under this Section 9.4(b). For the purposes of this Section 9.4(b), any breach of a representation or warranty which is qualified or limited in any manner as to materiality shall be deemed to be a material breach. 43 9.5. Effect of Termination and Abandonment. ------------------------------------- (a) In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article IX, this Agreement (other than as set forth in Section 10.1) shall become void and of no effect with no liability of any party hereto (or any of its directors, officers, employees, agents, legal and financial advisors or other representatives); provided, however, that except as otherwise provided herein, no such termination shall relieve any party hereto of any liability or damages resulting from any willful breach of this Agreement. (b) In the event that (i)(A) a bona fide Acquisition Proposal shall have been made to the Company or any of its stockholders or any Person shall have announced an intention (whether or not conditional) to make an Acquisition Proposal with respect to the Company, and on or following the date of this Agreement but prior to the date that the Offer is consummated, such Acquisition Proposal, announcement or intention is or becomes publicly known, and (B) on or following the date on which such Acquisition Proposal, announcement or intention is or becomes publicly known, this Agreement is terminated by either Parent or the Company pursuant to Section 9.2(i), or (ii) this Agreement is terminated (x) by the Company pursuant to Section 9.3, or (y) by Parent pursuant to Section 9.4, or (z) pursuant to Section 9.2(iv) as a result of the failure of the Company to satisfy any one of the conditions set forth in paragraphs (c), (e) or (f) of Annex A, then the Company shall promptly, but in no event later than two (2) Business Days after the date of notification by Parent of the amount, reimburse Parent for all costs, charges and expenses incurred by Parent or Merger Sub in connection with this Agreement, the Stock Option Agreement and the Shareholders Agreement and the transactions contemplated by this Agreement and the Stock Option Agreement and the Shareholders Agreement, including, without limitation, fees and expenses of accountants, attorneys and financial advisors, up to a maximum of $1,000,000 in the aggregate. Such amount shall be payable in cash by wire transfer of same day funds. The Company acknowledges that the agreements contained in this Section 9.5(b) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Parent and Merger Sub would not enter into this Agreement; accordingly, if the Company fails to promptly pay the amount due pursuant to this Section 9.5(b), and, in order to obtain such payment, Parent or Merger Sub commences a suit which results in a binding nonappealable judgment rendered by a court of competent jurisdiction against the Company for the fee set forth in this paragraph (b) the Company shall pay to Parent or Merger Sub its costs and expenses (including reasonable attorneys' fees) in connection with such suit, together with interest on the amount of the fee at the prime rate of Chase Manhattan Bank in effect on the date such payment was required to be made. ARTICLE X Miscellaneous and General 10.1. Survival. This Article X and the agreements of the Company, -------- Parent and Merger Sub contained in Articles I, II, III, IV and V and Sections 7.9 (Benefits), 7.10 (Expenses), and 7.11 (Indemnification; Directors' and Officers' Insurance) shall survive the consummation of 44 the Offer and the Merger. This Article X and the agreements of the Company, Parent and Merger Sub contained in Section 7.10 (Expenses), and Section 9.5 (Effect of Termination and Abandonment) shall survive the termination of this Agreement. All other agreements and covenants in this Agreement and all representations and warranties contained herein shall not survive the consummation of the Merger or the termination of this Agreement. 10.2. Modification or Amendment. Subject to the provisions of ------------------------- applicable law, at any time prior to the Effective Time, the parties hereto may modify or amend this Agreement, by written agreement executed and delivered by duly authorized officers of the respective parties. 10.3. Waiver of Conditions. The conditions to each of the -------------------- parties' obligations to consummate the Merger are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable law. 10.4. Counterparts. This Agreement may be executed in any number ------------ of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 10.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. --------------------------------------------- (a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE COUNTY OF NEW CASTLE, DELAWARE SOLELY IN RESPECT OF THE INTERPRETATION AND ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT, THE STOCK OPTION AGREEMENT AND THE SHAREHOLDERS AGREEMENT AND OF THE DOCUMENTS REFERRED TO IN THIS AGREEMENT, THE STOCK OPTION AGREEMENT AND THE SHAREHOLDERS AGREEMENT, AND IN RESPECT OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, AND HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT HEREOF OR OF ANY SUCH DOCUMENT, THAT IT IS NOT SUBJECT THERETO OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN SAID COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE OR THAT THIS AGREEMENT, THE STOCK OPTION AGREEMENT OR THE SHAREHOLDERS AGREEMENT OR ANY SUCH DOCUMENT MAY NOT BE ENFORCED IN OR BY SUCH COURTS, AND THE PARTIES HERETO IRREVOCABLY AGREE THAT ALL CLAIMS WITH RESPECT TO SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH A DELAWARE STATE OR FEDERAL COURT. THE PARTIES HEREBY CONSENT TO AND GRANT ANY SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE 45 SUBJECT MATTER OF SUCH DISPUTE AND AGREE THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 10.6 OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT SERVICE THEREOF. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT, THE STOCK OPTION AGREEMENT OR THE SHAREHOLDERS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE STOCK OPTION AGREEMENT OR THE SHAREHOLDERS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT OR THE STOCK OPTION AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.5. 10.6. Notices. Any notice, request, instruction or other document ------- to be given hereunder by any party to the others shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, or by facsimile: if to Parent or Merger Sub E. I. du Pont de Nemours and Company 1007 Market Street Wilmington, Delaware 19898 Attention: General Counsel Fax: (302) 773-5176 with copies to: Justin P. Klein, Esq. Ballard Spahr Andrews & Ingersoll, LLP 1735 Market Street, 51st Floor Philadelphia, PA 19103-7599 Fax: (215) 864-8999 46 if to the Company Dr. Vicente Anido, Jr. CombiChem, Inc. 9050 Camino Santa Fe San Diego, CA 92121 Fax: (858) 271-9339 with copies to: Faye H. Russell, Esq. Brobeck Phleger & Harrison LLP 550 West C Street, Suite 1300 San Diego, California 92101-3532 Fax: (619) 234-3848 or to such other persons or addresses as may be designated in writing by the party to receive such notice as provided above. 10.7. Entire Agreement. This Agreement (including any exhibits ---------------- hereto), the Stock Option Agreement and the MNDA constitute the entire agreement, and supersede all other prior agreements, understandings, representations and warranties both written and oral, among the parties, with respect to the subject matter hereof. 10.8. No Third Party Beneficiaries. Except as provided in Section ---------------------------- 7.11 (Indemnification; Directors' and Officers' Insurance), this Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. 10.9. Obligations of Parent and of the Company. Whenever this ---------------------------------------- Agreement requires a Subsidiary of Parent to take any action, such requirement shall be deemed to include an undertaking on the part of Parent to cause such Subsidiary to take such action. Whenever this Agreement requires a Subsidiary of the Company to take any action, such requirement shall be deemed to include an undertaking on the part of the Company to cause such Subsidiary to take such action and, after the Effective Time, on the part of the Surviving Corporation to cause such Subsidiary to take such action. 10.10. Severability. The provisions of this Agreement shall be ------------ deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such 47 invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. 10.11. Specific Performance. The parties hereto each acknowledge -------------------- that, in view of the uniqueness of the subject matter hereof, the parties hereto would not have an adequate remedy at law for money damages if this Agreement were not performed in accordance with its terms, and therefore agree that the parties hereto shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which the parties hereto may be entitled at law or in equity. 10.12. Interpretation. The table of contents and headings herein -------------- are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. Where a reference in this Agreement is made to a Section, Schedule or Exhibit, such reference shall be to a Section of or Schedule or Exhibit to this Agreement unless otherwise indicated. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." 10.13. Assignment. This Agreement shall not be assignable by ---------- operation of law or otherwise; provided, however, that Parent may (i) assign its rights and obligations under this Agreement to DPC or any of Parent's direct or indirect wholly owned subsidiaries or affiliates with a net worth of $100,000,000 or more or (ii) designate, by written notice to the Company, another direct or indirect wholly owned subsidiary of Parent to be a Constituent Corporation in lieu of Merger Sub, in the event of which, all references herein to Merger Sub shall be deemed references to such other subsidiary. Any purported assignment made in contravention of this Agreement shall be null and void. 10.14. Captions. The Article, Section and Paragraph captions -------- herein are for convenience of reference only and do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. [Remainder of page intentionally left blank] 48 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by duly authorized officers of the parties hereto as of the date hereof. COMBICHEM, INC. By:/s/ Vicente Anido, Jr. ----------------------------------------- Name: Vicente Anido, Jr. Title: President and Chief Executive Officer E. I. DU PONT DE NEMOURS AND COMPANY By:/s/ Kurt M. Landgraf ----------------------------------------- Name: Kurt M. Landgraf Title: Executive Vice President and Chief Operating Officer DPC NEWCO, INC. By:/s/ Richard E. Gies ---------------------------------------- Name: Richard E. Gies Title: President 49 ANNEX A CONDITIONS TO THE OFFER Notwithstanding any other provision of the Offer, and subject to the terms and conditions of the Agreement, Merger Sub shall not be obligated to accept for payment any Shares until the expiration or termination of any waiting periods applicable under the HSR Act and Merger Sub shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC (including Rule 14e-l(c) under the Exchange Act) pay for, and may delay the acceptance for payment of or payment for, any Shares tendered in the Offer and (subject to the terms and conditions of the Agreement, including Section 1.1(b)) may amend, extend or terminate the Offer if, (i) immediately prior to the Scheduled Expiration Date (as extended in accordance with clauses (x), (y) or (z) of Section 1.1(b)(ii) of the Agreement) the Minimum Condition shall not have been satisfied or (ii) prior to the expiration of the Offer any of the following shall exist and be continuing: (a) there shall be threatened or pending any action, litigation or proceeding (hereinafter, an "Action") brought by any Governmental Entity: (i) that would reasonably be expected to challenge the acquisition by Parent or Merger Sub of shares of Company Common Stock or seek to restrain or prohibit the consummation of the Offer or the Merger; (ii) that would reasonably be expected to seek to prohibit or impose any material limitation on Parent's, Merger Sub's or any of their respective affiliates' ownership or operation of all or any material portion of the business or assets of the Company and its Subsidiaries taken as a whole or Parent and its Subsidiaries taken as a whole that, in each case referred to in this clause (ii) individually or in the aggregate, is reasonably likely to have a Company Material Adverse Effect or a material adverse effect on Parent; or (iii) that would reasonably be expected to seek to impose material limitations on the ability of Parent or Merger Sub effectively to acquire or hold, or to exercise full rights of ownership of, the shares of Common Stock, including the right to vote the shares of Common Stock purchased by them on an equal basis with all other shares of Common Stock on all matters properly presented to the stockholders of the Company; or (b) there shall be any statute, rule, regulation, order or injunction threatened, proposed, sought, enacted, promulgated, entered, enforced or deemed to or become applicable to the Offer or the Merger (and in each case, remain in effect), or any other action shall have been taken, by any court of competent jurisdiction or other U.S. Governmental Entity, that has any of the consequences referred to in clauses (i) through (iii) of paragraph (a) above; or (c) (i) Any of the representations and warranties of the Company set forth in this Agreement shall not be true and correct in all material respects when considered without regard to any qualification by, or reference to, materiality in any manner (except for those representations and warranties made as of a specific date, which shall be true and correct as of such date) and except for such failures of any representations or warranties, when so considered, to be true and correct that individually or in the aggregate do not have, and are not A-1 reasonably likely to have, a Company Material Adverse Effect; or (ii) the Company shall have breached or failed to comply in any material respect with any of its obligations, covenants or agreements under the Agreement and any such breach or failure shall not have been substantially cured by the Company within five (5) Business Days after Parent provides written notice to the Company of such breach or failure; or (d) the Agreement shall have been terminated in accordance with its terms; or (e) any corporation, entity, "group" or "person" (as defined in the Exchange Act), other than Parent, Merger Sub or any of the stockholders that are party to the Shareholders Agreement (so long as such stockholders do not become beneficial owners of any additional Shares after the date hereof and so long as such stockholders do not breach any of the provisions of the Shareholders Agreement), shall have acquired beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of more than 20% of the outstanding Shares; or (f) the Company's Board shall have modified or amended its recommendation of the Offer in any manner adverse to Parent or Merger Sub or shall have withdrawn its recommendation of the Offer or shall have recommended acceptance of any Acquisition Proposal or shall have failed to reconfirm its recommendation of the Offer within five (5) calendar days after a written request by Parent to do so, or shall have resolved to do any of the foregoing; or (g) there shall exist (i) any general suspension of, or limitation on prices for, trading in securities on the Nasdaq National Market for more than one full trading day (other than shortening of trading hours or any trading halt resulting from a specified increase or decrease in a market index), (ii) a declaration of any banking moratorium by federal or state authorities or any suspension of payments in respect of banks or any limitation (whether or not mandatory) imposed by federal or state authorities on the extension of credit by lending institutions in the United States, or (iii) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof. The conditions set forth in clauses (a) through (g) are for the sole benefit of Parent and Merger Sub and may be asserted by Parent and Merger Sub regardless of the circumstances giving rise to such conditions and may be waived by Parent and Merger Sub in whole or in part at any time and from time to time, by express and specific action to that effect, in their reasonable discretions. The failure by Parent or Merger Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. The capitalized terms used in this Annex A shall have the meanings set forth in the Agreement to which it is annexed. A-2 EX-99.C2 11 SHAREHOLDERS AGREEMENT Exhibit (c)(2) SHAREHOLDERS AGREEMENT This Shareholders Agreement (this "Agreement") dated as of October 5, 1999, among the persons listed on Schedule 1 hereto (each, a "Holder" and, collectively, the "Holders"), E. I. du Pont de Nemours and Company, a Delaware corporation ("Parent"), and DPC Newco, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"). WHEREAS, Parent, Merger Sub and CombiChem, Inc., a Delaware corporation (the "Company"), propose to enter into an Agreement and Plan of Merger (the "Merger Agreement") providing for the making of a tender offer by Merger Sub (the "Offer") for shares of Common Stock, par value $0.001 per share, of the Company (the "Common Stock"), at a purchase price of $6.75 per share and a subsequent merger (the "Merger") between the Company and Merger Sub. WHEREAS, each Holder owns the number of shares of Common Stock (the "Shares") or options to purchase Common Stock (the "Stock Options" and, collectively with the Shares, the "Optioned Securities"), or has the right to vote the number of Shares or other securities (the "Voting Securities"), listed opposite the name of such Holder on Schedule 1. WHEREAS, Parent and Merger Sub have required, as a condition to entering into the Merger Agreement, that the Holders enter into this Agreement. WHEREAS, the Holders believe that it is in the best interest of the Company and its stockholders to induce Parent and Merger Sub to enter into the Merger Agreement and, therefore, the Holders are willing to enter into this Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein and such other valuable consideration the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. The Option. Each Holder hereby grants Merger Sub an irrevocable ---------- option (the "Option") to purchase all of the Optioned Securities of such Holder at the price of $6.75 per share (or such higher price as may be paid pursuant to the Offer), payable in cash, without interest. 2. Exercise of the Option; Term. ---------------------------- (a) On the terms and subject to the conditions of this Agreement, Merger Sub may exercise the Option at any time after the date on which all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), applicable to the Merger have expired or been terminated, by written notice to each Holder specifying a date and time for the closing not later than thirty (30) business days from the date of such notice (which date and time may be one day after the delivery of such notice), but only if: (i) (A) a bona fide Acquisition Proposal (as defined in the Merger Agreement) shall have been made to the Company or any of its stockholders or any person or entity shall have announced an intention (whether or not conditional) to make an Acquisition Proposal with respect to the Company, and on or following the date of the Merger Agreement but prior to the date that the Offer is consummated, such Acquisition Proposal, announcement or intention is or becomes publicly known, (B) no event shall have become publicly known prior to the time that such Acquisition Proposal, announcement or intention is or becomes publicly known that would have a material adverse effect on the ability of Parent or Merger Sub to consummate the Merger (other than any event related to such Acquisition Proposal, announcement or intention or any event related to a breach of the Merger Agreement or this Agreement by the Company) and (C) on or following the date on which such Acquisition Proposal, announcement or intention is or becomes publicly known, the Merger Agreement is terminated by either the Company or the Parent pursuant to Section 9.2(i) of the Merger Agreement, unless Merger Sub has consummated the Offer and the Company has complied with Section 1.4 of the Merger Agreement; or (ii) the Merger Agreement is terminated (x) by the Company pursuant to Section 9.3(a) of the Merger Agreement, or (y) by the Parent pursuant to Section 9.4(a) of the Merger Agreement or (z) pursuant to Section 9.2(iv) of the Merger Agreement as a result of the failure to satisfy any one of the conditions set forth in paragraphs (c), (e) or (f) of Annex A of the Merger Agreement. (b) As used in this Agreement, "person" shall have the meaning specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act. Notwithstanding any other provision of this Agreement, the Merger Agreement or the Stock Option Agreement, any reference to a majority of the total issued and outstanding shares or Shares, or shares or Shares outstanding on a fully diluted basis, or similar references, shall, for purposes of such agreements, exclude from the determination thereof any shares of Common Stock issuable upon exercise of or subject to the Stock Option Agreement and any reference to beneficial ownership of shares of Common Stock or similar references shall, for purposes of such agreements, exclude from the determination thereof any shares of Common Stock issuable upon exercise of or subject to the Stock Option Agreement and/or this Agreement. (c) The Option shall expire on the earliest of (1) the Effective Time (as defined in the Merger Agreement), (2) January 31, 2000 or, if the Offer is extended past January 31, 2000 because the waiting period applicable to the transactions contemplated by this Agreement under the HSR Act has not terminated or expired, immediately after the expiration of the Offer, and (3) the thirtieth day following the termination of the Merger Agreement if prior to such thirtieth day the events set forth in any of clauses (i) or (ii) of Section 9.5(b) of the Merger Agreement shall not have occurred (such earliest date being referred to in this Agreement as the "Expiration Date"); provided that, if the Option cannot be exercised or the Optioned Securities cannot be delivered to Merger Sub upon such exercise because (x) there shall be in effect a preliminary or permanent injunction or other order issued by any federal or state court of competent jurisdiction prohibiting delivery of the Optioned Securities or (y) any applicable 2 waiting periods under the HSR Act shall not have expired or been terminated, then the Expiration Date shall be extended until thirty days after such impediment to exercise or delivery has been removed. 3. Closing. At the closing: ------- (a) against delivery of the Optioned Securities, free and clear of all liens, claims, charges and encumbrances of any kind or nature whatsoever, Parent shall cause Merger Sub to make payment of the aggregate price for each Holder's Optioned Securities by wire transfer of immediately available funds to such Holder; and (b) each Holder shall deliver to Merger Sub a duly executed certificate or certificates representing the number of Optioned Securities purchased from such Holder, together with transfer powers endorsed in blank relating to such certificates and, if requested by Merger Sub, an irrevocable proxy duly executed by such Holder, authorizing such persons as Merger Sub shall designate to act for such Holder as his lawful agents, attorneys and proxies, with full power of substitution, to vote in such manner as each such agent, attorney and proxy or his substitute shall in his sole discretion deem proper, and otherwise act with respect to the Optioned Securities at any meeting (whether annual or special and whether or not an adjourned meeting) of the Company's Holders or otherwise, and revoking any prior proxies granted by such Holder with respect to the Holder's Optioned Securities. Notwithstanding any provision of this Agreement to the contrary, the Holders shall validly tender their Shares pursuant to the Offer and shall not withdraw such Shares prior to the expiration of the Offer, and their obligation to sell any Optioned Securities shall be satisfied, solely with respect to the Shares so tendered, upon the purchase of such Shares by Merger Sub pursuant to the Offer. 4. Covenants of the Holders. ------------------------ (a) During the period from the date of this Agreement until the expiration of this Agreement, except in accordance with the provisions of this Agreement, each Holder severally and not jointly agrees that he will not: (i) sell, sell short, transfer, pledge, hypothecate, assign or otherwise dispose of, or enter into any contract, option, hedging arrangement or other arrangement or understanding with respect to the sale, transfer, pledge, hypothecation, assignment or other disposition of, any Optioned Securities or Voting Securities; (ii) deposit any Optioned Securities or Voting Securities into a voting trust, or grant any proxies or enter into a voting agreement with respect to any Optioned Securities or Voting Securities; or 3 (iii) initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal (as defined in the Merger Agreement) or enter into discussions or negotiate with any person or entity in furtherance of such inquiries or to obtain an Acquisition Proposal, or agree to or endorse any Acquisition Proposal; except that any Holder who is a member of the board of directors of the Company may conduct himself in the manner expressly permitted under Section 7.2 of the Merger Agreement. (b) Any additional shares of Common Stock, warrants, options or other securities or rights exercisable for, exchangeable for or convertible into shares of Common Stock (collectively, "Equity Securities") acquired by any Holder, or with respect to which any Holder obtains voting power, will become subject to this Agreement and shall, for all purposes of this Agreement, be considered Optioned Securities or Voting Securities, as the case may be. (c) Each Holder agrees not to engage in any action or omit to take any action which would have the effect of preventing or disabling such Holder from delivering his Optioned Securities to Merger Sub or otherwise performing his obligations under this Agreement. To the extent that any Optioned Securities (other than Company Common Stock) may not be assigned by such Holder to Merger Sub without exercising, exchanging or converting such Optioned Securities for or into Company Common Stock, each Holder agrees to exercise, exchange or convert such Optioned Securities for or into Company Common Stock prior to the closing of the purchase of such Optioned Securities upon exercise of the Option. 5. Representations and Warranties of each Holder. Each Holder --------------------------------------------- severally and not jointly represents and warrants to Parent and Merger Sub as follows: (a) (i) such Holder is the record or beneficial owner of the Optioned Securities, or has the right to vote the Voting Securities, listed opposite the name of such Holder on Schedule 1, (ii) such Optioned Securities or Voting Securities are the only Equity Securities owned of record or beneficially by such Holder or in which such Holder has any interest or which such Holder has the right to vote, as the case may be, and (iii) such Holder does not have any option or other right to acquire any other Equity Securities; (b) such Holder has the right, power and authority to execute and deliver this Agreement and to perform his obligations hereunder; the execution, delivery and performance of this Agreement by such Holder will not require the consent of any other person and will not constitute a violation of, conflict with or result in a default under (i) any contract, understanding or arrangement to which such Holder is a party or by which such Holder is bound, (ii) any judgment, decree or order applicable to such Holder or (iii) to the Holder's knowledge, any law, rule or regulation of any governmental body applicable to such Holder; and this Agreement constitutes a valid and binding agreement on the part of such Holder, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity; 4 (c) to the Holder's knowledge, any Shares included in the Optioned Securities owned by such Holder have been validly issued and are fully paid and nonassessable and any shares of Common Stock issuable upon exercise of the Stock Options or Warrants, when issued and upon payment of the exercise price therefor, will be validly issued, fully paid and nonassessable; (d) except as set forth on Schedule 1, the Optioned Securities owned by such Holder are now, and at all times during the term of this Agreement will be, held by such Holder free and clear of all adverse claims, liens, encumbrances and security interests, and none of the Optioned Securities or Voting Securities are subject to any voting trust or other agreement or arrangement (except as created by this Agreement) with respect to the voting or disposition of the Optioned Securities or Voting Securities; and there are no outstanding options, warrants or rights to purchase or acquire, or agreements (except for this Agreement) relating to, such Optioned Securities or Voting Securities; and (e) upon purchase of the Optioned Securities owned by such Holder, Merger Sub will obtain good and marketable title to such Optioned Securities, free and clear of all adverse claims, liens, encumbrances and security interests (except any created by Merger Sub). 6. Effect of Representations, Warranties and Covenants of Holders. -------------------------------------------------------------- The representations, warranties and covenants of the Holders shall be several and not joint. The liability of each individual Holder shall extend only to the representations, warranties and covenants of such Holder and not to any representation, warranty or covenant of any other Holder. 7. Representations and Warranties of Parent and Merger Sub. Each of ------------------------------------------------------- Parent and Merger Sub represents and warrants to each Holder that: it is a corporation duly incorporated under the laws of the State of Delaware; it has all requisite corporate power and authority to enter into and perform all its obligations under this Agreement; the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on its part; this Agreement has been duly executed and delivered by it; and this Agreement constitutes a valid and binding agreement on its part, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity. 8. Voting of Equity Securities. Each Holder hereby agrees that, --------------------------- during the period from the date of this Agreement until the expiration of this Agreement, at any meeting of the stockholders of the Company, however called, and in any action by written consent of the stockholders of the Company, he shall (a) vote all Voting Securities of such Holder in favor of the Merger; (b) not vote any Voting Securities in favor of any action or agreement which would result in a breach in any material respect of any covenant, representation or warranty or any other obligation of the Company under the Merger Agreement; and (c) vote all Voting Securities of such Holder against any action or agreement which would impede, interfere with or attempt to 5 discourage the Offer or the Merger, including, but not limited to: (i) any proposal opposed by Parent or Merger Sub; (ii) any Acquisition Proposal (other than the Offer and the Merger) involving the Company or any of its subsidiaries; (iii) any change in the management or board of directors of the Company, except as otherwise agreed to in writing by Merger Sub; (iv) any material change in the present capitalization or dividend policy of the Company; or (v) any other material change in the Company's corporate structure or business. Each Holder hereby irrevocably appoints designees of Merger Sub, its attorneys, agents and proxies, with full power of substitution, for the undersigned and in the name, place and stead of the undersigned to vote in such manner as such attorneys, agents and proxies or their substitutes shall in their sole discretion deem proper and otherwise act, including the execution of written consents, with respect to all Voting Securities of the Company which the undersigned is or may be entitled to vote at any meeting of the Company held after the date hereof, whether annual or special and whether or not an adjourned meeting, or in respect of which the undersigned is or may be entitled to act by written consent. This proxy is coupled with an interest and shall be irrevocable and binding on any successor in interest of the undersigned. This proxy shall operate to revoke any prior proxy as to Voting Securities heretofore granted by the Holder. Such proxy shall terminate upon the expiration of this Agreement. 9. Adjustments. In the event of any increase or decrease or other ----------- change in the Optioned Securities by reason of stock dividend, stock split, recapitalizations, combinations, exchanges of shares or the like, the number of Optioned Securities and Voting Securities subject to this Agreement shall be adjusted appropriately. 10. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the law of the State of Delaware without regard to its rules of conflict of laws. 11. VENUE. THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION ----- OF THE COURTS OF THE STATE OF DELAWARE AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE COUNTY OF NEW CASTLE, DELAWARE SOLELY IN RESPECT OF THE INTERPRETATION AND ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT AND OF THE OTHER DOCUMENTS REFERRED TO IN THIS AGREEMENT, AND IN RESPECT OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, AND HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT HEREOF OR OF ANY SUCH DOCUMENT, THAT IT IS NOT SUBJECT THERETO OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN SAID COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE OR THAT THIS AGREEMENT OR ANY SUCH DOCUMENT MAY NOT BE ENFORCED IN OR BY SUCH COURTS, AND THE PARTIES HERETO IRREVOCABLY AGREE THAT ALL CLAIMS WITH RESPECT TO SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH A DELAWARE STATE OR FEDERAL COURT. THE PARTIES HEREBY CONSENT TO AND GRANT ANY SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE SUBJECT MATTER OF SUCH 6 DISPUTE AND AGREE THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 16 OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT SERVICE THEREOF. 12. Further Assurances. Each party hereto shall perform such ------------------ further acts and execute such further documents as may reasonably be required to carry out the provisions of this Agreement. 13. Restrictions on Transfer. ------------------------ (a) As soon as practicable after the execution of this Agreement, the following legend shall be placed on the certificates representing the Optioned Securities: "The Securities represented by this certificate are subject to certain transfer and other restrictions contained in a Shareholders Agreement, dated as of October 5, 1999, among E. I. du Pont de Nemours and Company, a Delaware corporation, DPC Newco, Inc., a Delaware corporation, and certain stockholders of the Corporation." (b) The Company shall instruct its transfer agent not to permit any transfers of the Optioned Securities in contravention of this Agreement. 14. Assignment. This Agreement may not be assigned by any party ---------- hereto, except that Parent may assign its rights and obligations under this Agreement to DuPont Pharmaceuticals Company, a Delaware general partnership and wholly owned subsidiary of Parent, or any of Parent's direct or indirect wholly owned subsidiaries or affiliates with a net worth of more than $100,000,000. 15. Remedies. The parties agree that legal remedies for breach -------- of this Agreement will be inadequate and that this Agreement may be enforced by Parent and Merger Sub by injunctive or other equitable relief. 16. Notices. All notices or other communications required or ------- permitted hereunder shall be in writing (except as otherwise provided herein) and shall be deemed duly given if delivered in person, by confirmed facsimile transmission or by overnight courier service, addressed as follows: To Parent or Merger Sub: E. I. du Pont de Nemours and Company 1007 Market Street Wilmington, Delaware 19898 Attention: General Counsel Fax: (302) 773-5176 7 With a copy to: Ballard Spahr Andrews & Ingersoll 1735 Market Street, 51st Floor Philadelphia, PA 19103-7599 Attention: Justin P. Klein, Esq. Fax: (215) 864-8999 To each Holder: At the address set forth on the signature pages hereto With copies to: Brobeck, Phleger & Harrison LLP 550 West C Street, Suite 1300 San Diego, CA 92101 Attention: Faye H. Russell, Esq. Fax: (619) 234-3848 17. Severability. If any term or other provision of this Agreement ------------ is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. 18. Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. 19. Binding Effect; Benefits. This Agreement shall survive the death ------------------------ or incapacity of any Holder and shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. Nothing in this Agreement, expressed or implied, is intended to or shall confer on any person other than the parties hereto and their respective heirs, legal representatives and successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. 20. Waiver of Conflicts. The Company and each Holder severally ------------------- acknowledge and represent (i) that Brobeck, Phleger & Harrison LLP has in the past and may continue to 8 perform legal services for the Company and certain of the Holders in matters unrelated to the transactions described in this Agreement; (ii) that Brobeck, Phleger & Harrison LLP is representing both the Company and the Holders in the transaction contemplated by this Agreement; (iii) that they have been given the opportunity to ask for information relevant to the representation by Brobeck, Phleger & Harrison LLP of both the Company and the Holders in connection with the transaction contemplated by this Agreement. Each Holder represents that, after such disclosure, each Holder has requested that Brobeck, Phleger & Harrison LLP represent such Holder in connection with the transactions contemplated by this Agreement and each of the Holders hereby gives its informed consent to the representation by Brobeck, Pleger & Harrison LLP of the Company and the Holders in connection with the transactions contemplated hereby. 21. Termination. This Agreement shall commence on the date hereof ----------- and terminate upon the expiration of the Option. [Remainder of page intentionally left blank] 9 IN WITNESS WHEREOF, the Holders, Parent and Merger Sub have entered into this Agreement as of the date first written above. E. I. DU PONT DE NEMOURS AND COMPANY By: /s/ Kurt M. Landgraf ------------------------------------- Name: Kurt M. Landgraf Title: Executive Vice President and Chief Operating Officer DPC NEWCO, INC. By: /s/ Richard E. Gies -------------------------------------- Name: Richard E. Gies Title: President [Remainder of page intentionally left blank] 10 HOLDERS: First Union Trust Company, National Association as Voting Trustee under that Certain Voting Trust Dated May 5, 1998 (Sprout Capital VII, L.P.) By: /s/ Edward L. Truitt ------------------------------------- Name: Edward L. Truitt Title: Vice President DLJ Capital Corp. By: /s/ Arthur S. Zuckerman ------------------------------------- Arthur S. Zuckerman Vice President SEQUOIA CAPITAL VI SEQUOIA TECHNOLOGY PARTNERS VI SEQUOIA XXIV SEQUOIA 1995 By: /s/ Thomas F. Stephenson ------------------------------------- Name: Thomas F. Stephenson Title: General Partner BVCF III, L.P. By: J.W. Puth Associates, LLC, its General Partner Brinson Venture Management, LLC, its Attorney-in-fact By: Brinson Partners, Inc., its Managing Member By: /s/ Terry P. Gould ------------------------------------- Terry P. Gould Executive Director Brinson Trust Company as Trustee of the Brinson MAP Venture Capital Fund III By: /s/ Terry P. Gould ------------------------------------- Terry P. Gould Executive Director /s/ Vicente Anido, Jr. ------------------------------------- Vicente Anido, Jr. /s/ Peter L. Myers ------------------------------------- Peter L. Myers 11 /s/ Michael J. Pazzani ------------------------------------- Michael J. Pazzani /s/ Philippe O. Chambon ------------------------------------- Philippe O. Chambon /s/ William Scott ------------------------------------- William Scott /s/ Arthur Reidel ------------------------------------- Arthur Reidel /s/ Lee R. McCracken ------------------------------------- Lee R. McCracken /s/ Klaus Gubernator ------------------------------------- Klaus Gubernator 12 SCHEDULE 1
Total Shares Unexercised Unexercised Voting Held Options Warrants Securities --------- ----------- ----------- ---------- First Union Trust Company, 1,386,331 0 0 1,386,331 National Association, as Voting Trustee Under that Certain Voting Trust Agreement dated May 5, 1998 (Sprout Capital VII, L.P.) DLJ Capital Corporation 115,398 0 0 115,398 Sequoia Capital VI 1,109,962 0 16,613 1,126,575 Sequoia Technology Partners VI 60,988 0 913 61,901 Sequoia XXIV 33,012 0 730 33,742 Sequoia 1995 15,780 0 0 15,780 BVCF III, L.P. 822,340 0 0 822,340 Brinson Trust Company, as Trustee 134,113 0 0 134,113 of the Brinson MAP Venture Capital Fund III Vicente Anido 480,417 150,001 0 630,418 Peter Myers 225,000 150,001 0 375,001 Michael Pazzani 0 20,000 0 20,000 Phillippe Chambon 0 25,000 0 25,000 William Scott 0 25,000 0 25,000 Arthur Reidel 20,000 25,000 0 45,000 Lee McCracken 93,750 15,000 0 108,750 Klaus Gubernator 52,500 0 0 52,500 --------- ------- ------ --------- 4,549,591 410,002 18,256 4,977,849 ========= ======= ====== =========
13 EX-99.C3 12 STOCK OPTION AGREEMENT Exhibit (c)(3) STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT (the "Agreement"), dated as of October 5, 1999, among E. I. du Pont de Nemours and Company, a Delaware corporation (the "Grantee"), DPC Newco, Inc., a Delaware corporation and a wholly owned subsidiary of the Grantee ("Merger Sub"), and CombiChem, Inc., a Delaware corporation (the "Grantor"). Capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Merger Agreement (as defined below). WHEREAS, the Grantee, Merger Sub, and the Grantor are entering into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which provides, among other things, for the merger of Merger Sub and Grantor (the "Merger"); WHEREAS, the Grantee and Merger Sub have requested that the Grantor grant to the Grantee an option to purchase up to 2,684,431 shares of Common Stock, par value $0.001 per share, of the Grantor (the "Common Stock"), on the terms and subject to the conditions hereof; and WHEREAS, the Grantor is willing to grant the Grantee the requested option. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, the parties hereto, intending to be legally bound hereby, agree as follows: 1. The Option; Exercise; Adjustments; Payment of Spread. ---------------------------------------------------- (a) Contemporaneously herewith the Grantee, Merger Sub and the Grantor are entering into the Merger Agreement. Subject to the other terms and conditions set forth herein, the Grantor hereby grants to the Grantee an irrevocable option (the "Option") to purchase up to 2,684,431 shares of Common Stock (the "Shares") at a cash purchase price equal to $6.75 per share (the "Purchase Price"). The Option may be exercised by the Grantee, in whole or in part, at any time, but only on one occasion, following (but not prior to) the occurrence of the events set forth in any of clauses (i) or (ii) of Section 2(d) hereof, and prior to the Termination Date (as defined below). (b) In the event the Grantee wishes to exercise the Option, the Grantee shall send a written notice to the Grantor (the "Stock Exercise Notice") specifying the total number of Shares it wishes to purchase and a date (subject to the expiration or termination of any applicable waiting period under the HSR Act (as defined below)) not later than ten (10) business days and not earlier than three (3) business days following the date such notice is given for the closing of such purchase. In the event of any change in the number of issued and outstanding shares of capital stock of the Company (by reason of any stock dividend, stock split, recapitalization, merger, issuance of capital stock upon exercise of warrants or options or any other event), the number of Shares subject to this Option and the Purchase Price shall be appropriately adjusted to restore the Grantee to its rights hereunder, including its right to purchase Shares representing 19.9% of the capital stock of the Grantor entitled to vote generally for the election of the directors of the Grantor which is issued and outstanding immediately prior to the exercise of the Option. (c) If at any time the Option is exercisable pursuant to the terms of Section 1(a) hereof and at or prior to such time the payment referred to in Section 9.5(b) of the Merger Agreement shall have become payable, the Grantee may on one occasion elect, in lieu of exercising the Option to purchase Shares provided in Section 1(a) hereof, to send a written notice to the Grantor (a "Cash Exercise Notice") specifying a date not later than twenty (20) business days and not earlier than ten (10) business days following the date such notice is given on which date the Grantor shall pay to the Grantee an amount in cash (the "Cancellation Amount") equal to the Spread (as defined below) multiplied by all or such portion of the Shares subject to the Option as Grantee shall specify. As used herein "Spread" shall mean the excess, if any, over the Purchase Price of the higher of (x) if applicable, the highest price per share of Common Stock (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid or proposed to be paid by any person pursuant to any Acquisition Proposal occurring after the date of this Agreement and prior to the Termination Date (the "Alternative Purchase Price") or (y) the average of the closing bid and asked prices of the Common Stock on the Nasdaq National Market ("Nasdaq") or on such other national securities exchange on which the shares of Common Stock are then listed for the last five (5) trading days immediately prior to the date of the Cash Exercise Notice (the "Closing Price"). If the Alternative Purchase Price includes any property other than cash, the Alternative Purchase Price shall be the sum of (i) the fixed cash amount, if any, included in the Alternative Purchase Price plus (ii) the fair market value of such other property. If such other property consists of securities with an existing public trading market, the average of the closing prices (or the average of the closing bid and asked prices if closing prices are unavailable) for such securities in their principal public trading market on the five trading days ending five (5) days prior to the date the Cash Exercise Notice is given shall be deemed to equal the fair market value of such property. If such other property consists of something other than cash or securities with an existing public trading market and, as of the payment date for the Spread, agreement on the value of such other property has not been reached, the Alternative Purchase Price shall be deemed to equal the Closing Price. Upon exercise of its right to receive cash pursuant to this Section 1(c), the obligations of the Grantor to deliver Shares pursuant to Section 3 shall be terminated with respect to such number of Shares for which the Grantee shall have elected to be paid the Spread. 2 2. Conditions to Delivery of Shares. The Grantor's obligation to -------------------------------- deliver Shares upon exercise of the Option is subject only to the conditions that: (a) No preliminary or permanent injunction or other order issued by any federal or state court of competent jurisdiction prohibiting the delivery of the Shares shall be in effect; and (b) Any applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall have expired or been terminated; and (c) the representations and warranties of the Grantee made in Section 5 of this Agreement shall be true and correct in all material respects as of the date of the closing of the issuance of the Shares; and (d) (i) (A) a bona fide Acquisition Proposal shall have been made to the Grantor or any of its stockholders or any Person shall have announced an intention (whether or not conditional) to make an Acquisition Proposal with respect to the Grantor, and on or following the date of the Merger Agreement but prior to the date that the Offer is consummated, such Acquisition Proposal, announcement or intention is or becomes publicly known, (B) no event shall have become publicly known prior to the time that such Acquisition Proposal, announcement or intention is or becomes publicly known that would have a material adverse effect on the ability of Grantee or Merger Sub to consummate the Merger (other than any event related to such Acquisition Proposal, announcement or intention or any event related to a breach of the Merger Agreement or this Agreement by Grantor) and (C) on or following the date on which such Acquisition Proposal, announcement or intention is or becomes publicly known, the Merger Agreement is terminated by either the Grantee or the Grantor pursuant to Section 9.2(i) of the Merger Agreement, unless Merger Sub has consummated the Offer and Grantor has complied with Section 1.4 of the Merger Agreement; or (ii) the Merger Agreement is terminated (x) by the Grantor pursuant to Section 9.3(a) of the Merger Agreement, or (y) by the Grantee pursuant to Section 9.4(a) of the Merger Agreement, or (z) pursuant to Section 9.2(iv) of the Merger Agreement as a result of the failure to satisfy any one of the conditions set forth in paragraphs (c), (e) or (f) of Annex A of the Merger Agreement. (e) As used in this Agreement, "person" shall have the meaning specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act. Notwithstanding any other provision of this Stock Option Agreement, the Merger Agreement or the Shareholders Agreement, any reference to a majority of the total issued and outstanding shares or Shares, or shares or Shares outstanding on a fully diluted basis, or similar references, shall, for purposes of such agreements, exclude from the determination thereof any shares of Common Stock issuable upon exercise of or subject to this Stock Option Agreement and any reference to beneficial ownership of shares of Common Stock or similar references shall, for purposes of such 3 agreements, exclude from the determination thereof any shares of Common Stock issuable upon exercise of or subject to this Stock Option Agreement and/or the Shareholders Agreement. 3. The Closing. ----------- (a) Any closing hereunder shall take place on the date specified by the Grantee in its Stock Exercise Notice or Cash Exercise Notice or as specified in Section 1(c), as the case may be, at 10:00 A.M., local time, at the offices of Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia, Pennsylvania, or, if the conditions set forth in Section 2(a), (b) or (c) have not then been satisfied, on the second business day following the satisfaction of such conditions, or at such other time and place as the parties hereto may agree (the "Closing Date"). On the Closing Date, (i) in the event of a closing pursuant to Section 1(b) hereof, the Grantor will deliver to the Grantee a certificate or certificates, representing the Shares in the denominations designated by the Grantee in its Stock Exercise Notice and the Grantee will purchase such Shares from the Grantor at the price per Share equal to the Purchase Price, or (ii) in the event of a closing pursuant to Section 1(c) hereof, the Grantor will deliver to the Grantee cash in an amount determined pursuant to Section 1(c) hereof. Any payment made by the Grantee to the Grantor, or by the Grantor to the Grantee, pursuant to this Agreement shall be made by wire transfer of federal funds to a bank designated by the party receiving such funds. (b) The Grantee agrees not to transfer or otherwise dispose of the Option or the Shares, or any interest therein, except in compliance with the Securities Act of 1933, as amended (the "Securities Act") and any applicable state securities law. The Grantee further agrees that the certificates representing the Shares shall bear an appropriate legend relating to the fact that such Shares have not been registered under the Securities Act. 4. Representations and Warranties of the Grantor. The Grantor --------------------------------------------- represents and warrants to the Grantee that (a) the Grantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to enter into and perform this Agreement; (b) the execution and delivery of this Agreement by the Grantor and the consummation by it of the transactions contemplated hereby have been duly authorized by the Board of Directors of the Grantor and this Agreement has been duly executed and delivered by a duly authorized officer of the Grantor and constitutes a valid and binding obligation of the Grantor, enforceable against Grantor in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; (c) the Grantor has taken all necessary corporate action to authorize and reserve the Shares issuable upon exercise of the Option and the Shares, when issued and delivered by the Grantor upon exercise of the Option and paid for by the Grantee as contemplated hereby, will be duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights; (d) except as otherwise required by the HSR Act or the rules and regulations of Nasdaq, the execution and delivery of this Agreement by the Grantor and the consummation by it of the transactions contemplated hereby do not require the consent, waiver, approval or authorization of or any filing with any person or public authority (other than those that have been obtained prior 4 to the date of this Agreement or will have been obtained prior to the Closing Date) and will not violate, result in a breach of or the acceleration of any obligation under, or constitute a default under, any provision of the Grantor's certificate of incorporation or bylaws, or any indenture, mortgage, lien, lease, agreement, contract, instrument, order, rule, regulation, judgment, ordinance, or decree, or restriction by which the Grantor or any of its subsidiaries or any of their respective properties or assets is bound, except as set forth in Schedule 4(d) attached hereto; and (e) no "fair price," "moratorium," "control share acquisition," "interested shareholder" or other form of antitakeover statute or regulation (including but not limited to Section 203 of the Delaware General Corporation Law) is or shall be applicable to the grant of the Option or the acquisition of Shares pursuant to this Agreement. 5. Representations and Warranties of the Grantee. The Grantee --------------------------------------------- represents and warrants to the Grantor that (a) the Grantee is a corporation duly incorporated and validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to enter into and perform this Agreement, (b) the execution and delivery of this Agreement by the Grantee and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Grantee and this Agreement has been duly executed and delivered by a duly authorized officer of the Grantee and constitutes a valid and binding obligation of the Grantee, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; and (c) the Grantee is acquiring the Option and, if and when it exercises the Option, will be acquiring the Shares issuable upon the exercise thereof for its own account and not with a view to distribution or resale in any manner which would be in violation of the Securities Act. 6. Listing of Shares; Filings; Governmental Consents. Subject to ------------------------------------------------- applicable law and the rules and regulations of Nasdaq or such other national securities exchange on which the shares of the Grantor's Common Stock are then listed, after the Option becomes exercisable hereunder, the Grantor will promptly file an application to list the Shares on Nasdaq or on such other national securities exchange on which the shares of Common Stock are then listed and will use its reasonable best efforts to obtain approval of such listing and to effect all necessary filings by the Grantor under the HSR Act; provided, however, that if the Grantor is unable to effect such listing on Nasdaq by the Closing Date, the Grantor will nevertheless be obligated to deliver the Shares on the Closing Date and to continue its efforts to effect such listing on Nasdaq or such other national securities exchange on which the shares of the Grantor's Common Stock are then listed. Each of the parties hereto will use its reasonable best efforts to obtain consents of all third parties and governmental authorities, if any, necessary to the consummation of the transactions contemplated by this Agreement. 5 7. Registration Rights. ------------------- (a) In the event that the Grantee shall desire to sell any of the Shares after the purchase of such Shares pursuant to this Agreement, and such sale requires, in the reasonable opinion of counsel to the Grantee (which opinion must be reasonably satisfactory to Grantor and its counsel), registration of such Shares under the Securities Act, the Grantor will cooperate with the Grantee and any underwriters selected by the Grantee (which underwriters must be reasonably satisfactory to Grantor) in registering such Shares for resale for a period of at least forty-five (45) days, including, without limitation, promptly filing a registration statement which complies with the requirements of applicable federal and state securities laws and entering into an underwriting agreement with such underwriters upon such terms and conditions as are customarily contained in underwriting agreements with respect to secondary distributions; provided that the Grantor shall not be required to have declared effective more than two (2) registration statements hereunder and shall be entitled to delay the filing or effectiveness of any registration statement and may suspend the use of any registration statement (and related prospectus) for one or more periods of time not exceeding an aggregate of sixty (60) days in any one year period if the offering would, in the judgment of the board of directors of the Grantor in consultation with counsel to Grantor, require premature disclosure of any material corporate development or material transaction involving the Grantor or interfere with any previously planned securities offering by the Grantor. In addition, upon receipt of notice of the occurrence of any event as a result of which any registration statement, prospectus or prospectus supplement, contains any untrue statements of material fact or fails or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading, the Grantee shall forthwith discontinue the disposition of any Shares under such registration statement, prospectus or prospectus supplement until the Grantee receives from the Grantor copies (which subject to the limitations on suspension set forth above shall promptly be made available by the Grantor) of an amended or supplemented registration statement, prospectus or supplement so that, as thereafter delivered to purchasers of such Shares, such registration statement, prospectus or prospectus supplement shall not contain any untrue statement of material fact or fail or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading. (b) If the Shares are registered pursuant to the provisions of this Section 7, the Grantor agrees (i) to furnish copies of the registration statement and the prospectus relating to the Shares covered thereby in such numbers as the Grantee may from time to time reasonably request and (ii) if any event shall occur as a result of which it becomes necessary to amend or supplement any registration statement or prospectus, to prepare and file under the applicable securities laws such amendments and supplements as may be necessary to keep available for at least forty-five (45) days a prospectus covering the Shares meeting the requirements of such securities laws, and to furnish the Grantee such numbers of copies of the registration statement and prospectus as amended or supplemented as may reasonably be requested. The Grantor shall bear the cost of the registration, including, but not limited to, all registration and filing fees, printing expenses, and fees and disbursements of counsel and 6 accountants for the Grantor, except that the Grantee shall pay the fees and disbursements of its counsel and the underwriting fees and selling commissions applicable to the shares of Common Stock sold by the Grantee. The Grantor shall indemnify and hold harmless (i) the Grantee, its affiliates and its officers and directors and (ii) each underwriter and each person who controls any underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (collectively, the "Underwriters") ((i) and (ii) being referred to as "Indemnified Parties") against any losses, claims, damages, liabilities or expenses to which the Indemnified Parties may become subject, insofar as such losses, claims, damages, liabilities (or actions in respect thereof) and expenses arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained or incorporated by reference in any registration statement filed pursuant to this Section 7 or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Grantor will not be liable in any such case to the extent that any such loss, liability, claim, damage or expense arises out of or is based upon (A) an untrue statement or alleged untrue statement in or omission or alleged omission from any such documents in reliance upon and in conformity with written information furnished to the Grantor by the Indemnified Parties expressly for use or incorporation by reference therein, or (B) the fact that the person asserting any such loss, liability, claim, damage or expense did not receive a copy of an amended preliminary prospectus or the final prospectus (or the final prospectus as amended or supplemented) at or prior to the written confirmation of the sale of the Shares to such person because of the failure of the Grantee to so provide such amended preliminary or final prospectus. (c) The Grantee and the Underwriters shall indemnify and hold harmless the Grantor, its affiliates and its officers and directors against any losses, claims, damages, liabilities or expenses to which the Grantor, its affiliates and its officers and directors may become subject, insofar as such losses, claims, damages, liabilities (or actions in respect thereof) and expenses arise out of or are based upon (i) any untrue statement of any material fact contained or incorporated by reference in any registration statement filed pursuant to this Section 7, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Grantor by the Indemnified Parties, as applicable, specifically for use or incorporation by reference therein or (ii) the fact that the person asserting any such loss, liability, claim, damage or expense did not receive a copy of an amended preliminary prospectus or the final prospectus (or the final prospectus as amended or supplemented) at or prior to the written confirmation of the sale of the Shares to such person because of the failure of the Grantee to so provide such amended preliminary or final prospectus. (d) Promptly after receipt by an indemnified party under subsection (b) or (c) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to 7 notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to 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 shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnified party shall settle any action or claim without the consent of the indemnifying party, which consent shall not be unreasonably withheld or delayed. 8. Expenses. Each party hereto shall pay its own expenses incurred -------- in connection with this Agreement, except as otherwise specifically provided herein. 9. Modification or Amendment. Subject to the provisions of ------------------------- applicable law, the parties hereto may modify or amend this Agreement, by written agreement executed and delivered by duly authorized officers of the respective parties. 10. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 11. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. --------------------------------------------- (a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE COUNTY OF NEW CASTLE, DELAWARE SOLELY IN RESPECT OF THE INTERPRETATION AND ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT, THE MERGER AGREEMENT AND OF THE OTHER DOCUMENTS REFERRED TO IN THIS AGREEMENT AND THE MERGER AGREEMENT, AND IN RESPECT OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, AND HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT HEREOF OR OF ANY SUCH DOCUMENT, THAT IT IS NOT SUBJECT THERETO OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN SAID COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE OR THAT THIS AGREEMENT, THE MERGER AGREEMENT, OR ANY SUCH DOCUMENT MAY NOT BE ENFORCED IN OR BY SUCH COURTS, AND 8 THE PARTIES HERETO IRREVOCABLY AGREE THAT ALL CLAIMS WITH RESPECT TO SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH A DELAWARE STATE OR FEDERAL COURT. THE PARTIES HEREBY CONSENT TO AND GRANT ANY SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE SUBJECT MATTER OF SUCH DISPUTE AND AGREE THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 12 OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT SERVICE THEREOF. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE MERGER AGREEMENT OR THE OTHER DOCUMENTS REFERRED TO IN THIS AGREEMENT AND THE MERGER AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE MERGER AGREEMENT, THE OTHER DOCUMENTS REFERRED TO IN THIS AGREEMENT AND THE MERGER AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY AND (IV) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 12. Notices. Any notice, request, instruction or other document to ------- be given hereunder by any party to the others shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, or by facsimile: if to the Grantee or Merger Sub: E. I. du Pont de Nemours and Company 1007 Market Street Wilmington, Delaware 19898 Attention: General Counsel Fax: (302) 773-5176 with copies to: 9 Justin P. Klein, Esq. Ballard Spahr Andrews & Ingersoll, LLP 1735 Market Street, 51st Floor Philadelphia, PA 19103-7599 Fax: (215) 864-8999 if to the Grantor: Dr. Vicente Anido, Jr. CombiChem, Inc. 9050 Camino Santa Fe San Diego, CA 92121 Fax: (858) 271-9339 with copies to: Faye H. Russell, Esq. Brobeck Phleger & Harrison LLP 550 West C Street, Suite 1300 San Diego, CA 92101-3532 Fax: (619) 234-3848 or to such other persons or addresses as may be designated in writing by the party to receive such notice as provided above. 13. Entire Agreement. This Agreement (including any exhibits and ---------------- schedules hereto), the Merger Agreement and the other documents referred to in this Agreement and the Merger Agreement, constitute the entire agreement, and supersede all other prior agreements, understandings, representations and warranties both written and oral, among the parties, with respect to the subject matter hereof. 14. No Third Party Beneficiaries. This Agreement is not intended to ---------------------------- confer upon any person or entity other than the parties hereto any rights or remedies hereunder. 15. Severability. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or entity or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other persons or entities or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. 10 16. Specific Performance. The parties hereto each acknowledge that, -------------------- in view of the uniqueness of the subject matter hereof, the parties hereto would not have an adequate remedy at law for money damages if this Agreement were not performed in accordance with its terms, and therefore agree that the parties hereto shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which the parties hereto may be entitled at law or in equity. 17. Assignment. This Agreement shall not be assignable by operation ---------- of law or otherwise; provided, however, that the Grantee may assign its rights and obligations under this Agreement to DuPont Pharmaceuticals Company, a Delaware general partnership and wholly owned subsidiary of Grantee, or any of Grantee's direct or indirect wholly owned subsidiaries or affiliates with a net worth of more than $100,000,000. Any purported assignment made in contravention of this Agreement shall be null and void. 18. Captions. The Section captions herein are for convenience of -------- reference only and do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. 19. Termination. ----------- (a) The right to exercise the Option granted pursuant to this Agreement shall terminate at (and the Option shall no longer be exercisable after) the earliest of (i) the Effective Time (as defined in the Merger Agreement), (ii) the nine month anniversary of the earliest to occur of the events set forth in any of clauses (i) or (ii) of Section 2(d), and (iii) the fifteenth day following the termination of the Merger Agreement if prior to such fifteenth day the events set forth in any of clauses (i) or (ii) of Section 2(d) shall not have occurred (such earliest date being referred to in this Agreement as the "Termination Date"); provided that, if the Option cannot be exercised or the Shares cannot be delivered to the Grantee upon such exercise because one or more of the conditions set forth in Section 2(a) or (b) hereof have not yet been satisfied, the Termination Date shall be extended until fifteen (15) days after such impediment to exercise or delivery has been removed. (b) All representations and warranties contained in this Agreement shall survive delivery of and payment for the Shares. [Remainder of page intentionally left blank] 11 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by duly authorized officers of the parties hereto as of the date hereof. COMBICHEM, INC. By: /s/ Vicente Anido, Jr. ----------------------------------------- Name: Vicente Anido, Jr. Title: President and Chief Executive Officer E. I. DU PONT DE NEMOURS AND COMPANY By: /s/ Kurt M. Landgraf ---------------------------------------- Name: Kurt M. Landgraf Title: Executive Vice President and Chief Operating Officer DPC NEWCO, INC. By: /s/ Richard E. Gies ----------------------------------------- Name: Richard E. Gies Title: President 12 EX-99.C4 13 MUTUAL NON-DISCLOSURE AGREEMENT Exhibit (c)(4) MUTUAL NON-DISCLOSURE AGREEMENT Each undersigned party (the "Receiving Party") understands that the other party (the "Disclosing Party") has disclosed or may disclose information relating to the Disclosing Party's business particularly relating to uniform informer libraries, chemi-informatic tools and the nature of chemical libraries (including, with limitation, names and expertise of employees and consultants, know-how, formulas, processes, ideas, inventions (whether patentable or not), schematics, computer programs, software code, algorithms, development tools, manufacturing capability or processes, chemical routes, chemical structures, relationships with other businesses, business plans, and other technical, business, financial, customer and product development plans, forecasts, strategies and information), which to the extent previously, presently, or subsequently disclosed to the Receiving Party is hereinafter referred to as "Proprietary Information" of the Disclosing Party. Proprietary Information also includes any information which the Disclosing Party has received from a third party which the Disclosing Party is obligated to treat as confidential or proprietary. Notwithstanding the foregoing, nothing will be considered "Proprietary Information" of the Disclosing Party unless either (1) it is first disclosed in tangible form and is conspicuously marked "Confidential", "Proprietary" or the like or (2) it is first disclosed in non-tangible form and orally identified as confidential at the time of disclosure and is summarized in tangible form conspicuously marked "Confidential" within thirty (30) days of the original disclosure. In consideration of and solely for the purpose of the parties' discussion regarding a possible business transaction and any access the Receiving Party may have to Proprietary Information of the Disclosing Party, each party (as the Receiving Party) hereby agrees as follows: 1. Non-Disclosure and Non-Use Obligations. The Receiving Party -------------------------------------- agrees (i) to hold the Disclosing Party's Proprietary Information in strict confidence and to take all reasonable precautions to protect such Proprietary Information (including, without limitation, all precautions the Receiving Party employs with respect to its most confidential materials), (ii) not to divulge any such Proprietary Information or any information derived therefrom to any third person (except consultants or agents, subject to the conditions stated below), (iii) not to make any use whatsoever at any time of such Proprietary Information except to evaluate internally whether to enter into a proposed business transaction with the Disclosing Party without the prior written permission of the disclosing party, (iv) not to remove or export from the United States or re-export any such Proprietary Information or any direct product thereof except in compliance with all licenses and approvals required under applicable export laws and regulations, including without limitation, those of the U.S. Department of Commerce, and (v) not to copy or reverse engineer any such Proprietary Information. Any employee, consultant or agent given access to any such Proprietary Information must have a legitimate "need to know" and shall be similarly bound in writing. The parties shall be entitled to exchange Proprietary Information under the terms of this Agreement for a period not to exceed two (2) years from the date hereof, unless otherwise extended by mutual written agreement of the parties or incorporated into a separate agreement. Without granting any right or license, the Disclosing Party agrees that the foregoing clauses (i), (ii), (iii) and (v) shall not apply with respect to all obligations after five (5) years following the disclosure thereof or any information that the Receiving Party can document (i) is or (through no improper action or inaction by the Receiving Party or any agent, consultant or employee) becomes generally known to the public, (i) was in its possession or the possession of an affiliate or consultant or known by it prior to receipt from the Disclosing Party, (iii) was rightfully disclosed to it, an affiliate or a consultant by a third party without restriction, or (iv) was independently developed without use of any Proprietary Information of the Disclosing Party by employees of the Receiving Party who can be demonstrated to have had no access to such information. The Receiving Party may make disclosures required by court order provided the Receiving Party uses diligent efforts to limit disclosure and to obtain confidential treatment or a protective order and has allowed the Disclosing Party to participate in the proceeding. 2. Patent or Copyright Infringement. Nothing in this Agreement is -------------------------------- intended to grant any rights under any patent or copyright of the Disclosing Party, nor shall this Agreement grant the Receiving Party any rights in or to the Disclosing Party's Proprietary Information, except the limited right to review such Proprietary Information solely for the purpose of evaluating a possible business transaction. 3. Return of Materials. Immediately upon (i) the decision by either ------------------- party not to enter into a relationship as a result of the exchange of information hereunder, or (ii) a request by the Disclosing Party at any time, the Receiving Party will turn over to the Disclosing Party all Proprietary Information of the Disclosing Party and all documents or media containing any such Proprietary Information and any and all copies or extracts or derivatives thereof to the extent it is requested by either party in writing, except that a single copy may be retained for legal archival purposes, subject to protection and non-disclosure in accordance with the term of this agreement. The Receiving Party understands that nothing herein (i) requires the disclosure of any Proprietary Information of the Disclosing Party, which shall be disclosed if at all solely at the option of the Disclosing Party, or (ii) requires the Disclosing Party to proceed with any proposed transaction or relationship in connection with which Proprietary Information may be disclosed. 4. No Publicity. Except to the extent required by law, neither ------------ party shall disclose the existence or subject matter of the negotiations or business relationship contemplated by this Agreement. 5. Securities Law Considerations. Each party is aware, and will ----------------------------- advise its employees, consultants and agents who are informed of the matters that are the subject of this agreement, of the restrictions imposed by the United States securities laws on the purchase and sale of securities by any person who has received material, non-public information from the issuer of such securities and on the communication of such information to any other person when it is reasonably foreseeable that such other person is likely to purchase or sell such securities in reliance upon such information. 2 6. Miscellaneous. The Receiving Party acknowledges and agrees that ------------- due to the unique nature of the Disclosing Party's Proprietary Information, there can be no adequate remedy at law for any breach of its obligations hereunder, that any such breach may allow the Receiving Party or third parties to unfairly compete with the Disclosing Party resulting in irreparable harm to the Disclosing Party, and therefore, that upon any such breach or any threat thereof, the Disclosing Party may seek appropriate equitable relief (without the need to post bond or other security) in addition to whatever remedies it might have at law. The Receiving Party will notify the Disclosing Party in writing immediately upon the occurrence of any such unauthorized release or other breach of which it is aware. In the event that any of the provisions of this Agreement shall be held by a court or other tribunal of competent jurisdiction to be to any extent illegal, invalid or unenforceable, such provisions shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to principles of conflicts of law. The parties agree that any dispute regarding the interpretation or validity of this Agreement shall be subject to the exclusive jurisdiction of the state and federal courts in and for the County of San Diego, California, and each party hereby agrees to submit to the personal and exclusive jurisdiction and venue of such courts. This Agreement supersedes all prior discussions and writings and constitutes the entire agreement between the parties with respect to the subject matter hereof. This Agreement may not be amended except in an express writing signed by officers of both parties. No waiver or modification of this Agreement will be binding upon either party unless made in writing and signed by a duly authorized representative of such party and no failure or delay in enforcing any right will be deemed a waiver. Each party warrants to the other that it is duly authorized to enter into this Agreement and that the terms of this Agreement are not inconsistent with any of its respective outstanding contractual obligations. The execution and performance of this Agreement does not obligate the parties to enter into any other agreement or to perform any obligations other than as specified herein. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year set forth below. Date: 3-10-99 ------------- COMBICHEM, INC., DUPONT PHARMACEUTICALS COMPANY, a Delaware corporation a Delaware general partnership By: /s/ Vicente Anido, Jr. By: /s/ David S. Block ------------------------- ----------------------- Vicente Anido, Jr., Ph.D. David S. Block, M.D. Its: President and Its: Vice President, Product Planning Chief Executive Officer and Acquisition 3 -----END PRIVACY-ENHANCED MESSAGE-----