-----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, Rft1bHPKYkK/blTTesGo3NJf+29nrGva1KZBqYOqW2GyED+zRbeZlUtpt5ODpA7i pIoyrWrVzjYl4uBHXAi0DQ== 0000950123-99-007226.txt : 19990809 0000950123-99-007226.hdr.sgml : 19990809 ACCESSION NUMBER: 0000950123-99-007226 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19990806 GROUP MEMBERS: MC SUBSIDIARY CORP GROUP MEMBERS: MERCK & CO INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SIBIA NEUROSCIENCES INC CENTRAL INDEX KEY: 0001011065 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 953616229 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: SEC FILE NUMBER: 005-48087 FILM NUMBER: 99679172 BUSINESS ADDRESS: STREET 1: 505 COAST BLVD SOUTH STREET 2: STE 300 CITY: LA JOLLA STATE: CA ZIP: 92037 BUSINESS PHONE: 6194525892 MAIL ADDRESS: STREET 1: 505 COAST BLVD SOUTH STREET 2: SUITE 300 CITY: LA JOLLA STATE: CA ZIP: 92037 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MERCK & CO INC CENTRAL INDEX KEY: 0000064978 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 221109110 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: ONE MERCK DR STREET 2: P O BOX 100 CITY: WHITEHOUSE STATION STATE: NJ ZIP: 08889-0100 BUSINESS PHONE: 9084234044 MAIL ADDRESS: STREET 1: ONE MERCK DR STREET 2: PO BOX 100 WS3AB-05 CITY: WHITEHOUSE STATION STATE: NJ ZIP: 08889-0100 SC 14D1 1 SCHEDULE 14D-1 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 SIBIA NEUROSCIENCES, INC. (Name of Subject Company) MERCK & CO., INC. MC SUBSIDIARY CORP. (BIDDERS) COMMON STOCK, $.001 PAR VALUE (INCLUDING THE ASSOCIATED RIGHTS) (TITLE OF CLASS OF SECURITIES) 825732100 (CUSIP NUMBER OF COMMON STOCK) CELIA A. COLBERT MC SUBSIDIARY CORP. C/O MERCK & CO., INC. ONE MERCK DRIVE WHITEHOUSE STATION, NEW JERSEY 08889 (908) 423-1000 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS) COPIES TO: GARY P. COOPERSTEIN, ESQ. FRIED, FRANK, HARRIS, SHRIVER & JACOBSON ONE NEW YORK PLAZA NEW YORK, NEW YORK 10004 (212) 859-8000 ------------------------ CALCULATION OF FILING FEE
============================================================================== TRANSACTION VALUATION* AMOUNT OF FILING FEE - ------------------------------------------------------------------------------ $85,935,212 $17,187.04 ==============================================================================
* FOR PURPOSES OF CALCULATING FEE ONLY. THIS AMOUNT IS BASED ON A PER SHARE OFFERING PRICE OF $8.50, FOR 9,703,769 SHARES OF COMMON STOCK OUTSTANDING AS OF JULY 23, 1999, PLUS THE NUMBER OF SHARES ASSUMED ISSUABLE PURSUANT TO THE SHARE OF OUTSTANDING CONVERTIBLE PREFERRED 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 BIDDER. [ ] 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. 2 AMOUNT PREVIOUSLY PAID: N/A FORM OR REGISTRATION NO.: N/A FILING PARTY: N/A DATE FILED: N/A -2- 3 - ------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON MERCK & CO., 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) 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 NEW JERSEY - ------------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,308,897 - ------------------------------------------------------------------------------- 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) 44.9%(1) - ------------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON (See Instructions) CO - ------------------------------------------------------------------------------- - -------- (1) Merck & Co., Inc. ("Merck"), MC Subsidiary Corp. ("Merger Sub") a direct wholly owned subsidiary of Merck, and SIBIA Neurosciences, Inc. ("SIBIA") entered into an Agreement and Plan of Merger (the "Merger Agreement") as of July 30, 1999 providing for, among other things, the merger of SIBIA with and into Merger Sub. Simultaneously with the execution and delivery of the Merger Agreement, Merger Sub entered into a Shareholders Agreement dated July 30, 1999 (the "Shareholders Agreement") with certain shareholders of SIBIA (the "Lock-up Shareholders") as follows: (i) The Salk Institute for Biological Studies - 1,933,461 shares; (ii) Skandigen AB - 986,696 shares; and (iii) William T. Comer - - 267,900 shares and 189,790 options exercisable within 60 days. Under the Shareholders Agreement, the Lock-up Shareholders have agreed, subject to the terms thereof, to tender all of their shares of SIBIA 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 Lock-up Shareholders have also granted Merger Sub a proxy to vote their shares, representing approximately 34.1% of the issued and outstanding shares of SIBIA Common Stock as of July 23, 1999, in favor of the merger. Simultaneously with the execution and delivery of the Merger Agreement, Merck also entered into an Option Agreement (the "Company Option") pursuant to which SIBIA granted to Merck an option to purchase 1,931,050 shares of Common Stock, subject to the terms thereof. If this option were to be exercised and these shares were issued to Merck and outstanding, such shares would, together with the shares subject to the Shareholders Agreement, represent approximately 44.9% of the issued and outstanding shares of SIBIA Common Stock as of July 23, 1999. The foregoing summary of the Shareholders Agreement and Company Option is qualified in its entirety by reference to such agreements, which have been filed as exhibits to this Schedule 14D-1. -3- 4 - ------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON MC SUBSIDIARY CORP. - ------------------------------------------------------------------------------- 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 3,377,847 - ------------------------------------------------------------------------------- 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) 34.1%(2) - ------------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON (See Instructions) CO - ------------------------------------------------------------------------------- - --------------- (2) Merck & Co., Inc. ("Merck"), MC Subsidiary Corp. ("Merger Sub") a direct wholly owned subsidiary of Merck, and SIBIA Neurosciences, Inc. ("SIBIA") entered into an Agreement and Plan of Merger (the "Merger Agreement") as of July 30, 1999 providing for, among other things, the merger of SIBIA with and into Merger Sub. Simultaneously with the execution and delivery of the Merger Agreement, Merger Sub entered into a Shareholders Agreement dated July 30, 1999 (the "Shareholders Agreement") with certain shareholders of SIBIA (the "Lock-up Shareholders") as follows: (i) The Salk Institute for Biological Studies - 1,933,461 shares; (ii) Skandigen AB - 986,696 shares; and (iii) William T. Comer - - 267,900 shares and 189,790 options exercisable within 60 days. Under the Shareholders Agreement, the Lock-up Shareholders have agreed, subject to the terms thereof, to tender all of their shares of SIBIA 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 Lock-up Shareholders have also granted Merger Sub a proxy to vote their shares, representing approximately 34.1% of the issued and outstanding shares of SIBIA Common Stock as of July 23, 1999, in favor of the merger. Simultaneously with the execution and delivery of the Merger Agreement, Merck also entered into an Option Agreement (the "Company Option") pursuant to which SIBIA has granted to Merck an option to purchase 1,931,050 shares of Common Stock, subject to the terms thereof. If this option were to be exercised and these shares were issued to Merck and outstanding, such shares would, together with the shares subject to the Shareholders Agreement, represent approximately 44.9% of the issued and outstanding shares of SIBIA Common Stock as of July 23, 1999. The foregoing summary of the Shareholders Agreement and Company Option is qualified in its entirety by reference to such agreements, which have been filed as exhibits to this Schedule 14D-1. -4- 5 This Tender Offer Statement on Schedule 14D-1 relates to a tender offer by MC Subsidiary Corp., a Delaware corporation ("Offeror") and a direct wholly owned subsidiary of Merck & Co., Inc., a New Jersey corporation ("Parent"), to purchase all outstanding shares of Common Stock, par value $.001 per share (the "Common Stock"), including the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated as of March 17, 1997, and amended as of July 30, 1999, between the Company and ChaseMellon Shareholder Services L.L.C., as Rights Agent (the "Rights" and, together with the Common Stock, the "Shares"), of SIBIA Neurosciences, Inc., a Delaware corporation (the "Company"), at a purchase price of $8.50 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 August 6, 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 has been formed by Parent in connection with the Offer and the transactions contemplated thereby. ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is SIBIA Neurosciences, Inc. The address of the principal executive offices of the Company is 505 Coast Boulevard South, Suite 300, La Jolla, California 92037. (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 and Offeror. The information set forth in the Introduction and Section 9 ("Certain Information Concerning Parent and Offeror") of the Offer to Purchase and in Schedule I thereto is incorporated herein by reference. (e) and (f) None of Offeror or Parent 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. 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 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 Distribution") of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in the Offer to Purchase is incorporated herein by reference. -5- 6 (f) through (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) None. (b) Not applicable. 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 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 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 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. (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 August 6, 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 August 2, 1999. (a)(8) Press Release issued by Parent on August 6, 1999. (b) Not applicable. (c)(1) Agreement and Plan of Merger dated as of July 30, 1999, among Parent, Offeror and the Company. -6- 7 (c)(2) Shareholders Agreement dated as of July 30, among the persons listed on Schedule 1 thereto, Parent and Offeror. (c)(3) Stock Option Agreement dated as of July 30, 1999, among Parent, Offeror and the Company. (c)(4) Confidentiality Agreement dated as of June 23, 1999, between Company and Parent. (d) None. (e) Not applicable. (f) None. -7- 8 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: August 6, 1999 MERCK & CO., INC. By: /s/ Judy C. Lewent -------------------------------------- Name: Judy C. Lewent Title: Senior Vice President and Chief Financial Officer MC SUBSIDIARY CORP. By: /s/ Judy C. Lewent -------------------------------------- Name: Judy C. Lewent Title: President -8- 9 EXHIBIT INDEX
EXHIBIT DESCRIPTION NO. PAGE NO. - ------- --------------- -------- (a)(l) -- Offer to Purchase, dated August 6, 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 August 2, 1999. (a)(8) -- Press Release issued by Parent on August 6, 1999. (b) -- Not applicable. (c)(1) -- Agreement and Plan of Merger dated as of July 30, 1999, -- among Parent, Offeror and the Company. (c)(2) -- Shareholders Agreement dated as of July 30, among the persons listed on Schedule 1 thereto, Parent and Offeror. (c)(3) -- Stock Option Agreement dated as of July 30, among the Parent, Offeror and the Company. (c)(4) -- Confidentiality Agreement dated as of June 23, 1999 between Company and Parent. (d) -- None. (e) -- Not applicable. (f) -- None.
-9- EX-99.A.1 2 OFFER TO PURCHASE 1 EXHIBIT (a)(1) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS) OF SIBIA NEUROSCIENCES, INC. AT $8.50 NET PER SHARE BY MC SUBSIDIARY CORP., A DIRECT WHOLLY-OWNED SUBSIDIARY OF MERCK & CO., INC. ------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 2, 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 BELOW) OF THE OFFER AT LEAST THAT NUMBER OF SHARES EQUIVALENT TO A MAJORITY OF THE TOTAL ISSUED AND OUTSTANDING SHARES ON A FULLY DILUTED BASIS. SEE SECTIONS 12 AND 14. ------------------------------------- THE BOARD OF DIRECTORS OF SIBIA NEUROSCIENCES, 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 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 AND THE ASSOCIATED RIGHTS (EACH AS HEREINAFTER DEFINED) 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 THE INFORMATION AGENT, AT ITS ADDRESS AND TELEPHONE NUMBER 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 INFORMATION AGENT FOR THE OFFER IS: MORROW & CO., INC. AUGUST 6, 1999 2 TABLE OF CONTENTS
PAGE ---- Introduction..................................................... 1 1. Terms of the Offer; Expiration Date......................... 4 2. Acceptance for Payment and Payment for Shares............... 5 3. Procedure for Tendering Shares.............................. 6 4. Withdrawal Rights........................................... 8 5. Certain Federal Income Tax Consequences..................... 8 6. Price Range of Shares....................................... 10 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 9. Certain Information Concerning Parent 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................................... 16 13. Dividends and Distributions................................. 33 14. Certain Conditions to the Offer............................. 33 15. Certain Regulatory and Legal Matters........................ 34 16. Fees and Expenses........................................... 36 17. Miscellaneous............................................... 36 Schedule I -- CERTAIN INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND OFFEROR........... I-1
i 3 To the Holders of Common Stock of SIBIA NEUROSCIENCES, INC.: INTRODUCTION MC Subsidiary Corp., a Delaware corporation ("Offeror"), and a direct wholly-owned subsidiary of Merck & Co., Inc., a New Jersey corporation ("Parent"), hereby offers to purchase all outstanding shares of Common Stock, par value $.001 per share (the "Common Stock"), inclusive of their respective associated preferred stock purchase rights (the "Rights" and, the shares of Common Stock inclusive of their respective Rights, the "Shares"), of SIBIA Neurosciences, Inc., a Delaware corporation (the "Company"), at a purchase price of $8.50 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"). The Rights were issued pursuant to the Rights Agreement, dated as of March 17, 1997 and as amended as of July 30, 1999 (the "Rights Agreement"), between the Company and ChaseMellon Shareholder Services L.L.C., as Rights Agent, and are currently evidenced by and trade with certificates evidencing the Common Stock. Offeror is a corporation newly formed by Parent in connection with the Offer and the transactions contemplated thereby. For information concerning Parent, 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 purchase of Shares pursuant to the Offer. Offeror will pay all fees and expenses of Norwest Bank Minnesota, N.A., which is acting as the Depositary (the "Depositary") and Morrow & 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 AND RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER ALL OF THEIR SHARES PURSUANT THERETO. CIBC WORLD MARKETS CORP., 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, AS OF JULY 30, 1999, THE CONSIDERATION TO BE RECEIVED BY HOLDERS OF SHARES (OTHER THAN PARENT, 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 EQUIVALENT TO A MAJORITY OF THE TOTAL ISSUED AND OUTSTANDING SHARES 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 July 30, 1999 (the "Merger Agreement"), among Parent, Offeror and the Company, pursuant to which, following the later of the consummation of the Offer and the satisfaction or waiver of certain conditions, Offeror will be merged with and into the Company (the "Merger"). Following the consummation of the Merger, the Company will be the surviving corporation (the "Surviving Corporation"). Parent also has the right to assign Offeror's rights under 1 4 the Merger Agreement to another wholly owned direct subsidiary of Parent. 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 or Offeror or any other direct or indirect subsidiary of Parent and other than Shares held by stockholders, if any, who perfect their appraisal rights under Delaware law (the "Excluded Shareholders")) will be converted into, and become exchangeable for, the right to receive $8.50 per Share in cash (the "Merger Consideration") and the Company will become a direct wholly owned subsidiary of Parent. See Section 12. Subject to the terms of 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 Thursday, September 2, 1999 (or any other date or time then set as 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 am., 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 90 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 March 1, 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 issued and outstanding Shares have not been tendered, for one or more periods (each such period to be for not more than three business days and such extensions to be for an aggregate period of not more than ten business days beyond 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 2 5 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 adverse in any respect to the holders of Shares (other than Parent 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 July 23, 1999, (i) 9,703,769 Shares were outstanding, (ii) one share of Series B Convertible Preferred Stock, par value $0.001 (the "Series B Convertible Preferred Stock") was outstanding, which as of July 23, 1999 was convertible into approximately 406,256 shares of Common Stock, (iii) 2,513,141 shares of Common Stock were reserved for issuance under the Company's 1996 Equity Incentive Plan, as amended, of which options to acquire 1,057,205 shares of Common Stock were outstanding, (iv) 500,000 shares of Common Stock were reserved for issuance under the Company's Employee Stock Purchase Plan, of which 9,934 shares of Common Stock could be purchased, (v) 235,000 shares of Common Stock were reserved for issuance under the Company's 1996 Non-Employee Directors' Stock Option Plan, of which options to acquire 65,000 shares of Common Stock were outstanding, (vi) 219,304 shares of Common Stock were reserved for issuance under the Company's Amended and Restated 1992 Stock Option and Restricted Stock Plan, of which options to acquire 219,304 shares of Common Stock were outstanding, (vii) 205,487 shares of Common Stock were outstanding under the Management Change of Control Plan and (viii) 1,410 shares of Common Stock were outstanding under the 1981 Employee Stock Option Plan. In addition, 150,000 shares of Series A Junior Participating Preferred Stock of the Company are subject to issuance upon the exercise of the Rights. Further, in connection with the execution and delivery of the Merger Agreement, the Company has entered into an agreement (the "Stock Option Agreement") with Parent granting Parent an option to purchase Shares on certain terms and conditions. Based on the foregoing, the Minimum Condition will be satisfied if 5,834,183 Shares are validly tendered and not withdrawn prior to the Expiration Date (assuming the Series B Convertible Preferred Stock would be convertible into 406,256 shares of Common Stock in connection with the Offer). 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. 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 ("Delaware Law") 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, including Shares held by Offeror and its affiliates. 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 each class of outstanding shares (which would include each of the outstanding shares of Common Stock as well as the outstanding share of Series B Convertible Preferred Stock) 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 Delaware Law, without prior notice to, or any action by, any other stockholder of the Company. In such event, Offeror intends to effect the Merger as 3 6 promptly as practicable following the purchase of Shares in the Offer. Parent expects during the pendency of the Offer to seek to have discussions with the holder of the Series B Convertible Preferred Stock regarding the sale by such holder to Parent after consummation of the Offer. However, Parent cannot under Rule 10b-13 under the Exchange Act, directly or indirectly, purchase, or make any arrangement to purchase, the Series B Convertible Preferred Stock until after consummation of the Offer. If the outstanding share of Series B Convertible Preferred Stock is not converted and tendered in the Offer or Parent does not purchase the Series B Convertible Preferred Stock following consummation of the Offer, Parent will be unable to effect a "short-form" merger. 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 purchase up to 1,931,050 Shares at a cash price equal to $8.50 per share and on the other terms and subject to the conditions set forth in the Stock Option Agreement dated July 30, 1999, among the Company, Parent and Offeror (the "Stock Option Agreement"). See Section 12. Concurrently with the execution and delivery of the Merger Agreement, The Salk Institute for Biological Studies, Skandigen AB and Dr. William T. Comer (collectively, the "Major Stockholders"), entered into a Shareholders Agreement, dated as of July 30, 1999 (the "Shareholders Agreement"), with Parent and Offeror. As of July 30, 1999, the Major Stockholders beneficially owned (as defined pursuant to Rule 13d-3 of the Exchange Act) approximately 34.1% of the Shares (approximately 29.0% 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 2,646,126 Shares (approximately 22.7% 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 Parent or Offeror of Shares or similar references shall exclude Shares subject to the Shareholders Agreement. The Company has distributed one Right for each outstanding share of Common Stock pursuant to the Rights Agreement. Based on the information disclosed by the Company in the Merger Agreement and in the Schedule 14D-9, in connection with the Company's entering into the Merger Agreement, the Board of Directors authorized an amendment to the Rights Agreement so that the Rights Agreement shall not be applicable as a result of the execution, delivery or performance of the Merger Agreement, the Shareholders Agreement or the Stock Option Agreement or the consummation of the Offer and the Merger or the other transactions contemplated by such agreements. If the Rights Agreement had not been so amended, a distribution of Rights certificates separate from the Common Stock might have resulted from the Offer, the Merger Agreement, the Shareholders Agreement or the Stock Option Agreement or any of the respective transactions contemplated thereby. 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 CONTAINS 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. 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 Thursday, September 2, 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. 4 7 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 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 (a "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. The per Share consideration paid to any stockholder pursuant to the Offer will be the highest per Share consideration paid to any other stockholder pursuant to the Offer. 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 5 8 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 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 6 9 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 (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 August 6, 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 7 10 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, Offeror, the Depositary, the 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 October 4, 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 purposes 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 Offeror, Parent, 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 8 11 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 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. 9 12 6. PRICE RANGE OF SHARES. The Shares are included for trading on the National Association of Securities Dealers Automated Quotation National Market System ("NASDAQ/NMS") under the trading symbol "SIBI". The Company has never paid cash dividends on the Shares. The following table sets forth, for the periods indicated, the high and low bid quotations per Share on the NASDAQ/NMS for the applicable periods.
HIGH LOW -------- -------- 1997 First Quarter............................................. $9 1/2 $7 1/2 Second Quarter............................................ 9 5 1/4 Third Quarter............................................. 9 1/8 6 Fourth Quarter............................................ 9 5 5/8 1998 First Quarter............................................. $7 1/4 $5 Second Quarter............................................ 7 3/4 4 7/8 Third Quarter............................................. 5 1/4 2 1/2 Fourth Quarter............................................ 6 3/4 3 1999 First Quarter............................................. $6 3/8 $3 1/2 Second Quarter............................................ 5 3/4 3 11/16 Third Quarter (through August 5, 1999).................... 8 3/4 4 3/4
On July 30, 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 1/4. On August 5, 1999, the last full trading day before the commencement of the Offer, the closing sales price per Share as reported on the NASDAQ/NMS was $8 7/16 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, held by at least 400 round lot shareholders, with a market value of at least $5.0 million, have at least 2 active market makers, have net tangible assets of at least $4.0 million, and have a minimum bid price of $1 or (ii) have at least 1.1 million publicly held shares, held by at least 400 round lot shareholders, with a market value of at least $15.0 million, have a minimum bid price of $5, have at least 4 active market makers and have either (A) market capitalization of at least $50.0 million or (B) total assets and total revenue of at least $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 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. 10 13 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. Parent 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 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, 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 or Offeror. The Company is a Delaware corporation with its principal place of business located at 505 Coast Boulevard South, Suite 300, La Jolla, California 92037. According to the Company Form 10-K for the period ending December 31, 1998, the Company is engaged in the discovery and development of novel small molecule therapeutics for the treatment of neurodegenerative, neuropsychiatric and neurological disorders. The Company is a leader in the development of proprietary drug discovery platforms that combine key tools necessary for modern drug discovery, including genomics, high throughput screening, advanced combinatorial chemistry techniques and pharmacology. 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 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 March 31, 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". 11 14 SIBIA NEUROSCIENCES, INC. SELECTED HISTORICAL FINANCIAL DATA
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Total revenue....................... $ 7,043 $ 11,197 $ 8,481 $ 10,448 $ 4,852 Research and development expenses... $ 18,247 $ 15,819 $ 12,268 $ 8,949 $ 8,663 Net income (loss)................... $(15,807) $ (7,593) $ (5,564) $ 2,926 $ (27) Basic net income (loss) per common share............................. $ (1.68) $ (0.82) $ (0.73) $ 0.60 Diluted net income (loss) per common share............................. $ (1.68) $ (0.82) $ (0.73) $ 0.47 Shares used in computing basic net income (loss) per common share.... 9,421 9,248 7,596 4,893 Shares used in computing diluted net income (loss) per common share.... 9,421 9,248 7,596 6,164
AT DECEMBER 31, -------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) BALANCE SHEET DATA: Cash, cash equivalents and investment securities............. $ 17,187 $ 33,347 $ 37,464 $ 16,488 $ 5,944 Working capital..................... $ 13,662 $ 31,214 $ 35,324 $ 14,338 $ 4,523 Total assets........................ $ 21,199 $ 36,180 $ 39,983 $ 18,251 $ 8,005 Long-term debt, less current portion........................... $ 1,350 $ 695 $ 519 $ 721 $ 860 Accumulated deficit................. $(45,093) $(29,286) $(21,693) $(16,129) $(19,055) Total stockholders' equity.......... $ 15,140 $ 32,214 $ 36,572 $ 15,107 $ 5,166
THREE MONTHS ENDED MARCH 31, -------------------------- 1999 1998 ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA (UNAUDITED): Total revenue(A)............................................ $ 2,515 $ 1,534 Research and development expenses........................... $ 4,502 $ 4,796 Net loss.................................................... $ (2,840) $ (4,052) Basic and diluted net loss per common share................. $ (0.30) $ (0.43) Shares used in computing basic and diluted net loss per common share.............................................. 9,523 9,365
12 15
AT MARCH 31, ---------------------- 1999 1998 -------- -------- (IN THOUSANDS) BALANCE SHEET DATA (UNAUDITED): Cash and cash equivalents................................... $ 8,899 $ 3,537 Investment securities....................................... $ 5,444 $ 26,386 Total assets................................................ $ 19,175 $ 33,360 Long-term debt, less current portion........................ $ 1,280 N/A Accumulated deficit......................................... $(47,933) $(33,338) Total stockholders' equity........................ $ 12,277 $ 27,810
- --------------- (A) Total revenue for the quarter ended March 31, 1999 included no amounts from collaborative partners that are related parties. For the corresponding period in 1998, the total revenue included $713,000 from a collaborative partner that is a related party. Certain Company Projections To the knowledge of Parent 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. The projections set forth below (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. The Projections should be read together with the other information contained in this Section 8. The Projections included operating projections for the Company for the years 1999 through 2004 (the Company reports its financial results based on a December 31 year end) developed by the Company's senior management predicated on their then preliminary assumptions for revenue resulting from existing and projected new technology licensing and research collaboration arrangements and operating expenses. The Projections estimated total revenue of $21.4 million, total expenses of $20.9 million and net income of $1.5 million for the year ending December 31, 1999; total revenue of $29.7 million, total expenses of $22.5 million and net income of $9.0 million for the year ending December 31, 2000; total revenue of $44.5 million, total expenses of $24.6 million and net income of $22.7 million for the year ending December 31, 2001; total revenue of $53.5 million, total expenses of $26.3 million and net income of $23.4 million for the year ending December 31, 2002; total revenue of $79.0 million, total expenses of $28.3 million and net income of $33.7 million for the year ending December 31, 2003; and total revenue of $83.7 million, total expenses of $30.1 million and net income of $36.4 million for the year ending December 31, 2004. 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. 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), 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 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 OR 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 OR OFFEROR AND THEIR RESPECTIVE REPRESENTATIVES 13 16 ASSUMES ANY RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS, ACCURACY OR COMPLETENESS OF THE PROJECTIONS. NONE OF PARENT OR OFFEROR AND 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 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 AND OFFEROR. Parent is a global research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human and animal health products, directly and through its joint ventures, and provides pharmaceutical benefit services. Parent's operations are principally managed on a products and services basis. At the end of 1998, Parent had 57,300 employees worldwide. For the year ended December 31, 1998, Parent had sales of approximately $26.9 billion, and net income of approximately $5.2 billion. Parent's stockholders' equity at December 31, 1998 was approximately $12.8 billion. Parent's principal executive offices are located at One Merck Drive, Whitehouse Station, New Jersey 08889-0100. 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 Parent in connection with the Offer and the transactions contemplated thereby. The offices of Offeror are located at One Merck Drive, Whitehouse Station, New Jersey 08889-0100. Parent 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 the Parent and Offeror, see Schedule I to this Offer to Purchase. Except as set forth in this Offer to Purchase: (i) none of Parent nor Offeror nor, 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 nor Offeror nor, to the best knowledge of any of 14 17 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 nor Offeror nor, 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, Offeror or any of their respective subsidiaries or, to the best knowledge of any of Parent or Offeror, 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 transactions between any of Parent, Offeror or any of their respective subsidiaries or, to the best knowledge of any of Parent, 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 licensing arrangements between Parent and the Company, none of Parent 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 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 $88.0 million. Offeror intends to obtain all of such funds from Parent which in turn would obtain such funds from Parent's existing working capital. 11. BACKGROUND OF THE OFFER. On June 18, 1999, Richard N. Kender, Vice President, Financial Evaluation and Analysis and Business Development, of Parent contacted Stephen F. Keane, Vice President, Corporate Development of the Company, concerning a possible transaction with the Company by Parent. The parties executed a confidentiality agreement on June 23, 1999. On June 30, 1999, William T. Comer, Jeffrey F. McKelvy, Carla M. Suto, Ian A. McDonald and Stephen F. Keane, representatives of the Company, delivered a presentation reviewing the Company's technology and intellectual property. Thereafter, representatives of Parent expressed their continued interest in exploring a transaction and were authorized to conduct a due diligence investigation of the Company. On July 21, 1999, after substantially completing its due diligence review of the Company, Parent submitted a proposal to purchase all of the outstanding shares of the Company at a price of $7.50 per share in cash, subject to certain other terms and conditions. On July 21, 1999, Parent provided a draft Merger Agreement to the Company and representatives of the Company and Parent, and thereafter their respective legal and financial advisors began to negotiate the Merger Agreement and related documentation. During the following week, representatives of Parent and the Company continued to discuss and negotiate the proposed transaction and possible terms and conditions relating thereto. On July 30, 1999, the parties agreed on the per share price of $8.50, subject to certain terms and conditions, including negotiation and execution of a satisfactory Merger Agreement. The Merger Agreement and related documents were executed as of July 30, 1999. 15 18 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 Parent 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, Parent intends to acquire any remaining Shares not then owned by it 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 Parent. 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 Parent to obtain a controlling interest in the Company. Under the Delaware Law 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, Parent 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, Parent intends to operate the Company on a basis generally consistent with the Company's existing plans and programs. If and to the extent that the Parent acquires control of the Company, Parent 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, Parent and Offeror have 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. The Merger Agreement The following is a summary of the material terms of 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 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 Board of Directors 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 90 days from the date of the Merger Agreement unless the waiting period applicable to the transactions contemplated 16 19 by the Merger Agreement under the HSR Act has not terminated or expired, and then in any event not later than March 1, 2000, (B) extend the Offer 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 (C) extend the Offer for one or more periods (each such period to be for not more than three business days and such extensions to be for an aggregate period of not more than ten 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. 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 60 business days after the commencement of the Offer, Offeror shall extend the Offer for one or more periods of not more than 10 business days each if requested to do so by the Company; provided that Offeror shall not be required to extend the Offer beyond 60 business 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 Delaware Law, Offeror shall be merged with and into the Company and the separate existence of Offeror will cease, and the Company shall be the Surviving Corporation and shall be a wholly owned subsidiary of Parent. 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 Delaware Law) 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 and (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 Stock Options and Purchase Rights. The Merger Agreement provides that at the Effective Time, each outstanding option to purchase Shares under the Company stock plans (the "Company Options"), whether vested or unvested, shall be deemed to constitute an option to acquire (a "New Parent Option"), on the same terms and conditions as were applicable under such Company Option, the number of shares of common stock of Parent (rounded to the nearest whole number) equal to the product of (A) the number of Shares issuable upon exercise of such Company Option and (B) Offer Price divided by the average of the closing sales prices of common stock of Parent on the New York Stock Exchange for the 10 consecutive days immediately prior to and including the day preceding the Effective Time, at an exercise price per share (rounded to the nearest whole cent) equal to (x) the aggregate exercise price for the Shares otherwise purchasable pursuant to such Company Option divided by (y) the aggregate number of shares of Common Stock of Parent purchasable pursuant to the New Parent Option (as calculated immediately above); provided, however, that in the case of any Company Option to which Section 422 of the Code applies, the option price, the number of shares purchasable pursuant to such option and the terms and conditions of exercise of such option shall be determined in accordance with the foregoing, subject to such adjustments as are necessary in order to satisfy the requirements of Section 424(a) of the Code. At or prior to the Effective Time, the Company has agreed to take all necessary actions to permit the assumption of the unexercised Company Options by Parent pursuant to this paragraph and shall take all action necessary to cause the funds held in the Company's Employee Stock Purchase Plan to be used to purchase outstanding Shares through open market 17 20 transactions so that such Shares will be converted into the right to receive cash in the Merger; provided that thereafter the Company shall terminate the Company's Employee Stock Purchase Plan. The Merger Agreement further provides that effective at the Effective Time, Parent shall assume, as a New Parent Option, each outstanding Company Option in accordance with the prior paragraph and with the terms of the Company stock plan under which it was issued and the stock option agreement by which it is evidenced. Parent has further agreed that not later than thirty calendar days after the closing date of the Merger, Parent shall file a registration statement under the Securities Act on Form S-8, or other appropriate form, covering shares of Parent common stock subject to such New Parent Options. 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 Shares, Offeror shall be entitled to designate such number of directors, rounded up to the next whole number, as will give Offeror representation on the Board of Directors of the Company equal to the product of (i) the total number of directors on the Board of Directors of the Company (giving effect to the directors elected pursuant to this sentence) and (ii) the percentage that such number of Shares owned in the aggregate by Offeror or Parent, upon such acceptance for payment, bears to the number of Shares 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 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. The Merger Agreement also provides that from and after the time that Parent's designees constitute at least a majority of the Board of Directors of the Company and until the Effective Time, the Board of Directors shall always have at least two members (the "Independent Directors") who are neither officers of Parent nor designees, shareholders or affiliates of Parent or Parent's affiliates. During such period, any (i) amendment or termination of the Merger Agreement, (ii) extension of time for the performance or waiver of the obligations or other acts of Parent or Offeror or waiver of the Company's rights under the Merger Agreement or (iii) action by the Company with respect to the Merger Agreement and the transactions contemplated hereby which adversely affects the interests of the stockholders of the Company, shall require the approval of a majority of the Independent Directors in addition to any required approval thereof by the full Board of Directors of the Company. Stockholder 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 "Stockholder Meeting") for the purpose of voting upon the Merger, (ii) hold the Stockholder 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. 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 and preferred stock, 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 Delaware Law. Parent expects during the pendency of the Offer to seek to have discussions with the holder of the Series B Convertible Preferred Stock regarding the sale by such holder to Parent after consummation of the Offer. However, Parent cannot under Rule 10b-13 under the Exchange Act, directly or indirectly, purchase, or make any arrangement to purchase, the Series B Convertible Preferred Stock until after consummation of the Offer. If the outstanding share of Series B Convertible Preferred Stock is not converted and tendered in the Offer or Parent does not purchase the Series B Convertible Preferred Stock following consummation of the Offer, Parent will be unable to effect a "short-form" merger. 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 18 21 (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 January 1, 1998; (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 regulatory matters, including Food and Drug Administration warning letters, problem reports, product recalls and material regulatory communications and regulatory filings; (xv) certain intellectual property matters; (xvi) matters relating to product registration files; (xvi) year 2000 compliance; (xvii) labor matters; (xviii) the Rights Agreement; (xix) the absence of brokers or finders other than the Financial Advisor; (xx) supply arrangements; (xxi) investigational compounds; (xxii) the validity and enforceability of material contracts; (xxiii) the documents supplied by the Company relating to the Offer; and (xxiv) stockholder approvals. Parent and Offeror have also made certain representations and warranties, including with respect to (i) the capital structure of the Offeror; (ii) the due organization, existence, good standing and corporate power and authority of Parent and its subsidiaries; (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 Parent or Offeror with the Merger Agreement and the Stock Option Agreement; (v) the absence of any material litigation; (vi) compliance with applicable laws and the absence of any default or violation with respect to material contracts; (vii) the absence of brokers or finders; (viii) the sufficiency of funds available to Parent and Offeror for the consummation of the Offer and the Merger; and (ix) 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 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 or amend, modify or terminate the Rights Agreement; (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 option and stock purchase plans, 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 $100,000 in the aggregate other than in the ordinary and usual course; (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, including 19 22 adding new participants to the Company's Management Change of Control Plan, 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 or in generally accepted accounting principles, change any of the accounting practices or principles used by it or its subsidiaries; (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 for any period to exceed $100,000 except for expenses incurred in connection with the transactions contemplated by the Merger Agreement; and (xvi) not offer to, or enter into an agreement to, do any of the foregoing. 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 (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 has agreed to furnish promptly to Parent, consistent with its 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 Confidentiality Agreement, dated as of June 21, 1999, between the Company and Parent (the "Confidentiality Agreement"), which shall remain in full force and effect. No Solicitation. The Company has agreed in the Merger Agreement that the Company shall, and shall use its best efforts to cause its nonstockholder affiliates and the officers, directors and employees of the Company and its subsidiaries to, and shall instruct its stockholder affiliates and the 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 heretofore with respect to any acquisition or exchange of all or any material portion of the assets of, or more than 20% of the 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. Except as otherwise set forth in this paragraph, the Company has also agreed that it shall not, and shall use its best efforts to cause its nonstockholder affiliates and the officers, directors and employees of the Company and its subsidiaries not to, and shall instruct its stockholder affiliates and the 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, knowingly 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" (it being understood that an Acquisition Proposal that is conditioned upon the 20 23 completion of due diligence shall be deemed to constitute a bona fide Acquisition Proposal if such proposal otherwise meets the definition of Acquisition Proposal)) or otherwise knowingly facilitate any effort or attempt to make or implement an Acquisition Proposal; provided, however, that prior to Offeror beneficially owning a majority of the then outstanding Shares, 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 knowingly 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 consultation with outside counsel to the Company to the effect 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, is reasonably likely to constitute a breach of the Board of Directors' 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 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 being referred to as 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 terms of which are (without regard to the terms of such Acquisition Proposal) (A) no less favorable to the Company, and (B) no less restrictive to the person or entity making such bona fide written Acquisition Proposal than those contained in the Confidentiality Agreement. Nothing in the Merger Agreement shall prohibit the Board of Directors 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 has further agreed to notify Parent within 48 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. The Company is required to inform the individuals or entities referred to in the first sentence of this paragraph of the obligations undertaken in this paragraph. The Company also is required to promptly request each person or entity which has executed, within 12 months prior to the date of the Merger Agreement, a confidentiality agreement in connection with its consideration of acquiring the Company to return or destroy all confidential information furnished to such person or entity by or on behalf of the Company. Fees and Expenses. Pursuant to the Merger Agreement, the Surviving Corporation shall pay all charges and expenses, including those of the exchange agent for the Merger, 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. 21 24 The Merger Agreement provides that, under certain circumstances, the Company shall pay to Parent a one-time fee equal to $2.0 million (the "Termination Fee") and to reimburse Parent all of the 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 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 $500,000 in the aggregate. The Company is obligated to pay the Termination 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 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 and Parent owns a majority of the outstanding Shares, such Acquisition Proposal, announcement or intention is or becomes publicly known, and (B) on or following the date of the Merger Agreement and prior to the time such Acquisition Proposal, announcement or intention is or becomes publicly known, the occurrence of an event which would have a material adverse effect on the ability of Parent and Offeror to consummate the Merger shall not have become publicly known, 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 the Merger shall not have been consummated by February 1, 2000 (subject to extension, in certain circumstances, to March 1, 2000), whether such date is before or after the date of approval by the stockholders of the Company, and if terminated by Parent or Offeror, they shall not collectively beneficially own a majority of the outstanding Shares on a fully diluted basis, or (ii) the Merger Agreement is terminated (x) by the Company because it has determined 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, from a financial point of view, 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 five 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 the conditions to the Offer described in paragraphs (e) and (f) of Section 14, provided, however, that the Termination Fee shall not be payable to Parent in accordance with clause (i) above unless and until (I) any person or entity (other than Parent) (an "Acquiring Party") has within 9 months of such termination entered into a definitive agreement to acquire, by purchase, merger, consolidation, sale, assignment, lease, transfer or otherwise, in one transaction or any related series of transactions, a majority of the voting power of the outstanding securities of the Company or (II) a definitive agreement has been entered into with respect to a merger, consolidation or similar business combination between the Company and an Acquiring Party or an affiliate thereof as a result of which the stockholders of the Company immediately prior to the transaction do not own at least 50% of the surviving entity. Pursuant to the Merger Agreement, any Termination Fee described above required to be paid to Parent would be reduced (but not below zero) to the extent necessary so that the sum of (1) the portion of any Termination Fee actually paid to Parent, (2) the aggregate of all Cancellation Amounts (as defined below) paid to Parent pursuant to the Stock Option Agreement and (3) the proceeds actually received by Parent as the result of selling Shares issued to Parent pursuant to the Stock Option Agreement to a third party which acquires more than 50% of the Company's outstanding voting securities (other than the Company or any of its affiliates) shall not exceed $4.4 million. Parent and the Company have agreed that in no event shall (i) the sum of the portion of any Termination Fee actually paid to Parent and the cash proceeds actually received by Parent as the result of selling Shares issued to Parent pursuant to the Stock Option Agreement to a third party which acquires more than 50% of the Company's outstanding voting securities (other than the Company or any of its affiliates) exceed $4.4 million, or (ii) the sum of the portion of any Termination Fees actually paid to Parent, the aggregate Cancellation Amounts paid to Parent pursuant to the Stock Option Agreement and the cash proceeds actually received by Parent as the result of selling Shares issued to Parent pursuant to the 22 25 Stock Option Agreement to a third party which acquires more than 50% of the Company's outstanding voting securities (other than the Company or any of its affiliates) exceed $4.4 million. 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 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. 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 February 1, 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 pursuant to the HSR Act or additional information is requested by a governmental authority pursuant to the antitrust, competition, foreign investment, or similar laws or 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 certification by Parent and/or the Company, as applicable, that Parent and/or the Company, as applicable, have substantially complied with such request, but in any event not later than March 1, 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); 23 26 (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 hereby; (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 without Offeror having purchased any Shares thereunder. (c) by the Company: (i) if (a) the Company is not in material breach of any of its 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, from a financial point of view, 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 therein, (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 from a financial point of view as the Superior Proposal; (ii) if, prior to consummation of the Offer and prior to Parent beneficially owning a majority of the outstanding shares of Common Stock, 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) if Offeror shall have failed to commence the Offer within five business days after the date of the Merger Agreement. (d) by Parent, prior to the Parent and Offeror collectively beneficially owning (excluding from the determination of beneficial ownership shares of Common Stock issuable upon exercise of or subject to the Stock Option Agreement and the Shareholders Agreement) a majority of the outstanding shares on a 24 27 fully diluted basis (excluding from the determination of outstanding shares on a fully diluted basis, shares subject to the Stock Option Agreement): (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 five 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) 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 (except for those representations and warranties made as of a specific date, which shall be true and correct as of such date), and considered without regard to any qualification by, or references to, "material," "in all material respects" or "Company Material Adverse Effect," except for such failures of such representations and warranties 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 (as defined in the Merger Agreement); or (B) the Company shall have breached or failed to comply in any material respect with any of its material 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 (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 termination date of the Merger Agreement, then for so long as the Company continues to exercise reasonable best efforts, Parent may not terminate the Merger Agreement under the circumstances described in this clause (ii). Indemnification; Directors' and Officers' Insurance. The Merger Agreement provides that from and after the earliest date on which Offeror owns at least a majority of the outstanding Shares on a fully diluted basis, Parent will indemnify, defend and hold harmless each individual and every person who is or was a director or officer of the Company or any of its subsidiaries prior to the Effective Time (the "Indemnified Parties"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement incurred in connection with any claim, action, suit, proceeding, inquiry or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the Effective Time (including transactions contemplated by the Merger Agreement), whether asserted or claimed prior to, at or after the Effective Time (and Parent shall also advance expenses as incurred to the fullest extent permitted under applicable law, provided the person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification). The Merger Agreement also provides that from and after the earliest date on which Offeror owns at least a majority of the outstanding Shares on a fully diluted basis, Parent will cause the Surviving Corporation to fulfill and honor in all respects the obligations of the Company 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. In addition, the certificate of incorporation and bylaws of the Surviving Corporation shall contain the provisions with respect to indemnification and exculpation from liability set forth in the Company's certificate of incorporation and bylaws on the date of the Merger Agreement, and during the period commencing on the earliest date in which Offeror purchases Shares pursuant to the Offer and ending on the sixth anniversary of the Effective Time, such provisions shall not be amended, repealed or otherwise modified in any manner that would adversely affect the rights thereunder of any of the Indemnified Parties. Any Indemnified Party wishing to make a claim of indemnification under the Merger Agreement, upon learning of any such claim, action, suit, proceeding, inquiry or investigation, is required to promptly notify 25 28 Parent thereof. In the event of any such claim, action, suit, proceeding, inquiry or investigation (whether arising before or after the Effective Time), (i) Parent or the Surviving Corporation shall have the right to assume the defense thereof and Parent shall be liable to such Indemnified Parties for the legal expenses of one counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof unless there is a conflict of interest between the Indemnified Parties and Parent, in which event Parent shall be liable to the Indemnified Parties for the fees and expenses of each Indemnified Parties' counsel, (ii) the Indemnified Parties will cooperate in the defense of any such matter and (iii) Parent shall not be liable for any settlement effected without its prior written consent and no Indemnified Party shall be liable for any settlement effected without its prior written consent unless such settlement includes a complete unconditional release of all claims against all Indemnified Parties; and provided, further, that Parent shall not have any obligation hereunder to any Indemnified Party if and when a court of competent jurisdiction shall ultimately determine, and such determination shall have become final, that the indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable law. Parent and the Surviving Corporation jointly and severally have agreed to pay all expenses, including attorneys' fees, that may be incurred by the Indemnified Parties in enforcing the indemnity and other obligations described above. The Merger Agreement also provides that prior to the Effective Time, the Company may purchase insurance coverage extending for a period of six 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 175% 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 sixth 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 175% 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 175% of such amount. The Merger Agreement further provides that if the Surviving Corporation or any of its successors or assigns (i) shall consolidate with or merge into any other corporation or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) shall transfer all or substantially all of its properties and assets to any individual, corporation or other entity, then and in each such case, proper provisions shall be made so that the successors and assigns of the Surviving Corporation shall assume all of the obligations described above with respect to indemnification under the Merger Agreement. Certain Employee Matters. The Merger Agreement provides that during the period commencing at the Effective Time and ending on the first anniversary thereof, the employees will continue to be provided with benefits under employee benefit 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 currently provided by the Company to such employees. Parent has agreed to cause each employee benefit plan of Parent in which employees are eligible to participate to take into account for purposes of eligibility and vesting thereunder the service of such employees with the Company as if such service were with Parent, 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 Parent participating in the relevant plan. Parent has further agreed that for the first plan year ending after the Effective Time, any pre-existing condition exclusion under any Parent benefit plan providing medical or dental benefits shall be no more restrictive for any employee who, immediately prior to commencing participation in such Parent benefit plan, was participating in a Company benefit plan providing medical or dental benefits and had satisfied any pre-existing condition provision under such Company benefit plan. In addition, any expenses that were taken into account under a Company benefit plan providing medical or dental benefits in which the employee participated immediately prior to commencing participation in a Parent benefit plan providing medical or dental benefits shall be taken into account to the same extent under such Parent benefit plan, in accordance with the terms of such Parent benefit plan, for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions and life-time benefit limits. Parent has further agreed that it will, and will cause the Surviving Corporation to, honor in 26 29 accordance with their terms (i) all employee benefit obligations to employees accrued as of the Effective Time and (ii) all employee severance plans in existence on the date of the Merger Agreement (and previously disclosed to Parent) and all employment or severance agreements entered into prior to the date of the Merger Agreement. 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. Stock Option Agreement The following is a summary of the material terms of 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 an option to purchase up to 1,931,050 Shares. Any reference 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 1,931,050 Shares at a cash purchase price equal to $8.50 per 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 rights under the Stock Option Agreement, including the 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 and Parent owns a majority of the outstanding shares of Common Stock, such Acquisition Proposal, announcement or intention is or becomes publicly known, and (B) on or following the date of the Merger Agreement but prior to the time such Acquisition Proposal, announcement or intention is or becomes publicly known, the occurrence of an event that would have a material adverse effect on the ability of Parent or Offeror to consummate the Merger shall not have become publicly known, 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 February 1, 2000 (subject, in certain circumstances, to extension to March 1, 2000), and if terminated by Parent and Parent or the Offeror, Parent or the Offeror shall not collectively 27 30 beneficially own a majority of the outstanding Shares on a fully diluted basis, and the Termination Fee under the Merger Agreement has become payable; or (ii) the Merger Agreement is terminated (x) by the Company because it has determined 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, from a financial point of view, 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 five 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 certain conditions to the Offer described in paragraphs (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 Termination 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"). 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 in this paragraph, 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. Profit Limitation. The Stock Option Agreement provides that any Cancellation Amount shall be reduced (but not below zero) to the extent necessary so that the sum of (1) the portion of any Termination Fee actually paid to Parent (such portion actually paid, the "Actual Termination Fee"), (2) the aggregate of all Cancellation Amounts paid to Parent pursuant to the Stock Option Agreement and (3) the cash proceeds actually received by Parent as the result of selling Shares issued to Parent pursuant to the Stock Option Agreement to a third party which acquires more than 50% of the Company's outstanding voting securities (other than any such acquisitions by the Company or any of its affiliates) shall not exceed $4.4 million. The Stock Option Agreement further provides that in no event shall (i) the sum of the Actual Termination Fee and the cash proceeds actually received by Parent as the result of selling Shares issued to Parent pursuant to the Stock Option Agreement to a third party which acquires more than 50% of the Company's outstanding voting securities (other than the Company or any of its affiliates) exceed $4.4 million, or (ii) the sum of the Actual Termination Fee, the aggregate Cancellation Amounts paid to Parent pursuant to the Stock Option Agreement and the cash proceeds actually received by Parent as the result of selling Shares issued to Parent 28 31 pursuant to the Stock Option Agreement to a third party which acquires more than 50% of the Company's outstanding voting securities (other than any such acquisitions by the Company or any of its affiliates) exceed $4.4 million. Registration Rights. The Stock Option Agreement provides that, in the event that the Parent shall desire to sell any of the Shares within two years after the purchase of such Shares pursuant to the Option, and such sale requires, in the opinion of counsel to Parent, which opinion shall be reasonably satisfactory to the Company and its counsel, registration of such Shares under the Securities Act, the Company will cooperate with Parent and any underwriters (which underwriters must be reasonably satisfactory to the Company) in registering such Shares for resale, 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, 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. 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 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 29 32 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 existence of the circumstances described in clause (i) and (ii) under Exercise of Options. 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 Exercise of Options, 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) of the 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 Department of Justice and Federal Trade Commission a description of its rights under the Stock Option Agreement. See Section 15. Shareholders Agreement The following is a summary of the material terms of 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 beneficially own in the aggregate, as of July 30, 1999 approximately 34.1%, of the outstanding Shares including 3,188,057 shares of Common Stock and options representing the right to purchase 189,790 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 dividends, split-up, 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 Shareholder Agreement, the Major Stockholders have granted to Offeror an irrevocable option (the "Shareholder Option") to purchase (i) all Optioned Securities at the Offer Price; and (ii) any additional Optioned Securities acquired by the Major Stockholders during the term of the Shareholders Agreement. The Shareholder Option may be exercised by Offeror at any time after the date on 30 33 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 and Parent owns a majority of the outstanding shares of Common Stock, such Acquisition Proposal, announcement or intention is or becomes publicly known, and (B) on or following the date of the Merger Agreement but prior to the time such Acquisition Proposal, announcement or intention is or becomes publicly known, the occurrence of an event that would have a material adverse effect on the ability of Parent or Offeror to consummate the Merger shall not have become publicly known, 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 February 1, 2000 (subject, in certain circumstances, to extension to March 1, 2000), and if terminated by Parent and Parent or the Offeror, Parent or the Offeror shall not collectively beneficially own a majority of the outstanding Shares on a fully diluted basis, and the Termination Fee under the Merger Agreement has become payable; or (ii) the Merger Agreement is terminated (x) by the Company because it has determined 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, from a financial point of view, 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 five 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 certain conditions to the Offer described in paragraphs (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 Acquisition Proposal (other than the Offer and the Merger) involving the Company or any of its subsidiaries; (ii) any change in the management or board of directors of the Company, except as otherwise agreed to in writing by the Offeror; (iii) any material change in the present capitalization or dividend policy of the Company; or (iv) 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) the nine month anniversary of the earliest to occur of the events set forth in clause (i) and (ii) described under Shareholder Option, and (3) the fifteenth day following the termination of 31 34 the Merger Agreement if prior to such fifteenth day the events set forth in clause (i) and (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 Delaware Law. Section 203 of the Delaware Law 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 July 30, 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, nor would they be available to holders of Shares in connection with a "short-form" merger in accordance with Section 253 of the Delaware Law. 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 Delaware Law 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 in addition to 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. If any holder of Shares who demands appraisal under Section 262 of the Delaware Law fails to perfect, or effectively withdraws or losses his right to appraisal, as provided in the Delaware Law, 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 Parent 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 Delaware Law 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. Parent 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 Parent 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 Parent has exercised its right to appoint directors to the Board of Directors following its purchase of 32 35 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 Parent or the Company. Since the Parent's ultimate objective is to acquire ownership of all the Shares, if the Merger does not take place, the Parent would consider the acquisition, whether directly or through an affiliate of Shares through private or open market purchases, or subsequent tender offers or 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 Parent 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) split, combine or reclassify its outstanding shares of capital stock; (c) declare, set aside or pay any dividend payable in cash, stock or property in respect of any capital stock; (d) repurchase, redeem or otherwise acquire, except in connection with the Company stock plans, 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 (e) 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 (A) the issuance of Shares pursuant to options outstanding on the date of the Merger Agreement under the Company stock plans and the issuance of Shares under the Company's Employee Stock Purchase Plan and (B) the issuance of Shares upon conversion of convertible preferred stock outstanding on the date of the Merger Agreement). 14. CERTAIN CONDITIONS TO THE OFFER. Notwithstanding any other provision of the Offer, and subject to the terms and conditions of the Merger Agreement, Offeror shall not be obligated to accept for payment any Shares until all required regulatory approvals shall have been obtained, made or satisfied including 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 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, including Section 1.1(b)) may amend, extend or terminate the Offer if, (i) immediately prior to the scheduled Expiration Date of the Offer (as extended in accordance with clauses (x), (y) or (z) of Section 1.1(b) of the Merger 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 U.S. Governmental Entity: (i) challenging the acquisition by Parent or Offeror of Shares or seeking to restrain or prohibit the consummation of the Offer or the Merger; (ii) seeking to prohibit or impose any material limitation on Parent's, Offerors' 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 described in this clause (ii) individually or in the aggregate, is reasonably likely to have a Material Adverse Effect (as defined in the Merger Agreement) on the Company or Parent; or (iii) seeking to impose material limitations on the ability of Parent or Offeror effectively to acquire or hold, or to exercise full rights of ownership of, the Shares including the right to vote the Shares purchased by them on an equal basis with all other Shares on all matters properly presented to the stockholders of the Company; 33 36 (b) any U.S. statute, rule, regulation, order or injunction shall be 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 described in clauses (i) through (iii) of paragraph (a) above; (c) (i) 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 (except for those representations and warranties made as of a specific date, which shall be true and correct as of such date), and considered without regard to any qualification by, or references to, "material," "in all material respects" or "Company Material Adverse Effect," except for such failures of such representations and warranties 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 material 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; (d) the Merger Agreement shall have been terminated in accordance with its terms; (e) any corporation, entity, "group" or "person" (as defined in the Exchange Act), other than Parent, Offeror or any of the shareholders that are party to the Shareholders Agreement (so long as such shareholders do not become beneficial owners of any additional Shares after the date of the Merger Agreement and so long as such shareholders do not breach any of the provisions of the Shareholders Agreement), shall have acquired beneficial ownership of more than 20% of the outstanding Shares; (f) the Board of Directors of the Company shall have modified or amended its recommendation of the Offer in any manner adverse to Parent 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 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 any national securities exchange or in the over the counter market in the United States (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 described in clauses (a) through (g) are for the sole benefit of Parent and Offeror and may be asserted by Parent and Offeror regardless of the circumstances giving rise to such conditions and may be waived by Parent 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 Parent 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 shall 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 34 37 certain representations made to Parent and Offeror in the Merger Agreement by the Company, neither Parent nor 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, Parent 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 or in order to obtain any such approval or other action. 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 Delaware Law 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 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 Delaware Law, and the restrictions of such Section 203 are, accordingly, not applicable to Parent, Offeror or their affiliates or associates as a result of the consummation of the transactions contemplated by this Offer to Purchase. Neither Parent 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 35 38 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 Federal Trade Commission ("FTC"), certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the "Antitrust Division") 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 Antitrust Division or the FTC may extend such waiting period by requesting additional information or documentary material from Parent. 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 with such request. With respect to each acquisition, the Antitrust Division 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 Antitrust Division 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 Antitrust Division 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 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. The Parent has retained Morrow & Co., Inc. to act as the Information Agent and Norwest Bank Minnesota, N.A. 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. Except as described herein, neither Parent nor 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. Neither Parent nor 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 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 36 39 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 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 OR THE COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS FURNISHED OR THE DATE OF THIS OFFER TO PURCHASE. Parent 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). MC SUBSIDIARY CORP. August 6, 1999 37 40 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND OFFEROR The names and ages of the directors and executive officers of Parent and of 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 One Merck Drive, Whitehouse Station, New Jersey 08889-0100 and he has been employed by Merck for the last five years. PARENT
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT WITH NAME AND AGE MERCK & CO., INC.; MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS ------------ --------------------------------------------------------------------- H. Brewster Atwater, Jr. (67)............. Director since 1998; Retired since 1996; Chairman of the Board and Chief Executive Officer, General Mills, Inc. (consumer foods and restaurants) for more than five years; Director, Darden Restaurants, Inc., IDS Mutual Fund Group, Mayo Foundation, Public Radio International and Walker Art Center; Member, The Business Council. Sir Derek Birkin (69)..................... Director since 1992; Retired since 1997; Chairman of the Board, The RTZ Corporation PLC (international mining company) for more than five years; Director, Unilever PLC, Carlton Communications PLC and The Merchants Trust PLC; Sir Derek is a British citizen. Lawrence A. Bossidy (64).................. Director since 1992; Chairman of the Board and Chief Executive Officer, AlliedSignal, Inc. (aerospace, automotive products and engineered materials technology) for more than five years; Director, Champion International Corporation and J.P. Morgan & Co. Incorporated; Member, The Business Council and The Business Roundtable. William G. Bowen, Ph.D. (65).............. Director since 1986; President, The Andrew W. Mellon Foundation (philanthropic foundation) for more than five years; Director, American Express Company; Member, Board of Overseers, Teachers Insurance and Annuity Association of America -- College Retirement Equities Fund; Trustee, Denison University. Johnnetta B. Cole, Ph.D. (62)............. Director since 1994; prior to that since September 1998 -- Presidential Distinguished Professor, Emory University; prior to that from 1987 to June 1997 -- President, Spelman College; Director, Coca-Cola Enterprises, The Home Depot, Inc. and Management and Training Corporation; Trustee, Rockefeller Foundation and Gallaudet University; Member, Council on Foreign Relations and National Council of Negro Women; Fellow, American Anthropological Association. Carolyne K. Davis, Ph.D. (67)............. Director since 1989; International Health Care Consultant for more than five years; Director, Beckman Coulter, Inc., The Prudential Insurance Company of America, Inc., Minimed Inc. and Beverly Enterprises, Inc.; Trustee, University of Pennsylvania Health System; Member, Institute of Medicine of the National Academy of Sciences.
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PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT WITH NAME AND AGE MERCK & CO., INC.; MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS ------------ --------------------------------------------------------------------- Lloyd C. Elam, M.D. (70).................. Director since 1973; Professor of Psychiatry, Meharry Medical College for more than five years; Director, Premark International Inc. and Tupperware, Inc.; Trustee, Fisk University and The Alfred P. Sloan Foundation. Charles E. Exley, Jr. (69)................ Director since 1988; Retired (1991); prior to that from January 1988 to September 1991 -- Chairman of the Board and Chief Executive Officer, NCR Corporation (business information processing systems); Trustee, The Andrew W. Mellon Foundation; Member, The Business Council and Board of Overseers, Columbia University Graduate School of Business. Carleton S. Fiorina (44).................. Director since 1999; President and Chief Executive Officer, Hewlett-Packard Company since July 1999; prior to that Group President, Global Services Provider Business, Lucent Technologies Inc. (communications systems and technology) since October 1997; prior to that from October 1996 to October 1997 -- President, Lucent Technologies Consumer Products; prior to that from January 1996 to October 1996 -- Executive Vice President, Corporate Operations, Lucent Technologies Inc.; prior to that from January 1995 to January 1996 -- President, North America Region of the Network Systems Group, AT&T; prior to that from July 1994 to January 1995 -- President, Atlantic and Canada Region of the Network Systems Group, AT&T; prior to July 1994 -- senior positions with AT&T; Director, Kellogg Company. Raymond Gilmartin (57).................... Director since 1994; Chairman of the Board since November 1994, President and Chief Executive Officer since June 1994. From 1992 to June 1994, Mr. Gilmartin was Chairman, President and Chief Executive Officer of Becton Dickinson and Company. William N. Kelley, M.D. (59).............. Director since 1992; Chief Executive Officer, University of Pennsylvania Health System and Executive Vice President, Dean of the School of Medicine and Robert G. Dunlop Professor of Medicine, Biochemistry and Biophysics, University of Pennsylvania, for more than five years; Director, Beckman Coulter, Inc., Greater Philadelphia First and Philadelphia Orchestra Association; Trustee, Emory University; Fellow, American Academy of Arts and Sciences; Member, American Philosophical Society, Institute of Medicine of the National Academy of Sciences, Board of Managers of Wistar Institute; Chairman, Board of Governors of Leonard Davis Institute of Health Economics; Master, American College of Physicians. Edward M. Scolnick, M.D. (58)............. Director since 1997; Executive Vice President, Science and Technology and President, Merck Research Laboratories for more than five years; Member, National Academy of Sciences and its Institute of Medicine.
I-2 42
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT WITH NAME AND AGE MERCK & CO., INC.; MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS ------------ --------------------------------------------------------------------- Samuel O. Thier, M.D. (61)................ Director since 1994; President since April 1997 and Chief Executive Officer since July 1996, Partners HealthCare System, Inc.; prior to that from May 1994 to April 1997 -- President, Massachusetts General Hospital; prior to that from October 1991 to May 1994 -- President, Brandeis University; Director, Fleet Financial Group; Member, Institute of Medicine of the National Academy of Sciences; Fellow, American Academy of Arts and Sciences; Trustee, Brandeis University, Boston Museum of Science, Cornell University, The Commonwealth Fund and WGBH Public Television; Master, American College of Physicians. Dennis Weatherstone (68).................. Director since 1988; Retired (1995); Chairman of the Board, J.P. Morgan & Co. Incorporated and Morgan Guaranty Trust Company of New York (banking and other financial services) for more than five years; Director, General Motors Corporation, L'Air Liquide and Institute for International Economics; Independent Member of the Board of Banking Supervision of the Financial Services Authority, London; President, Royal College of Surgeons Foundation; Trustee, The Alfred P. Sloan Foundation; Member, The Business Council. Mr. Weatherstone is also a British citizen. David W. Anstice (50)..................... President, Human Health-The Americas since January 1997 -- responsible for the Company's prescription drug business in the United States, Canada and Latin America and medical and scientific affairs; prior to that since September 1994 -- President, Human Health-U.S./Canada -- responsible for the Company's prescription drug business in the United States and Canada, worldwide coordination of marketing policies and medical and scientific affairs; prior to that since January 1994 -- President, Human Health Europe. Mr. Anstice is an Australian citizen. Paul R. Bell (53)......................... President, Human Health-Asia Pacific since April 1997 -- responsible for the Company's prescription drug business in the Far East, Australia, New Zealand and Japan; prior to that since March 1994 -- Vice President and Managing Director-Australia and New Zealand. Celia A. Colbert (42)..................... Vice President, Secretary and Assistant General Counsel since January 1997; prior to that since November 1993 -- Secretary and Assistant General Counsel. Linda M. Distlerath (45).................. Vice President, Public Affairs since January 1999 -- responsible for public affairs and The Merck Company Foundation (a not-for-profit charitable organization affiliated with the Company); prior to that since October 1997 -- Executive Director, Public Policy and Merck Research Laboratories (MRL) Public Affairs; prior to that since April 1995 -- Executive Director, MRL Public Affairs; prior to that since October 1990 -- Senior Director, Science & Technology Policy -- responsible for public policy strategies in support of the Company's research and development programs.
I-3 43
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT WITH NAME AND AGE MERCK & CO., INC.; MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS ------------ --------------------------------------------------------------------- Caroline Dorsa (39)....................... Vice President and Treasurer since February 1999 -- responsible for the Company's treasury and tax functions; prior to that since January 1997 -- Vice President and Treasurer; prior to that since January 1994 -- Treasurer. Kenneth C. Frazier (44)................... Vice President and Deputy General Counsel since January 1999; prior to that since January 1997 -- Vice President, Public Affairs and Assistant General Counsel -- responsible for public affairs, corporate legal activities and The Merck Company Foundation (a not-for-profit charitable organization affiliated with the Company); prior to that since April 1994 -- Vice President, Public Affairs; prior to that since May, 1992 -- Vice President, General Counsel and Secretary, Astra/Merck Group (a joint venture affiliated with the Company). Richard C. Henriques Jr. (43)............. Vice President, Controller since February 1999 -- responsible for the Corporate Controller's Group and providing financial support for U.S. Human Health, Canada and Latin America (The Americas); prior to that since January 1998 -- Vice President & Controller, The Americas; prior to that since January 1997 -- Controller, The Americas; prior to that since January 1994 -- Controller, North America Pharmaceutical Care. Bernard J. Kelley (57).................... President, Merck Manufacturing Division since December 1993. Judy C. Lewent (50)....................... Senior Vice President and Chief Financial Officer since January 1997 -- responsible for financial and corporate development functions, internal auditing and the Company's joint venture relationships; prior to that since September 1994 -- Senior Vice President and Chief Financial Officer -- responsible for financial and public affairs functions, The Merck Company Foundation (a not-for-profit charitable organization affiliated with the Company), internal auditing and the Company's joint venture relationships; prior to that since December 1993 -- Senior Vice President and Chief Financial Officer (since January 1993) -- responsible for financial and public affairs functions and The Merck Company Foundation. Per G. H. Lofberg (51).................... President, Merck-Medco Managed Care, L.L.C., a wholly-owned subsidiary of the Company since December 1995; prior to that since January 1994 -- President, Merck-Medco Managed Care Division. Mr. Lofberg is a Swedish citizen. Adel Mahmoud (57)......................... President, Merck Vaccines since April 1999; prior to that since October 1998 -- Executive Vice President, Merck Vaccines; prior to that since 1987 -- John H. Hord Professor and Chairman, Department of Medicine and Physician-in-Chief, Case Western Reserve University and University Hospitals of Cleveland. Mary M. McDonald (54)..................... Senior Vice President and General Counsel since January 1999 -- responsible for legal and public affairs functions and The Merck Company Foundation (a not-for-profit charitable organization affiliated with the Company); prior to that since January, 1993 -- Senior Vice President and General Counsel.
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PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT WITH NAME AND AGE MERCK & CO., INC.; MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS ------------ --------------------------------------------------------------------- Roger M. Perlmutter (46).................. Executive Vice President, Worldwide Basic Research and Preclinical Development, Merck Research Laboratories since July 1999; prior to that since February 1999 -- Executive Vice President, Merck Research Laboratories; prior to that since February 1997 -- Senior Vice President, Merck Research Laboratories; prior to that since May 1989 -- Chairman, Department of Immunology, University of Washington. Per Wold-Olsen (51)....................... President, Human Health-Europe, Middle East & Africa since January 1997 -- responsible for the Company's prescription drug business in Europe, the Middle East and Africa and worldwide coordination of marketing policies; prior to that since September, 1994 -- President, Human Health-Europe -- responsible for the Company's European prescription drug business; prior to that since January 1994 -- Senior Vice President, Worldwide Human Health Marketing. Mr. Wold-Olson is a Norwegian citizen. Wendy L. Yarno (45)....................... Vice President, Human Resources since June, 1999; prior to that since January 1999 -- Vice President Worldwide Human Health Marketing; prior to that since November 1997 -- Vice President, Women's Health Care, Johnson & Johnson, Ortho-McNeil Pharmaceutical; prior to that since January 1995 -- Vice President, Hypertension and Heart Failure Therapeutic Business Group, U.S. Human Health, Merck & Co., Inc.; prior to that senior positions with the U.S. Human Health division of Merck.
OFFEROR
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT WITH NAME AND AGE MC SUBSIDIARY CORP.; MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS - ------------ ----------------------------------------------------------------------- George A. Dunston (30).................... Sole Director, Vice President and Assistant Secretary of the Offeror since July 1999; Senior Attorney, Merck & Co., Inc. since 1998; prior to that since June 1996 an associate of the New York law firm of Brobeck, Pheleger & Harrison; prior to that since September 1994 an associate of the New York law firm of Brown & Wood. Judy C. Lewent (50)....................... President of the Offeror since July 1999. See description above. Richard N. Kender (43).................... Vice President of the Offeror since July 1999. Vice President, Financial Evaluation and Analysis and Business Development, Merck & Co., Inc. since February 1999; prior to that since 1996 Vice President, Corporate Development; prior to that since 1994 Executive Director, Corporate Development. Jon Filderman (41)........................ Vice President and Assistant Secretary of the Offeror since July 1999. Assistant Counsel to Merck & Co., Inc. since 1995. Prior to 1995, an associate of the New York law firm of Fried, Frank, Harris, Shriver & Jacobson. Celia A. Colbert (42)..................... Secretary of the Offeror since July 1999. See description above.
I-5 45 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: NORWEST BANK MINNESOTA, N.A. BY MAIL: BY HAND IN NEW YORK: BY HAND/OVERNIGHT COURIER: Norwest Bank Minnesota, N.A. The Depository Trust Company Norwest Bank Minnesota, N.A. Shareowner Services Transfer Agent Drop Shareowner Services Reorganization Department 55 Water Street -- 1st Floor 161 North Concord Exchange P.O. Box 64858 New York, NY 10041-0099 South St. Paul, MN 55075 St. Paul, MN 55164-0858 FACSIMILE COPY NUMBER: (651) 450-4163
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 at its telephone number and location 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: MORROW & CO., INC. 445 Park Avenue, 5th Floor New York, New York 10022 Banks and Brokerage Firms Call: (800) 662-5200 (212) 754-8000 Stockholders Please Call: (800) 566-9061 EX-99.A.2 3 LETTER OF TRANSMITTAL 1 EXHIBIT (a)(2) LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS) OF SIBIA NEUROSCIENCES, INC. PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 6, 1999 BY MC SUBSIDIARY CORP., A DIRECT WHOLLY-OWNED SUBSIDIARY OF MERCK & CO., INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 2, 1999, UNLESS THE OFFER IS EXTENDED. The Depositary is: NORWEST BANK MINNESOTA, N.A. By Mail: By Hand in New York: By Hand/Overnight Courier: Norwest Bank Minnesota, N.A. The Depository Trust Company Norwest Bank Minnesota, N.A. Shareowner Services Transfer Agent Drop Shareowner Services Reorganization Department 55 Water Street - 1st Floor 161 North Concord Exchange P.O. Box 64858 New York, NY 10041-0099 South St. Paul, MN 55075 St. Paul, MN 55164-0858 By Facsimile Transmission: (651) 450-4163 To Confirm Receipt of Notice of Guaranteed Delivery: (651) 450-4110
- ------------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - ------------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE(S) ENCLOSED (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) (ATTACH ADDITIONAL SIGNED LIST, IF NECESSARY) APPEAR(S) ON THE CERTIFICATE(S) - ------------------------------------------------------------------------------------------------------------------------- TOTAL NUMBER OF SHARES NUMBER CERTIFICATE REPRESENTED BY OF SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** - ------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- Total Number of Shares - ------------------------------------------------------------------------------------------------------------------------- * Need not be completed by stockholders delivering Shares by book-entry transfer through the Depositary. ** Unless otherwise indicated, it will be assumed that all Shares represented by any certificates delivered to the Depositary are being tendered. See Instruction 4. [ ] CHECK HERE IF CERTIFICATES HAVE BEEN LOST OR MUTILATED. SEE INSTRUCTION 12. - -------------------------------------------------------------------------------------------------------------------------
FOR OFFICE USE ONLY DEBIT SHARES PARTIAL SBL/LT ALT PAYEE SPEC. DEL APPROVED IMPUT AUDIT MAILED
2 ------------------------------------------------------------ SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of Shares accepted for payment and/or Certificates for Shares not tendered or not accepted for payment are to be issued in the name of someone other than the undersigned. Mail check and/or certificate(s) to: Name ---------------------------------------------------- (PLEASE TYPE OR PRINT) Address --------------------------------------------------- ------------------------------------------------------------ (INCLUDE A ZIP CODE) ------------------------------------------------------------ (RECIPIENT'S TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) ------------------------------------------------------------ ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of Shares accepted for payment and/or Certificates for Shares not tendered or not accepted for payment are to be mailed to someone other than the undersigned or to the undersigned at an address other than that shown above. Mail check and/or certificate(s) to: Name ----------------------------------------------------- (PLEASE TYPE OR PRINT) Address --------------------------------------------------- ------------------------------------------------------------ (INCLUDE A ZIP CODE) ------------------------------------------------------------ (RECIPIENT'S TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) ------------------------------------------------------------ 2 3 IMPORTANT: STOCKHOLDER: SIGN HERE (PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SIGNATURE(S) OF STOCKHOLDER(S) Dated: - --------------------------- , 1999 (Must be signed by registered holder(s) exactly as name(s) appear(s) on Certificate(s) or on a security position listing or by the 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 acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5). Name(s): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE TYPE OR PRINT) Capacity (full title): - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDE A ZIP CODE) Area Code and Telephone Number: - -------------------------------------------------------------------------------- (HOME) - -------------------------------------------------------------------------------- (BUSINESS) Taxpayer Identification Number or Social Security Number: - ------------------------------------------------------- (COMPLETE SUBSTITUTE FORM W-9 BELOW) GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) FOR USE BY FINANCIAL INSTITUTIONS ONLY, PLACE MEDALLION GUARANTEE IN SPACE BELOW. Authorized Signature(s): - -------------------------------------------------------------------------------- Name: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE TYPE OR PRINT) Title: - -------------------------------------------------------------------------------- Name of Firm: - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDE A ZIP CODE) Area Code and Telephone Number: - -------------------------------------------------------------------------------- Dated: - --------------------------- , 1999 3 4 TO BE COMPLETED BY ALL TENDERING SHAREHOLDERS OF SECURITIES (SEE INSTRUCTION 8) - ------------------------------------------------------------------------------------------------------------------------ PAYER'S NAME: NORWEST BANK MINNESOTA, N.A. - ------------------------------------------------------------------------------------------------------------------------ SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT THE RIGHT FORM W-9 AND CERTIFY BY SIGNING AND DATING BELOW. TIN: ----------------------- Social Security Number or Taxpayer Identification Number ------------------------------------------------------------------------------------------- Department of the Treasury, Internal PART 2-- FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING Revenue Service (See Instructions). PAYOR'S REQUEST FOR ----------------------------------------------------------------------------------------- TAXPAYER IDENTIFICATION PART 3--CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY THAT: NUMBER ("TIN") AND CERTIFICATION (1) The number shown on this form is my correct TIN (or I am waiting for a number to be issued to 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 ("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. ----------------------------------------------------------------------------------------- SIGNATURE: ________________________________________ DATE: ________________ - ------------------------------------------------------------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding, you received another notification from the IRS that you were no longer subject to backup withholding, do not cross out item (2). NOTE: FAILURE TO COMPLETE AND RETURN THIS 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. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN PART 1 OF THE SUBSTITUTE FORM W-9. - -------------------------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a TIN has not been issued to me, and either (1) I have mailed or delivered an application to receive a TIN to the appropriate IRS Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a TIN by the time of payment to the payor, 31% of all reportable payments pursuant to the Offer made to me will be withheld, but that such amounts will be refunded to me if I then provide a TIN within 60 days. Signature: ______________________________________________________ Date: --------------------- - --------------------------------------------------------------------------------------------------
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 INSTRUCTIONS. 4 5 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE 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 SIBIA Neurosciences, Inc. if either certificates evidencing Shares ("Certificates") are to be forwarded with this Letter of Transmittal 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 an account maintained by Norwest Bank Minnesota, N.A. 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 Certificates are not immediately available or who cannot deliver their Certificates and all other required documents to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase), or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Shares according 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 MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH 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. PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY. Name(s) of Registered Stockholder(s): Window Ticket Number (if any): Date of Execution of Notice of Guaranteed Delivery: Name of Institution which Guaranteed Delivery: NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. 5 6 Ladies and Gentlemen: The undersigned hereby tenders to MC Subsidiary Corp. ("Offeror"), a Delaware corporation and a direct, wholly owned subsidiary of Merck & Co., Inc., a New Jersey corporation ("Parent"), the above-described shares of Common Stock, par value $.001 per share (the "Common Stock"), including the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated March 17, 1997, and amended as of July 30, 1999, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Rights" and, together with the Common Stock, the "Shares") of SIBIA Neurosciences, Inc., a Delaware corporation (the "Company"), pursuant to Offeror's offer to purchase all of the outstanding Shares at a purchase price of $8.50 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated August 6, 1999 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, as amended from time to time, together with the Offer to Purchase collectively constitute the "Offer"). The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of July 30, 1999 (the "Merger Agreement"), among Parent, Offeror and the Company. The undersigned understands that Offeror reserves the right to transfer or assign, in whole or from time to time in part, to one or more direct or indirect wholly owned subsidiaries of Parent, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve Offeror of its obligations under the Offer or prejudice the rights of the tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. Subject to, and effective upon, acceptance for payment of, or 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 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) and appoints Norwest Bank Minnesota, N.A. (the "Depositary") the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and such other shares or securities), 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 (and such other shares or securities), or transfer ownership of such Shares (and such other Shares or securities) 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 the Offeror, (b) present such Shares (and such other shares or securities) for transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and such other shares or securities), all in accordance with the terms and subject to the conditions of the Offer. The undersigned hereby irrevocably appoints each designee of Offeror as the attorney-in-fact and proxy 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 herewith 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, 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 then scheduled. 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 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) 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 claim. The undersigned, upon request, will execute and deliver any 6 7 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 (and such other shares or securities). 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 a binding agreement between the undersigned and Offeror upon the terms and subject to the conditions of the Offer. The undersigned recognizes that, under certain circumstances set forth in the Offer To Purchase, the Offeror may not be required to accept for payment any of the Shares tendered hereby. Unless otherwise indicated in this Letter of Transmittal under "Special Payment Instructions," please issue the check for the purchase price and return any Shares not tendered or not purchased in the name(s) of the undersigned. Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price and return any Certificates 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 and return any Shares not tendered or not purchased in the name(s) of, and mail such check and any certificates to, the person(s) so indicated. Unless otherwise indicated under "Special Payment Instructions," in the case of book-entry delivery of Shares, please credit the account maintained at the Book-Entry Transfer Facility with respect to any Shares not accepted for payment. The undersigned recognizes that Offeror 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. 7 8 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, signatures on Letters of Transmittal must be guaranteed by a member in good standing of the Securities Transfer Agents Medallion Program, or by any other firm which is a bank, broker, dealer, credit union or savings association (each of the foregoing being referred to as an "Eligible Institution" and, collectively, as "Eligible Institutions"), except in cases where Shares are tendered (i) by a registered holder of Shares who has not completed either the box labeled "Special Delivery Instructions" or the box labeled "Special Payment Instructions" on the Letter of Transmittal or (ii) for the account of any Eligible Institution. See Instruction 5. If the Certificates are registered in the name of a person other than the signer of this Letter of Transmittal, or if payment is to be made, or Certificates not accepted for payment or not tendered are to be returned, to a person other than the registered holder, then the Certificates must be endorsed or accompanied by duly executed stock powers, in either case, signed exactly as the name of the registered holder appears on such Certificates, with the signatures on such Certificates or stock powers guaranteed by an Eligible Institution as provided herein. See Instruction 5. 2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be used if either Certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if the delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth in Section 3 of the Offer to Purchase. Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) and any other documents required by this Letter of Transmittal or an Agent's Message in the case of a book-entry delivery, 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. Stockholders who cannot deliver their Shares and all other required documents to the Depositary by the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Pursuant to such procedures: (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 prior to the Expiration Date; and (c) the Certificates for all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation), together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), and any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other documents required by this Letter of Transmittal must be received by the Depositary within three trading days after the date of such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. The term "trading day" is any day on which the NASDAQ National Market is open for business. THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH A BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS 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 a manually signed facsimile thereof), the tendering stockholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. INADEQUATE SPACE. If the space provided in this Letter of Transmittal is inadequate, the information required under "Description of Shares Tendered" should be listed on a separate schedule attached hereto. 4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If fewer than all the Shares represented by any Certificate delivered to the Depositary are to be tendered, 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(s) 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 Date. All Shares represented by Certificate(s) delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL; INSTRUMENTS OF TRANSFER 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. 8 9 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), in which case, the Certificate(s) for such Shares tendered hereby must be endorsed, or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appears(s) on the Certificate(s) for such Shares. 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, the Certificate 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. 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 Offeror of the authority of such person so to act must be submitted. 6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, 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), then 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. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF TRANSMITTAL. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the purchase price of any Shares purchased is to be issued, or any Shares not tendered or not purchased are to be returned, in the name of a person other than the person(s) signing this Letter of Transmittal or if the check or any Certificates not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal at an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. 8. SUBSTITUTE FORM W-9. Each tendering stockholder is required to provide the Depositary with a correct Taxpayer Identification Number ("TIN") on Substitute Form W-9, which is provided under "Important Tax Information" below and to certify that the stockholder is not subject to backup withholding. Failure to provide the information on the Substitute Form W-9 may subject the tendering stockholder to a penalty and 31% federal income tax backup withholding on the payment of the purchase price for the Shares. If the tendering stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future, the tendering stockholder should follow the instructions set forth in Part 3 of the Substitute Form W-9 and sign and date both the Substitute Form W-9 and the "Certificate of Awaiting Taxpayer Identification Number." If the stockholder has indicated in Part 3 that a TIN has been applied for and the Depositary is not provided with a TIN by the time of payment, the Depositary will withhold 31% of all payments of the purchase price, if any, made thereafter pursuant to the Offer. Such amounts, however, will be refunded if a TIN is provided to the Depositary within 60 days. 9. FOREIGN HOLDERS. Foreign holders must submit a completed IRS Form W-8 to avoid 31% backup withholding. IRS Form W-8 may be obtained by contacting the Depositary at one of the addresses on the face of this Letter of Transmittal. 10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance or additional copies of the Offer to Purchase and this Letter of Transmittal may be obtained from the Information Agent at the address or telephone number set forth below. 9 10 11. 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. 12. LOST OR DESTROYED CERTIFICATES. If any Certificate(s) representing Shares has been lost or destroyed, the holders should promptly notify the Depositary, Norwest Bank Minnesota, N.A., at (800) 468-9716. The holders will then be instructed as to the procedure to be followed in order to replace the Certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed Certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE COPY HEREOF (TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE). 10 11 IMPORTANT TAX INFORMATION Under federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary (as payor) with such stockholder's correct TIN on the Substitute Form W-9. If such stockholder is an individual, the TIN is such stockholder's social security number. If the Depositary is not provided with the correct TIN, the stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such stockholder with respect to Shares purchased 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 and should indicate their status by writing "exempt" across the face of, and by signing and dating, the substitute Form W-9. In order for a foreign individual to qualify as an exempt recipient, that stockholder must submit a statement, signed under penalties of perjury, attesting to that individual's exempt status. Such statements may be obtained from the Depositary. All exempt recipients (including foreign persons wishing to qualify as exempt recipients) should see the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the stockholder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained from the IRS. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup federal income tax withholding on payments that are made to a stockholder with respect to Shares purchased pursuant to the Offer, the stockholder is required to notify the Depositary of such stockholder's correct TIN by completing the form certifying that the TIN provided on the Substitute Form W-9 is correct. WHAT NUMBER TO GIVE THE DEPOSITARY The stockholder is required to give the Depositary the social security number or employer identification number of the record owner of the Shares. If the Shares are registered in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidelines on which number to report. 11 12 MANUALLY SIGNED FACSIMILE COPIES OF THE LETTER OF TRANSMITTAL, PROPERLY COMPLETED AND DULY EXECUTED, WILL BE ACCEPTED. THE LETTER OF TRANSMITTAL, 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 ITS ADDRESSES SET FORTH ABOVE AND BELOW. Questions and requests for assistance may be directed to the Information Agent at the address and telephone numbers listed below. Additional copies of the Offer to Purchase, the Letter of Transmittal and other tender offer materials may be obtained from the Information Agent as set forth below, and will be promptly furnished at the Offeror's expense. You may also contact your broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: MORROW & CO., INC. 445 Park Avenue, 5th Floor New York, New York 10022 Banks and Brokerage Firms Call: (800) 662-5200 (212) 754-8000 Stockholders Please Call: (800) 566-9061 EX-99.A.3 4 LETTER TO NOMINEES 1 EXHIBIT (a)(3) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS) OF SIBIA NEUROSCIENCES, INC. AT $8.50 NET PER SHARE BY MC SUBSIDIARY CORP., A DIRECT WHOLLY-OWNED SUBSIDIARY OF MERCK & CO., INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 2, 1999, UNLESS THE OFFER IS EXTENDED. To Brokers, Dealers, Commercial Banks, August 6, 1999 Trust Companies and Other Nominees: We are writing to you in connection with the offer by MC Subsidiary Corp., a Delaware corporation (the "Offeror"), and a direct wholly owned subsidiary of Merck & Co., Inc., a New Jersey corporation ("Parent") to purchase all outstanding shares of Common Stock, par value $.001 per share (the "Common Stock"), including the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated March 17, 1997 and amended as of July 30, 1999, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Rights" and, together with the Common Stock, the "Shares") of SIBIA Neurosciences, Inc., a Delaware corporation (the "Company"), at a purchase price of $8.50 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 August 6, 1999 (the "Offer to Purchase") and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") enclosed herewith. Offeror is a corporation, newly formed by Parent 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 July 30, 1999, among Parent, Offeror and the Company (the "Merger Agreement"). 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 Norwest Bank Minnesota, N.A. (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. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares in your name or in the name of your nominee. 2 Enclosed herewith for your information and forwarding to your clients are copies of the following documents: 1. The Offer to Purchase, dated August 6, 1999. 2. The Letter of Transmittal to tender Shares for your use and for the information of your clients. Facsimile copies of the Letter of Transmittal may be used to tender Shares. 3. A letter to stockholders of the Company from Dr. William T. Comer, President and Chief Executive Officer, 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. The Notice of Guaranteed Delivery for Tender of Shares to be used to accept the Offer if following the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. 5. A printed form of letter which may be sent to your clients for whose accounts you hold Shares registered in your name, with space provided for obtaining such clients' instructions with regard to the Offer. 6. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9. 7. A return envelope addressed to Norwest Bank Minnesota, N.A. (the "Depositary"). YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 2, 1999, UNLESS THE OFFER IS EXTENDED. Please note the following: 1. The tender price is $8.50 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) of the Offer that number of Shares which would represent at least a majority of the outstanding Shares on a fully diluted basis. 3. The Offer is being made for all of the outstanding Shares. 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 Important Tax Information 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 (as defined in the Offer to Purchase) are actually received by the Depositary. 2 3 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 Depositary and (ii) Certificates representing the tendered Shares or a timely Book-Entry Confirmation should be delivered to the Depositary 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 or Parent, or any officer, director, stockholder, agent or other representative of Offeror or Parent, will pay any fees or commissions to any broker, dealer or other person (other than the Depositary and the Information Agent as described in the Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer. Offeror will, however, upon request, reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. Offeror will pay or cause to be paid any transfer taxes payable on the transfer of Shares to it, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to Morrow & Co., Inc., the Information Agent for the Offer, at its address and telephone number set forth on the back cover of the Offer to Purchase. Additional copies of the enclosed materials may be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. Very truly yours, MORROW & CO., INC. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS THE AGENT OF PARENT, OFFEROR, PURCHASER, THE DEPOSITARY, THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. 3 EX-99.A.4 5 LETTER FROM NOMINEES TO CLIENTS 1 EXHIBIT (a)(4) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS) OF SIBIA NEUROSCIENCES, INC. AT $8.50 NET PER SHARE BY MC SUBSIDIARY CORP., A DIRECT WHOLLY-OWNED SUBSIDIARY OF MERCK & CO., INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, SEPTEMBER 2, 1999, UNLESS THE OFFER IS EXTENDED. To Our Clients: Enclosed for your consideration are the Offer to Purchase, dated August 6, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") relating to an offer by MC Subsidiary Corp., a Delaware corporation ("Offeror") and a direct wholly-owned subsidiary of Merck & Co., Inc., a New Jersey corporation ("Parent"), to purchase all outstanding shares of Common Stock, par value $.001 per share (the "Common Stock"), including the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated as of March 17, 1997 and amended as of July 30, 1999, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Rights" and, together with the Common Stock, the "Shares"), of SIBIA Neurosciences, Inc., a Delaware corporation (the "Company"), at a purchase price of $8.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer. The Offer is being made in connection with the Agreement and Plan of Merger dated as of July 30, 1999, among Parent, Offeror and the Company (the "Merger Agreement"). Offeror is a corporation, newly formed by Parent in connection with the Offer and the transactions contemplated thereby. This material is being forwarded to you as the beneficial owner of Shares carried by us in your account but not registered in your name. WE ARE (OR OUR NOMINEE IS) THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. 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. Accordingly, we request instructions as to whether you wish to have us tender any or all of the Shares held by us for your account pursuant to the terms and conditions set forth in the Offer. 2 Please note the following: 1. The tender price is $8.50 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) of the Offer that number of Shares which would represent at least a majority of the outstanding Shares on a fully diluted basis. 3. The Offer is being made for all of the outstanding Shares. 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 Important Tax Information 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 THURSDAY, SEPTEMBER 2, 1999, UNLESS THE OFFER IS EXTENDED. If you wish to have us tender any or all of the Shares held by us for your account, please so instruct us by completing, executing, detaching and returning to us the instruction form set forth below. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise indicated in such instruction form. An envelope to return your instruction 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 one or more registered brokers or dealers licensed under the laws of such jurisdiction. 2 3 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS) OF SIBIA NEUROSCIENCES, INC. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated August 6, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by MC Subsidiary Corp., a Delaware corporation ("Offeror") and a direct wholly-owned subsidiary of Merck & Co., Inc., a New Jersey corporation ("Parent"), to purchase all outstanding shares of Common Stock, par value $.001 per share (the "Common Stock"), including the associated preferred stock purchase rights issued pursuant to the Rights Agreement dated as of March 17, 1997 and amended as of July 30, 1999, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Rights" and, together with the Common Stock, the "Shares"), of SIBIA Neurosciences, Inc., a Delaware corporation (the "Company"), at a purchase price of $8.50 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer. Offeror has been formed by Parent 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 July 30, 1999, among Parent, Offeror and the Company (the "Merger Agreement"). This will instruct you to tender to the Purchaser the number of Shares indicated below (or if no number is indicated below, all Shares) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Number of Shares to be Tendered:* SIGN HERE -------------------------------------- ----------------------------------------------------- ----------------------------------------------------- SIGNATURE(S) Account Number: ------------------------- ----------------------------------------------------- ----------------------------------------------------- (PRINT NAME(S)) ----------------------------------------------------- Date: -------------------------------, 1999 ----------------------------------------------------- (PRINT ADDRESS(ES)) ----------------------------------------------------- ----------------------------------------------------- (AREA CODE AND TELEPHONE NUMBER(S)) ----------------------------------------------------- (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
- --------------- * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. 3 EX-99.A.5 6 NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT (a)(5) NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS) OF SIBIA NEUROSCIENCES, INC. This form, or one substantially equivalent hereto, must be used to accept the Offer (as defined below) if certificates for shares of Common Stock, par value $.001 per share (the "Common Stock"), including the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated March 17, 1997 and amended as of July 30, 1999, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Rights" and, together with the Common Stock, the "Shares"), of SIBIA Neurosciences, Inc., a Delaware corporation (the "Company"), 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 (as defined in the Offer to Purchase). This Notice of Guaranteed Delivery may be delivered by hand or facsimile transmission or mailed to the Depositary. See Section 3 of the Offer to Purchase, dated August 6, 1999 (the "Offer to Purchase"). The Depositary for the Offer is: NORWEST BANK MINNESOTA, N.A. By Mail: By Hand in New York: By Hand/Overnight Courier: Norwest Bank Minnesota, N.A The Depository Trust Company Norwest Bank Minnesota, N.A. Shareowner Services Transfer Agent Drop Shareowner Services Reorganization Department 55 Water Street - 1st Floor 161 North Concord Exchange P.O. Box 64858 New York, NY 10041-0099 South St. Paul, MN 55075 St. Paul, MN 55164-0858 Facsimile Copy Number: (651) 450-4163 For Confirmation Telephone: (651) 450-4110 The Information Agent for the Offer is: MORROW & CO., INC. 445 Park Avenue, 5th Floor New York, New York 10022 Banks and Brokerage Firms Call: (800) 662-5200 (212) 754-8000 Stockholders Please Call: (800) 566-9061
------------------------- DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR TRANSMISSION OF INSTRUMENTS VIA FACSIMILE TRANSMISSION, OTHER THAN AS SET FORTH 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. 2 Ladies and Gentlemen: The undersigned hereby tenders to MC Subsidiary Corp. ("Offeror"), a Delaware corporation, and a direct wholly-owned subsidiary of Merck & Co., Inc. ("Parent"), a New Jersey corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"), receipt of each of which is hereby acknowledged, the number of Shares indicated below, pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Offeror is a corporation, newly formed by Parent in connection with the Offer and the transactions contemplated thereby. Number of Shares: --------------------------------------------------------------- Certificate No(s). (if available): ---------------------------------------------- If Share(s) will be tendered by book-entry transfer, check the box. [ ] The Depository Trust Company Account Number: ----------------------------------------------------------------- Date: Area Code and Telephone Number: -------------------- ----------------------- Name(s) of Record Holder(s): ---------------------------------------------------- (Please Type or Print) Signature(s): ------------------------------------------------------------------- Address(es): -------------------------------------------------------------------- (Include a Zip Code) THE GUARANTEE SET FORTH BELOW MUST BE COMPLETED GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, as Eligible Institution (as such term is defined in Section 3 of the Offer to Purchase), hereby guarantees to deliver to the Depositary the certificates representing the Shares tendered hereby, in proper form for transfer, or a Book-Entry Confirmation (as defined in Section 3 of the Offer to Purchase) with respect to transfer of such Shares into the Depositary's account at Norwest Bank Minnesota, N.A., in each case, together with 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 the case of a book-entry delivery of Shares, and any other documents required by the Letter of Transmittal, all within three Nasdaq National Market trading days after the date hereof. Name of Firm: ----------------------------- ---------------------------------- (Authorized Signature) Address: Name: ---------------------------------- ----------------------------- Title: - ------------------------------------------ ---------------------------- (Include a Zip Code) Area Code and Tel. No.: Date: ------------------- ----------------------------- DO NOT SEND CERTIFICATES FOR SHARES AND/OR RIGHTS WITH THIS NOTICE OF GUARANTEED DELIVERY. CERTIFICATES SHOULD BE SENT TOGETHER WITH A LETTER OF TRANSMITTAL. 2 EX-99.A.6 7 W-9 1 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 PAYER.--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 payer. - ------------------------------------------------------------ GIVE THE FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY NUMBER OF-- - ------------------------------------------------------------ 1. An individual's account The individual 2. Two or more individuals (joint The actual owner of account) the account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint account) The actual owner of the account or, if joint funds, either person(1) 4. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the minor(1) 6. Account in the name of guardian or The ward, minor, or committee for a designated ward, incompetent minor, or incompetent person person(3) 7. a. The usual revocable savings The grantor- trust account (grantor is also trustee(1) trustee) b. So-called trust account that is The actual owner(1) not a legal or valid trust under State law 8. Sole proprietorship account The Owner(4) - ------------------------------------------------------------ - ------------------------------------------------------------ GIVE THE EMPLOYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF-- - ------------------------------------------------------------ 9. A valid trust, estate, or pension Legal entity (Do 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. Corporate account The corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held in the The partnership name of the business 13. Association, club, or other tax- The organization exempt organization 14. A broker or registered nominee The broker or nominee 15. Account with the Department of The public 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. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (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. 2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at 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 ALL payments include the following: - A corporation. - A financial institution. - An organization exempt from tax under section 501(a), 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 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. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a). - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. 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. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. 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(a), 6045, and 6050A. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 1993, payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, 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) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an under-payment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) 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. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--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.A.7 8 JOINT PRESS RELEASE 1 EXHIBIT (a)(7) MERCK ACQUIRES SIBIA NEUROSCIENCES, INC., A CALIFORNIA-BASED BIOTECHNOLOGY FIRM; ACQUISITION AUGMENTS MERCK'S DRUG DISCOVERY PROGRAM WHITEHOUSE STATION, N.J. and LA JOLLA, Calif., Aug. 2 /PRNewswire/ -- Merck & Co., Inc., (NYSE: MRK), a research-driven pharmaceutical company, and SIBIA Neurosciences, Inc., (Nasdaq: SIBI), a leading company in the biology and chemistry of discovering drugs for central nervous system disorders, today announced they have entered into a definitive agreement under which Merck will acquire SIBIA for $8.50 per share in cash. Merck will commence a tender offer for SIBIA shares by Aug. 6. The transaction will total approximately $87 million. "Acquiring SIBIA will significantly enhance Merck's excellent basic research capability in the field of central nervous system disorders," said Bennett M. Shapiro, executive vice president of worldwide licensing and external research, Merck Research Laboratories. "SIBIA researchers, who are among the best in the biotechnology industry, have opened several avenues for potential scientific discovery, and now we can further exploit them together." William T. Comer, Ph.D., president, chief executive officer and director of SIBIA, said: "By joining Merck, we will gain significant scientific, technological and financial support to help exploit our broad drug discovery platform and bring our basic research discoveries to the market. Merck has a rich tradition of biomedical research, and we are proud to be joining it." Richard N. Kender, Merck vice president of corporate development, said: "In the search to discover and develop important medicines, Merck Research Laboratories relies on its strong internal capability, and complements that with external research collaborations. The acquisition of SIBIA strengthens our drug discovery research capability." "Merck already has a major CNS research facility in the United Kingdom and it has been very successful," Dr. Shapiro said. "SIBIA augments our already excellent CNS research and gives us a presence in the CNS research community in the United States." Upon closing of the agreement, SIBIA employees will become Merck employees. Merck intends to keep SIBIA's existing facilities in La Jolla, Calif. SIBIA stockholders owning approximately 33 percent of SIBIA's outstanding shares have committed to support the transaction and have entered into voting and option agreements, and SIBIA has granted Merck an option to purchase other SIBIA shares under certain conditions. The acquisition is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act and the acquisition of a majority of SIBIA shares by Merck, as well as other customary conditions. The two companies expect to complete the acquisition in September 1999. Founded in 1981, SIBIA is engaged in the discovery and development of novel small molecule therapeutics for the treatment of neurodegenerative, neuropsychiatric and neurological disorders. The company, which went public in 1996, is a leader in the development of proprietary drug discovery platforms and technologies. 1. 2 Merck is a global, research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human and animal health products, directly and through its joint ventures, and provides pharmaceutical benefit services through Merck-Medco Managed Care. SIBIA was represented by the investment banking firm CIBC World Markets. (For more information about the companies, visit http://www.sibia.com and http://www.merck.com.) 2. EX-99.A.8 9 PRESS RELEASE 1 EXHIBIT (a)(8) FOR IMMEDIATE RELEASE MERCK & CO. COMMENCES TENDER OFFER FOR SIBIA NEUROSCIENCES, INC. AT $8.50 PER SHARE WHITEHOUSE STATION, NJ, August 6, 1999 -- Merck & Co., Inc. announced today that a wholly owned subsidiary has commenced its previously announced tender offer for shares of common stock of SIBIA Neurosciences, Inc. (NASDAQ: SIBI). The tender offer, which is being made pursuant to an Agreement and Plan of Merger dated as of July 30, 1999, is scheduled to expire at 12:00 midnight, New York City time, on Thursday, September 2, 1999, unless extended. Following the consummation of the tender offer, Merck intends to complete a merger to acquire all of the remaining shares of SIBIA common stock that are not tendered in the offer. The Board of Directors of SIBIA has unanimously approved the tender offer, the merger and the other transactions contemplated by the Agreement and Plan of Merger, unanimously determined that the terms of the tender offer and merger are fair to and in the best interests of SIBIA's stockholders, and unanimously recommends that stockholders accept the offer and tender their shares pursuant to the offer. SIBIA stockholders owning approximately 33 percent of SIBIA's outstanding shares have committed to support the transaction and have entered into voting and option agreements, and SIBIA has granted Merck an option to purchase other SIBIA shares under certain conditions. The acquisition is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act and the acquisition of a majority of SIBIA shares by Merck, as well as other customary conditions. Norwest Bank Minnesota, N.A. will act as depositary for the tender offer and Morrow & Co., Inc. will act as information agent. Merck is a global, research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human and animal health products, directly and through its joint ventures, and provides pharmaceutical benefit services through Merck-Medco Managed Care. EX-99.C.1 10 AGREEMENT AND PLAN OF MERGER 1 EXHIBIT (c)(1) AGREEMENT AND PLAN OF MERGER among SIBIA NEUROSCIENCES, INC., MERCK & CO., INC. and MC SUBSIDIARY CORP. Dated as of July 30, 1999 2 Table of Contents
Section Page - ------- ---- ARTICLE I The Tender Offer...................................................................................... 2 1.1. The Offer........................................................................................... 2 1.2. SEC Filings......................................................................................... 3 1.3. Company Action...................................................................................... 5 1.4 Composition of the Company Board..................................................................... 5 ARTICLE II The Merger; Closing; Effective Time.................................................................. 6 2.1. The Merger.......................................................................................... 6 2.2. Closing............................................................................................. 7 2.3. Effective Time...................................................................................... 7 ARTICLE III Certificate of Incorporation and Bylaws of the Surviving Corporation................................ 7 3.1. The Certificate of Incorporation.................................................................... 7 3.2. The Bylaws.......................................................................................... 8 ARTICLE IV Officers and Directors of the Surviving Corporation.................................................. 8 4.1. Directors........................................................................................... 8 4.2. Officers............................................................................................ 8 ARTICLE V Effect of the Merger on Capital Stock; Exchange of Certificates....................................... 8 5.1. Effect on Capital Stock............................................................................. 8 5.2. Surrender and Payment............................................................................... 9 5.3. Adjustment of Merger Consideration.................................................................. 12 5.4. Merger Without Meeting of Stockholders.............................................................. 12 5.5. Treatment of Convertible Preferred Stock............................................................ 12 ARTICLE VI Representations and Warranties....................................................................... 12 6.1. Representations and Warranties of the Company....................................................... 13 6.2. Representations and Warranties of Parent and Merger Sub............................................. 30 ARTICLE VII Covenants........................................................................................... 33 7.1. Company Interim Operations.......................................................................... 33 7.2. Acquisition Proposals............................................................................... 35 7.3. Company Stockholder Approval; Proxy Statement....................................................... 37 7.4. Approvals and Consents; Cooperation................................................................. 39 7.5. Filings; Other Actions; Notification................................................................ 40 7.6. Access.............................................................................................. 40 7.7. De-registration..................................................................................... 41 7.8. Publicity........................................................................................... 41
-i- 3 7.9. Benefits............................................................................................ 41 7.10. Expenses........................................................................................... 43 7.11. Indemnification; Directors' and Officers' Insurance................................................ 43 7.12. Other Actions by the Company and Parent............................................................ 45 7.13. Convertible Preferred Stock........................................................................ 46 ARTICLE VIII Conditions......................................................................................... 46 8.1. Conditions to Each Party's Obligation to Effect the Merger.......................................... 46 ARTICLE IX Termination.......................................................................................... 47 9.1. Termination by Mutual Consent....................................................................... 47 9.2. Termination by Either Parent or the Company......................................................... 47 9.3. Termination by the Company.......................................................................... 48 9.4. Termination by Parent............................................................................... 49 9.5. Effect of Termination and Abandonment............................................................... 49 ARTICLE X Miscellaneous and General............................................................................. 51 10.1. Survival........................................................................................... 52 10.2. Modification or Amendment.......................................................................... 52 10.3. Waiver of Conditions............................................................................... 52 10.4. Counterparts....................................................................................... 52 10.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL...................................................... 52 10.6. Notices............................................................................................ 53 10.7. Entire Agreement................................................................................... 54 10.8. No Third Party Beneficiaries....................................................................... 55 10.9. Obligations of Parent and of the Company........................................................... 55 10.10. Severability...................................................................................... 55 10.11. Specific Performance.............................................................................. 55 10.12. Interpretation.................................................................................... 56 10.13. Assignment........................................................................................ 56 10.14. Captions.......................................................................................... 56
-ii- 4 AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated as of July 30, 1999, among SIBIA Neurosciences, Inc., a Delaware corporation (the "Company"), Merck & Co., Inc., a New Jersey corporation ("Parent"), and MC Subsidiary Corp., 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 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 (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 (as defined herein) not owned directly or indirectly by Parent or the Company will be converted into the right to receive the highest price per share in cash actually paid in the Offer; 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 and is recommending 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 Shares (as defined in Section 1.1(a)) under the terms and conditions set forth in the Stock Option Agreement; and 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 have made certain agreements with respect to the Shares held by them. 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 agree as follows: -1- 5 ARTICLE I The Tender Offer 1.1. The Offer. (a) Provided that this Agreement shall not have been terminated in accordance with Article IX hereof and none of the events set forth in Annex A hereto (the "Offer Conditions") shall be existing, within five Business Days of the date hereof, Merger Sub will commence a tender offer (the "Offer") for all of the outstanding shares of common stock, par value $0.001 per share, of the Company (each a "Share" or, collectively, the "Shares") at a price per Share of U.S. $8.50 net to the Seller in cash (such price, or any higher price paid in the Offer, the "Price Per Share") upon the terms and conditions set forth in this Agreement, including Annex A hereto. (b) The obligation of Merger Sub to accept for payment, purchase and pay for any Shares tendered pursuant to the Offer shall be subject only to the satisfaction or waiver of the Offer Conditions, including the Offer Condition that at least that number of Shares equivalent to a majority of the total issued and outstanding Shares 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 will not, without the prior written consent of the Company (such consent to be authorized by the Company Board) (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 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. 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 Securities Exchange Act of 1934, as amended (the "Exchange Act")) (the "Scheduled Expiration Date"); provided, however, that without the consent of the Company Board, 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) but in no event past 90 days from the date of this Agreement unless the waiting period applicable to the transactions contemplated by this Agreement under the HSR Act has not terminated or expired in which case not past the date set forth in Section 9.2(i), (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 three (3) Business Days and such extensions to be for an -2- 6 aggregate period of not more than ten (10) 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 issued and outstanding Shares. 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 60 business days after the commencement of the Offer, Merger Sub shall extend the Offer for one or more periods of not more than ten (10) Business Days each if requested to do so by the Company; provided that Merger Sub shall not be required to extend the Offer beyond 60 business days after commencement of the Offer or, if earlier, the date of termination of this Agreement in accordance with the terms hereof. 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 be obligated to purchase all Shares tendered and not validly withdrawn on the earliest date that all of the Offer Conditions are first satisfied or waived and shall 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 Scheduled Expiration Date 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 Stock Option Agreement and/or the Shareholders Agreement. 1.2. SEC Filings. (a) As soon as reasonably practicable after the execution of this Agreement, but in any event no later than the date of commencement of 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. Parent and Merger Sub agree, as to this Schedule 14D-l, the Offer to Purchase and related 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 -3- 7 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 which in accordance with Section 7.2 is a Superior Proposal. The Company shall file the Schedule 14D-9 with the SEC upon commencement of the Offer 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 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 CIBC World Markets Corp. has delivered to the Company Board a written opinion, as of the date hereof, that 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. -4- 8 1.3. Company Action. (a) In connection with the Offer, the Company shall promptly furnish Merger Sub with such information (including a list of the record holders of the Company 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 recent date), 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 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). (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 -5- 9 rules and regulations. (c) After the time that Merger Sub's designees constitute at least a majority of the Company Board and until the Effective Time, the Company Board shall always have at least two members (the "Independent Directors") who are neither officers of Parent nor designees, shareholders or affiliates of Parent or Parent's affiliates. During such period, any (i) amendment or termination of this Agreement, (ii) extension of time for the performance or waiver of the obligations or other acts of Parent or Merger Sub or waiver of the Company's rights hereunder or (iii) action by the Company with respect to this Agreement and the transactions contemplated hereby which adversely affects the interests of the stockholders of the Company, shall require the approval of a majority of the Independent Directors in addition to any required approval thereof by the full Company Board. Notwithstanding the foregoing, any amendment or withdrawal by the Company's Board of its recommendation of the Merger pursuant to Section 7.3(a) shall require only the approval of the Independent Directors, and no other action on the part of the Company or any other director of the Company shall be required to authorize or approve such matter. If the number of Independent Directors shall be reduced below two for any reason whatsoever, any remaining Independent Director shall be entitled to designate a person to fill the vacancy, which designee shall not be a current or former officer, affiliate of Parent or any of Parent's affiliates, or, if no Independent Directors then remain, the other directors shall designate two persons to fill such vacancies who shall not be current or former officers, affiliates of Parent or any of Parent's affiliates, and such persons shall be deemed to be Independent Directors for purposes of this Agreement. The Company Board shall not delegate any matter set forth in this Section 1.4(c) to any committee of the Company Board. 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 and the separate corporate existence of Merger Sub shall thereupon cease. 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, and the separate corporate existence of the Company with all its rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger, except as set forth in Articles III and IV. 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 Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New -6- 10 York, New York 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 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"). ARTICLE III Certificate of Incorporation and Bylaws of the Surviving Corporation 3.1. The Certificate of Incorporation. The certificate of incorporation of Merger Sub as in effect immediately prior to the Effective Time shall be the certificate of incorporation of the Surviving Corporation (the "Charter"), except that Article FIRST of the Charter shall be amended to provide that the name of the Surviving Corporation shall be the name of the Company. 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 -7- 11 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. 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 Capital Stock; Exchange of Certificates 5.1. Effect on Capital Stock. 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: (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 of Parent (collectively, the "Parent Companies"), (B) Dissenting Shares (as defined below), (C) or 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. (b) Cancellation of Excluded Shares. Each Excluded Share issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, cease to be outstanding, shall be canceled and retired without payment of any consideration therefor and shall cease to exist. (c) Merger Sub. As of and following 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. -8- 12 5.2. Surrender and Payment. (a) Exchange Agent. 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 "Exchange Agent") 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 Exchange Agent 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 Exchange Agent 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 Exchange Agent to mail to each holder of record of a certificate or certificates (the "Certificates") which immediately prior to the Effective Time represented outstanding Shares, other than shares to be canceled in accordance with Section 5.1(b), (i) a Letter of Transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent) and (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 Exchange Agent, together with such Letter of Transmittal, duly executed, and such other documents as may reasonably be required by the Exchange Agent, the Exchange Agent 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 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 Exchange Agent 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 Exchange Agent that such tax has been paid or is not payable. Until surrendered as contemplated by this Section 5.2, each Certificate -9- 13 (other than Certificates representing Dissenting Shares (as defined below) 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 Company 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 Exchange Agent 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 Exchange Agent pursuant to Section 5.2(a) that remains unclaimed by holders of the Certificates for six 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 Exchange Agent 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 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 Exchange Agent in obligations of, or guaranteed by, the United States of America, in commercial paper obligations rated A-l or P-l or better by Moody's Investor Services or Standard & Poor's Corporation, respectively, in each case with maturities not exceeding seven days. 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 Exchange Agent, with respect to such -10- 14 Certificate, the Exchange Agent 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. (h) 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 has demanded appraisal for such shares in accordance with the DCCL (the "Dissenting Shares"), 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. 5.3. 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 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 Purchaser, shall acquire at least 90 percent 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. 5.5. Treatment of Convertible Preferred Stock. The Convertible Preferred Stock (as defined in Section 6.1(b)) shall be treated as set forth in Section 7.13. 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 set forth in the Company Reports (as defined in Section 6.1(e)) or in the Disclosure Schedule delivered -11- 15 to Parent on the date of this Agreement (the "Company Disclosure Schedule"), as follows: (a) Organization, Good Standing and Qualification. Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing (where such concept is recognized) under the laws of its respective jurisdiction of organization and has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as presently conducted and is qualified to do business and is in good standing as a foreign corporation 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 materially 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 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 a majority of the securities or ownership interests having by their terms ordinary voting power to elect a majority 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 Company's 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 generally affecting the industry in which the Company operates or arising from changes in general business or economic conditions, (iii) any adverse conditions, events, circumstances, changes or effects attributable to expenses (including without limitation legal, accounting and financial consulting fees and expenses) incurred in connection with the transactions contemplated by this Agreement, -12- 16 (iv) any conditions events, circumstances, changes or effects resulting from any change in law or generally accepted accounting principles, which affect generally entities such as the Company, or (v) 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 or (vi) any event or condition referred to on Schedule 6.1(a). (b) Capital Structure. The authorized capital stock of the Company consists of 25,000,000 Shares, of which only 9,703,769 Shares were outstanding as of the close of business on July 23, 1999, and 5,000,000 shares of Preferred Stock, par value $0.001 per share (the "Preferred Shares"), of which 150,000 shares have been designated Series A Junior Participating Preferred Stock, none of which were outstanding as of the close of business on July 23, 1999, one share has been designated as Series B Convertible Preferred Stock, which share was outstanding as of the close of business on July 23, 1999. All of the outstanding Shares have been duly authorized and are validly issued, fully paid and nonassessable. Other than Shares reserved for issuance pursuant to the Stock Option Agreement, the Company has no Shares or Preferred Shares subject to issuance, except (i) 150,000 Preferred Shares, designated Series A Junior Participating Preferred Stock, subject to issuance upon exercise of the Rights (the "Rights") issued pursuant to the Rights Agreement, dated as of March 17, 1997 (the "Rights Agreement"), between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, (ii) one share of Series B Convertible Preferred Stock, which was outstanding as of July 23, 1999, (iii) 2,513,141 shares reserved for issuance under the Company's 1996 Equity Incentive Plan, as amended, of which options to acquire 1,057,205 shares are outstanding as of July 23, 1999, (iv) 500,000 shares reserved for issuance under the Company's Employee Stock Purchase Plan, of which 416,581 shares are available for purchase as of July 23, 1999, (v) 235,000 shares reserved for issuance under the Company's 1996 Non-Employee Directors' Stock Option Plan, of which options to acquire 65,000 shares are outstanding as of July 23, 1999, (vi) 219,304 shares reserved for issuance under the Company's Amended and Restated 1992 Stock Option and Restricted Stock Plan, of which options to acquire 219,304 shares are outstanding as of July 23, 1999, (vii) 205,487 shares outstanding under the Management Change of Control Plan and (viii) 1,410 shares outstanding under the 1981 Employee Stock Option Plan. The Company Disclosure Schedule sets forth a correct and complete list of each outstanding option to purchase Shares under the Stock Plans, as defined below (each a "Company Option"), as of July 23, 1999, including the holder, date of grant, exercise price and number of Shares subject thereto. As of July 23, 1999, there are no shares of capital stock of the Company authorized, issued or outstanding 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 -13- 17 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 1996 Equity Incentive Plan, 1996 Non-Employee Directors' Stock Option Plan, Employee Stock Purchase Plan, the Amended and Restated 1992 Stock Option and Restricted Stock Plan and Management Change of Control Plan and the 1981 Employee Stock Option Plan (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 July 23, 1999. No Shares, Preferred Shares or other securities of the Company, the Surviving Corporation, Parent or any of their respective affiliates will be subject to issuance pursuant to the Rights Agreement as a result of the Offer, the Merger or the other transactions contemplated by this Agreement, the Stock Option Agreement and the Shareholders Agreement and no Distribution Date or Shares Acquisition Date (as such terms are defined in the Rights Agreement) shall have occurred as a result of the Offer, the Merger or the other transactions contemplated by this Agreement, the Stock Option Agreement or the Shareholders 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 including, without limitation, standards of materiality, good faith, fair dealing and reasonableness, whether such principles are considered in a proceeding of law or in equity. (ii) The Company Board has, at a meeting duly called and held, (A) unanimously approved this Agreement and the Stock Option Agreement, the Offer and the Merger and the transactions contemplated hereby in accordance with the DGCL, (B) determined that the Offer and the Merger are fair to and in the best interests of the Company's stockholders, and (C) recommended that the stockholders of the Company tender their shares of Company Common Stock into the Offer and adopt this Agreement. -14- 18 (d) Governmental Filings; No Violations. (i) Other than any filings and/or notices required (A) pursuant to Section 2.3, (B) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") the Exchange Act and state securities or "blue sky" laws and (C) such filings or consents, registrations, approvals, permits or authorizations as may be required under the competition or antitrust laws of jurisdictions outside the United States, no notices or other filings are required to be made with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by the Company from, any U.S. 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) Except as set forth in Schedule 6.1(d) (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 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) or (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 and 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 exception set forth with respect to clause (B) or (C) above) 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, securities or the guarantee thereof) the failure to obtain which is not reasonably likely to have a Company Material Adverse Effect. -15- 19 (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 December 31, 1996, including, without limitation, (i) the Company's Annual Report on Form 10-K for the year ended December 31, 1998, (ii) the Company's Quarterly Report for the quarter ended March 31, 1999, as amended, (iii) the Company's Proxy Statement filed on April 12, 1999, all in the form (including exhibits, annexes and any amendments thereto) filed with the SEC. Except as set forth in Schedule 6.1(e), as of their respective dates, the Company Reports did not, and any Company Reports filed with the SEC prior to the expiration 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 consolidated balance sheets included in or incorporated by reference into the Company Reports (including the related notes and schedules) presents fairly, or will present fairly, in all material respects, the consolidated financial position of the Company and its Subsidiaries as of its date and each of the consolidated 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, in all material respects, 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 (v) 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 the Audit Date (as defined in Section 6.1(f)). (f) Absence of Certain Changes. Except as disclosed in the Company Reports filed prior to the date of this Agreement or in Schedule 6.1(f), since December 31, 1998 (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 of which the Company has knowledge 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 -16- 20 respect to any material asset or property owned, 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) other than as set forth in Schedule 6.1(f), any material 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 July 23, 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 as disclosed in Schedule 6.1(g) or as disclosed in the Company Reports filed prior to the date of this Agreement, and 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, the Stock Option Agreement and the License Agreement, there are no (i) civil, criminal, administrative or regulatory actions, suits, claims, hearings, investigations or proceedings pending or, to the knowledge of the Company, overtly 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)). (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 Subsidiaries (the "Compensation and Benefit Plans") or with respect to which the Company or any of its Subsidiaries may have any liability. 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 Subsidiaries (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 embodying the Compensation and Benefit Plans, including written interpretations thereof, and such other benefit plans, agreements, policies or arrangements, including, but not limited to, any -17- 21 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. (ii) The Compensation and Benefit Plans have been administered in compliance with their terms and all applicable law, except where the failure to administer in compliance would not have or be reasonably likely to have a Company Material Adverse Effect. 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, to the knowledge of the Company, threatened, litigation, audit or investigation relating to any Compensation and Benefit Plan. Neither the Company nor any of its Subsidiaries 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 in an amount which would be material. (iii) Neither the Company nor any of its Subsidiaries has, nor has ever had, any obligation or liability with respect to an employee benefit plan which is subject to Title IV of ERISA. There is no entity (other than the Company or any of its Subsidiaries) which is or was considered one employer with the Company or any of its Subsidiaries under Section 4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate"). 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. (iv) Except as set forth in Schedule 6.1(h)(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. (v) Neither the Company nor any of its Subsidiaries has any obligations for retiree health and life benefits under any Compensation and Benefit Plan, except as set forth on Schedule 6.1(h)(v). The Company or its Subsidiaries may amend or terminate any Compensation and Benefit Plan at any time without incurring any material liability thereunder. (vi) Except as set forth on Schedule 6.1(h)(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 -18- 22 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. (i) Compliance. Except as set forth in Schedule 6.1(i), neither the Company nor any of its Subsidiaries is in default or violation of, (i) 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 (ii) 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, are not reasonably likely to have a Company Material Adverse Effect, or prevent or materially delay the transactions contemplated by this Agreement. To the knowledge of the Company, no material 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 material Laws, and the Company has not received any notice or overt communication of any material noncompliance with any such material Laws that has not been cured. (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 similar 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 hereby or thereby. (k) Environmental Matters. Except as disclosed in the Company Reports filed with the Commission to the date of this Agreement or in Schedule 6.1(k) and except as would not have or be reasonably likely to have a Company Material Adverse Effect, (i) the Company and its Subsidiaries have complied in all material respects at all times with all applicable Environmental Laws; (ii) to the knowledge of the Company, 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 knowledge of the Company, 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 knowledge of the Company, neither the Company nor any of its Subsidiaries is subject to liability for any release or threat of release of any Hazardous Substance; (v) -19- 23 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 knowledge or the Company, 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 knowledge of the Company, 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 or made available 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 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 CIBC World Markets Corp. to the effect that, 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, and any consolidated, combined or unitary group for tax purposes of which the Company or any of its Subsidiaries is or has been a member, has timely filed all Tax Returns required to be filed by it in the manner provided by law except where the failure to have so filed would not have or be reasonably likely to have a Company Material Adverse Effect. All -20- 24 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. Except as has been disclosed to Parent in Schedule 6.1(m): (i) no material claim for unpaid Taxes 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 to the knowledge of the Company, threatened by a Tax authority; (iii) no material 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; (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 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; (viii) neither the Company nor any of its Subsidiaries has any deferred intercompany gain or loss arising as a result of a deferred intercompany transaction within the meaning of Treasury Regulation Section 1.1502-13 (or similar provision under state, local or foreign law) or any excess loss accounts within the meaning of Treasury Regulation Section 1.1502-19; (ix) 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; (x) neither the Company nor any of its Subsidiaries has been the subject to a Tax ruling that has continuing effect; and (xi) neither the Company nor any of its Subsidiaries has 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. -21- 25 "Tax Return" means any return, report or statement required to be filed with any governmental authority with respect to Taxes. (n) Certain Regulatory Matters. (i) Schedule 6.1(n) sets forth a complete and accurate list for the last five years, of (a) all Warning Letters (as defined below), Section 305 notices and similar letters or notices issued by the Food and Drug Administration (the "FDA") or any other governmental entity, domestic or foreign, that is concerned with the quality, identity, strength, purity, safety, efficacy, marketing or manufacturing of the pharmaceutical compounds or products tested or sold by the Company or its Subsidiaries (any such governmental entity, a "Pharmaceutical Regulatory Agency") to the Company or any of its Subsidiaries; (B) all United States product problem reporting program complaints or reports, MedWatch form FDA-3500A, FDA-1639 or Form CIMOS I filed by the Company or any of its Subsidiaries, which complaints or reports pertain to any incident involving death or serious injury, and for which incident there has been (I) a notice or follow-up inquiry to the Company or any of its Subsidiaries by the FDA, (II) a litigation or arbitration claim or cause of action commenced, or (III) a notice to any insurance carrier of the Company or any of its Subsidiaries tendering the defense or giving any notice of a possible or actual claim against the Company or such subsidiary; (C) all product recalls conducted by or issued to the Company or any of its Subsidiaries and any requests from the FDA or any other Pharmaceutical Regulatory Agency requesting the Company or any of its Subsidiaries to cease to investigate, test or market any compound or product; and (D) any civil penalty actions begun by the FDA or any other Pharmaceutical Regulatory Agency against the Company or any of its Subsidiaries and all consent decrees and all documents relating to the negotiation of and compliance with such consent decree issued with respect to the Company or any of its Subsidiaries. The Company has made available to Parent copies of all documents referred to in Schedule 6.1(n) and any other written communications between the Company or any of its Subsidiaries, on the one hand, and the FDA or any other Pharmaceutical Regulatory Agency on the other hand that describe matters that could have a material adverse effect on the projected sales or revenues attributable to any compound, product or product line of the Company or its Subsidiaries or discuss material issues concerning the quality, identity, strength, purity, safety or efficacy of any such compound, product or product line as well as copies of all complaints and other information required to be maintained by the Company pursuant to the United States Federal Food, Drug and Cosmetic Act and Comprehensive Drug Abuse Prevention and Control Act of 1970 and the corresponding laws of jurisdictions other than the United States. For purposes of this subparagraph (i), "Warning Letter" means a letter characterized by the FDA or any other Pharmaceutical Regulatory Agency as a warning letter, a notice of adverse finding, observation of noncompliance or a similar letter or report in which FDA or any other Pharmaceutical Regulatory Agency expresses the opinion that violations of law, regulation or guideline have occurred. -22- 26 (ii) With such exceptions as will not have or be reasonably likely to have a Company Material Adverse Effect and except as set forth in Schedule 6.l(n), (A) the Company (or, if applicable, one of its Subsidiaries) has obtained all consents, approvals, certifications, authorizations and permits of, and has made all filings with, or notifications to, all Pharmaceutical Regulatory Agencies pursuant to applicable requirements of all FDA regulations and consent decrees, and all applicable state and foreign laws, and regulations applicable to the Company or any of its Subsidiaries; (B) all representations made by the Company or any of its Subsidiaries in connection with any such consents, approvals, certifications, authorizations, permits, filings and notifications were true and correct in all material respects at the time such representations and warranties were made, and the Company's compounds and products, and the compounds and products of its Subsidiaries, substantially comply with, and perform in accordance with the specifications described in, such representations; (C) the Company and its Subsidiaries and their respective products and all of the facilities and entities which manufacture such compounds and products, are in substantial compliance with all applicable FDA rules, regulations and consent decrees, and all applicable state and foreign laws, rules and regulations (including Good Manufacturing Practices) relating to pharmaceutical manufacturers and distributors or otherwise applicable to the Company's or its Subsidiaries' business; and (D) the Company has no reason to believe that any of the consents, approvals, authorizations, registrations, certifications, permits, filings or notifications that it or any of its Subsidiaries has received or made to operate their respective businesses have been or are being revoked or challenged. (o) Intellectual Property. (i) Set forth in Schedule 6.1(o)(i) is a complete list of each of the following items (1) 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"), (2) all licenses, agreements and contracts relating to the Company Intellectual Property (as defined in Section 6.1(o) (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 (3) all agreements under which the Company or any of its Subsidiaries has granted any third party the right to use any Company Intellectual Property, including the unexpired material transfer agreements. (ii) Except to the extent identified in Schedule 6.1(o)(ii) and except for any failures of this representation and warranty to be true and accurate that have or would be reasonably likely to have a Company Material Adverse Effect that arise from instances involving the infringement by the Company or its Subsidiaries on the intellectual property rights of others or the infringement by others on intellectual property rights of the Company or its Subsidiaries of which, in either such case, the Company does -23- 27 not have any knowledge after due investigation, 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, 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) Except to the extent identified in Schedule 6.1(o)(iii), the Company and its Subsidiaries are the sole legal and beneficial owners of all the Company Intellectual Property (except for the Company Intellectual Property that is the subject of any Third Party Licenses) and all the Company Intellectual Property is valid and subsisting. (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 materially affect the Company Intellectual Property or materially 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(o)(i) and furnished or made available to Parent prior to the date of this Agreement. (v) Except as listed in Schedule 6.1(o)(v), to the knowledge of the Company, the Company and its Subsidiaries are in compliance in all material respects with the Third Party Licenses that are material to the conduct of the business of the Company. (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. Except as indicated in Schedule 6.1(o)(vi), the rights of the Company or any of its Subsidiaries to the Company Intellectual Property will not be affected by the execution, delivery or -24- 28 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. (viii) Except as listed in Schedule 6.1(o)(viii), all registrations and filings relating to the Company Owned IP are in good standing. All maintenance and renewal fees necessary to preserve the rights of the Company in respect of the Company Owned IP have been made. Except as indicated in Schedule 6.1(o)(viii), the registrations and filings relating to the Company Owned IP are proceeding and there are no material facts of which the Company has knowledge after due investigation which could significantly undermine those registrations or filings or reduce to a significant extent the scope of protection of any patents arising from such applications. (ix) 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 or proposes to conduct such activities, to the knowledge of the Company after due investigation, does not and would 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. (x) Except for the matters set forth in Schedule 6.1(o)(x), there are no allegations, claims or proceedings instituted or pending 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 or pending by any third party challenging the ownership, priority, scope or validity or effectiveness of any Company Intellectual Property. (xii) To the knowledge of the Company, there are no Intellectual Property Rights of any third party that have been or would be infringed by the identification, manufacture, marketing, distribution and sale and use of any products that have been identified for development by the Company. (xiii) To the knowledge of the Company, there are no Intellectual Property Rights of any third party that would be infringed by the continued practice of any technologies previously used or presently in use by the Company. -25- 29 (xiv) To the knowledge of the Company, except for the matters set forth in Schedule 6.1(o)(xiv) or 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) Except for the matters set forth in Schedule 6.1(o)(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, (1) 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 (2) 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(o) (xvi) whose involvement in the business of the Company is described with specificity therein. (p) Product Registration Files. The product registration files and dossiers of the Company and its Subsidiaries have been maintained in accordance with reasonable industry standards. The Company and each of its Subsidiaries has in its possession copies of all the material documentation filed in connection with filings made by the Company or any of its Subsidiaries for regulatory approval or registration of the compounds and products of the Company or any of its Subsidiaries, as the case may be. To the knowledge of the Company, the filings made by the Company and its Subsidiaries for regulatory approval or registration of the products of the Company or any of its Subsidiaries did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading. (q) Year 2000 Compliance. Schedule 6.1(q) contains the Company's Year 2000 plan, which indicates the actions to be taken pursuant to such plan that have been completed as of the date of this Agreement and the actions to be taken pursuant to such plan that have not been completed as of the date of this Agreement and the aggregate expense expected to be incurred by the Company in connection with the actions to be -26- 30 taken pursuant to such plan that have not been completed as of the date of this Agreement. (r) Labor Matters. Neither the Company nor any of its Subsidiaries is a party to or otherwise bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is the Company or any of its Subsidiaries the subject of any material proceeding asserting that the Company or any of its Subsidiaries has committed an unfair labor practice or is seeking to compel it to bargain with any labor union or labor organization nor is there pending or, to the knowledge of the Company, threatened, any labor strike, walkout, work stoppage, slow-down or lockout involving the Company or any of its Subsidiaries. (s) Rights Agreement. The Company has irrevocably amended the Rights Agreement to provide that neither Parent nor Merger Sub nor any of their respective affiliates shall be deemed to be an Acquiring Person (as such term is defined in the Rights Agreement), that neither a Distribution Date nor a Shares Acquisition Date (as each such term is defined in the Rights Agreement) shall be deemed to occur, and the Rights will not separate from the Shares, as a result of the execution, delivery or performance of this Agreement, the Stock Option Agreement or the Shareholders Agreement or the consummation of the Offer and the Merger or the other transactions contemplated hereby or thereby, and that none of the Company, Parent, Merger Sub, nor the Surviving Corporation, nor any of their respective affiliates, shall have any obligations under the Rights Agreement to any holder (or former holder) of Rights as of and following the consummation of the Offer and/or the Effective Time. (t) Brokers and Finders. Except as disclosed in Schedule 6.1(t), 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 CIBC World Markets Corp. as its financial advisor, the arrangements with which have been disclosed to Parent prior to the date hereof. (u) Supply Arrangements. As of the date of this Agreement, to the Company's knowledge, there are no facts or circumstances that have materially adversely affected or are reasonably likely to materially adversely affect the continued supply (either for clinical purposes or in bulk) of the active ingredients of the compounds of the Company and its Subsidiaries currently used in clinical trials. (v) Investigational Compounds. As of the date of this Agreement, to the Company's knowledge, there are no facts or circumstances that have materially adversely affected or that management of the Company has determined are reasonably likely to -27- 31 materially adversely affect the commercialization of its compounds, other than factors that are generally applicable to the development and commercialization of pharmaceutical compounds that are not specific to the Company or such compounds. (w) Certain Agreements. (i) All contracts listed as an exhibit to the Company's Annual Report on Form 10-K 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(w)) (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 Material Adverse Effect on the Company. 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 Material Adverse Effect on the Company. To the knowledge of the Company, 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 Material Adverse Effect on the Company. 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(w). (x) Schedule 14D-9; Offer Documents. Neither the Schedule 14D-9, any other document 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, 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 -28- 32 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. (y) 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 affirmative vote of the holders of a majority of the outstanding shares of Common Stock (the "Company Requisite Vote"). 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 Schedule delivered to the Company on the date of this Agreement (the "Parent Disclosure Schedule"), as follows: (a) Capitalization of Merger Sub. The authorized capital stock of Merger Sub consists of one thousand (1,000) shares of Common Stock, par value $.01 per share, all of which are validly issued and outstanding. All of the issued and outstanding capital stock of Merger Sub is, and upon the consummation of the Offer and at the Effective Time will be, owned by Parent, and there are (i) no other shares of capital stock or other voting securities of Merger Sub, (ii) no securities of Merger Sub convertible into or exchangeable for shares of capital stock or voting securities of Merger Sub and (iii) no options or other rights to acquire from Merger Sub, and no obligations of Merger Sub to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of Merger Sub. Merger Sub has not conducted any business prior to the date hereof and has no, and prior to the Effective Time will have no, assets, liabilities or obligations of any nature other than those incident to its formation and pursuant to this Agreement, the Offer and the Merger and the other transactions contemplated by this Agreement. (b) Organization, Good Standing and Qualification. Each of Parent and its Subsidiaries is a corporation duly organized, validly existing and in good standing (where such concept is recognized) under the laws of its respective jurisdiction of organization and has all requisite corporate or similar power and authority to own and operate its properties and assets and to carry on its business as presently conducted and is qualified to do business and is in good standing as a foreign corporation 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 prevent, materially delay or materially impair the ability of Parent and Merger Sub to consummate the transactions contemplated by this -29- 33 Agreement, the Stock Option Agreement and the Shareholders Agreement. Parent has made available to the Company a complete and correct copy of Parent's and Merger Sub's certificate of incorporation and bylaws, as amended to the date hereof. Parent's and Merger Sub's certificate of incorporation and bylaws so delivered are in full force and effect. (c) 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 shareholders 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 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. The Stock Option Agreement is a valid and binding agreements of Parent enforceable against Parent in accordance with its respective terms. (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 the Exchange Act and (C) such filings or consents, registrations, approvals, permits or authorizations as may be required under the laws of the competition or antitrust laws of jurisdictions outside the United States, 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 delivery of the Stock Option Agreement and the License Agreement by Parent or 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 License 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 and Merger Sub or the comparable governing instruments of any of its Subsidiaries, (B) a breach or violation of, or a default under, the acceleration of or the creation of a lien, pledge, security interest or other encumbrance on -30- 34 the assets of Parent or any of its Subsidiaries (with or without notice, lapse of time or both) pursuant to, any Contracts binding upon Parent or any of its Subsidiaries or any Law or governmental or non-governmental permit or license to which Parent 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) 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. (e) Litigation. Except as disclosed in the Parent Reports filed prior to the date hereof, and except for matters which are not, individually or in the aggregate, 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, the Stock Option Agreement and the License Agreement, there are no civil, criminal, administrative or regulatory actions, suits, claims, hearings, investigations or proceedings pending or, to the knowledge of Parent, overtly threatened against Parent or any of its Subsidiaries. (f) Compliance. Neither Parent nor any of its Subsidiaries is in default or violation of, (i) any Law applicable to Parent or any of its Subsidiaries or by which its or any of their respective properties are bound, or (ii) any Contract to which Parent or any or its Subsidiaries is a party or by which Parent 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, are 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. (g) 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 Merger or the other transactions contemplated by this Agreement, the Stock Option Agreement or the Shareholders Agreement. (h) Financing. Parent will have 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. (i) Offer Documents. The Offer Documents and any other documents to be filed by Parent with the SEC or any other Government Entity in connection with 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 Securities Act or the Exchange Act) comply as to form in all material respects with applicable provisions -31- 35 of the Exchange Act and the Securities Act, respectively, 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 respective times the Offer Documents or any amendments and supplements thereto, any such other filings by Parent or Purchaser 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. ARTICLE VII Covenants 7.1. Company Interim Operations. Except as set forth in the document entitled "Schedule 7.1" furnished to the Company by Parent prior to the execution and delivery of this Agreement, 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 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 or amend, modify or terminate the Rights Agreement, except as set forth in Section 6.1(s) hereof; (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, redeem or otherwise acquire, except in connection with the -32- 36 Stock Plans, 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 (A) the issuance of Shares pursuant to options outstanding on the date of this Agreement under the Stock Plans and the issuance of Shares under the Company's Employee Stock Purchase Plan and (B) the issuance of Shares upon conversion of Convertible Preferred Stock outstanding on the date of this Agreement); (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 or entity in each case, involving amounts in excess of $100,000 in the aggregate other than in the ordinary and usual course; (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, including adding new participants to the Company's Management Change of Control Plan 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 its 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; -33- 37 (g) except as may be required as a result of a change in law or in generally accepted accounting principles, 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); (i) it shall not suffer or permit capital expenditures made or incurred by the Company and its Subsidiaries for any period to exceed $100,000 except for expenses incurred in connection with the transactions contemplated by this Agreement; and (j) neither it nor any of its Subsidiaries will offer to, or enter into an agreement to, do any of the foregoing. 7.2. Acquisition Proposals. The Company shall, and shall use its best efforts to cause its nonstockholder affiliates and the officers, directors and employees of the Company and its Subsidiaries to, and shall instruct its stockholder affiliates and the 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 more than 20% of the 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. Except as set forth in this Section 7.2, the Company shall not, and shall use its best efforts to cause its nonstockholder affiliates and the officers, directors and employees of the Company and its Subsidiaries not to, and shall instruct its stockholder affiliates and the 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, knowingly 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" (it being understood that an -34- 38 Acquisition Proposal that is conditioned upon the completion of due diligence shall be deemed to constitute a bona fide Acquisition Proposal if such proposal otherwise meets the definition of Acquisition Proposal)) or otherwise knowingly facilitate any effort or attempt to make or implement an Acquisition Proposal; provided, however, that prior to the Merger Sub beneficially owning a majority of the then outstanding Shares, 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 hereof which was not knowingly 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 hereof 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 of the Company determines in good faith, (A) after consultation with outside counsel to the Company to the effect 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, is reasonably likely to constitute a breach of such board's fiduciary duties under applicable law, 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, is reasonably likely to 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 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 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 or entity making such bona fide written Acquisition Proposal an executed confidentiality agreement the terms of which are (without regard to the terms of such Acquisition Proposal) (A) no less favorable to the Company, and (B) no less restrictive to the person or entity making such bona fide written Acquisition Proposal than those contained in the Confidentiality Agreement, dated as of June 21, 1999, referring to Parent as the "Recipient" (the "Company Confidentiality Agreement"), between the Company and Parent. 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 48 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 -35- 39 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 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 or entity 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. The Company will inform the individuals or entities referred to in the first sentence of this Section 7.2 of the obligations undertaken in this Section 7.2. The Company also will promptly request each person or entity which has executed, within 12 months prior to the date of this Agreement, a confidentiality agreement in connection with its consideration of acquiring the Company to return or destroy all confidential information heretofore furnished to such person or entity by or on behalf of the Company. 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 stockholders (the "Company Stockholders Meeting") for the purpose of voting upon 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 is a Superior Proposal. The record date for the Company Stockholders Meeting shall be a date subsequent to the date on which Parent or Merger Sub becomes the 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 90% of the outstanding Shares and outstanding Preferred Stock, 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 -36- 40 "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 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. 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 -37- 41 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 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. 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 (including, without limitation, the FDA) 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. 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 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. 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. Subject to applicable Laws relating to the exchange of -38- 42 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 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. 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 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 -39- 43 extent required by, and in accordance with, the provisions of the Company Confidentiality Agreement which shall remain in full force and effect. 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 the Company and Parent, and thereafter the Company and Parent shall consult with each other 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. 7.9. Benefits. (a) Stock Options. (i) At the Effective Time, each outstanding Company Option under the Stock Plans, whether vested or unvested, shall be deemed to constitute an option to acquire (a "New Parent Option"), on the same terms and conditions as were applicable under such Company Option, the number of shares of Common Stock of Parent (rounded to the nearest whole number) equal to the product of (A) the number of Shares issuable upon exercise of such Company Option and (B) the Price Per Share divided by the average of the closing sales prices of Common Stock of Parent on the New York Stock Exchange for the ten (10) consecutive days immediately prior to and including the day preceding the Effective Time, at an exercise price per share (rounded to the nearest whole cent) equal to (x) the aggregate exercise price for the Shares otherwise purchasable pursuant to such Company Option divided by (y) the aggregate number of shares of Common Stock of Parent purchasable pursuant to the New Parent Option (as calculated immediately above); provided, however, that in the case of any Company Option to which Section 422 of the Code applies, the option price, the number of shares purchasable pursuant to such option and the terms and conditions of exercise of such option shall be determined in accordance with the foregoing, subject to such adjustments as are necessary in order to satisfy the requirements of Section 424(a) of the Code. At or prior to the Effective Time, the Company shall take all necessary actions to permit the assumption of the unexercised Company Options by Parent pursuant to this Section and shall take all action necessary to cause the funds held in the Company's Employee Stock Purchase Plan to be used to purchase outstanding Shares through open market transactions so that such Shares will be converted into the right to receive cash in the Merger; provided that thereafter the Company shall terminate the Company's Employee Stock Purchase Plan. -40- 44 (ii) Effective at the Effective Time, Parent shall assume, as a New Parent Option, each outstanding Company Option in accordance with this Section and with the terms of the Stock Plan under which it was issued and the stock option agreement by which it is evidenced. Not later than thirty calendar days after the Closing Date, Parent shall file a registration statement under the Securities Act of 1933 on Form S-8, or other appropriate form, covering shares of Parent Common Stock subject to such New Parent Options. (b) Employee Benefits. Parent agrees that during the period commencing at the Effective Time and ending on the first anniversary thereof, the Employees will continue to be provided with benefits under employee benefit 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 currently provided by the Company to such Employees. Parent will cause each employee benefit plan of Parent in which Employees are eligible to participate to take into account for purposes of eligibility and vesting thereunder the service of such Employees with the Company as if such service were with Parent, 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 the Parent participating in the relevant plan. For the first plan year ending after the Effective Time, any pre-existing condition exclusion under any Purchase Benefit Plan providing medical or dental benefits shall be no more restrictive for any Employee who, immediately prior to commencing participation in such Purchaser Benefit Plan, was participating in a Company Benefit Plan providing medical or dental benefits and had satisfied any pre-existing condition provision under such Company Benefit Plan. Any expenses that were taken into account under a Company Benefit Plan providing medical or dental benefits in which the Employee participated immediately prior to commencing participation in a Purchaser Benefit Plan providing medical or dental benefits shall be taken into account to the same extent under such Purchaser Benefit Plan, in accordance with the terms of such Purchaser Benefit Plan, for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions and life-time benefit limits. Parent will, and will cause the Surviving Corporation to, honor in accordance with their terms (i) all employee benefit obligations to Employees accrued as of the Effective Time and (ii) to the extent set forth on Schedule 6.1(h)(i), all employee severance plans in existence on the date hereof and all employment or severance agreements entered into prior to the date hereof. 7.10. Expenses. The Surviving Corporation shall pay all charges and expenses, including those of the Exchange Agent, 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 -41- 45 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 the earliest date on which Merger Sub owns at least a majority of the outstanding Shares on a fully diluted basis, Parent agrees that it will indemnify, defend and hold harmless each individual and every person who is or was a director or officer of the Company or any of its Subsidiaries prior to the Effective Time (the "Indemnified Parties"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement (collectively, "Costs") incurred in connection with any claim, action, suit, proceeding, inquiry or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the Effective Time (including transactions contemplated by this Agreement), whether asserted or claimed prior to, at or after the Effective Time (and Parent shall also advance expenses as incurred to the fullest extent permitted under applicable law, provided the Person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such Person is not entitled to indemnification). (b) From and after the earliest date on which Merger Sub owns at least a majority of the outstanding Shares on a fully diluted basis, Parent will cause the Surviving Corporation to fulfill and honor in all respects the obligations of the Company pursuant to each indemnification agreement listed in Schedule 7.11(b) and any indemnification provision or any exculpation provision set forth in the Company's certificate of incorporation or bylaws in effect on the date hereof. The certificate of incorporation and bylaws of the Surviving Corporation shall contain the provisions with respect to indemnification and exculpation from liability set forth in the Company's certificate of incorporation and bylaws on the date of this Agreement, and during the period commencing on the earliest date in which Merger Sub purchases Shares pursuant to the Offer and ending on the sixth anniversary of the Effective Time, such provisions shall not be amended, repealed or otherwise modified in any manner that would adversely affect the rights thereunder of any of the Indemnified Parties. (c) Any Indemnified Party wishing to claim indemnification under paragraph (a) of this Section 7.11, upon learning of any such claim, action, suit, proceeding, inquiry or investigation, shall promptly notify Parent thereof. In the event of any such claim, action, suit, proceeding, inquiry or investigation (whether arising before or after the Effective Time), (i) Parent or the Surviving Corporation shall have the right to assume the defense thereof and Parent shall be liable to such Indemnified Parties for the legal expenses of one counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof unless there is a conflict of interest between the Indemnified Parties and Parent, in which event Parent shall be liable to the Indemnified Parties for the fees and expenses of each Indemnified Parties' counsel, -42- 46 (ii) the Indemnified Parties will cooperate in the defense of any such matter and (iii) Parent shall not be liable for any settlement effected without its prior written consent and no Indemnified Party shall be liable for any settlement effected without its prior written consent unless such settlement includes a complete unconditional release of all claims against all Indemnified Parties; and provided, further, that Parent shall not have any obligation hereunder to any Indemnified Party if and when a court of competent jurisdiction shall ultimately determine, and such determination shall have become final, that the indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable law. Parent and the Surviving Corporation jointly and severally agree to pay all expenses, including attorneys' fees, that may be incurred by the Indemnified Parties in enforcing the indemnity and other obligations provided for in this Section 7.11. (d) Notwithstanding any contrary provision of this Agreement, prior to the Effective Time, the Company may purchase insurance coverage extending for a period of six 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 175% of the last annual premium paid for such coverage prior to the date hereof. Through the sixth 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 175% 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 175% of such amount. (e) If the Surviving Corporation or any of its successors or assigns (i) shall consolidate with or merge into any other corporation or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) shall transfer all or substantially all of its properties and assets to any individual, corporation or other entity, then and in each such case, proper provisions shall be made so that the successors and assigns of the Surviving Corporation shall assume all of the obligations set forth in this Section. (f) The provisions of this Section shall survive the earliest date on which Merger Sub owns at least a majority of the outstanding Shares on a fully diluted basis and the consummation of the Merger and the Effective Time, are intended to be for the benefit of, and shall be enforceable by, each of the Indemnified Parties 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. -43- 47 7.12. Other Actions by the Company and Parent. (a) Rights. Prior to the consummation of the Offer, the Company Board shall take all necessary action to ensure that the representation and warranty in Section 6.1(s) is accurate. (b) 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 its 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. 7.13. Convertible Preferred Stock. Prior to the Effective Time, the Company and Parent shall take all action necessary to provide that on and after the Effective Time, the Convertible Preferred Stock will be convertible only into the Merger Consideration. 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. (b) Regulatory Consents. Any waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated. (c) Litigation. (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. -44- 48 (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. 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 February 1, 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 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 certification by Parent and/or the Company, as applicable, that Parent and/or the Company, as applicable, have substantially complied with such request, but in any event not later than March 1, 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 -45- 49 Section 8.1(a)) or (iv) if the Offer terminates or expires on account of the failure of any condition specified in Exhibit A without Merger Sub having purchased any Shares thereunder; 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: (a) If (i) the Company is not in material breach of any of its covenants or agreements in this Agreement, (ii) the board of directors of the Company authorizes the Company, prior to Parent beneficially owning a majority of the outstanding shares of Common Stock, 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, from a financial point of view, 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, 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 from a financial point of view as the Superior Proposal; or (b) If, prior to consummation of the Offer and prior to Parent beneficially owning a majority of the outstanding shares of Common Stock, 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"); -46- 50 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) If Merger Sub shall have failed to commence the Offer within five 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 prior to the Parent and Merger Sub, collectively beneficially owning a majority of the outstanding shares on a fully diluted basis (so long as the Company has complied with its obligations under Section 1.4 of this Agreement) by action of the 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 five calendar days after a written request by Parent to do so, or shall have resolved to do any of the foregoing; or (b) 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 Exhibit 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). 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 -47- 51 Offer is consummated and Parent owns a majority of the outstanding shares of Common Stock, such Acquisition Proposal, announcement or intention is or becomes publicly known, and (B) on or following the date of this Agreement and prior to the time such Acquisition Proposal, announcement or intention is or becomes publicly known, the occurrence of an event which would have a material adverse effect on the ability of Parent and Merger Sub to consummate the Merger shall not have become publicly known, and (C) 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) and if terminated by Parent or Merger Sub, Parent or Merger Sub shall not collectively beneficially own a majority of the outstanding Shares on a fully diluted basis, or (ii) this Agreement is terminated (x) by the Company pursuant to Section 9.3(a) or (y) by Parent pursuant to Section 9.4(a), 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 (e) or (f) of Annex A, then, subject to Section 9.5(c), the Company (p) shall promptly, but in no event later than two Business Days after the date of such termination if terminated by Parent or Merger Sub and simultaneously with such termination if terminated by Company (except as otherwise provided in the proviso to this sentence), pay Parent a termination fee of $2 million in cash payable by wire transfer of same day funds, and (q) shall promptly, but in no event later than two Business Days after being notified of such by Parent, pay all of the 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 $500,000, in the aggregate; provided, however, that no termination fee shall be payable to Parent by reason of Section 9.5(b)(i) unless and until (I) any person or entity (other than Parent) (an "Acquiring Party") has within 9 months of such termination entered into a definitive agreement to be acquired, by purchase, merger, consolidation, sale, assignment, lease, transfer or otherwise, in one transaction or any related series of transactions, a majority of the voting power of the outstanding securities of the Company or (II) a definitive agreement has been entered into with respect to a merger, consolidation or similar business combination between the Company and an Acquiring Party or an affiliate thereof as a result of which the stockholders of the Company immediately prior to the transaction do not own at least 50% of the surviving entity. 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 -48- 52 attorneys' fees) in connection with such suit, together with interest on the amount of the fee at the prime rate of Citibank, N.A. in effect on the date such payment was required to be made. (c) Parent agrees that the payment provided for in Section 9.5(b) shall be the sole and exclusive remedy of Parent upon termination of this Agreement pursuant to Sections 9.3(a) or 9.4(a) and such remedy shall be limited to the aggregate of the sums stipulated in such Section 9.5(b); provided, however, that nothing herein shall relieve any party from liability for the willful breach of any of its representations, warranties, covenants or agreements set forth in this Agreement. In no event shall the Company be required to pay to Parent more than one termination fee pursuant to Section 9.5(b)(p). Notwithstanding any other provision of this Agreement or the Stock Option Agreement, any termination fee required to be paid to Parent pursuant to Section 9.5(b)(p) shall be reduced (but not below zero) to the extent necessary so that the sum of (1) the portion of any termination fee actually paid to Parent pursuant to Section 9.5(b)(p), (2) the aggregate of all Cancellation Amounts (as defined in the Stock Option Agreement) paid to Parent pursuant to the Stock Option Agreement and (3) the proceeds actually received by Parent as the result of selling Shares issued to Parent pursuant to the Stock Option Agreement to a third party which acquires more than 50% of the Company's outstanding voting securities (other than the Company or any of its affiliates) shall not exceed $4.4 million. In no event shall (i) the sum of the portion of any termination fee actually paid to Parent pursuant to Section 9.5(b)(p), and the cash proceeds actually received by Parent as the result of selling Shares issued to Parent pursuant to the Stock Option Agreement to a third party which acquires more than 50% of the Company's outstanding voting securities (other than the Company or any of its affiliates) exceed $4.4 million, or (ii) the sum of the portion of any termination fees actually paid to Parent pursuant to Section 9.5(b)(p), the aggregate Cancellation Amounts paid to parent pursuant to the Stock Option Agreement and the cash proceeds actually received by parent as the result of selling Shares issued to Parent pursuant to the Stock Option Agreement to a third party which acquires more than 50% of the Company's outstanding voting securities (other than the Company or any of its affiliates) exceed $4.4 million. 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 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 -49- 53 and warranties contained herein shall not survive the consummation of the Merger or the termination of this Agreement other than the representations and warranties set forth in Section 6.1(s) which shall survive 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 -50- 54 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 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. -51- 55 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 Celia Colbert Merck & Co., Inc. One Merck Drive P.O. Box 100 WS3AB-05 Whitehouse Station, N.J. 08889-0100 Fax: (908) 735-1246 with copies to: Gary P. Cooperstein, Esq. Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, NY 10004 Fax: (212) 859-4000 if to the Company Stephen F. Keane SIBIA Neurosciences, Inc. 505 Coast Blvd. South Suite 300 La Jolla, CA 92037 fax: (619) 459-1609 with copies to: Frederick T. Muto, Esq. Cooley Godward LLP 4365 Executive Drive Suite 1100 San Diego, California 92121 fax: (858) 453-3555 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, the Company Confidentiality Agreement and the Parent Confidentiality Agreement constitute the entire agreement, and supersede all other prior -52- 56 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 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 designate, by written notice to the -53- 57 Company, another wholly owned direct 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. -54- 58 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by duly authorized officers of the parties hereto as of the date hereof. SIBIA NEUROSCIENCES, INC. By: /s/ William T. Comer ----------------------- Name: William T. Comer Title: President, Chief Executive Officer MERCK & CO., INC. By: /s/ Judy C. Lewent ---------------------- Name: Judy C. Lewent Title: Senior Vice President and Chief Financial Officer MC SUBSIDIARY CORP. By: /s/ Judy C. Lewent ---------------------- Name: Judy C. Lewent Title: President -55- 59 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 of Company Common Stock until all Required Regulatory Approvals shall have been obtained, made or satisfied including until the expiration or termination of any waiting periods applicable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (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 of Company Common Stock 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 Schedule Expiration Date (as extended in accordance with clauses (x), (y) or (z) of Section 1.1(b) 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 U.S. Governmental Entity: (i) challenging the acquisition by Parent or Merger Sub of shares of Company Common Stock or seeking to restrain or prohibit the consummation of the Offer or the Merger; (ii) seeking 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 Material Adverse Effect on the Company or Parent; or (iii) seeking 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 Company Common Stock including the right to vote the shares of Company Common Stock purchased by them on an equal basis with all other shares of Company Common Stock on all matters properly presented to the shareholders of the Company; or (b) any U.S. statute, rule, regulation, order or injunction shall be 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) The representations and warranties of the Company set forth in this Agreement shall be true and correct as of the date of the Agreement and as of the consummation of the Offer (except for those representations and warranties made as of a -56- 60 specific date, which shall be true and correct as of such date), and considered without regard to any qualification by, or references to, "material," "in all material respects" or "Company Material Adverse Effect," except for such failures of such representations and warranties 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 material obligations, covenants or agreements under the 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; 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 shareholders that are party to the Shareholders Agreement (so long as such shareholders do not become beneficial owners of any additional Shares after the date hereof and so long as such shareholders do not breach any of the provisions of the Shareholders Agreement), shall have acquired beneficial ownership 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 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 any national securities exchange or in the over the counter market in the United States (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 -57- 61 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. -58- EX-99.C.2 11 SHAREHOLDERS AGREEMENT 1 EXHIBIT (c)(2) SHAREHOLDERS AGREEMENT SHAREHOLDERS AGREEMENT (this "Agreement") dated as of July 30, 1999 among the persons listed on Schedule 1 hereto (each, a "Holder" and, collectively, the "Holders"), Merck & Co., Inc., a New Jersey corporation ("Parent"), and MC Subsidiary Corp., a Delaware corporation and a wholly owned subsidiary of Parent (the "Merger Sub"). Parent, Merger Sub and SIBIA Neurosciences, Inc., a Delaware corporation (the "Company"), propose to enter into a Merger Agreement (the "Merger Agreement") on the date of this 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 "Company Common Stock"), at a purchase price of $8.50 per share, and a subsequent merger (the "Merger") between the Company and the Merger Sub. Each Holder owns the number of shares of Company Common Stock (the "Shares") or options to purchase Company 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. Parent and the Merger Sub have required, as a condition to entering into the Merger Agreement, that the Holders enter into this Agreement. The Holders believe that it is in the best interest of the Company and its stockholders to induce Parent and the Merger Sub to enter into the Merger Agreement and, therefore, the Holders are willing to enter into this Agreement. Accordingly, in consideration of the mutual covenants and agreements set forth herein and in consideration of $1.00 and such other valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. The Option. Each Holder hereby grants the Merger Sub an irrevocable option (the "Option") to purchase all of the Optioned Securities of such Holder at the price of $8.50 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. On the terms and subject to the conditions of this Agreement, the 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 exercise of the Option 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 2 Company, and on or following the date of the Merger Agreement but prior to the date that the Offer is consummated and Parent owns a majority of the outstanding shares of Common Stock, such Acquisition Proposal, announcement or intention is or becomes publicly known, and (B) on or following the date of the Merger Agreement but prior to the time such Acquisition Proposal, announcement or intention is or becomes publicly known, the occurrence of an event that would have a material adverse effect on the ability of Parent or Merger Sub to consummate the Merger shall not have become publicly known, 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 and if terminated by Parent or Merger Sub, Parent or Merger Sub shall not collectively beneficially own a majority of the outstanding shares of Common Stock on a fully diluted basis, and a termination fee has become payable pursuant to Section 9.5(b) 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 (e) or (f) of Annex A of the Merger Agreement. 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 Shareholders 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 the Shareholders Agreement. The Option shall expire on the earliest of (1) the Effective Time (as defined in the Merger Agreement), (2) the nine month anniversary of the earliest to occur of the events set forth in any of clauses (i) and (ii) of Section 9.5(b) of the Merger Agreement and (3) 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 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 the 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 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: -2- 3 (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 the Merger Sub to make payment to each Holder of the aggregate price for such Holder's Optioned Securities by wire transfer of immediately available funds; and (b) each Holder shall deliver to the 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 the Merger Sub, an irrevocable proxy duly executed by such Holder, authorizing such persons as the 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 the Merger Sub pursuant to the Offer. 4. Covenants of the Holders. (a) During the period from the date of this Agreement until the Expiration Date, 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- 4 (iii) initiate, solicit or knowingly 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 a 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 Company Common Stock, warrants, options or other securities or rights exercisable for, exchangeable for or convertible into shares of Company Common Stock (collectively, "Equity Securities") acquired by any Holder 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 the 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 the 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 the 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 -4- 5 is a party or by which such Holder is bound, (ii) any judgment, decree or order applicable to such Holder, or (iii) 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; (c) 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 Company 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, the 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 the 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 the Merger Sub. Each of Parent and the Merger Sub hereby represents and warrants to each Holder that: it is a corporation duly formed under the laws of the states of their respective incorporations; 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, -5- 6 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 time this Agreement is in effect, 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 discourage the Offer or the Merger, including, but not limited to: (i) any Acquisition Proposal (other than the Offer and the Merger) involving the Company or any of its subsidiaries; (ii) any change in the management or board of directors of the Company, except as otherwise agreed to in writing by the Merger Sub; (iii) any material change in the present capitalization or dividend policy of the Company; or (iv) any other material change in the Company's corporate structure or business. Each Holder hereby irrevocably appoints designees of MC Merger Sub, the 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 termination of this Agreement. 9. Adjustments. In the event of any increase or decrease or other change in the Optioned Securities by reason of stock dividends, split-up, 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. 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. -6- 7 12. Legend. 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 an Shareholders Agreement, dated as of July 30, 1999, among Merck & Co., Inc., MC Subsidiary Corp. and certain stockholders of the Corporation." 13. Assignment. This Agreement may not be assigned by any party hereto, except that the Merger Sub may assign its right to purchase the Optioned Securities to one or more of its affiliates. 14. 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 the Merger Sub by injunctive or other equitable relief. 15. 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 the Merger Sub: Celia Colbert Merck & Co., Inc. One Merck Drive P.O. Box 100 W53AB-05 Whitehouse Station, NJ 08889 Fax: (908) 735-1246 With a copy to: Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 Attention: Gary P. Cooperstein, Esq. Facsimile: (212) 859-4000 -7- 8 To each Holder: The Salk Institute 10010 North Torrey Pines Road La Jolla, CA 92037-1099 Attention: Delbert E. Glanz Executive Vice President Fax: 535-9663 With copies to: The Salk Institute 10010 North Torrey Pines Road La Jolla, CA 92037-1099 Attention: Douglas D. Busch General Counsel Fax: 450-0509 16. 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. 17. 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. 18. Binding Effect; Benefits. This Agreement shall survive the death or incapacity of any Holder and shall inure to the benefit of and shall 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. -8- 9 IN WITNESS WHEREOF, the Holders, Parent and Merger Sub have entered into this Agreement as of the date first written above. MERCK & CO., INC. By: /s/ Judy C. Lewent ________________________________ Name: Judy C. Lewent Title: Senior Vice President and Chief Financial Officer MC SUBSIDIARY CORP. By: /s/ Judy C. Lewent _________________________________ Name: Judy C. Lewent Title: President HOLDERS: THE SALK INSTITUTE FOR BIOLOGICAL STUDIES By: /s/ Delbert E. Glanz ____________________________________ Name: Delbert E. Glanz Title: Executive Vice President By: /s/ Douglas D. Busch _____________________________________ Name: Douglas D. Busch Title: General Counsel, Assistant Secretary SKANDIGEN A.B. By: /s/ Gunnar Ekdahl _______________________________________ Name: Gunnar Ekdahl Title: Director /s/ William T. Comer _________________________________________ William T. Comer -9- 10 SCHEDULE 1
Name Shares Stock Options Voting Securities - ---- ------ ------------- ----------------- The Name Salk Institute for Biological Studies 1,933,461 0 1,933,461 Skandigen AB 986,696 0 986,696 William T. Comer 267,900 189,790 267,900
-10- EX-99.C.3 12 STOCK OPTION AGREEMENT 1 EXHIBIT (c)(3) STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT, dated as of July 30, 1999 (the "Agreement"), among Merck & Co., Inc., a New Jersey corporation (the "Grantee"), MC Subsidiary Corp., a Delaware corporation and a wholly owned subsidiary of the Grantee ("Merger Sub"), and SIBIA Neurosciences, 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 with and into Grantor (the "Merger"); WHEREAS, the Grantee and Merger Sub have requested that the Grantor grant to the Grantee an option to purchase up to 1,931,050 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 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 1,931,050 shares of Common Stock (the "Shares") at a cash purchase price equal to $8.50 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), (ii) or (iii) 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 10 business days and not earlier than three 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, split -- up, recapitalization, merger, issuance of capital stock upon exercise of warrants or options or any other event), the number of Shares 2 subject to this Option and the purchase price per Share 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 then exercisable pursuant to the terms of Section 1(a) hereof and at or prior to such time the termination fee 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 20 business days and not earlier than 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 (as defined in the Merger Agreement) 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 the Grantor's common stock are then listed for the last five 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 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 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. Conditions to Delivery of Shares. The Grantor's obligation to deliver Shares upon exercise of the Option is subject only to the conditions that: 2 3 (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 (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 (as defined in the Merger Agreement) 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 the Merger Agreement but prior to the date that the Offer is consummated and Grantee owns a majority of the outstanding shares of Common Stock, such Acquisition Proposal, announcement or intention is or becomes publicly known, and (B) on or following the date of the Merger Agreement but prior to the time such Acquisition Proposal, announcement or intention is or becomes publicly known, the occurrence of an event that would have a material adverse effect on the ability of Grantee or Merger Sub to consummate the Merger shall not have become publicly known, 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 and if terminated by Grantee or Merger Sub, Grantee or Merger Sub shall not collectively beneficially own a majority of the outstanding shares of Common Stock on a fully diluted basis, and a termination fee has become payable pursuant to Section 9.5(b) 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 (e) or (f) of Annex A of the Merger Agreement. 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 agreements, exclude from the 3 4 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(d), as the case may be, at 10:00 A.M., local time, at the offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York, 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 certified or official bank check or 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 4 5 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 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; (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 acquisition of Shares pursuant to this Agreement; and (f) the Grantor has taken all corporate action necessary so that any Shares acquired pursuant to this Agreement shall not be counted for purposes of determining the number of shares of Common Stock beneficially owned by the Grantee or any of its Affiliates or Associates pursuant to the Rights Agreement (as defined in the Merger Agreement, the terms "Affiliate" and "Associate" having the respective meanings ascribed to them in the Rights Agreement). 5. Representations and Warranties of the Grantee. The Grantee represents and warrants to the Grantor that (a) the Grantee is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey 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 the Grantor's 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 5 6 the Shares upon the Closing Date. 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. 7. Registration Rights. (a) In the event that the Grantee shall desire to sell any of the Shares within two years after the purchase of such Shares pursuant to this Agreement, and such sale requires, in the opinion of counsel to the Grantee, which opinion shall be reasonably satisfactory to the Grantor and its counsel, registration of such Shares under the Securities Act, the Grantor will cooperate with the Grantee and any underwriters (which underwriters must be reasonably satisfactory to the Grantor) in registering such Shares for resale, 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 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 60 days in any one year period if the offering would, in the judgment of the board of directors of the 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 happening 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 6 7 be necessary to keep available for at least 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 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 paragraph, 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 paragraph, 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, 7 8 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 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 (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying 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 8 9 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 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 SHAREHOLDER 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 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 11. 9 10 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: Celia Colbert Merck & Co., Inc. One Merck Drive P.O. Box 100 WS3AB-05 Whitehouse Station, NJ 08889 Fax: (908) 735-1246 with copies to: Gary P. Cooperstein, Esq. Fried, Frank, Harris, Shriver and Jacobson One New York Plaza New York, NY 10004 Fax: (212) 859-4000 if to the Grantor: Stephen F. Keane SIBIA Neurosciences, Inc. 505 Coast Blvd. South Suite 300 La Jolla, CA 92037 Fax: (619) 459-1609 with copies to: Frederick T. Muto, Esq. Cooley Godward LLP 4365 Executive Drive Suite 1100 San Diego, CA 92121 Fax: (858) 453-3555 10 11 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. 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 any of its direct or indirect wholly owned subsidiaries (including Merger Sub). 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) 11 12 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), (ii) or (iii) 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), (ii), or (iii) 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 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. 20. Profit Limitation. Notwithstanding any other provision of this Agreement or the Merger Agreement, any Cancellation Amount shall be reduced (but not below zero) to the extent necessary so that the sum of (1) the portion of any termination fee actually paid to the Grantee pursuant to Section 9.5(b)(p) of the Merger Agreement (such portion actually paid, the "Termination Fee"), (2) the aggregate of all Cancellation Amounts paid to Grantee pursuant to this Agreement and (3) the cash proceeds actually received by the Grantee as the result of selling Shares issued to Grantee pursuant to this Agreement to a third party which acquires more than 50% of the Grantor's outstanding voting securities (other than any such acquisitions by Grantor or any of its affiliates) shall not exceed $4.4 million. In no event shall (i) the sum of the Termination Fee and the cash proceeds actually received by the Grantee as the result of selling Shares issued to Grantee pursuant to this Agreement to a third party which acquires more than 50% of the Grantor's outstanding voting securities (other than any such acquisitions by Grantor or any of its affiliates) exceed $4.4 million, or (ii) the sum of the Termination Fee, the aggregate Cancellation Amounts paid to Grantee pursuant to this Agreement and the cash proceeds actually received by the Grantee as the result of selling Shares issued to Grantee pursuant to this Agreement to a third party which acquires more than 50% of the Grantor's outstanding voting securities (other than any such acquisitions by Grantor or any of its affiliates) exceed $4.4 million. 12 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by duly authorized officers of the parties hereto as of the date hereof. SIBIA NEUROSCIENCES, INC. By: /s/ William T. Comer ------------------------ Name: William T. Comer Title: President, Chief Executive Officer MERCK & CO., INC. By: /s/ Judy C. Lewent ----------------------- Name: Judy C. Lewent Title: Senior Vice President and Chief Financial Officer MC SUBSIDIARY CORP. By: /s/ Judy C. Lewent ------------------------ Name: Judy C. Lewent Title: President 13 EX-99.C.4 13 CONFIDENTIALITY AGREEMENT 1 EXHIBIT (c)(4) CONFIDENTIAL DISCLOSURE AGREEMENT This Agreement (the "Agreement") is entered into as of this 23rd day of June 1999 by and between SIBIA Neurosciences, Inc., having a business address of 505 Coast Boulevard South, Suite 300, La Jolla, CA 92037 ("SIBIA") and Merck & Co., Inc., with an address of One Merck Drive, Whitehouse Station, NJ 08889-0100 ("Recipient"). 1. PROPOSED RELATIONSHIP. SIBIA wishes to assure the protection and preservation of the confidential and/or proprietary nature of information to be disclosed to Recipient in connection with a possible business relationship between the parties (the "Proposed Relationship"). 2. CONFIDENTIAL INFORMATION. Except as set forth in Paragraph 3, all information disclosed by SIBIA to Recipient relating to the Proposed Relationship is "Confidential Information" and shall include all information relating to the existence and contents of this Agreement and SIBIA's pharmaceutical business including patents, copyrights, patent or copyrights applications, trade secrets, techniques, formulas, products, protocols, test data, results, conclusions or reports relating to the Proposed Relationship or studies conducted by SIBIA or authorized by SIBIA to be conducted, whether in oral, written, graphic or electronic form. Recipient shall, upon the request of SIBIA, return all Confidential Information and any copies of such to SIBIA. Information disclosed orally shall be identified as confidential at the time of disclosure, and summarized in writing promptly following such disclosure. 3. NONCONFIDENTIAL INFORMATION. Confidential Information shall not include information which (i) at the time of disclosure is readily available in the public domain, or thereafter becomes publicly available other than through a breach of this Agreement; (ii) was already known to Recipient prior to its disclosure by SIBIA as documented in Recipient's written records made prior to such disclosure by SIBIA; (iii) is disclosed to Recipient by a third party who has the right to disclose such information and does not restrict its disclosure; (iv) is independently developed by an employee or agent of Recipient without knowledge of SIBIA's Confidential Information; or (v) is required by law to be disclosed by Recipient. 4. PERMITTED USE AND DISCLOSURE. Recipient may use Confidential Information only for the purposes of evaluating or discussing the Proposed Relationship. Recipient may disclose Confidential Information only to its directors, officers, employees and agents (including, in the case of Merck, officers and employees of Merck & Co., Inc.) who have a need to know in order to properly evaluate the Proposed Relationship and who have been apprised of its confidential and proprietary nature. 5. NONUSE AND NONDISCLOSURE. Recipient shall exercise at least the same standard of care in safeguarding Confidential Information as Recipient exercises in safeguarding its highest level of confidential or proprietary information. Recipient shall not, for a period of five (5) years from the date of this Agreement (i) disclose Confidential Information to any person who does not have a need to know such information or to any third party, without SIBIA's prior written consent; (ii) permit or engage in any use of Confidential Information not authorized by this Agreement; or (iii) reproduce in any form any Confidential Information, except as required to evaluate the Proposed Relationship. 2 Confidential Disclosure Act Page 2 6. NO LICENSE. This Agreement does not grant to Recipient any license to or right in the Confidential Information. Nothing in this Agreement shall be construed, by implication or otherwise, as an obligation to enter into any further agreement concerning the Confidential Information, or as a grant of a license to Recipient to use the Confidential Information other than for the purposes set forth in this Agreement. If Recipient expresses an interest in acquiring rights in the Confidential Information, the parties will explore the possibility of working out a mutually satisfactory agreement for the commercial use of said Confidential Information. 7. SPECIFIC PERFORMANCE. In the event of a material breach of this Agreement by Recipient, Recipient agrees that SIBIA shall be entitled to seek specific performance of Recipient's obligations under this Agreement, as well as for such further relief as may be granted by a court of competent jurisdiction or other body chosen by the parties to settle disputes. 8. NO AGENT RELATIONSHIP. Recipient is not an agent of SIBIA and Recipient shall have no authority to act as an agent of SIBIA. 9. ENTIRE AGREEMENT. This Agreement contains the entire understandings between the parties. Nothing contained in this Agreement shall be construed as an obligation of either party to enter into further agreement or negotiations. 10. GOVERNING LAW. This Agreement shall be governed by the laws of the state of California. SIBIA NEUROSCIENCES, INC. MERCK & CO., INC. By: /s/ STEPHEN F. KEANE By: /s/ RICHARD N. KENDER ------------------------------- ------------------------------- Name: Stephen F. Keane Name: Richard N. Kender Title: VP Corporate Development Title: Vice President, FE&A Business Development Date: 6/23/99 Date: 6/21/99 ------- -------- -----END PRIVACY-ENHANCED MESSAGE-----