-----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, A/A1l4gP87Q4yGOtNgoBsuZH2d+mrTBm3fz/PIbaCYuFh3UYokcBcDPrVCM7Qw7T A9XdnUFnLfDsrl3f6qgLPA== 0000950115-99-000758.txt : 19990518 0000950115-99-000758.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950115-99-000758 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEOSE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000877902 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 133549286 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27718 FILM NUMBER: 99627562 BUSINESS ADDRESS: STREET 1: 102 WITMER RD CITY: HORSHAM STATE: PA ZIP: 19044 BUSINESS PHONE: 2154415890 MAIL ADDRESS: STREET 1: 102 WITMER ROAD CITY: HORSHAM STATE: PA ZIP: 19044 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- ----------------- Commission file number: 0-27718 NEOSE TECHNOLOGIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 13-3549286 ----------------------- ------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 102 Witmer Road Horsham, Pennsylvania 19044 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (215) 441-5890 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 9,908,583 shares of common stock, $.01 par value, were outstanding as of April 30, 1999. NEOSE TECHNOLOGIES, INC. (a development-stage company) INDEX Page ---- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Balance Sheets (unaudited) at December 31, 1998 and March 31, 1999........................................................ 3 Consolidated Statements of Operations (unaudited) for the three months ended March 31, 1998 and 1999, and for the period from inception through March 31, 1999...................................... 4 Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 1998 and 1999, and for the period from inception through March 31, 1999...................................... 5 Notes to Unaudited Consolidated Financial Statements.................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................. 8 Item 3. Quantitative and Qualitative Disclosure About Market Risk.......... 12 PART II. OTHER INFORMATION: Item 2. Changes in Securities and Use of Proceeds.......................... 12 Item 6. Exhibits and Reports on Form 8-K................................... 12 SIGNATURES................................................................... 13 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements NEOSE TECHNOLOGIES, INC. (a development-stage company) CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except per share amounts) December 31, March 31, Assets 1998 1999 ------------ --------- Current assets: Cash and cash equivalents $ 9,484 $ 3,406 Marketable securities 22,539 25,217 Restricted funds 468 2,123 Prepaid expenses and other current assets 235 460 ------- ------- Total current assets 32,726 31,206 Property and equipment, net 13,539 13,276 Acquired technology (See Note 3) -- 3,300 ------- ------- Total assets $46,265 $47,782 ======= ======= Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 617 $ 611 Accounts payable 45 100 Accrued expenses 1,290 1,531 ------- ------- Total current liabilities 1,952 2,242 Long-term debt 8,300 8,300 ------- ------- Total liabilities 10,252 10,542 ------- ------- Stockholders' equity: Preferred stock, $.01 par value, 5,000 shares authorized, none issued -- -- Common stock, $.01 par value, 30,000 shares authorized; 9,589 and 9,908 shares issued and outstanding 96 99 Additional paid-in capital 82,400 87,059 Deferred compensation (211) (564) Unrealized gains on marketable securities 222 212 Deficit accumulated during the development-stage (46,494) (49,566) ------- ------- Total stockholders' equity 36,013 37,240 ------- ------- Total liabilities and stockholders' equity $46,265 $47,782 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 3 NEOSE TECHNOLOGIES, INC. (a development-stage company) CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share amounts)
Peiod from Three months ended inception March 31, (January 17, 1989) ------------------- to 1998 1999 March 31, 1999 ------- ------- -------------- Revenue from collaborative agreements $ 11 $ 125 $ 6,470 Operating expenses: Research and development 2,715 2,471 43,375 General and administrative 715 1,003 17,716 ------- ------- -------- Total operating expenses 3,430 3,474 61,091 ------- ------- -------- Operating loss (3,419) (3,349) (54,621) Interest income 571 384 7,377 Interest expense (138) (107) (2,322) ------- ------- -------- Net loss $(2,986) $(3,072) $(49,566) ======= ======= ======== Basic and diluted net loss per share $ (0.31) $ (0.31) ======= ======= Basic and diluted weighted-average shares outstanding 9,532 9,860 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 4 NEOSE TECHNOLOGIES, INC. (a development-stage company) CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Three months ended Period from March 31, inception --------------------- (January 17, 1989) 1998 1999 to March 31, 1999 -------- ------- ----------------- Cash flows from operating activities: Net loss $ (2,986) $(3,072) $(49,566) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 379 404 5,609 Common stock issued for non-cash and other charges -- -- 35 Changes in operating assets and liabilities: Restricted funds (128) (1,655) (2,052) Prepaid expenses and other (64) (225) (460) Accounts payable (181) 55 100 Accrued expenses (706) 241 849 -------- ------- -------- Net cash used in operating activities (3,686) (4,252) (45,485) -------- ------- -------- Cash flows from investing activities: Purchases of property and equipment (201) (96) (16,620) Proceeds from sale-leaseback of equipment -- -- 1,382 Purchases of marketable securities -- (24,593) (75,716) Proceeds from sales of marketable securities 988 5,930 8,515 Proceeds from maturities of and other changes in marketable securities -- 15,975 42,196 Purchase of intellectual property -- (3,300) (3,300) -------- ------- -------- Net cash provided by (used in) investing activities 787 (6,084) (43,543) -------- ------- -------- Cash flows from financing activities: Proceeds from issuance of debt -- -- 11,955 Repayment of debt (119) (6) (4,341) Proceeds from issuance of preferred stock, net -- -- 29,497 Proceeds from issuance of common stock, net 87 4,080 4,785 Proceeds from public offerings, net -- -- 49,466 Proceeds from exercise of stock options and warrants 3 184 1,144 Dividends paid -- -- (72) -------- ------- -------- Net cash provided by (used in) financing activities (29) 4,258 92,434 -------- ------- -------- Net increase (decrease) in cash and cash equivalents (2,928) (6,078) 3,406 Cash and cash equivalents, beginning of period 17,098 9,484 -- -------- ------- -------- Cash and cash equivalents, end of period $ 14,170 $ 3,406 $ 3,406 ======== ======= ======== Supplemental disclosure of cash flow information: Cash paid for interest $ 152 $ 111 $ 2,220 ======== ======= ======== Non-cash financing activities: Issuance of common stock for dividends $ -- $ -- $ 90 ======== ======= ======== Issuance of common stock to employees in lieu of cash compensation $ -- $ -- $ 44 ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. 5 NEOSE TECHNOLOGIES, INC. (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Basis of Presentation We have used generally accepted accounting principles for interim financial information to prepare unaudited consolidated financial statements: o As of March 31, 1999; o For the three months ended March 31, 1998 and 1999; and o For the period from inception (January 17, 1989) to March 31, 1999. These consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In our opinion, the unaudited information includes all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. You should not base your estimate of our results of operations for 1999 solely on our results of operations for the three months ended March 31, 1999. You should read these consolidated financial statements in combination with: o The other Notes in this section; o "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing in the following section; and o The Consolidated Financial Statements, including the Notes to the Consolidated Financial Statements, included in our Annual Report on Form 10-K for the year ended December 31, 1998. 2. Agreement with Johnson & Johnson In 1997, we entered into a joint development agreement with McNeil Specialty Products Company, a subsidiary of Johnson & Johnson, for the joint development of novel technologies for the efficient large-scale manufacture of a particular class of complex carbohydrates for a number of human healthcare applications. In January 1999, the joint development agreement was extended and expanded, and Johnson & Johnson Development Corporation, another subsidiary of Johnson & Johnson, made a $4 million investment in our common stock. Under the joint development agreement, we jointly contemplate building and operating a manufacturing facility capable of producing at least one commercially promising complex carbohydrate by early 2000. Either party may terminate the agreement upon sixty days prior notice. 3. Acquisition of Intellectual Property from Cytel On March 26, 1999, we acquired the carbohydrate manufacturing patents, licenses, and other intellectual property of Cytel Corporation's Glytec business unit. We paid $3.5 million in cash to Cytel and an additional $1.5 million in cash into escrow, the release of which is conditioned on Cytel's satisfaction of certain matters relating to the acquired patents and licenses. We may be required to pay Cytel up to an additional $1.6 million in cash, contingent on potential payments and 6 revenues realized by us from certain future corporate collaborations. We have capitalized $3.3 million of the amount paid to Cytel as developed technology, which is classified on our Balance Sheet as Acquired Technology. This amount will be amortized to our Statement of Operations over the estimated useful life of the technology. We currently estimate the useful life of the technology to be approximately seven to ten years. The remaining $200,000 was paid to Cytel from an escrow account funded by us in 1998. This amount was expensed to our Statement of Operations in 1998. We have recorded the $1.5 million placed into escrow as Restricted Funds. 4. Net Loss Per Share Basic and diluted net loss per share are presented in conformity with Statement of Financial Accounting Standards No. 128, "Earnings per Share." Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution from the exercise or conversion of securities into common stock. For the three months ended March 31, 1998 and 1999, the effects of the following were antidilutive; accordingly, they were excluded from the calculation of diluted earnings per share: o The exercise of outstanding stock options and warrants; and o The conversion of outstanding shares of convertible preferred stock into common stock (as if converted into common stock on their dates of issuance). 5. Comprehensive Loss Our comprehensive loss for the three months ended March 31, 1998 and 1999 was $2,986,000 and $3,082,000, respectively. Comprehensive loss is comprised of net loss and other comprehensive income or loss. Currently, our only source of other comprehensive income or loss is unrealized gains and losses on our marketable securities that are classified as available-for-sale. 6. Reclassifications Some prior year amounts have been reclassified to conform to current year presentation. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The statements in this Form 10-Q and the Exhibits that are not facts are forward-looking statements. Forward-looking statements involve predictions. Our actual results, performance, or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Potential risks and uncertainties that could affect our actual results, performance, or achievements include the "Risk Factors" in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 1998, and general financial, economic, regulatory, and political conditions affecting the biotechnology industry in general. Given these uncertainties, you should not base your decision to invest in our common stock on any forward-looking statements. In addition, we do not have any obligation or intent to update any of these risk factors or forward-looking statements to reflect future events or developments. You should read this section in combination with the Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 1998, included in our Annual Report on Form 10-K and in our 1998 Annual Report to Stockholders. Overview Neose, a development-stage company, is developing synthetic processes to manufacture oligosaccharides, or complex carbohydrates. We are using these manufacturing processes to discover, develop, and commercialize complex carbohydrates for pharmaceutical, nutritional, and consumer uses. Due to their structural complexity, oligosaccharides are difficult and expensive to produce. Accordingly their commercial development has been significantly limited. We believe our proprietary technologies enable the rapid and cost-efficient enzymatic production of naturally occurring oligosaccharides. We have not generated any material revenues from operations, except for interest income and revenues from collaborative agreements, including our agreements with Abbott Laboratories. Under our agreements, Abbott has the exclusive right to use our technology to manufacture and commercialize, for nutritional purposes only, any complex carbohydrate naturally found in breast milk. We have received approximately $11.2 million in contract payments, license fees, milestone payments, and equity investments from Abbott. Under our agreements, we will receive further payments from Abbott only if Abbott commercializes a product manufactured using our technology. We have incurred increasingly large losses each year. As of March 31, 1999, we had an accumulated deficit of approximately $49.6 million. We expect increased losses over at least the next several years as we expand research and development efforts, conduct additional clinical trials, expand manufacturing scale-up activities, and begin sales and marketing activities. We have not yet commercialized any products or technologies. We do not know if or when we will generate significant revenues from the commercialization of our products or technologies. Before we can commercialize any of our products or technologies, we must overcome many hurdles. Even if we commercialize one or more of our products or technologies, we may not become profitable. 8 Results of Operations Revenues Revenues from collaborative agreements for the three months ended March 31, 1999 increased to $125,000 from $11,000 for the corresponding period in 1998. Revenues for the 1999 period were received under our agreement with Bristol-Myers Squibb Company. Operating Expenses Research and development expenses for the three months ended March 31, 1999 decreased to $2,471,000 from $2,715,000 for the corresponding period in 1998. The expenses for the 1998 period reflect our significant manufacturing campaign to produce clinical trial material for NE-1530, our compound for the treatment of pediatric ear infections, and NE-0080, our compound for the treatment of gastritis and peptic ulcers caused by H. pylori infections. We did not conduct such a campaign during the comparable 1999 period. General and administrative expenses for the three months ended March 31, 1999 increased to $1,003,000 from $715,000 for the corresponding period in 1998. The increase during the 1999 period was primarily attributable to increased patent and general legal expenses associated with the acquisition of intellectual property from Cytel Corporation. Interest Income and Expense Interest income for the three months ended March 31, 1999 decreased to $384,000 from $571,000 for the corresponding period in 1998. The decrease was due to lower average cash and marketable securities balances during the 1999 period. Interest expense for the three months ended March 31, 1999 decreased to $107,000 from $138,000 for the corresponding period in 1998. The decrease was due to lower average loan balances outstanding during the 1999 period. Net Loss Our net loss for the three months ended March 31, 1999 increased to $3,072,000, or $0.31 per share, from $2,986,000, or $0.31 per share, for the corresponding period in 1998. Liquidity and Capital Resources We have incurred increasingly large losses each year since our inception. As of March 31, 1999, we had a deficit accumulated during the development stage of approximately $49.6 million. We have financed our operations through private and public offerings of our securities and revenues from our collaborative agreements. We had $28.6 million in cash and marketable securities as of March 31, 1999, compared to $32.0 million in cash and marketable securities as of December 31, 1998. This decrease was attributable to our use of funds for the acquisition of intellectual property from Cytel Corporation and for our continuing operating activities. The decrease was partly offset by Johnson & Johnson Development Corporation's $4.0 million investment in our common stock in January 1999. On March 26, 1999, we acquired the carbohydrate manufacturing patents, licenses, and other intellectual property of Cytel Corporation's Glytec business unit. We paid $3.5 million in cash to 9 Cytel and an additional $1.5 million in cash into escrow, the release of which is conditioned on Cytel's satisfaction of certain matters relating to the acquired patents and licenses. We may be required to pay Cytel up to an additional $1.6 million in cash, contingent on potential payments and revenues realized by us from certain future corporate collaborations. We have capitalized $3.3 million of the $3.5 million paid to Cytel as developed technology, which is classified on our Balance Sheet as Acquired Technology. This amount will be amortized to our Statement of Operations over the estimated useful life of the technology. We currently estimate the useful life of the technology to be approximately seven to ten years. The remaining $200,000 was paid to Cytel from an escrow account funded by us in 1998. This amount was expensed to our Statement of Operations in 1998. We have recorded the $1.5 million placed into escrow as Restricted Funds. In 1997, we issued, through the Montgomery County (Pennsylvania) Industrial Development Authority, $9.4 million of taxable and tax-exempt bonds. The bonds were issued to finance the purchase of our previously leased building and the construction of a pilot-scale manufacturing facility within our building. The bonds are supported by a AA-rated letter of credit, and a reimbursement agreement between our bank and the letter of credit issuer. The interest rate on the bonds will vary weekly, depending on market rates for AA-rated taxable and tax-exempt obligations, respectively. As of March 31, 1999, the effective, blended interest rate was 7.25% per annum, including letter-of-credit and other fees. To provide credit support for this arrangement, we have given a first mortgage on the land, building, improvements, and certain machinery and equipment to our bank. In addition, we have agreed to maintain at least $20 million of cash and short-term investments. If we fail to comply with this covenant, we are required to deposit with the lender cash collateral up to, but not more than, the unpaid balance of the loan, which as of March 31, 1999 was $8.9 million. If the technology development program with Johnson & Johnson is successful, the parties will have to reach agreement upon the structure and financing of a large-scale manufacturing facility. During the quarter ended March 31, 1999, we purchased approximately $96,000 of property, equipment, and building improvements. We expect that our existing cash and short-term investments will be adequate to fund our operations through late 2000; however, changes in our collaborative relationships or our business, whether or not initiated by us, may cause us to deplete our cash and short-term investments sooner than the above estimate. The timing and amount of our future capital requirements and the adequacy of available funds will depend on many factors, including: o If or when any products covered by our existing collaborative agreements are commercialized; o The progress of our research and development activities, including our pharmaceutical discovery and development programs; o The safety and efficacy of our products in preclinical studies and clinical trials; o The costs involved in preparing, filing, prosecuting, maintaining, and enforcing patent claims and other intellectual property rights; o Competing technological and market developments; o Changes in our existing collaborative relationships; o Our ability to establish additional collaborative agreements; o The cost of manufacturing scale-up; and o Developing effective marketing activities and arrangements. 10 We may need to sell additional stock, borrow additional money, or enter into new collaborative agreements both to fund operations until we become profitable and to make capital investments. The timing and amount of our future capital requirements will depend on many factors including those discussed above. If we raise money by selling additional stock or borrowing additional money, the terms may not be favorable and may be dilutive to our stockholders. A debt financing may contain restrictive covenants, and, if we default, may provide the lender with rights to some or all of our assets. We may not be able to raise money when we need it. If we are unable to obtain adequate funds when needed: o We may delay or eliminate our research and development activities, or other aspects of our business; o We may have to license or sell our technologies on unfavorable terms; or o We may have to reduce or cease operations. Year 2000 Issue The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. In other words, date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations causing disruptions of operations, including an inability to process transactions and information, operate certain laboratory and manufacturing equipment, order raw materials, or engage in similar normal business activities. We do not believe we have a material exposure to the Year 2000 issue for our information and non-information technology systems. We have reviewed these existing systems and they either correctly define the Year 2000 or are expected to be replaced before Year 2000 issues will arise. Each of our major vendors has informed us that they are taking appropriate steps to remediate their own Year 2000 issues. Our business, financial condition, and results of operations may be materially and adversely affected if our major vendors fail to remediate their own Year 2000 issues. We have not yet developed any contingency plans to address situations that may result if our operations are affected by Year 2000 issues that are not remediated. Our historical costs directly related to Year 2000 issue evaluation, remediation, and validation have been immaterial as our systems have been on a normal replacement schedule with only immaterial opportunity costs of personnel to ensure new systems and third parties are Year 2000 compliant. We estimate that the future expenses and capital expenditures necessary to complete our Year 2000 evaluation, remediation, and validation of all systems will not exceed $200,000. We are currently assessing the extent to which we would be vulnerable to our vendors' failure to remediate any Year 2000 issues on a timely basis. We plan to develop contingency plans if necessary during 1999. We have not deferred any systems projects as a result of our efforts to evaluate, remediate, and validate our systems for the Year 2000 issue. 11 Item 3. Quantitative and Qualitative Disclosure About Market Risk We do not hold any investments in market risk sensitive instruments. Accordingly, we believe that we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments. PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds. On January 13, 1999, we issued 286,097 shares of common stock to Johnson & Johnson Development Corporation for $4 million. The shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. Item 6. Exhibits and Reports on Form 8-K. (a) List of Exhibits: 10.1 Stock Purchase Agreement, dated as of January 13, 1999, by and between Neose and Johnson & Johnson Development Corporation. 10.2* Asset Purchase Agreement, dated as of March 26, 1999, by and between Neose and Cytel Corporation. 10.3* Escrow Agreement, dated as of March 26, 1999, by and among Neose, Cytel Corporation, and Chase Manhattan Trust Company, National Association. 27 Financial Data Schedule. (b) Reports on Form 8-K. None. Explanation of Footnote to List of Exhibits * We have intentionally omitted portions of the exhibit from this filing. We have submitted an application for confidential treatment, which includes the omitted portions, to the Securities and Exchange Commission. Our application for confidential treatment was filed as specified in Rule 24b-2 of the Securities Exchange Act of 1934. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEOSE TECHNOLOGIES, INC. Date: May 17, 1999 By: /s/ P. Sherrill Neff ------------------------------------- P. Sherrill Neff President and Chief Financial Officer 13 EX-10.1 2 STOCK PURCHASE AGREEMENT Exhibit 10.1 STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (the "Agreement") is made as of January 13, 1999, by and between NEOSE TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and Johnson & Johnson Development Corporation, a New Jersey corporation ("JJDC"). RECITAL: WHEREAS, JJDC desires to purchase from the Company, and the Company desires to sell to JJDC, shares of the Company's common stock, upon the terms and subject to the conditions set forth herein and in connection with the execution of Amendment No. 1 to Joint Development Agreement of even date herewith between McNeil Specialty Products Company Division of McNeil-PPC, Inc. and the Company (the "Development Agreement"). NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows: 1. Purchase and Sale of Shares. (a) Subject to the terms and conditions of this Agreement, at the Closing (as defined hereinafter), the Company shall sell to JJDC and JJDC shall purchase from the Company, that number of shares (the "Shares") of the Company's Common Stock, par value $.01 (the "Common Stock"), determined by dividing four million dollars ($4,000,000) by the Share Price (as defined below), for an aggregate purchase price (the "Purchase Price") of four million dollars ($4,000,000). For the purposes hereof, "Share Price" shall mean the arithmetic average of the closing prices of the Common Stock, as reported by the principal securities exchange or market on which the Common Stock is then traded, for the twenty (20) trading days period immediately preceding the Closing Date; provided, however, that in the event that the Common Stock is not traded on any trading day during such period, then the closing price of the Common Stock on such day shall be deemed to be the closing price of the most recent previous trading day on which the Common Stock was traded on such exchange or market. (b) The purchase and sale of the Shares shall take place at the offices of the Company, at 10:00 a.m. Eastern time on such date (the "Closing Date") as the parties shall mutually agree (the "Closing"). (c) At the Closing, the Company will deliver to JJDC a certificate or certificates, registered in JJDC's name, representing the Shares, and JJDC shall deliver an amount equal to the Purchase Price to the Company by certified check payable to the Company or wire transfer of immediately available funds to an account specified by the Company. 2. Representations and Warranties of the Company. The Company hereby represents and warrants to JJDC that: 2.1 Organization and Corporate Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business as a foreign corporation in each jurisdiction where failure to qualify would have a Material Adverse Effect on the Company. For purposes of this Agreement, a "Material Adverse Effect" or "Material Adverse Change" shall mean, with respect to the Company, any material adverse effect on or change in the condition (financial or other), business, results of operations, prospects, assets, liabilities or operations of the Company or on the ability of the Company to consummate any of the transactions contemplated hereby, or any event or condition that would, with or without the passage of time, constitute a "Material Adverse Effect" or "Material Adverse Change." The Company has all requisite corporate power and authority to own its property, to carry on its business as presently conducted and to carry out the transactions contemplated hereby. The copies of the Certificate of Incorporation and Bylaws of the Company, as amended to date, which have been furnished to JJDC by the Company, are correct and complete. 2.2 Authorization. The Company has all requisite corporate power to execute, deliver and perform this Agreement. Each such agreement has been duly executed and delivered by the Company and is the legal, valid and, assuming due execution by the other parties hereto and thereto, binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors' rights generally, and to general equitable principles. The execution, delivery and performance of this Agreement, including the sale, issuance and delivery of the Shares, and the Development Agreement, have been duly authorized by all necessary corporate action of the Company. 2.3 Capitalization. When issued in accordance with the terms of this Agreement, the Shares will be duly authorized, validly issued and outstanding, fully paid and nonassessable, and will be issued in compliance with all applicable federal and state securities laws. The Company's total authorized capital stock consists of (i) 30,000,000 shares of Company Common Stock, and (ii) 5,000,000 shares of Preferred Stock, par value $.01 per share, 300,000 shares of which are designated Series A Junior Participating Preferred Shares (the "Series A Preferred Shares"). Of such authorized capital stock, the only issued and outstanding shares as of the date hereof are 9,592,709 shares of Common Stock and rights to acquire Series A Preferred Shares (the "Rights") pursuant to the terms and conditions of the Rights Agreement dated as of September 26, 1997 between the Company and American Stock Transfer & Trust Company as rights agent. As of the date hereof, there are no existing options, warrants, calls, commitments or other rights of any character (including conversion or preemptive rights) relating to the acquisition of any issued or unissued capital stock or other securities of the Company, other than (A) the Rights and (B) options and warrants to purchase an aggregate of 1,914,888 shares 2 of the Company's Common Stock and the Rights issuable upon the exercise of such options and warrants. The Company has reserved 2,016,666 shares of Common Stock under its stock option plans. The shares of Common Stock outstanding are duly authorized, validly issued and outstanding, fully paid and nonassessable, and were issued in compliance with all applicable federal and state securities laws. No shares of Common Stock or preferred stock are held in the Company's treasury. Except as set forth in Schedule 2.3, there are no outstanding securities, warrants, rights of first refusal, options or other rights to purchase or acquire, or exchangeable for or convertible into, any shares of Common Stock or preferred stock. There are no preemptive rights with respect to the issuance or sale by the Company of any of its securities. Upon consummation of the transactions contemplated hereby, JJDC will acquire good and valid title to the Shares, free and clear of any encumbrances, liens, claims, preemptive rights, rights of first refusal, charges or assessments of any nature whatever. 2.4 Subsidiaries. The Company has no subsidiaries and no investments, directly or indirectly, in any other corporation or business organization. The Company is not a participant in any joint venture or partnership. 2.5 Financial Statements. The audited consolidated balance sheets and statements of operations and cash flow for the Company included in the Public Reports (as defined below)(collectively, the "Financial Statements") for the years 1996, 1997 and 1998 are complete and correct in all material respects, are in accordance with the books and records of the Company, have been prepared in accordance with generally accepted accounting principles, consistently applied, and fairly present the financial position of the Company as of each such date and the results of operations for each such period then ended. 2.6 Absence of Undisclosed Liabilities. Except as and to the extent reflected or stated in the Financial Statements, the Company has no debts, liabilities or obligations of any nature, whether accrued or absolute, assigned or otherwise, or whether due or to become due which, individually or in the aggregate, are in excess of $100,000. 2.7 Absence of Certain Developments. Since the date of the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1998 (the "10-Q"), (a) there has not been any Material Adverse Change with respect to the Company, and (b) except as disclosed in the Public Reports, the Company has not entered into any transaction except in the ordinary course of business and consistent with past practice, or entered into any agreement (contingent or otherwise) to do so. 2.8 Title to Properties. Except as disclosed in the Financial Statements, the Company has good and marketable title to, or has a valid leasehold interest in, or a valid license for, all of the properties and assets reflected in the Financial Statements, free and clear of all mortgages, security interests, liens, restrictions or encumbrances other than (i) the lien of current taxes not yet due and payable and (ii) possible minor liens and encumbrances which do not in any case, individually or in the aggregate, materially detract from the value of the property subject thereto or materially impair the operations of the Company, would not result in the occurrence of a 3 Material Adverse Change, and which have not arisen otherwise than in the ordinary course of business. 2.9 Tax Matters. All taxes, including, without limitation, income, excise, property, sales, transfer, use, franchise, payroll, employees' income withholding and social security taxes imposed or assessed by the United States or by any foreign country or by any state, municipality, subdivision or instrumentality of the United States or of any foreign country, or by any other taxing authority, which are due or payable by the Company, and all interest, penalties and additions thereon, whether disputed or not, have been paid in full; all tax returns or other documents required to be filed in connection therewith have been accurately prepared and duly and timely filed; and the Company is not the beneficiary of any extension of time within which to file any such returns. The Company has not been delinquent in the payment of any foreign or domestic tax, assessment or governmental charge or deposit and has no tax deficiency or claim outstanding, assessed or, to the best of its knowledge, proposed against it, and there is no basis for any such deficiency or claim. To the best of the Company's knowledge, no issues have been raised (or are currently pending) by the Internal Revenue Service or any other taxing authority in connection with any of the returns and reports referred to above, and no waivers of statutes of limitations have been given or requested with respect to the Company in connection therewith. The provisions for taxes in the Financial Statements are sufficient for the payment of all accrued and unpaid federal, state, county and local taxes of the Company. 2.10 No Defaults. The Company is not in violation of any term or provision of (a) its Certificate of Incorporation or Bylaws, as amended to date, or in any material respect any note, indenture, mortgage, lease, agreement, contract, purchase order or other material instrument, document or agreement to which the Company is a party or by which it or any of its properties or assets is bound or affected or (b) any order, writ, injunction or decree of any court or any federal, state, municipal or other governmental department, authority, commission, board, bureau, agency or instrumentality, domestic or foreign. There exists no condition, event or act which constitutes, or which after notice, lapse of time or both, would constitute a material default under any of the foregoing. 2.11 Intellectual Property. The Company owns or is the licensee of all of the patents, patent applications, continuations, continuations-in-part and extensions, know-how and other intellectual property used by it in the conduct of its business, except where the failure to own or license such intellectual property would not have a Material Adverse Effect. In addition, (A) all of the Company's patents are owned or licensed by the Company free and clear of all encumbrances, liens, charges, or claims except for those which would not, individually or in the aggregate, have a Material Adverse Effect; (B) none of the Company's rights in or use of such patents has been or, to the Company's knowledge, is currently being threatened to be, challenged; and (C) the Company has no notice, without making any inquiry other than those, if any, routinely conducted by the Company in the ordinary course of business, that the use of the Company's intellectual property would infringe the intellectual property of any 4 other person, and the Company is not aware of any actual or threatened claim by any person or entity alleging any such infringement by the Company. 2.12 Effect of Transactions. The execution, delivery and performance by the Company of this Agreement and the transactions contemplated hereby, and compliance with the provisions hereof by the Company, do not and will not, with or without the passage of time or the giving of notice of both, (a) violate any provision of law, statute, rule or regulation or any ruling, writ, injunction, order, judgment or decree of any court, administrative agency or other governmental body or (b) conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default (or give rise to any right of termination, cancellation or acceleration) under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company, under the Certificate of Incorporation or Bylaws, as amended to date, of the Company or any material note, indenture, mortgage, lease, agreement, contract, purchase order or other instrument, document or agreement to which the Company is a party or by which it or any of its properties or assets is bound or affected, except in any case where such occurrence would not have a Material Adverse Effect on the Company. 2.13 No Governmental Consent or Approval Required. Based in part on the representations made by JJDC in Section 3 of this Agreement, no authorization, consent, approval or other order of, declaration to, or registration, qualification, designation or filing with, any federal, state or local governmental agency or body is required for or in connection with the valid and lawful authorization, execution and delivery by the Company of this Agreement, and the consummation of the transactions contemplated hereby, or for or in connection with the valid and lawful authorization, issuance, sale and delivery of the Shares, other than the qualification (or taking of such action as may be necessary to secure an exemption from qualification if available) of the offer and sale of the Shares under the applicable state securities laws, which filings and qualifications, if required, will be accomplished in a timely manner so as to comply with such qualification or exemption from qualification requirements. 2.14 Litigation. Except as disclosed in the 10-Q, there is no (a) claim, arbitration, action, suit, proceeding or investigation at law or in equity or by or before any governmental instrumentality or other agency pending, or to the best knowledge of the Company, threatened against the Company, or (b) judgment, decree, injunction or order of any court, governmental department, commission, agency, instrumentality or arbitrator against the Company, nor, to the best knowledge of the Company, does there exist any basis therefor. 2.15 Securities Laws. Assuming that JJDC's representations and warranties contained in Section 3 of this Agreement are true and correct, the offer, issuance and sale of the Shares pursuant to this Agreement are and will be exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the "1933 Act"), and have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws. 5 2.16 Business. The Company has complied in all material respects with all Federal, state, local or foreign laws, ordinances, regulations or orders applicable to the business of the Company as presently or previously conducted. The Company has all material Federal, state, local and foreign governmental licenses and permits that are required for the conduct of its business presently or previously conducted by the Company, which licenses and permits are in full force and effect, and no violations are outstanding or uncured with respect to any such licenses or permits and no proceeding is pending or, to the best knowledge of the Company, threatened to revoke or limit any thereof, other than those which individually or in the aggregate would have a Material Adverse Effect on the Company. 2.17 Brokerage. There are no claims for brokerage commissions or finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement made by or on behalf of the Company and the Company agrees to indemnify and hold JJDC harmless against any damages incurred as a result of any such claim. 2.18 Insurance. The Company maintains in full force such types and amounts of insurance issued by issuers of recognized responsibility insuring the Company, with respect to its liability, workers' compensation, business and properties, in such amounts and against such losses and risks as are adequate against risks usually insured against by Persons (as hereinafter defined) operating similar businesses and properties. 2.19 Public Reports. The Company has provided to JJDC true and complete copies of all reports, schedules, forms, statements and other documents (the "Public Reports") filed by the Company with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), since December 31, 1996. The Public Reports include all the reports the Company has been required to file under the Exchange Act since that date. As of their respective dates, (i) the Public Reports complied in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder, and (ii) none of the Public Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. 2.20 Investment Company. The Company is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended, and will not, as a result of the transactions contemplated hereby, become an "investment company." 2.21 Registration Rights. Except as set forth herein and except as set forth on Schedule 2.21, the Company is not under any contractual obligation to register any of its currently outstanding securities or any of its securities that may hereafter be issued. 2.22 Disclosure. The Company has provided JJDC with all the information that it has requested for deciding whether to purchase the Shares at the Closing. Neither the Financial Statements, this Agreement, nor any other written document, certificate, instrument or statement furnished or made available in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading. 6 3. Representations and Warranties and Other Agreements of JJDC. 3.1 Representations and Warranties. JJDC hereby represents and warrants to the Company that: a. Authorization. JJDC has full power and authority to execute, deliver and perform this Agreement and to purchase the Shares. Assuming due execution by the Company hereto, this Agreement constitutes the valid and legally binding obligation of JJDC, enforceable against JJDC in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors' rights generally, and to general equitable principles. b. Purchase Entirely for Own Account. The Shares to be received by JJDC will be acquired for investment for JJDC's own account, not as a nominee or agent and not with a view to the distribution of any part thereof. JJDC has no present intention of selling, granting any participation in, or otherwise distributing the same. JJDC does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participation to such person or to any third person, with respect to any of the Shares. c. Restrictions on Disposition. JJDC covenants that in no event will it dispose of any of the Shares (other than pursuant to Rule 144 promulgated under the 1933 Act ("Rule 144") or pursuant to a registration statement filed with the Securities and Exchange Commission (the "SEC") pursuant to the 1933 Act) unless and until (i) JJDC shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) if requested by the Company, JJDC shall have furnished the Company with an opinion of JJDC's counsel, reasonably satisfactory in form and substance to the Company and the Company's counsel, to the effect that (a) such disposition will not require registration under the 1933 Act or (b) appropriate action necessary for compliance with the 1933 Act and any applicable state, local or foreign law has been taken. The restrictions on transfer imposed by this Section 3.1(c) shall cease and terminate as to the Shares when: (i) such Shares shall have been effectively registered under the 1933 Act and sold by the holder thereof in accordance with such registration, or (ii) an opinion of the kind described in the preceding sentence states that all future transfers of such Shares by the holder thereof would be exempt from registration under the 1933 Act. Each certificate evidencing the Shares shall bear an appropriate restrictive legend as set forth in Section 3.3 below, except that such certificate shall not be required to bear such legend after a transfer thereof if the transfer was made in compliance with Rule 144 or pursuant to a registration statement or, if the opinion of counsel referred to above is issued and provides that such legend is not required in order to establish compliance with any provisions of the 1933 Act. 7 d. Receipt of Information. JJDC has been furnished access to the business records of the Company and all such additional information and documents as JJDC has requested and has been afforded an opportunity to ask questions of and receive answers from representatives of the Company concerning the terms and conditions of this Agreement and the purchase of the Shares. e. Brokerage. There are no claims for brokerage commissions or finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of JJDC, and JJDC agrees to indemnify and hold the Company harmless against any damages incurred as a result of any such claims. 3.2 Further Provisions Regarding Disposition. a. Transfer to Affiliates. Notwithstanding the provisions of Section 3.1(c) above, no registration statement or opinion of counsel shall be necessary for a transfer by JJDC of the Shares to a subsidiary, shareholder or Affiliate (as such term is defined in the rules and regulations promulgated under the 1933 Act) of JJDC, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if such transferee were JJDC hereunder. b. New Certificates. Whenever the restrictions imposed by this Section 3.2 shall terminate as herein provided, the holder of the Shares as to which such restrictions have terminated shall be entitled to receive from the Company, without expense, one or more new certificates not bearing restrictive legends and not containing any reference to the restrictions imposed by this Agreement. 3.3 Legends. It is understood that, subject to Sections 3.1(c) and 3.2(b), the certificates evidencing the Shares may bear substantially the following legends: (a) THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. (b) Any legend required by the laws of any other applicable jurisdiction. 4. Conditions to JJDC's Obligations at Closing. The obligations of JJDC to purchase Shares at the Closing are subject to the fulfillment on or prior to the Closing of each of the following conditions: 8 (a) Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date. (b) Performance. The Company shall have performed and complied with all agreements, obligations, and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. (c) Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Shares to JJDC pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the Closing. (d) Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to JJDC and JJDC's counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. (e) Development Agreement. The Development Agreement shall have been executed and delivered by the Company and shall be in full force and effect. (f) Opinion of Company Counsel. JJDC shall have received from Morgan, Lewis & Bockius LLP, counsel for the Company, an opinion substantially in the form attached hereto as Exhibit 4(f). (g) Compliance Certificate. The Chief Executive Officer of the Company shall deliver to JJDC at the Closing a certificate certifying that the conditions specified in Sections 4.1(a), 4.1(b) and 4.1(c) hereof have been fulfilled and stating that there has been no Material Adverse Change in the Company since the date of the 10-Q. 5. Conditions of the Company's Obligations at Closing. The obligations of the Company under Section 1 of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions: 5.1 Representations and Warranties. The representations and warranties of JJDC contained in Section 3 shall be true on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date. 5.2 Performance. JJDC shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 9 5.3 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Shares at the Closing to JJDC pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the date of the Closing. 6. Registration of Shares. 6.1 Definitions. Unless the context otherwise requires, the terms defined in this Section 6 shall have the meanings herein specified for all purposes of this Agreement, applicable to both the singular and plural forms of any of the terms herein defined. "Board" means the Board of Directors of the Company. "Holder" of any security means the record or beneficial owner of such security or any permitted assignee thereof. "Holders of a Majority of the Registrable Securities" means the Person or Persons who are the Holders of greater than 50% of the shares of Registrable Securities then outstanding. "Person" means any natural person, corporation, trust, association, company, partnership, joint venture or other entity or any government, governmental agency, instrumentality or political subdivision. The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the 1933 Act, and the declaration for ordering of the effectiveness of such registration statement. "Registrable Securities" means (i) the shares of Common Stock of the Company sold pursuant to this Agreement and (ii) any Common Stock issued or issuable with respect to the Common Stock referred to in clause (i) above by way of a stock dividend or stock split or in connection with a combination of shares, reclassification, recapitalization, merger or consolidation or reorganization; provided, however that such shares of Common Stock shall only be treated as Registrable Securities if and so long as they have not been (x) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (y) sold in a transaction exempt from the registration and prospectus delivery requirements of the 1933 Act pursuant to Rule 144 thereunder so that all the transfer registrations and restrictive legends with respect to such Common Stock are removed upon the consummation of such sale and the Company receives an opinion of counsel for the Company (with a copy to the seller of such Common Stock), which shall be in form and content reasonably satisfactory to the Company, to the effect that such Common Stock in the hands of the purchaser is freely transferable without restriction or registration under the 1933 Act in any public or private transaction. 10 "Registrable Securities then outstanding" means the number of shares of Common Stock which are Registrable Securities and (i) are then issued and outstanding or (ii) are then issuable pursuant to the exercise or conversion of then outstanding and then exercisable options, warrants or convertible securities. 6.2 Required Registration. (a) Pursuant to the terms and subject to the conditions hereof, if at any time after the date hereof, the Company shall receive a written request therefor from the Holders of at least thirty percent (30%) of the Registrable Securities then outstanding, the Company agrees to prepare and file promptly a registration statement under the 1933 Act covering the shares of Registrable Securities which are the subject of such request and agrees to use its best efforts to cause such registration statement to become effective as expeditiously as possible. Upon the receipt of such request, the Company agrees to give prompt written notice to all Holders of Registrable Securities that such registration is to be effected. The Company agrees to include in such registration statement such shares of Registrable Securities for which it has received written request to register such shares by the Holders thereof within twenty (20) days after the receipt by such Holders of written notice from the Company. (b) The Company shall be obligated to prepare, file and cause to become effective only two registration statements pursuant to this Section 6.2. A registration required to be effected by the Company pursuant to this Section 6.2 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective, (ii) if, after it has become effective, such registration is interfered with by any stop order, injunction, or other order or requirement of the SEC or other governmental agency or court, for any reason not attributable to the Holders initiating the registration request hereunder (the "Initiating Holders") with respect to such registration statement, and has not thereafter become effective or (iii) if the conditions to closing specified in the underwriting agreement, if any, entered into in connection with such registration are not satisfied or waived, other than by reason of a failure on the part of the Initiating Holders with respect to such registration statement. (c) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they agree to provide the Company with the name of the managing underwriter or underwriters (the "managing underwriter") that a majority interest of the Initiating Holders propose to employ, as part of their request made pursuant to this Section 6.2, and the Company agrees to include such information in its written notice referred to in Section 6.2(a). In such event, the right of any Holder to registration pursuant to this Section 6.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by the Holders of a Majority of the Registrable Securities initiating such request for registration and such Holder). All Holders proposing to distribute their 11 securities through such underwriting agree to enter into (together with the Company) an underwriting agreement with the underwriter or underwriters elected for such underwriting, in the manner set forth above, provided that such underwriting agreement is in customary form and is reasonably acceptable to the Holders of a majority of the shares of Registrable Securities to be included in such registration. (d) Notwithstanding the foregoing, if the managing underwriter of an underwritten distribution advises the Company and the Holders of Registrable Securities participating in such registration in writing that in its good faith judgment the number of shares of Registrable Securities and the other securities requested to be included in such registration exceeds the number of shares of Registrable Securities and the other securities which can be sold in such offering, then (i) the other securities so requested to be included in such registration shall initially be reduced and the number of shares of Registrable Securities so requested to be included in such registration shall subsequently be reduced, together to that number of shares which in the good faith judgment of the managing underwriter can be sold in such offering and (ii) the reduced number of Registrable Securities to be included in the underwriting shall be allocated pro rata among all Holders of Registrable Securities. Those Registrable Securities which are excluded from the underwriting by reason of the managing underwriter's marketing limitation shall not be included in such registration and shall be withheld from the market by the Holders thereof for a period, not in excess of 120 days, which the managing underwriter reasonably determines is necessary to effect the underwritten public offering. 6.3 "Piggyback" Registration. (a) Each time the Company shall determine to file a registration statement under the 1933 Act (other than pursuant to Section 6.2 hereof and other than on Form S-4, S-8 or a registration statement on Form S-l (or any successor form) covering solely any employee benefit plan) in connection with the proposed offer and sale for money of any of its securities either for its own account or on behalf of any other security holder, the Company agrees to give promptly written notice of its determination to all Holders of Registrable Securities. Upon the written request of a Holder of any shares of Registrable Securities given within twenty (20) days after the receipt of such written notice from the Company, the Company agrees to cause all such Registrable Securities, the Holders of which have so requested registration hereof, to be included in such registration statement and to use its best efforts to cause such registration statement to become effective under the 1933 Act, all to the extent requisite to permit the sale or other disposition by the prospective seller or sellers of the Registrable Securities to be so registered. In the event that the proposed registration by the Company is, in whole or in part, an underwritten public offering of securities of the Company, any request pursuant to this Section 6.3(a) to register Registrable Securities may specify that such securities are to be included in the underwriting (i) on the same terms and conditions as the shares of Common Stock, if any, otherwise being sold through underwriters, under such registration, or (ii) on terms and conditions comparable to those normally applicable to offerings of Common Stock in reasonably similar circumstances in the event that no shares of Common Stock other than Registrable Securities are being sold through underwriters in such registration. 12 (b) If the registration of which the Company gives written notice pursuant to Section 6.3(a) is for a public offering involving an underwriting, the Company agrees to so advise the Holders as a part of its written notice. In such event the right of any Holder to registration pursuant to this Section 6.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting agree to enter into (together with the Company and the other Holders distributing their securities through such underwriting) an underwriting agreement with the underwriter or underwriters selected for such underwriting by the Company. (c) Notwithstanding any other provision of this Section 6.3, if the managing underwriter of an underwritten distribution advises the Company and the Holders of the Registrable Securities requesting participation in such registration in writing that in its good faith judgment the number of shares of Registrable Securities and the other securities requested to be registered under this Section 6.3 exceeds the number of shares of Registrable Securities and other securities which can be sold in such offering, then (i) the number of shares of Registrable Securities and other securities so requested to be included in the offering shall be reduced to that number of shares which in the good faith judgment of the managing underwriter can be sold in such offering (except for shares to be issued by the Company in a public offering, which shall have priority over the Registrable Securities), and (ii) such reduced number of shares shall be allocated among all participating Holders of Registrable Securities and holders of other securities in proportion, as nearly as practicable, to the respective number of shares of Registrable Securities and other securities held by such Holders at the time of filing the registration statement. All Registrable Securities and other securities which are excluded from the underwriting by reason of the managing underwriter's marketing limitation and all other Registrable Securities not originally requested to be so included shall not be included in such registration and shall be withheld from the market by the Holders thereof for a period, not in excess of 120 days, which the managing underwriter reasonably determines is necessary to effect the underwritten public offering. 6.4 Registration Expenses. (a) The Company shall pay all expenses incurred in effecting the registration of Registrable Securities pursuant to Section 6 including, without limitation, all federal and state registration, qualification and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements of one counsel for the participating Holders together, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration, but not including underwriting discounts, commissions and expenses. (b) Notwithstanding the foregoing, in the event that a registration pursuant to Section 6.2 is requested by the Initiating Holders and such request is withdrawn prior to the filing of a registration statement by the Company, or 13 such Holders cause the Company to withdraw a registration statement prior to its effectiveness, then either (i) the Initiating Holders and other Holders requesting inclusion of their shares in such registration shall bear pro rata all fees, costs and expenses of the registration and preparation of the registration statement or (ii) such requested registration shall be deemed to be one of the registrations the Company is required to effect pursuant to Section 6.2 hereof. Notwithstanding the foregoing, however, if at the time of the withdrawal, the Initiating Holders and the other Holders have learned of a Material Adverse Change with respect to the Company from that known to such Holders at the time of their request, then such Holders shall not be required to pay any of such registration expenses and shall retain their rights pursuant to Section 6.2. 6.5 Registration Procedures. If and whenever the Company is required by the provisions of Section 6 to effect the registration of Registrable Securities under the 1933 Act, the Company will, as expeditiously as possible: (a) prepare and file with the SEC a registration statement which includes the Registrable Securities and use its best efforts to cause such registration statement to become and remain effective until the distribution described in the registration statement has been completed; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the 1933 Act with respect to the sale or other disposition of Registrable Securities covered by such registration statement whenever a Holder shall desire to sell or otherwise dispose of the same; (c) furnish to each participating Holder (and to each underwriter, if any, of Registrable Securities) such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the 1933 Act, and such other documents, as such Holder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities; (d) use its best efforts to register or qualify the Registrable Securities covered by such registration statement under such state securities or blue sky laws of such jurisdiction as each participating Holder shall reasonably request and do any and all other acts and things which may be necessary under such securities or blue sky laws to enable such Holder to consummate the public sale or other disposition of the Registrable Securities in such jurisdictions, except that the Company shall not for any purpose be required to consent generally to service of process or qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified; (e) before filing the registration statement or prospectus or amendments or supplements thereto, furnish to counsel selected by the participating Holders copies of such documents proposed to be filed which shall be subject to the reasonable approval of such counsel; 14 (f) enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offer; (g) notify the participating Holders at any time when a prospectus relating to any Registrable Securities covered by such registration statement is required to be delivered under the 1933 Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and promptly file such amendments and supplements as may be necessary so that, as thereafter delivered to such Holders of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and use its best efforts to cause each such amendment and supplement to become effective; (h) furnish at the reasonable request of the participating Holders on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to Section 6 (i) an opinion, dated such date, of the counsel representing the Company, for purposes of such registration, in form and substance as is customarily given by company counsel to the underwriters in an underwritten public offering addressed to the underwriters, if any, and to such Holders, and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters and to such Holders; and (i) use its best efforts to cause all such Registrable Securities to be listed on the securities exchange, if any, on which the Common Stock is then listed. 6.6 Form S-3 Registration. In case the Company shall receive from any Holder or Holders a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) as soon as practicable, effect such registration and all such qualifications and compliance as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 business days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such 15 registration, qualification or compliance pursuant to this Section 6.6: (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than Seven Hundred and Fifty Thousand Dollars ($750,000.00); (iii) if the Company shall furnish to the Holders a certificate signed by the President or Chief Executive Officer of the Company stating that in the good faith judgment of the Board, it would be seriously detrimental to the Company and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 Registration Statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 6.6; provided, however, that the Company shall not utilize this right more than twice in any 12-month period; (iv) if the Company has, within the 12-month period preceding the date of such request, already effected one registration on Form S-3 for the Holders pursuant to this Section 6.6 and other similar provisions granting rights to registration on Form S-3; or (v) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 6.6 shall not be counted as demands for registration effected pursuant to Section 6.2. 6.7 Indemnification. In the event Registrable Securities are registered pursuant to this Section 6: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder of Registrable Securities which are included in a registration statement pursuant to the provisions of this Agreement and any underwriter (within the meaning of the 1933 Act) with respect to the Registrable Securities, and each officer, director, employee and agent thereof and each person, if any, who otherwise controls such Holder or underwriter (within the meaning of the 1933 Act), against any losses or claims, damages, expenses or liabilities, joint or several, to which they may become subject under the 1933 Act, the Exchange Act or other federal or state law, or otherwise, insofar as such losses, claims, damages, expenses or liabilities (or actions in respect thereof) arise out of or are based upon any untrue or allegedly untrue statement of any material fact contained in the registration statement for the Registrable Securities, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or any document incident to the registration or qualification of any Registrable Securities, 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 allegedly necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or arise out of any violation or alleged violation by the Company of the 1933 Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the 1933 Act, the Exchange Act or any state 16 securities law; and will reimburse such Holder, any underwriter, officer, director, employee, agent or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 6.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, expense, liability or action if such settlement is effected without the written consent of the Company, which shall not be unreasonably withheld, nor shall the Company be liable under this Section 6.7(a) to such Holder, such underwriter, officer, director, employee, agent or controlling person for any such loss, claim, damage, expense, liability or action to the extent that it arises out of, or is based upon, an untrue statement or allegedly untrue statement or omission or alleged omission made in connection with such registration statement, preliminary prospectus, final prospectus, or amendments or supplements thereto, in reliance upon and in conformity with information furnished in writing expressly for use in connection with such registration by such Holder, such underwriter, officer, director, employee, agent or such controlling person. (b) To the extent permitted by law, each Holder of Registrable Securities which are included in a registration statement pursuant to the provisions of this Agreement will indemnify and hold harmless the Company, each of its employees, agents, directors and officers, each person, if any, who controls the Company within the meaning of the 1933 Act, and any underwriter (within the meaning of the 1933 Act) against any losses, claims, damages, or liabilities to which the Company or any such person or underwriter may become subject, under the 1933 Act, the Exchange Act or other federal or state law or otherwise, insofar as such losses, claims, damages, expenses or liabilities (or actions in respect thereof) arise out of, or are based upon any untrue or allegedly untrue statement of any material fact contained in a registration statement for the Registrable Securities, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or any document incident to the registration or qualification of any Registrable Securities, 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 allegedly necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; in each case to the extent that such untrue statement or allegedly untrue statement or omission or alleged omission was made in such registration statement, preliminary prospectus, or amendments or supplements thereto, in reliance upon and in conformity with information furnished in writing by such Holder expressly for use in connection with such registration; provided, however, that the indemnity agreement contained in this Section 6.7(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, expense, liability or action if such settlement is effected without the written consent of such Holder, which shall not be unreasonably withheld; and such Holder will reimburse the Company or any such person or underwriter for any legal or other expenses reasonably incurred by the Company or any such person or underwriter in connection with investigating or defending such loss, claim, damage, liability, expense or action. (c) Promptly after receipt by an indemnified party under this Section 6.7 of notice of the commencement of any action, such indemnified party 17 will, if a claim in respect thereof is to be made against any indemnifying party under this Section 6.7, notify the indemnifying party in writing of the commencement thereof and generally summarize such action. The indemnifying party shall have the right to participate in and to assume the defense thereof with counsel mutually satisfactory to the parties. An indemnifying party shall not have the right to direct the defense of such an action on behalf of an indemnified party if such indemnified party has reasonably concluded that there may be defenses available to it that are different from or additional to those available to the indemnifying party; provided, however, that in such event, the indemnifying party shall bear the fees and expenses of only one (1) separate counsel for all indemnified parties. The failure to notify an indemnifying party promptly of the commencement of any such action if prejudicial to the ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 6.7, but the omission so to notify the indemnifying party will not relieve such party of any liability that such party may have to any indemnified party otherwise than under this Section 6.7. (d) To the extent permitted by law, the indemnification provided for under this Section 6.7 will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling person (within the meaning of the 1933 Act) of such indemnified party and will survive the transfer of any securities. (e) If for any reason the foregoing indemnity is unavailable to, or is insufficient to hold harmless an indemnified party, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, or provides a lesser sum to the indemnified party than the amount hereinafter calculated, in such proportion as is appropriate to reflect not only the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other but also the relative fault of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. Notwithstanding the foregoing, no underwriter, if any, shall be required to contribute any amount in excess of the amount by which the total price at which the securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligation of any underwriters to contribute pursuant to this Section 6.7(e) shall be several in proportion to their respective underwriting commitments and not joint. 6.8 Reports under Exchange Act. With a view to making available to the Holders the benefits of Rule 144 promulgated under the 1933 Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell Registrable Securities to the public without registration, and with a view to making it possible for any such Holder to register the Registrable Securities pursuant to a registration on Form S-3, the Company agrees to: 18 (a) make and keep available public information, as those terms are understood and defined in Rule 144, at all times; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the Exchange Act; and (c) furnish to a Holder owning any Registrable Securities upon reasonable request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the Exchange Act, or that it qualifies as a registrant whose Registrable Securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably required in availing any Holder of Registrable Securities of any rule or regulation of the SEC which permits the selling of any such Registrable Securities without registration or pursuant to such form. 6.9 Transferability. The right to cause the Company to register Registrable Stock granted by the Company to the Holders under this Agreement may be assigned by any Holder to a transferee or assignee of Registrable Securities; provided that such transferee or assignee acquires no less than 20% of the Registrable Securities then held by such transferring Holder; and, provided further, that the Company must receive written notice prior to or at the time of said transfer, stating the name and address of said transferee or assignee and identifying the securities with respect to which such rights are being assigned. 6.10 Granting of Registration Rights. The Company shall not, without the prior written consent of the Holders of at least 66.67% of the Registrable Securities then outstanding, grant any rights to any Persons to register any shares of capital stock or other securities of the Company if such rights could reasonably be expected to conflict with the rights of the Holders of Registrable Securities. 7. Miscellaneous. 7.1 Survival of Warranties. The warranties, representations, agreements, covenants and undertakings of the Company or JJDC contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and each Closing and shall in no way be affected by an investigation of the subject matter thereof made by or on behalf of JJDC or the Company. 7.2 Incorporation by Reference. All Exhibits and Schedules appended to this Agreement are herein incorporated by reference and made a part hereof. 19 7.3 Successor and Assignees. All terms, covenants, agreements, representations, warranties and undertakings in this Agreement made by and on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including transferees of any Shares) whether so expressed or not, subject to Sections 6.9. 7.4 Amendments and Waivers. (a) Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by JJDC and the Company or, in the case of a waiver, by the party against whom the waiver is to be effective. (b) No failure or delay by either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 7.5 Governing Law. This Agreement shall be deemed a contract made under the laws of the State of Delaware and, together with the rights or obligations of the parties hereunder, shall be construed under and governed by the laws of such State. 7.6 Notices. All notices, requests, consents and demands shall be in writing and shall be deemed given when (i) personally delivered, (ii) mailed in a registered or certified envelope, postage prepaid or (iii) sent by Federal Express or another nationally recognized overnight delivery service (paid by sender): to the Company at: Neose Technologies, Inc. 102 Witmer Road Horsham, PA 19044 Fax: (215) 441-5896 Attention: Chief Executive Officer with a copy to: Morgan, Lewis & Bockius LLP 2000 One Logan Square Philadelphia, PA 19103 Fax: (215) 963-5299 Attention: Debra Poul, Esq. 20 or to JJDC at: Johnson & Johnson Development Corporation One Johnson & Johnson Plaza New Brunswick, New Jersey 08933 Fax: (908) 247-5309 Attention: President with a copy to: Johnson & Johnson One Johnson & Johnson Plaza New Brunswick, New Jersey 08933 Fax: (908) 524-2788 Attention: Office of General Counsel or such other address as may be furnished in writing by a party to the other party hereto. 7.7 Counterparts. This Agreement may be executed in counterparts, all of which together shall constitute one and the same instrument. 7.8 Effect of Headings. The section and paragraph headings herein are for convenience only and shall not affect the construction hereof. 7.9 Entire Agreement. This Agreement, the Development Agreement and the Exhibits and Schedules hereto and thereto constitute the entire agreement among the Company and JJDC with respect to the subject matter hereof. There are no representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein. This Agreement supersedes all prior agreements between the parties with respect to the Shares purchased hereunder and the subject matter hereof. 7.10 Publicity. Neither party shall originate any publicity, news release or other public announcement, written or oral, whether relating to the performance under this Agreement or the existence of any arrangement between the parties, without the prior written consent of the other, except where such publicity, news release or other public announcement is required by law; provided that in such event, JJDC shall be consulted by the Company in connection with any such publicity, news release or other public announcement prior to its release and shall be provided with a copy thereof. 7.11 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written, by the duly authorized representatives of the parties hereto. NEOSE TECHNOLOGIES, INC. By: /s/ P. Sherrill Neff --------------------------- Name: P. Sherrill Neff Title: President and CFO JOHNSON & JOHNSON DEVELOPMENT CORPORATION By: /s/ Thomas M. Gorrie --------------------------- Name: Thomas M. Gorrie Title: Vice President EX-10.2 3 ASSET PURCHASE AGREEMENT Exhibit 10.2 CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. ASSET PURCHASE AGREEMENT between NEOSE TECHNOLOGIES, INC. (a Delaware corporation) and CYTEL CORPORATION (a Delaware corporation) March 26, 1999 TABLE OF CONTENTS Page ---- 1. Definitions........................................................... 1 2. Sale and Purchase..................................................... 6 2.1 Purchased Assets................................................ 6 2.2 Excluded Assets................................................. 7 2.3 Purchase Price and Payment...................................... 7 2.4 Contingent Consideration........................................ 8 2.5 Allocation of Purchase Price; Accounting Treatment..............10 2.6 Assumed Liabilities.............................................11 2.7 Excluded Liabilities............................................11 2.8 Employee Matters................................................11 3. Closing...............................................................12 3.1 Location, Date..................................................12 3.2 Deliveries......................................................12 3.3 Reasonable Steps................................................13 3.4 Further Assurances..............................................13 3.5 Technical Support...............................................13 4. Representations and Warranties of Cytel...............................14 4.1 Corporate Status................................................14 4.2 Authorization and Enforceability................................14 4.3 Consents and Approvals..........................................14 4.4 Financial Statements............................................15 4.5 Purchased Assets; Absence of Liens and Encumbrances.............15 4.6 Liabilities.....................................................15 4.7 Taxes and Tax Returns...........................................15 4.8 Litigation......................................................16 4.9 Compliance with Laws............................................16 4.10 Governmental Permits............................................16 4.11 Contracts.......................................................17 4.12 Intellectual Property...........................................17 4.13 Insurance.......................................................19 4.14 Employee Matters................................................19 4.15 Absence of Certain Changes......................................19 4.16 Finder's Fees...................................................19 4.17 No Third Party Options..........................................19 4.18 Fairness Opinion................................................20 4.19 Solvency........................................................20 4.20 Completeness and Accuracy of Information........................20 i 5. Representations and Warranties of Neose...............................20 5.1 Corporate Status................................................20 5.2 Authorization and Enforceability................................20 5.3 Consents and Approvals..........................................21 5.4 Finder's Fees...................................................21 5.5 Litigation......................................................21 5.6 Accuracy of Information.........................................21 6. Covenants.............................................................21 6.1 Cytel Confidentiality...........................................21 6.2 Covenant Not to Compete.........................................21 6.3 Cytel Affiliates................................................22 6.4 Neose Injunctive Relief.........................................22 6.5 Neose Confidentiality...........................................22 6.6 Neose Affiliates................................................23 6.7 Cytel Injunctive Relief.........................................23 6.8 Bulk Transfer Laws..............................................23 6.9 Transfer Taxes..................................................23 6.10 Access to Information...........................................24 6.11 Enforcement of Certain Agreements...............................24 7. Indemnification.......................................................24 7.1 By Cytel........................................................24 7.2 By Neose........................................................24 7.3 General Procedure for Claims....................................25 7.4 Procedure for Third Party Claims................................25 7.5 Time Limitations................................................26 7.6 Limitations on Liability........................................26 7.7 Effect of Investigation or Knowledge............................27 7.8 Contingent Claims...............................................27 7.9 Other Remedies..................................................27 8. General...............................................................27 8.1 Expenses........................................................27 8.2 Publicity.......................................................27 8.3 Amendment, Severability, Parties in Interest and Assignment.....27 8.4 Waivers.........................................................28 8.5 Notices.........................................................28 8.6 Entire Agreement................................................29 8.7 Interpretation..................................................29 8.8 Governing Law...................................................29 8.9 Counterparts....................................................30 ii SCHEDULES 1A Cylexin Description 2.1 Permitted Encumbrances 2.1.1 Purchased Contracts 2.1.2 Patents, Trademarks and Copyrights 2.2 Certain Excluded Assets 2.4 Potential Collaborators 2.5 Allocation of Purchase Price 2.6.1 Certain Excluded Obligations under Purchased Contracts 2.8 Certain Cytel Employees 4.3 Required Consents 4.6 Liabilities 4.8 Cytel Litigation 4.12 Intellectual Property 4.15 Absence of Certain Changes 4.17 Third Party Options 6.2 Certain Non-Restricted Activities EXHIBITS A Form of Assignment of Patents and Patent Applications B Form of Assignment of Trademarks, Service Marks, Registrations and Applications C Form of Escrow Agreement D Form of Cylexin License Agreement E Form of Glycosyltransferase Inhibitors Program License Agreement F Form of Opinion of Counsel to Cytel G Form of Opinion of Counsel to Neose iii ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT is made as of March 26, 1999 by and between NEOSE TECHNOLOGIES, INC., a Delaware corporation ("Neose"), and CYTEL CORPORATION, a Delaware corporation ("Cytel"). Certain other terms used herein are defined below in Section 1 or elsewhere in this Agreement. Background This Agreement sets forth the terms and conditions under which Neose is purchasing from Cytel the carbohydrate manufacturing technology and related assets (other than Excluded Assets, as hereinafter defined) of Cytel used by Cytel in the conduct of its carbohydrate manufacturing and purification process and technology development program and glycoprotein remodeling program. Witnesseth: NOW, THEREFORE, in consideration of the respective covenants contained herein and intending to be legally bound hereby, the parties hereto agree as follows: 1. Definitions. For convenience, certain terms used in more than one part of this Agreement are listed in alphabetical order and defined or referred to below (such terms as well as any other terms defined elsewhere in this Agreement shall be equally applicable to both the singular and plural forms of the terms defined). "Affiliates" means, with respect to a particular party, Persons controlling, controlled by or under common control with that party, as well as any officers, directors and majority-owned entities of that party, and any Affiliates of any of the foregoing. For the purposes of the foregoing, ownership, directly or indirectly, of 50% or more of the voting stock or other equity interest shall be deemed to constitute control. "Agreement" means this Agreement and the Exhibits and Schedules hereto. "Assignment of Patents" means the Assignment of Patents and Patent Applications in the form of Exhibit A hereto. "Assignment of Trademarks" means the Assignment of Trademarks, Service Marks, Registrations and Applications in the form of Exhibit B hereto. "Assumed Liabilities" is defined in Section 2.6.1. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in Philadelphia, Pennsylvania are authorized or required by Law to close. "Carbohydrate Manufacturing Program" means Cytel's carbohydrate manufacturing and purification process and technology development program and glycoprotein remodeling program as in effect on the date hereof. "Cash Consideration" is defined in Section 2.3.1. "Charter Documents" means an entity's certificate or articles of incorporation, certificate defining the rights and preferences of securities, articles of organization, general or limited partnership agreement, certificate of limited partnership, certificate of formation, operating agreement, joint venture agreement or similar document governing the entity. "Claim Notice" is defined in Section 7.3.1. "Closing" is defined in Section 3.1. "Closing Date" is defined in Section 3.1. "Code" means the Internal Revenue Code of 1986, as amended. "Confidential Information" means all confidential or proprietary information received by either party from the other party relating to any use, process, method, compound, research project, work in process, future development, scientific, engineering, manufacturing, marketing, business plan, financial or personnel matter relating to the disclosing party, its present or future products, research, process and technology development programs, sales, suppliers, customers, employees, investors or business, whether in oral, graphic or electronic form, and, with respect to Cytel, includes the Documentation. "Confidentiality Agreement" is defined in Section 4.12.14. "Contingent Consideration" is defined in Section 2.4.1. "Contract" means any written or oral contract, agreement, license, lease, instrument or other commitment that is binding on any Person or its property under applicable Law. "Copyrights" means all registered copyrights, copyright applications and unregistered copyrights, and all applications for any of the foregoing which are in the process of being prepared. "Court Order" means any judgment, decree, injunction, order or ruling of any federal, state, local or foreign court or governmental or regulatory body or authority that is binding on any Person or its property under applicable Law. 2 "Cylexin" means the carbohydrate-based drug being developed by Cytel for human therapeutic use, which drug is an analog of the carbohydrate structure sialyl-Lewis X as more specifically described in Schedule 1A hereto. "Cytel" is defined above in the preamble. "Damages" is defined in Section 7.1. "Default" means (i) a breach, default or violation, (ii) the occurrence of an event that with or without the passage of time or the giving of notice, or both, would constitute a breach, default or violation, or (iii) with respect to any Contract, the occurrence of an event that with or without the passage of time or the giving of notice, or both, would give rise to a right of termination, renegotiation or acceleration or a right to receive damages or a payment of penalties. "Deposit" means any and all monies deposited by Neose with NationsBanc Montgomery as escrow agent, and any and all interest accrued thereon or proceeds thereof, in connection with Neose's evaluation of the Transactions and in accordance with those certain Escrow Instructions Regarding Good Faith Deposit by Neose With Regard to Due Diligence Investigation of Cytel dated as of July 29, 1998. "Documentation" means all documentation relating to engineering, production, assembly, design, installation and other technical drawings and specifications, process and technology development, manufacturing, customer and supplier records, working notes and memos, laboratory books, market studies, consultants' reports, research, product plans, products, services plans, services, marketing, distribution and sales methods and systems, technical and laboratory data, clinical trial data, engineering prototypes, and any similar documentation, used or useful, in whole or in part, directly or indirectly, in the conduct of the Carbohydrate Manufacturing Program. "Encumbrances" means any lien, mortgage, security interest, license right, pledge, restriction on transferability, defect of title or other claim, charge or encumbrance of any nature whatsoever on any property or property interest. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agent" means Chase Manhattan Trust Company, National Association. "Escrow Agreement" means the Escrow Agreement in the form of Exhibit C hereto being entered into by Neose, Cytel and the Escrow Agent simultaneously with the execution and delivery of this Agreement. "Escrow Funds" is defined in Section 2.3.2. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Assets" is defined in Section 2.2. "Excluded Liabilities" is defined in Section 2.7. 3 "GAAP" means generally accepted accounting principles of the United States of America. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Governmental Permits" means any governmental permits, licenses, registrations, certificates of occupancy, orders, approvals and other governmental authorizations. "Indemnified Cytel Party" is defined in Section 7.2. "Indemnified Neose Party" is defined in Section 7.1. "Indemnified Party" means any Indemnified Cytel Party or Indemnified Neose Party. "Indemnitor" is defined in Section 7.3.1. "Intellectual Property" is defined in Section 2.1.2. "Know-How" means all know-how, trade secrets, inventions, data, processes, techniques, procedures, compositions, devices, methods, formulas, protocols and information, which are not generally publicly known. "Knowledge" and words of similar import means, (i) with respect to Cytel, actual knowledge of a particular fact being known by any member of Cytel's Board of Directors, Virgil Thompson, Dr. James C. Paulson (through the date of his termination of employment by Cytel), Dr. Robert L. Roe, Jennifer L. Lorenzen, Edward C. Hall (through the date of his termination of employment by Cytel), Deborah Schueren, Shawn Defrees, Raymond Nathan or Kathryn J. Gregory, and (ii) with respect to Neose, actual knowledge of a particular fact being known by any director or executive officer of Neose. "Law" means any statute, law, ordinance, regulation, order or rule of any federal, state, local, foreign or other governmental agency or body or of any other type of regulatory body (including common law), including, without limitation, those covering environmental, pollution, energy, safety, health, transportation, bribery, recordkeeping, zoning, antidiscrimination, antitrust, wage and hour, and price and wage control matters. "Liability" means any direct or indirect liability, indebtedness, obligation, expense, claim, demand, loss, damage, deficiency, guaranty or endorsement of or by any Person, absolute or contingent, accrued or unaccrued, due or to become due, liquidated or unliquidated. 4 "License Agreements" means the License Agreement in the form of Exhibit D hereto and the License Agreement in the form of Exhibit E hereto, each of which is being entered into by Neose and Cytel simultaneously with the execution and delivery of this Agreement. "Liquidated Claim Notice" is defined in Section 7.3.1. "Litigation" means any lawsuit, action, arbitration, administrative or other proceeding, criminal prosecution or governmental investigation or inquiry. "Material Adverse Effect" means (i) with respect to Cytel, a material adverse effect on the Purchased Assets or the prospects of the Carbohydrate Manufacturing Program relating to the Purchased Assets, and (ii) with respect to Neose, a material adverse effect on the assets, financial condition, results of operations, liquidity or prospects of Neose. "NASD" is defined in Section 4.3. "NationsBanc Montgomery" means NationsBanc Montgomery Securities LLC. "Neose" is defined above in the preamble. "Ordinary course" or "ordinary course of business" means the ordinary course of business that is consistent with past practice (including with respect to quantity and frequency). "Patents" means all patents and patent applications, and all patents issuing thereon (including utility, model and design patents and certificates of invention), together with all reissue patents, patents of addition, divisions, renewals, continuations, continuations-in-part, substitutions, additions, extensions (including supplemental protection certificates), registrations, confirmations, re-examinations and foreign counterparts of any of the foregoing, and all applications for any of the foregoing which are in the process of being prepared. "Permitted Encumbrances" is defined in Section 2.1. "Person" means any natural person, corporation, company, partnership, proprietorship, trust or estate, joint venture, association or other legal entity. "Prime Rate" means the prime lending rate as published in The Wall Street Journal from time to time as the base rate on corporate loans by at least a certain portion of the largest banks in the United States. "Purchased Assets" is defined in Section 2.1. "Purchased Contracts" is defined in Section 2.1.1. "Purchase Price" is defined in Section 2.3.1. "Required Consents" is defined in Section 4.3. 5 "Securities Act" means the Securities Act of 1933, as amended. "Subsidiary" means, with respect to any Person, any corporation of which securities having the power to elect a majority of that corporation's board of directors (other than securities having that power only upon the happening of a contingency that has not occurred) are held by such Person or one or more of its Subsidiaries. "Taxes" means any taxes, duties, charges, fees, levies or other assessments imposed by any taxing authority, including, without limitation, income, gross receipts, value-added, excise, withholding, personal property, real estate, sale, use, ad valorem, license, lease, service, severance, stamp, transfer, payroll, employment, customs, duties, alternative, add-on minimum, estimated and franchise taxes (including any interest, penalties or additions attributable to or imposed on or with respect to any such assessment). "Trademarks" means all registered trademarks, registered service marks, trademark and service mark applications, unregistered trademarks and service marks, logos and trade names, and all applications for any of the foregoing which are in the process of being prepared. "Transaction Documents" means, collectively, this Agreement, the Escrow Agreement, the License Agreements, the Assignment of Patents, the Assignment of Trademarks and any other certificates, agreements and documents contemplated and delivered hereby and thereby. "Transactions" means the sale of the Purchased Assets and the other transactions contemplated by the Transaction Documents. "Unliquidated Claim" is defined in Section 7.3.1. 2. Sale and Purchase. 2.1 Purchased Assets. Subject to the terms and conditions of this Agreement, Cytel hereby grants, sells, conveys, assigns, transfers and delivers to Neose, free and clear of all Encumbrances whatsoever, other than permitted Encumbrances set forth in Schedule 2.1 (the "Permitted Encumbrances"), and Neose hereby purchases from Cytel in reliance upon the representations, warranties and covenants of Cytel contained herein, all right, title and interest of Cytel in and to the following assets, properties and rights of every kind and description, real, personal and mixed, tangible and intangible (including all causes of action, rights of action, contract rights and claims against third parties), wherever situated constituting, generated by, or used or useful, in whole or in part, directly or indirectly, in the conduct of, the Carbohydrate Manufacturing Program (other than the Excluded Assets) as the same shall exist on the date hereof (the "Purchased Assets"): 6 2.1.1 Contracts Relating to the Carbohydrate Manufacturing Program. All of the interest of Cytel in the Contracts relating to the Carbohydrate Manufacturing Program listed in Schedule 2.1.1 (the "Purchased Contracts"); 2.1.2 Intellectual Property. All Patents, Trademarks and Copyrights relating to the Carbohydrate Manufacturing Program whether owned by, licensed to or controlled by Cytel listed in Schedule 2.1.2 and all Know-How relating to the Carbohydrate Manufacturing Program whether owned by, licensed to or controlled by Cytel (collectively, the "Intellectual Property"); 2.1.3 Biological Materials. All cell lines, genes, gene fragments, vectors, plasmids, bacteria, fungi, yeast, viruses, bacteriophages, nucleotides, RNA, DNA, tissue cultures and similar materials in the possession of Cytel or a third party acting on behalf of Cytel which are useful in, or necessary for, the practice of the Carbohydrate Manufacturing Program, whether owned by, licensed to or controlled by Cytel; and 2.1.4 Carbohydrate Manufacturing Program Documentation. All Documentation relating to the Carbohydrate Manufacturing Program, whether in electronic form or otherwise. 2.2 Excluded Assets. Notwithstanding Section 2.1, all assets, properties and rights of Cytel described in Schedule 2.2 (including all causes of action, rights of action, contract rights and claims against third parties relating thereto) (collectively, the "Excluded Assets") shall be excluded from this Agreement and shall not be sold, assigned or transferred to Neose. 2.3 Purchase Price and Payment. 2.3.1 Purchase Price. The purchase price for the Purchased Assets (the "Purchase Price"), payable in accordance with Sections 2.3.2 and 2.4, consists of (a) $3,500,000 in cash (the "Cash Consideration"), (b) the consideration payable to Cytel pursuant to the Escrow Agreement, and (c) the Contingent Consideration. 2.3.2 Payment of Purchase Price. Subject to the terms and conditions of this Agreement, at the Closing, Neose (a) shall pay the Cash Consideration, less the Deposit previously paid by Neose, to Cytel (by a wire transfer of immediately available funds in accordance with instructions provided by Cytel prior to the date hereof), (b) shall cause the Deposit to be paid to Cytel by NationsBanc Montgomery (by a wire transfer of immediately available funds in accordance with instructions provided by Cytel prior to the date hereof), and (c) shall deposit $1,500,000 (the "Escrow Funds") with the Escrow Agent for disbursement in accordance with the Escrow Agreement. 2.4 Contingent Consideration. 2.4.1 Prior to the date hereof, Cytel delivered to Neose Schedule 2.4 setting forth the names (with specificity) of six companies with which Cytel previously has had discussions or negotiations with respect to possible collaborative agreements relating to the Carbohydrate 7 Manufacturing Program. In the event that Neose, in its sole discretion, enters into any written Contract with any Person involving or relating to [*] or with one or more of the companies identified in Schedule 2.4 (any such Persons or companies being referred to herein as "Potential Collaborators") during the period beginning on the date hereof and ending at the close of business on the first anniversary of the date of this Agreement (each, a "Collaborator Contract"), pursuant to which Neose receives any Collaborator Payments (defined below) during the period ending on the [*] of the date of this Agreement, or, with respect to Collaborator Payments from Potential Collaborators [*], during the period ending on the [*] of the date of this Agreement (each of such periods being referred to herein as a "Contingency Period"), Neose shall pay to Cytel in cash by wire transfer of immediately available funds within 30 days after receipt by Neose of any such Collaborator Payments, subject to the limitations set forth in this Section 2.4.1, the following amounts (the "Contingent Consideration"): 2.4.1.1 [*] of any Split Payments (defined below), [*] of any Equity Premiums (defined below) and [*] of any Collaborator Payments other than Split Payments or Equity Premiums received by Neose during the applicable Contingency Period pursuant to a Collaborator Contract (other than a Collaborator Contract entered into by Neose with a Potential Collaborator [*]), provided that the amount payable hereunder with respect to payments received from [*] during the period beginning on the third anniversary of the date of this Agreement and ending on the [*]hereof will be reduced by [*]; and 2.4.1.2 [*] of any Collaborator Payments received by Neose during the applicable Contingency Period pursuant to a Collaborator Contract entered into by Neose with [*]; 2.4.1.3 [*] upon the execution and delivery by both Neose and [*], by no later than the close of business on the [*] of the date of this Agreement, of a definitive collaborative agreement; - ---------- * INDICATES PORTIONS OF THIS EXHIBIT THAT HAVE BEEN OMITTED. SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. 8 provided, however, that Neose shall not be required to pay under Section 2.4.1.1 or 2.4.1.2 more than [*] per each Potential Collaborator; and, provided, further, that all amounts payable pursuant to this Section 2.4.1, including the payment specified under Section 2.4.1.3, shall not exceed $1,600,000 in value in the aggregate. As used herein, "Collaborator Payments" means and includes (subject to the limitation set forth below) any of the following that are actually received by Neose during the applicable Contingency Period pursuant to a Collaborator Contract to the extent not subject to any offset, rebate or adjustment of any nature (provided, that any indemnification obligation of Neose set forth in any Collaborator Contract entered into by Neose shall not be deemed to be an offset, rebate or adjustment hereunder): [*], but specifically excludes any payment or consideration of any type whatsoever received by Neose from a Potential Collaborator with respect to [*]. As used herein, "Split Payments" means and includes (a) that portion of any payment or consideration received by Neose from a Potential Collaborator with respect to [*], (b) any [*], and (c) any [*]. As used herein, "Equity Premiums" means the aggregate amount by which the value of consideration received by Neose from a Potential Collaborator with respect to the purchase by such Potential Collaborator of, or investment by such Potential Collaborator in, any equity security of Neose exceeds the aggregate Fair Market Value of the equity securities so purchased or otherwise acquired on the date Neose receives such consideration. As used in the definitions of Split Payments and Equity Premiums, "Fair Market Value" means either of the following: (a) if a basis for the purchase price of Neose Common Stock or relevant equity security (the "Basis") is specified by the terms of the relevant Collaborator Contract document, such Basis shall be accepted as "Fair Market Value" so long as the Basis is calculated by reference to (1) the opening or closing bid, asked or sale price of a share of Neose Common Stock or relevant equity security on the Nasdaq National Market ("Nasdaq") or other stock exchange on the trading day immediately preceding the date of the Collaborator Contract or (2) the average of the opening or closing bid, asked or sale price of a share of Neose Common Stock or relevant equity security on Nasdaq or other stock exchange for a successive range of trading days ending on a trading day not more than three trading days prior to the date of the relevant Collaborator Contract, provided that such range shall not be greater than 30 trading days, or (b) if a Basis is not specified in the relevant Collaborator Contract document or the specified Basis does not meet the criteria set forth in clause (a) of this definition, "Fair Market Value" means the closing sale price of a share of Neose Common Stock or relevant equity security on Nasdaq or other stock exchange on the trading day immediately preceding the date of the relevant Collaborator Contract. 2.4.2 In the event Cytel disputes the calculation of any Contingent Consideration paid by Neose pursuant to Section 2.4.1 or its right to receive any Contingent Consideration, then Cytel shall notify Neose in writing of such dispute by no later than 15 Business Days after (a) payment by Neose to Cytel of any Contingent Consideration, or (b) the date on which Neose receives Cytel's written notice asserting that Cytel is entitled to payment of Contingent Consideration and the reasons therefor. If Cytel fails to give notice to Neose within such period, Cytel shall be deemed not - ---------- * INDICATES PORTIONS OF THIS EXHIBIT THAT HAVE BEEN OMITTED. SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. 9 to dispute the Contingent Consideration paid in accordance with Section 2.4.1. If Cytel gives notice within such period, the parties shall then attempt to reconcile their differences and any written resolution signed by them as to any disputed amounts shall be final, binding and conclusive on the parties. If Cytel and Neose are unable to reach a resolution to such effect within 30 days of receipt by Neose of Cytel's written notice of such dispute, then the parties shall submit in Chicago, Illinois the amounts remaining in dispute for resolution to an independent accounting firm of national reputation mutually appointed by Cytel and Neose (such independent accounting firm being referred to as the "Accounting Firm"), which shall, within 30 days after such submission, determine and report to the parties upon such remaining disputed amounts, and such report shall be final, binding and conclusive on the parties. The parties agree that any of the "big five" accounting firms that are not at such time engaged by Neose or Cytel shall be acceptable to them. Cytel and Neose shall each pay one-half of the fees and disbursements of the Accounting Firm incurred in connection with resolving any such dispute; provided, however, that if the final adjustment amount determined by the Accounting Firm is greater than 5% of the disputed amount, then Neose shall pay all of the fees and disbursements of the Accounting Firm and if the final adjustment amount determined by the Accounting Firm is less than 5% of the disputed amount, then Cytel shall pay all of the fees and disbursements of the Accounting Firm. 2.5 Allocation of Purchase Price; Accounting Treatment. 2.5.1 The Purchase Price shall be allocated based upon the fair market values of the Purchased Assets conforming with the requirements of Section 1060 of the Code. At the Closing, Neose shall deliver to Cytel Schedule 2.5 setting forth the allocation of the Purchase Price to the extent then allocable as agreed to by the parties. Neither Cytel nor Neose will take a position on any income tax return, before any Governmental Authority charged with the collection of any income Tax or in any judicial proceeding that is in any way inconsistent with the allocation set forth in Schedule 2.5, except to the extent such a position is prohibited under applicable Law. If and to the extent that the allocation of the Purchase Price provided for in Schedule 2.5 shall be dependent upon the determinations made with respect to the Escrow Funds pursuant to the Escrow Agreement, such allocation shall be adjusted and made in a manner consistent with such determinations. 2.5.2 The parties acknowledge that (a) Neose intends to record the purchase of the Purchased Assets as a purchase for accounting purposes and, specifically, intends to take after the Closing a one-time charge-off of the value of the Purchased Assets, in part, as acquired in-process research and development, and (b) Cytel intends to treat the sale of the Purchased Assets as gain or loss from the sale of assets. Cytel will not take any position before any Governmental Authority or in any federal or state securities filing or otherwise that is in any way inconsistent with the terms of this Section 2.5.2, except to the extent such a position is prohibited under applicable Law or is not in accordance with GAAP. 2.6 Assumed Liabilities. 2.6.1 Neose hereby acquires the Purchased Assets subject only to the Permitted Encumbrances, and hereby agrees to undertake, assume, perform and otherwise pay, satisfy and 10 discharge any obligations to be performed from and after the Closing under the Purchased Contracts for which the rights thereunder have been duly and effectively assigned to Neose as of the Closing or thereafter (the "Assumed Liabilities"); provided that Neose does not hereby assume and shall have no responsibility for (a) any obligations arising from or relating to any breach by Cytel of any provision of any Purchased Contract on or prior to the Closing Date, (b) any obligations of Cytel to be performed on or prior to the Closing Date under any Purchased Contract, or (c) the obligations listed in Schedule 2.6.1. 2.6.2 Cytel hereby agrees to undertake, assume, perform and otherwise pay, satisfy and discharge (a) any obligations arising from or relating to any breach by Cytel of any provision of any Purchased Contract on or prior to the Closing Date, or (b) any obligations of Cytel to be performed on or prior to the Closing Date under the Purchased Contracts. 2.7 Excluded Liabilities. Except for Permitted Encumbrances and as otherwise explicitly provided in Section 2.6.1, Cytel hereby transfers the Purchased Assets to Neose free and clear of all Encumbrances, and without any assumption by Neose of Liabilities (other than the Assumed Liabilities), and Neose does not hereby, by virtue of its purchase of the Purchased Assets, assume or become responsible for under this Agreement, as of the Closing or at any time, any Liabilities of Cytel except as explicitly provided in Section 2.6.1 (all such excluded Liabilities being referred to herein as "Excluded Liabilities"). 2.8 Employee Matters. Neose shall have no obligation whatsoever pursuant to this Agreement or the other Transaction Documents or in connection with the consummation of the Transactions or otherwise to offer employment to, or employ or retain the services of, any present, former or future employee, consultant, agent or independent contractor of Cytel or any Subsidiary or Affiliate of Cytel, and shall incur no Liabilities of any nature whatsoever with respect thereto. Notwithstanding the foregoing, at its sole discretion and upon such terms and conditions as shall be deemed to be acceptable to Neose in its sole discretion, Neose may, subsequent to the Closing Date and only upon the prior written consent of Cytel, offer employment to, or otherwise retain the services of, any employee of Cytel; provided, however, that the foregoing shall not restrict Neose from offering employment to or retaining, without Cytel's consent, any employee of Cytel who initiates contact with Neose after the date of this Agreement or who is listed in Schedule 2.8. Cytel acknowledges, however, that Neose has no current intention to do so and agrees that it will not make any representations or inducements to its employees to the contrary. 3. Closing. 3.1 Location, Date. The closing for the Transactions (the "Closing") shall be held at the offices of Morgan, Lewis & Bockius LLP in Philadelphia, Pennsylvania, at 10:00 a.m., local time, on the date hereof (the "Closing Date"), unless Neose and Cytel agree in writing to another date or place. 3.2 Deliveries. At the Closing: 11 3.2.1 Neose shall pay to Cytel the amount of the Cash Consideration less the Deposit by wire transfer of immediately available funds; 3.2.2 Neose shall cause the Deposit to be paid to Cytel by NationsBanc Montgomery by wire transfer of immediately available funds; 3.2.3 Cytel and Neose shall execute and deliver to each other and to the Escrow Agent the Escrow Agreement and Neose shall deposit with the Escrow Agent the Escrow Funds; 3.2.4 Cytel and Neose shall execute and deliver to each other the License Agreements; 3.2.5 Cytel shall execute and deliver to Neose the Assignment of Patents and the Assignment of Trademarks; 3.2.6 Cytel shall deliver to Neose all Required Consents; 3.2.7 Cytel shall deliver to Neose a certificate, dated the date hereof, of the Secretary of Cytel certifying that attached to the certificate are true and complete copies of (a) the Charter Documents and bylaws of Cytel, as in full force and effect as of the date hereof, and (b) the resolutions duly adopted by the Board of Directors of Cytel evidencing the taking of all corporate action necessary to authorize the execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation of the Transactions; 3.2.8 Cytel shall deliver to Neose a certificate issued by the Secretary of State of the State of Delaware with respect to Cytel as of a recent date before the Closing (and in no event more than three Business Days prior thereto) showing Cytel to be validly existing and in good standing; 3.2.9 Neose shall deliver to Cytel a certificate, dated the date hereof, of the Secretary of Neose certifying that attached to the certificate are true and complete copies of (a) the Charter Documents and bylaws of Neose, as in full force and effect as of the date hereof, and (b) the resolutions duly adopted by the Board of Directors of Neose evidencing the taking of all corporate action necessary to authorize the execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation of the Transactions; 3.2.10 Neose shall deliver to Cytel a certificate issued by the Secretary of State of the State of Delaware with respect to Neose as of a recent date before the Closing (and in no event more than three Business Days prior thereto) showing Neose to be validly existing and in good standing; 12 3.2.11 Cytel shall deliver to Neose a legal opinion of Cooley Godward LLP, counsel to Cytel, in the form of Exhibit F hereto; 3.2.12 Neose shall deliver to Cytel a legal opinion of Morgan, Lewis & Bockius LLP, counsel to Neose, in the form of Exhibit G hereto; and 3.2.13 Cytel shall execute and deliver to Neose such additional instruments of conveyance and transfer as Neose may reasonably require in order to more effectively vest in Neose, and put it in possession of, the Purchased Assets. 3.3 Reasonable Steps. Cytel shall take such reasonable steps as may be necessary or appropriate so that, upon the execution and delivery of this Agreement, Neose shall be placed in actual possession and control of all of the Purchased Assets. Without limiting the generality of the foregoing, Cytel shall be solely responsible, at its sole cost and expense, for obtaining any and all Required Consents referred to in Section 4.3 hereof prior to the Closing. 3.4 Further Assurances. From time to time after the Closing, Cytel and Neose shall execute, acknowledge and deliver to each other any further documents, assurances and other matters, and will take any other action consistent with the terms of this Agreement, that may reasonably be requested by a party and necessary or desirable to carry out the purpose of this Agreement. In the event that any assets of Cytel that were intended to be included in the Purchased Assets or any liabilities of Cytel that were intended to be included in the Assumed Liabilities and transferred to Neose pursuant to this Agreement have not been properly or fully transferred, Cytel shall take all commercially reasonable steps to ensure that such assets and liabilities are promptly transferred to Neose such that Neose has all right, title and interest in and to such assets and all obligations under such liabilities. 3.5 Technical Support. In connection with the sale and transfer to Neose of the Purchased Assets, Cytel shall provide technical support to Neose to assist in the integration of the Purchased Assets with Neose's existing carbohydrate manufacturing program in accordance with this Section 3.5. During the period of 90 days following the date of this Agreement, Cytel shall make reasonably available to Neose, at times and places reasonably requested by Neose, but in any event not to exceed a total of 20 work days per any one employee, such technical support employees, not to exceed two persons at any one time, of Cytel that Neose deems reasonably necessary to effect the transition of the Purchased Assets to Neose; provided, however, that Neose shall bear (i) all reasonable out-of-pocket costs and expenses of such Cytel employees incurred in connection with providing such technical support (including travel, lodging and other similar expenses incurred by such employees), and (ii) all costs of salaries and benefits paid or owed by Cytel to, and reasonable out-of-pocket costs and expenses (including travel, lodging and other similar expenses) of, such Cytel employees incurred in connection with providing technical support services to Neose in excess of 20 works days per employee; and provided, further, that Cytel will cooperate with Neose in providing additional technical support to the extent reasonably necessary for the integration of the Purchased Assets if the limitations set forth in this Section 3.5 restrict Neose's ability to accomplish such integration. 13 4. Representations and Warranties of Cytel. Cytel hereby represents and warrants to Neose on the Closing Date as follows: 4.1 Corporate Status. Cytel is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Cytel is qualified to do business as a foreign corporation in any jurisdiction where it is required to be so qualified, except where the failure so to qualify would not, individually or in the aggregate, have a Material Adverse Effect on Cytel. The Charter Documents and bylaws of Cytel that have been delivered to Neose as of the date hereof are true, correct and complete. 4.2 Authorization and Enforceability. Cytel has the corporate power and authority to own its property and to carry on its business, including the Carbohydrate Manufacturing Program, as now being conducted. Cytel has the corporate power and authority to execute and deliver the Transaction Documents to which it is a party and to perform the Transactions performed or to be performed by it. Such execution, delivery and performance by Cytel have been duly authorized by all necessary corporate action. Each Transaction Document executed and delivered by Cytel has been duly executed and delivered by Cytel and constitutes a valid and binding obligation of Cytel, enforceable against Cytel in accordance with its terms, except as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights, and (ii) equitable principles generally and limitations on the availability of equitable remedies. 4.3 Consents and Approvals. Except for the consents specified in Schedule 4.3 (the "Required Consents"), neither the execution and delivery by Cytel of the Transaction Documents to which it is a party, nor the performance of the Transactions performed or to be performed by Cytel, (i) require any filing, consent or approval, conflict with, constitute a Default or cause any payment obligation to arise under (a) any Law or Court Order to which Cytel or any of the Purchased Assets is subject, (b) the Charter Documents or bylaws of Cytel, or (c) any Contract or Governmental Permit to which Cytel is a party or by which it or any of the Purchased Assets is bound, or (ii) will result in the creation or imposition of any Encumbrance upon any of the Purchased Assets. Without limiting the generality of the foregoing, no approval whatsoever of the stockholders of Cytel is required for the performance of the Transactions by Cytel under applicable Law, the Charter Documents or bylaws of Cytel, any regulation or bylaw of the National Association of Securities Dealers, Inc. ("NASD") or any Contract to which Cytel is a party or by which it or any of its properties or other assets is bound. Cytel has delivered to Neose all Required Consents, none of the Required Consents has been modified or revoked and each Required Consent remains in full force and effect. 4.4 Financial Statements. Cytel has delivered to Neose true and complete copies of (i) audited consolidated balance sheets of Cytel and its Subsidiaries at December 31, 1997 and 1996 and the related consolidated statements of income, changes in stockholders' equity and statements of cash flow for the years then ended, together with the notes thereto, audited by Ernst & Young LLP, and (ii) unaudited consolidated balance sheets of Cytel and its Subsidiaries at December 31, 1998 14 and the related consolidated statements of income, changes in stockholders' equity and statements of cash flow for the year then ended, together with the notes thereto, all of which have been prepared in accordance with GAAP consistently applied. Such balance sheets, including the related notes, present fairly in all material respects the consolidated financial position, assets and liabilities of Cytel and its Subsidiaries at the dates indicated, and such consolidated statements of income, changes in stockholders' equity and statements of cash flow present fairly in all material respects the consolidated results of operations, changes in stockholders' equity and cash flow of Cytel and its Subsidiaries for the periods indicated in conformity with GAAP. The unaudited consolidated financial statements as of and for the year ended December 31, 1998 contain all adjustments, which are solely of a normal recurring nature, necessary to present fairly the financial position of Cytel and its Subsidiaries at December 31, 1998 and the results of operations and changes in stockholders' equity and such financial position for the periods then ended in conformity with GAAP. 4.5 Purchased Assets; Absence of Liens and Encumbrances. Cytel has good and marketable title to all of the Purchased Assets, free from any Encumbrances, other than Permitted Encumbrances. The use of the Purchased Assets is not subject to any Encumbrances (other than Permitted Encumbrances), and Cytel's use does not materially encroach on the property or rights of any other Person. The Purchased Assets include all material rights and property, except for the Excluded Assets, that are necessary to the conduct of the Carbohydrate Manufacturing Program by Neose in the manner in which it is currently conducted by Cytel. 4.6 Liabilities. Except as set forth in Schedule 4.6, none of the Purchased Assets is subject to any Liabilities, except (i) as specifically disclosed in the balance sheet of Cytel and its Subsidiaries as of September 30, 1998 and not heretofore paid or discharged, (ii) Liabilities incurred in the ordinary course of business since September 30, 1998 that, individually or in the aggregate, are not material to the Carbohydrate Manufacturing Program or the Purchased Assets, and (iii) those Liabilities arising after the Closing Date under the express terms of the Purchased Contracts. 4.7 Taxes and Tax Returns. All federal, state, local and foreign tax returns, reports, statements and other similar filings required to be filed with respect to any federal, state, local or foreign Taxes of Cytel (the "Tax Returns") have been timely filed with the appropriate Governmental Authorities in all jurisdictions in which such Tax Returns are required to be filed, and all such Tax Returns properly reflect the Liabilities of Cytel for Taxes for the periods, property or events covered thereby. All Taxes, including, without limitation, those which are called for by the Tax Returns, or heretofore or hereafter claimed to be due by any taxing authority from Cytel, have been properly accrued or paid. Cytel has not received any notice of assessment or proposed assessment in connection with any Tax Returns and there are no pending tax examinations of or tax claims asserted against Cytel or any of the Purchased Assets. There are no tax liens on any of the Purchased Assets. Cytel has no knowledge of any basis for any additional assessment of any Taxes. Cytel has made all deposits required by Law to be made with respect to employees' withholding and other employment Taxes, including, without limitation, the portion of such deposits relating to Taxes imposed upon Cytel. Cytel has not taken any action that would have the effect of deferring any Liabilities of Cytel for Taxes affecting any of the Purchased Assets from a pre-Closing period to any period commencing on or after the Closing Date. 15 4.8 Litigation. Except as set forth in Schedule 4.8, Cytel has received no notice of, and there is no Litigation in any court or before any Governmental Authority or any arbitrator pending against or related to Cytel, the Carbohydrate Manufacturing Program or any of the Purchased Assets or, to the knowledge of Cytel, threatened against the Carbohydrate Manufacturing Program or any of the Purchased Assets, or which seeks to enjoin or obtain damages in respect of the consummation of the Transactions, nor does Cytel know of any reasonably likely basis for any such Litigation. None of the Purchased Assets is subject to the provisions of any judgment, order, writ, injunction, decree or award of any Governmental Authority or any arbitrator, nor is there any Court Order to which Cytel or any of the Purchased Assets is subject that might affect the Transactions. There has been no Default with respect to any Court Order applicable to any of the Purchased Assets. 4.9 Compliance with Laws. Cytel has been and is being operated in material compliance with all Laws applicable to the Carbohydrate Manufacturing Program (other than with respect to the Excluded Assets) and the Purchased Assets. There has been no Default by Cytel under any Laws applicable to the conduct or operation of the Carbohydrate Manufacturing Program (other than with respect to the Excluded Assets) or the ownership or use of the Purchased Assets, except for any Defaults that would not, individually or in the aggregate, have a Material Adverse Effect on Cytel, and Cytel has not received any notice from any Governmental Authority regarding any alleged Defaults under any such Laws. There are no environmental liens on any of the Purchased Assets and no government actions which could subject any of the Purchased Assets to such liens have been taken, are pending or, to Cytel's knowledge, are threatened. 4.10 Governmental Permits. Cytel has all Governmental Permits of all Governmental Authorities that are required to operate the Carbohydrate Manufacturing Program (other than with respect to the Excluded Assets) and Cytel is in compliance with the terms and conditions of such Governmental Permits, except where the failure so to comply would not, individually or in the aggregate, have a Material Adverse Effect on Cytel. All such Governmental Permits are currently valid and in full force and effect. To Cytel's knowledge, no suspension, revocation, cancellation or withdrawal of any such Governmental Permit is threatened and no cause exists for such suspension, revocation, cancellation or withdrawal. 4.11 Contracts. Schedule 2.1.1 lists each Purchased Contract, which are all of the Contracts of Cytel used or useful in the Carbohydrate Manufacturing Program, other than the Contracts between Cytel and Abbott Laboratories and Cytel and Glycomed Incorporated, which are included in the Excluded Assets. No Affiliate of Cytel is a party to any of the Purchased Contracts. Each Purchased Contract is valid and enforceable in accordance with its terms and is in full force and effect. Cytel is not in Default under any Purchased Contract and, to Cytel's knowledge, none of the other parties to any Purchased Contract is in Default thereunder. Schedule 4.3 identifies each Purchased Contract which requires action on behalf of a third party to give Neose all rights under such Purchased Contract following the consummation of the Transactions. Cytel has made all payments to any Persons and all filings with any Governmental Authorities or any other Persons required to be made pursuant to any Purchased Contracts. Cytel has no further obligations or Liabilities of any nature whatsoever relating to or affecting the Purchased Assets under any Contracts or other agreements or arrangements with Abbott Laboratories or any Affiliate thereof. 16 4.12 Intellectual Property. 4.12.1 Except as set forth in Schedule 4.12, the Patents, Trademarks and Copyrights listed in Schedule 2.1.2 constitute all of the Patents, Trademarks and Copyrights that (a) are in use, or are under development for use, in the operation of the Carbohydrate Manufacturing Program, or (b) are necessary for the operation of the Carbohydrate Manufacturing Program as conducted by Cytel prior to the Closing. Except as set forth in Schedule 4.12, the Know-How included in the Intellectual Property constitutes all Know-How that (a) is in use, or is under development for use, in the operation of the Carbohydrate Manufacturing Program, or (b) is necessary for the operation of the Carbohydrate Manufacturing Program as conducted by Cytel prior to the Closing. Except as set forth in Schedule 4.12, the Documentation included in the Purchased Assets constitutes all Documentation that (a) is in use, or is under development for use, in the operation of the Carbohydrate Manufacturing Program, or (b) is necessary for the operation of the Carbohydrate Manufacturing Program as conducted by Cytel prior to the Closing. 4.12.2 Except as set forth in Schedule 4.12, Cytel owns or has the lawful right and license to use pursuant to a Purchased Contract, free and clear of all Encumbrances (other than Permitted Encumbrances), all of the Intellectual Property. 4.12.3 Cytel has the lawful right to assign and transfer to Neose all of the Intellectual Property, including, without limitation, all rights relating thereto under the Purchased Contracts. 4.12.4 Except as set forth in Schedule 4.12, Cytel has not received any notice of and there are no pending, and Cytel otherwise has no knowledge of any threatened, claims by any Person contesting the validity, enforceability, use or ownership of any of the Intellectual Property. 4.12.5 Except as set forth in Schedule 4.12, Cytel has not received any notice of, and Cytel otherwise has no knowledge of, the infringement or misappropriation by any Person of the Intellectual Property. 4.12.6 Except as set forth in Schedule 4.12, Cytel's use of the Intellectual Property does not infringe upon or otherwise violate any rights or interests owned or claimed by any other Person. 4.12.7 Except as set forth in Schedule 4.12, none of the Patents is the subject of any reissue, reexamination, interference, opposition or similar proceeding. 4.12.8 Except as set forth in Schedule 4.12, none of the Trademarks is the subject of any opposition, cancellation or similar proceeding. 4.12.9 Except as set forth in Schedule 4.12, Cytel has not, in connection with the Carbohydrate Manufacturing Program (other than solely with respect to the Excluded Assets), entered into any agreement to indemnify any Person against any charge of infringement of any intellectual property. 17 4.12.10 Except as set forth in Schedule 4.12, to Cytel's knowledge, there are no third party patent applications which, if issued, would materially adversely affect the right of Cytel to use the Patents included in the Intellectual Property. 4.12.11 Except as set forth in Schedule 4.12, there have been no, and Cytel has no reason to believe that there will be any, inventorship challenges with respect to any of the Patents included in the Intellectual Property. 4.12.12 Schedule 4.12 sets forth a schedule of all maintenance fees or annuities for each of the Patents included in the Intellectual Property paid, or, to Cytel's knowledge, payable, by Cytel between January 1, 1996 and February 28, 1999. All such fees due prior to the date hereof have been paid by Cytel or will be paid by Cytel upon receipt of invoices therefor in accordance with the payment terms of such fees. 4.12.13 Schedule 4.12 sets forth a listing of all Litigation relating to the Intellectual Property brought by or against Cytel whether or not currently pending during the past three years and, to the knowledge of Cytel, during the five years prior thereto. 4.12.14 All employees and consultants of Cytel who are involved in the design, review, evaluation or development of Intellectual Property and Documentation included within the Purchased Assets have executed a nondisclosure and assignment of inventions agreement ("Confidentiality Agreement") substantially in the form attached to Schedule 4.12. To Cytel's knowledge, (a) none of the Confidential Information relating to the Purchased Assets has been used, divulged or appropriated for the benefit of any Person other than Cytel or otherwise to the detriment of Cytel, (b) no employee or consultant of Cytel has used any other Person's trade secrets or other information that is confidential in the course of his or her work for Cytel, and (c) no employee or consultant of Cytel is in Default under any term of any employment Contract relating to such Intellectual Property or Documentation, any Confidentiality Agreement or any other Contract or any restrictive covenant relating to such Intellectual Property or Documentation, or the development or exploitation thereof. Cytel is in compliance with the provisions of applicable Law relating to the assignability of inventions. 4.13 Insurance. Cytel maintains such policies of insurance with such amounts of coverage relating to the Carbohydrate Manufacturing Program (other than with respect to the Excluded Assets) and the Purchased Assets as management reasonably believes are adequate in relation to the Carbohydrate Manufacturing Program and the Purchased Assets and reasonable and customary in the industry in which Cytel operates, and all of such insurance policies are in full force and effect. 4.14 Employee Matters. There has been no "mass layoff" or "plant closing" as defined in the Worker Adjustment and Retraining Notification Act, 29 U.S.C. ss.ss. 2101 et seq. that is attributable to the Transactions, and Cytel does not contemplate that there will be a "mass layoff" or "plant closing" in the future that is attributable to the Transactions. 18 4.15 Absence of Certain Changes. Except as disclosed in Schedule 4.15, since September 30, 1998, Cytel has conducted the Carbohydrate Manufacturing Program in the ordinary course and there has not been: 4.15.1 any material adverse change in any of the Purchased Assets or the Carbohydrate Manufacturing Program (except any such change affecting only the Excluded Assets); 4.15.2 any transfer or grant of any rights to any Intellectual Property; 4.15.3 any sale, assignment or transfer of any of the Purchased Assets or any agreements entered into with respect to the foregoing, other than those made in the ordinary course of business; or 4.15.4 any waiver or release of any claim or right or cancellation of any substantial debt or claim relating to the Carbohydrate Manufacturing Program (except with respect to the Excluded Assets), other than in the ordinary course of business. 4.16 Finder's Fees. No Person retained by Cytel is or will be entitled to any commission or finder's or similar fee in connection with the Transactions, other than BT Alex. Brown Incorporated, which commission or fees shall be paid solely by Cytel. 4.17 No Third Party Options. Except as disclosed in Schedule 4.17, there are no existing agreements, options, commitments or rights with, of or to any Person to acquire, or obtain any rights with respect to, any of the Purchased Assets. 4.18 Fairness Opinion. Immediately prior to the execution of this Agreement, Cytel has received and delivered to Neose a written opinion of BT Alex. Brown Incorporated to the effect that the Transactions, including the Purchase Price, are fair, from a financial point of view, to Cytel. 4.19 Solvency. Immediately after the consummation of the Transactions, (i) the fair value of the assets of Cytel will exceed its debts and liabilities, subordinated, contingent or otherwise, (ii) the present fair saleable value of the property of Cytel will be greater than the amount that will be required to pay the probable obligations of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured, and (iii) Cytel will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured. 4.20 Completeness and Accuracy of Information. All information set forth in any Schedule prepared by Cytel and delivered in connection herewith is correct and complete. No representation or warranty by Cytel in any Transaction Document, and no information contained therein or otherwise delivered by or on behalf of Cytel in connection with the Transactions, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained herein or therein not misleading. 19 5. Representations and Warranties of Neose. Neose hereby represents and warrants to Cytel on the Closing Date as follows: 5.1 Corporate Status. Neose is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business as a foreign corporation in any jurisdiction where it is required to be so qualified, except where the failure so to qualify would not, individually or in the aggregate, have a Material Adverse Effect on Neose. The Charter Documents and bylaws of Neose that have been delivered to Cytel as of the date hereof are true, correct and complete. 5.2 Authorization and Enforceability. Neose has the corporate power and authority to own its property and to carry on its business as now being conducted. Neose has the corporate power and authority to execute and deliver the Transaction Documents to which it is a party and to perform the Transactions performed or to be performed by it. Such execution, delivery and performance by Neose have been duly authorized by all necessary corporate action. Each Transaction Document executed and delivered by Neose has been duly executed and delivered by Neose and constitutes a valid and binding obligation of Neose, enforceable against Neose in accordance with its terms, except as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights, and (ii) equitable principles generally and limitations on the availability of equitable remedies. 5.3 Consents and Approvals. Neither the execution and delivery by Neose of the Transaction Documents to which it is a party, nor the performance of the Transactions performed or to be performed by Neose, require any filing, consent or approval, conflict with or constitute a Default under (i) any Law or Court Order to which Neose is subject, (ii) the Charter Documents or bylaws of Neose, or (iii) any Contract, Governmental Permit or other document to which Neose is a party or by which the properties or other assets of Neose may be subject. 5.4 Finder's Fees. No Person retained by Neose is or will be entitled to any commission or finder's or similar fee in connection with the Transactions. 5.5 Litigation. Neose has received no notice of, and there is no Litigation in any court or before any Governmental Authority or any arbitrator pending or, to the knowledge of Neose, threatened against or related to Neose which seeks to enjoin or obtain damages in respect of the consummation of the Transactions, nor does Neose know of any reasonably likely basis for any such Litigation. There is no judgment, order, writ, injunction, decree or award of any Governmental Authority or any arbitrator, nor is there any Court Order to which Neose is subject, that might affect the Transactions. 20 5.6 Accuracy of Information. All information set forth in any Schedule prepared by Neose and delivered in connection herewith is correct and complete. No representation or warranty by Neose in any Transaction Document, and no information contained therein or otherwise delivered by or on behalf of Neose to Cytel in writing in connection with the Transactions, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained herein or therein not misleading. 6. Covenants. 6.1 Cytel Confidentiality. Cytel recognizes and acknowledges that it has had access to Confidential Information relating to the Carbohydrate Manufacturing Program, the Purchased Assets and the Transactions. Cytel acknowledges that such Confidential Information is a valuable and unique asset of Neose and covenants that Cytel will not, except as otherwise permitted under the License Agreements and except with respect to Confidential Information solely relating to the Excluded Assets, disclose, communicate or use in any way any such Confidential Information for any reason whatsoever from the Closing and indefinitely thereafter, without the prior written consent of Neose, unless such information (i) is in the public domain through no wrongful act of any party hereto, (ii) has been rightfully received from a third party without restriction and without breach of this Agreement, or (iii) except as may be required by applicable Law, Court Order, or the regulations or bylaws of the NASD. In the event that Cytel believes that it is required to disclose any such Confidential Information pursuant to any applicable Law or Court Order, Cytel shall give timely written notice to Neose so that Neose may have an opportunity to obtain a protective order or other appropriate relief. 6.2 Covenant Not to Compete. Cytel shall not, without the prior written consent of Neose, at any time within the Restricted Period (defined below), directly or indirectly, engage, or have any interest on behalf of itself or others in any Person (whether as an agent, security holder, creditor, partner, joint venturer, investor, consultant or otherwise) that engages within the Restricted Territory (defined below) in any of the business activities relating to the Carbohydrate Manufacturing Program and the Purchased Assets, except with respect to those business activities specifically contemplated by the License Agreements and those specifically described in Schedule 6.2. In furtherance of the foregoing, during the Restricted Period, Cytel shall not contact any of the employees of Neose for the purpose of hiring or retaining any of such employees for employment, consulting or similar purposes. The term "Restricted Period" means the three-year period immediately following the Closing Date. The term "Restricted Territory" means the area comprising the entire United States of America, Canada and those other areas of the world in which Cytel has engaged in the Carbohydrate Manufacturing Program (except solely with respect to the Excluded Assets) at any time since its inception. 6.3 Cytel Affiliates. The terms of Sections 6.1, 6.2 and 6.4 shall apply to Cytel and any of its Affiliates to the same extent as if they were parties hereto, and Cytel shall take whatever actions may be necessary to cause its Affiliates to adhere to the terms of such Sections. 21 6.4 Neose Injunctive Relief. Cytel specifically acknowledges and agrees that the provisions of Sections 6.1 and 6.2 are reasonable and necessary to protect the interests of Neose, that any violation of Section 6.1 or 6.2 will result in an irreparable injury to Neose and that the remedy at law for any breach of such Sections will be inadequate. In the event of any breach or threatened breach by Cytel (or any other Person specified in Section 6.3) of any provision of Section 6.1 or 6.2, Neose, in addition to any other relief available to it, shall be entitled to temporary and permanent injunctive or other equitable relief, restraining such Person from using or disclosing any Confidential Information in whole or in part, or from engaging in conduct that would constitute a breach of the obligations under such Sections, without the necessity of proving actual damages or posting a bond or other security and to an equitable accounting of all earnings, profits and other benefits arising out of any violation of such Sections. Such relief shall be in addition to and not in lieu of any other remedies that may be available, including an action for the recovery of damages. In the event of Litigation involving this Agreement, if a court of competent jurisdiction determines that the scope of Section 6.1 or 6.2 is too broad in any respect, then the scope shall be deemed to be reduced or narrowed to such scope as is found lawful and reasonable by such court. Cytel acknowledges, however, that Sections 6.1 and 6.2 have been negotiated by the parties and that the geographic and time limitations, as well as the limitation on activities, are reasonable in light of the circumstances pertaining to the Transactions. Cytel acknowledges and understands that Neose is and will be relying upon the agreements made by Cytel in Sections 6.1 through 6.4 in entering into this Agreement and consummating the Transactions. 6.5 Neose Confidentiality. Neose recognizes and acknowledges that it has had access to Confidential Information relating to certain aspects of the business and operations of Cytel, including the Excluded Assets and the Transactions. Neose acknowledges that such Confidential Information is a valuable and unique asset of Cytel and covenants that Neose will not, except as otherwise permitted under the License Agreements and except with respect to Confidential Information relating to the Purchased Assets, disclose, communicate or use in any way any such Confidential Information for any reason whatsoever from the Closing and indefinitely thereafter, without the prior written consent of Cytel, unless such information (i) is in the public domain through no wrongful act of any party hereto, (ii) has been rightfully received from a third party without restriction and without breach of this Agreement, or (iii) except as may be required by applicable Law, Court Order, or the regulations or bylaws of the NASD. In the event that Neose believes that it is required to disclose any such Confidential Information pursuant to any applicable Law or Court Order, Neose shall give timely written notice to Cytel so that Cytel may have an opportunity to obtain a protective order or other appropriate relief. 6.6 Neose Affiliates. The terms of Sections 6.5 and 6.7 shall apply to Neose and any of its Affiliates to the same extent as if they were parties hereto, and Neose shall take whatever actions may be necessary to cause its Affiliates to adhere to the terms of such Sections. 6.7 Cytel Injunctive Relief. Neose specifically acknowledges and agrees that the provisions of Section 6.5 are reasonable and necessary to protect the interests of Cytel, that any violation of Section 6.5 will result in an irreparable injury to Cytel and that the remedy at law for any breach of such Section will be inadequate. In the event of any breach or threatened breach by Neose (or any other Person specified in Section 6.6) of any provision of Section 6.5, Cytel, in addition to any other relief available to it, shall be entitled to temporary and permanent injunctive or other 22 equitable relief, restraining such Person from using or disclosing any Confidential Information in whole or in part, or from engaging in conduct that would constitute a breach of the obligations under such Section, without the necessity of proving actual damages or posting a bond or other security and to an equitable accounting of all earnings, profits and other benefits arising out of any violation of such Section. Such relief shall be in addition to and not in lieu of any other remedies that may be available, including an action for the recovery of damages. In the event of Litigation involving this Agreement, if a court of competent jurisdiction determines that the scope of Section 6.5 is too broad in any respect, then the scope shall be deemed to be reduced or narrowed to such scope as is found lawful and reasonable by such court. Neose acknowledges, however, that Section 6.5 has been negotiated by the parties and that the time limitations, as well as the limitation on activities, are reasonable in light of the circumstances pertaining to the Transactions. Neose acknowledges and understands that Cytel is and will be relying upon the agreements made by Neose in Sections 6.5 through 6.7 in entering into this Agreement and consummating the Transactions. 6.8 Bulk Transfer Laws. Except as otherwise provided in Section 6.9, Neose hereby waives compliance by Cytel with the provisions of any and all Laws relating to bulk transfer in connection with the sale of the Purchased Assets. 6.9 Transfer Taxes. Cytel and Neose shall each bear one-half of and shall pay at the Closing all state and local sales, documentary and other transfer Taxes (including, without limitation, any sales Tax required under the Laws of the State of California), if any, due as a result of the purchase, sale or transfer of the Purchased Assets hereunder. 6.10 Access to Information. At all times after the Closing Date, each party will permit the others and its representatives (including its counsel and auditors) during normal business hours, for a proper purpose to have reasonable access to and examine and make copies, at the expense of the copying party, of all books, records, files and documents in its possession which relate to the Purchased Assets prior to the Closing Date. 6.11 Enforcement of Certain Agreements. At Neose's request, Cytel shall use commercially reasonable efforts at Neose's expense to enforce the provisions of any Confidentiality Agreements and agreements with respect to noncompetition existing as of the Closing Date with any present or former employees, agents, consultants or independent contractors of Cytel that relate to the Carbohydrate Manufacturing Program (except solely with respect to the Excluded Assets); provided, however, that the obligation of Cytel to enforce any such Confidentiality Agreement or agreement with respect to noncompetition described in this Section 6.11 shall terminate as of the date on which such agreement has terminated or expired in accordance with its terms. 7. Indemnification. 7.1 By Cytel. From and after the Closing Date, Cytel shall indemnify and hold harmless Neose, its successors and assigns, and its officers, directors, employees, stockholders, agents, Affiliates and any Person who controls any of such Persons within the meaning of the Securities Act or the Exchange Act (each, an "Indemnified Neose Party") from and against any (i) loss, liability, claim, obligation, damage or deficiency, and (ii) all actions, judgments, costs and expenses 23 (including without limitation interest, penalties and reasonable attorneys', consultants' and other professional fees) relating to the foregoing (collectively, "Damages") that such Indemnified Neose Party may suffer arising out of or resulting from (A) any breach of the representations and warranties set forth in Section 4, (B) the nonfulfillment of any agreement or obligation on the part of Cytel (including, without limitation, Cytel's obligations to discharge certain liabilities pursuant to Section 2.6.2) contained in this Agreement or as a result of noncompliance with any bulk transfer Law (except to the extent that any such Damages arise out of any failure of Neose to pay any liability or perform any obligations assumed by Neose pursuant to Section 2.6.1), (C) except for the Assumed Liabilities, any act, omission, occurrence or Liabilities arising out of Cytel's ownership, maintenance and operation of its business prior to Closing, (D) the Excluded Liabilities, and (E) any claim by any Person who owned or owns any securities of Cytel or any successor thereto, including any claim against Cytel or any such successor with respect to any of the Transactions. 7.2 By Neose. From and after the Closing Date, Neose shall indemnify and hold harmless Cytel, its successors and assigns, and its officers, directors, employees, stockholders, agents, Affiliates and any Person who controls any of such Persons within the meaning of the Securities Act or the Exchange Act (each an "Indemnified Cytel Party") from and against any Damages that such Indemnified Cytel Party may suffer arising out of or resulting from (A) any breach of the representations and warranties set forth in Section 5, (B) the nonfulfillment of any agreement or obligation on the part of Neose contained in this Agreement (including, without limitation, Neose's obligations to discharge certain liabilities pursuant to Section 2.6.1), and (C) any failure by Neose to pay or discharge the Assumed Liabilities. 7.3 General Procedure for Claims. 7.3.1 An Indemnified Party that desires to seek indemnification under any part of this Section 7 (unless for a third party claim which is covered by Section 7.4) shall give notice (a "Claim Notice") to each party responsible or alleged to be responsible for indemnification hereunder (an "Indemnitor"). Such notice shall briefly explain the nature of the claim and the parties known to be involved, and shall specify the amount thereof. If the matter to which a claim relates has not been resolved as of the date of the Claim Notice, the Indemnified Party shall estimate the amount of the claim in the Claim Notice, but also specify therein that the claim has not yet been liquidated (an "Unliquidated Claim"). If an Indemnified Party gives a Claim Notice for an Unliquidated Claim, the Indemnified Party shall also give a second Claim Notice (the "Liquidated Claim Notice") within 60 days after the matter giving rise to the claim becomes finally resolved, and the Second Claim Notice shall specify the amount of the claim. Each Indemnitor to which a Claim Notice is given shall respond to any Indemnified Party that has given a Claim Notice (a "Claim Response") within 20 days (the "Response Period") after the later of (a) the date that the Claim Notice is given, or (b) if a Claim Notice is first given with respect to an Unliquidated Claim, the date on which the Liquidated Claim Notice is given. Any Claim Notice or Claim Response shall be given in accordance with the notice requirements hereunder, and any Claim Response shall specify whether or not the Indemnitor giving the Claim Response disputes the claim described in the Claim Notice. If any Indemnitor fails to give a Claim Response within the Response Period, such Indemnitor shall be deemed not to dispute the claim described in the related Claim Notice. If any Indemnitor elects 24 not to dispute a claim described in a Claim Notice, whether by failing to give a timely Claim Response or otherwise, then the amount of such claim shall be conclusively deemed to be an obligation of such Indemnitor. Any failure to give prompt notice under this Section 7.3 shall not bar an Indemnified Party's right to claim indemnification under this Section 7, except to the extent that an Indemnitor shall have been harmed by such failure. 7.3.2 If any Indemnitor is obligated to indemnify an Indemnified Party hereunder, such Indemnitor shall pay to such Indemnified Party within 30 days after the last day of the Claim Response Period the amount to which such Indemnified Party is entitled. If there is a dispute as to the amount or manner of indemnification under this Section 7, the Indemnified Party may pursue whatever legal remedies may be available for recovery of the Damages claimed from any Indemnitor. If any Indemnitor fails to pay all or part of any indemnification obligation when due, then such Indemnitor shall also be obligated to pay to the applicable Indemnified Party interest on the unpaid amount for each day during which the obligation remains unpaid at an annual rate equal to the Prime Rate plus 2%, and the Prime Rate in effect on the first Business Day of each calendar quarter shall apply to the amount of the unpaid obligation during such calendar quarter. 7.4 Procedure for Third Party Claims. An Indemnified Party that desires to seek indemnification under any part of this Section 7 with respect to any actions, suits or other administrative or judicial proceedings (each, an "Action") that may be instituted by a third party shall give each Indemnitor prompt notice of a third party's institution of such Action. After such notice, solely to the extent requested by such Indemnified Party, any such Indemnitor shall participate in such Action or assume the defense thereof, with counsel satisfactory to such Indemnified Party; provided, however, that such Indemnified Party shall have the right to participate at its own expense in the defense of such Action; and provided, further, that the Indemnitor shall not consent to the entry of any judgment or enter into any settlement, except with the written consent of such Indemnified Party (which consent shall not be unreasonably withheld), that (i) fails to include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all Liability in respect of any such Action, or (ii) grants the claimant or plaintiff any injunctive relief against the Indemnified Party. If the Indemnified Party elects to assume the defense of such Action, any such Indemnitor shall have the right to participate at its own expense in the defense of such Action. Any failure to give prompt notice under this Section 7.4 shall not bar an Indemnified Party's right to claim indemnification under this Section 7, except to the extent that an Indemnitor shall have been harmed by such failure. 7.5 Time Limitations. Except as otherwise provided in this Section 7.5, the indemnification set forth in Section 7.1(A) and all representations and warranties made by Cytel hereunder will expire on the first anniversary of the Closing Date, and Cytel will have no liability under the indemnification provisions of Section 7.1(A) unless Neose gives written notice to Cytel of its claim for any such liability before the expiration of such period. With respect to claims for indemnification under Sections 7.1(B), (C), (D) and (E), there shall be no time limitation for indemnification on claims with respect thereto. Except as otherwise provided in this Section 7.5, the indemnification set forth in Section 7.2(A) and all representations and warranties made by Neose hereunder will expire on the first anniversary of the Closing Date, and Neose will have no liability 25 under the indemnification provisions of Section 7.2(A) unless Cytel gives written notice to Neose of its claim for any such liability before the expiration of such period. With respect to claims for indemnification under Sections 7.2(B) and (C), there shall be no time limitation for indemnification on claims with respect thereto. Except as otherwise provided in this Section 7.5, the limitations of this Section 7.5 shall apply to any other action taken by a party as contemplated by Section 7.9. 7.6 Limitations on Liability. Notwithstanding any other provision of this Section 7, the aggregate of all Damages payable by Cytel under this Section 7 shall not exceed the Purchase Price, and an Indemnified Party shall be entitled to indemnification hereunder only when the aggregate of all Damages incurred by such Indemnified Party exceeds [*] (the "Threshold Amount"); provided, that in the event that the aggregate amount of such Damages exceeds the Threshold Amount, the Indemnified Party shall be entitled to [*]. The limitations of this Section 7.6, however, shall not apply to any covenants or agreements to be performed by an Indemnitor prior to or after the Closing, including, without limitation, with respect to Excluded Liabilities and with respect to confidentiality and noncompetition as provided in Section 6. Except as otherwise provided in this Section 7.6, the limitations of this Section 7.6 shall apply to any other action taken by a party as contemplated by Section 7.9. 7.7 Effect of Investigation or Knowledge. Any claim by an Indemnified Neose Party for indemnification shall not be adversely affected by any investigation by or opportunity to investigate afforded to Neose. Each party shall be deemed to be relying on the representations and warranties of any other party set forth herein regardless of any investigation or audit conducted before or after the Closing Date or the decision of any party to consummate the Transactions contemplated hereby and complete the Closing. 7.8 Contingent Claims. Nothing herein shall be deemed to prevent an Indemnified Party from making a claim hereunder for potential or contingent claims or demands provided the Claim Notice sets forth the specific basis for any such potential or contingent claim to the extent then feasible and the Indemnified Party has reasonable grounds to believe that such a claim or demand may be made. 7.9 Other Remedies. None of the specific remedies provided in this Agreement for any party is the exclusive remedy of such party for any breach of this Agreement. In addition to any specific remedy provided herein, any party shall be entitled to such rights and remedies as such party may have at law or in equity or otherwise for any breach of this Agreement, including the right to seek specific performance, rescission or restitution, none of which rights or remedies shall be affected or diminished by the remedies provided hereunder. The indemnification rights under this Section 7 are independent of, and in addition to and not in limitation of, the foregoing rights and remedies. - ---------- * INDICATES PORTIONS OF THIS EXHIBIT THAT HAVE BEEN OMITTED. SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. 26 8. General. 8.1 Expenses. Except as otherwise provided in this Agreement, Neose and Cytel shall each pay their own fees, expenses and disbursements, including the fees and expenses of their respective counsel, accountants and other experts, in connection with the subject matter of this Agreement and all other costs and expenses incurred in performing and complying with all conditions to be performed under this Agreement. 8.2 Publicity. The parties hereto will consult with each other before issuing any press release or making any public statement with respect to this Agreement and the Transactions and, except as may be required by applicable Law or any stock exchange regulations, no party shall issue any such press release or make any such public statement without the consent of the other party hereto. 8.3 Amendment, Severability, Parties in Interest and Assignment. This Agreement may be amended, modified or supplemented only by a written instrument duly executed by each of the parties hereto. If any provision of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective legal representatives, successors and permitted assigns of the parties hereto. Nothing in this Agreement, express or implied, is intended to confer on any Person other than the parties hereto, or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. No Party hereto shall assign or otherwise transfer this Agreement or any right, benefit or obligation hereunder (whether by operation of Law or otherwise) to any other Person without the prior written consent of the other party; provided, however, that (i) Neose may (a) assign or otherwise transfer any or all of its rights and interests hereunder to one or more of its Affiliates, and (b) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases Neose nonetheless shall remain responsible for the performance of all of its obligations hereunder), and (ii) either party may assign or otherwise transfer any or all of its rights and interests hereunder in connection with the sale of all or substantially all of its assets or business, whether by way of merger, sale of stock, sale of assets or other similar transaction (in any or all of which cases such party nonetheless shall remain responsible for the performance of all of its obligations hereunder). 8.4 Waivers. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument duly executed by such party. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same or any other provision of this Agreement. No waiver of any condition or of the breach of any provision of this Agreement in one or more instances shall operate or be construed as a waiver of any other condition or subsequent breach. 27 8.5 Notices. All notices that are required or permitted hereunder shall be in writing and shall be sufficient if personally delivered or sent by mail, facsimile message or Federal Express or other delivery service. Any notices shall be deemed given upon the earlier of the date when received at, or the third day after the date when sent by registered or certified mail or the day after the date when sent by Federal Express to, the address or fax number (with such receipt being confirmed by the sender) set forth below, unless such address or fax number is changed by notice to the other parties hereto: 8.5.1 If to Neose: Neose Technologies, Inc. 102 Witmer Road Horsham, PA 19044 FAX: (215) 441-5896 Attention: Chief Executive Officer with a copy to: Morgan, Lewis & Bockius LLP 1701 Market Street Philadelphia, PA 19103 Fax: (215) 963-5299 Attention: David R. King, Esquire 8.5.2 If to Cytel: Cytel Corporation 9393 Towne Centre Drive San Diego, CA 92121 Fax: (619) 552-3025 Attention: Chief Executive Officer with a copy to: Cooley Godward LLP 4365 Executive Drive, Suite 1100 San Diego, CA 92121-2128 Fax: (619) 453-3555 Attention: L. Kay Chandler, Esquire 8.6 Entire Agreement. This Agreement (including the Exhibits and Schedules hereto), together with the other Transaction Documents, sets forth the entire agreement and understanding of the parties hereto with respect to the Transactions and the other matters set forth herein and 28 supersedes all prior agreements or understandings, oral or written, between the parties regarding those matters, including, without limitation, the letter agreement between Neose and Cytel dated April 22, 1998 relating to certain confidential information. 8.7 Interpretation. Unless the context of this Agreement clearly requires otherwise, (i) references to the plural include the singular, the singular the plural, the part the whole, (ii) references to any gender include all genders, (iii) "or" has the inclusive meaning frequently identified with the phrase "and/or," (iv) "including" has the inclusive meaning frequently identified with the phrase "but not limited to," and (v) references to "hereunder" or "herein" relate to this Agreement. The section and other headings contained in this Agreement are for reference purposes only and shall not control or affect the construction of this Agreement or the interpretation thereof in any respect. Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. Each accounting term used herein that is not specifically defined herein shall have the meaning given to it under GAAP. 29 8.8 Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware without regard to its provisions concerning conflict of laws. 8.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be binding as of the date first written above, and all of which shall constitute one and the same instrument. Each such copy shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the day and year first written above. NEOSE TECHNOLOGIES, INC. By: /s/ P. Sherrill Neff -------------------------------------------- Name: P. Sherrill Neff Title: President and Chief Financial Officer CYTEL CORPORATION By: /s/ Virgil Thompson -------------------------------------------- Name: Virgil Thompson Title: President and Chief Executive Officer 30 EX-10.3 4 ESCROW AGREEMENT Exhibit 10.3 CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. ESCROW AGREEMENT THIS ESCROW AGREEMENT (the "Escrow Agreement") is made as of March 26, 1999 by and among NEOSE TECHNOLOGIES, INC., a Delaware corporation ("Neose"), CYTEL CORPORATION, a Delaware corporation ("Cytel"), and CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION (the "Escrow Agent"). Background At the Closing today under the Asset Purchase Agreement dated as of the date hereof (the "Asset Purchase Agreement"), Neose is purchasing the Purchased Assets, including the Patents that are the subject of this Escrow Agreement. This Escrow Agreement is being entered into pursuant to the Asset Purchase Agreement. Unless otherwise defined herein, terms are used herein as defined in the Asset Purchase Agreement. Witnesseth NOW, THEREFORE, in consideration of the respective covenants contained herein and in the Asset Purchase Agreement and intending to be legally bound, the parties hereto agree as follows: 1. Appointment and Acceptance of Escrow Agent. Neose and Cytel hereby appoint the Escrow Agent as their agent hereunder to serve in accordance with the terms and conditions of this Escrow Agreement. The Escrow Agent hereby accepts such appointment and agrees to act in accordance with such terms and conditions. 2. Escrow Funds. 2.1 Simultaneously with the execution hereof, Neose shall deposit with the Escrow Agent a portion of the Purchase Price in the amount of $1,500,000 (the "Escrow Funds"), the receipt of which is hereby acknowledged by the Escrow Agent. 2.2 The Escrow Funds shall be held and disbursed by the Escrow Agent as hereinafter provided. The Escrow Funds shall not be subject to lien or attachment by any creditor of any party hereto and shall be used solely for the purpose set forth in this Escrow Agreement. 1 2.3 The Escrow Funds shall be invested exclusively in (i) any money market mutual fund that invests exclusively in obligations of the United States Government, or any agencies or instrumentalities thereof or any combination of the foregoing, (ii) short-term obligations issued by the United States Treasury, and (iii) such other government securities as may be approved jointly in writing from time to time by Neose and Cytel. Any interest income or other investment proceeds earned on the Escrow Funds ("Investment Income") shall be distributed as provided in Section 4.1 and/or Section 4.2. 3. Required Actions for Certain Patent Matters. 3.1 Cytel shall use commercially reasonable efforts to complete, by no later than [*] (the "Completion Date"), the following actions set forth in subsections 3.1.1, 3.1.2 and 3.1.3 hereof ("Required Actions") with respect to certain Patents included in the Purchased Assets in accordance with the applicable standard specified below (the "Applicable Standard"): 3.1.1 With respect to the Patents more specifically described in Section 3.1.1 of Exhibit A hereto [*], by the Completion Date Cytel shall provide documentation reasonably satisfactory to Neose that (a) [*] associated with [*] listed in the [*], and [*] associated with the [*] listed in the [*], respectively, all of each such [*], at no additional cost, obligation or burden to Neose, and (b) either [*] has been [*], at no additional cost, obligation or burden to Neose, or [*] have entered into an [*] in the [*], at no additional cost, obligation or burden to Neose. 3.1.2 With respect to the Patents more specifically described in Section 3.1.2 of Exhibit A hereto (the [*]), by the Completion Date Cytel shall provide documentation reasonably satisfactory to Neose that each [*] of the [*] by the [*] and each of [*], at no additional cost, obligation or burden to Neose, [*] of such [*], respectively, to the [*]. - ---------------------- * INDICATES PORTION OF THIS EXHIBIT THAT HAVE BEEN OMITTED. SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. 2 3.1.3 With respect to [*], by the Completion Date Cytel shall provide documentation reasonably satisfactory to Neose that [*] have been [*] at no additional cost, obligation or burden to Neose, and in a manner that [*] and its [*], if any, [*] that were the [*] at no additional cost, obligation or burden to [*]. A grant by [*] to the other party to the [*] in connection with the [*] of a [*] from the [*] that were the [*] to be at [*]. 3.2 Upon receipt of documentation identified in writing as final ("final documentation") with respect to a Required Action under any subsection of Section 3.1, Neose shall have 30 days to determine if such final documentation satisfies the Applicable Standard with respect to any such Required Action. If Neose does not provide a Dispute Notice (as defined in Section 3.3) to Cytel within such 30-day period, the Required Action for which Cytel submitted final documentation shall be deemed to have been completed. In the case of Sections 3.1.1 and 3.1.2 above, Cytel may submit to Neose for its review and approval in advance the proposed documentation to be submitted to the applicable parties for signature in order to satisfy the Applicable Standard with respect to the applicable Required Action. If Neose approves the form of such proposed documentation prior to its execution, then Neose shall be deemed to have determined that such documentation, when signed by the relevant parties and submitted as final documentation by Cytel, satisfies the Applicable Standard with respect to the applicable Required Action. 3.3 If Neose determines that the final documentation provided by Cytel with respect to a Required Action does not satisfy the relevant Applicable Standard, Neose shall provide written notice to Cytel of such determination (the "Dispute Notice") within 30 days after receipt of the documentation from Cytel. Following receipt of the Dispute Notice, Cytel may take either of the following actions: 3.3.1 provide written notice to Neose within 15 days after its receipt of the Dispute Notice that it does not intend to provide any further documentation with respect to such disputed Required Action and request in such notice that the parties promptly (and in any event within 10 days) submit the dispute to patent counsel at a law firm of national reputation mutually appointed by Neose and Cytel (which counsel and firm do not then represent and have not previously represented either Neose or Cytel or any of their Affiliates) (the "IP Firm") for a determination in accordance with Section 3.5 of whether the Applicable Standard has been satisfied with respect to the disputed Required Action; or 3.3.2 at any time on or prior to the Completion Date, provide further documentation to Neose to show compliance with the Applicable Standard with respect to such Required Action accompanied by written notice to Neose whether or not Cytel reserves the right to provide additional further documentation with respect to such Required Action on or prior to the Completion Date. - ---------------------- * INDICATES PORTION OF THIS EXHIBIT THAT HAVE BEEN OMITTED. SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. 3 3.4 If, pursuant to Section 3.3.2, Cytel provides further documentation to Neose with respect to a disputed Required Action, Neose shall have 15 days after its receipt of the documentation to provide a Dispute Notice to Cytel. If Neose does not provide a Dispute Notice to Cytel within such 15-day period, the Required Action at issue shall be deemed to have been completed. If Neose provides a Dispute Notice to Cytel within such 15-day period and Cytel's notice to Neose pursuant to Section 3.3.2 did not reserve the right to provide additional further documentation to Neose with respect to such Required Action, the parties shall promptly (and in any event within 10 days) submit the dispute to the IP Firm for a determination in accordance with Section 3.5 of whether the Applicable Standard has been satisfied with respect to the disputed Required Action. 3.5 Within 30 days after a submission by Neose and Cytel for resolution of a disputed Required Action, the IP Firm shall determine and report to the parties whether Cytel has satisfied the Applicable Standard with respect to such disputed Required Action, and such report shall be final, binding and conclusive on the parties. Neose and Cytel shall each pay one-half of the fees and disbursements of the IP Firm incurred in connection with resolving any such dispute. 3.6 Upon a final determination that Cytel has satisfied the Applicable Standard with respect to a Required Action, either by (i) Neose failing to provide a Dispute Notice to Cytel with respect to such Required Action by the end of the 30-day period specified in Section 3.2, or (ii) Neose failing to provide a Dispute Notice to Cytel with respect to such Required Action by the end of the 15-day period specified in Section 3.4, or (iii) by the issuance by the IP Firm of a report to Neose and Cytel that Cytel has satisfied the Applicable Standard with respect to such Required Action, Neose and Cytel shall, within five days of the event specified in clauses (i), (ii) or (iii) above, issue a joint written statement to the Escrow Agent that such relevant Required Action has been completed (each, a "Completion Statement"). The Completion Statement shall clearly identify which Required Action has been completed by reference to the relevant subsection number of Section 3.1. 4. Payment of Escrow Funds and Investment Income; Termination of Escrow. 4.1 Upon its receipt of the first Completion Statement, if any, for a Required Action under Section 3.1, the Escrow Agent shall promptly deliver to Cytel from the Escrow Funds the 4 amount of [*], plus all Investment Income thereon, by cashier's check. Upon its receipt of the second Completion Statement, if any, for a Required Action under Section 3.1, the Escrow Agent shall promptly deliver to Cytel from the Escrow Funds the amount of [*], plus all Investment Income thereon, by cashier's check. Upon its receipt of the third and final Completion Statement, if any, for a Required Action under Section 3.1, the Escrow Agent shall promptly deliver to Cytel from the Escrow Funds [*], plus all Investment Income thereon, by cashier's check. 4.2 If Cytel shall have failed to complete all Required Actions under Section 3.1 prior to the Completion Date, as evidenced by the Escrow Agent's failure to receive a Completion Statement for each of the Required Actions under Sections 3.1.1, 3.1.2 and 3.1.3 on or prior to [*], then promptly after such date the Escrow Agent shall deliver to Neose by cashier's check all remaining Escrow Funds, plus all Investment Income thereon, that have not been disbursed by the Escrow Agent to Cytel pursuant to Section 4.1. 4.3 Upon the delivery by the Escrow Agent of all Escrow Funds and Investment Income pursuant to Section 4.1 and/or Section 4.2, this Escrow Agreement shall terminate. All rights and obligations of the parties hereto arising prior to the termination of this Escrow Agreement shall survive any such termination. 5. Expenses. All expenses and fees (including reasonable attorneys' fees) of the Escrow Agent shall be paid in equal amounts by Neose and Cytel. The Escrow Agent's fee schedule is attached hereto as Exhibit B and incorporated herein. To the extent the Escrow Agent requires the advance payment of any expenses and fees, Neose and Cytel each shall pay one-half of such expenses and fees simultaneously with the execution hereof and the deposit of the Escrow Funds. Neose and Cytel shall each bear their own expenses in connection with the resolution of any Required Action or other dispute with respect to this Escrow Agreement, except as otherwise expressly provided herein or in the Asset Purchase Agreement. 6. Notices. - ---------------------- * INDICATES PORTION OF THIS EXHIBIT THAT HAVE BEEN OMITTED. SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. 5 All notices that are required or permitted hereunder shall be in writing and shall be sufficient if personally delivered or sent by mail, facsimile message or Federal Express or other delivery service. Any notices shall be deemed given upon the earlier of the date when received at, or the third day after the date when sent by registered or certified mail or the day after the date when sent by Federal Express to, the address or fax number (with such receipt being confirmed by the sender) set forth below, unless such address or fax number is changed by notice to the other parties hereto: 6.1 If to Neose: Neose Technologies, Inc. 102 Witmer Road Horsham, PA 19044 FAX: (215) 441-5896 Attention: Chief Executive Officer with a copy to: Morgan, Lewis & Bockius LLP 1701 Market Street Philadelphia, PA 19103 Fax: (215) 963-5299 Attention: David R. King, Esquire 6.2 If to Cytel: Cytel Corporation 9393 Towne Centre Drive San Diego, CA 92121 Fax: (619) 552-3025 Attention: Chief Executive Officer with a copy to: Cooley Godward LLP 4365 Executive Drive, Suite 1100 San Diego, CA 92121-2128 Fax: (619) 453-3555 Attention: L. Kay Chandler, Esquire 6.3 If to the Escrow Agent: 6 Chase Manhattan Trust Company, National Association Corporate Trust Department 1600 Market Street 30th Floor Philadelphia, Pennsylvania 19103 Attn.: Stuart P. Papavassiliou, Asst. Vice President Fax: (215) 585-8872 7. Liability of Escrow Agent. 7.1 Neose and Cytel, jointly and severally, shall indemnify the Escrow Agent and hold it harmless from and against any losses, liabilities, expenses (including reasonable attorneys' fees and expenses), claims or damages arising out of or in connection with the performance of its obligations in accordance with the provisions of this Escrow Agreement, except for losses, liabilities, expenses, claims or damages resulting from the gross negligence or willful misconduct of the Escrow Agent. These indemnities shall survive the resignation of the Escrow Agent and the termination of this Escrow Agreement. 7.2 The Escrow Agent shall have no duties except those specifically set forth in this Escrow Agreement and shall not be subject to, nor have any liability or responsibility under, any other agreement or document the parties hereto may be responsible for, even if same is referenced herein. 7.3 The Escrow Agent shall be protected in acting upon written instructions from Neose and Cytel if it, in good faith, believes such written instructions to be genuine and what they purport to be. 7.4 The Escrow Agent may confer with legal counsel, including its own in-house counsel, in the event of any dispute or questions as to the construction of any of the provisions hereof, or its duties hereunder, and it shall incur no liability and be fully protected in acting in accordance with the opinions of such counsel except to the extent of any willful misconduct or gross negligence of the Escrow Agent. 7.5 If a dispute arises between or among any of the parties to this Escrow Agreement, the Escrow Agent shall be entitled, at its option, and upon written notice to Neose and Cytel, to tender into the custody of any court of competent jurisdiction in Delaware the Escrow Funds, any Investment Income and all materials that the Escrow Agent may be holding under this Escrow Agreement and to begin such legal proceedings as the Escrow Agent deems appropriate. After taking such actions, the Escrow Agent shall then be discharged from any further duties and liability under this Escrow Agreement except to the extent of any prior willful misconduct or gross negligence of the Escrow Agent. 7 8. Resignation and Removal of Escrow Agent. The Escrow Agent may resign at any time and for any reason upon notice to Neose and Cytel given at least 30 days prior to the effective date of such resignation. During such 30-day period, Neose and Cytel shall endeavor to agree upon a successor Escrow Agent. If Neose and Cytel fail to agree on a successor Escrow Agent within such 30-day period, the Escrow Agent shall deliver the Escrow Funds, any Investment Income and all materials that it may then be holding to a court in accordance with Section 7.5 above. If the Escrow Agent becomes unable to fulfill its duties hereunder, or if for any reason, Neose and Cytel desire to remove the Escrow Agent hereunder, Neose and Cytel may jointly appoint a successor Escrow Agent for the purposes of this Escrow Agreement. Upon the appointment of any successor Escrow Agent under this Escrow Agreement, the successor Escrow Agent shall have all the rights, duties and powers that applied to the original Escrow Agent hereunder. Upon any resignation or removal of the Escrow Agent under this Section 8, all amounts paid or to be paid to the Escrow Agent shall be prorated from the date of this Agreement through the effective date of such resignation or removal. 9. General. 9.1 This Escrow Agreement shall be construed and enforced in accordance with the laws of the State of Delaware without regard to its provisions concerning conflict of laws. 9.2 The parties hereto agree to execute and deliver any and all papers and documents necessary to complete the actions contemplated hereby. 9.3 This Escrow Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective legal representatives, successors and permitted assigns of the parties hereto. Nothing in this Escrow Agreement, express or implied, is intended to confer on any person other than the parties hereto, or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Escrow Agreement. Neither Neose nor Cytel shall assign or otherwise transfer this Escrow Agreement or any right, benefit or obligation hereunder (whether by operation of law or otherwise) to any other person without the prior written consent of the other party; provided, however, that (i) Neose may (a) assign or otherwise transfer any or all of its rights and interests hereunder to one or more of its Affiliates, and (b) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases Neose nonetheless shall remain responsible for the performance of all of its obligations hereunder), and (ii) either party may assign or otherwise transfer any or all of its rights and interests hereunder in connection with the sale of all or substantially all of its assets or business, whether by way of merger, sale of stock, sale of assets or other similar transaction (in any or all of which cases such party nonetheless shall remain responsible for the performance of all of its obligations hereunder). 8 9.4 This Agreement may be amended, modified or supplemented only by a written instrument duly executed by each of the parties hereto. This Agreement (including the Exhibits hereto), together with the Asset Purchase Agreement, sets forth the entire agreement and understanding of the parties hereto with respect to the matters set forth herein and supersedes all prior agreements or understandings, oral or written, between the parties regarding those matters. 9.5 This Escrow Agreement may be executed in two or more counterparts, each of which shall be binding as the date first written above, all of which shall constitute one and the same instrument. Each such copy shall be deemed an original, and it shall not be necessary in making proof of this Escrow Agreement to produce or account for more than one such counterpart. IN WITNESS WHEREOF, the parties hereto have duly executed this Escrow Agreement as of the date first written above. NEOSE TECHNOLOGIES, INC. By: /s/ P. Sherrill Neff -------------------------------- P. Sherrill Neff President and Chief Financial Officer CYTEL CORPORATION By: /s/ Virgil Thompson -------------------------------- Virgil Thompson President and Chief Executive Officer CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION, as Escrow Agent By: /s/ Stuart P. Papavassiliou ------------------------------ Stuart P. Papavassiliou Assistant Vice President 9 EXHIBIT A Section 3.1.1 [*], and all [*], of any of the foregoing, and any [*] from any of the foregoing. Section 3.1.2 [*], any related [*] and all [*], of any of the foregoing, and any [*] from any of the foregoing. - -------- * INDICATES PORTIONS OF THIS EXHIBIT THAT HAVE BEEN OMITTED. SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 MAR-31-1999 3,406 25,217 0 0 0 31,206 18,120 4,844 47,782 2,242 8,300 0 0 99 37,141 47,782 0 125 0 0 3,474 0 107 (3,072) 0 (3,072) 0 0 0 (3,072) (.31) (.31)
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